424B3 1 d507714d424b3.htm 424B3 424B3

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-224991

 

 

LOGO

MERGER PROPOSAL—YOUR VOTE IS VERY IMPORTANT

Dear Oclaro Stockholders:

On March 11, 2018, Lumentum Holdings Inc. (“Lumentum”), Prota Merger Sub, Inc. (“Merger Sub”), and Prota Merger, LLC (“Merger Sub LLC”), and Oclaro, Inc. (“Oclaro”) entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which Lumentum will acquire Oclaro in a merger transaction.

Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge with and into Oclaro (the “First Step Merger”, and the time at which the First Step Merger is effective, the “Effective Time”). As soon as practicable following the First Step Merger, and as the second step in a single integrated transaction with the First Step Merger, Lumentum will cause Oclaro to merge with and into Merger Sub LLC (the “Second Step Merger” and, taken together with the First Step Merger, the “Merger”), with Merger Sub LLC surviving as a direct wholly owned subsidiary of Lumentum. If the Merger is completed, Oclaro stockholders will receive, in exchange for each outstanding share of Oclaro common stock owned immediately prior to the Merger (1) $5.60 in cash without interest (the “Cash Consideration”) and (2) 0.0636 of a share of Lumentum common stock, subject to the conditions and restrictions set forth in the Merger Agreement (the “Stock Consideration” and, together with the Cash Consideration, the “Merger Consideration”). The proportion of Cash Consideration and Stock Consideration is subject to adjustment in certain limited circumstances, as described in the accompanying proxy statement/prospectus.

Based on the closing stock price of Lumentum common stock on March 9, 2018, the last trading day before the day on which Lumentum and Oclaro announced the execution of the Merger Agreement, the per share value of Oclaro common stock implied by the Merger Consideration was $9.99. Based on the closing stock price of Lumentum common stock on May 29, 2018, the most recent practicable date prior to the date of the accompanying proxy statement/prospectus, the per share value of Oclaro common stock implied by the Merger Consideration was $9.60. The implied value of the Merger Consideration will fluctuate as the market price of Lumentum common stock fluctuates because a portion of the Merger Consideration is payable in a fixed number of shares of Lumentum common stock. As a result, the value of the Merger Consideration that Oclaro stockholders will receive upon completion of the Merger could be greater than, less than or the same as the implied value of the Merger Consideration on May 29, 2018, or at the time of the Oclaro special meeting described in the accompanying proxy statement/prospectus (referred to as the special meeting).

It is expected that, immediately after completion of the Merger, former Oclaro stockholders will own approximately 16% of the outstanding shares of Lumentum common stock.

The Merger is intended to qualify as a reorganization for U.S. federal income tax purposes, but its qualification as such depends upon the value of the Stock Consideration relative to the value of the total Merger Consideration, which cannot be finally determined until after the closing of the Merger. It is possible that the Merger will not qualify as a reorganization for U.S. federal income tax purposes, in which case it would be a fully taxable transaction. On the date of the closing of the Merger, Lumentum and Oclaro will make a determination, in consultation with their tax counsel, as to whether or not the Merger qualifies as a reorganization for U.S. federal income tax purposes, and Lumentum will inform the Oclaro stockholders of such determination as soon as practicable after the Closing. We encourage Oclaro stockholders to carefully review the information under the heading “Material U.S. Federal Income Tax Consequences” of this proxy statement/prospectus for a description of certain U.S. tax consequences of the Merger.

Oclaro will hold a special meeting of its stockholders to vote on matters related to the proposed Merger. The special meeting will be held on July 10, 2018, at 8:00 a.m., Pacific time, at Oclaro’s headquarters located at 225 Charcot Avenue, San Jose, California 95131. At the special meeting, Oclaro stockholders will be asked to adopt the Merger Agreement (the “Merger Proposal”). In addition, Oclaro stockholders will be asked to approve, on a non-binding, advisory basis, the compensation payments that will or may be made to Oclaro’s named executive officers in connection with the Merger (the “Compensation Proposal”) and to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to adopt the Merger Agreement (the “Adjournment Proposal”).

The Oclaro board of directors unanimously recommends that Oclaro stockholders vote “FOR” the Merger Proposal, “FOR” the Compensation Proposal and “FOR” the Adjournment Proposal.

Your vote is very important. We cannot complete the Merger without the adoption of the Merger Agreement by Oclaro stockholders. It is important that your shares be represented and voted regardless of the size of your holdings. A failure to vote will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement. Whether or not you plan to attend the special meeting, we urge you to submit a proxy to have your shares voted in advance of the special meeting by using one of the methods described in the accompanying proxy statement/prospectus.

The accompanying proxy statement/prospectus provides important information regarding the special meeting and a detailed description of the Merger Agreement, the Merger and the matters to be presented at the special meeting. We urge you to read the accompanying proxy statement/prospectus carefully and in its entirety. Please pay particular attention to the section titled “Risk Factors ” beginning on page 57 of the accompanying proxy statement/prospectus.

We look forward to seeing you at the special meeting and, on behalf of the Oclaro board of directors, thank you for your continued support.

Sincerely,

Marissa Peterson

Chairman of the Board of Directors

May 31, 2018

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the Merger or the securities to be issued in connection with the Merger or determined if this proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

The accompanying proxy statement/prospectus is dated May 31, 2018 and is first being mailed to Oclaro stockholders on or about June 4, 2018.


LOGO

OCLARO, INC.

225 Charcot Avenue

San Jose, California 95131

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held on July 10, 2018

To the Stockholders of Oclaro, Inc.:

The special meeting of stockholders of Oclaro, Inc., a Delaware corporation (“Oclaro”), will be held on July 10, 2018 at 8:00 a.m., Pacific time, at Oclaro’s headquarters located at 225 Charcot Avenue, San Jose, California 95131, for the purpose of considering and voting upon the following matters:

 

  1. Merger Proposal. To vote on a proposal (the “Merger Proposal”) to adopt the Agreement and Plan of Merger, dated as of March 11, 2018, among Lumentum Holdings Inc. (“Lumentum”), Oclaro, Inc. (“Oclaro”), Prota Merger Sub, Inc. (“Merger Sub”), and Prota Merger, LLC (“Merger Sub LLC”), as it may be amended from time to time (the “Merger Agreement”), which provides for the acquisition of Oclaro through (1) a merger of Merger Sub with and into Oclaro (the “First Step Merger”) with Oclaro surviving the First Step Merger, and (2), as soon as reasonably practicable following the First Step Merger, a merger of Oclaro with and into Merger Sub LLC (the “Second Step Merger,” and, together with the First Step Merger, the “Merger”), with Merger Sub LLC surviving as a direct wholly owned subsidiary of Lumentum.

 

  2. Non-Binding, Advisory Approval of Compensation Payments. To vote on a proposal (the “Compensation Proposal”) to approve, on a non-binding, advisory basis, the compensation payments that will or may be made to Oclaro’s named executive officers in connection with the Merger.

 

  3. Adjournment of the Special Meeting. To vote on a proposal (the “Adjournment Proposal”) to approve the adjournment of the special meeting, from time to time, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Merger Proposal.

The accompanying proxy statement/prospectus describes the proposals listed above in more detail. Please refer to the accompanying proxy statement/prospectus, including the Merger Agreement and the other annexes and documents included in, or incorporated by reference into, the accompanying proxy statement/prospectus, for further information with respect to the business to be transacted at the special meeting. You are encouraged to read the entire proxy statement/prospectus carefully before voting. In particular, see the section titled “Risk Factors” beginning on page 57 of this proxy statement/prospectus.

The Oclaro board of directors unanimously determined that the Merger, the Merger Agreement and the other transactions contemplated by the Merger Agreement are advisable, fair to and in the best interests of Oclaro and its stockholders and approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. The Oclaro board of directors unanimously recommends that Oclaro stockholders vote “FOR” the Merger Proposal, “FOR” the Compensation Proposal and “FOR” the Adjournment Proposal.

The Oclaro board of directors has fixed the close of business on May 15, 2018 as the record date for determination of Oclaro stockholders entitled to receive notice of, and to vote at, the special meeting or any adjournments or postponements thereof. Only holders of record of Oclaro common stock as of the close of business on the record date are entitled to receive notice of, and to vote at, the special meeting.


YOUR VOTE IS VERY IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES THAT YOU OWN. The Merger cannot be completed unless the Merger Proposal is adopted by the affirmative vote, in person or by proxy, of holders of a majority of the outstanding shares of Oclaro common stock as of the record date. The affirmative vote, in person or by proxy, of holders of a majority of the voting power of the shares of Oclaro common stock present in person or represented by proxy at the special meeting and voting on the matter is required to approve the Compensation Proposal and the Adjournment Proposal.

Whether or not you expect to attend the special meeting in person, Oclaro urges you to submit a proxy to have your shares voted as promptly as possible by either: (1) submitting your proxy by properly signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope, which you should do early enough so that it is received before the date of the special meeting; (2) submitting your proxy by using the Internet at www.proxyvote.com; or (3) submitting your proxy by calling 1-800-690-6903, the toll-free (within the U.S. or Canada) phone number on your proxy card. If your shares are held in the name of a bank, brokerage firm or other nominee, please follow the instructions on the voting instruction card furnished by such bank, brokerage firm or other nominee. Any stockholder of record attending the special meeting may vote in person even if such stockholder has returned a proxy card.

If you have any questions about the special meeting, the Merger, the proposals or the accompanying proxy statement/prospectus, would like additional copies of the proxy statement/prospectus, need to obtain proxy cards or other information related to this proxy solicitation or need help submitting a proxy or voting your shares of Oclaro common stock, please contact Oclaro’s proxy solicitor:

MacKenzie Partners, Inc.

1407 Broadway

New York, New York 10018

(212) 929-5500

or

Toll-Free (800) 322-2885

Oclaro will transact no other business at the special meeting, except for business properly brought before the special meeting or any adjournment or postponement thereof. Our board of directors has no knowledge of any other business to be transacted at the special meeting.

 

BY ORDER OF THE BOARD OF DIRECTORS
Marissa Peterson
Chairman of the Board of Directors

San Jose, California

May 31, 2018


ADDITIONAL INFORMATION

This proxy statement/prospectus incorporates by reference important business and financial information about Lumentum and Oclaro from other documents that Lumentum and Oclaro have filed with the United States Securities and Exchange Commission (“SEC”) and that are not included in or delivered with this proxy statement/prospectus. This information is available for you to review at the SEC’s public reference room located at 100 F Street, N.E., Room 1580, Washington, D.C. and through the SEC’s website at www.sec.gov. You can obtain copies of this proxy statement/prospectus and the documents incorporated by reference into this proxy statement/prospectus free of charge by requesting them in writing or by telephone from the appropriate company at the following addresses and telephone numbers:

 

For Information Regarding Lumentum:    For Information Regarding Oclaro:

Lumentum Holdings Inc.

400 North McCarthy Boulevard

Milpitas, California 95035

Telephone: (408) 546-5483

Attn: Investor Relations

  

Oclaro, Inc.

225 Charcot Avenue

San Jose, California 95131

Telephone: (408) 383-1400

Attn: Investor Relations

   or
  

MacKenzie Partners, Inc.

1407 Broadway

New York, New York 10018

(212) 929-5500

or

Toll-Free (800) 322-2885

Investors may also consult Lumentum’s and Oclaro’s websites for more information concerning the Merger described in this proxy statement/prospectus. Lumentum’s website is www.lumentum.com and Oclaro’s website is www.oclaro.com. Information included on these websites is not incorporated by reference into this proxy statement/prospectus.

In addition, if you have questions about the Merger, the special meeting, or the proposals to be considered at the special meeting, need additional copies of this document and the annexes to this document, or need to obtain proxy cards or other information related to the proxy solicitation, you may contact Oclaro’s proxy solicitor, MacKenzie Partners, Inc., at the address and telephone number set forth above. You will not be charged for any of these documents that you request.

If you would like to request any documents, please do so by July 2, 2018 in order to receive them before the special meeting.

For more information, please see the section titled “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus.


ABOUT THIS PROXY STATEMENT/PROSPECTUS

This proxy statement/prospectus, which forms part of a registration statement on Form S-4 filed with the SEC by Lumentum, constitutes a prospectus of Lumentum under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of Lumentum common stock to be issued pursuant to the Merger. This proxy statement/prospectus also constitutes a proxy statement for Oclaro under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also constitutes a notice of meeting with respect to the special meeting.

You should rely only on the information contained in or incorporated by reference into this proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in, or incorporated by reference into, this proxy statement/prospectus. Lumentum and Oclaro take no responsibility for, and can provide no assurances as to the reliability of, any other information that others may give you and, if given, such information must not be relied on as having been authorized. This proxy statement/prospectus is dated May 31, 2018. You should not assume that the information contained in this proxy statement/prospectus is accurate as of any date other than that date. You should not assume that the information incorporated by reference into this proxy statement/prospectus is accurate as of any date other than the date of the incorporated document. Neither the mailing of this proxy statement/prospectus to Oclaro stockholders nor the issuance by Lumentum of shares of Lumentum common stock in connection with the Merger will create any implication to the contrary.

This proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation. Information contained in this proxy statement/prospectus regarding Lumentum has been provided by Lumentum and information contained in this proxy statement/prospectus regarding Oclaro has been provided by Oclaro.

All references in this proxy statement/prospectus to “Lumentum” refer to Lumentum Holdings Inc., a Delaware corporation, and its consolidated subsidiaries, unless the context requires otherwise; all references in this proxy statement/prospectus to “Oclaro” refer to Oclaro, Inc., a Delaware corporation, and its consolidated subsidiaries, unless the context requires otherwise; all references to “Merger Sub” refer to Prota Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of Lumentum formed for the sole purpose of effecting the Merger; and all references to “Merger Sub LLC” refer to Prota Merger, LLC, a Delaware limited liability company and a wholly owned subsidiary of Lumentum; unless otherwise indicated or as the context requires, all references in this proxy statement/prospectus to “we,” “our” and “us” refer to Lumentum and Oclaro, collectively; unless otherwise indicated or as the context requires, all references to the “Merger Agreement” refer to the Agreement and Plan of Merger dated as of March 11, 2018, as it may be amended from time to time in accordance with its terms, by and among Lumentum, Merger Sub, Merger Sub LLC and Oclaro, a copy of which is included as Annex A to this proxy statement/prospectus. All summaries of, and references to, the Merger Agreement described in this proxy statement/prospectus are qualified by the full copy of and complete text of the Merger Agreement in the form attached hereto as an Annex A. Also, in this proxy statement/prospectus, “$” refers to U.S. dollars.

Oclaro stockholders should not construe the contents of this proxy statement/prospectus as legal, tax or financial advice. Oclaro stockholders should consult with their own legal, tax, financial or other professional advisors.

 

i


TABLE OF CONTENTS

 

     Page  

QUESTIONS AND ANSWERS

     1  

SUMMARY

     12  

The Companies

     12  

Comparative Market Price and Dividend Information

     13  

Risk Factors

     14  

The Oclaro Special Meeting

     14  

The Merger

     15  

The Merger Agreement

     16  

Dividends

     23  

Material U.S. Federal Income Tax Consequences

     24  

Accounting Treatment

     25  

Comparison of Stockholders’ Rights

     25  

Recent Developments

     25  

THE COMPANIES

     26  

Lumentum Holdings Inc.

     26  

Oclaro, Inc.

     26  

Prota Merger Sub, Inc.

     27  

Prota Merger, LLC

     27  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LUMENTUM

     28  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF OCLARO

     31  

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

     34  

UNAUDITED COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

     52  

Historical Per Common Share Data of Lumentum and Oclaro

     52  

Unaudited Pro Forma Combined per Lumentum Common Stock Data

     52  

Unaudited Pro Forma Combined per Oclaro Equivalent Share Data

     52  

Generally

     53  

COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION (UNAUDITED)

     54  

Recent Closing Prices; Implied Value Per Share

     54  

Historical Market Price Information

     54  

Dividend Policy

     55  

RISK FACTORS

     57  

Risk Factors Relating to the Merger

     57  

Risk Factors Relating to Lumentum Following the Merger

     64  

Other Risk Factors of Lumentum and Oclaro

     68  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     69  

THE OCLARO SPECIAL MEETING

     70  

General

     70  

Date, Time and Location

     70  

Purpose

     70  

Attendance at the Special Meeting

     70  

Recommendation of the Oclaro Board

     71  

Record Date and Quorum

     71  

 

ii


     Page  

Required Vote

     72  

Share Ownership and Voting by Oclaro Directors and Executive Officers

     73  

Voting of Shares

     73  

Revocation of Proxies

     74  

Solicitation of Proxies; Costs of Solicitation

     74  

Tabulation of Votes

     74  

Adjournments and Postponements

     74  

Assistance

     75  

PROPOSAL 1: THE MERGER PROPOSAL

     76  

Required Vote

     76  

Recommendation of the Oclaro Board

     76  

PROPOSAL 2: THE COMPENSATION PROPOSAL

     77  

Required Vote

     77  

Recommendation of the Oclaro Board

     77  

PROPOSAL 3: THE ADJOURNMENT PROPOSAL

     78  

Required Vote

     78  

Recommendation of the Oclaro Board

     78  

THE MERGER

     79  

Effects of the Merger

     79  

Background of the Merger

     79  

Recommendation of the Oclaro Board; Oclaro’s Reasons for the Merger

     91  

Opinion of Oclaro’s Financial Advisor

     96  

Certain Unaudited Prospective Financial Information

     104  

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

     108  

Quantification of Potential Payments and Benefits to Oclaro’s Named Executive Officers in Connection with the Merger

     111  

Treatment of Oclaro Options and Other Equity-Based Awards

     113  

Financing

     114  

Board of Directors and Management After the Merger

     116  

Regulatory Clearances Required for the Merger

     116  

Dividends

     117  

Listing of Shares of Lumentum Common Stock

     117  

Delisting and Deregistration of Oclaro Common Stock

     117  

Appraisal Rights

     117  

Litigation

     123  

THE MERGER AGREEMENT

     124  

The Merger

     124  

Merger Consideration

     124  

Treatment of Oclaro Options and Other Equity-Based Awards

     125  

Closing and Effective Time

     126  

Conversion of Shares

     127  

Exchange Agent; Letter of Transmittal

     127  

Appraisal Rights

     127  

Withholding

     128  

Dividends and Distributions

     128  

Representations and Warranties of Lumentum, Merger Sub and Oclaro

     128  

Material Adverse Effect

     131  

Restrictions on Oclaro’s Business Pending the Closing

     132  

 

iii


     Page  

Restrictions on Lumentum’s Business Pending the Closing

     134  

Oclaro’s Agreement Not to Solicit Other Offers

     136  

Oclaro’s Agreement Not to Change the Oclaro Board Recommendation

     137  

Preparation of the Form S-4 and the Proxy Statement/Prospectus; Oclaro Special Meeting

     139  

Regulatory Matters

     139  

Employee Matters

     141  

Indemnification and Insurance

     142  

Stock Exchange Listing

     143  

Financing Obligations

     143  

Financing Cooperation

     144  

Litigation Related to the Transaction

     146  

Other Agreements

     146  

Conditions to Closing

     146  

Termination of the Merger Agreement

     148  

Termination Fees

     150  

Effect of Termination

     151  

Expenses

     151  

Amendment

     151  

Governing Law

     151  

Specific Performance

     151  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

     152  

ACCOUNTING TREATMENT

     155  

OCLARO SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     156  

DESCRIPTION OF LUMENTUM CAPITAL STOCK

     158  

General

     158  

Common Stock

     158  

Preferred Stock

     158  

COMPARISON OF STOCKHOLDERS’ RIGHTS

     159  

VOTING RIGHTS

     160  

AMENDMENTS TO THE CHARTER

     160  

AMENDMENT TO THE BYLAWS

     161  

SPECIAL MEETINGS OF STOCKHOLDERS

     161  

STOCKHOLDER PROPOSALS AND NOMINATIONS

     161  

BOARD OF DIRECTORS

     163  

Number of Directors

     163  

Classification

     163  

Removal

     163  

Vacancies

     164  

Director Liability and Indemnification

     164  

STOCKHOLDER RIGHTS PLAN

     165  

BUSINESS COMBINATIONS

     165  

LEGAL MATTERS

     166  

EXPERTS

     166  

Lumentum

     166  

 

iv



QUESTIONS AND ANSWERS

The following are some questions that you, as a stockholder of Oclaro, Inc. (“Oclaro”) may have regarding the Merger (as defined below) and the other matters being considered at the special meeting and the answers to those questions. Lumentum Holdings Inc. (“Lumentum”) and Oclaro urge you to carefully read the remainder of this proxy statement/prospectus because the information in this section does not provide all the information that might be important to you with respect to the Merger and the other matters being considered at the special meeting. Additional important information is also contained in the Annexes to, and the documents incorporated by reference into, this proxy statement/prospectus.

Questions and Answers about the Merger

 

Q: What is the proposed transaction on which I am being asked to vote?

 

A: You are being asked to vote to adopt the Agreement and Plan of Merger, dated as of March 11, 2018 (as it may be amended from time to time, the “Merger Agreement”), entered into by and among Lumentum, Prota Merger Sub, Inc., a direct wholly owned subsidiary of Lumentum (“Merger Sub”), Prota Merger, LLC, a direct wholly owned subsidiary of Lumentum (“Merger Sub LLC”), and Oclaro. A copy of the Merger Agreement is included as Annex A to this proxy statement/prospectus. Upon the terms and subject to the conditions of the Merger Agreement, Merger Sub will merge with and into Oclaro (the “First Step Merger”). As soon as practicable following the First Step Merger, and as the second step in a single integrated transaction with the First Step Merger, Lumentum will cause Oclaro to merge with and into Merger Sub LLC (the “Second Step Merger” and, taken together with the First Step Merger, the “Merger”) in accordance with the applicable provisions of the Delaware General Corporation Law (the “DGCL”), with Merger Sub LLC surviving as a direct wholly owned subsidiary of Lumentum.

The Merger cannot be completed unless, among other things, holders of a majority of shares of outstanding Oclaro common stock as of the Record Date (as defined below) for the special meeting of Oclaro stockholders (the “special meeting”) vote to adopt the Merger Agreement. The Oclaro board of directors (the “Oclaro Board”) unanimously recommends that stockholders vote “FOR” the adoption of the Merger Agreement. Your failing to submit a proxy or vote in person at the special meeting, your abstaining from voting, or your failing to provide your bank, brokerage firm or other nominee with instructions on how to vote your shares, as applicable, will have the same effect as a vote “AGAINST” the adoption of the Merger Agreement.

 

Q: Why am I receiving this proxy statement/prospectus?

 

A: This proxy statement/prospectus contains important information about the Merger and the other proposals being voted on at the special meeting, and you should read it carefully. This document constitutes both a proxy statement of Oclaro and a prospectus of Lumentum. It is a proxy statement because the Oclaro Board is soliciting proxies from its stockholders. It is a prospectus because Lumentum will issue shares of Lumentum common stock in connection with the Merger. These materials provide instructions on how to vote your shares at the special meeting or to grant your proxy and give voting instructions to the proxyholders named herein so your shares will be voted without requiring you to attend the special meeting in person. Your vote is important. We encourage you to submit your proxy as soon as possible.

 

Q: What will Oclaro stockholders receive for their shares of Oclaro common stock in the Merger?

 

A:

If the Merger is completed, Oclaro stockholders will be entitled to receive, in exchange for each share of Oclaro common stock they hold at the Effective Time (as defined below), merger consideration equal to $5.60 in cash without interest (the “Cash Consideration”), plus 0.0636 of a share of Lumentum common stock (such ratio, the “Exchange Ratio”), subject to the conditions and restrictions set forth in the Merger Agreement (the “Stock Consideration” and, together with the Cash Consideration, the “Merger

 

1


  Consideration”). If the aggregate number of shares of Lumentum common stock that you are entitled to receive as part of the Merger Consideration otherwise would include a fraction of a share of Lumentum common stock, you will receive cash in lieu of that fractional share.

 

Q: Is the Merger Consideration guaranteed to have the implied value per share of Oclaro common stock described in the press release announcing the Merger?

 

A: No. As detailed below, the implied value of the Merger Consideration will fluctuate as the market price of Lumentum common stock fluctuates because a portion of the Merger Consideration is payable in a fixed number of shares of Lumentum common stock. For example, based on the closing price of Lumentum common stock on March 9, 2018, the last trading day before the day on which Lumentum and Oclaro announced the execution of the Merger Agreement, the per share value of Oclaro common stock implied by the Merger Consideration was $9.99. In comparison, based on the closing price of Lumentum common stock on May 29, 2018, the most recent practicable date prior to the date of the accompanying proxy statement/prospectus, the per share value of Oclaro common stock implied by the Merger Consideration was $9.60. This calculation does not provide for an adjustment to the Merger Consideration to the extent that the number of shares of Lumentum common stock issuable in the Merger would exceed the Stock Threshold, as discussed below.

Accordingly, the value of the Merger Consideration that Oclaro stockholders will receive upon completion of the Merger could be greater than, less than or the same as the implied value of the Merger Consideration on March 9, 2018, on May 29, 2018, the most recent practicable date prior to the date of the accompanying proxy statement/prospectus, or at the time of the special meeting. Accordingly, you should obtain current stock price quotations for Lumentum common stock and Oclaro common stock before deciding whether to vote in favor of the Merger. Lumentum common stock and Oclaro common stock trade on the NASDAQ Global Select Market (“NASDAQ”) under the symbols “LITE” and “OCLR,” respectively.

 

Q: What happens if circumstances occur such that more than 19.9% of the issued and outstanding shares of Lumentum common stock immediately prior to the Effective Time would be issued pursuant to the Exchange Ratio?

 

A: The maximum number of shares of Lumentum common stock that will be issued in connection with the Merger is 19.9% of the issued and outstanding shares of Lumentum common stock immediately prior to the Effective Time (the “Stock Threshold”), and to the extent that the number of shares of Lumentum common stock issuable in the Merger would exceed the Stock Threshold, (i) the Exchange Ratio will be reduced to the minimum extent necessary (rounded down to the nearest one thousandth) such that the aggregate number of shares of Lumentum common stock to be issued in connection with the Merger (including all shares of Lumentum common stock which may be issued after the Effective Time pursuant to certain outstanding Oclaro equity awards) does not exceed the Stock Threshold and (ii) the Cash Consideration for all purposes under the Merger Agreement will be increased on a per share basis by an amount equal to $68.975 (the closing sales price of a share of Lumentum common stock on March 9, 2018, the last trading day before the day on which Lumentum and Oclaro announced the execution of the Merger Agreement), multiplied by the difference between the initial Exchange Ratio and the Exchange Ratio (any such increase, the “Supplemental Cash Consideration”).

Factors that could give rise to the Stock Threshold being exceeded include, among others, (i) there being more shares of Oclaro common stock outstanding at the Effective Time than on March 9, 2018, the last trading day before the day on which Lumentum and Oclaro announced the execution of the Merger Agreement, (ii) there being less shares of Lumentum common stock outstanding at the Effective Time than on March 9, 2018, or (iii) the Parent Average Closing Price (which is used to calculate the exchange ratio for conversion of Oclaro’s outstanding equity awards, as described and defined below) being lower than $68.975, the closing price of Lumentum common stock on March 9, 2018. For example, (a) if the Parent Average Closing Price at the Effective Time is $60.00, (b) Oclaro issues all equity awards it is entitled to issue under the Merger Agreement and (c) there are not more shares of Lumentum common stock outstanding at the Effective Time than were outstanding on March 9, 2018, the Stock Threshold would be

 

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exceeded because more than 19.9% of the outstanding shares of Lumentum common stock would need to be issued in connection with the Merger Consideration and the assumption and conversion of Oclaro’s outstanding equity awards. As such, the Exchange Ratio would be decreased from 0.0636 to 0.0620 and $0.11 of Supplemental Cash Consideration would be payable per share of Oclaro common stock, which would be added to the Cash Consideration for a total amount of cash of $5.71 payable per share of Oclaro common stock.

 

Q: How will I receive the Merger Consideration to which I am entitled?

 

A: After receiving the proper documentation from you, following completion of the Merger, the exchange agent for the Merger will forward to you the Lumentum common stock and cash to which you are entitled. More information on the documentation you are required to deliver to the exchange agent may be found in the section titled “The Merger Agreement—Exchange Agent; Letter of Transmittal” beginning on page 127.

 

Q: After the Merger, how much of Lumentum will Oclaro stockholders own?

 

A: It is expected that, immediately after completion of the Merger, former Oclaro stockholders will own approximately 16% of the outstanding shares of Lumentum common stock.

 

Q: Will Oclaro stockholders be able to trade the shares of Lumentum common stock that they receive in the Merger?

 

A: Yes. Shares of Lumentum common stock are listed on NASDAQ under the symbol “LITE.” Shares of Lumentum common stock received in exchange for shares of Oclaro common stock in the Merger will be freely transferable under U.S. federal securities laws.

 

Q: Are there any risks that I should consider in deciding whether to vote for the adoption of the Merger Agreement?

 

A: Yes. You should read and carefully consider the risk factors set forth in the section titled “Risk Factors” beginning on page 57 of this proxy statement/prospectus. You also should read and carefully consider the risk factors of Oclaro and Lumentum contained in the documents that are incorporated by reference into this proxy statement/prospectus.

 

Q: What will I receive in the Merger in exchange for my Oclaro equity awards?

 

A: At the Effective Time, each unit or award denominated in units (or portion thereof) with respect to which the holder may acquire Oclaro shares or cash upon vesting (each, an “Oclaro RSU”) that is outstanding and unvested immediately before the Effective Time (and does not vest as a result of the Merger) will be assumed by Lumentum (each, an “Assumed RSU”) on substantially the same terms and conditions as applied to the related Oclaro RSU immediately before the Effective Time (including the applicable vesting schedule), except the number of shares of Lumentum common stock subject to each Assumed RSU will equal the product of (i) the number of shares of Oclaro common stock underlying the applicable unvested Oclaro RSU immediately before the Effective Time (with any performance milestones deemed achieved based on maximum level of performance) multiplied by (ii) a customary exchange ratio specified in the Merger Agreement and intended to preserve the aggregate value of such Oclaro RSU as of the Effective Time (the “Equity Award Exchange Ratio”) (rounded down to the nearest whole share).

In addition, any Oclaro RSU that is vested and unsettled will be treated as outstanding Oclaro common stock and will receive the Merger Consideration, subject to applicable tax withholding.

Each share of Oclaro common stock subject to vesting or lapse restrictions (“Oclaro Restricted Stock”) that is outstanding and unvested immediately before the Effective Time shall become fully vested at the Effective Time and will be treated as outstanding Oclaro common stock and will receive the Merger Consideration, subject to applicable tax withholding.

 

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Except as provided in the next paragraph, each option (or portion thereof) to purchase shares of Oclaro common stock (each, an “Oclaro Option”) that is outstanding, whether vested or unvested, immediately before the Effective Time will be assumed by Lumentum (each, an “Assumed Option”) on substantially the same terms and conditions as applied to the related Oclaro Option immediately before the Effective Time (including the applicable vesting schedule), except (A) the number of shares of Lumentum common stock subject to each Assumed Option will equal the product of (x) the number of shares of Oclaro common stock underlying such Assumed Option immediately before the Effective Time multiplied by (y) the Equity Award Exchange Ratio (rounded down to the nearest whole share), and (B) the per share exercise price of each Assumed Option will equal the quotient determined by dividing (x) the exercise price per share of such Assumed Option immediately before the Effective Time by (y) the Equity Award Exchange Ratio (rounded up to the nearest whole cent).

Each Oclaro Option (or portion thereof) that is outstanding and vested immediately before the Effective Time (or vests as a result of the Merger) and held by a holder who is not an employee of Oclaro or its subsidiaries immediately before the Effective Time (each, a “Cancelled Oclaro Option”) will be cancelled and converted into the right to receive the Merger Consideration in respect of each “net option share” of Oclaro common stock covered by such Cancelled Oclaro Option, subject to applicable tax withholding. The number of “net option shares” will be determined under a formula specified in the Merger Agreement that takes into account the exercise price of such Cancelled Oclaro Option. Any fractional net option shares (after aggregating all shares represented by all Cancelled Oclaro Options held by such holder) will be settled in cash based on the cash equivalent value of the Merger Consideration, subject to applicable tax withholding. If the exercise price per share of any Cancelled Oclaro Option is equal to or greater than the Merger Consideration, such Cancelled Oclaro Option will be cancelled without payment of any consideration.

Each stock appreciation right (or portion thereof) related to Oclaro common stock (each, an “Oclaro SAR”) that is outstanding, whether vested or unvested, will be cancelled and converted into the right to receive a cash amount equal to the product of (x) the number of shares of Oclaro common stock issuable upon exercise of the Oclaro SAR, multiplied by (y) the excess, if any of (1) the cash equivalent value of the Merger Consideration over (2) the strike price of such Oclaro SAR, subject to applicable tax withholding.

Any applicable taxes required to be withheld from the Merger Consideration payable in respect of vested Oclaro RSUs, Oclaro Restricted Stock, and/or Cancelled Oclaro Options will first reduce the Cash Consideration portion of the Merger Consideration, with any remaining amount reducing the Stock Consideration portion of the Merger Consideration (with the value of the stock portion for purposes of such deduction determined based on Lumentum’s average closing sale price (rounded to the nearest one tenth of a cent), as reported on NASDAQ for the ten most recent trading days ending on the third trading day before the Effective Time (the “Parent Average Closing Price”)).

 

Q: What is required to complete the Merger?

 

A:

Each of Lumentum’s and Oclaro’s obligation to consummate the Merger is subject, as relevant, to a number of conditions specified in the Merger Agreement, including the following: (1) adoption of the Merger Agreement by the Oclaro stockholders; (2) receipt of antitrust approvals in the United States and the People’s Republic of China, which closing condition was satisfied with respect to the United States on April 4, 2018 when Lumentum and Oclaro received early termination of the waiting period under the Hart—Scott—Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”); (3) absence of laws, orders, judgments and injunctions that enjoin or otherwise prohibit consummation of the Merger in any jurisdiction that is material to the business or operations of Oclaro or Lumentum; (4) effectiveness under the Securities Act of this registration statement of which this proxy statement/prospectus forms a part; (5) approval for listing on NASDAQ of the shares of Lumentum common stock to be issued in the Merger; (6) subject to certain materiality related standards contained in the Merger Agreement, the accuracy of representations and warranties of Oclaro and Lumentum, and material performance by Oclaro and

 

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  Lumentum of their respective obligations contained in the Merger Agreement; and (7) the absence of a material adverse effect with respect to the other party. The consummation of the Merger is not subject to a financing condition. See the section titled “The Merger Agreement—Conditions to Closing” beginning on page 146 of this proxy statement/prospectus.

 

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

 

A: Lumentum and Oclaro expect the closing of the Merger (the “Closing”) to occur in the second half of calendar year 2018. However, the Merger is subject to various regulatory approvals and the satisfaction or waiver of other conditions, and it is possible that factors outside the control of Lumentum and Oclaro could result in the Merger being completed at an earlier time, a later time or not at all. There may be a substantial amount of time between the date on which the special meeting is held and the date of the completion of the Merger. The First Step Merger will become effective at such time as the certificate of merger relating to the First Step Merger is duly filed with the Secretary of State of the State of Delaware on the date that the Closing takes place (the “Closing Date”), or at such subsequent date or time as Oclaro, Lumentum and Merger Sub agree and specify in the certificate of merger (the “Effective Time”). As a result of the Merger, Oclaro will no longer be a publicly held company and will cease to exist. Following the Merger, Oclaro common stock will be delisted from NASDAQ and will be deregistered under the Exchange Act.

