BROCADE COMMUNICATIONS SYSTEMS INC (Form: 8-K, Received: 08/15/2017 08:03:09)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Date of report (Date of earliest event reported): August 11, 2017

BROCADE COMMUNICATIONS SYSTEMS, INC.

(Exact name of registrant as specified in its charter)



Delaware	000-25601	77-0409517
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification Number)

130 Holger Way

San Jose, CA 95134-1376

(Address, including zip code, of principal executive offices)

(408) 333-8000

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:



¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)



¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)



¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))



¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Item 1.01. Entry into a Material Definitive Agreement.

As previously reported, on November 2, 2016, Brocade Communications Systems, Inc. (the “Company”) entered into an Agreement and Plan of Merger with Broadcom Limited (“Broadcom”), Broadcom Corporation and Bobcat Merger Sub, Inc. (the “Merger Agreement”) pursuant to which Broadcom agreed to acquire the Company (the “Merger”). Due primarily to the pendency of the Merger and Broadcom’s stated intent to divest the Company’s IP Networking business after the closing of the Merger, the Company has experienced lower than expected revenue, earnings and cash flows and higher than expected acquisition and integration expenses. Accordingly, on August 11, 2017, the Company entered into Amendment No. 1 (the “Amendment”) to its Credit Agreement (the “Credit Agreement”) with Wells Fargo Bank, National Association, and certain other lenders from time to time party thereto. The Amendment, which was effective for the Company’s third fiscal quarter of 2017, modifies the consolidated total leverage ratio covenant under the Credit Agreement to (i) postpone the effective date of a previously scheduled third fiscal quarter reduction in the maximum permitted consolidated total leverage ratio from 3.50 to 1 to 3.25 to 1 until the Company’s 2018 fiscal year, thus keeping the maximum permitted ratio at 3.50 to 1 for both the Company’s third and fourth fiscal quarters of 2017, and (ii) temporarily suspend the applicability of an existing 15% limit on the amount of certain expenses, including acquisition, integration and restructuring expenses, that may be added back when calculating Consolidated EBITDA for purposes of financial covenant compliance for both the Company’s third and fourth fiscal quarters of 2017.

The other substantive provisions of the Credit Agreement were not amended or modified by the Amendment.

The foregoing summary of the Amendment is qualified in its entirety by reference to the text of the Amendment filed as Exhibit 10.1 to this Form 8-K and incorporated by reference herein.

Item 2.05. Costs Associated with Exit of Disposal Activities.

On August 11, 2017, the Board of Directors of the Company approved a workforce reduction plan intended to facilitate the exit of personnel resources deemed non-essential to the business of the Company due primarily to (i) the divestiture of certain software product lines in the third and fourth fiscal quarters of 2017 and (ii) an internal realignment of sales resources. The workforce reduction plan impacts approximately 230 notified employees in the United States who are expected to exit the Company during the Company’s fourth fiscal quarter of 2017. The Company expects to incur aggregate charges of approximately $23 to $26 million in its fourth fiscal quarter of 2017 for severance and other employee termination costs associated with the workforce reduction plan. All of these charges are expected to result in cash expenditures. The Company's headcount as of August 11, 2017, excluding the notified employees and employees associated with the fiscal fourth quarter software divestitures, was approximately 4,600.

Item 9.01. Financial Statements and Exhibits

(d) Exhibits.



Exhibit Number	Exhibit Description
10.1	Amendment No. 1 to Credit Agreement, dated August 11, 2017, among Brocade Communications Systems, Inc., Wells Fargo Bank, National Association, and the other lenders party thereto

Legal Notice Regarding Forward-Looking Statements

This communication, and any documents to which the Company refers you in this communication, contains not only historical information, but also forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Company’s current expectations or beliefs concerning future events, including but not limited to the expected completion and timing of the proposed transaction and other information relating to the proposed transaction. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “forecasts,” “should,” “estimates,” “contemplate,” “future,” “goal,” “potential,” “predict,” “project,” “projection,” “target,” “seek,” “may,” “will,” “could,” “should,” “would,” “assuming” and similar expressions are intended to identify forward-looking statements. You should read any such forward-looking statements carefully, as they involve a number of risks, uncertainties and assumptions that may cause actual results to differ significantly from those projected or contemplated in any such forward-looking statement. Those risks, uncertainties and assumptions include, (i) the risk that the proposed transaction may not be completed in a timely manner or at all, which may adversely affect the Company’s business and the price of the Company’s common stock, (ii) the failure to satisfy any of the conditions to the consummation of the proposed transaction, including the receipt of certain governmental and regulatory approvals, (iii) the occurrence of any event, change or other circumstance that could give rise to the termination of the Merger Agreement, (iv) the outcome of any legal proceedings that have been or may be instituted against the Company related to the Merger Agreement or the proposed transaction, and (v) other risks described in the Company’s filings with the SEC, such as its Quarterly Reports on Form 10-Q and Annual Report on Form 10-K. Forward-looking statements speak only as of the date of this communication or the date of any document incorporated by reference in this document. Except as required by applicable law or regulation, the Company does not assume any obligation to update any such forward-looking statements whether as the result of new developments or otherwise.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.



	BROCADE COMMUNICATIONS SYSTEMS, INC.

