PREM14A 1 d257583dprem14a.htm PRELIMINARY PROXY STATEMENT Preliminary Proxy Statement
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No.             )

Filed by the Registrant þ

Filed by a Party other than the Registrant ¨

Check the appropriate box:

 

þ     Preliminary Proxy Statement

 

¨    Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

 

¨    Definitive Proxy Statement

 

¨    Definitive Additional Materials

 

¨    Soliciting Material Pursuant to §240.14a-12

TEKELEC

 

 

(Name of Registrant as Specified in its Charter)

 

 

Payment of Filing Fee (Check the appropriate box):

 

¨ No fee required.

 

þ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

 

  (1) Title of each class of securities to which transaction applies: Common stock, without par value per share

 

  (2) Aggregate number of securities to which transaction applies: 69,339,232 shares of Tekelec common stock, 34,372 options to purchase shares of Tekelec common stock at an exercise price below $11.00 per share, 1,431,820 restricted stock units and 676,900 share appreciation rights at an exercise price below $11.00 per share.

 

  (3) Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is calculated and state how it was determined): Solely for the purpose of calculating the filing fee, the underlying value of the transaction was calculated as the sum of (A) 69,339,232 shares of common stock, multiplied by $11.00 per share, (B) 34,372 options to purchase common stock with an exercise price below $11.00, multiplied by $1.87 per option (which is the difference between $11.00 and the $9.13 weighted average exercise price of such options), (C) 1,431,820 restricted stock units, multiplied by $11.00 per restricted stock unit, and (D) 676,900 share appreciation rights with an exercise price below $11.00, multiplied by $3.18 per share appreciation right (which is the difference between $11.00 and the $7.82 weighted average exercise price of such share appreciation rights). In accordance with Section 14(g) of the Securities Exchange Act of 1934, as amended, the filing fee was determined by multiplying the proposed maximum aggregate value of the transaction by 0.0001146.

 

  (4) Proposed maximum aggregate value of transaction: $780,698,389.64

 

  (5) Total fee paid: $89,468.04, calculated by multiplying 0.0001146 by the proposed maximum aggregate transaction value of $780,698,389.64.

 

¨ Fee paid previously with preliminary materials.

 

¨ Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 

  (1) Amount Previously Paid:

 

 

  (2) Form, Schedule or Registration Statement No.:

 

 

  (3) Filing Party:

 

 

  (4) Date Filed:

 


Table of Contents

PRELIMINARY PROXY STATEMENT — Subject to Completion, dated [            ], 2011

LOGO

SPECIAL MEETING OF SHAREHOLDERS

TO BE HELD [            ], 2012

[            ], 2011

Dear Shareholders:

You are cordially invited to attend a Special Meeting of the Shareholders of Tekelec, a California corporation (the “Company”), to be held on [            ], 2012 at [                    ] Eastern time at the Company’s offices located at 5200 Paramount Parkway, Morrisville, North Carolina 27560.

On November 6, 2011, the Company entered into an Agreement and Plan of Merger (the “merger agreement”) providing for the acquisition of the Company by Titan Private Holdings I, LLC, a Delaware limited liability company (“Parent”). Pursuant to the terms of the merger agreement, Titan Private Acquisition Corp., a California corporation and an indirect wholly-owned subsidiary of Parent (“Merger Subsidiary”), will merge with and into the Company and the Company will become a wholly-owned subsidiary of Parent (the “merger”). Following the merger, the Company will cease to be a publicly traded company. Parent and Merger Subsidiary are controlled by Siris Capital Group, LLC, a Delaware limited liability company.

At the special meeting, you will be asked to consider and vote upon proposals to approve (i) the merger agreement, (ii) the adjournment or postponement of the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the foregoing proposal and (iii) on a non-binding, advisory basis, certain merger-related executive compensation arrangements.

If the merger is completed, you will be entitled to receive $11.00 in cash, without interest, less any applicable withholding taxes, for each share of our common stock owned by you (unless you have properly exercised your dissenting shareholder rights with respect to such shares), which represents a premium of approximately 11% to the closing sales price of the Company’s common stock on November 4, 2011, the last trading day prior to the public announcement of the execution of the merger agreement and a 38% premium over the average closing sales price of the Company’s common stock over the thirty trading days prior to the public announcement of the execution of the merger agreement.

After careful consideration, the board of directors of the Company has unanimously (i) approved the merger agreement and the transactions contemplated by the merger agreement, and (ii) determined that the merger and the other transactions contemplated by the merger agreement are at a price and on terms that are fair to, advisable and in the best interests of the Company and its shareholders. The Company’s board of directors made its determination after consultation with its independent legal and financial advisors and consideration of a number of factors as more fully described in the attached proxy statement. The board of directors of the Company unanimously recommends that you vote “FOR” the proposal to approve the merger agreement, “FOR” the proposal to adjourn or postpone the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement, and “FOR” the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements.

Approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote thereon. The Company cannot consummate the merger without such approval. The proposal to approve the merger agreement, and on a non-binding, advisory basis, the compensation that will or might be received by the Company’s named executive officers in connection with the merger are subject to separate shareholder votes, and approval of the compensation that will or might be received by the Company’s named executive officers in connection with the merger is not a condition to the completion of the merger.


Table of Contents

Your vote is very important, regardless of the number of shares of common stock of the Company you own. Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy by telephone or the Internet. If you attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. The failure to vote your shares of Company common stock will have the same effect as a vote “AGAINST” the proposal to approve the merger agreement.

If your shares of common stock of the Company are held in “street name” by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee will be unable to vote your shares of common stock of the Company without instructions from you. You should instruct your bank, brokerage firm or other nominee to vote your shares of common stock of the Company in accordance with the procedures provided by your bank, brokerage firm or other nominee. The failure to instruct your bank, brokerage firm or other nominee to vote your shares of common stock of the Company “FOR” the proposal to approve the merger agreement will have the same effect as voting “AGAINST” the proposal to approve the merger agreement.