 

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

 

A: The U.S. federal income tax consequences of the Merger depend on whether the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). One of the requirements that must be satisfied in order for the Merger to qualify as a reorganization is the “continuity of interest” test, which requires that a sufficient amount of the proprietary interests in Oclaro are preserved by being exchanged in the Merger for Lumentum common stock. The continuity of interest test generally would be satisfied if the Stock Consideration received in the Merger represented at least 40% of the value of the total Merger Consideration, determined based on the value of the Lumentum common stock on the Closing Date. No assurances can be given that the continuity of interest test will be met. As a result, in deciding whether to approve the Merger, you should consider the possibility that it may be taxable to you because the continuity of interest test is not satisfied. You will not be entitled to change your vote in the event the Merger is taxable. On the Closing Date, Lumentum and Oclaro will make a determination, in consultation with their tax counsel, as to whether or not the Merger qualifies as a reorganization for U.S. federal income tax purposes, and Lumentum will inform the Oclaro stockholders of such determination as soon as practicable after the Closing.

If the Merger qualifies as a reorganization, a U.S. Holder (as defined below in this proxy statement/prospectus) of Oclaro common stock receiving Lumentum common stock and cash in exchange for Oclaro common stock will generally recognize gain equal to the lesser of (i) the amount of cash received by the U.S. Holder (excluding any cash received in lieu of fractional shares of Lumentum common stock) and (ii) the excess of the “amount realized” by the U.S. Holder over the U.S. Holder’s tax basis in the Oclaro common stock. The “amount realized” by the U.S. Holder will equal the sum of the fair market value of the Lumentum common stock and the amount of cash (including any cash received in lieu of fractional shares of Lumentum common stock) received by the U.S. Holder. Losses will not be permitted to be recognized. Realized gain or loss must be calculated separately for each identifiable block of shares (i.e. shares acquired at different times and prices) exchanged in the Merger, and a loss realized on the exchange of one block cannot be used to offset a gain recognized on the exchange of another block.

 

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If the Merger does not qualify as a reorganization, the exchange of Oclaro common stock for Lumentum common stock and cash in the First Step Merger will be a fully taxable transaction, in which a U.S. Holder generally will recognize gain or loss equal to the difference between the “amount realized” (as defined above) and the U.S. Holder’s tax basis in the Oclaro common stock. Gain or loss must be calculated separately for each identifiable block of shares exchanged in the First Step Merger. Long-term capital gains of non-corporate taxpayers are generally eligible for preferential rates of taxation. Deductions for capital losses are subject to limitations. Any gain recognized by a non-corporate U.S. holder may be subject to a 3.8% Medicare tax on net investment income.

You should consult your own tax advisor to determine the U.S. federal income tax consequences to you relating to the Merger in light of your own particular circumstances and the consequences to you arising under U.S. federal non-income tax laws or the laws of any state, local or non-U.S. taxing jurisdiction. A more complete description of material U.S. federal income tax consequences of the Merger is provided in the section titled “Material U.S. Federal Income Tax Consequences” beginning on page 152 of this proxy statement/prospectus.

 

Q: What happens if the Merger is not completed?

 

A: If the Merger Agreement is not adopted by Oclaro stockholders or if the Merger is not completed for any other reason, Oclaro stockholders will not receive the Merger Consideration in exchange for their shares of Oclaro common stock. Instead, Oclaro will remain an independent public company and Oclaro common stock will continue to be listed and traded on NASDAQ. Under specified circumstances, Oclaro may be required to pay Lumentum a termination fee, or Lumentum may be required to pay Oclaro a termination fee, as described in the section titled “The Merger Agreement—Termination Fees” beginning on page 150 of this proxy statement/prospectus.

 

Q: What do I need to do?

 

A: After you have carefully read and considered the information contained in, or incorporated by reference into, this proxy statement/prospectus, please vote by submitting your proxy card or voting instruction form by following the instructions set forth below under the section titled “Questions and Answers about the Special Meeting—How do I vote?” If you hold your shares in “street name,” please refer to the voting instruction forms provided by your broker, bank or other nominee to vote your shares.

 

Q: Should I send in my share certificate(s) now?

 

A: No. Please DO NOT send any share certificates with your proxy card. After the Merger is completed, you will receive written instructions, including a letter of transmittal, for exchanging your shares of Oclaro common stock for the cash payment and shares of Lumentum common stock you are entitled to receive in connection with the Merger.

Questions and Answers about the Special Meeting

 

Q: When and where will the special meeting be held?

 

A: The special meeting will be held on July 10, 2018 at 8:00 a.m., Pacific time, at Oclaro’s headquarters located at 225 Charcot Avenue, San Jose, California 95131.

 

Q: Who is soliciting my proxy to vote at the special meeting?

 

A: The Oclaro Board is soliciting your proxy to vote at the special meeting. This proxy statement/prospectus summarizes the information you need to know to vote on the proposals to be presented at the special meeting.

 

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Q: Who is entitled to vote at the special meeting?

 

A: Only holders of record of Oclaro common stock at the close of business on May 15, 2018, the record date for the meeting (the “Record Date”), are entitled to notice of, and to vote at, the special meeting and any postponements or adjournments of the meeting. On the Record Date, 170,656,367 shares of Oclaro common stock were issued and outstanding and no shares of Oclaro’s preferred stock were outstanding.

 

Q: What are the proposals on which I am being asked to vote?

 

A: There are three proposals that will be voted on at the special meeting:

 

    Merger Proposal: The proposal to adopt the Merger Agreement, which provides for (1) the merger of Merger Sub with and into Oclaro with Oclaro surviving the First Step Merger, and (2), as soon as reasonably practicable following the First Step Merger, the merger of Oclaro with and into Merger Sub LLC with Merger Sub LLC continuing as the surviving entity (the “Merger Proposal”).

 

    Compensation Proposal: The proposal to approve, on a non-binding, advisory basis, the compensation payments that will or may be made to Oclaro’s named executive officers in connection with the Merger (the “Compensation Proposal”).

 

    Adjournment Proposal: The proposal to approve the adjournment of the special meeting, from time to time, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Merger Proposal (the “Adjournment Proposal”).

Approval by Oclaro stockholders of the Merger Proposal (the “Oclaro Stockholder Approval”) is required for completion of the Merger. Approval by Oclaro stockholders of the Compensation Proposal and the Adjournment Proposal is not required for completion of the Merger. No other matters are intended to be brought before the special meeting by Oclaro. However, if other matters are properly brought before the special meeting or at any adjournment or postponement of the special meeting, the persons whom the Oclaro Board has appointed to vote proxies will vote on such matters in their discretion.

 

Q: What vote is required for approval of the proposals in this proxy statement/prospectus, and what happens if I abstain or fail to instruct my broker, bank or other nominee how to vote my shares?

 

A: The following are the vote requirements:

 

    Merger Proposal: The affirmative vote, in person or by proxy, of holders of a majority of the outstanding shares of Oclaro common stock as of the Record Date is required to approve the Merger Proposal. If you abstain from voting, fail to vote at the special meeting (in person or by proxy), or fail to instruct your broker, bank or other nominee how to vote on the Merger Proposal, it will have the same effect as a vote cast “AGAINST” the Merger Proposal.

 

    Compensation Proposal: The affirmative vote, in person or by proxy, of holders of a majority of the voting power of the outstanding shares of Oclaro common stock present in person or represented by proxy at the special meeting and voting on the matter is required to approve the Compensation Proposal. If you abstain from voting, attend the special meeting and fail to vote, do not attend the special meeting (in person or by proxy) or fail to instruct your broker, bank or other nominee how to vote on the Compensation Proposal, it will have no effect on the outcome of the vote on the Compensation Proposal, assuming a quorum is present.

 

    Adjournment Proposal: The affirmative vote, in person or by proxy, of holders of a majority of the voting power of the outstanding shares of Oclaro common stock present in person or represented by proxy at the special meeting and voting on the matter is required to approve the Adjournment Proposal. If you abstain from voting, attend the special meeting and fail to vote, do not attend the special meeting (in person or by proxy) or fail to instruct your broker, bank or other nominee how to vote on the Adjournment Proposal, it will have no effect on the outcome of the vote on the Adjournment Proposal, assuming a quorum is present.

 

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Q: How does the Oclaro Board recommend that I vote my shares of Oclaro common stock on the proposals?

 

A: The Oclaro Board unanimously recommends that stockholders vote their shares of Oclaro common stock:

 

    “FOR” the Merger Proposal;

 

    FOR” the Compensation Proposal; and

 

    FOR” the Adjournment Proposal.

 

Q: How do I vote?

 

A: If you are an Oclaro stockholder of record (that is, if your shares of Oclaro common stock are registered in your name with Computershare Trust Company, N.A., Oclaro’s transfer agent), you may vote your shares of Oclaro common stock or submit a proxy to have your shares of Oclaro common stock voted at the special meeting in one of the following ways:

 

    Mail: You may submit your proxy by properly signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope, which you should do early enough so that it is received before the date of the special meeting.

 

    Internet: You may submit your proxy by using the Internet at www.proxyvote.com. Internet voting is available 24 hours a day and will be accessible until 11:59 p.m., Eastern time, on July 9, 2018, the day before the special meeting.

 

    Telephone: You may submit your proxy by calling 1-800-690-6903, the toll-free (within the U.S. or Canada) phone number on your proxy card. Telephone voting is available 24 hours a day and will be accessible until 11:59 p.m., Eastern time, on July 9, 2018, the day before the special meeting; or

 

    In Person: You may vote your shares of Oclaro common stock by attending the special meeting and voting in person by ballot. Attendance at the special meeting will not, however, in and of itself constitute a vote.

A control number, located on your proxy card, is designed to verify your identity and allow you to vote your shares of Oclaro common stock and to confirm that your voting instructions have been properly recorded when voting electronically over the Internet or by telephone. Although there is no charge for voting your shares of Oclaro common stock, 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 Oclaro common stock by proxy. If you are a record holder or if you obtain a proxy to vote shares of Oclaro common stock that you beneficially own, you may still vote your shares of Oclaro common stock in person 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 of Oclaro common stock are held in “street name” through a broker, bank or other nominee, you may vote through your broker, bank or other nominee by completing and returning the voting instruction form provided by your broker, bank or other nominee, or, if such a service is provided by your broker, bank or other nominee, electronically over the Internet or by telephone. To vote over the Internet or by telephone through your broker, bank or other nominee, you should follow the instructions on the voting instruction form provided by your broker, bank or nominee. However, because you are not the stockholder of record, you may not vote your shares of Oclaro common stock in person by ballot at the special meeting unless you obtain a proxy from your broker, bank or other nominee giving you the right to vote your shares at the special meeting. Please refer to the voting instruction card provided with these proxy materials by your broker, bank or other nominee or contact your broker, bank or other nominee to obtain instructions on how to instruct them with respect to the voting of your shares of Oclaro common stock.

 

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Q: If my shares are held in a stock brokerage account, or in “street name” by my broker, bank or nominee, will my broker, bank or nominee automatically vote my shares for me?

 

A: No. If your shares of Oclaro common stock are held in the name of a broker, bank or other nominee, you are considered the “beneficial holder” of the shares held for you in what is known as “street name.” You are not the “record holder” of such shares. If this is the case, this proxy statement/prospectus has been forwarded to you by your broker, bank or other nominee.

Your broker, bank or other nominee is permitted to vote your shares of Oclaro common stock on any proposal currently scheduled to be considered at the special meeting only if you instruct your broker, bank or other nominee how to vote. You should follow the procedures provided by your broker, bank or other nominee to vote your shares of Oclaro common stock. Without instructions, your shares will not be voted on such proposals, which will have the same effect as if you voted “AGAINST” the Merger Proposal, but will have no effect on the Compensation Proposal or the Adjournment Proposal. The Oclaro Board strongly encourages you to provide voting instructions to your bank, brokerage firm or other nominee so that your vote will be counted on all matters.

 

Q: How many votes do I have?

 

A: Oclaro stockholders are entitled to cast one vote for each share of Oclaro common stock held as of the Record Date on all matters properly submitted for voting. On the Record Date, 170,656,367 shares of Oclaro common stock were issued and outstanding and no shares of Oclaro’s preferred stock were outstanding.

 

Q: What if I sell my shares of Oclaro common stock before the special meeting?

 

A: The Record Date is earlier than both the date of the special meeting and the Effective Time. If you transfer your shares of Oclaro common stock after the Record Date but before the special meeting, you will, unless you provide the transferee of your shares with a proxy, retain your right to vote at the special meeting, but will have transferred the right to receive the Merger Consideration. In order to receive the Merger Consideration, you must hold your shares through the Effective Time.

 

Q: What does it mean if I get more than one proxy card or set of voting materials to vote my shares of Oclaro common stock?

 

A: You may receive more than one set of voting materials, including multiple copies of this proxy statement/prospectus and multiple paper proxy cards or voting instruction cards. For example, if you hold your shares of Oclaro common stock in more than one brokerage account, you may receive a set of proxy materials for each brokerage account in which you hold shares. If you are an Oclaro stockholder of record and your shares of Oclaro common stock are registered in more than one name, you will receive more than one set of proxy materials. Please sign, date and return each proxy card and voting instruction card that you receive and follow the voting instructions set forth in this proxy statement/prospectus to ensure that all your shares of Oclaro common stock are voted at the special meeting.

 

Q: Can I revoke my proxy and change my vote?

 

A: Yes, if you are an Oclaro stockholder of record as of the Record Date, you may revoke your proxy in any of the following ways:

 

    by delivering to Oclaro (Attention: Corporate Secretary, 225 Charcot Avenue, San Jose, California 95131), prior to your shares being voted at the special meeting, a later dated written notice of revocation or a later dated properly executed proxy card (in which case only the later-dated proxy is counted and the earlier proxy is revoked);

 

    by attending the special meeting and voting in person (although attendance at the special meeting will not, by itself, revoke a proxy); or

 

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    by submitting a proxy on the Internet or by telephone at a later date but prior to your shares being voted at the special meeting (in which case only the later-dated proxy is counted and the earlier proxy is revoked).

If you are a beneficial owner of shares held in “street name” by a broker, bank or other nominee, you may revoke your proxy and vote your shares in person at the special meeting only in accordance with the applicable rules and procedures employed by such broker, bank or other nominee. If your shares are held in an account at a broker, bank or other nominee, you should contact your broker, bank or other nominee to change your vote.

 

Q: How many shares must be present to hold the special meeting?

 

A: Holders of a majority in voting power of the issued and outstanding shares of Oclaro common stock entitled to vote at the special meeting must be present in person or represented by proxy at the special meeting in order to have the required quorum for transacting business. Stockholders are counted as present at the meeting if they are present in person at the special meeting or have properly submitted a proxy card or submitted a proxy by telephone or over the Internet. Abstaining votes are considered present and entitled to vote and, therefore, are included for purposes of determining whether a quorum is present at the special meeting. Broker non-votes are not considered entitled to vote at the special meeting and, therefore, are not included for purposes of determining whether a quorum is present at the special meeting.

 

Q: Are Oclaro stockholders entitled to appraisal rights?

 

A: Record holders of Oclaro common stock who do not vote in favor of the Merger Proposal, who continuously hold such shares through the Effective Time, and who otherwise comply with the requirements and procedures of Section 262 of the Delaware General Corporation Law (the “DGCL”), may be entitled to exercise appraisal rights, which generally entitle stockholders to receive in lieu of the Merger Consideration a cash payment of an amount determined by the Court of Chancery of the State of Delaware (the “Court of Chancery”) to be the “fair value” of their Oclaro common stock, exclusive of any elements of value arising from the accomplishment or expectation of the Merger, together with interest to be paid on the amount determined to be fair value, if any, as determined by the Court of Chancery, if certain conditions, including as related to ownership thresholds, are met. The fair value of Oclaro common stock could be less than, more than or the same as the Merger Consideration. A detailed description of the procedures required to be followed in order to perfect appraisal rights by Oclaro stockholders if desired is included in the section titled “The Merger—Appraisal Rights” beginning on page 117 of this proxy statement/prospectus, which detailed description is qualified by reference to the full text of Section 262 of the DGCL as attached as Annex C to this proxy statement/prospectus. Due to the complexity of the procedures described above, Oclaro stockholders who are considering exercising such rights are encouraged to carefully review Annex C and seek the advice of legal counsel.

 

Q: Why am I being asked to approve, on a non-binding, advisory basis, the compensation payments that will or may be made to Oclaro’s named executive officers in connection with the Merger?

 

A: The SEC has adopted rules that require Oclaro to seek a non-binding, advisory vote on the compensation payments that will or may be made to Oclaro’s named executive officers in connection with the Merger. Oclaro urges its stockholders to read the section titled “The Merger—Interests of Oclaro’s Directors and Executive Officers in the Merger” beginning on page 108 of this proxy statement/prospectus, which describes in more detail Oclaro’s compensation payments that will or may be made to Oclaro’s named executive officers in connection with the Merger.

 

Q: What happens if the Compensation Proposal is not approved?

 

A:

Approval of the Compensation Proposal is not a condition to completion of the Merger. The vote is a non-binding, advisory vote and is therefore not binding on Oclaro, the Oclaro Board, the compensation

 

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  committee of the Oclaro Board, Lumentum, Lumentum’s Board of Directors (the “Lumentum Board”) or the compensation committee of the Lumentum Board. Since compensation and benefits to be paid or provided in connection with the Merger are based on contractual arrangements with the named executive officers, the outcome of this advisory vote will not affect the obligation to make these payments and these payments may still be made even if the Oclaro stockholders do not approve, on a non-binding, advisory basis, the Compensation Proposal.

 

Q: Who pays for the solicitation of proxies to vote at the special meeting?

 

A: Oclaro will bear the entire cost of proxy solicitation, including preparation, assembly, printing and mailing of the notice of special meeting, proxy card, this proxy statement/prospectus and any additional materials furnished to Oclaro stockholders. Copies of these materials will be furnished to brokerage houses, fiduciaries and custodians holding shares in their names that are beneficially owned by others to forward to those beneficial owners. In addition, Oclaro may reimburse the costs of forwarding these materials to those beneficial owners. Solicitation of proxies by mail may be supplemented by one or more of telephone, email, facsimile or personal solicitation by Oclaro’s directors, officers or employees. No additional compensation will be paid for such services. Oclaro has engaged MacKenzie Partners, Inc. to aid in the solicitation of proxies from brokers, bank nominees and other institutional owners for approximately $17,500, plus reimbursement of related expenses.

 

Q: Whom should I call if I have questions?

 

A: If you have questions or if you need assistance submitting your proxy or voting your shares or need additional copies of this proxy statement/prospectus or the enclosed proxy card, you should contact Oclaro’s proxy solicitor at:

MacKenzie Partners, Inc.

1407 Broadway

New York, New York 10018

(212) 929-5500

or

Toll-Free (800) 322-2885

You may also contact the Oclaro Investor Relations department at:

Oclaro, Inc.

225 Charcot Avenue

San Jose, California 95131

Telephone: (408) 383-1400

Attn: Investor Relations

 

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SUMMARY

This summary highlights information described in more detail elsewhere and incorporated by reference into this proxy statement/prospectus, and may not contain all the information that is important to you with respect to the Merger and the other matters being considered at the special meeting. To understand the Merger and the matters being voted on by Oclaro stockholders at the special meeting more fully, and to obtain a more complete description of the legal terms of the Merger Agreement, you are urged to read the remainder of this proxy statement/prospectus carefully, including the attached Annexes, and the other documents referred to or incorporated by reference herein. See also the section titled “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus. Each item in this summary refers to the page of this proxy statement/prospectus on which that subject is discussed in more detail.

The Companies

Lumentum Holdings Inc. (see page 26)

Lumentum is an industry leading provider of optical and photonic products addressing a range of end market applications including data communications and telecommunications networking and commercial lasers for manufacturing, inspection and life-science applications, as defined by revenue and market share. In addition, Lumentum is using its core optical and photonic technology and its volume manufacturing capability to expand into emerging markets that benefit from advantages that optical or photonics-based solutions provide, including 3D sensing for consumer electronics and diode light sources for a variety of consumer and industrial applications. The majority of Lumentum’s customers are original equipment manufacturers that incorporate Lumentum’s products into their products which address end-market applications. For example, Lumentum sells fiber optic components that its network equipment manufacturer customers assemble into communications networking systems, which they sell to network service providers or enterprises with their own networks. Increasingly, Lumentum is also selling data communications products to owners and operators of large data centers, which Lumentum refers to as hyperscale datacenters. Similarly, many of Lumentum’s customers for its lasers products incorporate Lumentum’s products into tools they produce, which are used for manufacturing processes by their customers. Lumentum operates in two reportable segments: optical communications and commercial lasers. Lumentum has a global marketing and sales footprint that enables it to address global market opportunities for its products. Lumentum has manufacturing capabilities and facilities in North America, Asia-Pacific and Europe, the Middle East and Africa with employees engaged in R&D, administration, manufacturing, support and sales and marketing activities.

The principal executive offices of Lumentum are located at 400 North McCarthy Boulevard, Milpitas, California 95035, and Lumentum’s telephone number is (408) 546-5483. Additional information about Lumentum and its subsidiaries is included in documents incorporated by reference into this proxy statement/prospectus. See the section titled “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus.

Oclaro, Inc. (see page 26)

Oclaro is one of the leading providers of optical components and modules for the long-haul, metro and data center markets. Leveraging more than three decades of laser technology innovation and photonics integration, Oclaro provides differentiated solutions for optical networks and high-speed interconnects driving the next wave of streaming video, cloud computing, application virtualization and other bandwidth-intensive and high-speed applications.

The principal executive offices of Oclaro are located at 225 Charcot Avenue, San Jose, California 95131, and Oclaro’s telephone number is (408) 383-1400. Additional information about Oclaro is included in documents



 

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incorporated by reference into this proxy statement/prospectus. See the section titled “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus.

Prota Merger Sub, Inc. (see page 27)

Prota Merger Sub, Inc., or “Merger Sub,” is a direct wholly owned subsidiary of Lumentum and is a Delaware corporation. Merger Sub was formed on March 9, 2018, for the sole purpose of effecting the First Step Merger. In the First Step Merger, Merger Sub will be merged with and into Oclaro, with Oclaro surviving as a direct wholly owned subsidiary of Lumentum.

The principal executive offices of Merger Sub are located at 400 North McCarthy Boulevard, Milpitas, California 95035, and Merger Sub’s telephone number is (408) 546-5483.

Prota Merger, LLC (see page 27)

Prota Merger, LLC, or “Merger Sub LLC,” is a direct wholly owned subsidiary of Lumentum and is a Delaware limited liability company. Merger Sub LLC was formed on March 9, 2018, for the sole purpose of effecting the Second Step Merger. In the Second Step Merger, Oclaro will be merged with and into Merger Sub LLC, with Merger Sub LLC surviving as a direct wholly owned subsidiary of Lumentum.

The principal executive offices of Merger Sub LLC are located at 400 North McCarthy Boulevard, Milpitas, California 95035, and Merger Sub LLC’s telephone number is (408) 546-5483.

Comparative Market Price and Dividend Information (see page 54)

Shares of Lumentum common stock are listed for trading on NASDAQ under the symbol “LITE” and shares of Oclaro common stock are listed for trading on NASDAQ under the symbol “OCLR.” The following table sets forth the closing sales prices of a share of Lumentum common stock (as reported on NASDAQ) and of a share of Oclaro common stock (as reported on NASDAQ), each on March 9, 2018, the last trading day before the day on which Lumentum and Oclaro announced the execution of the Merger Agreement, and on May 29, 2018, the last practicable trading day before the date of this proxy statement/prospectus.

 

     Lumentum
Common
Stock
Price per
Share
     Oclaro
Common
Stock
Price per
Share
 

March 9, 2018

   $ 68.975      $ 7.85  

May 29, 2018

   $ 62.95      $ 9.04  

The market prices of Lumentum common stock and Oclaro common stock will fluctuate before the special meeting and before the Merger is consummated. You should obtain current stock price quotations from a newspaper, the Internet or your broker or banker.

Lumentum’s Dividend Policy. Lumentum has never paid cash dividends on its common stock and does not currently expect to pay dividends on its common stock. The holders of Lumentum common stock will receive dividends if and when declared by the Lumentum Board out of legally available funds or, in the case of stock dividends, out of authorized and available shares of Lumentum common stock. The payment of any dividends to Lumentum’s stockholders in the future, and the timing and amount thereof, if any, is within the discretion of the Lumentum Board. The Lumentum Board’s decisions regarding the payment of dividends will depend on many factors, such as Lumentum’s financial condition, earnings, capital requirements, potential debt service obligations or restrictive covenants, industry practice, legal requirements, regulatory constraints and other factors that the Lumentum Board deems relevant.



 

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Oclaro’s Dividend Policy. Oclaro has never paid cash dividends on its common stock. To the extent Oclaro generates earnings, it intends to retain them for use in its business and, therefore, does not anticipate paying any cash dividends on its common stock in the foreseeable future. The Merger Agreement prohibits Oclaro from setting aside or paying any dividends or other distributions on its capital stock, so Oclaro does not expect to pay dividends for as long as the Merger Agreement is in effect.

Risk Factors (see page 57)

Before voting at the special meeting, you should carefully consider all of the information contained in or incorporated by reference into this proxy statement/prospectus, as well as the specific factors included under the section titled “Risk Factors” beginning on page 57 of this proxy statement/prospectus.

The Oclaro Special Meeting (see page 70)

Time and Place

The special meeting will be held on July 10, 2018 at 8:00 a.m., Pacific time, at Oclaro’s headquarters located at 225 Charcot Avenue, San Jose, California 95131.

Purpose

At the special meeting, holders of Oclaro common stock as of the Record Date will be asked to consider and approve the following proposals:

 

  1. The Merger Proposal;

 

  2. The Compensation Proposal; and

 

  3. The Adjournment Proposal.

Record Date and Quorum

Only Oclaro stockholders of record as of the Record Date are entitled to notice of and to vote at the special meeting. As of the close of business on the Record Date, 170,656,367 shares of Oclaro common stock were issued and outstanding and there were 1,780 holders of record of Oclaro common stock. Each Oclaro stockholder is entitled to one vote for each share of Oclaro common stock held by such stockholder as of the Record Date.

Holders of a majority of the outstanding shares of Oclaro common stock entitled to vote as of the Record Date must be present in person or represented by proxy at the special meeting in order to have the required quorum for transacting business. Abstentions are counted as present for purposes of determining the presence or absence of a quorum for the transaction of business.

Required Vote

The affirmative vote, in person or by proxy, of holders of a majority of the outstanding shares of Oclaro common stock as of the Record Date is required to approve the Merger Proposal. The affirmative vote, in person or by proxy, of the holders of a majority of the voting power of the outstanding shares of Oclaro common stock present in person or represented by proxy at the special meeting and voting on the matter is required to approve the Compensation Proposal. The affirmative vote, in person or by proxy, of the holders of a majority of the voting power of the outstanding shares of Oclaro common stock present in person or represented by proxy at the special meeting and voting on the matter is required to approve the Adjournment Proposal.



 

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If you abstain from voting, fail to vote at the special meeting (in person or by proxy), or fail to instruct your broker, bank or other nominee how to vote on the Merger Proposal, it will have the same effect as a vote cast “AGAINST” the Merger Proposal. If you abstain from voting, attend the special meeting and fail to vote, do not attend the special meeting (in person or by proxy) or fail to instruct your broker, bank or other nominee how to vote on the Compensation Proposal or Adjournment Proposal, it will have no effect on the outcome of the vote on the Compensation Proposal, assuming a quorum is present.

The Merger

Effects of the Merger (see page 79)

Subject to the terms and conditions of the Merger Agreement and the applicable provisions of Delaware law, at the Effective Time, Merger Sub will be merged with and into Oclaro, with Oclaro surviving the First Step Merger as a direct wholly owned subsidiary of Lumentum. As the second step in a single integrated transaction with the First Step Merger, as soon as practicable following the Effective Time, Oclaro will be merged with and into Merger Sub LLC, with Merger Sub LLC surviving the Second Step Merger as a direct wholly owned subsidiary of Lumentum.

Recommendation of the Oclaro Board; Oclaro’s Reasons for the Merger (see page 91)

After careful evaluation of the Merger Agreement and the transactions contemplated thereby, the Oclaro Board unanimously determined that the Merger, the Merger Agreement and the other transactions contemplated by the Merger Agreement are advisable, fair to, and in the best interests of, Oclaro and its stockholders and approved and declared advisable the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement.

The Oclaro Board unanimously recommends that Oclaro stockholders vote “FOR” the Merger Proposal, “FOR” the Compensation Proposal and “FOR” the Adjournment Proposal.

In the course of reaching its recommendation, the Oclaro Board consulted with Oclaro’s senior management and financial advisor, Jefferies LLC (“Jefferies”), and outside legal counsel, Jones Day, and considered a number of factors. See the section titled “The Merger—Oclaro’s Reasons for the Merger; Recommendation of the Oclaro Board of Directors” beginning on page 91 of this proxy statement/prospectus.

Opinion of Oclaro’s Financial Advisor (see page 96 and Annex B)

On May 22, 2014, Oclaro entered into an engagement letter with Jefferies to act as Oclaro’s exclusive financial advisor to provide Oclaro with financial advice and assistance in connection with the possible sale, disposition or other business transaction involving all or a material portion of its equity or assets and the possible acquisition of all or a material portion of one or more third parties. At the meeting of the Oclaro Board on March 11, 2018, Jefferies rendered its opinion to the Oclaro Board to the effect that, as of that date and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken as set forth in its opinion, the Merger Consideration to be received by the holders of shares of Oclaro common stock pursuant to the Merger Agreement was fair, from a financial point of view, to such holders. Oclaro encourages you to read carefully and in its entirety the full text of Jefferies’ written opinion attached as Annex B to this proxy statement/prospectus, which is subject to the assumptions, limitations, qualifications and other conditions contained in such opinion and is necessarily based on economic, capital markets and other conditions, and the information made available to Jefferies, as of the date of such opinion. For a description of the opinion that the Oclaro Board received from Jefferies, see the section titled “The Merger—Opinion of Oclaro’s Financial Advisor” beginning on page 96 of this proxy statement/prospectus.



 

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Share Ownership and Voting by Oclaro Directors and Executive Officers (see page 73)

As of the Record Date, the directors and executive officers of Oclaro beneficially own and are entitled to vote, in the aggregate, approximately 1.8% of the aggregate voting power of the outstanding shares of Oclaro common stock. Oclaro currently expects that all of its directors and executive officers will vote their shares of Oclaro common stock in favor of the Merger Proposal, the Compensation Proposal and the Adjournment Proposal, although none of them has entered into any agreement obligating them to do so.

Regulatory Clearances Required for the Merger (see page 116)

Lumentum and Oclaro have each agreed to take certain actions in order to obtain regulatory clearances required to consummate the Merger. The Merger is subject to review by the Antitrust Division of the Department of Justice (“DOJ”) and U.S. Federal Trade Commission (the “FTC”) under the HSR Act. Under the HSR Act, Lumentum and Oclaro are required to make pre-merger notification filings and to await the expiration or early termination of the statutory waiting period prior to completing the Merger. Lumentum and Oclaro submitted pre-merger notification filings under the HSR Act on March 23, 2018 and received early termination of the waiting period on April 4, 2018, which satisfies the closing conditions under the Merger Agreement related to receipt of antitrust approval in the United States. The Merger is also subject to review by governmental authorities in the People’s Republic of China and requires pre-merger notification and the observance of an applicable waiting period in the People’s Republic of China. See the section titled “The Merger—Regulatory Clearances Required for the Merger” beginning on page 116 of this proxy statement/prospectus for more information.

Listing of Shares of Lumentum Common Stock; Delisting and Deregistration of Shares of Oclaro Common Stock (see page 117)

Lumentum is obligated to cause the shares of Lumentum common stock to be issued to Oclaro stockholders pursuant to the Merger Agreement to be authorized for listing on NASDAQ at the Effective Time, subject to official notice of issuance. Upon completion of the Merger, shares of Oclaro common stock will be delisted on NASDAQ and will subsequently be deregistered under the Exchange Act.

See the sections titled “The Merger—Listing of Shares of Lumentum Common Stock” beginning on page 117 of this proxy statement/prospectus and “The Merger—Delisting and Deregistration of Oclaro Common Stock” beginning on page 117 of this proxy statement/prospectus for a further discussion of the listing of shares of Lumentum common stock and the delisting of Oclaro common stock in connection with the Merger.

The Merger Agreement (see page 124)

The Merger Agreement is attached as Annex A to this proxy statement/prospectus. Lumentum and Oclaro encourage you to read the entire Merger Agreement carefully because it is the principal document governing the Merger and the issuance of shares of Lumentum common stock.

Merger Consideration (see page 124)

Upon the terms and subject to the conditions set forth in the Merger Agreement, at the Effective Time, each share of Oclaro common stock that is issued and outstanding immediately prior to the Effective Time (other than (x) Oclaro common stock held by Lumentum, Oclaro or any direct or indirect wholly owned subsidiary of Lumentum or Oclaro, in each case immediately prior to the Effective Time and (y) shares held by Oclaro stockholders who are entitled to and who properly exercise appraisal rights under Section 262 of the DGCL) will be canceled and extinguished and automatically converted into the right to receive, without interest thereon,



 

16


$5.60 in cash (the “Cash Consideration”), plus 0.0636 of a share of Lumentum common stock (such ratio, the “Exchange Ratio”), subject to the conditions and restrictions set forth in the Merger Agreement (the “Stock Consideration”).

The maximum number of shares of Lumentum common stock that will be issued in connection with the Merger is 19.9% of the issued and outstanding shares of Lumentum common stock immediately prior to the Effective Time, and to the extent that the number of shares of Lumentum common stock issuable in the Merger would exceed the Stock Threshold, (1) the Exchange Ratio will be reduced to the minimum extent necessary (rounded down to the nearest one thousandth) such that the aggregate number of shares of Lumentum common stock to be issued in connection with the Merger (including all shares of Lumentum common stock which may be issued after the Effective Time pursuant to certain outstanding Oclaro equity awards) does not exceed the Stock Threshold and (2) the Cash Consideration for all purposes under the Merger Agreement will be increased on a per share basis by an amount equal to $68.975 (the closing sales price of a share of Lumentum common stock on March 9, 2018, the last trading day before the day on which Lumentum and Oclaro announced the execution of the Merger Agreement), multiplied by the difference between the initial Exchange Ratio and the Exchange Ratio. See the section titled “The Merger Agreement—Merger Consideration” beginning on page 124 of this proxy/statement prospectus for more information.

It is expected that, immediately after completion of the Merger, former Oclaro stockholders will own approximately 16% of the outstanding shares of Lumentum common stock.