Date: August 15, 2017	By:	/s/ Ellen A. O’Donnell
		Ellen A. O’Donnell
		Senior Vice President, General Counsel and Corporate Secretary

Exhibit 10.1

EXECUTION VERSION

AMENDMENT NO. 1

AMENDMENT NO. 1 , dated as of August 11, 2017 (this “ Amendment ”), among BROCADE COMMUNICATIONS SYSTEMS, INC., a Delaware corporation (the “ Borrower ”), the Lenders party hereto and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Administrative Agent for the Lenders (in such capacity, the “ Administrative Agent ”), to the Credit Agreement dated as of May 27, 2016, by and among the Borrower, the Administrative Agent, the Lenders and the Issuing Lenders (as further amended, restated, amended and restated or otherwise modified from time to time, “ Credit Agreement ”). Capitalized terms used and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.

WHEREAS, the Borrower has requested that the Credit Agreement be amended as set forth herein;

WHEREAS, Section 12.2 of the Credit Agreement provides that the Borrower, the Administrative Agent and the Required Lenders may amend Credit Agreement for certain purposes;

NOW, THEREFORE, in consideration of the premises and covenants contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, agree as follows:

Section 1. Amendment. Subject to the occurrence of the Effective Date (as defined below), effective as of July 29, 2017:


(a)	Section 1.1 of the Credit Agreement is amended to amend and restate the proviso following clause (c) in the definition of “Consolidated EBITDA” to read as follows:

“ provided that the aggregate amount of addbacks pursuant to clauses (b)(v), (b)(vi) and (b)(vii)(2) above in any period shall be capped at 15% of Consolidated EBITDA for such period (prior to giving effect to such addbacks); provided , further , that, for the periods ended July 29, 2017 and October 28, 2017, such cap shall not apply to the addbacks pursuant to clause (b)(v) above.”


(b)	Section 9.13(a) of the Credit Agreement is amended to amend and restate the table therein as set forth below:



	Period	Maximum Ratio
	Closing Date through October 28, 2017	3.50 to 1.00
	October 29, 2017 through April 28, 2018	3.25 to 1.00
	April 29, 2018 and thereafter	3.00 to 1.00

Section 2. Representations and Warranties. The Borrower represents and warrants to the Lenders and the Administrative Agent as of the date hereof and the Effective Date (as defined below) that:

(a)

immediately after giving effect to this Amendment, the representations and warranties contained in the Credit Agreement and the other Loan Documents are true and correct in all material respects, except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which such representation and warranty is true and correct in all respects, on and as of each such date with the same effect as if made on and as of each such date (except for any such representation and warranty that by its terms is made only as of an earlier date, which representation and warranty remains true and correct in all material respects as of such earlier date, except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which such representation and warranty remains true and correct in all respects as of such earlier date); and


(b)	immediately after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing.

Section 3. Conditions to Effectiveness. This Amendment shall become effective on the date (the “ Effective Date ”) on which:


(a)	the Administrative Agent (or its counsel) shall have received from the Borrower and the Required Lenders, a counterpart of this Amendment signed on behalf of each such party (which, in the case of the Lenders, may be in the form of Exhibit A hereto);


(b)	the representations and warranties set forth in Section 2 hereof shall be true and correct and the Administrative Agent shall have received a certificate of a Responsible Officer to such effect; and


(c)	the Borrower shall have paid all fees and expenses due and payable and invoiced on or prior to the date hereof pursuant to Section 4 hereof.

Section 4. Fees and Expenses. The Borrower agrees to reimburse the Administrative Agent for the reasonable and documented out-of-pocket expenses incurred by them in connection with this Amendment, including the reasonable and documented fees, charges and disbursements of Cahill Gordon & Reindel LLP, counsel for the Administrative Agent.

Section 5. Counterparts . This Amendment may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which when so executed and delivered shall be deemed to be an original, but all of which when taken together shall constitute a single instrument. Delivery of an executed counterpart of a signature page of this Amendment by facsimile transmission or by email in Adobe “.pdf” format shall be effective as delivery of a manually executed counterpart hereof.

Section 6. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

Section 7. Headings. The headings of this Amendment are for purposes of reference only and shall not limit or otherwise affect the meaning hereof.

Section 8. Effect of Amendment. On and after the effectiveness of this Amendment, each reference in the Credit Agreement to “this Credit Agreement”, “this Agreement”, “hereunder”, “hereof” or words of like import referring to the Credit Agreement, and each reference in each of the other Loan Documents to “the Credit Agreement”, “thereunder”, “thereof” or words of like import referring to the Credit Agreement, shall mean and be a reference to the Credit Agreement, as amended or waived by this Amendment. The Credit Agreement and each of the other Loan Documents, as specifically amended or waived by this Amendment, are and shall continue to be in full force and effect and are hereby in all respects ratified and confirmed. Except as expressly set forth herein, this Amendment shall not by implication or otherwise limit, impair, constitute a waiver of or otherwise affect the rights and remedies of the Lenders or the Administrative Agent under the Credit Agreement or any other Loan Document, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other provision of the Credit Agreement or any other Loan Document, all of which are ratified and affirmed in all respects and shall continue in full force and effect. The parties hereto expressly acknowledge that it is not their intention that this Amendment or any of the other Loan Documents executed or delivered pursuant hereto constitute a novation of any of the obligations, covenants or agreements contained in the Credit Agreement or any other Loan Document, but rather constitute a modification thereof pursuant to the terms contained herein. This Amendment constitutes a Loan Document.

[Signature Pages Follow]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the date first above written.



BORROWER :	BROCADE COMMUNICATIONS SYSTEMS, INC.
	By:	/s/ Daniel W. Fairfax
		Name: Daniel W. Fairfax
		Title: Senior Vice President and Chief Financial Officer

ADMINISTRATIVE AGENT :	WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent
	By:	/s/ Dhiren Desai
		Name: Dhiren Desai
		Title: Vice President