Item 1.01. Entry into a Material Definitive Agreement.
Merger Agreement
On October 3, 2018, Cloudera, Inc., a Delaware corporation (“
Cloudera
”), Hortonworks, Inc., a Delaware corporation (“
Hortonworks
”), and Surf Acquisition Corporation, a Delaware corporation and a direct, wholly owned subsidiary of Cloudera (“
Merger Sub
”), entered into an Agreement and Plan of Merger and Reorganization (the “
Merger Agreement
”) for a proposed “merger of equals” transaction, pursuant to which, and subject to the conditions in the Merger Agreement, Merger Sub will merge with and into Hortonworks (the “
Merger
”), with Hortonworks surviving the Merger as a wholly owned subsidiary of Cloudera. The respective boards of directors of Cloudera and Hortonworks have each approved the Merger Agreement.
Cloudera and Hortonworks intend, for U.S. federal income tax purposes, that the Merger will qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, and the Merger Agreement was adopted as a plan of reorganization within the meaning of Treasury Regulations Section 1.368-2(g).
Merger Consideration
Subject to the terms and conditions set forth in the Merger Agreement, at the effective time of the Merger (the “
Effective Time
”),
by virtue of the Merger and without any action on the part of Cloudera, Hortonworks, Merger Sub or any holder of any of the securities of Cloudera, Hortonworks or Merger Sub, each share of common stock, par value $0.0001 per share, of Hortonworks (“
Hortonworks Common Stock
”) issued and outstanding immediately prior to the Effective Time (other than the shares that are owned by Hortonworks, Cloudera or Merger Sub) will be converted into the right to receive 1.305 (the “
Exchange Ratio
”) newly issued shares of common stock (the “
Cloudera Common Stock
”), par value $0.00005 per share, of Cloudera (the “
Hortonworks Common Stock Merger Consideration
”).
No fractional shares of Cloudera Common Stock will be issued in the Merger, and Hortonworks stockholders will receive cash in lieu of fractional shares as part of the Hortonworks Common Stock Merger Consideration, as specified in the Merger Agreement. Shares of Cloudera Common Stock will be listed on the New York Stock Exchange (“
NYSE
”).
The Exchange Ratio is expected to result in Hortonworks common stockholders owning approximately 40% of the outstanding shares of Cloudera Common Stock (calculated on a fully diluted basis) immediately following the Effective Time.
Any shares of Hortonworks Common Stock issued and outstanding immediately prior to the Effective Time (other than the shares that are owned by Hortonworks, Cloudera or Merger Sub) that are unvested or subject to a repurchase option or obligation, risk of forfeiture or other condition will be converted into Cloudera Common Stock which is also unvested and subject to the same repurchase option or obligation, risk of forfeiture or other condition.
Subject to the terms and conditions set forth in the Merger Agreement, at the Effective Time, options to purchase shares of Hortonworks Common Stock outstanding immediately prior to the Effective Time (“
Hortonworks Options
”) will generally be assumed by Cloudera and converted into an option to acquire that number of shares of Cloudera Common Stock (each, a “
Cloudera Option
”) equal to the product obtained by multiplying (x) the number of shares of Hortonworks Common Stock subject to such Hortonworks Option by (y) the Exchange Ratio, rounded down to the nearest whole share of Cloudera Common Stock. All Cloudera Options will be subject to the same terms and conditions (including as to vesting and exercisability) as applied to the Hortonworks Option immediately prior to the Effective Time; however, eachCloudera Option will have an exercise price per share equal to the quotient obtained by dividing (x) the per share exercise price of the Hortonworks Option by (y) the Exchange Ratio, rounded up to the nearest whole cent.
At the Effective Time, each Hortonworks restricted stock unit outstanding immediately prior to the Effective Time (each, a “
Hortonworks RSU
”) will be assumed by Cloudera and converted into an award to receive that number of shares of Cloudera Common Stock (each a "
Cloudera RSU
") equal to the product obtained by multiplying (x) the number of shares of Hortonworks Common Stock subject to such Hortonworks RSU by (y) the Exchange Ratio, rounded down to the nearest whole share of Cloudera Common Stock. All Assumed Units shall otherwise be subject to the same terms and conditions (including as to vesting and settlement) as applied to the respective Hortonworks RSU immediately prior to the Effective Time; however, each Hortonworks RSU that was granted with a purchase price other than par value shall have a purchase
price per share equal to the quotient obtained by dividing (x) the per share purchase price of Hortonworks Common Stock subject to such Hortonworks RSU by (y) the Exchange Ratio, rounded up to the nearest whole cent.