Treatment of Oclaro Options and Other Equity-Based Awards (see page 125)

At the Effective Time, each Oclaro RSU that is outstanding and unvested immediately before the Effective Time (and does not vest as a result of the Merger) will be assumed by Lumentum on substantially the same terms and conditions as applied to the related Oclaro RSU immediately before the Effective Time (including the applicable vesting schedule), except the number of shares of Lumentum common stock subject to each Assumed RSU will equal the product of (x) the number of shares of Oclaro common stock underlying the applicable unvested Oclaro RSU immediately before the Effective Time (with any performance milestones deemed achieved based on maximum level of performance) multiplied by (y) the Equity Award Exchange Ratio (rounded down to the nearest whole share). In addition, any Oclaro RSU that is vested and unsettled will be treated as outstanding Oclaro common stock and will receive the Merger Consideration, subject to applicable tax withholding. Each share of Oclaro Restricted Stock that is outstanding and unvested immediately before the Effective Time shall become fully vested at the Effective Time and will be treated as outstanding Oclaro common stock and will receive the Merger Consideration, subject to applicable tax withholding.

Except as provided in the next paragraph, each Oclaro Option that is outstanding, whether vested or unvested, immediately before the Effective Time will be assumed by Lumentum on substantially the same terms and conditions as applied to the related Oclaro Option immediately before the Effective Time (including the applicable vesting schedule), except (1) the number of shares of Lumentum common stock subject to each Assumed Option will equal the product of (x) the number of shares of Oclaro common stock underlying such Assumed Option immediately before the Effective Time multiplied by (y) the Equity Award Exchange Ratio (rounded down to the nearest whole share), and (2) the per share exercise price of each Assumed Option will equal the quotient determined by dividing (x) the exercise price per share of such Assumed Option immediately before the Effective Time by (y) the Equity Award Exchange Ratio (rounded up to the nearest whole cent).

Each Cancelled Oclaro Option will be cancelled and converted into the right to receive the Merger Consideration in respect of each “net option share” of Oclaro common stock covered by such Cancelled Oclaro Option, subject to applicable tax withholding. The number of “net option shares” will be determined under a formula specified in the Merger Agreement that takes into account the exercise price of such Cancelled Oclaro



 

17


Option. Any fractional net option shares (after aggregating all shares represented by all Cancelled Oclaro Options held by such holder) will be settled in cash based on the cash equivalent value of the Merger Consideration, subject to applicable tax withholding. If the exercise price per share of any Cancelled Oclaro Option is equal to or greater than the Merger Consideration, such Cancelled Oclaro Option will be cancelled without payment.

Each Oclaro SAR that is outstanding, whether vested or unvested, will be cancelled and converted into the right to receive a cash amount equal to the product of (x) the number of shares of Oclaro common stock issuable upon exercise of the Oclaro SAR, multiplied by (y) the excess, if any of (1) the cash equivalent value of the Merger Consideration over (2) the strike price of such Oclaro SAR, subject to applicable tax withholding.

Any applicable taxes required to be withheld from the Merger Consideration payable in respect of vested Oclaro RSUs, Oclaro Restricted Stock, and Cancelled Oclaro Options will first reduce the Cash Consideration portion of the Merger Consideration, with any remaining amount reducing the Stock Consideration portion of the Merger Consideration (with the value of the stock portion for purposes of such deduction determined based on the Parent Average Closing Price).

Closing and Effective Time (see page 126)

Lumentum and Oclaro expect the Closing to occur in the second half of calendar year 2018. However, the Merger is subject to various regulatory approvals and the satisfaction or waiver of other conditions, and it is possible that factors outside the control of Lumentum and Oclaro could result in the Merger being completed at an earlier time, a later time or not at all. In the Merger Agreement, Lumentum and Oclaro have agreed that the Closing Date will not be later than two business days after the satisfaction or waiver (to the extent permitted in the Merger Agreement) of the last of the conditions to Closing to be satisfied or waived (other than those conditions that by their terms are to be satisfied at Closing, but subject to the satisfaction or waiver of (to the extent permitted in the Merger Agreement) such conditions), or at such other location, date and time as Lumentum, Merger Sub and Oclaro mutually agree upon in writing. However, if the marketing period prescribed in the Merger Agreement (the “Marketing Period”) has not ended at the time when Closing would otherwise be required to occur, the Closing will occur on the earlier of (1) a business day before or during such Marketing Period specified by Lumentum on two business days’ prior written notice to Oclaro, and (2) the first business day after the expiration of the Marketing Period subject to satisfaction or waiver of the last of the conditions to the Closing, or at such other date and time as Lumentum and Oclaro mutually agreed upon in writing. There may be a substantial amount of time between the dates on which the special meeting is held and the date on which the Merger is completed.

Appraisal Rights (see page 127)

If the Merger is completed and certain other statutory requirements described herein are met, record holders of Oclaro common stock who do not vote in favor of the Merger Proposal, who continuously hold such shares through the Effective Time and who properly demand appraisal of their shares may be entitled to appraisal rights in connection with the Merger under Section 262 of the DGCL. This means that holders of shares of Oclaro common stock are entitled to have their shares appraised by the Court of Chancery and to receive in lieu of the Merger Consideration a cash payment of an amount determined by the Court of Chancery equal to the “fair value” of their Oclaro common stock, exclusive of any elements of value arising from the accomplishment or expectation of the Merger, together with interest to be paid on the amount determined to be fair value, if any, as determined by the Court of Chancery as described further herein, so long as they comply with the procedures established by Section 262 of the DGCL and certain other conditions relating to stock ownership thresholds are met.

A summary description of the appraisal rights available to holders of Oclaro common stock under the DGCL and the procedures required to exercise statutory appraisal rights are included under the section titled



 

18


“The Merger—Appraisal Rights” beginning on page 117 of this proxy statement/prospectus. The full text of Section 262 of the DGCL is attached as Annex C to this proxy statement/prospectus. Due to the complexity of the procedures described above, Oclaro stockholders who are considering exercising such rights are encouraged to seek the advice of legal counsel.

Stockholders considering seeking appraisal should be aware that the fair value of their shares of Oclaro 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 Merger Consideration.

Restrictions on Oclaro’s and Lumentum’s Businesses Pending the Closing (see pages 132, 134)

Each of Oclaro and Lumentum has agreed, subject to certain exceptions set forth in the Merger Agreement, on behalf of itself and its subsidiaries, that it will conduct its business in the ordinary course of business prior to the Effective Time or earlier termination of the Merger Agreement, and has agreed to certain restrictions on its ability to take certain actions prior to the Effective Time or earlier termination of the Merger Agreement. See the section titled “The Merger Agreement—Restrictions on Oclaro’s Business Pending the Closing” beginning on page 132 of this proxy statement/prospectus and the section titled “The Merger Agreement—Restrictions on Lumentum’s Business Pending the Closing” beginning on page 134 of this proxy statement/prospectus for more information.

Oclaro’s Agreement Not to Solicit Other Offers (see page 136)

Oclaro has agreed that it will not, directly or indirectly:

 

    solicit, initiate, or knowingly encourage, knowingly facilitate or knowingly induce the making, submission or announcement of an Acquisition Proposal (as defined on page 137 of this proxy statement/prospectus) or the making of any inquiry, offer or proposal that would reasonably be expected to lead to an Acquisition Proposal;

 

    furnish to any third party any non-public information relating to Oclaro or any of its subsidiaries, or afford access to the business, properties, assets, books or records of Oclaro or any of its subsidiaries to any third party, or take any other action, in each case, intended to assist or facilitate the making of an Acquisition Proposal or any inquiry, offer or proposal that would reasonably be expected to lead to an Acquisition Proposal;

 

    participate or engage in discussions or negotiations with respect to an Acquisition Proposal with any third party that is seeking to make or has made an Acquisition Proposal, except, in response to an unsolicited inquiry or submitted Acquisition Proposal, Oclaro may (1) refer the inquiring or submitting person to the non-solicitation provision of the Merger Agreement and (2) communicate in writing with a person who had made an unsolicited bona fide written Acquisition Proposal (and its representatives) solely to clarify (and not negotiate) the existing terms of, and ascertain additional facts regarding, the Acquisition Proposal for the purpose of the Oclaro Board informing itself about the Acquisition Proposal and the person making it);

 

    approve, endorse or recommend an Acquisition Proposal; or

 

    execute or enter into any letter of intent, memorandum of understanding or contract contemplating or otherwise relating to an Acquisition Proposal.

Oclaro has agreed to immediately cease and cause to be terminated any and all existing activities, discussions or negotiations with any third party concerning any Acquisition Proposal.

However, until receipt of the Oclaro Stockholder Approval, if Oclaro receives a bona fide Acquisition Proposal from any person that did not result from a material breach of its non-solicitation obligations that the



 

19


Oclaro Board concludes in good faith that is or would reasonably be expected to lead to a Superior Proposal (as defined on page 137 of this proxy statement/prospectus), Oclaro may, directly or indirectly:

 

    engage or participate in discussions or negotiations with the third party and its representatives and its potential sources of financing; and/or

 

    furnish to the third party, its representatives and its potential financing sources any information (including non-public information) relating to Oclaro or any of its subsidiaries, and provide access to Oclaro’s and its subsidiaries assets, properties and business facilities pursuant to a confidentiality agreement with terms of which are no less favorable to Oclaro than those contained in the confidentially agreement between Oclaro and Lumentum (provided that such confidentiality agreement need not contain any “standstill” or similar provision that would prohibit the third party from making any Acquisition Proposal);

as long as (1) Oclaro has not materially breached its non-solicitation obligations with respect to the Acquisition Proposal and (2) prior to taking any action described above, the Oclaro Board determines in good faith that the failure to take the action would reasonably be likely to be inconsistent with its fiduciary duties to stockholders of Oclaro under Delaware law.

See the section titled “The Merger Agreement—Oclaro’s Agreement Not to Solicit Other Offers” beginning on page 136 of this proxy statement/prospectus for more information.

Oclaro’s Agreement Not to Change the Oclaro Board Recommendation (see page 137)

Oclaro has agreed that the Oclaro Board will only change its recommendation to the Oclaro stockholders that they adopt the Merger Agreement (the “Oclaro Board Recommendation”) in certain, limited circumstances.

Oclaro has agreed that the Oclaro Board will not:

 

    withdraw, amend or modify (or publicly propose to withhold, withdraw, amend or modify) in a manner adverse to Lumentum, Merger Sub or Merger Sub LLC, the Oclaro Board Recommendation;

 

    approve, endorse, adopt or recommend, or publicly propose to approve, endorse, adopt or recommend, any Acquisition Proposal or Superior Proposal;

 

    fail to recommend against acceptance by the Oclaro stockholders of any tender offer or exchange offer for Oclaro common stock that constitutes an Acquisition Proposal within 10 business days after the commencement of the offer; or

 

    resolve or publicly propose to take any of the foregoing actions.

Any of the actions in the above bullet points is referred to as an “Oclaro Change of Recommendation.”

The Oclaro Board may make an Oclaro Change of Recommendation under the following circumstances:

 

   

(A) Oclaro has received a bona fide written Acquisition Proposal that did not result from a material breach (or deemed material breach) of the Merger Agreement that the Oclaro Board has determined in good faith (after consultation with its financial advisor and its outside legal counsel) that such Acquisition Proposal constitutes a Superior Proposal; (B) the Oclaro Board determines in good faith (after consultation with its financial advisor and its outside legal counsel) that the failure to effect the Oclaro Change of Recommendation would reasonably be likely to be inconsistent with its fiduciary duties to the Oclaro stockholders under Delaware law; (C) prior to effecting such Oclaro Change of Recommendation, Oclaro shall have (1) given Lumentum at least four business days’ notice of its



 

20


 

intention to take such action (which notice shall include the most current version of the proposed definitive agreement and, to the extent not included therein, all material terms and conditions of such Superior Proposal and the identity of the person making such Superior Proposal) and (2) if requested by Lumentum, during the notice period, negotiate with Lumentum in good faith any modifications to the terms and conditions of the Merger Agreement proposed by Lumentum, in its discretion; and (D) Lumentum shall not have made, within the notice period, a written counteroffer or proposal capable of acceptance by Oclaro that the Oclaro Board determines in good faith, after consultation with its financial advisor and its outside legal counsel, is at least as favorable, from a financial point of view, to the Oclaro stockholders as the Superior Proposal (it being understood that any material revision to the material terms of a Superior Proposal, including any revision in the per share financial consideration, shall require a new notice (for each material revision) pursuant to the paragraph above (except that the four business day notice period referred to above shall instead be three business days); or

 

    (A) An Intervening Event (as defined on page 138 of this proxy statement/prospectus) shall have occurred and be continuing at the time of the determination, (B) the Oclaro Board determines in good faith (after consultation with outside legal counsel) that the failure to effect the Oclaro Change of Recommendation would be reasonably likely to be inconsistent with its fiduciary duties to the Oclaro stockholders under Delaware law, (C) prior to effecting the Oclaro Change of Recommendation, Oclaro shall have (1) given Lumentum at least four business days’ prior written notice of its intention to take the action (which notice shall include a written explanation of the Oclaro Board’s basis and rationale for proposing to effect such Oclaro Change of Recommendation) and (2) if requested by Lumentum, negotiated with Lumentum in good faith during the four business day notice period any modifications to the terms of the Merger Agreement proposed by Lumentum, in its discretion, and (D) Lumentum shall not have made, within the four business day notice period, a written offer or proposal capable of acceptance by Oclaro that the Oclaro Board determines in good faith, after consultation with its financial advisor and its outside legal counsel, that the failure to effect the Oclaro Change of Recommendation would be reasonably likely to be inconsistent with its fiduciary duties to the Oclaro stockholders under Delaware law.

See the section titled “The Merger Agreement—Oclaro’s Agreement Not to Change the Oclaro Board Recommendation” beginning on page 137 of this proxy statement/prospectus for more information.

Financing Obligations (see page 143)

Lumentum currently anticipates that it will finance the Merger through a combination of (1) approximately $413.6 million of cash, cash equivalents and short-term investments from the combined balance sheets of Lumentum and Oclaro, (2) approximately $647.5 million in Lumentum common stock, and (3) approximately $550 million in new term loans (this clause (3), the “Debt Financing”). These amounts are sufficient to (A) pay the Oclaro stockholders the amounts due to them under the Merger Agreement, (B) refinance or otherwise discharge any outstanding indebtedness of Oclaro required to be repaid at Closing, and (C) pay any fees, expenses and taxes incurred in connection with the Merger. The Closing is not, however, subject to a financing condition or to Lumentum’s ability to obtain the Debt Financing. See the section titled “The Merger Agreement—Financing Obligations” beginning on page 143 of this proxy statement/prospectus for more information.

In connection with entering into the Merger Agreement, Lumentum entered into a commitment letter, dated as of March 11, 2018, with Deutsche Bank Securities Inc. and Deutsche Bank AG New York, New York Branch. Subject to the terms of the commitment letter, Deutsche Bank AG New York, New York Branch has committed to provide a senior secured term loan facility in an aggregate principal amount of up to $550 million. The funding of the term loan facility provided for in the commitment letter is contingent on the satisfaction of customary



 

21


conditions, including the execution and delivery of definitive documentation with respect to the term loan facility in accordance with the terms sets forth in the commitment letter and the consummation of the Merger in accordance with the Merger Agreement.

Conditions to Closing (see page 146)

Under the Merger Agreement, each party’s obligation to effect the Merger is subject to satisfaction or, to the extent permitted by applicable law, mutual waiver at the Effective Time of each of the following conditions:

 

    the Oclaro Stockholder Approval shall have been obtained;

 

    the termination or expiration of any waiting period under the HSR Act and the receipt of applicable consents or clearances required to consummate the Merger under the antitrust laws of the People’s Republic of China, which closing condition was satisfied with respect to the United States on April 4, 2018 when Lumentum and Oclaro received early termination of the waiting period under the HSR Act;

 

    the absence of any order or law by a court or other governmental entity in any jurisdiction that is material to the business or operations of Oclaro or Lumentum that prohibits, enjoins or makes illegal the closing of the Merger;

 

    the SEC having declared effective the Form S-4; and

 

    the approval for listing by NASDAQ of the shares of Lumentum common stock to be issued to Oclaro stockholders in connection with the Merger.

Lumentum’s, Merger Sub’s and Merger Sub LLC’s obligations to effect the Merger are further subject to the satisfaction or waiver of the following conditions:

 

    the accuracy of the representations and warranties of Oclaro set forth in the Merger Agreement, subject to the materiality standards set forth in the Merger Agreement;

 

    Oclaro having performed, in all material respects, the obligations required to be performed by it under the Merger Agreement; and

 

    since March 11, 2018, a material adverse effect with respect to Oclaro shall not have occurred.

Oclaro’s obligation to effect the Merger is further subject to the satisfaction or waiver of the following conditions:

 

    the accuracy of the representations and warranties of Lumentum, Merger Sub and Merger Sub LLC set forth in the Merger Agreement, subject to the materiality standards set forth in the Merger Agreement;

 

    Lumentum having performed, in all material respects, the obligations required to be performed by it under the Merger Agreement; and

 

    since March 11, 2018, a material adverse effect with respect to Lumentum shall not have occurred.

The Merger Agreement provides that neither party may rely on the failure of any condition to Closing to be satisfied if such failure was caused by that party’s failure to comply with its obligations under the Merger Agreement.

Any or all of the conditions described above may be waived, in whole or in part, by Lumentum or Oclaro, to the extent permitted by applicable law. See the section titled “The Merger Agreement—Conditions to Closing” beginning on page 146 of this proxy statements/prospectus for more information.



 

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Termination of the Merger Agreement (see page 148)

The Merger Agreement may be terminated at any time prior to the Effective Time by mutual written consent of Lumentum and Oclaro, and either party may terminate the Merger Agreement in the following circumstances:

 

    if the Oclaro stockholders fail to approve the Merger Proposal;

 

    if a court or other governmental entity in a jurisdiction that is material to the business or operations of Lumentum or Oclaro issues a final and non-appealable order or enacts a law that either permanently prohibits or prevents the consummation of the Merger; or

 

    if the Merger has not been consummated by December 11, 2018, which deadline will be automatically extended to March 11, 2019 if the Closing is delayed due to certain closing conditions relating to antitrust laws not being satisfied.

Oclaro may also terminate the Merger Agreement at any time prior to the Effective Time as follows:

 

    prior to obtaining the Oclaro Stockholder Approval, in order for Oclaro to enter into a definitive agreement for a Superior Proposal after the Oclaro Board or any Oclaro Board committee has made an Oclaro Change of Recommendation, provided that (A) Oclaro has complied in all material respects with certain of its obligations under the Merger Agreement, (B) Oclaro concurrently enters into a definitive agreement to effect the Superior Proposal and (C) Oclaro concurrently pays to Lumentum the termination fee described below; or

 

    if Lumentum breaches the Merger Agreement in a manner that would entitle the party seeking to terminate the Merger Agreement not to consummate the Merger, subject to the rights of Lumentum to cure the breach.

Lumentum may also terminate the Merger Agreement at any time prior to the Effective Time as follows:

 

    if Oclaro breaches the Merger Agreement in a manner that would entitle the party seeking to terminate the Merger Agreement not to consummate the Merger, subject to the rights of Oclaro to cure the breach; or

 

    if Oclaro has made an Oclaro Change of Recommendation, if the Oclaro Board or any Oclaro Board committee materially and willfully breaches its non-solicitation obligations under the Merger Agreement, or if Oclaro failed to include the Oclaro Board’s recommendation with respect to the Merger in this proxy statement/prospectus.

See the section titled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 148 of this proxy statement/prospectus for more information.

Termination Fees (see page 150)

In certain circumstances, Oclaro may be required to pay a termination fee of $63.0 million in cash to Lumentum if the Merger Agreement is terminated. In certain circumstances, Lumentum may be required to pay a termination fee of $80.0 million in cash to Oclaro if the Merger Agreement is terminated. See the section titled “The Merger Agreement—Termination Fees” beginning on page 150 of this proxy statement/prospectus for more information.

Dividends (see page 117)

The Merger Agreement provides that no dividends or other distributions with a record date after the Effective Time with respect to Lumentum common stock will be paid to the holder of any shares of Oclaro



 

23


common stock until such holder properly surrenders its shares in accordance with the procedures contained in the Merger Agreement, which are described in the section titled “Exchange Agent; Letter of Transmittal” beginning on page 127 of this proxy statement/prospectus. After proper surrender, Lumentum will cause such holder to be paid, without interest, (1) the amount of dividends or other distributions with a record date after the Effective Time and theretofore paid with respect to such shares of Lumentum common stock to which such holder is entitled pursuant to the Merger Agreement and (2) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such shares of Lumentum common stock.

Material U.S. Federal Income Tax Consequences (see page 152)

The Merger is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Code. One of the requirements that must be satisfied in order for the Merger to qualify as a reorganization is the “continuity of interest” test, which requires that a sufficient amount of the proprietary interests in Oclaro are preserved by being exchanged in the Merger for Lumentum common stock. The continuity of interest test generally would be satisfied if the Stock Consideration received in the Merger represented at least 40% of the value of the total Merger Consideration, determined based on the value of the Lumentum common stock on the Closing Date. The continuity of interest test is more fully discussed in “Material U.S. Federal Income Tax Consequences” beginning on page 152 of this proxy statement/prospectus. If the aggregate value of the shares of Lumentum common stock delivered to Oclaro stockholders in the Merger is not sufficient to satisfy the continuity of interest test, the Merger will not qualify as a reorganization under Section 368(a) of the Code.

No assurances can be given that the continuity of interest requirement will be met. Therefore, it will not be known at the time of the special meeting whether the Merger will qualify as a reorganization under Section 368(a) of the Code. On the Closing Date, Lumentum and Oclaro will make a determination, in consultation with their tax counsel, as to whether or not the Merger qualifies as a reorganization for U.S. federal income tax purposes, and Lumentum will inform the Oclaro stockholders of such determination as soon as practicable after the Closing. However, stockholder votes will not be resolicited in the event that the Merger does not qualify as a reorganization under Section 368(a) of the Code. As a result, in deciding whether to approve the Merger, you should consider the possibility that it may be taxable to you because the continuity of interest requirement is not satisfied. You will not be entitled to change your vote in the event the Merger is taxable.

If the Merger qualifies as a reorganization, a U.S. Holder (as defined on page 152 of this proxy statement/prospectus) of Oclaro common stock receiving Lumentum common stock and cash in exchange for Oclaro common stock will generally recognize gain equal to the lesser of (1) the amount of cash received by the U.S. Holder (excluding any cash received in lieu of fractional shares of Lumentum common stock) and (2) the excess of the “amount realized” by the U.S. Holder over the U.S. Holder’s tax basis in the Oclaro common stock. The “amount realized” by the U.S. Holder will equal the sum of the fair market value of the Lumentum common stock and the amount of cash (including any cash received in lieu of fractional shares of Lumentum common stock) received by the U.S. Holder. Losses will not be permitted to be recognized. Realized gain or loss must be calculated separately for each identifiable block of shares (i.e. shares acquired at different times and prices) exchanged in the Merger, and a loss realized on the exchange of one block cannot be used to offset a gain recognized on the exchange of another block.

If the Merger does not qualify as a reorganization, the exchange of Oclaro common stock for Lumentum common stock and cash in the First Step Merger will be a fully taxable transaction, in which a U.S. Holder generally will recognize gain or loss equal to the difference between the “amount realized” (as defined above) and the U.S. Holder’s tax basis in the Oclaro common stock. Gain or loss must be calculated separately for each identifiable block of shares exchanged in the First Step Merger. Long-term capital gains of non-corporate taxpayers are generally eligible for preferential rates of taxation. Deductions for capital losses are subject to limitations. Any gain recognized by a non-corporate U.S. holder may be subject to a 3.8% Medicare tax on net investment income.



 

24


The tax consequences to Oclaro stockholders are discussed in greater detail under the heading “Material U.S. Federal Income Tax Consequences” beginning on page 152 of this proxy statement/prospectus. The U.S. federal income tax consequences described above may not apply to all holders of Oclaro common stock, including certain holders specifically referred to on page 153 of this proxy statement/prospectus. Your tax consequences will depend on your own situation. You should consult your tax advisor to determine the particular tax consequences of the Merger to you, including the applicability and effect of the alternative minimum tax, any federal non-income tax, and any state, local or foreign tax laws and of changes in those laws.

Accounting Treatment (see page 155)

Each of Lumentum and Oclaro prepares its financial statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Merger will be accounted for using the acquisition method of accounting with Lumentum treated as the acquiror of Oclaro for accounting purposes. This means that the assets, liabilities and commitments of Oclaro, the accounting acquiree, are adjusted to their estimated fair value at the acquisition date. Under the acquisition method of accounting, intangible assets are amortized over their remaining useful lives and tested for impairment at least annually.

Comparison of Stockholders’ Rights (see page 159)

Oclaro stockholders, whose rights are currently governed by the restated certificate of incorporation of Oclaro, as amended (as amended, the “Oclaro Charter”), and the amended and restated bylaws of Oclaro (the “Oclaro Bylaws”) will, to the extent such holders receive Lumentum common stock in the Merger, upon completion of the Merger, become stockholders of Lumentum and their rights will be governed by the amended and restated certificate of incorporation of Lumentum (the “Lumentum Charter”) and the amended and restated bylaws of Lumentum (the “Lumentum Bylaws”). The differences between the Oclaro governing documents and the Lumentum governing documents are described in detail under the section titled “Comparison of Stockholders’ Rights” beginning on page 159 of this proxy statement/prospectus.

Recent Developments

On April 16, 2018, the U.S. Department of Commerce (“DOC”) changed and reactivated its previously suspended denial order (the “Denial Order”) and suspended the export privileges of Zhongxing Telecommunications Equipment Corporation and its subsidiary, ZTE Kangxun Telecommunications Ltd (together, “ZTE”). Prior to the Denial Order, ZTE was a customer of Oclaro’s and accounted for 18%, 10% and 7.3% of Oclaro’s revenues for the fiscal years ended July 1, 2017, July 2, 2016 and June 27, 2015, respectively. Oclaro urges its stockholders to read the sections titled “Risk Factors” beginning on page 57 of this proxy statement/prospectus, “Certain Unaudited Prospective Financial Information” beginning on page 104 of this proxy statement/prospectus regarding the Denial Order and its impact and any other information contained in Oclaro’s and Lumentum’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q or other public filings that Oclaro and Lumentum, respectively, have previously filed with the SEC or will file with the SEC and that are incorporated by reference into this proxy statement/prospectus.



 

25


THE COMPANIES

Lumentum Holdings Inc.

Lumentum is an industry leading provider of optical and photonic products addressing a range of end market applications including data communications and telecommunications networking and commercial lasers for manufacturing, inspection and life-science applications, as defined by revenue and market share. In addition, Lumentum is using its core optical and photonic technology and its volume manufacturing capability to expand into emerging markets that benefit from advantages that optical or photonics-based solutions provide, including 3D sensing for consumer electronics and diode light sources for a variety of consumer and industrial applications. The majority of Lumentum’s customers are original equipment manufacturers that incorporate Lumentum’s products into their products which address end-market applications. For example, Lumentum sells fiber optic components that its network equipment manufacturer customers assemble into communications networking systems, which they sell to network service providers or enterprises with their own networks. Increasingly, Lumentum is also selling data communications products to owners and operators of large data centers, which Lumentum refers to as hyperscale datacenters. Similarly, many of Lumentum’s customers for its Lasers products incorporate Lumentum’s products into tools they produce, which are used for manufacturing processes by their customers. Lumentum operates in two reportable segments: optical communications and commercial lasers. Lumentum has a global marketing and sales footprint that enables it to address global market opportunities for its products. Lumentum has manufacturing capabilities and facilities in North America, Asia-Pacific and Europe, the Middle East and Africa with employees engaged in R&D, administration, manufacturing, support and sales and marketing activities.

Lumentum was incorporated in Delaware as a wholly owned subsidiary of JDS Uniphase Corporation (“JDSU”) on February 10, 2015 and is comprised of the former communications and commercial optical products segment and WaveReady product lines of JDSU. In August 2015, Lumentum became an independent publicly-traded company through the distribution by JDSU to its stockholders of 80.1% of Lumentum’s outstanding common stock (the “Separation”).

Shares of Lumentum common stock are traded on NASDAQ under the symbol “LITE.” Following the Merger, shares of Lumentum common stock will continue to be traded on NASDAQ under the symbol “LITE.”

The principal executive offices of Lumentum are located at 400 North McCarthy Boulevard, Milpitas, California 95035, and Lumentum’s telephone number is (408) 546-5483. Additional information about Lumentum and its subsidiaries is included in documents incorporated by reference into this proxy statement/prospectus. See the section titled “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus.

Oclaro, Inc.

Oclaro is one of the leading providers of optical components and modules for the long-haul, metro and data center markets. Leveraging more than three decades of laser technology innovation and photonics integration, Oclaro provides differentiated solutions for optical networks and high-speed interconnects driving the next wave of streaming video, cloud computing, application virtualization and other bandwidth-intensive and high-speed applications.

Oclaro was incorporated in Delaware in June 2004. On September 10, 2004, Oclaro became the publicly traded parent company of the Oclaro Technology Ltd (formerly Bookham Technology plc) group of companies, including Oclaro Technology Ltd, a limited company incorporated under the laws of England and Wales whose stock was previously traded on the London Stock Exchange and the NASDAQ National Market under the Bookham name. Effective January 3, 2011, Oclaro common stock was traded on the NASDAQ Global Select Market under the symbol “OCLR.”

 

26


The principal executive offices of Oclaro are located at 225 Charcot Avenue, San Jose, California 95131, and Oclaro’s telephone number is (408) 383-1400. Additional information about Oclaro is included in documents incorporated by reference into this proxy statement/prospectus. See the section titled “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus.

Prota Merger Sub, Inc.

Prota Merger Sub, Inc., or “Merger Sub,” is a direct wholly owned subsidiary of Lumentum and is a Delaware corporation. Merger Sub was formed on March 9, 2018, for the sole purpose of effecting the First Step Merger. In the First Step Merger, Merger Sub will be merged with and into Oclaro, with Oclaro surviving as a direct wholly owned subsidiary of Lumentum.

The principal executive offices of Merger Sub are located at 400 North McCarthy Boulevard, Milpitas, California 95035, and Merger Sub’s telephone number is (408) 546-5483.

Prota Merger, LLC

Prota Merger, LLC, or “Merger Sub LLC,” is a direct wholly owned subsidiary of Lumentum and is a Delaware limited liability company. Merger Sub LLC was formed on March 9, 2018, for the sole purpose of effecting the Second Step Merger. In the Second Step Merger, Oclaro will be merged with and into Merger Sub LLC, with Merger Sub LLC surviving as a direct wholly owned subsidiary of Lumentum.

The principal executive offices of Merger Sub LLC are located at 400 North McCarthy Boulevard, Milpitas, California 95035, and Merger Sub LLC’s telephone number is (408) 546-5483.

 

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SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF LUMENTUM

The following tables present selected historical consolidated financial data of Lumentum as of and for the fiscal years ended July 1, 2017, July 2, 2016, June 27, 2015, June 28, 2014, and June 29, 2013, and as of and for the nine-month periods ended March 31, 2018 and April 1, 2017. The consolidated financial statements of Lumentum have been presented in accordance with U.S. GAAP.

The selected consolidated financial data as of July 1, 2017 and July 2, 2016 and for each of the fiscal years in the three-year period ended July 1, 2017 are derived from Lumentum’s audited consolidated financial statements incorporated by reference into this proxy statement/prospectus. The selected consolidated financial data as of June 27, 2015 and June 28, 2014 and for the fiscal years ended June 28, 2014 and June 29, 2013 are derived from Lumentum’s audited consolidated financial statements that are not incorporated by reference into this proxy statement/prospectus. The selected consolidated financial data as of June 29, 2013 is derived from Lumentum’s unaudited consolidated financial statements that are not incorporated by reference into this proxy statement/prospectus.

The selected consolidated financial data of Lumentum as of and for the nine-month periods ended March 31, 2018 and April 1, 2017 have been derived from the unaudited consolidated interim financial information incorporated by reference into this proxy statement/prospectus, which, in the opinion of Lumentum’s management, includes all adjustments necessary to present fairly Lumentum’s results of operations and financial condition at the dates and for the periods presented. The results for the nine-month period ended March 31, 2018 are not necessarily indicative of the results of operations that you should expect for the entire year ending June 30, 2018, or any other period.

The financial information set forth below is only a summary that should be read in conjunction with the section titled “Risk Factors” beginning on page 57 of this proxy statement/prospectus and Lumentum’s consolidated financial statements, including the related notes, as well as the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Lumentum’s Annual Report on Form 10-K/A for the fiscal year ended July 1, 2017, as amended, and the Quarterly Reports on Form 10-Q for the periods ended September 30, 2017, December 30, 2017 and March 31, 2018 that Lumentum previously filed with the SEC and that are incorporated by reference into this proxy statement/prospectus. Historical results are not necessarily indicative of any results to be expected in the future. See also the section titled “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus for the location of information incorporated by reference in this proxy statement/prospectus.

 

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     Nine Months Ended     Fiscal Year Ended  
     March 31,
2018
    April 1,
2017
    July 1,
2017
    July 2,
2016(1)
    June 27,
2015(1)
    June 28,
2014(1)
    June 29,
2013(1)
 
     (In millions, except per share amounts)  

Net sales

   $ 946.6     $ 778.9     $ 1,001.6     $ 903.0     $ 837.1     $ 817.9     $ 769.9  

Cost of sales (1)

     607.6       523.0       677.0       618.9       571.6       552.3       534.9  

Amortization of acquired technologies

     2.4       5.1       6.5       6.8       7.6       9.0       12.2  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     336.6       250.8       318.1       277.3       257.9       256.6       222.8  

Operating expenses:

              

Research and development (1)

     118.3       112.9       148.3       141.1       140.8       134.9       113.7  

Selling, general and administrative (1)

     95.5       84.2       110.2       117.3       128.9       108.2       102.6  

Restructuring and related charges

     3.8       10.0       12.0       7.4       11.6       4.8       2.6  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total Operating Expenses

     217.6       207.1       270.5       265.8       281.3       247.9       218.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) from operations

     119.0       43.7       47.6       11.5       (23.4     8.7       3.9  

Unrealized loss on derivative liabilities

     (8.6     (74.5     (104.2     (0.6     —         —         —    

Interest expense

     —         —         —         —         —         (0.2     (1.0

Interest and other income (expense), net

     (8.7     (1.4     (3.2     (1.2     (1.1     1.3       0.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     101.7       (32.2     (59.8     9.7       (24.5     9.8       3.7  

Provision for (benefit from) income tax

     (112.9     15.4       42.7       0.4       (21.1     (0.9     (2.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     214.6       (47.6     (102.5     9.3       (3.4     10.7       6.5  

Cumulative dividends on Series A Preferred Stock

     (0.7     (0.6     (0.9     (0.8     —         —         —    

Earnings allocated to Series A Preferred Stock

     (4.9     —         —         —         —         —         —    

Accretion of Series A Preferred Stock

     —         —         —         (11.7     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ 209.0     $ (48.2   $ (103.4   $ (3.2   $ (3.4   $ 10.7     $ 6.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to common stockholders

              

Basic (per share)

   $ 3.37     $ (0.80   $ (1.71   $ (0.05   $ (0.06   $ 0.18     $ 0.11  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted (per share)

   $ 3.31     $ (0.80   $ (1.71   $ (0.05   $ (0.06   $ 0.18     $ 0.11  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Shares used in per share calculation attributable to common stockholders

              

Basic common shares outstanding

     62.1       60.4       60.6       59.1       58.8       58.8       58.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Diluted common shares outstanding

     63.2       60.4       60.6       59.1       58.8       58.8       58.8  

 

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     As of Nine Months
Ended
     As of Fiscal Year Ended  
     March 31,
2018
     April 1,
2017
     July 1,
2017
     July 2,
2016(1)
     June 27,
2015(1)
     June 28,
2014(1)
     June 29,
2013(1)
 
     (In millions)         

Condensed Balance Sheet Data:

                    

Cash and cash equivalents and short-term investments

   $ 692.8      $ 577.9      $ 555.3      $ 157.1      $ 14.5      $ 19.9      $ 7.8  

Working Capital

     873.2        749.5        746.1        315.8        188.6        149.1        133.4  

Total assets

     1,518.2        1,244.5        1,232.9        726.3        512.6        492.1        410.7  

Convertible notes payable

     329.9        313.4        317.5        —          —          —          —    

Capital lease obligation

     9.2        —          —          —          —          —          —    

Total liabilities

     605.8        740.1        578.3        193.1        132.0        156.5        128.9  

Redeemable convertible preferred stock

     35.8        35.8        35.8        35.8        —          —          —    

Stockholders’ equity

     876.6        468.6        618.8        497.4        380.6        335.6        281.8  

 

(1) Lumentum’s historical consolidated financial statements for the fiscal years ended July 2, 2016, June 27, 2015, June 28, 2014 and June 29, 2013 include allocations of expenses arising from shared services and infrastructure provided by Viavi to Lumentum, including costs of information technology, human resources, accounting, legal, real estate and facilities, corporate marketing, insurance, treasury and other corporate and infrastructure services. The financial information included here may not necessarily reflect Lumentum’s financial position and results of operations or what Lumentum’s financial position and results of operations would have been had Lumentum been an independent, publicly-traded company during the entirety of the periods presented or be indicative of Lumentum’s future performance as an independent company.