The attached proxy statement provides you with detailed information about the special meeting and the merger agreement. A copy of the merger agreement is attached as Annex A to the proxy statement. You are encouraged to read the entire proxy statement and its annexes, including the merger agreement, carefully. You may also obtain additional information about the Company from documents the Company has filed with the U.S. Securities and Exchange Commission.

If you have any questions or need assistance voting your shares of common stock of the Company, please call MacKenzie Partners, Inc., which is assisting us in the solicitation of proxies, toll-free at (800) 322-2885 or collect at (212) 929-5500.

Thank you in advance for your cooperation and continued support.

 

Sincerely,
Ronald J. de Lange
President and Chief Executive Officer

NEITHER THE U.S. SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES REGULATORY AUTHORITY HAS APPROVED OR DISAPPROVED THE MERGER, PASSED UPON THE MERITS OR FAIRNESS OF THE MERGER AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE MERGER, OR PASSED UPON THE ADEQUACY OR ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.


Table of Contents

TEKELEC

5200 Paramount Parkway

Morrisville, North Carolina 27560

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

[            ], 2011

 

Time:    [            ] Eastern time on [            ], 2012
Place:    The Company’s offices at 5200 Paramount Parkway, Morrisville, North Carolina 27560
Items of Business   

At the meeting, the Company’s shareholders will be asked to consider and vote upon proposals to:

 

(1) approve the Agreement and Plan of Merger, dated as of November 6, 2011, as it may be amended from time to time, which is also referred to herein as the “merger agreement,” by and among the Company, Titan Private Holdings I, LLC, a Delaware limited liability company, which is also referred to herein as “Parent,” and Titan Private Acquisition Corp., a California corporation and an indirect wholly-owned subsidiary of Parent, which is also referred to herein as “Merger Subsidiary.” A copy of the merger agreement is attached as Annex A to the accompanying proxy statement;

 

(2) approve the adjournment or postponement of the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the foregoing proposal;

 

(3) approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements; and

 

(4) transact such other business as may properly come before the special meeting or any adjournment or postponement of the special meeting.

Record Date    Only holders of shares of the Company’s common stock, without par value, of record at the close of business on [            ], 2011 are entitled to notice of and to vote at this meeting or at any adjournments or postponements thereof that may take place. All shareholders of record are cordially invited to attend the special meeting in person.
Proxy Voting   

Your vote is very important, regardless of the number of shares of Company common stock you own. The merger cannot be completed unless the merger agreement is approved by the affirmative vote of the holders of a majority of the outstanding shares of Company common stock entitled to vote thereon. Even if you plan to attend the special meeting in person, we request that you complete, sign, date and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope or submit your proxy by telephone or the Internet prior to the special meeting to ensure that your shares of Company common stock will be represented at the special meeting if you are unable to attend. If you fail to return your proxy card or fail to submit your proxy by telephone or the Internet, your shares of Company common stock will not be counted for purposes of determining whether a quorum is present at the special meeting and will have the same effect as a vote “AGAINST” the proposal to approve the merger agreement.

 

If you are a shareholder of record, voting in person at the special meeting will revoke any proxy previously submitted. If you hold your shares of Company common stock through a bank, brokerage firm or other nominee, you should follow the procedures provided by your bank, brokerage firm or other nominee in order to vote. You should not return your certificates representing shares of Company common stock until you receive written instructions to do so.


Table of Contents
Recommendation   

The board of directors of the Company has unanimously determined that the merger is fair to, and in the best interests of, the Company and its shareholders and has unanimously approved and declared advisable the merger agreement and the other transactions contemplated by the merger agreement. The board of directors of the Company made its determination after consultation with its independent legal and financial advisors and consideration of a number of factors more fully described in the proxy statement. The board of directors of the Company unanimously recommends that you vote “FOR” the proposal to approve the merger agreement, “FOR” the proposal to adjourn or postpone the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement, and “FOR” the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements.

 

When you consider the recommendation of the Company’s board of directors, you should be aware that three of the Company’s executive officers (one of whom is also a director of the Company) have entered into agreements with Parent and Merger Subsidiary related to the merger, their post-closing employment with the Company and their post-closing ownership of equity interests in Parent, and therefore have interests in the merger that may be different from, or in addition to, the interests of the Company’s shareholders generally. In addition, certain of the Company’s directors and all of the Company’s executive officers have interests in the merger that include (i) the accelerated vesting of all unvested stock options, unvested share appreciation rights and unvested restricted stock units held by them and (ii) the potential payment in connection with the merger of severance benefits to our executive officers pursuant to the terms of the Company’s officer severance plans.

Attendance    Only shareholders of record or their duly authorized proxies have the right to attend the special meeting. To gain admittance, you must present valid photo identification, such as a driver’s license or passport. If your shares of Company common stock are held through a bank, brokerage firm or other nominee, please bring to the special meeting a copy of your brokerage statement evidencing your beneficial ownership of Company common stock and valid photo identification. If you are the representative of a corporate or institutional shareholder, you must present valid photo identification along with proof that you are a representative of such shareholder. Please note that cameras, recording devices and other electronic devices will not be permitted at the special meeting.
Dissenting Shareholder Rights    Shareholders of the Company who do not vote in favor of the proposal to approve the merger agreement will have the right, subject to the requirements of Chapter 13 of the California General Corporation Law, to demand that the Company purchase the shares of common stock of the Company owned by them at their fair market value if they comply with all of the applicable requirements of Chapter 13 of the California General Corporation Law, which are summarized and are also reproduced in their entirety in the accompanying proxy statement.

You are urged to read the entire proxy statement carefully. Whether or not you plan to attend the special meeting, please vote by promptly completing the enclosed proxy card and then signing, dating and returning it in the postage-paid (if mailed in the United States) envelope provided so that your shares may be represented at the


Table of Contents

special meeting. Alternatively, you may vote your shares of stock through the Internet or by telephone, as indicated on the proxy card. Prior to the vote, you may revoke your proxy in the manner described in the proxy statement. Your failure to vote will have the same effect as a vote “AGAINST” the proposal to approve the merger agreement.

