Item 1.01
|
Entry into a Material Definitive Agreement
|
On May 27, 2016, Brocade Communications
Systems, Inc., a Delaware corporation (Brocade), completed the previously announced acquisition of Ruckus Wireless, Inc., a Delaware corporation (Ruckus), pursuant to the Agreement and Plan of Merger (the Merger
Agreement), dated as of April 3, 2016, by and among Brocade, Stallion Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of Brocade (Purchaser), and Ruckus.
In connection with the completion of the acquisition, Brocade entered into a Credit Agreement (the Credit Agreement) with Wells
Fargo Bank, National Association, as administrative agent, swingline lender and issuing lender, and certain other lenders from time to time party thereto (collectively, the Lenders). Pursuant to the Credit Agreement, the Lenders have
provided Brocade with a term loan facility of $800 million (the Term Loan Facility) and a revolving credit facility of $100 million (the Revolving Facility, and together with the Term Loan Facility, the Senior Credit
Facility). The proceeds of the Term Loan Facility are being used to finance a portion of the cash consideration in the Offer and the Merger (as such terms are defined below) and fees and expenses related thereto, as well as fees and expenses
related to the Senior Credit Facility, and are expected to be used to finance the repurchase of Brocade shares following the consummation of the Offer and the Merger. In addition, the Revolving Facility is available to finance ongoing working
capital requirements and other general corporate purposes of Brocade.
Loans made under the Senior Credit Facility bear interest, at
Brocades option, either (i) at a base rate which is based in part on the greatest of (A) the prime rate, (B) the federal funds rate plus 0.50% or (C) LIBOR for an interest period of one month plus 1.00%, plus an applicable
margin that will vary between 0.00% and 0.75% based on Brocades total leverage ratio or (ii) at a LIBOR-based rate, plus an applicable margin that will vary between 1.00% and 1.75% based on Brocades total leverage ratio. For
purposes of calculating the applicable rate, the base rate and LIBOR-based rate are subject to a floor of 0.00%. Commitments under the Revolving Facility are subject to an undrawn commitment fee starting at 0.30%, and are later subject to adjustment
between 0.20% and 0.35% based on Brocades total leverage ratio.
The final maturity of the Senior Credit Facility will occur on
May 27, 2021, except that if any of Brocades existing 1.375% convertible senior unsecured notes due 2020 remain outstanding on October 2, 2019 and certain other conditions have not been met, then the final maturity of the Senior
Credit Facility will occur on October 2, 2019. Notwithstanding the foregoing, upon the request of Brocade made to all applicable Lenders, and provided that no event of default exists or will occur immediately thereafter, individual Lenders may
agree to extend the maturity date of its commitments under the Revolving Facility and loans under the Term Loan Facility.
Brocade is
permitted to make voluntary prepayments of the Senior Credit Facility at any time without payment of a premium or penalty. Brocade is required to make mandatory prepayments of loans under the Term Loan Facility (without payment of a premium or
penalty) with (i) net cash proceeds from issuances of debt (other than certain permitted debt), (ii) net cash proceeds from certain non-ordinary course asset sales (subject to reinvestment rights and other exceptions) and
(iii) casualty proceeds and condemnation awards (subject to reinvestment rights and other exceptions). Commencing October 31, 2016, the loans under the Term Loan Facility will amortize in equal quarterly installments in an aggregate annual
amount equal to 10% of the original principal amount thereof, with any remaining balance payable on the final maturity date of the loans under the Term Loan Facility. The loans under the Revolving Facility and all accrued and unpaid interest thereon
are due in full on the maturity date.
The obligations under the Senior Credit Facility and certain cash management and hedging
obligations are and will be fully and unconditionally guaranteed by certain of Brocades existing and subsequently acquired or organized direct and indirect subsidiaries (including Ruckus but excluding certain immaterial subsidiaries,
subsidiaries whose guarantee would result in material adverse tax consequences and subsidiaries whose guarantee is prohibited by applicable law) pursuant to a subsidiary guaranty agreement.
Brocades obligations under the Senior Credit Facility are unsecured, provided that upon the
occurrence of certain events (including if Brocades corporate family rating from Moodys falls below Ba1 and from S&P falls below BB+ at any time (referred to as a Ratings Downgrade)) or the incurrence of certain
indebtedness in excess of $600 million (such occurrence or the occurrence of a Ratings Downgrade, a Collateral Trigger Event), then such obligations as well as certain cash management and hedging obligations will be required to be
secured, subject to certain exceptions, by 100% of the equity interests of all present and future restricted subsidiaries directly held by Brocade or any guarantor. Brocade must provide such security within 90 days (or 20 business days with respect
to the equity interests of material U.S. subsidiaries) of such Collateral Trigger Event.
The Credit Agreement contains financial
maintenance covenants, including a (i) maximum total leverage ratio as of the last date of any fiscal quarter not to exceed 3.50:1.00; subject to certain step-downs to 3.25:1.00 and 3.00:1.00 for fiscal periods ending on or after April 30,
2017 and April 30, 2018, respectively, and (ii) a minimum interest coverage ratio of not less than 3.50:1.00. The Credit Agreement also contains restrictive covenants that limit, among other things, Brocades and its restricted
subsidiaries ability to incur additional indebtedness or issue certain preferred equity, pay dividends or make other distributions or other restricted payments (including stock repurchases), sell assets other than on terms specified by the
Credit Agreement, amend the terms of certain other indebtedness and organizational documents, create liens on certain assets to secure debt, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets, enter into
certain transactions with affiliates and change their lines of business, fiscal years and accounting practices, in each case, subject to customary exceptions. The Credit Agreement also sets forth customary events of default, including upon the
failure to make timely payments under the Senior Credit Facility, the failure to satisfy certain covenants, cross-default and cross-acceleration to other material debt for borrowed money, the occurrence of a change of control and specified events of
bankruptcy and insolvency. If Brocade has a significant increase in its outstanding debt or if its earnings decrease significantly, Brocade may be unable to incur additional amounts of indebtedness, and the Lenders under the Senior Credit Facility
may be unwilling to permit Brocade to amend the financial or restrictive covenants described above to provide additional flexibility.
The
foregoing description of the Credit Agreement does not purport to be complete and is subject to and qualified in its entirety by reference to the full text of the Credit Agreement, which is filed as Exhibit 10.1 to this Current Report on Form 8-K
and is incorporated herein by reference.