 

30


SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF OCLARO

The following tables present selected historical consolidated financial data of Oclaro as of and for the fiscal years ended July 1, 2017, July 2, 2016, June 27, 2015, June 28, 2014, and June 29, 2013, and as of and for the nine-month periods ended March 31, 2018 and April 1, 2017. The consolidated financial statements of Oclaro have been presented in accordance with U.S. GAAP.

The selected consolidated financial data as of July 1, 2017 and July 2, 2016 and for each of the fiscal years in the three-year period ended July 1, 2017 are derived from Oclaro’s audited consolidated financial statements contained in Oclaro’s Annual Report on From 10-K for the fiscal year ended July 1, 2017, which is incorporated by reference into this proxy statement/prospectus. The selected consolidated financial data as of June 28, 2014 and June 29, 2013 and for each of the fiscal years in the two-year period ended June 28, 2014 are derived from Oclaro’s audited consolidated financial statements contained in Oclaro’s other reports filed with the SEC, which are not included or incorporated by reference into this proxy statement/prospectus.

The selected consolidated financial data of Oclaro as of and for the nine-month periods ended March 31, 2018 and April 1, 2017 have been derived from Oclaro’s unaudited consolidated interim financial statements incorporated by reference into this proxy statement/prospectus, which in the opinion of Oclaro’s management, includes all adjustments necessary to present fairly Oclaro’s results of operations and financial condition at the dates and for the periods presented. The results for the nine-month period ended March 31, 2018 are not necessarily indicative of the results of operations that you should expect for the entire year ending June 30, 2018, or any other period.

 

31


The financial information set forth below is only a summary that should be read in conjunction with the section titled “Risk Factors” beginning on page 57 of this proxy statement/prospectus and Oclaro’s consolidated financial statements, including the related notes, as well as the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in Oclaro’s Annual Report on Form 10-K for the fiscal year ended July 1, 2017 and the Quarterly Reports on Form 10-Q for the periods ended September 30, 2017, December 30, 2017 and March 31, 2018 that Oclaro previously filed with the SEC and that are incorporated by reference into this proxy statement/prospectus. Historical results are not necessarily indicative of any results to be expected in the future. See also the section titled “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus for the location of information incorporated by reference in this proxy statement/prospectus.

 

    Nine Months Ended     Fiscal Year Ended  
    March 31,
2018
    April 1,
2017
    July 1,
2017
    July 2,
2016
    June 27,
2015
    June 28,
2014
    June 29,
2013
 
    (in thousands, except per share data)  

Income Statement Data:

             

Revenues

  $ 422,226     $ 451,588     $ 600,968     $ 407,914     $ 341,276     $ 390,871     $ 404,629  

Cost of revenues

    264,130       277,680       365,729       291,496       284,528       338,424       376,461  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    158,096       173,908       235,239       116,418       56,748       52,447       28,168  

Operating expenses:

             

Research and development

    48,205       41,344       57,094       46,067       46,419       64,218       79,266  

Selling, general and administrative

    47,760       42,883       58,461       53,457       56,256       70,937       78,618  

Amortization of other intangible assets

    460       635       786       995       1,133       1,680       5,029  

Restructuring, acquisition and related (income expense) net

    3,084       92       60       25       (1,516     18,491       (7,631

(Gain) loss on sale of property and equipment

    172       (127     (130     32       (83     665       170  

Flood-related (income) expense, net

    —         —         —         —         —         (1,797     (29,510

Impairment of goodwill, other intangible assets and long-lived assets

    —         —         —         —         —         584       27,021  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

    99,681       84,827       116,271       100,576       102,209       154,778       152,963  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

    58,415       89,081       118,968       15,842       (45,461     (102,331     (124,795
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income (expense):

             

Interest income (expense), net

    810       (13,613     (13,313     (4,986     (2,051     (9,228     (3,271

Gain (loss) on foreign currency transactions, net

    4,195       (3,155     (3,652     (2,362     (2,144     (1,158     (14,542

Other income (expense), net

    2,416       583       810       935       1,750       1,227       (2,527

Gain on bargain purchase

    —         —         —         —         —         —         24,866  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other income (expense)

    7,421       (16,185     (16,155     (6,413     (2,445     (9,159     4,526  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

    65,836       72,896       102,813       9,429       (47,906     (111,490     (120,269

Income tax (benefit) provision

    9,803       1,064       (25,046     849       328       (9,365     26  

Income (loss) from continuing operations

    —         —         —         —         (48,234     (102,125     (120,295

Income (loss) from discontinued operations

    —         —         —         —         (8,458     119,944       (2,450
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss).

  $ 56,033     $ 71,832     $ 127,859     $ 8,580     $ (56,692   $ 17,819     $ (122,745
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share

             

Basic continuing operations

  $ 0.33     $ 0.46     $ 0.81     $ 0.08     $ (0.45   $ (1.03   $ (1.37

Diluted continuing operations

  $ 0.33     $ 0.44     $ 0.77     $ 0.08     $ (0.45   $ (1.03   $ (1.37

Basic discontinued operations

    —         —         —         —       $ (0.08   $ 1.21     $ (0.03

Diluted discontinued operations

    —         —         —         —       $ (0.08   $ 1.21     $ (0.03

Shares used in computing net income (loss) per share

             

Basic

    168,910       155,037       158,115       110,599       108,144       98,986       87,770  

Diluted

    171,338       163,237       165,031       113,228       108,144       98,986       87,770  

 

32


     Nine Months Ended      Fiscal Year Ended  
     March 31,
2018
     April 1,
2017
     July 1,
2017
     July 2,
2016
     June 27,
2015
     June 28,
2014
     June 29,
2013
 
     (in thousands)  

Balance Sheet Data:

                    

Current assets

   $ 558,876      $ 505,551      $ 521,770      $ 290,175      $ 279,018      $ 303,369      $ 363,188  

Property and equipment, net

     137,999        100,459        114,333        65,045        41,766        50,768        72,028  

Other intangible assets, net

     241        840        699        1,498        2,579        8,536        10,233  

Deferred tax assets, non-current

     19,325        —          25,774        94        —          —          —    

Other non-current assets

     1,622        2,474        2,573        2,237        2,521        3,012        4,445  

Total assets

     718,063        609,324        665,149        359,049        325,884        365,685        449,894  

Current liabilities

     117,797        138,808        133,183        109,772        92,361        128,162        236,529  

Deferred gain on sale-leaseback

     5,747        5,844        5,895        6,809        8,978        10,711        10,477  

Convertible notes payable

     —          —          —          62,058        61,246        —          22,990  

Capital lease obligations, non-current

     1,033        1,516        1,379        2,105        1,167        4,539        9,914  

Other non-current liabilities

     11,212        10,956        11,019        11,694        9,132        14,345        15,852  

Total liabilities

     135,789        157,124        151,476        192,438        172,884        157,757        295,762  

Stockholders’ equity

     582,274        452,200        513,673        166,611        153,000        207,928        154,132  

 

33


UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

On March 11, 2018, Lumentum, Oclaro, Merger Sub and Merger Sub LLC entered into the Merger Agreement, pursuant to which Lumentum agreed to acquire Oclaro by way of a merger of Merger Sub with and into Oclaro, with Oclaro as the interim surviving corporation, followed as soon as practicable by a merger of Oclaro with and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving entity and as a wholly owned subsidiary of Lumentum. Upon completion of the Merger, each share of Oclaro common stock issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive $5.60 in cash without interest, and 0.0636 of a share of Lumentum common stock, subject to the conditions and restrictions set forth in the Merger Agreement.

The unaudited pro forma condensed combined balance sheet as of March 31, 2018 gives effect to the Merger, as if the Merger had been completed on March 31, 2018 and combines the unaudited condensed consolidated balance sheet of Lumentum as of March 31, 2018 with Oclaro’s unaudited condensed consolidated balance sheet as of March 31, 2018.

The unaudited pro forma condensed combined statements of operations for the year ended July 1, 2017 and the nine months ended March 31, 2018 give effect to the Merger as if it had occurred on July 3, 2016, the first day of Lumentum’s fiscal 2017, and combines the historical results of Lumentum and Oclaro. The unaudited pro forma condensed combined statement of operations for the fiscal year ended July 1, 2017 combines the audited consolidated statement of operations of Lumentum for the fiscal year ended July 1, 2017 with Oclaro’s audited consolidated statement of operations for the fiscal year ended July 1, 2017. The unaudited pro forma condensed combined statement of operations for the fiscal nine months ended March 31, 2018 combines the unaudited condensed consolidated statement of operations of Lumentum for the fiscal nine months ended March 31, 2018 with Oclaro’s unaudited condensed consolidated statement of operations for the fiscal nine months ended March 31, 2018.

The historical consolidated financial information has been adjusted in the unaudited pro forma condensed combined financial statements to give effect to pro forma events that are (i) directly attributable to the Merger, (ii) factually supportable, and (iii) with respect to the statements of operations, expected to have a continuing impact on the combined company’s results.

The unaudited pro forma condensed combined financial information presented is for informational purposes only and is not necessarily indicative of the financial position or results of operations that would have been realized if the Merger had been completed on the dates set forth above, nor is it indicative of future results or financial position of the combined company. Additionally, the final determination of the purchase price and the purchase price allocation, upon the completion of the Merger, will be based on Oclaro’s net assets acquired as of that date and will depend on a number of factors that cannot be predicted with certainty at this time. The unaudited pro forma condensed combined financial information does not reflect any anticipated synergies or dissynergies, operating efficiencies or cost savings that may result from the Merger or potential divestitures that may occur prior to, or subsequent to, completion of the Merger or any acquisition and integration costs that may be incurred. The pro forma adjustments, which Lumentum believes are reasonable under the circumstances, are preliminary and are based upon available information and certain assumptions described in the accompanying notes to the unaudited pro forma condensed combined financial information. Actual results and valuations may differ materially from the assumptions within the accompanying unaudited pro forma condensed combined financial information.

The transaction is being accounted for as a business combination using the acquisition method with Lumentum as the accounting acquirer in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). Under this method of accounting, the purchase price will be allocated to Oclaro’s assets acquired and liabilities assumed based upon their estimated fair values at the date of completion of the Merger. The process of valuing the tangible and intangible assets and liabilities of Oclaro

 

34


immediately prior to the Merger, as well as evaluating accounting policies for conformity, is preliminary. The final valuation may materially change the allocation of the Merger Consideration, which could materially affect the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial information. Refer to Note 2 of the “Notes to Unaudited Pro Forma Condensed Combined Financial Information” for more information on the basis of presentation. The pro forma adjustments are preliminary and have been made solely for the purpose of providing unaudited pro forma condensed combined financial statements prepared in accordance with the rules and regulations of the SEC.

The unaudited pro forma condensed combined financial information should be read in conjunction with:

 

    the accompanying notes to the unaudited condensed combined pro forma financial information;

 

    the separate audited consolidated financial statements of Lumentum as of and for the fiscal year ended July 1, 2017 and the related notes, included in Lumentum’s Annual Report on Form 10-K/A for the fiscal year ended July 1, 2017, incorporated by reference into this proxy statement/prospectus;

 

    the separate unaudited condensed consolidated financial statements of Lumentum as of and for the fiscal nine months ended March 31, 2018 and the related notes, included in Lumentum’s Quarterly Report on Form 10-Q for the period ended March 31, 2018, incorporated by reference into this proxy statement/prospectus;

 

    the separate audited consolidated financial statements of Oclaro as of and for the fiscal year ended July 1, 2017 and the related notes, included in Oclaro’s Annual Report on Form 10-K for the fiscal year ended July 1, 2017, incorporated by reference into this proxy statement/prospectus; and

 

    the separate unaudited condensed consolidated financial statements of Oclaro as of and for the fiscal nine months ended March 31, 2018 and the related notes, included in Oclaro’s Quarterly Report on Form 10-Q for the period ended March 31, 2018, incorporated by reference into this proxy statement/prospectus.

 

35


UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

AS OF MARCH 31, 2018

(in millions)

 

    Historical     Reclassification
Adjustments

(Note 4)
    Pro Forma
Adjustments

(Note 6)
    Pro
Forma

Combined
 
    Lumentum     Oclaro        

ASSETS

         

Current Assets:

         

Cash and cash equivalents

  $ 176.8     $ 180.0     $ —       $ (180.0 )(a)    $ 176.8  

Short-term investments

    516.0       124.4       —         (300.5 )(a)      339.9  

Accounts receivable, net

    164.7       111.6       —         —         276.3  

Inventories

    144.2       103.9       —         54.1 (b)      302.2  

Prepayments and other current assets

    63.0       39.0       —         —         102.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

    1,064.7       558.9       —         (426.4     1,197.2  

Property, plant and equipment, net

    301.8       138.0       —         —         439.8  

Goodwill, net

    11.8       —         —         603.4 (d)      615.2  

Intangibles, net

    8.1       0.2       —         542.3 (c)      550.6  

Deferred income taxes

    128.2       19.4       —         —         147.6  

Other non-current assets

    3.6       1.6       —         —         5.2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

  $ 1,518.2     $ 718.1     $ —       $ 719.3     $ 2,955.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

         

Accounts payable

  $ 100.9     $ 73.1     $ —       $ —       $ 174.0  

Accrued payroll and related expenses

    33.2       —         13.2       —         46.4  

Income taxes payable

    0.1       —         —         —         0.1  

Accrued expenses

    36.3       42.2       (17.3     —         61.2  

Current portion of long-term debt

    —         —         —         4.5 (f)      4.5  

Capital lease obligations, current

    —         2.5       (2.5     —         —    

Other current liabilities

    21.0       —         6.6       —         27.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

    191.5       117.8       —         4.5       313.8  

Deferred gain on sale-leaseback

    —         5.8       (5.8     —         —    

Convertible Notes

    329.9       —         —         537.2 (f)      867.1  

Capital lease obligations, non-current

    —         1.0       (1.0     —         —    

Deferred income taxes

    —         —         —         138.2 (e)      138.2  

Derivative liability

    60.2       —         —         —         60.2  

Other non-current liabilities

    24.2       11.2       6.8       2.5 (g)      44.7  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

    605.8       135.8       —         682.4       1,424.0  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Redeemable convertible preferred stock:

         

Non-controlling interest redeemable convertible Series A Preferred Stock

    35.8       —         —         —         35.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total redeemable convertible preferred stock

    35.8       —         —         —         35.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Stockholders’ equity:

         

Common stock

    0.1       1.7       —         (1.6 )(h)(i)      0.2  

Additional paid-in capital

    736.0       1,700.1       —         (1,041.9 )(h)(i)      1,394.2  

Retained earnings / (Accumulated deficit)

    133.2       (1,162.0     —         1,122.9 (j)      94.1  

Accumulated other comprehensive income

    7.3       42.5       —         (42.5 )(h)      7.3  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total stockholders’ equity

    876.6       582.3       —         36.9       1,495.8  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities, redeemable convertible preferred stock, and stockholders’ equity

  $ 1,518.2     $ 718.1     $ —       $ 719.3     $ 2,955.6  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information

 

36


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED JULY 1, 2017

(in millions, except per share amounts)

 

     Historical     Reclassification
Adjustments

(Note 4)
    Pro Forma
Adjustments

(Note 7)
    Pro
Forma

Combined
 
     Lumentum     Oclaro        

Net revenue

   $ 1,001.6     $ 601.0     $ —       $ —       $ 1,602.6  

Cost of sales

     677.0       365.8       —         0.9 (a)      1,043.6  

Amortization of acquired technologies

     6.5       —         —         85.0 (b)      91.5  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     318.1       235.2       —         (85.9     467.5  

Operating expenses:

          

Research and development

     148.3       57.1       —         1.1 (c)      206.5  

Selling, general and administrative

     110.2       58.5       0.6       17.9 (d)      187.2  

Amortization of other intangible assets

     —         0.7       (0.7     —         —    

Gain on sale of property and equipment

     —         (0.1     0.1       —         —    

Restructuring and related charges

     12.0       0.1       —         —         12.1  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     270.5       116.3       0.0       19.0       405.8  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income from operations

     47.6       118.9       (0.0     (104.9     61.7  

Unrealized loss on derivative liabilities

     (104.2     —         —         —         (104.2

Interest and other expense, net

     (3.2     (13.3     (2.8     (30.7 )(e)      (50.1

Loss on foreign currency transactions

     —         (3.6     3.6       —         —    

Other income, net

     —         0.8       (0.8     —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     (59.8     102.8       —         (135.6     (92.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Provision for (benefit from) income tax

     42.7       (25.1     —         (50.4 )(f)      (32.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     (102.5     127.9       —         (85.2     (59.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cumulative dividends on Series A Preferred Stock

     (0.9     —         —         —         (0.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to common stockholders

   $ (103.4   $ 127.9     $ —       $ (85.2   $ (60.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per share attributable to common stockholders (Note 7(h)):

          

Basic

   $ (1.71   $ 0.81         $ (0.84

Diluted

   $ (1.71   $ 0.77         $ (0.84

Shares used in per share calculation attributable to common stockholders (Note 7(h)):

          

Basic

     60.6       158.1           71.9  

Diluted

     60.6       165.0           71.9  

 

 

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information

 

37


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

FOR THE NINE MONTHS ENDED MARCH 31, 2018

(in millions, except per share amounts)

 

     Historical      Reclassification
Adjustments

(Note 4)
    Pro Forma
Adjustments

(Note 7)
    Pro
Forma

Combined
 
     Lumentum     Oclaro         

Net revenue

   $ 946.6     $ 422.2      $ —       $ —       $ 1,368.8  

Cost of sales

     607.6       264.1        —         0.8 (a)      872.2  

Amortization of acquired technologies

     2.4       —          —         41.3 (b)      43.7  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     336.6       158.1        —         (42.1     452.6  

Operating expenses:

           

Research and development

     118.3       48.2        —         1.1 (c)      167.6  

Selling, general and administrative

     95.5       47.8        0.6       8.5 (d)      152.4  

Amortization of other intangible assets

     —         0.4        (0.4     —         —    

Loss on sale of property and equipment

     —         0.2        (0.2     —         —    

Restructuring and related charges

     3.8       3.1        —         —         6.9  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Total operating expenses

     217.6       99.7        (0.0     9.6       326.9  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income from operations

     119.0       58.4        0.0       (51.7     125.7  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Unrealized loss on derivative liabilities

     (8.6     —          —         —         (8.6

Interest and other income (expense), net

     (8.7     0.8        6.6       (22.9 )(e)      (24.2

Gain on foreign currency transactions, net

     —         4.2        (4.2     —         —    

Other income, net

     —         2.4        (2.4     —         —    
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Income before income taxes

     101.7       65.8        —         (74.6     92.9  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Provision for (benefit from) income tax

     (112.9     9.8        —         (17.8 )(f)      (120.9
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income

     214.6       56.0        —         (56.8     213.8  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Cumulative dividends on Series A Preferred Stock

     (0.7     —          —         —         (0.7

Earnings allocated to Series A Preferred Stock

     (4.9     —          —         0.8 (g)      (4.1
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income attributable to common stockholders

   $ 209.0     $ 56.0      $ —       $ (56.0   $ 209.0  
  

 

 

   

 

 

    

 

 

   

 

 

   

 

 

 

Net income per share attributable to common stockholders (Note 7(h)):

           

Basic

   $ 3.37     $ 0.33          $ 2.84  

Diluted

   $ 3.31     $ 0.33          $ 2.79  

Shares used in per share calculation attributable to common stockholders (Note 7(h)):

           

Basic

     62.1       168.9            73.5  

Diluted

     63.2       171.3            74.7  

 

 

See accompanying notes to the Unaudited Pro Forma Condensed Combined Financial Information

 

38


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

 

1. Description of the Merger

On March 11, 2018, Lumentum, Oclaro, Merger Sub and Merger Sub LLC entered into the Merger Agreement, pursuant to which Lumentum agreed to acquire Oclaro by way of a merger of Merger Sub with and into Oclaro, with Oclaro as the interim surviving corporation, followed as soon as practicable by a merger of Oclaro with and into Merger Sub LLC, with Merger Sub LLC continuing as the surviving entity and as a wholly owned subsidiary of Lumentum. Upon completion of the Merger, each share of Oclaro common stock issued and outstanding immediately prior to the effective time of the Merger will be converted into the right to receive $5.60 in cash, without interest, and 0.0636 of a share of Lumentum common stock, subject to the conditions and restrictions set forth in the Merger Agreement.

Under the terms of the Merger Agreement, at the Effective Time:

(a) Each Oclaro RSU that is outstanding and unvested immediately before the effective time of the Merger (and does not vest as a result of the Merger) will be assumed by Lumentum on substantially the same terms and conditions as applied to the related Oclaro RSU immediately before the Effective Time (including the applicable vesting schedule), except the number of shares of Lumentum common stock subject to each Assumed RSU will equal the product of (i) the number of shares of Oclaro common stock underlying the applicable unvested Oclaro RSU immediately before the Effective Time (with any performance milestones deemed achieved based on maximum level of performance) multiplied by (ii) the Equity Award Exchange Ratio (rounded down to the nearest whole share). Any vested and unsettled Oclaro RSU as of immediately before the Effective Time will be treated as outstanding Oclaro common stock and will receive the Merger Consideration, subject to applicable tax withholding;

(b) Each share of Oclaro restricted stock that is outstanding and unvested immediately before the Effective Time will be treated as an outstanding share of Oclaro common stock and will receive the Merger Consideration, subject to applicable tax withholding;

(c) Except as provided below, each Oclaro common stock option that is outstanding, whether vested or unvested, immediately before the Effective Time will be assumed by Lumentum on substantially the same terms and conditions as applied to the related Oclaro Option immediately before the Effective Time (including the applicable vesting schedule), except (A) the number of shares of Lumentum common stock subject to each Assumed Option will equal the product of (x) the number of shares of Oclaro common stock underlying such Assumed Option immediately before the Effective Time multiplied by (y) the Equity Award Exchange Ratio (rounded down to the nearest whole share), and (B) the per share exercise price of each Assumed Option will equal the quotient determined by dividing (x) the exercise price per share of such Assumed Option immediately before the Effective Time by (y) the Equity Award Exchange Ratio (rounded up to the nearest whole cent);

(d) Each Cancelled Oclaro Option will be cancelled and converted into the right to receive the Merger Consideration in respect of each “net option share” of Oclaro common stock covered by such Cancelled Oclaro Option, subject to applicable tax withholding. The number of “net option shares” will be determined under a formula specified in the Merger Agreement that takes into account the exercise price of such Cancelled Oclaro Option. Any fractional net option shares (after aggregating all shares represented by all Cancelled Oclaro Options held by such holder) will be settled in cash based on the cash equivalent value of the Merger Consideration, subject to applicable tax withholding. If the exercise price per share of any Cancelled Oclaro Option is equal to or greater than the Merger Consideration, such Oclaro Option will be cancelled without payment; and

(e) Each Oclaro SAR that is outstanding, whether vested or unvested, will be cancelled and converted into the right to receive a cash amount equal to the product of (i) the number of shares of Oclaro common stock issuable upon exercise of the Oclaro SAR, multiplied by (ii) the excess, if any of (x) the cash equivalent value of the Merger Consideration over (y) the strike price of such Oclaro SAR, subject to applicable tax withholding.

 

39


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

Further, pursuant to the Merger Agreement, prior to the Closing Date, Oclaro will obtain the resignation of each individual serving as a director or officer of (or comparable position with) Oclaro and its subsidiaries, unless Lumentum instructs Oclaro otherwise.

 

2. Description of the Financing Transaction

In connection with execution of the Merger Agreement, on March 11, 2018, Lumentum entered into a commitment letter (the “Commitment Letter”) with Deutsche Bank AG New York Branch (“DBNY”) and Deutsche Bank Securities Inc. (“DBSI”) pursuant to which DBNY committed to provide to Lumentum a senior secured term loan facility in an aggregate principal amount of up to $550.0 million (the “Committed Term Loan Facility”), subject to the execution of definitive documentation and the satisfaction of customary closing conditions.

In addition to the Committed Initial Term Loan Facility, Lumentum has the ability to request additional senior secured term loans in an aggregate principal amount not to exceed $250.0 million (the “Additional Uncommitted Term Loans”) on the Closing Date. Collectively, the Committed Initial Term Loan Facility and Additional Uncommitted Term Loans is referred to as “Initial Term Loan Facility”.

The proceeds of the Initial Term Loan Facility will be used, together with cash on hand of Lumentum and Oclaro and/or other available resources, (a) to finance the cash portion of the Merger Consideration payable pursuant to the terms of the Merger Agreement and (b) to pay related transaction costs.

The duration of the Committed Term Loan Facility is seven years. The Committed Term Loan Facility requires quarterly principal payments equal to 0.25% of the initial aggregate principal amount of the term loan (i.e. $1.4 million) for the first 6-3/4 years. The Company has an option to carry the committed term loan facility as Base Rate loans, which shall bear interest at the Base Rate in effect from time to time plus the Applicable Margin (as defined below) or (y) LIBOR loans, which shall bear interest at LIBOR for the respective interest period plus the Applicable Margin. The terms are defined as below-

 

    The “Base Rate” shall mean the highest of (x) the rate that the Administrative Agent announces from time to time as its prime lending rate, as in effect from time to time, (y) 1/2 of 1.00% in excess of the overnight federal funds rate, and (z) LIBOR for an interest period of one month (determined after giving effect to any applicable “floor”) plus 1.00%. In no event shall the Base Rate be less than zero.

 

    “LIBOR” means the London interbank offered rate for US Dollars as determined by customary reference to the ICE Benchmark Administration London Interbank Offered Rate, as applicable and as adjusted for customary Eurodollar reserve requirements, if any; provided that LIBOR shall not be less than zero percent per annum.

 

    The “Applicable Margin ” shall mean a percentage per annum equal to (i) in the case of term loans maintained as Base Rate loans, 1.50%, and (ii) in the case of term loans maintained as LIBOR loans, 2.50%; provided that so long as no default or event of default under the Term Loan Facility has occurred and is continuing, the Applicable Margin for Term Loans shall be subject to a single step-down of 25 basis points based on meeting a first-lien net leverage ratio of 0.50x inside the First-Lien Net Leverage Ratio as of the Closing Date.

The interest in respect of Base Rate loans is payable quarterly in arrears on the last business day of each calendar quarter whereas the interest in respect of LIBOR loans shall be payable in arrears at the end of the applicable interest period and every three months in the case of interest periods in excess of three months. Further, interest will also be payable at the time of repayment of any loans and at maturity.

 

40


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

The Initial Term Loan Facility contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, and dispositions, prepayment of other indebtedness and dividends and other distributions, and customary events of default.

Lumentum plans to borrow the full $550.0 million available under the Committed Initial Term Loan Facility as a LIBOR-based borrowing, at an interest rate of 5.42% (interest rate in effect as assumed date of borrowing) per annum. If Lumentum has incremental borrowings under the Additional Uncommitted Term Loans facility, the additional interest expense for year ended July 1, 2017 and nine months ended March 31, 2018 would be $2.8 million and $2.1 million, respectively, for every $50.0 million borrowed.

 

3. Basis of Presentation

The unaudited pro forma condensed combined financial information and related notes are prepared in accordance with Article 11 of Regulation S-X and present the historical financial information of Lumentum and Oclaro adjusted to give effect to events that are: (1) directly attributable to the Merger, (2) factually supportable and (3) with respect to the unaudited pro forma condensed combined statements of operations, expected to have a continuing impact on the combined results.

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting in accordance with ASC 805, with Lumentum as the accounting acquirer, using the fair value concepts defined in ASC Topic 820, Fair Value Measurement, and based on the historical consolidated financial statements of Lumentum and Oclaro. Under ASC 805, all assets acquired and liabilities assumed in a business combination are recognized and measured at their assumed acquisition date fair value, while transaction costs associated with the business combination are expensed as incurred. The excess of Merger Consideration over the fair value of assets acquired and liabilities assumed, if any, is allocated to goodwill. Acquired in-process research and development (“IPR&D”) is recorded at fair value as an indefinite-lived intangible asset at the assumed merger date until completion or abandonment of the associated research and development (“R&D”) efforts. Upon completion of development, acquired IPR&D assets are considered amortizable, finite-lived assets.

The allocation of the purchase consideration for the Merger depends upon certain estimates and assumptions, all of which are preliminary. The allocation of the purchase consideration has been made for the purpose of developing the unaudited pro forma condensed combined financial information. The final determination of fair values of assets acquired and liabilities assumed relating to the acquisition could differ materially from the preliminary allocation of purchase consideration. The final valuation will be based on the actual net tangible and intangible assets of Oclaro existing at the acquisition date. The final valuation may materially change the allocation of the purchase consideration, which could materially affect the fair values assigned to the assets and liabilities and could result in a material change to the unaudited pro forma condensed combined financial information.

The pro forma adjustments represent Lumentum management’s best estimates and are based upon currently available information and certain assumptions that Lumentum believes are reasonable under the circumstances. Lumentum is not aware of any material transactions between Lumentum and Oclaro (prior to the announcement of the Merger) during the periods presented. Accordingly, adjustments to eliminate transactions between Lumentum and Oclaro have not been reflected in the unaudited pro forma condensed combined financial information.

The unaudited pro forma condensed combined financial information presented is for illustrative purposes only and is not necessarily indicative of the financial position or results of operations that would have been

 

41


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

realized if the Merger had been completed on the dates indicated, nor is it indicative of future operating results or financial position. The unaudited pro forma condensed combined financial information does not reflect any cost savings, operating synergies or revenue enhancements that the combined company may achieve as a result of the Merger, the costs to integrate the operations of Lumentum and Oclaro or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements.

 

4. Accounting Policies and Reclassification Adjustments

The accounting policies used in the preparation of this unaudited pro forma condensed combined financial information are those set out in Lumentum’s financial statements as of and for the fiscal year ended July 1, 2017 and for the fiscal nine months ended March 31, 2018. With the information currently available, Lumentum has determined that no significant adjustments are necessary to conform Oclaro’s financial statements to the accounting policies used by Lumentum in the preparation of the unaudited pro forma condensed combined financial information. However, certain reclassification adjustments have been made to the unaudited pro forma condensed financial information to conform Oclaro’s historical financial statement presentation to Lumentum’s financial statement presentation. Upon consummation of the Merger, Lumentum will perform a comprehensive review of Oclaro’s accounting policies. As a result of that review, Lumentum may identify differences between the accounting policies of the two companies which, when conformed, could have a material impact on the combined consolidated financial statements.

 

5. Calculation of Estimated Merger Consideration and Preliminary Purchase Price Allocation

Estimated Merger Consideration

Estimated Merger Consideration was determined by reference to the fair value on May 4, 2018. The calculation of estimated Merger Consideration is as follows:

 

     Shares      Per Share      Total  
     (In millions, except per share
amounts)
 

Estimated cash paid for outstanding Oclaro common stock (1)

         $ 953.2  

Estimated Lumentum common shares issued to Oclaro stockholders (2)

     10.8      $ 58.95        638.2  

Estimated consideration for Oclaro’s equity awards (3)

           13.4  

Estimated replacement equity awards for Oclaro equity awards (4)

           6.3  
        

 

 

 

Preliminary estimated merger consideration

         $ 1,611.1  

 

(1) The cash component of the estimated Merger Consideration is computed based on 100% of the outstanding shares of Oclaro common stock being exchanged for the Cash Consideration of $5.60.

 

     Shares      Per Share      Total  
     (In millions, except per share
amounts)
 

Oclaro common stock outstanding as of May 4, 2018

     170.2      $ 5.60      $ 953.2  

 

(2) The stock consideration component of the estimated Merger Consideration is computed based on 100% of the outstanding shares of Oclaro common stock being exchanged for the Exchange Ratio of 0.0636 Lumentum common stock.

 

42


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

     Shares      Exchange
Ratio
     Total  
     (In millions, except per share
amounts)
 

Oclaro common stock outstanding as of May 4, 2018

     170.2        0.0636        10.8  

Lumentum common stock price as of May 4, 2018

         $ 58.95  

Estimated Lumentum common shares issued to Oclaro stockholders

         $ 638.2  

 

(3) Estimated consideration includes cash component of the Merger Consideration for Oclaro RSUs assumed to have vested by the Effective Time. Further, the estimated consideration also includes settlement of (a) Oclaro Restricted Stock and Oclaro RSUs held by directors or officers and (b) Cancelled Oclaro Options to be cancelled and paid out at the time of the close of the Merger. For purposes of calculating the estimated consideration for Oclaro’s equity awards, it is assumed that each individual serving as a director or officer of (or comparable position with) Oclaro and its subsidiaries resigns from such position as of the Effective Time.
(4) Estimated consideration for replacement of Oclaro’s outstanding equity awards. As discussed in Note 1 of the “Notes to Unaudited Pro Forma Condensed Combined Financial Information,” certain equity awards of Oclaro will be replaced by Lumentum’s equity awards with similar terms. A portion of the fair value of Lumentum’s equity awards issued represents consideration transferred, while a portion represents compensation expense based on the vesting terms of the equity awards.

The final estimated Merger Consideration could significantly differ from the amounts presented in the unaudited pro forma condensed combined financial information due to movements in the Lumentum common stock price up to the Closing Date of the Merger. A sensitivity analysis related to the fluctuation in the Lumentum common stock price was performed to assess the impact a hypothetical change of 10% on the closing price of Lumentum common stock on May 4, 2018, would have on the estimated Merger Consideration and goodwill as of the Closing Date.