 

By Order of the Board of Directors
Stuart H. Kupinsky
Corporate Secretary

Morrisville, North Carolina

[                    ], 2011


Table of Contents

TABLE OF CONTENTS

      Page  

SUMMARY TERM SHEET

     1   

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

     12   

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION

     19   

PARTIES TO THE MERGER

     20   

THE COMPANY

     20   

PARENT

     20   

MERGER SUBSIDIARY

     20   

THE SPECIAL MEETING

     21   

DATE, TIME AND PLACE

     21   

PURPOSE

     21   

OUR BOARD RECOMMENDATION

     21   

RECORD DATE, OUTSTANDING SHARES AND QUORUM

     21   

ATTENDANCE

     22   

VOTE REQUIRED

     22   

VOTING OF PROXIES

     24   

REVOCATION OF PROXIES

     24   

SOLICITATION OF PROXIES AND EXPENSES

     24   

ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING

     24   

QUESTIONS AND ADDITIONAL INFORMATION

     25   

THE MERGER

     26   

BACKGROUND OF THE MERGER

     26   

REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD OF DIRECTORS

     32   

OPINION OF OUR FINANCIAL ADVISOR

     35   

PROJECTED FINANCIAL INFORMATION

     42   

EFFECTS OF THE MERGER

     44   

INTERESTS OF OUR DIRECTORS AND EXECUTIVE OFFICERS

     45   

FINANCING OF THE MERGER

     53   

LIMITED GUARANTEE

     55   

INTERIM INVESTORS AGREEMENT

     56   

REGULATORY APPROVALS

     56   

CLOSING AND EFFECTIVE TIME OF THE MERGER

     57   

PAYMENT OF MERGER CONSIDERATION AND SURRENDER OF STOCK CERTIFICATES

     57   

DISSENTING SHAREHOLDERS RIGHTS

     58   

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     58   

LITIGATION RELATING TO THE MERGER

     60   

THE MERGER AGREEMENT (PROPOSAL NO. 1)

     61   

EXPLANATORY NOTE REGARDING THE MERGER AGREEMENT

     61   

EFFECTS OF THE MERGER; DIRECTORS AND OFFICERS; ARTICLES OF INCORPORATION; BYLAWS

     61   

CLOSING AND EFFECTIVE TIME OF THE MERGER

     62   

MERGER; TREATMENT OF COMPANY COMMON STOCK

     62   

TREATMENT OF OTHER EQUITY SECURITIES

     62   

PAYMENT PROCEDURES

     63   

REPRESENTATIONS AND WARRANTIES

     64   

CONDUCT OF BUSINESS PENDING THE MERGER

     66   

SHAREHOLDERS’ MEETING

     69   

NO SOLICITATIONS OF COMPETING PROPOSALS

     70   

ACCESS TO INFORMATION; CONFIDENTIALITY

     72   


Table of Contents
      Page  

FINANCING

     72   

OTHER COVENANTS

     73   

EMPLOYEE BENEFIT MATTERS

     75   

CONDITIONS TO THE MERGER

     77   

TERMINATION OF THE MERGER AGREEMENT

     78   

TERMINATION FEES AND EXPENSES

     79   

EXPENSES

     80   

REMEDIES

     80   

AMENDMENTS; WAIVERS

     81   

MARKET PRICE OF COMPANY COMMON STOCK

     82   

COMMON STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT

     83   

PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS

     85   

DISSENTING SHAREHOLDERS RIGHTS

     85   

DELISTING AND DEREGISTRATION OF COMPANY COMMON STOCK

     86   

ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING (PROPOSAL NO. 2)

     86   

ADVISORY VOTE ON GOLDEN PARACHUTE COMPENSATION (PROPOSAL NO. 3)

     87   

OTHER MATTERS

     89   

WHERE YOU CAN FIND MORE INFORMATION

     90   

ANNEX A

     A-1   

ANNEX B

     B-1   

ANNEX C

     C-1   

 

ii


Table of Contents

This proxy statement and a proxy card are first being mailed on or about [                    ], 2011 to shareholders who owned shares of Company common stock as of the close of business on [                    ], 2011.

Summary Term Sheet

The following summary highlights selected information contained in this proxy statement. These sections may not contain all of the information that might be important in your consideration of the proposed merger. We encourage you to read carefully this proxy statement in its entirety, including the annexes and the documents referred to in this proxy statement, before voting on the proposals described in this proxy statement. In addition, this proxy statement incorporates by reference important business and financial information about Tekelec. See “Where You Can Find More Information” beginning on page [                    ]. Each item in this summary includes a page reference directing you to a more complete description of that topic.

Parties to the Merger (Page [                    ])

In the proxy statement, the terms “Tekelec,” the “Company,” “we,” “our,” “ours,” and “us” refer to Tekelec and its subsidiaries. We are a leading global provider of communication core network solutions. Our solutions help connect people and devices to the mobile Internet. In general terms, our product portfolio adds a layer of network intelligence designed to allow service providers to both manage and monetize the exponential growth in mobile web, video and applications traffic. In addition, these solutions are designed to provide our customers’ telecommunications networks with an effective and robust intelligence layer with which to offer their subscribers improved customer experiences through optimization, personalization, mobility and security. Our customers predominantly include mobile providers and, to a lesser extent, fixed and cable service providers. We have more than 300 customers in over 100 countries, including sixteen out of the top twenty wireless groups. Our shares of common stock are currently listed on the Nasdaq Global Select Market under the symbol “TKLC.”

Titan Private Holdings I, LLC, which we refer to as “Parent,” is a Delaware limited liability company that was formed by Siris Capital Group, LLC, which we sometimes refer to as “Siris,” solely for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement and related financing transactions. Siris is a private equity firm focused on the technology, telecommunications and healthcare industries. Parent has secured committed financing, consisting of a combination of equity and debt financing, from a group of investors for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement. See the section entitled “Financing of the Merger” beginning on page [                    ]. Following consummation of the merger, Titan Private Holdings II, LLC, a Delaware limited liability company and a wholly-owned subsidiary of Parent, which we refer to as “Holdings,” will own all of our outstanding shares of common stock.