Prior to the Effective Time, Hortonworks will take appropriate action to provide that each Hortonworks performance stock units (each a "
Hortonworks PSU
") will entitle the holder thereof to receive, immediately prior to the Effective Time and subject to the closing of the Merger, the number of shares of Hortonworks Common Stock underlying such Hortonworks PSU determined based on the greater of target performance or actual performance (measured through the Effective Time). Any shares of Hortonworks Common Stock so delivered in respect of Hortonworks PSUs will be deemed to be issued and outstanding as of immediately prior to the Effective Time and subject to the treatment of Hortonworks Common Stock as described above.
Governance
The Merger Agreement provides that, upon the closing of the Merger, the board of directors of Cloudera (the “
New Cloudera Board
”) will initially consist of nine directors. Four directors, including Rob Bearden, will come from Hortonworks’ existing board of directors and five directors, including Tom Reilly, will come from Cloudera’s existing board of directors. It is anticipated that one additional director will be selected by the New Cloudera Board. Current Cloudera board member Martin Cole will become chairman of the New Cloudera Board.
In addition, upon the closing of the Merger, Cloudera’s Chief Executive Officer, Tom Reilly, will serve as Chief Executive Officer; Hortonworks’ Chief Operating Officer, Scott Davidson, will serve as Chief Operating Officer; Hortonworks’ Chief Product Officer, Arun C. Murthy, will serve as Chief Product Officer; and Cloudera’s Chief Financial Officer, Jim Frankola, will serve as Chief Financial Officer, of the combined company.
Conditions to the Merger
The consummation of the Merger is subject to customary closing conditions, including (i) the absence of any adverse law or order promulgated, entered, enforced, enacted or issued by any governmental entity that prohibits, restrains or makes illegal the consummation of the Merger, (ii) the
U.S. Securities and Exchange Commission (the “
SEC
”) having declared effective the Form S-4 Registration Statement of Cloudera which will contain the joint proxy statement/prospectus of the parties in connection with the Merger, (iii)
the adoption of the Merger Agreement by the affirmative vote of the holders of a majority of the outstanding shares of Hortonworks Common Stock entitled to vote thereon, (iv)
the approval of the issuance of shares of Cloudera Common Stock pursuant to the Merger Agreement by the affirmative vote of a majority of votes present or represented by proxy at Cloudera’s stockholder meeting in connection with the Merger,
(v) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
(vi)
the authorization for listing on the NYSE, subject to official notice of issuance, of the shares of Cloudera Common Stock to be issued in the Merger, the shares of Cloudera Common Stock to be issued upon the exercise of all Cloudera Options, and the shares of Cloudera Common Stock to be issued in settlement of all Cloudera RSUs, (vii) the receipt of certain opinions from legal counsel regarding the intended tax treatment of the Merger, (viii) subject to certain materiality exceptions, the accuracy of certain representations and warranties of each of Cloudera and Hortonworks contained in the Merger Agreement and the compliance by each party with the covenants contained in the Merger Agreement, and (ix) the absence of a material adverse effect with respect to each of Cloudera and Hortonworks. The parties expect the Merger will be completed in the first quarter of calendar year 2019.
Certain Other Terms of the Merger Agreement
Cloudera, Hortonworks and Merger Sub each have made certain representations, warranties and covenants in the Merger Agreement, including, among other things, covenants by Cloudera and Hortonworks to conduct their businesses in the ordinary course during the period between the execution of the Merger Agreement and consummation of the Merger, to refrain from taking certain actions specified in the Merger Agreement and to use reasonable best efforts to cause the conditions to the Merger to be satisfied.
Neither Cloudera nor Hortonworks is permitted to solicit, initiate, induce or knowingly encourage or facilitate, any alternative transaction proposals from third parties or to engage in discussions or negotiations with third parties regarding any alternative transaction proposals. Notwithstanding this limitation, prior to a party’s stockholders approving the transaction, such party may under certain circumstances provide information to and participate in discussions or negotiations with third parties with respect to an alternative transaction proposal that its board of directors has determined in good faith constitutes
or is reasonably likely to lead to a superior proposal. Each party’s board of directors may change its recommendation to its stockholders (subject to the other party’s right to terminate the Merger Agreement following such change in recommendation) in response to a superior proposal or an intervening event if the board of directors determines in good faith that the failure to take such action would reasonably be expected to be inconsistent with the directors’ fiduciary duties under the General Corporation Law of the State of Delaware.