The following table shows the change in stock price, estimated Merger Consideration and goodwill:

 

     Stock
price
     Estimated
Merger
Consideration
     Goodwill  
     (In millions, except per share amounts)  

Increase of 10%

   $ 64.85      $ 1,674.9      $ 667.2  

Decrease of 10%

   $ 53.06      $ 1,547.2      $ 539.5  

Preliminary Purchase Price Allocation

Under the acquisition method of accounting, the identifiable assets acquired and liabilities assumed of Oclaro are recognized and measured as of the acquisition date at fair value and added to those of Lumentum. The determination of fair value used in the pro forma adjustments presented herein are preliminary and based on management estimates of the fair value and useful lives of the assets acquired and liabilities assumed and have been prepared to illustrate the estimated effect of the Merger. The final determination of the purchase price allocation, upon the completion of the Merger, will be based on Oclaro’s net assets acquired as of that date and will depend on a number of factors that cannot be predicted with certainty at this time. Therefore, the actual allocations will differ from the pro forma adjustments presented. The allocation is dependent upon certain valuation and other studies that have not yet been completed. Accordingly, the pro forma purchase price allocation is subject to further adjustment as additional information becomes available and as additional analyses and final valuations are completed. There can be no assurances that these additional analyses and final valuations will not result in significant changes to the estimates of fair value set forth below.

 

43


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

The following table sets forth a preliminary allocation of the estimated Merger Consideration to the identifiable tangible and intangible assets acquired and liabilities assumed of Oclaro based on Oclaro’s unaudited condensed consolidated balance sheet as of March 31, 2018, with cash and cash equivalents adjusted for $30.4 million of expected transaction cost, with the excess recorded to goodwill:

 

     (in millions)  

Cash and cash equivalents

   $ 149.7  

Short-term investments

     124.4  

Accounts receivable, net

     111.6  

Inventories

     158.0  

Prepayments and other current assets

     39.0  

Intangible assets (1)

     535.0  

Property, plant and equipment (2)

     138.0  

Favorable leases

     7.5  

Deferred tax asset, non current

     19.4  

Other assets, non current

     1.6  

Unfavorable leases

     (2.5

Accounts payable

     (73.1

Accrued expenses including payroll related

     (42.2

Capital lease obligations (current and non current)

     (3.5

Deferred gain on sale-leaseback

     (5.8

Deferred tax liability related to acquired tangible assets and intangible assets

     (138.2

Other non current liabilities

     (11.2

Goodwill (3)

     603.4  
  

 

 

 

Estimated Merger Consideration

   $ 1,611.1  
  

 

 

 

 

(1) Preliminary identifiable intangible assets in the unaudited pro forma condensed combined financial information consists of the following:

 

     Preliminary
Fair Value
     Estimated
Useful Life
 

Developed technology

   $ 330.0        6 Years  

In-process research and development

     35.0        n/a  

Customer related assets

     130.0        10.0 Years  

Marketing related

     10.0        5.0 Years  

Other

     30.0        1.0 Year  

The identifiable intangible assets and related amortization are preliminary and are based on management’s estimates after consideration of similar transactions. Other identifiable intangible assets primarily relates to backlog. As discussed above, the amount that will ultimately be allocated to identifiable intangible assets and liabilities, and the related amount of amortization, may differ materially from this preliminary allocation. In addition, the periods the amortization impacts will ultimately be based upon the periods in which the associated economic benefits or detriments are expected to be derived, or where appropriate, based on the use of a straight-line method. Therefore, the amount of amortization following the Merger may differ significantly between periods based upon the final value assigned and amortization methodology used for each identifiable intangible asset and liability.

 

(2)

Property and equipment consists primarily of plant and machinery and computer equipment, for which the carrying value is assumed to approximate fair value. Lumentum does not have complete information at this

 

44


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

  time as to the age, condition or location of these assets. All of these elements can result in differences between the preliminary fair value estimate and the fair value determined at the acquisition date.
(3) Goodwill represents excess of Merger Consideration over the fair value of the underlying net assets acquired. In accordance with ASC Topic 350, Goodwill and Other Intangible Assets, goodwill is not amortized, but instead is reviewed for impairment at least annually, absent any indicators of impairment. Goodwill is attributable to planned growth in new markets and synergies expected to be achieved from the combined operations of Lumentum and Oclaro. Goodwill recorded in the Merger is not expected to be deductible for tax purposes.

 

6. Pro Forma Adjustments for Condensed Combined Balance Sheet

(a) Reflects adjustment to cash and cash equivalents and short-term investments:

 

     (in millions)  

Cash from New Debt Financing, net of debt issuance costs (Refer to Note 6(f))

   $ 541.7  

Lumentum Transaction Costs (3)

     (12.0

Oclaro Transaction Costs (3)

     (30.4

Cash paid to settle equity awards (1)

     (16.2

Consideration Paid (Refer to Note 5)

     (963.6
  

 

 

 

Net pro forma adjustment

   $ (480.5
  

 

 

 

Pro forma adjustment to Cash and cash equivalents

   $ (180.0

Pro forma adjustment to Short-term investments (2)

     (300.5
  

 

 

 

Total pro forma adjustment to cash and cash equivalents and short-term investments

   $ (480.5
  

 

 

 

 

(1) One-time payment to settle equity awards for directors and officers as per the terms of the Merger Agreement.
(2) Reflects the liquidation of short-term investments to maintain Lumentum’s cash balance consistent with historical cash balance as of March 31, 2018.
(3) These costs consist of legal advisory, financial advisory, accounting and consulting costs and are not reflected in the unaudited pro forma condensed combined statements of operations because they do not have a continuing effect on the combined company.

(b) Reflects the preliminary purchase accounting adjustment for inventories based on the acquisition method of accounting.

 

     (in millions)  

Elimination of Oclaro’s inventory—carrying value

   $ (103.9

Fair value of acquired inventory (1)

     158.0  
  

 

 

 

Pro forma adjustment to inventory

   $ 54.1  
  

 

 

 

 

(1) Represents the adjustment necessary to state inventories acquired as of the pro forma Merger date to their preliminary estimated fair value. The valuation approaches used in the preliminary assessment of the fair value of inventories were the replacement cost approach and the comparative sales method approach. After the Closing, the step up in inventories fair value will increase cost of goods sold as the inventory is sold, which for purposes of these pro forma financial statements is assumed to occur within the first year after the merger. This increase is not reflected in the unaudited pro forma condensed combined statements of operations as it was determined to not have a continuing impact.

 

45


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

(c) Reflects the preliminary purchase accounting adjustment for estimated intangibles based on the acquisition method of accounting. Refer to Note 5 of the “Notes to Unaudited Pro Forma Condensed Combined Financial Information” for additional information on the acquired intangible assets expected to be recognized.

 

     (in millions)  

Elimination of Oclaro’s historical net book value of intangible assets

   $ (0.2

Fair value of acquired intangibles

     535.0  

Favorable leases (1)

     7.5  
  

 

 

 

Pro forma adjustment to intangible assets

   $ 542.3  
  

 

 

 

 

(1) Represents the fair value of favorable leases using discounted cash flow method. Favorable leases represent the present value of the variance between the contract rent per the lease agreements and the market conditions as of July 3, 2017, the assumed date for completion of the Merger.

(d) Reflects capitalization of preliminary goodwill of $603.4 million for the estimated Merger Consideration in excess of the fair value of the net assets acquired in connection with the Merger. Refer to Note 5 of the “Notes to Unaudited Pro Forma Condensed Combined Financial Information” for additional information on the goodwill expected to be recognized.

(e) This adjustment reflects the originating deferred tax liabilities (“DTLs”) resulting from pro forma fair value adjustments of the acquired assets and assumed liabilities based on applicable blended statutory tax rate with the respective estimated purchase price allocation. The originating DTLs are primarily related to the preliminary purchase price allocation associated with acquired intangible assets including favorable and unfavorable leases. DTLs have been recognized based on applicable statutory tax rate. Furthermore, tax related adjustments included in the unaudited pro forma condensed combined financial information are based on the tax laws in effect during the respective period. The estimate of DTLs is preliminary and is subject to change based upon Lumentum’s final determination of the fair value of assets acquired and liabilities assumed, by jurisdiction including the final allocation across such legal entities and related jurisdictions.

(f) To reflect the Committed Term Loan Facility, net of unamortized debt issuance costs, to fund a portion of the Merger. As described in Note 2 of the “Notes to Unaudited Pro Forma Condensed Combined Financial Information”, Lumentum anticipates to enter into the Committed Term Loan Facility for $550.0 million. The adjustment to current and long-term debt is comprised of the following items:

 

     (in millions)  

Gross Proceeds from New Debt Financing

   $ 550.0  

Debt issuance costs related to New Debt Financing

     (8.3
  

 

 

 

Net proceeds from New Debt Financing

   $ 541.7  
  

 

 

 

Pro forma adjustment to long term debt:

  

Current portion

   $ 4.5  

Long-term debt

     537.2  
  

 

 

 

Total Pro forma adjustment to long term debt

   $ 541.7  
  

 

 

 

(g) Reflects purchase accounting adjustments to other non-current liabilities for the recording of the fair value of unfavorable leases acquired of $2.5 million.

(h) Reflect the elimination of Oclaro’s historical common stock, additional paid-in capital and accumulated other comprehensive income.

 

46


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

(i) Reflect the stock consideration component of the merger ($0.1 million in common stock and $651.5 million in additional paid-in capital) and $10.8 million for issuance of common stock to settle Oclaro’s awards that will be accelerated and cancelled as part of the Merger. The associated stock-based compensation expense is not reflected in the unaudited pro forma condensed combined statements of operations as it will not have a continuing impact.

(j) Reflects the elimination of Oclaro’s accumulated deficit, the payment of transaction costs, acceleration of unvested Oclaro equity awards and after adjustments:

 

     (in millions)  

Lumentum’s estimated transactions to be incurred in connection with the Oclaro acquisition

   $ (12.0

Cash paid to settle equity awards (1)

     (16.2

Elimination of Oclaro’s historical accumulated deficit after adjustments

     1,161.9  

Common stock issued to settle equity awards (2)

     (10.8
  

 

 

 

Total Pro forma adjustment to accumulated deficit

   $ 1,122.9  
  

 

 

 

 

(1) Represents Oclaro’s equity awards that will be settled and paid out in cash. The associated stock based compensation expense is not reflected in the unaudited pro forma condensed combined statements of operations as it will not have a continuing impact.
(2) Represents issuance of common stock to settle Oclaro’s awards that will be accelerated and cancelled as part of the Merger. The associated stock-based compensation expense is not reflected in the unaudited pro forma condensed combined statements of operations as it will not have a continuing impact.

 

7. Pro Forma Adjustments for Condensed Combined Statements of Operations

Adjustments included in the “Pro Forma Adjustments” column in the accompanying unaudited pro forma condensed combined statement of operations for the fiscal year ended July 1, 2017 and the fiscal nine months ended March 31, 2018 are as follows:

(a) Reflects the adjustments to Cost of sales:

 

     (in millions)  
     Pro Forma For
the year Ended
July 1, 2017
     Pro Forma For
Nine Months
Ended
March 31, 2018
 

Incremental stock-based compensation expense (1)

   $ 0.9      $ 0.8  
  

 

 

    

 

 

 

Net adjustment to Cost of Sales

   $ 0.9      $ 0.8  
  

 

 

    

 

 

 

 

(1) Incremental stock based compensation for equity awards that are being replaced.

(b) Reflects the adjustments to amortization of intangible assets for acquired technology as a result of the Merger:

 

     (in millions)  
     Pro Forma For
the year Ended
July 1, 2017
     Pro Forma For
Nine Months
Ended
March 31, 2018
 

Amortization of acquired intangibles(1)

   $ 85.0      $ 41.3  
  

 

 

    

 

 

 

Net adjustment to amortization of acquired technologies

   $ 85.0      $ 41.3  
  

 

 

    

 

 

 

 

47


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

 

(1) The amortization of acquired intangibles includes the amortization of other intangible assets, which primarily consists of backlog for the fiscal year ended July 1, 2017.

 

     The amortization of intangible assets is based on the periods over which the economic benefits of the intangible assets are expected to be realized. Amortization expense is allocated among cost of sales and selling, general and administrative (“SG&A”) expense based on the nature of the activities associated with the intangible assets acquired. Refer to Note 5 of the “Notes to Unaudited Pro Forma Condensed Combined Financial Information” for additional information on the useful lives of the acquired intangible assets expected to be recognized.

Historical depreciation expense is allocated among cost of sales, R&D and SG&A expense based upon the nature of the activities associated with the property and equipment acquired. Oclaro’s property and equipment consists primarily of plant and machinery and computer equipment, for which the carrying value is assumed to approximate fair value. Accordingly, no pro forma adjustment for the depreciation of property and equipment is recognized.

(c) Reflects the adjustments to R&D expenses as a result of the Merger:

 

     (in millions)  
     Pro Forma For
the year Ended
July 1, 2017
     Pro Forma For
Nine Months
Ended
March 31, 2018
 

Incremental stock-based compensation expense (1)

   $ 1.1      $ 1.1  
  

 

 

    

 

 

 

Net adjustment to Research & Development expense

   $ 1.1      $ 1.1  
  

 

 

    

 

 

 

 

(1) Incremental stock based compensation for equity awards that are being replaced.

(d) Reflects the adjustments to SG&A as a result of the Merger:

 

     (in millions)  
     Pro Forma For
the year Ended
July 1, 2017
     Pro Forma For
Nine Months
Ended
March 31, 2018
 

Elimination of Oclaro’s historical amortization of intangible assets

   $ (0.8    $ (0.5
  

 

 

    

 

 

 

Amortization after fair value adjustment (1)

     15.4        11.6  

Incremental stock-based compensation expense (2)

     3.3        2.7  

Elimination of Transaction Costs incurred

     —          (5.3
  

 

 

    

 

 

 

Net adjustment to selling, general and administrative

   $ 17.9      $ 8.5  
  

 

 

    

 

 

 

 

(1) The amortization of intangible assets is based on the periods over which the economic benefits of the intangible assets are expected to be realized. Amortization expense is allocated between amortization of acquired technologies and SG&A expense based on the nature of the activities associated with the intangible assets acquired. Refer to Note 5 of the “Notes to Unaudited Pro Forma Condensed Combined Financial Information” for additional information on the useful lives of the acquired intangible assets expected to be recognized.

Historical depreciation expense is allocated among cost of sales, R&D and SG&A expense based upon the nature of the activities associated with the property and equipment acquired. Oclaro’s property and equipment

 

48


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

consists primarily of plant and machinery and computer equipment, for which the carrying value is assumed to approximate fair value. Accordingly, no pro forma adjustment for the depreciation of property and equipment is recognized

 

(2) Incremental stock based compensation for equity awards that are being replaced.

(e) Reflects the expense related to the new Debt Financing and amortization of issuance costs related to the Merger:

 

     (in millions)  
     Pro Forma For
the year Ended
July 1, 2017
     Pro Forma For
Nine Months
Ended
March 31, 2018
 

Interest expense on new Debt Financing (1) (2)

   $ 29.7      $ 22.1  

Amortization of issuance costs

     1.0        0.8  
  

 

 

    

 

 

 

Pro forma adjustment to interest expense

   $ 30.7      $ 22.9  
  

 

 

    

 

 

 

 

(1) The interest expense adjustments included in the unaudited pro forma condensed combined statements of operations reflect the additional interest expense using an interest rate of 5.42% (interest rate in effect as of the assumed Closing Date) per annum, excluding amortization of debt issuance costs.
(2) A sensitivity analysis on interest expense for the year ended July 1, 2017 and nine months ended March 31, 2018 has been performed to assess the effect of a change of 12.5 basis points of the hypothetical interest would have been on the new debt financing. The following table shows the change in the interest expense for the Debt Financing transaction described in Note 2 of the “Notes to Unaudited Pro Forma Condensed Combined Financial Information”:

 

     (in millions)  
     Pro Forma For
the year Ended
July 1, 2017
     Pro Forma For
Nine Months
Ended
March 31, 2018
 

Interest expense assuming:

     

Increase of 0.125%

   $ 0.7      $ 0.5  

Decrease of 0.125%

     (0.7      (0.5

(f) Reflects the income tax expense/benefit effects of the pro forma adjustments based on applicable blended statutory tax rate. Because the tax rates used for these pro forma financial statements are an estimate, the blended rate will likely vary from the actual effective rate in periods subsequent to completion of the Merger. Further, the combined company’s ability to use net operating loss carryforwards to offset future taxable income for U.S. federal income tax purposes is subject to limitations. In general under Section 382 of Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its pre-change net operating losses to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% stockholders, applying certain look-through rules) increases by more than 50 percentage points over such stockholder’s lowest percentage ownership during the testing period (generally three years). In addition, some of the standards and requirements under ASC 740 (Accounting for Income Taxes) may limit the combined company’s ability to record deferred tax assets relating to originating temporary differences between book and tax basis of income and expense items. Further, these standards may require a valuation allowance to be established against certain existing deferred tax assets of each company as of the date of completion of the transactions contemplated by the Merger Agreement. In addition, a combination of two

 

49


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

companies may also cause the ability for certain valuation allowances associated with one of the companies to no longer be necessary because on a combined basis, there may be new sources of future taxable income to support the reversal of pre-existing valuation allowances. Currently, no adjustment to the unaudited pro forma condensed combined financial information has been made as it relates to either limitations the combined company might incur under Section 382 of the Code or ASC 740 or decreases to pre-existing valuation allowances. Furthermore, adjustments to established deferred tax assets and liabilities as well as the recognition of additional deferred tax assets and liabilities may occur in conjunction with the finalization of the purchase accounting and these items could be material. Furthermore, tax related adjustments included in the unaudited pro forma condensed combined financial information are based on the tax laws in effect during the respective period.

(g) Reflects the pro forma adjustment to earnings allocated to Series A Preferred Stock.

(h) Reflects the pro forma earnings per share computation:

 

     (in millions)  
     Pro Forma For
the year Ended
July 1, 2017
    Pro Forma For
Nine Months
Ended
March 31, 2018
 

Numerator for basic earnings per share calculation:

    

Pro forma income (loss) attributable to Lumentum

   $ (59.8   $ 213.8  

Less: Cumulative dividends on Series A Preferred Stock

   $ (0.9   $ (0.7

Less: Earnings allocated to Series A Preferred Stock

     —         (4.1
  

 

 

   

 

 

 

Pro forma income (loss) attributable to Lumentum (for Basic EPS)

   $ (60.7   $ 209.0  

Denominator for basic earnings per share calculation:

    

Pro forma basic weighted average shares:

    

Historical Lumentum weighted average shares outstanding

     60.6       62.1  

Issuance of shares to Oclaro common stockholders

     10.8       10.8  

Issuance for equity awards

     0.2       0.2  

Replacement awards vesting

     0.3       0.4  
  

 

 

   

 

 

 

Proforma weighted average shares (basic)

     71.9       73.5  
  

 

 

   

 

 

 

Numerator for diluted earnings per share calculation:

    

Pro forma income (loss) attributable to Lumentum (for Diluted EPS)

   $ (60.7   $ 209.0  
  

 

 

   

 

 

 

Denominator for diluted earnings per share calculation:

    

Pro forma diluted weighted average shares:

    

Pro forma weighted average shares (basic)

     71.9       73.5  

Effect of dilutive securities from Lumentum stock-based benefit plans

     —         1.1  

Impact of treasury stock method of outstanding awards (1)

     —         0.1  

Convertible preferred stock (2)

     —         —    
  

 

 

   

 

 

 

Pro forma weighted average shares (diluted)

     71.9       74.7  

Pro forma earnings per share:

    

Basic

   $ (0.84   $ 2.84  

Diluted

   $ (0.84   $ 2.79  

 

50


NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION—(Continued)

 

 

(1) The inclusion of diluted weighted average shares based on the impact of the treasury stock method for the year ended July 1, 2017 will result in pro forma diluted EPS being anti-dilutive. Therefore, it has been excluded from the computation.
(2) The inclusion of convertible preferred stock will result in pro forma diluted EPS being anti-dilutive. Therefore it has been excluded from the numerator and the denominator.

 

51


UNAUDITED COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA

The table set forth below contains selected unaudited historical, pro forma and pro forma equivalent per share information for shares of Lumentum common stock, shares of Oclaro common stock and unaudited pro forma combined per share information for Lumentum and Oclaro. The unaudited pro forma and pro forma equivalent per share information gives effect to the Merger as if it had occurred on March 31, 2018 for book value per share data and July 3, 2016, the first day of Lumentum’s fiscal 2017, for net earnings per share data.

Historical Per Common Share Data of Lumentum and Oclaro

The historical per common share information of each of Lumentum and Oclaro below is derived from the audited consolidated financial statements of each of Lumentum and Oclaro as of and for the year ended July 1, 2017, and the unaudited consolidated financial statements of each of Lumentum and Oclaro as of and for the nine months ended March 31, 2018.

Unaudited Pro Forma Combined per Lumentum Common Share Data

The combined unaudited pro forma per share data for Lumentum common stock is extracted from the pro forma combined financial information appearing elsewhere in this proxy statement/prospectus. The pro forma combined financial information is based on, and should be read in conjunction with, the historical consolidated financial statements and accompanying notes of each of Lumentum and Oclaro for the applicable periods, which are incorporated by reference into this proxy statement/prospectus. See the section titled “Unaudited Pro Forma Condensed Combined Financial Information” beginning on page 34 of this proxy statement/prospectus for more information.

The combined unaudited pro forma per share data for Lumentum common stock does not purport to represent what Lumentum’s actual results of operations or financial condition would have been had the acquisition occurred on the dates assumed, nor is it necessarily indicative of Lumentum’s future results of operations or financial condition. In particular, the unaudited pro forma combined financial information does not reflect the effect of anticipated costs and revenue synergies associated with the combination of Lumentum and Oclaro.

Unaudited Pro Forma Combined per Oclaro Equivalent Share Data

The unaudited pro forma combined per Oclaro equivalent share data set forth below shows the effect of the Merger from the perspective of an owner of Oclaro common stock. The information was calculated by multiplying the unaudited pro forma combined per share of Lumentum common stock amount by the Exchange Ratio of 0.0636. This exchange ratio does not reflect the cash portion of Merger Consideration of $5.60 per share of Oclaro common stock exchanged.

 

52


Generally

You should read the below information in conjunction with the selected consolidated financial information of Lumentum and Oclaro included elsewhere in this proxy statement/prospectus, the historical consolidated financial statements of Lumentum and related notes that have been filed with the SEC, certain of which are incorporated by reference into this proxy statement/prospectus, and the historical consolidated financial statements of Oclaro and related notes that have been filed with the SEC, certain of which are incorporated by reference into this proxy statement/prospectus. See the sections titled “Selected Historical Consolidated Financial Data of Lumentum” beginning on page 28 of this proxy statement/prospectus, “Selected Historical Consolidated Financial Data of Oclaro” beginning on page 31 of this proxy statement/prospectus and “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus.

 

     As of
and for
the Year
Ended
July 1,
2017
    As of and
for the
Nine Months
Ended
March 31,
2018
 

Lumentum Historical Data:

    

Basic earnings per share

   $ (1.71   $ 3.37  

Diluted earnings per share

     (1.71     3.31  

Cash dividends declared per share

     —         —    

Book value per share

     10.07       14.01  

Oclaro Historical Data:

    

Basic earnings per share

   $ 0.81     $ 0.33  

Diluted earnings per share

     0.77       0.33  

Cash dividends declared per share

     —         —    

Book value per share

     3.06       3.42  

Unaudited Pro Forma Combined per Lumentum Common Stock Data:

    

Basic earnings per share

     (0.84     2.84  

Diluted earnings per share

     (0.84     2.79  

Cash dividends declared per share

     —         —    

Book value per share(1)

     N/A     $ 20.19  

Unaudited Pro Forma Combined per Oclaro Equivalent Share Data:

    

Basic earnings per share(2)

     (0.05     0.18  

Diluted earnings per share(2)

     (0.05     0.18  

Cash dividends declared per share(2)

     —         —    

Book value per share(2)

     N/A       1.28  

 

(1) Amounts calculated by dividing the applicable total stock equity by the applicable common stock outstanding. Pro forma combined book value per share as of July 1, 2017 is not applicable as the estimated pro forma adjustments were calculated as of March 31, 2018.
(2) Amounts calculated by multiplying unaudited pro forma combined per share amounts by the Exchange Ratio of 0.0636. The Exchange Ratio does not include the Cash Consideration of $5.60 per share of Oclaro common stock.

 

53


COMPARATIVE MARKET PRICE AND DIVIDEND INFORMATION (UNAUDITED)

From August 4, 2015, shares of Lumentum common stock have been listed for trading on NASDAQ under the symbol “LITE.” Shares of Oclaro common stock are listed for trading on NASDAQ under the symbol “OCLR.”

Recent Closing Prices; Implied Value Per Share

The following table sets forth the closing sales prices per share of Lumentum common stock and Oclaro common stock on NASDAQ, and the per share value of one share of Oclaro common stock implied by the Merger Consideration, on the following dates:

 

    March 9, 2018, the last trading day before the day on which Lumentum and Oclaro announced the execution of the Merger Agreement; and

 

    May 29, 2018, the last practicable trading day prior to the date of this proxy statement/prospectus for which this information could be calculated.

 

     Lumentum
Common
Stock
     Oclaro
Common
Stock
     Implied
Value
Per
Share (1)
 

March 9, 2018

   $ 68.975      $ 7.85      $ 9.99  

May 29, 2018

   $ 62.95      $ 9.04      $ 9.60  

 

(1) The implied value per share, as of each date, is equal to (i) $5.60, the cash portion of the Merger Consideration, plus (ii) 0.0636, the Exchange Ratio for the Merger, multiplied by the closing market price of one share of Lumentum common stock on such date. This calculation does not provide for an adjustment to the Merger Consideration to the extent that the number of shares of Lumentum common stock issuable in the Merger would exceed the Stock Threshold.

Historical Market Price Information

The following table sets forth, for the periods indicated, the intraday high and low sales prices per share of Lumentum common stock and per share of Oclaro common stock, in both cases as reported on NASDAQ.

On March 9, 2018, the last trading day before the execution of the Merger Agreement, the closing sales price of a share of Lumentum common stock on NASDAQ was $68.975. On May 29, 2018, the last practicable trading day prior to the date of this proxy statement/prospectus, the closing sales price of a share of Lumentum common stock on NASDAQ was $62.95.

On March 9, 2018, the last trading day before the execution of the Merger Agreement, the closing sales price of a share of Oclaro common stock on NASDAQ was $7.85. On May 29, 2018, the last practicable trading day prior to the date of this proxy statement/prospectus, the closing sales price of a share of Oclaro common stock on NASDAQ was $9.04.

 

54


On May 29, 2018, the last practicable trading day prior to the date of this proxy statement/prospectus for which it was practicable to obtain this information, there were 62,902,475 shares of Lumentum common stock outstanding and 170,660,203 shares of Oclaro common stock outstanding. As of such date, Lumentum had 2,544 holders of record of its common stock and Oclaro had 1,619 holders of record of its common stock.

 

     Lumentum(1)      Oclaro  
     High      Low      Dividend
Paid
(per share)
     High      Low      Dividend
Paid
(per share)
 
     ($)      ($)  

Year Ended June 27, 2015

                 

Quarter ended September 27, 2014

     —          —        $ —          2.28        1.50      $ —    

Quarter ended December 27, 2014

     —          —        $ —          2.07        1.31      $ —    

Quarter ended March 28, 2015

     —          —        $ —          2.05        1.40      $ —    

Quarter ended June 27, 2015

     —          —        $ —          2.85        1.76      $ —    

Year Ended July 2, 2016

                 

Quarter ended September 26, 2015

     25.86        16.66      $ —          2.93        2.06      $ —    

Quarter ended December 26, 2015

     22.22        13.97      $ —          3.65        2.24      $ —    

Quarter ended March 26, 2016

     —          —        $ —          5.41        3.16      $ —    

Quarter ended April 2, 2016

     27.25        18.10      $ —          —          —        $ —    

Quarter ended July 2, 2016

     27.91        20.80      $ —          5.69        4.25      $ —    

Year Ended July 1, 2017

                 

Quarter ended October 1, 2016

     42.35        23.02      $ —          9.34        4.58      $ —    

Quarter ended December 31, 2016

     45.25        32.90      $ —          10.19        6.93      $ —    

Quarter ended April 1, 2017

     55.92        34.15      $ —          11.30        8.02      $ —    

Quarter ended July 1, 2017

     67.30        40.35      $ —          10.93        6.92      $ —    

Year Ending June 30, 2018

                 

Quarter ended September 30, 2017

     68.63        50.45      $ —          10.49        7.95      $ —    

Quarter ended December 30, 2017

     66.70        44.05      $ —          8.95        5.87      $ —    

Quarter ended March 31, 2018

     74.40        41.95      $ —          10.20        5.61      $ —    

 

(1) Lumentum common stock began trading on NASDAQ on August 4, 2015.

Because the number of shares of Lumentum common stock issuable for each share of Oclaro common stock in the Merger will not be adjusted for changes in the market price of either Lumentum common stock or Oclaro common stock, the market value of the shares of Lumentum common stock that holders of Oclaro common stock will have the right to receive on the date the Merger is completed may vary significantly from the market value of the shares of Lumentum common stock that holders of Oclaro common stock would receive if the Merger were completed on May 29, 2018, the last practicable trading day prior to the date of this proxy statement/prospectus. As a result, we urge you to obtain current market quotations of Lumentum and Oclaro common stock prior to voting your shares.

Dividend Policy

Lumentum’s Dividend Policy: Lumentum has never paid cash dividends on its common stock and does not currently expect to pay dividends on its common stock. The holders of Lumentum common stock will receive dividends if and when declared by the Lumentum Board out of legally available funds or, in the case of stock dividends, out of authorized and available shares of Lumentum common stock. The payment of any dividends to Lumentum’s stockholders in the future, and the timing and amount thereof, if any, is within the discretion of the Lumentum Board. The Lumentum Board’s decisions regarding the payment of dividends will depend on many factors, such as Lumentum’s financial condition, earnings, capital requirements, potential debt service obligations or restrictive covenants, industry practice, legal requirements, regulatory constraints and other factors that the Lumentum Board deems relevant.

 

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In addition, because Lumentum is a holding company with no material direct operations, it is dependent on loans, dividends and other payments from its operating subsidiaries to generate the funds necessary to pay dividends on its common stock. However, Lumentum’s operating subsidiaries’ ability to make such distributions will be subject to their operating results, cash requirements and financial condition and the applicable provisions of Delaware law that may limit the amount of funds available for distribution. Lumentum’s ability to pay cash dividends may also be subject to covenants and financial ratios related to existing or future indebtedness, and other agreements with third parties.

Lumentum’s subsidiary, Lumentum Inc., issued $35.8 million in Series A Preferred Stock to Viavi Solutions Inc. (formerly named JDS Uniphase Corporation) (“Viavi”), which was sold to Amada Holdings Co., Ltd. following the Separation. Holders of Series A Preferred Stock, in preference to holders of Lumentum Inc.’s common stock or any other class or series of its outstanding capital stock ranking in any such event junior to the Series A Preferred Stock, are entitled to receive, when and as declared by the board of directors, quarterly cumulative cash dividends at the annual rate of 2.5% of the issuance value per share on each outstanding share of Series A Preferred Stock. The accrued dividends are payable on March 31, June 30, September 30 and December 31 of each year commencing on September 30, 2015. During fiscal 2017, Lumentum Inc. paid $0.9 million in dividends to the holders of Series A Preferred Stock.

Oclaros Dividend Policy. Oclaro has never paid cash dividends on its common stock. To the extent Oclaro generates earnings, it intends to retain them for use in its business and, therefore, does not anticipate paying any cash dividends on its common stock in the foreseeable future. The Merger Agreement prohibits Oclaro from setting aside or paying any dividends or other distributions on its capital stock, so Oclaro does not expect to pay dividends for as long as the Merger Agreement is in effect.

 

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RISK FACTORS

In addition to the other information included and incorporated by reference in this proxy statement/prospectus, including the matters addressed in the section titled “Special Note Regarding Forward-Looking Statements” beginning on page 69 of this proxy statement/prospectus, you should carefully consider the following risks before deciding whether to vote for the adoption of the Merger Agreement. In addition, you should read and consider the risks associated with each of the businesses of Lumentum and Oclaro because these risks will also affect Lumentum after the Merger. These risks can be found in the Annual Reports on Form 10-K for each of Lumentum and Oclaro for the fiscal year ended July 1, 2017, and any amendments thereto, as such risks may be updated or supplemented in each company’s subsequently filed Quarterly Reports on Form 10-Q, including Lumentum’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, filed with the SEC on May 2, 2018, and Oclaro’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, filed with the SEC on May 8, 2018, or Current Reports on Form 8-K, which are incorporated by reference into this proxy statement/prospectus. The risks and uncertainties described below are not the only risks and uncertainties the parties may face. Additional risks and uncertainties not presently known to the parties, or that the parties currently consider immaterial, could also negatively affect the business, financial condition, results of operations, prospects, profits and stock prices of Lumentum (including after the Merger) or Oclaro. You should also read and consider the other information in this proxy statement/prospectus and the other documents incorporated by reference in this proxy statement/prospectus. See the section titled “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus.

Risk Factors Relating to the Merger

Because the Exchange Ratio is fixed and the market price of Lumentum common stock has fluctuated and will continue to fluctuate, you cannot be sure of the value of the Merger Consideration you will receive.

At the Effective Time, by virtue of the Merger, Oclaro stockholders will receive, in exchange for each share of Oclaro common stock owned by them at the Effective Time, the Merger Consideration. Based on the closing stock price of Lumentum common stock on May 29, 2018, the most recent practicable date prior to the date of the accompanying proxy statement/prospectus, the per share value of Oclaro common stock implied by the Stock Consideration was $4.00 and, when combined with the Cash Consideration of $5.60 per share, results in a total implied Merger Consideration of $9.60 per share of Oclaro common stock. The implied value of the Merger Consideration will fluctuate as the market price of Lumentum common stock fluctuates because the Stock Consideration is payable in a fixed number of shares of Lumentum common stock (subject to adjustment if the number of shares of Lumentum common stock issuable in connection with the Merger Consideration and the assumption and conversion of Oclaro’s outstanding equity awards would otherwise exceed 19.9% of the outstanding shares of Lumentum common stock prior to the Merger). The value of the Stock Consideration has fluctuated since the date of the announcement of the Merger Agreement and will continue to fluctuate from the date of this proxy statement/prospectus to the date of the special meeting and the date the Merger is completed and thereafter. Accordingly, at the time of the special meeting, Oclaro stockholders will not know or be able to determine the implied value of the Merger Consideration they would receive upon completion of the Merger. Changes in the market price of Lumentum common stock may result from a variety of factors, including, among others, general market and economic conditions, changes in Oclaro’s and Lumentum’s respective businesses, operations and prospects, market assessments of the likelihood that the Merger will be completed, the timing of the Merger, regulatory considerations and other risk factors set forth or incorporated by reference in this proxy statement/prospectus. Many of these factors are beyond Oclaro’s and Lumentum’s control.

The market price of Lumentum common stock after the Merger will continue to fluctuate and may be affected by factors different from those currently affecting shares of Oclaro common stock.