Titan Private Acquisition Corp., which we refer to as “Merger Subsidiary,” is a California corporation and a wholly-owned subsidiary of Holdings that was formed solely for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement and the related financing transactions. Upon completion of the merger, Merger Subsidiary will be merged with and into the Company and cease to exist.

The Special Meeting (Page [                    ])

Date, Time and Place (Page [                    ]), Purpose (Page [                    ]). The special meeting will be held on [                    ], 2012 starting at [                    ] Eastern time, at our offices located at 5200 Paramount Parkway, Morrisville, North Carolina 27560.

 


Table of Contents

At the special meeting, holders of our common stock will be asked to consider and vote upon proposals to:

 

   

approve the merger agreement;

 

   

approve the adjournment or postponement of the special meeting to a later date, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement;

 

   

approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements; and

 

   

transact such other business as may properly come before the special meeting or any adjournment or postponement of the special meeting.

Record Date, Outstanding Shares and Quorum (Page [                    ]). Only shareholders who hold shares of our common stock at the close of business on [                    ], 2011, the record date for the special meeting, will be entitled to vote at the special meeting. Each share of our common stock outstanding on the record date will be entitled to one vote on each matter submitted to shareholders for approval at the special meeting. As of the record date, there were [                    ] shares of our common stock outstanding. A majority of the shares of Company common stock outstanding at the close of business on the record date and entitled to vote, present in person or represented by proxy, at the special meeting constitutes a quorum for the purposes of the special meeting.

Vote Required (Page [                    ]). Approval of the proposal to approve the merger agreement requires the affirmative vote of at least a majority of the outstanding shares of our common stock entitled to vote at the special meeting. Approval of the proposal to adjourn or postpone the special meeting requires the affirmative vote of the majority of the shares present, in person or represented by proxy, and entitled to vote at the special meeting, whether or not a quorum is present. Approval, on a non-binding, advisory basis, of certain merger-related executive compensation arrangements requires the affirmative vote of a majority of (i) the votes cast at the meeting with respect to such proposal and (ii) the quorum required to transact business at the meeting. As of [                    ], 2011, the record date for the special meeting, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, [                    ] shares of Company common stock, representing approximately [                    ]% of our outstanding shares on the record date. Our directors and executive officers have informed us that they currently intend to vote all of their shares of our common stock owned as of the record date in favor of the proposal to approve the merger agreement, in favor of the proposal to adjourn or postpone the special meeting to a later date, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement, and in favor of the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements.

Voting of Proxies (Page [                    ]), and; Revocation of Proxies (Page [                    ])

Any shareholder of record entitled to vote at the special meeting may submit a proxy by telephone, over the Internet, by returning the enclosed proxy card in the accompanying prepaid reply envelope, or may vote in person by appearing at the special meeting. If your shares of Company common stock are held in “street name” through a bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of Company common stock using the instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy or to vote in person at the special meeting, or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, your shares of Company common stock will not be voted on the proposal to approve the merger agreement, which will have the same effect as a vote “AGAINST” the proposal to approve the merger agreement, and your shares of Company common stock may also have the same effect as votes “AGAINST” (i) the proposal to approve, on a non-binding, advisory basis, certain golden parachute compensation that will be paid or that might become payable to the Company’s named executive officers in connection with the merger and (ii) the proposal to adjourn or postpone the special

 

 

2


Table of Contents

meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement, provided that broker non-votes will not have an effect on any proposal to adjourn or postpone the meeting.

You have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is exercised, by voting again at a later date through any of the methods available to you, by giving written notice of revocation to our Corporate Secretary, which must be filed with the Corporate Secretary by the time the special meeting begins, or by attending the special meeting and voting in person.

The Merger (Page [                    ])

The proposed transaction is the acquisition of the Company by Parent under the terms and subject to the conditions of the merger agreement. The acquisition will be effected by the merger of Merger Subsidiary with and into the Company, with the Company being the surviving corporation as a wholly-owned subsidiary of Holdings. We refer to the proposed merger of Merger Subsidiary into the Company as the “merger.” At the effective time of the merger, each issued and outstanding share of our common stock, other than shares owned by shareholders who properly exercise their dissenting shareholder rights under California law for such shares, will be converted into the right to receive $11.00 per share in cash, without interest, which we refer to in this proxy statement as the “merger consideration.” The total merger consideration that is expected to be paid in the merger is approximately $780 million. As a result of the merger, the Company will cease to be a publicly traded company. If the merger is completed, you will not own any shares of the capital stock of the surviving corporation. The merger is targeted to close in the first quarter of 2012, subject to satisfaction or waiver of the conditions described under “The Merger Agreement — Conditions to the Merger” beginning on page [                    ].

Merger; Treatment of Company Common Stock (Page [                    ]); Treatment of Other Equity Securities (Page [                    ])

At the effective time of the merger, each option to acquire shares of our common stock and each share appreciation right that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will vest (if unvested) and will be cancelled in exchange for the right to receive a cash payment equal to the number of shares of our common stock subject to such option or share appreciation right, multiplied by the excess, if any, by which $11.00 exceeds the exercise price of the option or share appreciation right. At the effective time of the merger, each option or share appreciation right for which the exercise price per share of our common stock equals or exceeds $11.00 will be cancelled and have no further force or effect without any right to receive any consideration therefor. At the effective time of the merger, each outstanding Company restricted stock unit will vest and be cancelled and converted into the right to receive a cash payment equal to the number of shares of our common stock subject to such restricted stock unit multiplied by $11.00. Any applicable taxes required to be withheld from such payments may be deducted and withheld from the consideration otherwise payable in connection with such options, share appreciation rights and restricted stock units, as well as from any other consideration payable in connection with the proposed transaction.