The Merger Agreement provides for certain termination rights for both Cloudera and Hortonworks. Upon termination of the Merger Agreement under certain specified circumstances, Cloudera or Hortonworks may be required to pay the other party a termination fee of $95 million or $65 million, respectively. In addition, if the Merger Agreement is terminated by Cloudera or Hortonworks as a result of the other party’s failure to obtain stockholder approval, then the non-terminating party may be required to reimburse the terminating party for its documented out-of-pocket expenses, up to a maximum amount of $20 million (if the Merger Agreement is terminated as a result of a failure of Hortonworks to obtain stockholder approval) or $30 million (if the Merger Agreement is terminated as a result of a failure of Cloudera to obtain stockholder approval).
The foregoing summary does not purport to be a complete description and is qualified in its entirety by reference to the full text of the Merger Agreement, which is attached hereto as Exhibit 2.1 and is incorporated herein by reference.
The Merger Agreement has been attached as an exhibit to this Current Report on Form 8-K in order to provide investors and security holders with information regarding its terms. It is not intended to provide any other factual information
about Cloudera, Hortonworks, or their respective subsidiaries and affiliates or to modify or supplement any factual disclosures about Cloudera, Hortonworks or their respective subsidiaries and affiliates in its public reports filed with the SEC. The Merger Agreement includes representations, warranties and covenants of Cloudera and Hortonworks that were made solely for the purposes of the Merger Agreement and of specific dates, were solely for the benefits of the parties thereto, and which may be subject to important qualifications and limitations agreed to by Cloudera and Hortonworks in connection with the negotiated terms of the Merger Agreement. Moreover, some of those representations and warranties may not be accurate or complete as of any specified date, may be subject to certain disclosures between the parties and a contractual standard of materiality different from those generally applicable to Cloudera’s or Hortonworks’ SEC filings. In addition, the representations and warranties were made for purposes of allocating risk among the parties to the Merger Agreement and should not be relied upon as establishing factual matters.
Support Agreements
Simultaneously with the execution and delivery of the Merger Agreement, each of the officers and directors of Cloudera, in their respective capacities as stockholders of Cloudera (together with certain of their respective affiliates), have entered into support agreements with Hortonworks (the “
Cloudera Support Agreements
”), pursuant to which such individuals have agreed, among other things, to vote their respective shares of Cloudera Common Stock in favor of the approval of the issuance of shares of Cloudera Common Stock pursuant to the Merger Agreement, against any alternative proposal and against any action or agreement that would reasonably be expected to impede, interfere with, postpone, prevent or delay the consummation of, the transactions contemplated by the Merger Agreement.
The persons signed the Cloudera Support Agreements currently beneficially own an aggregate of approximately 19% of the outstanding Cloudera Common Stock. The foregoing description of the Cloudera Support Agreements does not purport to be complete and is qualified in its entirety by reference to the form of Cloudera Support Agreement, which is filed herewith as Exhibit 10.1 and is incorporated by reference herein.
Simultaneously with the execution and delivery of the Merger Agreement, each of the directors and executive officers of Hortonworks, in their respective capacities as stockholders of Hortonworks (together with certain of their respective affiliates), have entered into support agreements with Cloudera (the “
Hortonworks Support Agreements
”), pursuant to which such individuals have agreed, among other things, to vote their respective shares of Hortonworks Common Stock in favor of the adoption of the Merger Agreement, against any alternative proposal and against any action of agreement that would reasonably be expected to impede, interfere with, postpone, prevent or delay the consummation of, the transactions contemplated by the Merger Agreement.
The persons signing the Hortonworks Support Agreements currently beneficially own an aggregate of 14% of the outstanding Hortonworks Common Stock. The foregoing description of the Hortonworks Support Agreements does not purport to be complete and is qualified in its entirety by reference to the form of the Hortonworks Support Agreement, which is filed herewith as Exhibit 10.2 and is incorporated by reference herein.