Upon completion of the Merger, holders of Oclaro common stock will become holders of Lumentum common stock. The market price of Lumentum common stock may fluctuate significantly following completion

 

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of the Merger and Oclaro stockholders could lose the value of their investment in Lumentum common stock. In addition, any significant price and volume fluctuations of the stock markets could have a material adverse effect on the market for, or liquidity of, the Lumentum common stock, regardless of Lumentum’s actual operating performance. In addition, Lumentum’s business differs in important respects from that of Oclaro, and accordingly, the results of operations of the combined company and the market price of Lumentum common stock after the completion of the Merger may be affected by factors different from those currently affecting the independent results of operations of each of Lumentum and Oclaro. For a discussion of the businesses of Lumentum and Oclaro and of some important factors to consider in connection with those businesses, see the documents incorporated by reference into this proxy statement/prospectus and referred to under “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus.

Sales of shares of Lumentum common stock after the completion of the Merger may cause the market price of Lumentum common stock to fall.

Based on the number of outstanding shares of Oclaro common stock as of May 29, 2018, Lumentum would issue approximately 10,853,989 shares of Lumentum common stock to Oclaro stockholders in the Merger. Following the Merger, there will be no restrictions on the sale of Lumentum common stock by former Oclaro stockholders. Many Oclaro stockholders may decide not to hold the shares of Lumentum common stock that they receive in the Merger. Other Oclaro stockholders, such as funds who are also Lumentum stockholders that have limitations on their permitted holdings of stock in individual issuers, may be required to sell the shares of Lumentum common stock that they receive in the Merger. Such sales of Lumentum common stock could have the effect of depressing the market price for Lumentum common stock and may take place at any time following the Merger.

The Merger is subject to a number of conditions, some of which are outside of the parties’ control, and, if these conditions are not satisfied, the Merger Agreement may be terminated and the Merger may not be completed.

The Merger Agreement contains a number of conditions that must be fulfilled to complete the Merger. These conditions include, among other customary conditions, receipt of the Oclaro Stockholder Approval, absence of laws, orders, judgments and injunctions that enjoin or otherwise prohibit consummation of the Merger in any jurisdiction that is material to the business or operations of Oclaro or Lumentum, receipt of antitrust approvals in the United States and the People’s Republic of China, which closing condition was satisfied with respect to the United States on April 4, 2018 when Lumentum and Oclaro received early termination of the waiting period under the HSR Act, approval by NASDAQ for listing of the shares of Lumentum common stock to be issued in the Merger, accuracy of representations and warranties of the parties subject to the applicable standard provided by the Merger Agreement, no event occurring that had or would reasonably be expected to have a Material Adverse Effect (as defined below in this proxy statement/prospectus) on Lumentum or Oclaro, compliance by the parties with their obligations in the Merger Agreement in all material respects and the effectiveness of the registration statement of which this proxy statement/prospectus forms a part.

The required satisfaction of the foregoing conditions could delay the completion of the Merger for a significant period of time or prevent it from occurring. Any delay in completing the Merger could cause Lumentum not to realize some or all of the benefits that the parties expect Lumentum to achieve following the Merger. Further, there can be no assurance that the conditions to Closing will be satisfied or waived or that the Merger will be completed.

In addition, if the Merger is not completed by December 11, 2018, which deadline will be automatically extended to March 11, 2019 if the Closing is delayed due to certain conditions to Closing relating to antitrust laws not being satisfied, either Lumentum or Oclaro may choose to terminate the Merger Agreement. Lumentum or Oclaro may also elect to terminate the Merger Agreement in certain other circumstances, and the parties can mutually decide to terminate the Merger Agreement at any time prior to the Closing, before or after Oclaro Stockholder Approval, as applicable. See the section titled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 148 of this proxy statement/prospectus for a more detailed description of these circumstances.

 

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The business relationships of Oclaro and Lumentum and their respective subsidiaries may be subject to disruption due to uncertainty associated with the Merger, which could have an adverse effect on the results of operations, cash flows and financial position of Oclaro, Lumentum and, following the completion of the Merger, the combined company.

Parties with which Oclaro and Lumentum, or their respective subsidiaries, do business may be uncertain as to the effects the Merger and related transactions may have on them, including with respect to current or future business relationships with Oclaro, Lumentum, their respective subsidiaries or the combined company. Customers, suppliers and other persons with whom Oclaro and Lumentum have a business relationship may delay or defer certain business decisions or might decide to terminate, change or renegotiate their relationships with Oclaro or Lumentum, as applicable, or consider entering into business relationships with parties other than Oclaro, Lumentum, their respective subsidiaries or the combined company. These disruptions could have an adverse effect on the results of operations, cash flows and financial position of Oclaro, Lumentum or, following the completion of the Merger, the combined company, including an adverse effect on Lumentum’s ability to realize the expected synergies and other benefits of the Merger. The risk, and adverse effect, of any disruption could be exacerbated by a delay in completion of the Merger or termination of the Merger Agreement.

Failure to complete the Merger could negatively affect the share prices and the future business and financial results of either or both of Lumentum and Oclaro.

If the Merger is not completed, the ongoing businesses of either or both of Lumentum and Oclaro may be adversely affected. Additionally, if the Merger is not completed and the Merger Agreement is terminated, Lumentum may be required to pay Oclaro a termination fee of $80.0 million under specified circumstances relating to failure to obtain regulatory approvals, and Oclaro may be required to pay Lumentum a termination fee of $63.0 million under specified circumstances. See the sections titled “The Merger Agreement—Termination of the Merger Agreement” beginning on page 148 of this proxy statement/prospectus and “The Merger Agreement—Termination Fees” beginning on page 150 of this proxy statement/prospectus for a more detailed description of these circumstances. In addition, Lumentum and Oclaro have incurred and will continue to incur significant transaction expenses in connection with the Merger regardless of whether the Merger is completed. Furthermore, Lumentum or Oclaro may experience negative reactions from the financial markets, including negative impacts on their stock prices, or negative reactions from their customers, suppliers, other business partners and employees, should the Merger not be completed.

The foregoing risks, or other risks arising in connection with the failure to consummate the Merger, including the diversion of management attention from conducting the business of the respective companies and pursuing other opportunities during the pendency of the Merger, may have a material adverse effect on the businesses, operations, financial results and stock prices of Lumentum and Oclaro. Either or both of Lumentum or Oclaro could also be subject to litigation related to any failure to consummate the Merger or any related action that could be brought to enforce a party’s obligations under the Merger Agreement.

Litigation against Lumentum and Oclaro, or the members of the Oclaro Board, could prevent or delay the completion of the Merger or result in the payment of damages following completion of the Merger.

While Lumentum and Oclaro believe that any claims that may be asserted by purported stockholder plaintiffs related to the Merger would be without merit, the results of any such potential legal proceedings are difficult to predict and could delay or prevent the Merger from becoming effective in a timely manner. The existence of litigation related to the Merger could affect the likelihood of obtaining the required approval from Oclaro stockholders. Moreover, any litigation could be time consuming and expensive, could divert Lumentum’s and Oclaro’s management’s attention away from their regular business and, if any lawsuit is adversely resolved against either Lumentum, Oclaro or members of the Oclaro Board (each of whom Oclaro is required to indemnify pursuant to indemnification agreements), could have a material adverse effect on Lumentum’s or Oclaro’s financial condition.

 

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One of the conditions to Closing is the absence of any order or law by a court or other governmental entity in any jurisdiction that is material to the business or operations of Oclaro or Lumentum that prohibits, enjoins or makes illegal the closing of the Merger. Consequently, if a settlement or other resolution is not reached in any lawsuit that is filed and a claimant secures injunctive or other relief prohibiting, delaying or otherwise adversely affecting Lumentum’s and/or Oclaro’s ability to complete the Merger, then such injunctive or other relief may prevent the Merger from becoming effective in a timely manner or at all.

The Merger Agreement contains provisions that limit Oclaro’s ability to pursue alternatives to the Merger could discourage a potential competing acquiror of Oclaro from making an alternative transaction proposal and, in specified circumstances, could require Oclaro to pay a termination fee to Lumentum.

The Merger Agreement provides that Oclaro shall not, and requires Oclaro to refrain from authorizing or knowingly permitting its representatives to, solicit, participate in negotiations with respect to or approve or recommend any third-party proposal for an alternative transaction, subject to exceptions set forth in the Merger Agreement relating to the receipt of certain unsolicited offers. If the Merger Agreement is terminated by either party after the Oclaro Board has changed its recommendation regarding the Merger or due to Oclaro’s willful and material breach of its non-solicitation obligations, then Oclaro may be required to pay a termination fee of $63.0 million to Lumentum.

These provisions could discourage a potential third-party acquiror or merger partner that might have an interest in acquiring all or a significant portion of Oclaro or pursuing an alternative transaction from considering or proposing such a transaction, even if it were prepared to pay consideration with a higher per share cash or market value than the consideration in the Merger, or might result in a potential third-party acquiror or merger partner proposing to pay a lower price to Oclaro stockholders than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

Additionally, if the Merger Agreement is terminated and Oclaro determines to seek another business combination, Oclaro may not be able to negotiate a transaction with another party on terms comparable to, or better than, the terms of the Merger.

The Merger is subject to the expiration of an applicable waiting period under, and the receipt of approvals, consents or clearances from, antitrust regulatory authorities in the People’s Republic of China that may impose conditions that could have an adverse effect on Lumentum or Oclaro or, if not obtained, could prevent completion of the Merger.

Before the Merger may be completed, the waiting period (or extension thereof) applicable to the Merger must have expired or been terminated, and any approvals, consents or clearances required in connection with the Merger must have been obtained, in each case, under the antitrust and competition laws of the People’s Republic of China. In deciding whether to grant the required regulatory approval, consent or clearance, the relevant governmental authorities will consider the effect of the Merger on competition within their jurisdiction, and other considerations they may deem appropriate. The terms and conditions of the approvals, consents and clearances that are granted may impose requirements, limitations or costs or place restrictions on the conduct of Lumentum’s business, any of which may adversely affect the financial position and prospects of Lumentum and its ability to achieve the cost savings and other synergies projected to result from the Merger.

Under the Merger Agreement, Lumentum and Oclaro have agreed to use their reasonable best efforts to obtain any waivers, consents, or approvals required to effect the Merger (subject to certain limitations described in the Merger Agreement) and therefore may be required to comply with certain conditions or limitations imposed by governmental antitrust authorities. However, there can be no assurance that antitrust regulators will not impose unanticipated conditions, terms, obligations or restrictions and such conditions, terms, obligations or restrictions could have the effect of delaying completion of the Merger or imposing additional costs on or limiting the revenues of Lumentum following the completion of the Merger, which may adversely affect the

 

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financial position and prospects of Lumentum and its ability to achieve the cost savings and other synergies projected to result from the Merger. In addition, neither Lumentum nor Oclaro can provide assurance that any such conditions, terms, obligations or restrictions will not result in the delay or abandonment of the Merger. For a more detailed description of the regulatory review process, see the section titled “The Merger—Regulatory Clearances Required for the Merger” beginning on page 116 of this proxy statement/prospectus. If the Merger Agreement is terminated under specified circumstances related to failure to receive approval of the applicable antitrust authorities, Lumentum will be required to pay Oclaro a termination fee of $80.0 million. For a more detailed description of the termination fees applicable to the Merger Agreement, see the section titled “The Merger Agreement—Termination Fees” beginning on page 150 of this proxy statement/prospectus.

Until the completion of the Merger or the termination of the Merger Agreement in accordance with its terms, in consideration of the agreements made by the parties in the Merger Agreement, Oclaro and Lumentum are prohibited from entering into certain transactions and taking certain actions that might otherwise be beneficial to Oclaro, Lumentum and their respective stockholders.

Until the earlier of the Effective Time and the termination of the Merger Agreement, the Merger Agreement restricts Oclaro and Lumentum from taking specified actions without the consent of the other party, and requires Oclaro and Lumentum to generally operate in the ordinary course of business consistent with past practices. These restrictions may prevent Oclaro and Lumentum from making changes to their respective businesses, retaining their respective workforces, paying dividends or pursuing attractive business opportunities that may arise prior to the completion of the Merger. See the section titled “The Merger Agreement—Restrictions on Oclaro’s Business Pending the Closing” beginning on page 132 of this proxy statement/prospectus for a description of the restrictive covenants applicable to Oclaro and the section titled “The Merger Agreement—Restrictions on Lumentum’s Business Pending the Closing” beginning on page 134 of this proxy statement/prospectus for a description of the restrictive covenants applicable to Lumentum.

The opinion of Oclaro’s financial advisor does not reflect changes in circumstances that may occur between the original signing of the Merger Agreement and the completion of the Merger.

Consistent with market practices, the Oclaro Board has not obtained an updated opinion from its financial advisor as of the date of this proxy statement/prospectus and does not expect to receive an updated, revised or reaffirmed opinion prior to the completion of the Merger. Jefferies’ opinion does not reflect changes, circumstances, developments or events that may have occurred or may occur after the date of its opinion, including changes in the operations and prospects of Oclaro and Lumentum, regulatory or legal changes, general market and economic conditions and other factors that may be beyond the control of Oclaro and Lumentum, and on which Jefferies’ opinion was based, and that may alter the value of Oclaro or Lumentum or the prices of shares of Oclaro or Lumentum common stock by the time the Merger is completed. For example, the value of the Stock Consideration has fluctuated since, and could be materially different from its value as of, the date of Jefferies’ opinion, and Jefferies’ opinion does not address the prices at which shares of Oclaro common stock or Lumentum common stock may have traded or trade since the date of its opinion. The opinion does not speak as of the time the Merger will be completed or as of any date other than the date of such opinion. The Oclaro Board’s recommendation that Oclaro stockholders vote “FOR” the Merger Proposal, however, is made as of the date of this proxy statement/prospectus. For a description of the opinion that the Oclaro Board received from its financial advisor, see the section titled “The Merger—Opinion of Oclaro’s Financial Advisor” beginning on page 96 of this proxy statement/prospectus, which detailed description is qualified by reference to the full text of the opinion as attached as Annex B to this proxy statement/prospectus.

Oclaro stockholders may have appraisal rights under Delaware law.

Under Delaware law, if the Merger is completed and certain other statutory requirements described herein are met, Oclaro stockholders who do not vote in favor of adoption of the Merger Agreement and otherwise

 

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properly perfect their rights may be entitled to “appraisal rights” in connection with the Merger under Section 262 of the DGCL, which generally entitles stockholders to receive in lieu of the Merger Consideration a cash payment of an amount determined by the Court of Chancery to be equal to the “fair value” of their Oclaro common stock as of the Effective Time exclusive of any elements of value arising from the accomplishment or expectation of the Merger, together with interest to be paid on the amount determined to be fair value, if any, as determined by the Court of Chancery. The appraised value would be determined by the Court of Chancery and could be less than, the same as or more than the Merger Consideration. Stockholders who have properly demanded appraisal rights must file a petition for appraisal with the Court of Chancery within 120 days after the effective date of the Merger. Should a material number of Oclaro’s stockholders exercise appraisal rights and should the Court of Chancery determine that the fair value of such shares of Oclaro common stock is materially greater than the Merger Consideration, it could have an adverse effect on the financial condition and results of operation of the surviving company. For a more detailed description of the appraisal rights available to Oclaro stockholders, see the section titled “The Merger—Appraisal Rights” beginning on page 117 of this proxy statement/prospectus, which detailed description is qualified by reference to the full text of Section 262 of the DGCL as attached as Annex C to this proxy statement/prospectus.

After the Merger, Oclaro stockholders will have a significantly lower ownership and voting interest in Lumentum than they currently have in Oclaro, and will exercise less influence over management.

It is expected that, immediately after completion of the Merger, former Oclaro stockholders will own approximately 16 % of the outstanding shares of Lumentum common stock. Consequently, Oclaro stockholders will have substantially less influence over the management and policies of Lumentum than they currently have over Oclaro.

Prior to the Effective Time, Lumentum shall appoint one member of the Oclaro Board to serve as a member of the Lumentum Board effective as of immediately after the Effective Time to serve until the next annual meeting of Lumentum stockholders in accordance with the Lumentum Charter and the Lumentum Bylaws.

Some of the executive officers and directors of Oclaro have interests in seeing the Merger completed that are different from, or in addition to, those of the other Oclaro stockholders. Therefore, some of the executive officers and directors of Oclaro may have a conflict of interest in recommending the proposals being voted on at the special meeting.

Certain of the executive officers of Oclaro have arrangements that provide them with interests in the Merger that are different from, or in addition to, those of the stockholders of Oclaro generally. These interests include, among others, the possible continued employment of certain executive officers, the acceleration of vesting of certain equity-based awards, enhanced severance payments and/or benefits, and/or continuation of certain indemnification insurance in connection with the Merger. These interests may influence Oclaro’s executive officers to support or approve the proposals to be presented at the special meeting.

In addition, certain directors of Oclaro have interests in the Merger that are different from, or in addition to, those of the stockholders of Oclaro generally, including, among others, the acceleration of vesting of certain equity-based awards and/or continuation of certain indemnification insurance in connection with the Merger. These interests may influence the directors of Oclaro to support or approve the proposals to be presented at the special meeting.

See the section titled “The Merger—Interests of Oclaro’s Directors and Executive Officers in the Merger” beginning on page 108 of this proxy statement/prospectus for a more detailed description of these interests.

The shares of Lumentum common stock to be received by Oclaro stockholders as a result of the Merger will have different rights from the shares of Oclaro common stock.

Upon completion of the Merger, Oclaro stockholders will become stockholders of Lumentum and their rights as stockholders will be governed by the Lumentum Charter and the Lumentum Bylaws. The rights

 

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associated with Oclaro common stock are different from the rights associated with shares of Lumentum common stock. See the section titled “Comparison of Stockholders’ Rights” beginning on page 159 of this proxy statement/prospectus for a more detailed description of these differences.

The U.S. federal income tax treatment of the Merger will not be known as of the date of the special meeting, and any position taken that the Merger qualifies as a “reorganization” might be challenged successfully by the Internal Revenue Service.

The U.S. federal income tax consequences of the Merger depend on whether the Merger qualifies as a reorganization within the meaning of Section 368(a) of the Code. One of the requirements that must be satisfied in order for the Merger to qualify as a reorganization is the “continuity of interest” test, which requires that a sufficient amount of the proprietary interests in Oclaro are preserved by being exchanged in the Merger for Lumentum common stock. The continuity of interest test generally would be satisfied if the Stock Consideration received in the Merger represented at least 40% of the value of the total Merger Consideration, determined based on the value of the Lumentum common stock on the Closing Date. See the section titled “Material U.S. Federal Income Tax Consequences” beginning on page 152 of this proxy statement/prospectus for a more detailed description of the continuity of interest test.

No assurances can be given that the continuity of interest requirement will be met. Therefore, it will not be known at the time of the special meeting whether the Merger will qualify as a reorganization under Section 368(a) of the Code. On the Closing Date, Lumentum and Oclaro will make a determination, in consultation with their tax counsel, as to whether or not the Merger qualifies as a reorganization for U.S. federal income tax purposes, and Lumentum will inform the Oclaro stockholders of such determination as soon as practicable after the Closing. However, stockholder votes will not be resolicited in the event that the Merger does not qualify as a reorganization under Section 368(a) of the Code. Therefore, there is a risk that the intended tax treatment of the Merger to Oclaro stockholders may adversely change following the date of the special meeting.

Furthermore, even if Lumentum and Oclaro determine that the Merger qualifies as a reorganization for U.S. federal income tax purposes, the Internal Revenue Service (“IRS”) may successfully assert a contrary position.

Uncertainties associated with the Merger may cause a loss of management personnel and other key employees of Oclaro or Lumentum, which could adversely affect the future business and operations of the combined company following the Merger.

Lumentum’s success following the Merger will depend upon the ability of Lumentum to retain senior management and key employees of Lumentum and Oclaro following the Merger. In some of the fields in which Lumentum and Oclaro operate, there are only a limited number of people in the job market who possess the requisite skills, and it may be increasingly difficult for Lumentum following the Merger to hire personnel over time. Lumentum following the Merger will operate in many geographic locations, including California, Italy, the United Kingdom, and parts of Asia, where the labor markets are particularly competitive. Furthermore, certain unvested stock awards and benefits held by Oclaro employees may vest in connection with the Merger, reducing their retentive value, and Lumentum following the Merger may need to offer new awards and benefits to increase retention.

Current and prospective employees of Lumentum and Oclaro may experience uncertainty about their roles with the combined company following the Merger, which may materially adversely affect the ability of each of Lumentum and Oclaro to attract and retain key personnel during the pendency of the Merger. In addition, key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company following the Merger. The loss of services of certain senior management or key employees of Lumentum and Oclaro or the inability to hire new personnel with the requisite skills could restrict the ability of the combined company following the Merger to develop new products or enhance existing products in a timely manner, to sell products to customers or to effectively manage the business of the combined

 

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company following the Merger. Also, the business, financial condition and results of operations of the combined company following the Merger could be materially adversely affected by the loss of any of its key employees, by the failure of any key employee to perform in his or her current position, or by the combined company’s inability to attract and retain skilled employees.

There can be no assurance that Lumentum will be able to secure the funds necessary to pay the Merger Consideration, in a timely manner or at all.

Lumentum intends to finance a portion of the Merger Consideration with the Debt Financing. To this end, Lumentum has entered into a Commitment Letter with DBNY and DBSI (DBSI collectively with DBNY, the “Lenders”) containing commitments as of the date of this proxy statement/prospectus for a senior secured term loan facility in an aggregate principal amount of up to $550 million. However, as of the date of this proxy statement/prospectus, neither Lumentum nor any of its subsidiaries has entered into definitive agreements for the Debt Financing (or other financing arrangements in lieu thereof), and the obligation of the Lenders to provide the Debt Financing under the Commitment Letter is subject to a number of customary conditions. There can be no assurance that Lumentum will be able to obtain the Debt Financing pursuant to the Commitment Letter.

In the event that the Debt Financing contemplated by the Commitment Letter is not available, other financing may not be available on acceptable terms, in a timely manner or at all. Although Lumentum’s obligations to consummate the Merger are not conditioned upon the Debt Financing, if Lumentum is unable to obtain the Debt Financing, the Merger may be delayed or not be completed, in which case Lumentum would be in material breach of its obligations under the Merger Agreement. See the section titled “The Merger Agreement—Financing Obligations” beginning on page 143 of this proxy statement/prospectus for more information.

Risk Factors Relating to Lumentum Following the Merger

Although Lumentum expects to realize certain benefits as a result of the Merger, there is the possibility that Lumentum following the Merger may be unable to integrate successfully the business of Oclaro to realize the anticipated benefits of the Merger, or to do so within the intended timeframe.

Lumentum will be required to devote significant management attention and resources to integrating the business practices and operations of Oclaro with Lumentum. Due to legal restrictions, Lumentum and Oclaro have only been able to conduct limited planning regarding the integration of Oclaro into Lumentum after completion of the Merger and Lumentum has not yet determined the exact nature of how the businesses and operations of Oclaro will be run following the Merger. Potential difficulties Lumentum may encounter as part of the integration process include the following:

 

    the costs of integration and compliance and the possibility that the full benefits anticipated to result from the Merger will not be realized;

 

    any delay in the integration of management teams, strategies, operations, products and services;

 

    diversion of the attention of each company’s management as a result of the Merger;

 

    differences in business backgrounds, corporate cultures and management philosophies that may delay successful integration;

 

    the ability to create and enforce uniform standards, controls, procedures, policies and information systems;

 

    the challenge of integrating complex systems, technology, networks and other assets of Oclaro into those of Lumentum in a manner that minimizes any adverse impact on customers, suppliers, employees and other constituencies;

 

    potential unknown liabilities and unforeseen increased expenses or delays associated with the Merger, including costs to integrate Oclaro; and

 

    the disruption of, or the loss of momentum in, each company’s ongoing businesses.

 

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Any of these factors could adversely affect the ability of Lumentum following the Merger to maintain relationships with customers, suppliers, employees and other constituencies or its ability to achieve the anticipated benefits of the Merger, including anticipated synergies, or could reduce the earnings or otherwise adversely affect the business and financial results of Lumentum after the Merger.

Prior to the completion of the Merger, Lumentum, and, following the completion of the Merger, the combined company, faces risks with respect to recent events involving ZTE and other future regulatory actions against customers.

Prior to the completion of the Merger, Lumentum, and, following the completion of the Merger, the combined company, faces business uncertainty as a result of the DOC changing and reactivating its previously suspended denial order (the “Denial Order”) and suspending the export privileges of ZTE. Under the Denial Order, ZTE is prohibited from participating in any way in any transaction subject to the U.S. Export Administration Regulations (“EAR”), until March 13, 2025. The Denial Order also restricts U.S. companies from exporting or reexporting to or on behalf of ZTE any item subject to the EAR or engaging in any transaction to service any item subject to the EAR that has been or will be exported from the U.S. and which is owned, possessed or controlled by ZTE. Prior to the Denial Order, ZTE was a customer of Oclaro’s and accounted for 18%, 10% and 7.3% of Oclaro’s revenues for the fiscal years ended July 1, 2017, July 2, 2016 and June 27, 2015, respectively. The Denial Order will have a negative impact on Oclaro’s revenues for the fiscal year ending June 30, 2018, and is anticipated to have a negative impact on Oclaro’s revenues in future periods during which the Denial Order remains in effect. Oclaro’s and, after the closing, Lumentum’s inability to mitigate the impact of the Denial Order on Oclaro’s business will have continued impact on the previously anticipated benefits of the transaction to Lumentum.

Further, other customers of Oclaro and Lumentum have been investigated by the U.S. government in the past and may be in the future. Any further sanctions or limitation on Oclaro’s, Lumentum’s or, following the completion of the Merger, the combined company’s ability to sell products to certain customers could have an adverse effect on the business and results of operations of the combined company following the completion of the Merger. In addition, governmental actions such as these could subject the combined company to actual or perceived reputational harm among current or prospective investors, suppliers or customers of the combined company, other parties doing business with the combined company, or the general public. Any such reputational harm could result in the loss of investors, suppliers or customers, which could harm the business, financial condition, operating results or prospects of the combined company following the completion of the Merger.

The Merger may not be accretive and may cause dilution to Lumentum’s earnings per share, which may harm the market price of Lumentum common stock following the Merger.

While the Merger is expected to be immediately accretive to Lumentum’s future earnings per share, there can be no assurance with respect to the timing and scope of the accretive effect or whether it will be accretive at all. Lumentum following the Merger could encounter additional transaction and integration-related costs or other factors such as the failure to realize all of the benefits anticipated in the Merger or a downturn in its business, including a loss in revenue as a result of the Denial Order relating to ZTE. These and other future events and conditions could cause dilution to Lumentum’s earnings per share following the Merger or decrease the expected accretive effect of the Merger and cause a decrease in the price of shares of Lumentum common stock following the Merger. Any dilution of, or delay of any accretion to, Lumentum’s earnings per share could cause the price of shares of Lumentum common stock to decline or increase at a reduced rate.

Lumentum following the Merger will incur significant transaction and integration related costs in connection with the Merger.

Lumentum expects to incur costs associated with integrating the operations of Oclaro following the Closing. The amount of these costs could be material to the financial position and results of operations of Lumentum

 

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following the Merger. A substantial amount of such expenses will be comprised of transaction costs related to the Merger, facilities and systems consolidation costs, and employee-related costs. Lumentum will also incur fees and costs related to formulating integration plans and performing these activities. Additional unanticipated costs may be incurred in the integration of the two companies’ businesses. The elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the businesses, may not offset incremental transaction and other integration related costs in the near term.

Lumentum may not have discovered undisclosed liabilities of Oclaro which may be material to the combined company’s business and affect the value of Lumentum common stock.

Lumentum’s due diligence review of Oclaro may not have discovered undisclosed liabilities of Oclaro. If Oclaro has undisclosed liabilities, Lumentum as a successor owner may be responsible for such undisclosed liabilities. Lumentum has tried to control its exposure to undisclosed liabilities by obtaining certain protections under the Merger Agreement, including representations and warranties from Oclaro regarding undisclosed liabilities, however, such representations and warranties expire by their terms on the completion of the Merger. There can be no assurance that such provisions in the Merger Agreement will protect Lumentum against any undisclosed liabilities being discovered or provide an adequate remedy for any undisclosed liabilities that are discovered. Such undisclosed liabilities could have an adverse effect on the business and results of operations of Lumentum and may adversely affect the value of Lumentum common stock after the consummation of the Merger.

Oclaro’s counterparties may acquire certain rights upon the Merger, which could negatively affect Lumentum following the Merger.

Oclaro is party to numerous contracts, agreements, licenses, permits, authorizations and other arrangements that contain provisions giving counterparties certain rights (including, in some cases, termination rights) in the event of an “assignment” of the agreement or a “change in control” of Oclaro or its subsidiaries. The definitions of “assignment” and “change in control” vary from contract to contract and, in some cases, the “assignment” or “change in control” provisions may be implicated by the Merger. If an “assignment” or “change in control” occurs, a counterparty may be permitted to terminate its contract with Oclaro.

Whether a counterparty would have cancellation rights in connection with the Merger depends upon the language and governing law of its agreement with Oclaro. Whether a counterparty exercises any cancellation rights it has would depend on, among other factors, such counterparty’s views with respect to the financial strength and business reputation of Lumentum following the Merger and prevailing market conditions. Oclaro cannot presently predict the effects, if any, that may occur if the Merger is deemed to constitute a change in control under certain of its contracts and other arrangements, including the extent to which cancellation rights would be exercised, if at all, or the effect on Lumentum’s financial condition, results of operations or cash flows following the Merger, but such effect could be material.

Following the Merger, Lumentum will have a more complex organizational structure, which could result in unfavorable tax or other consequences and could have an adverse effect on its net income and financial condition.

Following the Merger, Lumentum will operate legal entities in many countries where it will conduct manufacturing, design and sales operations around the world. In some countries, it will maintain multiple entities for tax or other purposes. Changes in tax laws, regulations, and related interpretations in the countries in which it operates may adversely affect its results of operations. Lumentum, following the Merger, will have many entities globally and may have unsettled intercompany balances between some of these entities that could result, if changes in law, regulations or related interpretations occur, in adverse tax or other consequences affecting its capital structure, intercompany interest rates and legal structure.

 

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Future results of Lumentum following the Merger may differ materially from the unaudited pro forma financial information included in this proxy statement/prospectus.

The future results of Lumentum following the Merger may be materially different from those shown in the unaudited pro forma financial information presented in this proxy statement/prospectus that show only a combination of Lumentum’s and Oclaro’s historical results and do not reflect the expected decline in ZTE related revenue of Oclaro and, following the closing of the Merger, Lumentum as a result of the Denial Order. As a result of the Denial Order, Lumentum’s future results following the Merger are expected to be negatively impacted and differ from the unaudited pro forma financial information included in this proxy statement/prospectus. Additionally, Lumentum expects to incur significant costs associated with completing the Merger and integrating the operations of Oclaro, and the exact magnitude of these costs is not yet known. Furthermore, these costs may decrease the amount of capital that could be used by Lumentum for other purposes.

The financial analyses and forecasts considered by Lumentum, Oclaro and Oclaro’s financial advisor may not be realized.

While the financial projections utilized by Lumentum, Oclaro and Oclaro’s financial advisor in connection with the Merger were prepared in good faith based on information available at the time of preparation, no assurances can be made regarding future events or that the assumptions made in preparing such projections will accurately reflect future conditions. For example, the financial projections utilized by Lumentum, Oclaro and Oclaro’s financial advisor in connection with the Merger do not take into account the Denial Order relating to ZTE, previously a significant customer of Oclaro’s, which will have a negative impact on Oclaro’s revenues for the fiscal year ending June 30, 2018, and is anticipated to have a negative impact on Oclaro’s revenues in future fiscal periods during which the Denial Order remains in effect. There can be no assurance that the underlying assumptions or projected results will be realized, and actual results will likely differ, and may differ materially, from such projections, which could result in a material adverse effect on the business, financial condition, results of operations and prospects of Lumentum following the Merger. See the section titled “The Merger—Certain Unaudited Prospective Financial Information” beginning on page 104 of this proxy statement/prospectus for more information.

In connection with the Merger, Lumentum will incur significant indebtedness, which could adversely affect Lumentum, including by decreasing Lumentum’s business flexibility, and which will increase its interest expense.

Lumentum’s consolidated indebtedness based on face value of debt as of May 29, 2018 was approximately $450.0 million. Lumentum’s pro forma indebtedness as of May 29, 2018, after giving effect to the Merger and the anticipated incurrence and extinguishment of indebtedness in connection therewith, will be as much as $1.0 billion. In order to consummate the Merger, Lumentum expects to incur at least $550 million of new indebtedness. Accordingly, Lumentum’s consolidated indebtedness following completion of the Merger will be greater than Lumentum’s consolidated indebtedness prior to the completion of the Merger.

This indebtedness could have the effect, among other things, of reducing Lumentum’s flexibility to respond to changing business and economic conditions and increasing Lumentum’s interest expense. The amount of cash required to pay interest on Lumentum’s increased indebtedness levels following completion of the Merger, and thus the demands on Lumentum’s cash resources, will be greater than the amount of cash flows required to service the indebtedness of Lumentum prior to the transaction. The cash resources required to service the increased levels of indebtedness following completion of the Merger could also reduce funds available for working capital, capital expenditures, acquisitions and other general corporate purposes and may create competitive disadvantages for Lumentum relative to other companies with lower debt levels. If Lumentum does not achieve the expected benefits and cost savings from the Merger, or if the financial performance of the combined company does not meet current expectations, Lumentum’s ability to service its indebtedness may be adversely impacted.

 

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Moreover, Lumentum may be required to raise substantial additional financing to fund working capital, capital expenditures, acquisitions or other general corporate requirements. Lumentum’s ability to arrange additional financing or refinancing will depend on, among other factors, Lumentum’s financial position and performance, as well as prevailing market conditions and other factors beyond Lumentum’s control. Lumentum cannot assure you that it will be able to obtain additional financing or refinancing on terms acceptable to Lumentum or at all.

The terms of the definitive documents governing the Term Loan Facilities will restrict Lumentum’s operations, particularly Lumentum’s ability to respond to changes or to take certain actions.

The definitive documents governing the Term Loan Facilities (as defined below in this proxy statement/prospectus) will contain a number of restrictive covenants that impose operating and financial restrictions on the Lumentum and may limit its ability to engage in acts that may be in Lumentum’s long-term best interest, including restrictions on the ability to: incur indebtedness, grant liens, undergo certain fundamental changes, dispose of assets, make investments, enter into transactions with affiliates, and make certain restricted payments, in each case subject to limitations and exceptions to be set forth in the definitive documentation for the Term Loan Facilities.

The definitive documentation governing the Term Loan Facilities will also contain customary events of default that include, among other things, certain payment defaults, covenant defaults, cross-defaults to other indebtedness, change of control defaults, judgment defaults, and bankruptcy and insolvency defaults. Such events of defaults may allow the creditors to accelerate the related debt and may result in the acceleration of any other debt to which a cross-acceleration or cross-default provision applies which could have a material adverse effect on Lumentum’s business, operations and financial results. Furthermore, if Lumentum is unable to repay the amounts due and payable under its credit agreements, those lenders could proceed against the collateral granted to them to secure that indebtedness which could force Lumentum into bankruptcy or liquidation. In the event Lumentum’s lenders accelerated the repayment of the borrowings, Lumentum and its subsidiaries may not have sufficient assets to repay that indebtedness. Any acceleration of amounts due under the credit agreements would likely have a material adverse effect on Lumentum. As a result of these restrictions, Lumentum may be limited in how it conducts business, unable to raise additional debt or equity financing to operate during general economic or business downturns, or unable to compete effectively or to take advantage of new business opportunities.