Treatment of Company’s Amended and Restated 2005 Employee Stock Purchase Plan (Page [                    ])

No new offering periods under the Company’s Amended and Restated 2005 Employee Stock Purchase Plan, which we refer to as the “ESPP,” will commence after the date of the merger agreement. Further, the offering period under the ESPP that was in effect as of the date of the merger agreement shall terminate on the twentieth business day following the date of the merger agreement (i.e., on December 6, 2011), and all amounts credited to the accounts of participants shall be used to purchase shares of our common stock in accordance with the terms of the ESPP. Participants in the ESPP will be entitled to receive the merger consideration for shares of our

 

 

3


Table of Contents

common stock purchased through the ESPP prior to the effective time of the merger provided such shares are still held by the participants at the effective time of the merger. The ESPP will terminate as of the effective time of the merger.

Reasons for the Merger; Recommendation of the Board of Directors (Page [                    ])

After careful consideration of various factors described in the section entitled “The Merger — Reasons for the Merger; Recommendations of the Board of Directors,” the board of directors of the Company, which we refer to as the “board of directors,” unanimously (i) determined that the merger is fair to, and in the best interests of, the Company and our shareholders, (ii) approved and declared advisable the merger agreement and the other transactions contemplated by the merger agreement and (iii) resolved that the merger agreement be submitted for consideration by the shareholders of the Company at a special meeting of shareholders and recommended that our shareholders vote to approve the merger agreement.

When you consider the recommendation of the Company’s board of directors, you should be aware that three of the Company’s executive officers (one of whom is also a director of the Company) have entered into agreements with Parent and Merger Subsidiary related to the merger, their post-closing employment with the Company and their post-closing ownership of equity interests in Parent, and therefore have interests in the merger that may be different from, or in addition to, the interests of the Company’s shareholders generally. In addition, certain of the Company’s directors and all of the Company’s executive officers have interests in the merger that include (i) the accelerated vesting of all unvested stock options, unvested share appreciation rights and unvested restricted stock units held by them and (ii) the potential payment in connection with the merger of severance benefits to our executive officers pursuant to our officer severance plans. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement, and in unanimously recommending that the merger agreement be approved by the shareholders of the Company. See the section entitled “The Merger — Interests of Our Directors and Executive Officers” beginning on page [                    ].

The board of directors unanimously recommends that you vote “FOR” the proposal to approve the merger agreement, “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the merger agreement and “FOR” the proposal to approve, on a non-binding, advisory basis, the golden parachute compensation that will be paid or that might become payable to the Company’s named executive officers in connection with the merger.

Opinion of Our Financial Advisor (Page [                    ])

Goldman, Sachs & Co., which we refer to as “Goldman Sachs,” delivered its opinion to the Company’s board of directors that, as of November 6, 2011, and based upon and subject to the factors and assumptions set forth therein, the $11.00 per share of the Company’s common stock in cash to be paid to the holders (other than Parent or its affiliates) of the outstanding shares of the Company’s common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

The full text of the written opinion of Goldman Sachs, dated November 6, 2011, which sets forth assumptions made, procedures followed, matters considered, qualifications and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement. Goldman Sachs provided its opinion for the information and assistance of the Company’s board of directors in connection with the board of directors’ consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of the Company’s common stock should vote with respect to the merger or any other matter. Pursuant to an engagement letter between the Company and Goldman Sachs, the Company has agreed to pay Goldman Sachs a transaction fee of approximately $6.7 million, all of which is payable upon consummation of the merger.

 

 

4


Table of Contents

We encourage our shareholders to read Goldman Sachs’ opinion carefully and in its entirety. For a further discussion of Goldman Sachs’ opinion, see “The Merger — Opinion of Our Financial Advisor” in this proxy statement.

Financing of the Merger (Page [                    ])

We anticipate that the total funds needed to complete the merger, including the funds to:

 

   

pay our shareholders (and holders of our other equity-based interests) the amounts due to them under the merger agreement, which, based upon the shares (and our other equity-based interests) outstanding as of [                    ], 2011, would be approximately $780 million; and

 

   

pay fees and expenses related to the merger and the debt that will finance the merger,

will be funded through a combination of:

 

   

equity financing to be provided by an investor group as described below;

 

   

debt financing to be provided by investment funds managed or advised by Sankaty Advisors, LLC and GSO Capital Partners LP as described below; and

 

   

cash on hand of the Company.

Parent has obtained the equity financing commitments and the debt financing commitment described below, which we refer to collectively as the “financing commitments.” The funding under those financing commitments are subject to certain conditions, including conditions that do not relate directly to the merger agreement. We cannot assure you that the amounts committed under the financing commitments will be sufficient to complete the merger. Those amounts might be insufficient if, among other things, one or more of the parties to the financing commitments fails to fund the committed amounts in breach of such financing commitments and/or if any of the conditions to such funding are not satisfied. Although obtaining the proceeds of any financing, including the financing under the financing commitments, is not a condition to the completion of the merger, the failure of Parent and Merger Subsidiary to obtain any portion of the committed financing (or alternative financing) is likely to result in the failure of the merger to be completed. In that case, Parent may be obligated to pay the Company a fee of $40 million, or the “parent fee,” as described under “The Merger Agreement — Termination Fees and Expenses” beginning on page [                    ]. The obligation of Parent to pay the parent fee is guaranteed by an affiliate of Siris as described below.