Other Risk Factors of Lumentum and Oclaro

Lumentum’s and Oclaro’s businesses are and will be subject to the risks described above. In addition, Lumentum and Oclaro are, and will continue to be, subject to the risks described in each of Lumentum’s and Oclaro’s Annual Report on Form 10-K for the fiscal year ended July 1, 2017, as amended, and as updated by subsequent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, all of which are filed with the SEC and incorporated by reference into this proxy statement/prospectus. See the section titled “Where You Can Find More Information” beginning on page 169 of this proxy statement/prospectus for the location of information incorporated by reference in this proxy statement/prospectus.

 

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus and the documents incorporated by reference into this proxy statement/prospectus contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that are not limited to historical facts, but reflect Lumentum’s and Oclaro’s current beliefs, expectations or intentions regarding future events. These statements include forward-looking statements both with respect to Lumentum and Oclaro and the telecommunications industry. Forward-looking statements generally relate to future events or future financial or operating performance. In some cases, you can identify forward-looking statements because they contain words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these words or other similar terms or expressions that concern Lumentum’s and/or Oclaro’s expectations, strategy, plans or intentions. Lumentum’s and Oclaro’s expectations and beliefs regarding these matters may not materialize, and actual results in future periods are subject to risks and uncertainties that could cause actual results to differ materially from those projected, including but not limited to: the risk that the transaction does not close, due to the failure of one or more conditions to closing or the failure of the businesses (including personnel) to be integrated successfully after closing; risks with respect to events that affect Oclaro’s business during the pendency of the transaction and following the closing, including the impact on Oclaro’s results of operations of the Denial Order; the risk that synergies and non-GAAP earnings accretion will not be realized or realized to the extent anticipated; uncertainty as to the market value of the Lumentum merger consideration to be paid in the Merger; the risk that required governmental or Oclaro stockholder approvals of the Merger (including China antitrust approvals) will not be obtained or that such approvals will be delayed beyond current expectations; the risk that following this transaction, Lumentum’s financing or operating strategies will not be successful; litigation in respect of either company or the Merger; and disruption from the Merger making it more difficult to maintain customer, supplier, key personnel and other strategic relationships.

The forward-looking statements contained in this proxy statement/prospectus are also subject to other risks and uncertainties, including those more fully described under the section titled “Risk Factors” beginning on page 57 of this proxy statement/prospectus and elsewhere in Lumentum’s and Oclaro’s filings with the SEC, including Lumentum’s Annual Report on Form 10-K for the year ended July 1, 2017, Lumentum’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018, Oclaro’s Annual Report on Form 10-K for the year ended July 1, 2017, and Oclaro’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 31, 2018. The forward-looking statements in this proxy statement/prospectus are based on information available to Lumentum and Oclaro as of the date hereof, and each of Lumentum and Oclaro disclaims any obligation to update any forward-looking statements, except as required by law.

 

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THE OCLARO SPECIAL MEETING

General

This proxy statement/prospectus is being provided to Oclaro stockholders as part of a solicitation of proxies by the Oclaro Board for use at the special meeting of Oclaro stockholders and at any adjournments or postponements of the special meeting. This proxy statement/prospectus provides Oclaro stockholders with information about the special meeting and should be read carefully in its entirety.

Date, Time and Location

The special meeting of Oclaro stockholders will be held on July 10, 2018 at 8:00 a.m, Pacific time, at Oclaro’s headquarters located at 225 Charcot Avenue, San Jose, California 95131.

Purpose

At the special meeting, holders of Oclaro common stock as of the Record Date will be asked to consider and approve the following proposals:

1. The Merger Proposal: The proposal to adopt the Merger Agreement, which provides for the acquisition of Oclaro through (1) a merger of Merger Sub with and into Oclaro with Oclaro surviving the First Step Merger, and (2), as soon as reasonably practicable following the First Step Merger, a merger of Oclaro with and into Merger Sub LLC with Merger Sub LLC continuing as the surviving entity.

2. The Compensation Proposal: The proposal to approve, on a non-binding, advisory basis, the compensation payments that will or may be made to Oclaro’s named executive officers in connection with the Merger.

3. The Adjournment Proposal: The proposal to approve the adjournment of the special meeting, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Merger Proposal.

The approval of the Merger Proposal by Oclaro stockholders is a condition to the obligations of Lumentum and Oclaro to complete the Merger. The approval, on a non-binding, advisory basis, of the Compensation Proposal is not a condition to the obligations of Lumentum or Oclaro to complete the Merger. The approval of the Adjournment Proposal also is not a condition to the obligations of Lumentum or Oclaro to complete the Merger. No other matters are intended to be brought before the special meeting by Oclaro, but if other matters are properly brought before he special meeting or at any adjournment or postponement of the special meeting, the persons whom the Oclaro Board has appointed to vote proxies will vote on such matters in their discretion.

Attendance at the Special Meeting

Only Oclaro stockholders of record as of the Record Date, non-record owners as of the Record Date, holders of valid proxies for the special meeting and invited guests of Oclaro may attend the special meeting.

All attendees should be prepared to present picture identification for admittance. The additional items, if any, that attendees must bring depend on whether they are stockholders of record, non-record owners or proxy holders.

 

    An Oclaro stockholder who holds shares directly registered in such stockholder’s name with Oclaro’s transfer agent, Computershare Trust Company, N.A., who wishes to attend the special meeting in person should bring picture identification.

 

    A person who holds shares in “street name” through a bank, brokerage firm or other nominee who wishes to attend the special meeting in person should bring:

 

    picture identification; and

 

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    a letter from such person’s bank, brokerage firm or other nominee, or a current brokerage statement, to indicate that such bank, brokerage firm or other nominee is holding shares of Oclaro common stock for such person’s benefit.

 

    A person who holds a validly executed proxy entitling such person to vote on behalf of a stockholder of record of shares of Oclaro common stock who wishes to attend the special meeting in person should bring:

 

    picture identification;

 

    the validly executed proxy naming such person as the proxy holder, signed by the Oclaro stockholder of record; and

 

    proof of the signing Oclaro stockholder’s record ownership as of the record date.

Cameras, recording devices and other electronic devices, signs and placards will not be permitted at the special meeting. Failure to provide the requested documents at the door or failure to comply with the procedures for the special meeting may prevent stockholders of record, non-record owners or proxy holders from being admitted to the special meeting. Oclaro reserves the right to request any person to leave the special meeting who is disruptive or refuses to follow the rules established for the special meeting or for any other reason.

Recommendation of the Oclaro Board

The Oclaro Board unanimously (1) determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement are advisable and are fair to, and in the best interest of, Oclaro and its stockholders, (2) approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, (3) recommended that the Oclaro stockholders adopt the Merger Agreement, and (4) directed that the Merger Agreement be submitted to the Oclaro stockholders for adoption at the special meeting.

Accordingly, the Oclaro Board unanimously recommends that the stockholders vote their shares of Oclaro common stock:

1. “FOR” Proposal 1 to approve the Merger Proposal;

2. “FOR” Proposal 2 to approve the Compensation Proposal; and

3. “FOR” Proposal 3 to approve the Adjournment Proposal.

Record Date and Quorum

The Oclaro Board has fixed the close of business on May 15, 2018 as the Record Date for the special meeting. Oclaro stockholders of record as of the Record Date are entitled to notice of and to vote at the special meeting. As of the close of business on the Record Date, 170,656,367 shares of Oclaro common stock were issued and outstanding and there were 1,780 holders of record of Oclaro common stock. Each Oclaro stockholder is entitled to one vote for each share of Oclaro common stock held by such stockholder as of the Record Date. A list of Oclaro stockholders entitled to vote at the special meeting will be available at the special meeting and for 10 days prior to the special meeting between the hours of 9:00 a.m. and 5:00 p.m., Pacific time, at Oclaro’s headquarters located at 225 Charcot Avenue, San Jose, California 95131.

Holders of a majority in voting power of the issued and outstanding shares of Oclaro common stock entitled to vote at the special meeting must be present in person or represented by proxy at the special meeting in order to have the required quorum for transacting business. Stockholders are counted as present at the meeting if they are present in person at the special meeting, or have properly submitted a proxy card or submitted a proxy by telephone or over the Internet. Abstaining votes are considered present and entitled to vote and, therefore, are

 

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included for purposes of determining whether a quorum is present at the special meeting. Broker non-votes are not considered entitled to vote at the special meeting and, therefore, are not included for purposes of determining whether a quorum is present at the special meeting.

If you transfer your shares of Oclaro common stock after the Record Date but before the special meeting, you will, unless you provide the transferee of your shares with a proxy, retain your right to vote at the special meeting, but will have transferred the right to receive the Merger Consideration. In order to receive the Merger Consideration, you must hold your shares through the Effective Time.

Even if you plan to attend the special meeting in person, you are strongly encouraged to vote your shares of Oclaro common stock by proxy. If you are a record holder or if you obtain a proxy to vote shares of Oclaro common stock that you beneficially own, you may still vote your shares of Oclaro common stock in person 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 of Oclaro common stock are held in “street name” through a broker, bank or other nominee, you may vote through your broker, bank or other nominee by completing and returning the voting instruction form provided by your broker, bank or other nominee, or, if such a service is provided by your broker, bank or other nominee, electronically over the Internet or by telephone. To vote over the Internet or by telephone through your broker, bank or other nominee, you should follow the instructions on the voting instruction form provided by your broker, bank or nominee. However, because you are not the stockholder of record, you may not vote your shares of Oclaro common stock in person by ballot at the special meeting unless you obtain a proxy from your broker, bank or other nominee giving you the right to vote your shares at the special meeting. Please refer to the voting instruction card provided with these proxy materials by your broker, bank or other nominee or contact your broker, bank or other nominee to obtain instructions on how to instruct them with respect to the voting of your shares of Oclaro common stock.

Required Vote

The affirmative vote, in person or by proxy, of holders of a majority of the outstanding shares of Oclaro common stock as of the Record Date is required to approve the Merger Proposal (Proposal 1). The affirmative vote, in person or by proxy, of the holders of a majority of the voting power of the outstanding shares of Oclaro common stock present in person or represented by proxy at the special meeting and voting on the matter is required to approve the Compensation Proposal (Proposal 2). The affirmative vote, in person or by proxy, of the holders of a majority of the voting power of the outstanding shares of Oclaro common stock present in person or represented by proxy at the special meeting and voting on the matter is required to approve the Adjournment Proposal (Proposal 3).

Your broker, bank or other nominee is not entitled to vote shares held for a beneficial owner on non-routine matters. All matters at the special meeting are non-routine matters, including approval of the Merger Proposal, approval, on a non-binding, advisory basis, of the Compensation Proposal, and approval of the Adjournment Proposal. Consequently, if you do not give your broker, bank or other nominee specific instructions, your shares will not be voted at the special meeting. You are encouraged to provide instructions to your broker. This ensures your shares will be voted at the special meeting.

If you abstain from voting, fail to vote at the special meeting (in person or by proxy), or fail to instruct your broker, bank or other nominee how to vote on the Merger Proposal, it will have the same effect as a vote cast “AGAINST” the Merger Proposal. If you abstain from voting, attend the special meeting and fail to vote, do not attend the special meeting (in person or by proxy) or fail to instruct your broker, bank or other nominee how to vote on the Compensation Proposal or Adjournment Proposal, it will have no effect on the outcome of the vote on the Compensation Proposal, assuming a quorum is present.

 

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Share Ownership and Voting by Oclaro Directors and Executive Officers

As of the Record Date, the directors and executive officers of Oclaro held and are entitled to vote, in the aggregate, approximately 1.8% of the aggregate voting power of the outstanding shares of Oclaro common stock. Oclaro currently expects that all of its directors and executive officers will vote their shares of Oclaro common stock in favor of the Merger Proposal, the Compensation Proposal and the Adjournment Proposal, although none of them has entered into any agreement obligating them to do so.

Voting of Shares

For Stockholders of Record:

In addition to voting in person at the special meeting, if your shares of Oclaro common stock are held in your name by Oclaro’s transfer agent as a stockholder of record, you, as an Oclaro stockholder, may submit a proxy as follows:

 

    Mail: You may submit your proxy by properly signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope, which you should do early enough so that it is received before the date of the special meeting.

 

    Internet: You may submit your proxy by using the Internet at www.proxyvote.com. Internet voting is available 24 hours a day and will be accessible until 11:59 p.m., Eastern time, on July 9, 2018, the day before the special meeting.

 

    Telephone: You may submit your proxy by calling 1-800-690-6903, the toll-free (within the U.S. or Canada) phone number on your proxy card. Telephone voting is available 24 hours a day and will be accessible until 11:59 p.m., Eastern time, on July 9, 2018, the day before the special meeting; or

 

    In Person: You may vote your shares of Oclaro common stock by attending the special meeting and voting in person by ballot. Attendance at the special meeting will not, however, in and of itself constitute a vote.

Oclaro requests that Oclaro stockholders submit their proxies over the Internet, by telephone or by completing and signing the accompanying proxy and returning it to Oclaro as soon as possible in the enclosed postage-paid envelope. When the accompanying proxy is returned properly executed (including proper proxy submission by Internet or telephone), the shares of Oclaro common stock represented by it will be voted at the special meeting in accordance with the instructions contained on the proxy card.

If you sign and return your proxy or voting instruction card without indicating how to vote on any particular proposal, the Oclaro common stock represented by your proxy will be voted “FOR” each proposal in accordance with the recommendation of the Oclaro Board. Unless you check the box on your proxy card to withhold discretionary authority, the proxy holders may use their discretion to vote on the proposals relating to the special meeting.

If your shares of Oclaro common stock are held in “street name” by a broker, bank or other nominee, you should check the voting form used by that firm to determine whether you may give voting instructions by telephone or the Internet and you should read the information in the section titled “—Voting of Shares—For Beneficial Owners” below.

Every Oclaro stockholder’s vote is important. Accordingly, each Oclaro stockholder should submit its proxy via the Internet or by telephone, or sign, date and return the enclosed proxy card, whether or not the Oclaro stockholder plans to attend the special meeting in person.

For Beneficial Owners:

If your shares of Oclaro common stock are held in “street name” by a broker, bank or other nominee, you have the right to direct your broker, bank or other nominee on how to vote your shares of Oclaro common stock.

 

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Your broker, bank or other nominee, as applicable, may establish an earlier deadline by which you must provide instructions to it for how to vote your shares of Oclaro common stock. You should read carefully the materials provided to you by your broker, bank or other nominee. Because a beneficial owner is not the stockholder of record, you may not vote these shares of Oclaro common stock at the special meeting unless you obtain a proxy from the broker, bank or other nominee that holds your shares of Oclaro common stock giving you the right to vote such shares of Oclaro common stock at the special meeting.

Revocation of Proxies

If you are a stockholder of record as of the Record Date, you may change your vote:

 

    by delivering to Oclaro (Attention: Corporate Secretary, 225 Charcot Avenue, San Jose, California 95131), prior to your shares being voted at the special meeting, a later dated properly written notice of revocation or a later dated duly executed proxy card (in which case only the later-dated proxy is counted and the earlier proxy is revoked);

 

    by attending the special meeting and voting in person (although attendance at the special meeting will not, by itself, revoke a proxy); or

 

    by submitting a proxy on the Internet or by telephone at a later date but prior to your shares being voted at the special meeting (in which case only the later-dated proxy is counted and the earlier proxy is revoked).

If you are a beneficial owner of shares held in “street name” by a broker, bank or other nominee, you may revoke your proxy and vote your shares in person at the special meeting only in accordance with the applicable rules and procedures as employed by such broker, bank or other nominee. If your shares are held in an account at a broker, bank or other nominee, you should contact your broker, bank or other nominee to change your vote.

Solicitation of Proxies; Costs of Solicitation

Your proxy is being solicited by the Oclaro Board on behalf of Oclaro. Oclaro will bear the entire cost of proxy solicitation, including preparation, assembly, printing and mailing of the notice of special meeting, proxy card, this proxy statement/prospectus and any additional materials furnished to Oclaro stockholders. Copies of these materials will be furnished to brokerage houses, fiduciaries, and custodians holding shares in their names that are beneficially owned by others to forward to those beneficial owners. In addition, Oclaro may reimburse the costs of forwarding these materials to those beneficial owners.

Solicitation of proxies by mail may be supplemented by one or more of telephone, email, facsimile, or personal solicitation by Oclaro’s directors, officers, or regular employees. No additional compensation will be paid for such services.

Oclaro has engaged MacKenzie Partners, Inc. to aid in the solicitation of proxies from brokers, bank nominees and other institutional owners for approximately $17,500, plus reimbursement of related expenses.

Tabulation of Votes

All votes will be tabulated by a representative of Broadridge Financial Solutions, Inc., who will separately tabulate affirmative and negative votes, abstentions and broker non-votes. A representative of Broadridge Financial Solutions, Inc. will act as the inspector of election appointed for the special meeting.

Adjournments and Postponements

In addition to the Merger Proposal and the Compensation Proposal, Oclaro stockholders are being asked to approve the Adjournment Proposal, which will authorize the adjournment of the special meeting one or more times, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the Merger Proposal at the time of the special meeting.

 

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If a quorum is not present or represented at the special meeting, then the Oclaro stockholders entitled to vote at the special meeting, present in person or represented by proxy, or if no stockholder is present, any Oclaro officer entitled to preside at or to act as secretary of the meeting, shall have power to adjourn the meeting. If the special meeting is adjourned for less than 30 days, notice need not be given of the adjourned meeting if the time and place of the adjourned meeting, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the special meeting at which the adjournment is taken. At the adjourned meeting, Oclaro may transact any business that might have been transacted at the original special meeting. If the adjournment is for 30 days or more, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Oclaro stockholder of record entitled to vote at the meeting.

An adjournment of the special meeting may be desirable to, among other things, solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Merger Proposal, allow reasonable additional time for the filing and distribution of any supplemental or amended disclosure to be disseminated to and reviewed by Oclaro stockholders prior to the special meeting, or otherwise with the consent, or upon the request, of Lumentum.

If you sign and return a proxy and do not indicate how you wish to vote on any proposal, or if you indicate that you wish to vote in favor of the Merger Proposal but do not indicate a choice on the Adjournment Proposal, your shares of Oclaro common stock will be voted “FOR” the Adjournment Proposal.

Assistance

If you need assistance in completing your proxy card, have questions about the Merger, the special meeting, or the proposals to be considered at the special meeting, need additional copies of this document or need to obtain proxy cards or other information related to the proxy solicitation, please contact Oclaro’s proxy solicitor, MacKenzie Partners, Inc., at the following address and telephone number:

MacKenzie Partners, Inc.

1407 Broadway

New York, New York 10018

(212) 929-5500

or

Toll-Free (800) 322-2885

 

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PROPOSAL 1: THE MERGER PROPOSAL

As discussed throughout this proxy statement/prospectus, Oclaro is asking its stockholders to adopt the Merger Agreement. Pursuant to the Merger Agreement, Lumentum will acquire Oclaro pursuant to (1) the merger of Merger Sub with and into Oclaro with Oclaro surviving the First Step Merger, and (2), as soon as reasonably practicable following the First Step Merger, the merger of Oclaro with and into Merger Sub LLC with Merger Sub LLC continuing as the surviving entity. The Oclaro common stock will be delisted from NASDAQ, deregistered under the Exchange Act and cease to be publicly traded.

As described in further detail in the sections titled “Questions and Answers” beginning on page 1 of this proxy statement/prospectus, “Summary” beginning on page 12 of this proxy statement/prospectus, “The Merger” beginning on page 79 of this proxy statement/prospectus and “The Merger Agreement” beginning on page 124 of this proxy statement/prospectus, the Oclaro Board has unanimously approved the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement. The Merger is subject to the satisfaction of the conditions set forth in the Merger Agreement, including the adoption of the Merger Agreement by the stockholders of Oclaro at the special meeting. Accordingly, the approval of the Merger Proposal by Oclaro stockholders is a condition to the obligations of Lumentum and Oclaro to complete the Merger. A copy of the Merger Agreement is attached as Annex A to this proxy statement/prospectus. You are urged to read the Merger Agreement carefully and in its entirety.

Required Vote

The affirmative vote, in person or by proxy, of the holders of a majority of the outstanding shares of Oclaro common stock as of the Record Date is required to approve the Merger Proposal.

Recommendation of the Oclaro Board

The Oclaro Board unanimously recommends that Oclaro stockholders vote “FOR” the Merger Proposal.

 

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PROPOSAL 2: THE COMPENSATION PROPOSAL

Oclaro is providing its stockholders with the opportunity to cast a vote, on a non-binding, advisory basis, to approve the compensation payments that will or may be made to Oclaro’s named executive officers in connection with the Merger as disclosed in the table (and related narrative disclosure) titled “The Merger—Interests of Oclaro’s Directors and Executive Officers in the Merger—Quantification of Potential Payments and Benefits to Oclaro’s Named Executive Officers in Connection with the Merger” beginning on page 111 of this proxy statement/prospectus, as required by Section 14A of the Exchange Act.

Through this proposal, Oclaro is asking its stockholders to indicate their approval, on a non-binding, advisory basis, of the compensation and change of control payments which Oclaro’s named executive officers will or may be eligible to receive in connection with the Merger as indicated in the table referred to above. The plans and arrangements under which these compensation payments may be made are part of Oclaro’s compensation program for its named executive officers or are required by the Merger Agreement.

You should review carefully the information under the section titled “The Merger—Interests of Oclaro’s Directors and Executive Officers in the Merger—Quantification of Potential Payments and Benefits to Oclaro’s Named Executive Officers in Connection with the Merger” beginning on page 111 of this proxy statement/prospectus.

The Oclaro Board unanimously recommends that Oclaro stockholders approve the following resolution:

“RESOLVED, that the stockholders of Oclaro approve, solely on an advisory, non-binding basis, the compensation payments which will or may be made to Oclaro’s named executive officers in connection with the Merger, as disclosed pursuant to Item 402(t) of Regulation S-K, including in the table titled “The Merger—Interests of Oclaro’s Directors and Executive Officers in the Merger—Quantification of Potential Payments and Benefits to Oclaro’s Named Executive Officers in Connection with the Merger” beginning on page 111 of this proxy statement/prospectus.”

The vote on the Compensation Proposal is a vote separate and apart from the vote on the Merger Proposal. Accordingly, you may vote to approve the Merger Proposal and abstain or vote not to approve the Compensation Proposal. Because the vote on the Compensation Proposal is advisory only, it will not be binding on either Oclaro or Lumentum. Accordingly, if the Merger Proposal is approved and the Merger is completed, the compensation payments that are contractually required to be made to Oclaro’s named executive officers will be made, subject only to the conditions applicable thereto, regardless of the outcome of the non-binding, advisory vote of Oclaro’s stockholders on the Compensation Proposal.

Required Vote

The affirmative vote, in person or by proxy, of the holders of a majority of the voting power of the outstanding shares of Oclaro common stock present in person or represented by proxy at the special meeting and voting on the matter at the special meeting is required to approve, on a non-binding, advisory basis, the Compensation Proposal.

Recommendation of the Oclaro Board

The Oclaro Board unanimously recommends that Oclaro stockholders vote “FOR” the Compensation Proposal.

 

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PROPOSAL 3: THE ADJOURNMENT PROPOSAL

Oclaro stockholders are being asked to approve a proposal that will authorize the adjournment, assuming a quorum is present, of the special meeting one or more times, if necessary or appropriate, to solicit additional proxies if there are not sufficient votes to approve the Merger Proposal at the time of the special meeting.

If this proposal is approved, the special meeting could be adjourned to any date. If the special meeting is adjourned, Oclaro stockholders who have already submitted their proxies will be able to revoke them at any time prior to their use with respect to the Merger Proposal. If you sign and return a proxy and do not indicate how you wish to vote on any proposal, or if you indicate that you wish to vote in favor of the Merger Proposal but do not indicate a choice on the Adjournment Proposal, your shares of Oclaro common stock will be voted “FOR” the Adjournment Proposal.

If a quorum is not present or represented at the special meeting, then the Oclaro stockholders entitled to vote at the special meeting, present in person or represented by proxy, or if no stockholder is present, any Oclaro officer entitled to preside at or to act as secretary of the meeting, shall have power to adjourn the meeting. When a special meeting is adjourned for less than 30 days, notice need not be given of the adjourned meeting if the time and place of the adjourned meeting, and the means of remote communications, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such adjourned meeting, are announced at the special meeting at which the adjournment is taken. At the adjourned meeting, Oclaro may transact any business that might have been transacted at the original special meeting. If the adjournment is for 30 days or more, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each Oclaro stockholder of record entitled to vote at the meeting. An adjournment of the special meeting may be desirable to, among other things, solicit additional proxies if there are not sufficient votes at the time of the special meeting to approve the Merger Proposal, allow reasonable additional time for the filing and distribution of any supplemental or amended disclosure to be disseminated to and reviewed by Oclaro stockholders prior to the special meeting, or otherwise with the consent, or upon the request, of Lumentum.

Required Vote

The affirmative vote, in person or by proxy, of the holders of a majority of the voting power of the outstanding shares of Oclaro common stock present in person or represented by proxy at the special meeting and voting on the matter is required to approve the Adjournment Proposal.

Recommendation of the Oclaro Board

The Oclaro Board unanimously recommends that Oclaro stockholders vote “FOR” the Adjournment Proposal.

 

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THE MERGER

The following is a discussion of the Merger and the material terms of the Merger Agreement between Lumentum and Oclaro. You are urged to read the Merger Agreement carefully and in its entirety, a copy of which is attached as Annex A to this proxy statement/prospectus and incorporated by reference herein.

Effects of the Merger

Subject to the terms and conditions of the Merger Agreement and the applicable provisions of Delaware law, at the effective time of the first merger (the “Effective Time”), Merger Sub will be merged with and into Oclaro (the “First Step Merger”), with Oclaro surviving the First Step Merger as a wholly owned subsidiary of Lumentum. At the effective time of the second merger, which will be as soon as practicable after the effective time on the closing date of the First Step Merger, and as part of a single integrated transaction with the First Step Merger, Oclaro will be merged with and into Merger Sub LLC (the “Second Step Merger” and, together with the First Step Merger, the “Merger”), with Merger Sub LLC surviving as a direct wholly owned subsidiary of Lumentum.

At the Effective Time, by virtue of the Merger, Oclaro stockholders will receive, in exchange for each share of Oclaro common stock issued and outstanding immediately prior to the Effective Time (other than (x) Oclaro common stock held by Lumentum, Oclaro or any direct or indirect wholly owned subsidiary of Lumentum or Oclaro, in each case immediately prior to the Effective Time and (y) shares held by Oclaro stockholders who are entitled to and who properly exercise appraisal rights under Section 262 of the DGCL) (1) $5.60 in cash without interest, and (2) 0.0636 of a share of Lumentum common stock, subject to the conditions and restrictions set forth in the Merger Agreement.

With regard to the Merger Consideration, if the aggregate number of shares of Lumentum common stock to be issued in connection with the Merger (including all Lumentum common stock which may be issued in the future pursuant to the conversion of Oclaro Options, Oclaro RSUs, or Oclaro Restricted Stock (collectively, “Oclaro Compensatory Awards”)) would exceed the Stock Threshold, then (A) the Exchange Ratio will be reduced to the minimum extent necessary (rounded down to the nearest one thousandth) such that the aggregate number of shares of Lumentum common stock to be issued in connection with the Merger (including all shares of Lumentum common stock which may be issued after the closing pursuant to Oclaro Compensatory Awards) does not exceed the Stock Threshold and (B) the Cash Consideration for all purposes will be increased on a per share basis by an amount equal to $68.975 (the closing sales price of a share of Lumentum common stock on March 9, 2018, the last trading day before the day on which Lumentum and Oclaro announced the execution of the Merger Agreement), multiplied by the difference between the initial Exchange Ratio and the Exchange Ratio.

Background of the Merger

Oclaro operates in the optical communications market. The Oclaro Board regularly reviews and assesses Oclaro’s financial and operational performance, business risks and opportunities, competition and strategy. Additionally, the Oclaro Board and management periodically review and evaluate developments in the optical communications market and strategic opportunities and alternatives available to Oclaro as part of Oclaro’s efforts to strengthen its business and long-term prospects, and enhance value for its stockholders.

Beginning in 2014, the Oclaro Board formed a belief that the optical communications market was changing and that the industry would experience consolidation in the coming years in order to create the breadth and scale necessary for companies to succeed in the long term. In order to ensure that Oclaro was prepared to participate in any such consolidation (whether through acquisition of other companies, disposition of Oclaro or its assets, or otherwise), the Oclaro Board instructed management to evaluate strategic alternatives, including through contacting other participants in the industry, in order to stay abreast of potential opportunities and strategic alternatives as they arise. During 2014 through 2017, the opportunities and alternatives considered at times by the

 

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Oclaro Board and management included, among other things, a sale of the company, potential acquisitions of other companies, strategic investments, divestiture of assets, business collaborations and other strategic transactions.

On May 22, 2014, Oclaro entered into an engagement letter with Jefferies to act as Oclaro’s exclusive financial advisor to provide Oclaro with financial advice and assistance in connection with the possible sale, disposition or other business transaction involving all or a material portion of its equity or assets and the possible acquisition of all or a material portion of one or more third parties. In addition, Jefferies has assisted in Oclaro’s review and assessment of its financial condition (including strategic transactions that could improve its balance sheet) and prospects as a standalone company. Oclaro selected Jefferies to act as its financial advisor based on Jefferies’ qualifications, expertise, reputation, and knowledge of the optical communications industry and the businesses of Oclaro and other parties that operate in the optical communications industry.

Beginning in June 2014 through July 2017, with the assistance of representatives of Jefferies, Oclaro management periodically communicated with other companies to discuss potential strategic opportunities, including a sale of the company, potential acquisitions of other companies, strategic investments, divestiture of assets and business collaborations, but the Oclaro Board did not direct Oclaro management or Jefferies to undertake an auction to sell the company.

After recently participating in discussions regarding potential areas of business collaboration between Oclaro and Company A during which Company A indicated its interest in a potential acquisition of Oclaro, on March 16 and March 31, 2017, Greg Dougherty, Oclaro’s chief executive officer, and other members of the Oclaro management met with members of management from Company A for the purpose of Company A’s due diligence review of Oclaro’s businesses, financial condition and results of operations with respect to a potential acquisition of Oclaro by Company A. Oclaro previously entered into a confidentiality agreement, dated February 16, 2017, with Company A.

On May 1, 2017, Mr. Dougherty met with the chief executive officer of Company A to discuss Company A’s interest in acquiring Oclaro. During this discussion, the chief executive officer of Company A stated that his company was interested in acquiring Oclaro for an aggregate purchase price of $1.5 billion.

At a meeting of the audit committee of the Oclaro Board on May 5, 2017 (at which all members of the Oclaro Board were present other than one director), the directors and members of Oclaro management discussed, among other matters, Company A’s preliminary indication of interest. During this meeting, the directors concluded that Company A’s indication of interest was insufficient, and directed Mr. Dougherty to inform Company A’s chief executive officer that Company A would need to increase the value of its indication of interest in order for Oclaro to move forward with discussions concerning a transaction with Company A.

On May 10, 2017, Mr. Dougherty again met with the chief executive officer of Company A to discuss a potential acquisition of Oclaro by Company A. During this meeting, Mr. Dougherty informed Company A’s chief executive officer that Company A’s proposal was insufficient and that Company A would need to increase the value of its indication of interest in order for Oclaro to move forward with discussions concerning a transaction with Company A.

On May 12, 2017, a member of Oclaro management requested that Company A return or destroy all confidential information provided to Company A by Oclaro because Company A had not increased the value of its indication of interest.

On May 18, 2017, Mr. Dougherty and another member of Oclaro management met with the chief executive officer and another member of management of Company B to discuss a potential strategic transaction between the companies.

 

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At a meeting of the Oclaro Board that began on July 25, 2017, Mr. Dougherty provided an overview of potential strategic alternatives, noting that no specific proposals were under current consideration and that any discussions with potential partners were solely of an exploratory nature. The Oclaro Board discussed various strategic alternatives and determined that Oclaro should continue to explore strategic alternatives during fiscal year 2018, and directed Mr. Dougherty to do so as a key initiative for fiscal year 2018.

On October 4, 2017, Mr. Dougherty contacted a member of Company C management to invite a discussion about whether Oclaro and Company C should consider a potential strategic transaction. The member of Company C management indicated that he would inform Company C’s chief executive officer of Mr. Dougherty’s inquiry.

On October 6, 2017, members of management from Oclaro and Company B met to discuss business updates of both companies, Oclaro’s financial forecasts and a potential combination between the companies. Later on October 6, 2017, Mr. Dougherty informed the Oclaro Board of this meeting.

At a meeting of the Oclaro Board on November 6, 2017 at which representatives of Oclaro management, Jones Day and Jefferies were present, the Oclaro Board approved the formation of the M&A Committee of the Oclaro Board to assist the board in its oversight of management’s efforts relating to, and discussions with third parties concerning, potential strategic transactions involving Oclaro, including responding to and directing management in a timely manner to address transaction-related developments between scheduled meetings of the Oclaro Board. The M&A Committee is comprised of Mr. Dougherty, Kendall Cowan and Ian Small.

On November 7, 2017, Mr. Dougherty spoke with the chief executive officer of Company D to discuss potential partnering opportunities and a potential strategic transaction between Oclaro and Company D.

On November 8, 2017, Mr. Dougherty met with Alan Lowe, Lumentum’s chief executive officer while both were attending a conference. During this meeting, Mr. Lowe informed Mr. Dougherty that Lumentum was interested in acquiring Oclaro, but did not indicate Lumentum’s valuation of Oclaro.

On November 23, 2017, Mr. Dougherty spoke with the chief executive officer of Company D where they discussed a potential business combination between Oclaro and Company D.

On November 27, 2017, Mr. Dougherty met with the chief executive officer of Company D to further discuss a potential business combination between Oclaro and Company D.

Later on November 27, 2017, Mr. Dougherty and other members of the Oclaro management met with Company D’s chief executive officer and other members of Company D management to conduct preliminary due diligence reviews of the companies and discuss a potential business combination.

On November 28, 2017, Mr. Dougherty and another member of Oclaro management met with Mr. Lowe and another member of Lumentum management to discuss each company’s business, strategic challenges and operations, as well as Lumentum’s potential acquisition of Oclaro.

On November 29, 2017, Mr. Dougherty and another member of Oclaro management met with representatives of Company E, a Chinese private equity firm, during which Company E provided an introduction to the firm and indicated that Company E was interested in acquiring Oclaro.

On December 1, 2017, Mr. Dougherty and the chief executive officer of Company F discussed Oclaro’s potential acquisition of Company F.

On December 3, 2017, Oclaro entered into a nondisclosure agreement with Company D, and Company D’s chief executive officer informed Mr. Dougherty that he authorized members of Company D management to conduct further due diligence of Oclaro and meet with their counterparts at Oclaro to assess a potential acquisition of Oclaro.

 

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On December 4, 2017, Oclaro entered into a nondisclosure agreement with Company F.

At a meeting of the Oclaro Board on December 7, 2017, Mr. Dougherty provided the Oclaro Board with an update on potential strategic alternatives. Mr. Dougherty informed the Oclaro Board that, among other things, (i) Oclaro had signed a nondisclosure agreement with Company D and that Company D had begun conducting its due diligence review of Oclaro, (ii) Company F had begun a process to sell Company F and Oclaro had entered into a nondisclosure agreement with Company F with respect thereto and the company had initiated its preliminary due diligence review of Company F, (iii) Company E had expressed a desire to acquire Oclaro and (iv) Lumentum had expressed interest in acquiring Oclaro.

On December 14, 2017, in response to Mr. Dougherty’s inquiry as to the status of Company D’s interest in pursuing an acquisition of Oclaro, including with respect to making a possible offer to acquire Oclaro, the chief executive officer of Company D informed Mr. Dougherty that Company D remained interested in acquiring Oclaro and that Company D had retained a financial advisor.

On December 15, 2017, Oclaro entered into a nondisclosure agreement with Lumentum.

On December 19, 2017, members of Oclaro management and Company D management met for the purpose of furthering Company D’s due diligence review of Oclaro, during which they reviewed Oclaro’s business outlook, financial forecasts, product roadmap, competition and other matters related to Oclaro’s operations.

Also on December 19, 2017, members of Oclaro management and Company F management and representatives of Jefferies met for the purpose of conducting Oclaro’s due diligence review of Company F and discussing the potential acquisition of Company F by Oclaro.

On December 20, 2017, members of Oclaro management and Lumentum management met to continue discussions regarding Lumentum’s potential acquisition of Oclaro.

On December 21, 2017, Mr. Dougherty spoke with the chief executive officer of Company D regarding Company D’s interest in acquiring Oclaro.

On January 2 and 3, 2018, Mr. Dougherty and Mr. Lowe communicated regarding Lumentum’s interest in a potential acquisition of Oclaro.

Between January 2 and 4, 2018, Mr. Dougherty and the chief executive officer of Company D exchanged communications regarding Company D’s interest in a potential business combination with Oclaro.

On January 5, 2018, members of Oclaro management and Company D management met for the purpose of Company D’s due diligence on Oclaro, including reviewing the business opportunities and continuing to build a financial model for the transaction.

On January 9, 2018, Mr. Dougherty and another member of Oclaro management met with representatives of Company E regarding Company E’s interest in acquiring Oclaro. During this meeting, the attendees discussed the difficulty that Company E may have in obtaining required regulatory approvals to acquire Oclaro.

At a meeting of the Oclaro Board on January 9, 2018 at which representatives of Oclaro management and Jefferies were present, the Oclaro Board discussed the challenges and opportunities Oclaro faced as a standalone company and received an update on potential strategic alternatives being pursued by management at the Oclaro Board’s direction. With respect to the challenges facing Oclaro, the Oclaro Board considered that (i) Oclaro’s revenue was expected to remain flat over the next 12 months, and (ii) Oclaro needed to achieve further market diversification and develop or acquire technologies to enable vertical integration and scale, particularly in the context of increasing customer verticalization and industry disaggregation. With respect to strategic alternatives,

 

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among other things, Mr. Dougherty informed the Oclaro Board that Lumentum and Company D continued to be interested in acquiring Oclaro. Mr. Dougherty and representatives of Jefferies also provided an overview of Oclaro’s potential acquisition of Company F. Following discussion, the Oclaro Board authorized management to make an offer to acquire Company F and to continue discussions with parties interested in pursuing a strategic transaction with Oclaro.

On January 12, 2018, Mr. Lowe informed Mr. Dougherty that the Lumentum Board met on January 11 and expressed support for Lumentum acquiring Oclaro, but that Lumentum needed to conduct further analyses prior to submitting an offer.

On January 15, 2018, on behalf of Oclaro, Mr. Dougherty submitted a non-binding indication of interest to acquire Company F.

On January 17, 2018, representatives of Company E conducted a site visit to Oclaro’s fabrication facility in Italy to assess Company E’s interest in potentially acquiring Oclaro’s lithium niobate business.

On January 20, 2018, Mr. Dougherty spoke with the chief executive officer of Company D, who expressed his company’s continuing interest in pursuing a business combination with Oclaro. He also updated Mr. Dougherty on Company D’s results of operations, and Mr. Dougherty informed the chief executive officer of Company D that Oclaro was updating its financial forecast.

At a meeting of the Oclaro Board that began on January 23, 2018, Mr. Dougherty provided the Oclaro Board with an update on potential strategic alternatives and discussed several considerations when analyzing the strategic alternatives being pursued by Oclaro, including the sustainability of Oclaro’s revenue and gross margins, the slowdown in the datacenter market and the business outlook for China. The Oclaro Board assessed Oclaro’s prospects remaining as an independent company, undertaking acquisitions, and selling the company or a portion of its assets.

On February 1, 2018, a representative of Jefferies spoke with Company F’s financial advisor to discuss the status of Company F’s review of Oclaro’s indication of interest.

On February 8, 2018, the chief executive officer of Company D informed Mr. Dougherty that, while Company D was still interested in a transaction with Oclaro, it would likely need at least two weeks to further assess a transaction with Oclaro in light of Company D’s earnings announcement.

Also on February 8, 2018, a member of Oclaro management spoke with a representative of Company E regarding Company E’s interest in Oclaro’s Italy-based lithium niobate business.

On February 12, 2018, Mr. Dougherty and Mr. Lowe met to discuss a potential transaction between Oclaro and Lumentum, focusing on due diligence matters, organizational matters, and synergies analysis. Following the meeting, Mr. Dougherty provided Mr. Lowe with an updated financial forecast for Oclaro.

On February 12 and 13, 2018, a member of Oclaro management and a representative of Company E conferred regarding Company E’s interest in Oclaro’s Italy-based lithium niobate business.

On February 14, 2018, Mr. Dougherty spoke with the chief executive officer of Company D regarding their company’s respective businesses and future prospects, during which the chief executive officer of Company D indicated that Company D would be willing to acquire Oclaro for $8.00 per share of Oclaro common stock in a combination of cash and Company D common stock, but would not be able to offer a greater purchase price.

On February 15, 2018, Mr. Lowe informed Mr. Dougherty that the Lumentum Board supported Lumentum’s acquisition of Oclaro, and that Lumentum was prepared to offer $8.35 per share of Oclaro common

 

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stock, consisting of a mix of cash and stock at a ratio to be agreed upon by the companies. Mr. Lowe also indicated that Lumentum was prepared to move quickly and desired to announce the transaction by March 12, 2018, in advance of a scheduled industry conference. Mr. Dougherty informed Mr. Lowe that, if Lumentum submitted the offer in writing, he would present the offer to the Oclaro Board, but indicated that he expected that the Oclaro Board would require a higher price.

Later on February 15, 2018, Lumentum submitted a non-binding written indication of interest to acquire Oclaro at a purchase price of $8.35 per share of Oclaro common stock, consisting of cash consideration of $6.60 in cash and Lumentum common stock equivalent to $1.75 (which we refer to herein as the “February 15 Lumentum offer”). The offer letter indicated that Lumentum would not require any financing contingency as part of a definitive merger agreement.

At a meeting of the Oclaro Board on February 21, 2018 at which management and representatives of Jones Day and Jefferies were present, Mr. Dougherty provided the Oclaro Board with an update on potential strategic alternatives. Mr. Dougherty advised the Oclaro Board that a sale transaction involving Company E would likely not be feasible due to regulatory concerns, but that Company E may be interested in acquiring Oclaro’s Italy-based lithium niobate business based on discussions between a member of Oclaro management and a representative of Company E. Mr. Dougherty also informed the Oclaro Board that Company F’s financial advisor informed Jefferies that Oclaro’s January 15, 2018 offer to acquire Company F was insufficient, and that Company F intended to wait until after it announced its earnings in March 2018 to continue discussions. Mr. Dougherty further informed the Oclaro Board of his February 14, 2018 conversation with the chief executive officer of Company D who had informed him that Company D remained interested in acquiring Oclaro, but would not be able to offer a purchase price of greater than $8.00 per share of Oclaro common stock. A representative of Jones Day then provided a review of the Oclaro Board’s fiduciary duties. Mr. Dougherty then discussed the February 15 Lumentum offer with the Oclaro Board. Representatives of Jefferies also discussed and reviewed with the Oclaro Board its preliminary valuation analysis of Oclaro, the then-current status of discussions with potential counterparties, including Company D and Company F, and the February 15 Lumentum offer. Following a discussion, the Oclaro Board authorized Mr. Dougherty to continue discussion with Lumentum and present a counteroffer to Lumentum of $9.90 per share of Oclaro common stock, comprised of cash and Lumentum common stock with the Lumentum common stock portion capped at 19.9% of Lumentum’s outstanding shares.

Later on that same date, Mr. Dougherty presented to Mr. Lowe the counteroffer of $9.90 per share of Oclaro common stock, stating that the Oclaro Board did not believe the February 15 Lumentum offer adequately valued Oclaro, including expected synergies of the combined company. Mr. Lowe rejected the Oclaro counteroffer, but restated Lumentum’s desire to reach an agreement and announce the transaction by March 12, 2018. Mr. Dougherty responded that, if a price were agreed upon, Oclaro would try to meet Lumentum’s preferred timeline.

On February 22, 2018, Mr. Lowe informed Mr. Dougherty that the Lumentum Board had met and remained interested in Lumentum acquiring Oclaro. Mr. Lowe indicated that Lumentum agreed to Oclaro’s proposal regarding the balance of merger consideration between cash and Lumentum common stock and proposed a total consideration of $9.00 per share of Oclaro common stock, and reiterated Lumentum’s desire to move quickly to announce a transaction.

Also on February 22, 2018, representatives of Jefferies and Lumentum’s financial advisor, Deutsche Bank Securities Inc. (“Deutsche Bank”), discussed Lumentum’s offer and the anticipated timeline to announcement of a transaction.

At a meeting of the M&A committee of the Oclaro Board on February 22, 2018, at which Oclaro management and representatives of Jones Day and Jefferies were present, Mr. Dougherty provided the committee members with an update on his discussions with Mr. Lowe. Following discussion, the M&A committee directed

 

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Mr. Dougherty to continue to negotiate with Lumentum and authorized him to negotiate for the best price available to Oclaro stockholders between $9.00 and $9.90 per share of Oclaro common stock, with an initial counteroffer of $9.70 per share of Oclaro common stock.

On February 23, 2018, Mr. Dougherty informed Mr. Lowe that the Oclaro Board authorized him to propose a purchase price of $9.70 per share of Oclaro common stock. Mr. Lowe indicated that the Lumentum Board had not authorized him to increase Lumentum’s offer above $9.00 per share of Oclaro common stock, but that he would speak to the Lumentum Board regarding Oclaro’s counterproposal.

Later on February 23, 2018, Mr. Lowe advised Mr. Dougherty that the Lumentum Board had authorized an offer of $9.40 per share of Oclaro common stock, with the previously agreed upon split of cash and Lumentum common stock, and that this was Lumentum’s best and final offer. Mr. Lowe also stated that Lumentum’s offer was contingent on Oclaro agreeing to enter into an exclusivity agreement. Mr. Dougherty asked Mr. Lowe to submit Lumentum’s proposal in a written non-binding offer, and indicated that he would present the revised offer to the Oclaro Board.

On that same day, Mr. Dougherty spoke with a member of Company C management to gauge Company C’s potential interest in acquiring Oclaro. The member of Company C management informed Mr. Dougherty that Company C’s acquisition priorities did not include a telecommunication component company, and that it was unlikely Company C would be interested in acquiring Oclaro at this time. The member of Company C management stated that he would discuss it further internally.

At a meeting of the M&A committee of the Oclaro Board on February 23, 2018 at which management and representatives of Jones Day were present, Mr. Dougherty updated the committee on his discussions with Mr. Lowe. Mr. Dougherty also informed the committee that he had initiated discussions with Company C in light of Lumentum’s demand that Oclaro enter into an exclusivity agreement. The committee also discussed other potential strategic parties that may be interested and have the ability to consummate a strategic transaction with Oclaro, including Company A (recounting Company A’s chief executive officer’s prior oral offer to Mr. Dougherty on May 1, 2017 to acquire Oclaro for $1.5 billion). The committee authorized and directed Mr. Dougherty to request that Lumentum provide an updated written offer by February 25, 2018, ratified Mr. Dougherty’s actions with respect to Company C and authorized and directed Mr. Dougherty to continue discussions with Company C, and to reach out to Company A to gauge its interest in, and ability to consummate, a potential acquisition of Oclaro. Following the committee meeting, Mr. Dougherty contacted the chief executive officer of Company A to arrange a meeting.

On February 24, 2018, Lumentum submitted a revised non-binding written offer to acquire Oclaro at a purchase price of $9.40 per share of Oclaro common stock, with the agreed upon split of cash and Lumentum common stock consideration, as well as a draft exclusivity agreement that provided for a thirty day period during which Oclaro would negotiate exclusively with Lumentum.

On February 25, 2018, representatives of Jefferies and Deutsche Bank discussed Lumentum’s offer of $9.40 per share, including the split of cash and Lumentum common stock consideration.

At a meeting of the Oclaro Board also on February 25, 2018 at which management and representatives of Jones Day and Jefferies were present, Mr. Dougherty provided the Oclaro Board with a summary of the discussions of the February 23rd M&A committee meeting. Mr. Dougherty then updated the Oclaro Board on his discussions with Mr. Lowe, advising that Mr. Lowe stated that the $9.40 per share offer represented Lumentum’s best and final offer. Mr. Dougherty also recounted that he had communicated to Mr. Lowe that the Oclaro Board expected a member of the Oclaro Board would be appointed to the Lumentum Board following the closing of the merger and that Mr. Lowe commented that this proposal was reasonable and he would present it to the Lumentum Board for its consideration. Representatives of Jefferies then reviewed with the Oclaro Board an overview of their preliminary financial analyses of the revised Lumentum offer, including different metrics and

 

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time periods used to value Lumentum’s common stock for purposes of determining the exchange ratio. A representative of Jones Day provided an overview of the Oclaro Board’s fiduciary duties. Following discussion, the Oclaro Board directed management to advise Lumentum that the Oclaro Board was willing to proceed with discussions at a purchase price of $9.40 per share, but intended to pursue a methodology of valuing the Lumentum common stock portion of the merger consideration in a manner that would set the exchange ratio closer to the date of Lumentum’s February 24th non-binding written offer, rather than based on the respective then-current trading prices of Oclaro’s and Lumentum’s common stock.

Mr. Dougherty then provided the Oclaro Board with an update on other potential strategic parties. Mr. Dougherty advised the Oclaro Board that he had spoken with a member of Company C management who stated that it was unlikely Company C would submit an offer to acquire Oclaro, but he would discuss the matter internally and provide Mr. Dougherty with an update. Mr. Dougherty then recounted his May 1, 2017 discussion with Company A’s chief executive officer where Company A’s chief executive officer indicated that he would be interested in acquiring Oclaro for $1.5 billion. Following discussion, the Oclaro Board directed Mr. Dougherty to resume discussions with Company A.

The meeting continued with Mr. Dougherty reviewing additional strategic parties that may be interested in a strategic transaction with Oclaro. Mr. Dougherty noted that a transaction with Company B was unlikely because it did not appear that Company B was interested in pursuing a strategic transaction with Oclaro and it would be difficult for Company B to structure a transaction that would offer consideration comparable to, or better than, the consideration offered in the proposed transaction with Lumentum. Mr. Dougherty then reminded the Oclaro Board that the chief executive officer of Company D had recently indicated that Company D could not offer more than $8.00 per share of Oclaro common stock. Mr. Dougherty then recounted the past discussions with Company E and the potential regulatory issues associated with a transaction with Company E. The Oclaro Board then discussed whether to contact other potential buyers in light of Lumentum’s latest offer, and identified Company A and Company C as the most likely companies to have both an interest and the ability to acquire Oclaro. The Oclaro Board then instructed management to contact Company A and Company C to determine whether they had an interest in pursuing an acquisition of Oclaro at this time. The Oclaro Board also reviewed the draft Lumentum exclusivity agreement and, if Lumentum were to continue to demand that Oclaro sign an exclusivity agreement as a condition to Lumentum proceeding with a transaction, authorized the M&A committee to review and approve an exclusivity agreement and provide authority to Mr. Dougherty to negotiate the terms of an exclusivity agreement.

Following the meeting, Mr. Dougherty informed Mr. Lowe that the Oclaro Board had authorized Oclaro management to move forward with negotiating a transaction with Lumentum at $9.40 per share of Oclaro common stock, subject to reaching an agreement on the methodology of valuing Lumentum’s common stock for purposes of determining the exchange ratio.

On February 26, 2018, Mr. Dougherty and Mr. Lowe met to discuss the companies’ respective management teams and the combined company’s prospective management team, as well as the timeline and activities for the coming weeks.

Also on February 26, 2018, representatives of Jefferies discussed with representatives of Company A’s financial advisor Oclaro’s financial and timing expectations, including Oclaro’s desire to receive a proposal from Company A by March 2, 2018, and provided a nondisclosure agreement for Company A that contained a standstill provision.

Also on February 26, 2018, Mr. Dougherty and the chief executive officer of Company A discussed Company A’s interest in acquiring Oclaro. During this discussion, the chief executive officer of Company A indicated to Mr. Dougherty that Company A had the bandwidth, desire and ability to pursue a transaction with Oclaro, that such a transaction would be an all cash acquisition, that he understood that Oclaro would like a response from Company A by March 2, 2018 and that the offer would need to be higher than the $1.5 billion proposal made on May 1, 2017.

 

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During the period between February 26, 2018 and March 11, 2018, Oclaro’s and Lumentum’s respective management and advisors conducted due diligence of the other company.

On February 26 and 27, 2018, Mr. Dougherty and Mr. Lowe outlined their respective thoughts regarding the due diligence process. During this exchange, Mr. Lowe reiterated Lumentum’s request that Oclaro enter into an exclusivity agreement before Lumentum would expend additional resources and dedicate the time needed to pursue the transaction.

On February 27, 2018, representatives of Jefferies and Company A’s financial advisor discussed entry into the nondisclosure agreement between the companies.

At a meeting of the Oclaro Board on February 27, 2018 at which representatives of Jones Day were present, Mr. Dougherty provided a summary of the discussions with Lumentum, Company A and Company C. Mr. Dougherty noted that he had followed up with Company C earlier in the day, but had not yet received a response and would follow up with Company C following the meeting. Mr. Dougherty also updated the Oclaro Board on his discussion with the chief executive officer of Company A. Mr. Dougherty then provided an update on his discussions with Lumentum, and Lumentum’s continued demand that Oclaro sign an exclusivity agreement with Lumentum.

Later that day, Company C informed Mr. Dougherty that Company C would not be submitting an offer to acquire Oclaro as Company C was focused on other strategic priorities at this time.

At a meeting of the M&A committee of the Oclaro Board on February 28, 2018 at which representatives of Jones Day were present, Mr. Dougherty provided an update on discussions with Company A. He told the committee that a representative of Company A’s financial advisors had informed a representative of Jefferies that Company A was unwilling to sign a nondisclosure agreement that contained a standstill provision and that, if a standstill was a condition to Company A signing a nondisclosure agreement, Company A would base its offer solely on publicly available information, even though such an offer may not appropriately value Oclaro. Following discussion, the M&A committee determined that it was in the best interests of the Oclaro stockholders to provide Company A with nonpublic information to facilitate Company A’s submission of a proposal that fully values Oclaro (which outweighed the risk associated with proceeding without a standstill provision), and directed Mr. Dougherty to proceed with negotiating a nondisclosure agreement with Company A without a standstill provision and to provide Company A with diligence information.

On March 1, 2018, Oclaro entered into a nondisclosure agreement with Company A that did not contain a standstill provision.

At a meeting of the Oclaro Board on March 1, 2018 at which representatives of Jones Day and Jefferies were present, Mr. Dougherty informed the Oclaro Board that Company C would not be submitting an offer. Mr. Dougherty then noted that Lumentum and Oclaro had both begun their respective due diligence on the other and that each party was likely to open its electronic data room later that day. Mr. Dougherty also summarized developments with respect to Company A, including Company A’s unwillingness to sign a nondisclosure agreement with a standstill provision, the decision made by the M&A committee of the Oclaro Board to enter with Company A into a nondisclosure agreement without a standstill provision and that management had provided Company A with certain financial projections.

On that same day, the Oclaro and Lumentum management teams and their respective advisors met to conduct further due diligence on each of the companies, including an assessment of potential synergies. Additionally, both Oclaro and Lumentum provided the other and their advisors with access to their electronic data rooms for the purpose of assisting each parties’ due diligence review.

Later that day, members of the Oclaro and Company A management teams and their respective financial advisors met to conduct Company A’s due diligence review of Oclaro.

 

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On the morning of March 2, 2018, a representative of Company A’s financial advisor informed a representative of Jefferies that the highest consideration Company A would offer in connection with the acquisition of Oclaro was $9.00 per share of Oclaro common stock. During this discussion, the representative of Jefferies asked the representative of Company A’s financial advisor if there was any information that Oclaro could provide Company A that may inform Company A’s valuation and potentially allow it to increase its offer. The representative of Company A’s financial advisor replied that there was not any such information. The representative of Jefferies then informed Oclaro’s management of this conversation.

Also on March 2, 2018, Mr. Dougherty and Mr. Lowe discussed the metrics and time periods used for determining the exchange ratio. Mr. Lowe reiterated that Lumentum would require Oclaro to enter into an exclusivity agreement in order for Lumentum to continue with the process.

Later that day, Mr. Dougherty and the chief executive officer of Company D met to discuss Company D’s interest in acquiring Oclaro. At this meeting, the chief executive officer of Company D orally increased Company D’s offer to $8.25 per share of Oclaro common stock, and indicated that Company D was also willing to wait until the third quarter of calendar year 2018 to re-engage in transaction discussions provided that the trading price of Company D’s stock had returned to an acceptable level.

At a meeting of the Oclaro Board on March 3, 2018 at which representatives of Jones Day were present, Mr. Dougherty informed the Oclaro Board that a representative of Company A’s financial advisor had orally informed a representative of Jefferies that Company A would not offer more than $9.00 per share of Oclaro common stock and that there was no additional information that Oclaro could provide that could increase that offer. Mr. Dougherty then gave an update on discussions with Company D, noting that Company D continued to be interested in a transaction with Oclaro and had provided an oral offer of $8.25 per share. Mr. Dougherty then updated the Oclaro Board on his March 2, 2018 discussions with Mr. Lowe and the chief executive officer of Company D. Representatives of Jones Day provided the Oclaro Board an overview of the draft exclusivity agreement provided by Lumentum and, following discussion, the Oclaro Board authorized and directed Mr. Dougherty to negotiate and enter into an exclusivity agreement with Lumentum for a period through March 19, 2018 on substantially the terms presented to the Oclaro Board or such other terms that are approved by the M&A committee of the Oclaro Board.

On March 3, 2017, the Oclaro and Lumentum management teams and their respective advisors met to further conduct each company’s business due diligence review of the other.

Also, on March 3, 2018, Mr. Dougherty and Mr. Lowe had another discussion concerning the methodology for determining the exchange ratio. In addition, Mr. Lowe also expressed Lumentum’s preference that the companies work together during the pendency of the merger to select the member of the Oclaro Board who would join the Lumentum Board.

At a meeting of the Oclaro Board on March 4, 2018 at which representatives of Jones Day and Jefferies were present, Mr. Dougherty provided an update on discussions with Lumentum. Mr. Dougherty then noted that Lumentum would prefer for Oclaro and Lumentum to work together during the pendency of the merger to select the member of the Oclaro Board who would join the Lumentum Board following the closing of the merger. Following discussion, the Oclaro Board authorized and directed Mr. Dougherty to continue negotiating the metrics and time periods used for determining the exchange ratio. Mr. Dougherty then discussed whether retention packages were necessary to retain Oclaro’s key executives through the closing of the proposed merger. Following discussion, the Oclaro Board concluded that Oclaro’s existing arrangements with key executives were sufficient to retain the executives through the closing of the proposed merger.

On the same day, representatives of Jefferies and Lumentum’s financial advisor discussed calculation of the exchange ratio and the resulting effect on the cash portion of the consideration. The representatives of Jefferies and Deutsche Bank also discussed the length of the exclusivity period.

 

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Later that day, at a meeting of the M&A committee of the Oclaro Board at which representatives of Jones Day and Jefferies were present, Mr. Dougherty conveyed the proposal discussed between the representatives of Jefferies and Deutsche Bank, which represented a material increase in the implied value of the merger consideration as of that date compared to the implied value of $9.40 per share that had previously been discussed by the parties. Mr. Dougherty then noted that Lumentum had requested an exclusivity period that would expire on March 14, 2018 with an automatic ten day renewal period if the parties were still negotiating in good faith toward a transaction. Representatives of Jones Day reviewed the negotiated terms of the exclusivity agreement with Lumentum. Following discussion, the M&A committee of the Oclaro Board authorized and directed Mr. Dougherty to enter into an exclusivity agreement with Lumentum for a period ending on March 14, 2018, with automatic ten day renewal periods if the parties were still negotiating in good faith toward a transaction, on substantially the terms presented to the committee.

Following the meeting of the M&A committee of the Oclaro Board, Oclaro and Lumentum entered into an exclusivity agreement providing for an exclusive negotiation period beginning on March 4, 2018 and concluding at 11:59 p.m., Pacific time, on March 14, 2018, which would automatically be extended to 11:59 p.m., Pacific time, on March 24, 2018 if the parties were still negotiating the potential transaction in good faith at the end of the initial period.

Later that day, on behalf of Lumentum, representatives of Wilson Sonsini Goodrich & Rosati sent an initial draft of the merger agreement to representatives of Jones Day.

On March 5, 2018, the Oclaro and Lumentum management teams and their respective advisors met to continue Oclaro’s due diligence review of Lumentum.

At a meeting of the M&A committee of the Oclaro Board on March 6, 2018 at which representatives of Jones Day and Jefferies were present, a member of Oclaro management informed the Oclaro Board that Oclaro and Lumentum had entered into an exclusivity agreement and agreed upon a methodology for calculating the Lumentum common stock portion of the merger consideration. The committee was also provided an update on the status of Oclaro’s and Lumentum’s respective due diligence reviews.

On March 7, 2018, on behalf of Oclaro, representatives of Jones Day sent a revised draft of the merger agreement to representatives of Wilson Sonsini Goodrich & Rosati, which included a revised proposal with respect to, among other things, (i) restrictions on Oclaro’s and Lumentum’s operations during the pendency of the merger, (ii) Oclaro’s ability to entertain unsolicited proposals, (ii) each parties’ obligation to obtain required regulatory approvals, (iii) the amount of the termination fee payable by Oclaro and the events giving rise to payment of the fee, (iv) closing conditions and (v) provisions relating to employee benefits.

During the period between March 7, 2018 and March 11, 2018, members of Oclaro and Lumentum management and representatives of Jones Day and Wilson Sonsini Goodrich & Rosati negotiated the unresolved terms of the merger agreement.

At a meeting of the Oclaro Board on March 8, 2018 at which representatives of management, Jones Day and Jefferies were present, Mr. Dougherty provided an update regarding Oclaro’s quarterly financial performance. Representatives of Jefferies provided a preliminary financial analysis of the proposed merger with Lumentum, noting that the nominal value of the merger consideration was $9.74 as of the close of market on March 7, 2018 based on the exchange ratio agreed to by the parties. Representatives of Jones Day reviewed issues relating to whether gains arising from receipt of the stock portion of the merger consideration would be immediately taxable to Oclaro stockholders for U.S. federal income tax purposes, following which, the Oclaro Board directed management to find a solution that would enhance the likelihood that the stock portion of the merger consideration would receive tax-deferred treatment, but that such considerations would be just one of the factors considered by the Oclaro Board when determining whether to approve the transaction. Representatives of Jones Day then reviewed the draft merger agreement and the status of negotiations related thereto, including (i) the

 

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structure of the transaction, (ii) the representations and warranties to be made by Oclaro and Lumentum, (iii) the covenants that Oclaro and Lumentum would have to comply with (including Oclaro’s operating covenants), (iv) each party’s obligations to obtain necessary regulatory approvals (including required antitrust approvals), (v) the closing conditions set forth in the merger agreement (including the condition related to receipt of antitrust approvals in the United States and China), (vi) Lumentum’s obligation to obtain the financing necessary to fund the cash portion of the merger consideration, (vii) the obligation of Lumentum (or its subsidiaries after the merger) to indemnify Oclaro’s directors and officers following the merger, (viii) the requirement that Lumentum appoint one of Oclaro’s directors to the Lumentum Board effective immediately following the closing, (ix) the various termination rights of Oclaro and Lumentum and (x) the fees that may be payable in connection with any such termination.

At a meeting of the Oclaro Board on March 10, 2018 at which representatives of management, Jones Day and Jefferies were present, members of Oclaro management and representatives of Jones Day contributed to a presentation providing an overview to the Oclaro Board of the results of the financial, accounting and legal due diligence of Lumentum that had been conducted by and on behalf of Oclaro. Representatives of Jones Day also provided an update on the status of their regulatory analysis of a transaction with Lumentum and reviewed the antitrust related provisions of the Merger Agreement, including the regulatory efforts that Lumentum would be required to undertake to obtain the required regulatory approvals and the reverse termination fee that Lumentum would be required to pay to Oclaro if the merger was terminated due to a failure to obtain regulatory approvals, noting that Lumentum had agreed to the concept of a reverse termination fee and had proposed the amount of $50 million. Following discussion, the Oclaro Board directed management and Jones Day to seek an increase in the amount of the reverse termination fee from Lumentum. Representatives of Jones Day also provided an update on issues relating to whether gains arising from receipt of the stock portion of the merger consideration would be immediately taxable to Oclaro stockholders for U.S. federal income tax purposes, following which, the Oclaro Board directed management to attempt to ensure that the Lumentum common stock portion of the merger consideration receive deferred tax treatment, but not at the expense of obtaining the highest possible value for Oclaro stockholders. Representatives of Jefferies then reviewed Jefferies’ preliminary financial analysis of the Merger Consideration. Representatives of Jones Day also reviewed the terms and conditions of the debt commitment letter from Lumentum’s financing source.

At a meeting of the Oclaro Board on March 11, 2018 at which representatives of management, Jones Day and Jefferies were present, the Oclaro Board met to review the terms and conditions of the proposed transaction with Lumentum, including the terms and conditions of the final Merger Agreement which had been previously distributed to the Oclaro Board. At that meeting, representatives of Jones Day reviewed the fiduciary duties of the Oclaro Board in determining whether to remain as a stand-alone company or to agree to the sale of the company to Lumentum. The Oclaro Board discussed the terms of the Merger Agreement and determined that Lumentum had satisfactorily addressed each of the matters related to the Merger Agreement that were previously raised by the Oclaro Board, including an increase in the amount of the reverse breakup fee from $50 million to $80 million. Representatives of Jefferies then provided the Oclaro Board with Jefferies’ fairness opinion analysis relating to the proposed transaction. The Oclaro Board, with the advice and assistance of representatives of Jefferies, Jones Day and Oclaro’s management, then evaluated and discussed the terms of the final Merger Agreement and the transactions contemplated thereby. Following discussion by the Oclaro Board, representatives of Jefferies rendered its opinion to the Oclaro Board to the effect that, as of March 11, 2018 and based upon and subject to the various assumptions made, procedures followed, matters considered and limitations on the scope of the review undertaken as set forth in its opinion, the per share merger consideration consisting of 0.0636 shares of Lumentum common stock and $5.60 in cash to be received by the holders of Oclaro common stock pursuant to the Merger Agreement was fair, from a financial point of view, to such holders. The Oclaro Board discussed various factors to be taken into account in their deliberations concerning approving the Merger Agreement with Lumentum, including discussions held by Oclaro management with various parties concerning their interest in pursuing a strategic transaction with Oclaro, the offers made by Company A and Company D, the benefits and risks associated with remaining an independent company, and other factors deemed relevant by the Oclaro Board, including the factors described below in the section titled “Reasons for the Merger.” After discussion and

 

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consideration of the financial and other information presented, the Oclaro Board unanimously determined that the Merger Agreement, the performance by Oclaro of its obligations thereunder and the consummation of the transactions contemplated thereby were advisable and fair to, and in the best interests of, Oclaro and its stockholders.

Later that day, the Merger Agreement and related documents were executed and delivered by each of Oclaro and Lumentum.

On March 12, 2018, Oclaro and Lumentum issued a joint press release announcing the execution of the Merger Agreement.

Recommendation of the Oclaro Board; Oclaro’s Reasons for the Merger

At its March 11, 2018 meeting held to evaluate the proposed Merger, the Oclaro Board unanimously approved the Merger Agreement and determined that the terms of the Merger are fair to and in the best interests of Oclaro’s stockholders. The Oclaro Board recommends that Oclaro’s stockholders vote:

 

  1. FOR” the Merger Proposal;

 

  2. FOR” the Compensation Proposal; and

 

  3. FOR” the Adjournment Proposal.

In evaluating the Merger and the Merger Agreement and arriving at its determination, the Oclaro Board consulted with Oclaro’s senior management, Oclaro’s financial advisor, Jefferies, and Oclaro’s outside legal counsel, Jones Day, and considered a number of substantive factors, both positive and negative, and potential benefits and detriments of the merger to Oclaro and its stockholders. The Oclaro Board believed that, taken as a whole, the following factors supported its decision to approve the proposed Merger (which are not in any relative order of importance):

 

    Merger Consideration. The value of the Merger Consideration to be received by Oclaro stockholders in relation to (1) the market prices of Oclaro common stock prior to the Oclaro Board’s approval of the Merger Agreement; (2) the Oclaro Board’s assessment, based on the directors’ and Oclaro management’s experience and knowledge of the industry and discussions with, and presentations from, representatives of Jefferies, of the value of Oclaro as an independent entity; and (3) the value that could potentially be obtained through other strategic alternatives available to Oclaro.

 

    Premium to Trading Price of Oclaro Common Stock. The fact that the implied value of the Merger Consideration of $9.99 per share at the time of signing, based on the $68.98 closing price per share of Lumentum common stock on March 9, 2018, the last full trading day before the announcement that Oclaro and Lumentum had entered into the Merger Agreement, represented a significant premium over the market prices at which Oclaro common stock had previously traded during this period, including a premium of approximately:

 

    27% over the closing price per share of Oclaro common stock on March 9, 2018; and

 

    50% over the 30-day volume weighted average price per share of Oclaro common stock as of March 9, 2018.

 

    Uncertainty of Future Common Stock Market Price. The Oclaro Board considered Oclaro’s business, assets, financial condition, results of operations, management, competitive position and prospects, as well as current and anticipated industry, international, economic, and stock and credit market conditions. The Oclaro Board also considered Oclaro’s financial plan, including the initiatives and the potential execution risks associated with such plan. In connection with these considerations, the Oclaro Board considered the attendant risk that if Oclaro remained independent, Oclaro common stock may not trade at levels equal to or greater than the value of the Merger Consideration in the near term, over an extended period of time, or at all.

 

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    Negotiations with Lumentum. The benefits that Oclaro and its advisors were able to obtain during its negotiations with Lumentum, including an increase in Lumentum’s offer price per share from the beginning of the process to the end of the negotiations and a significant improvement in transaction certainty. The Oclaro Board believed that the consideration reflected in the Merger Agreement was the best transaction that could be obtained by Oclaro stockholders from Lumentum at the time, and that there was no assurance that a more favorable opportunity to sell Oclaro would arise later or through any alternative transaction.