Equity Financing (Page [                    ])

Parent has entered into financing commitments, each dated November 6, 2011, which we refer to as the “equity financing commitments,” with an investor group consisting of: (1) Titan Co-Investment SPV, LLC and Credit Spirit Titan, LLC, which we refer to collectively as “the Credit Suisse investors”; (2) Comvest Investment Partners IV, L.P., which we refer to as “the Comvest investor”; (3) GSO Capital Partners LP, which we refer to as “the GSO investor”; (4) Parish Capital III, L.P., which we refer to as “the Parish investor”; (5) Rosemont Solebury Co-Investment Fund, L.P. and Rosemont Solebury Co-Investment Fund (Offshore), L.P., which we refer to collectively as “the Rosemont Solebury investors”; (6) Sankaty Credit Opportunities III, L.P., Sankaty Credit Opportunities IV, L.P., Sankaty Credit Opportunities (Offshore Master) IV, L.P., Sankaty Middle Market Opportunities Fund, L.P., Sankaty Middle Market Opportunities Fund (Offshore Master), L.P., and Sankaty Middle Market Opportunities Fund (Offshore Master II), L.P., which we refer to collectively as “the Sankaty investors”; (7) ZM Capital, L.P., which we refer to as “the ZM Capital investor”; and (8) Siris Partners II, L.P., which we refer to as “the Siris investor.” We refer to the Credit Suisse investors, the Comvest investor, the GSO investor, the Parish investor, the Rosemont Solebury investors, the Sankaty investors, the ZM Capital investor and the Siris investor as the “equity investors.” Pursuant to these equity financing commitments, the equity

 

 

5


Table of Contents

investors have committed to make contributions to Parent at or prior to the closing of the merger in an aggregate amount of up to $224.4 million. The equity investors’ respective obligations to make the equity contributions contemplated by their respective equity financing commitments are generally subject to (i) the satisfaction in full or waiver by Parent of the conditions precedent to Parent’s and Merger Subsidiary’s obligations to complete the merger (except those conditions the failure of which to be satisfied resulted from a breach by Parent or Merger Subsidiary or those which by their nature cannot be satisfied except at the time of the closing of the merger), (ii) the substantially simultaneous funding of the debt financing and at least 90% of the equity financing from the other equity investors and (iii) the substantially simultaneous consummation of the merger in accordance with the terms of the merger agreement.

Debt Financing (Page [                    ])

In connection with the entry into the merger agreement, Parent received a debt financing commitment, dated November 6, 2011 (the “debt financing commitment”), from investment funds managed or advised by Sankaty Advisors, LLC and GSO Capital Partners LP, which we refer to collectively as the “debt investors,” providing for up to $400 million of debt financing. In the merger agreement, Parent and Merger Subsidiary have agreed to use their reasonable best efforts to obtain the debt financing on the terms and conditions described in the debt financing commitment.

The facilities contemplated by the debt financing commitment are subject to a number of closing conditions included in the debt financing commitment, including the absence of a “material adverse effect” (defined substantially similar to the definition of “Material Adverse Effect” in the merger agreement), the execution of definitive documentation, the accuracy of certain specified representations and warranties, receipt of equity financing consistent with the equity financing commitments, the issuance of additional equity interests in Parent to the debt investors, consummation of the merger, delivery of certain customary closing documents, payment of applicable fees and expenses, and after giving effect to the merger and the payment of fees and expenses on the closing date of the merger, the Company having a cash balance equal to or greater than $90 million (including $80 million in the United States). The debt financing commitment is not subject to due diligence or a “market out” condition, which would allow the debt investors not to fund their financing commitments if the overall financial markets are materially adversely affected. There is a risk that the conditions to the debt financing will not be satisfied and the debt financing may not be funded when required. As of the date of this proxy statement, no alternative financing arrangements or alternative financing plans have been made in the event the debt financing described in this proxy statement is not available as anticipated.

Limited Guarantee (Page [                    ])

Pursuant to a limited guarantee dated November 6, 2011, provided by Siris Partners II, L.P., an affiliate of Siris and referred to herein as the “guarantor,” to the Company, the guarantor has agreed to guarantee the $40 million parent fee in the event that it becomes payable by Parent to the Company. See “The Merger Agreement—Termination Fees and Expenses” beginning on page [                    ].

Interests of Our Directors and Executive Officers (Page [                    ])

In considering the recommendation of our board of directors, you should be aware that certain of our directors and executive officers have interests in the merger that may be different from, or in addition to, your interests as a shareholder and that may present actual or potential conflicts of interest. Such interests include:

 

   

the accelerated vesting of all unvested stock options, unvested share appreciation rights and unvested restricted stock units held by our directors and executive officers;

 

   

three of our executive officers (one of whom is also a director of the Company) have entered into agreements with Parent and Merger Subsidiary related to, among other matters, their post-closing (i) employment with the Company and (ii) ownership of equity interests in Parent;

 

 

6


Table of Contents
   

pursuant to such agreements, Parent has also agreed to pay, or to cause the Company to pay, to each of the three executive officers following the closing of the merger a lump sum cash amount in consideration for such officer’s waiver of his rights under the Company’s applicable officer severance plan; and

 

   

the potential payment in connection with the merger of severance benefits to our executive officers pursuant to the terms of the Company’s officer severance plans.

Our board of directors was aware of these interests and considered that such interests may be different from or in addition to the interests of our shareholders generally in approving the merger agreement and the transactions contemplated thereby, including the merger, and in determining to unanimously recommend that our shareholders vote to approve the merger agreement. You should consider these and other interests of our directors and executive officers that are described in this proxy statement.

Material United States Federal Income Tax Consequences of the Merger (Page [                    ])

The exchange of shares of common stock for cash pursuant to the merger by U.S. holders will be a taxable transaction for U.S. federal income tax purposes. In general, for U.S. federal income tax purposes, a U.S. holder who receives cash for shares of our common stock will recognize capital gain or loss in an amount equal to the difference between the amount of cash received in exchange for such shares pursuant to the merger and the U.S. holder’s adjusted tax basis in such shares. See “The Merger — Material United States Federal Income Tax Consequences of the Merger” beginning on page [                    ] for more information. We urge you to consult your tax advisor about the tax consequences of the exchange of your shares of our common stock for cash pursuant to the merger in light of your particular circumstances.

Regulatory Approvals (Page [                    ])

Under the terms of the merger agreement, the merger cannot be completed until the waiting period applicable to the consummation of the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the “HSR Act,” has expired or been terminated. Under the HSR Act and the rules promulgated thereunder by the Federal Trade Commission, or the “FTC,” the merger cannot be completed until each of the Company and Parent files a notification and report form with the FTC and the Antitrust Division of the Department of Justice under the HSR Act and the applicable waiting period has expired or been terminated. Each of the Company and Parent filed such a notification and report form on [                    ], 2011 and requested early termination of the waiting period. The applicable initial waiting period is set to expire at 11:59 pm on [                    ], 2011.

Litigation Relating to the Merger (Page [            ])

The Company is aware of five lawsuits relating to the merger.

On November 8, 2011, Joel Friedberg and Nicholas Geiste filed a lawsuit in the Superior Court of the State of California, County of San Diego, claiming that the Company’s board of directors breached its fiduciary duties by agreeing to the merger and that the Company and the other defendants (Siris, Parent and Merger Subsidiary) aided and abetted the board of directors’ breach of fiduciary duties. Specifically, plaintiffs claim that the deal undervalues the Company, that the agreed-upon deal protection devices are improper, and that four directors agreed to the merger as a way of extinguishing their liability for breaches of fiduciary duties in connection with public statements that form the basis for a separate shareholder derivative action that is currently pending in the United States District Court for the Central District of California (Dulberg v. Plastina, Case No. 8:11-cv-00351-JVS-RNB). Friedberg and Geiste purport to bring this action on their own behalf and on behalf of a class of the Company’s shareholders. They seek damages, as well as an injunction against the

 

 

7


Table of Contents

merger. The individual defendants and the Company accepted service of process on November 11, 2011, and their responses to the complaint are due on December 12, 2011.

On November 15, 2011, Neil Meislin filed a lawsuit in the Superior Court of the State of California, County of San Diego, purportedly on behalf of himself and a class of shareholders, seeking damages and injunctive relief for breach of fiduciary duty. The claims mirror those described above. To the Company’s knowledge, no defendant has been served with the complaint and no schedule has been set by the court.

Similar lawsuits were filed by Hilary Coyne in the Superior Court of the State of North Carolina, Wake County, Maria C. Limson-Mitchell in the Superior Court of the State of California, County of San Mateo, and Larry D. Ferguson in the Superior Court of the State of North Carolina, Wake County.

The Merger Agreement (Page [                    ])

Merger; Treatment of Company Common Stock (Page [                    ]); Treatment of Other Equity Securities (Page [                     ])

 

   

Common Stock. Each share of Company common stock outstanding immediately prior to the effective time of the merger (other than shares owned by Parent or any of its subsidiaries or by shareholders who properly exercise their dissenting shareholder rights under California law for such shares) will be converted at the effective time of the merger into the right to receive cash in the amount of $11.00 per share, without interest and less any applicable withholding taxes.

 

   

Options. At the effective time of the merger, each option to acquire shares of our common stock that is outstanding immediately prior to the effective time of the merger, will vest (if unvested) and will be cancelled as of the effective time of the merger in exchange for the right to receive, as soon as reasonably practicable after the effective time of the merger (but in any event, no later than three business days after the effective time of the merger) a cash payment equal to the number of shares of our common stock subject to the option, multiplied by the excess, if any, by which $11.00 exceeds the exercise price of the option, less any applicable withholding taxes. At the effective time of the merger, each option for which the exercise price per share of our common stock equals or exceeds $11.00 will be cancelled and will have no further effect with no right to receive any consideration therefor.

 

   

Share Appreciation Rights. At the effective time of the merger, each outstanding share appreciation right entitling the holder thereof the right to receive shares of Company common stock (or a cash payment determined in relation to the value thereof), whether vested or unvested, will vest (if unvested) and will be cancelled in exchange for the right to receive, promptly after the effective time of the merger, a cash payment equal to the number of shares of our common stock subject to the share appreciation right, multiplied by the excess, if any, by which $11.00 exceeds the exercise price of the share appreciation right, less any applicable withholding taxes. As of the effective time of the merger, each share appreciation right for which the exercise price per share of our common stock equals or exceeds $11.00 will be cancelled and have no further effect with no right to receive any consideration therefor.

 

   

Restricted Stock Units. At the effective time of the merger, each outstanding restricted stock unit will vest and will be cancelled in exchange for the right to receive, as soon as reasonably practicable after the effective time of the merger (but in any event, no later than three business days after the effective time of the merger), a cash payment of $11.00, less any applicable withholding taxes.

No Solicitations of Competing Proposals (Page [                    ])

In the merger agreement, we have agreed that we will not, among other things:

 

   

solicit, initiate or take any action to knowingly facilitate or encourage the submission of any proposal or offer that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal (as defined on page [                    ]);

 

 

8


Table of Contents
   

enter into or participate in any discussions or negotiations with, furnish any information relating to the Company or any of its subsidiaries or afford access to the business, properties, assets, books or records of the Company or any of its subsidiaries to any third party that to the Company’s knowledge is seeking to make, or has made, an Acquisition Proposal;

 

   

make an Adverse Recommendation Change (as defined on page [                    ]);

 

   

terminate, amend, modify, grant any waiver or release under or fail to enforce any standstill, confidentiality or similar agreement with respect to any equity or voting securities of the Company or any of its subsidiaries, or publicly propose to do any of the foregoing; or

 

   

enter into any agreement in principle, letter of intent, term sheet, merger agreement, acquisition agreement or other similar instrument that constitutes or relates to an Acquisition Proposal.

Notwithstanding these restrictions, we may enter into negotiations or discussions with a third party with respect to an Acquisition Proposal if (a) our board of directors believes in good faith after consultation with a financial advisor of nationally recognized reputation and outside legal counsel that such an Acquisition Proposal is reasonably likely to lead to a Superior Proposal (as defined on page [                    ]) or such Acquisition Proposal is a Superior Proposal and (b) follows certain procedures set forth in the merger agreement. In addition, at any time prior to the approval of the merger agreement by our shareholders, subject to certain limitations set forth in the merger agreement, our board of directors may make an Adverse Recommendation Change if our board of directors determines in good faith, after consultation with a financial advisor of nationally recognized reputation and outside legal counsel, that failure to take such action could reasonably be expected to be inconsistent with its fiduciary duties under applicable law.

Conditions to the Merger (Page [                     ])

The respective obligations of the Company, Parent and Merger Subsidiary to consummate the merger are subject to the satisfaction or waiver of certain customary conditions, including the approval of the merger agreement by our shareholders, receipt of required antitrust approvals, the absence of legal prohibitions on completion of the merger, the accuracy of the representations and warranties of the parties in the merger agreement and compliance by the parties with their respective obligations under the merger agreement. The obligation of Parent and Merger Subsidiary to consummate the merger is also subject to the Company’s fulfillment of the condition that since the date of the merger agreement, there has not occurred and there is not continuing any material adverse effect on the Company, as described under “The Merger Agreement — Representations and Warranties” beginning on page [                    ].

Termination of the Merger Agreement (Page [                     ])

The Company and Parent may, by mutual written consent, terminate the merger agreement and abandon the merger at any time prior to the effective time of the merger, whether before or after the approval of the merger agreement by our shareholders.

The merger agreement may also be terminated and the merger abandoned at any time prior to the effective time of the merger, whether before or after the approval of the merger agreement by our shareholders, as follows:

 

   

by either Parent or the Company, if:

 

  o the merger has not been consummated by April 30, 2012 (however, this right to terminate the merger agreement will not be available to any party whose breach of the merger agreement results in the failure of the merger to be consummated by April 30, 2012);

 

 

9


Table of Contents
  o our shareholders’ meeting has been held and completed and our shareholders have not approved the merger agreement at such meeting or any adjournment or postponement of such meeting; or

 

  o there is a legal prohibition to completing the merger.

 

   

by Parent, if:

 

  o an Adverse Recommendation Change (as defined on page [            ]) has occurred; or

 

  o a breach of any representation or warranty or failure to perform any covenant or agreement on the part of the Company set forth in the merger agreement has occurred that would cause the condition to closing relating to the accuracy of the representations and warranties of the Company or compliance by the Company with its obligations under the merger agreement not to be satisfied and such breach or failure is not cured by the earlier of April 30, 2012 or thirty days following the Company’s receipt of written notice of such breach or failure, provided that, at the time of the delivery of such notice, Parent is not in material breach of its obligations under the merger agreement.

 

   

by the Company, if:

 

  o at any time prior to the approval of the merger agreement by our shareholders, our board of directors authorizes the Company to enter into a Superior Proposal (as defined on page [                    ]), subject to complying with the terms of the merger agreement, and we have paid any termination fee due as described in “The Merger Agreement — Termination Fees and Expenses;”

 

  o a breach of any representation or warranty or failure to perform any covenant or agreement on the part of Parent or Merger Subsidiary set forth in the merger agreement has occurred that would cause the condition to closing relating to the accuracy of the representations and warranties of Parent or Merger Subsidiary or compliance by Parent or Merger Subsidiary with their obligations under the merger agreement not to be satisfied and such breach or failure is not cured by the earlier of April 30, 2012 or thirty days following Parent’s receipt of written notice of such breach or failure, provided that, at the time of delivery of such written notice, the Company is not in material breach of its obligations under the merger agreement; or

 

  o if all the closing conditions to the merger are satisfied and the Company has given Parent written notice that the closing of the merger should occur in two business days and that it is prepared to close and Parent and Merger Subsidiary fail to consummate the merger within three business days following the date the closing of the merger should have occurred.

Termination Fees and Expenses (Page [                    ])

If the merger agreement is terminated in certain circumstances described under “The Merger Agreement — Termination of the Merger Agreement” beginning on page [                    ];

 

   

the Company may be obligated to pay to Parent a termination fee of $15 million; or

 

   

Parent may be obligated to pay the Company the parent fee of $40 million. The guarantor has agreed pursuant to the limited guarantee to guarantee the obligation of Parent to pay the parent fee of $40 million.

Remedies (Page [                    ])

In the event Parent and Merger Subsidiary fail to effect the closing of the merger or otherwise breach the merger agreement or fail to perform thereunder, then, except for certain rights to equitable relief, including specific performance and our rights under the confidentiality agreement previously executed between the

 

 

10


Table of Contents

Company and Siris, our receipt of the parent fee is our sole and exclusive remedy against Parent, Merger Subsidiary, the guarantor, the financing sources and any of their respective former, current or future general or limited partners, stockholders or equityholders, controlling persons, managers, members, directors, officers, employees, affiliates, attorneys, agents or assignees or any former, current, or future general or limited partner, stockholder or equityholder, controlling person, manager, member, director, officer, employee, affiliate, attorney, agent or assignee of any of the foregoing, which we refer to collectively as the “Parent related parties,” for any losses suffered with respect to the merger agreement, the limited guarantee, the transactions contemplated by the merger agreement and the limited guarantee, the termination of the merger agreement, the failure of the merger to be consummated or any breach of the merger agreement by Parent or Merger Subsidiary. Upon payment of the parent fee, none of the Parent related parties will have any further liability or obligation to the Company relating to or arising out of the merger agreement or the transactions contemplated by the merger agreement or any claims or actions under applicable law arising out of any breach, termination or failure described in the preceding sentence except with respect to the confidentiality agreement between the Company and Siris described above.

If the merger agreement is terminated in circumstances in which we are required to pay the termination fee, Parent’s and Merger Subsidiary’s sole and exclusive remedy against us will be to receive payment of the termination fee payable by us.

Market Price of Company Common Stock (Page [                    ])

The closing sales price of Company common stock on the Nasdaq Global Select Market, or “Nasdaq,” on November 4, 2011, the last trading day prior to the public announcement of the merger agreement, was $9.90 per share of Company common stock. On [                    ], 2011, the most recent practicable date before this proxy statement was mailed to our shareholders, the closing sales price for Company common stock on Nasdaq was $[                    ] per share of Company common stock. You are encouraged to obtain current market prices for Company common stock in connection with voting your shares of Company common stock.

Rights of Dissenting Shareholders (Page [                     ])

Shareholders may be entitled, under certain circumstances, to dissenting shareholder rights under California law. Company shareholders who do not vote “FOR” approval of the merger agreement and otherwise comply with the requirements of Chapter 13 of the California General Corporation Law will be entitled to dissenting shareholder rights in connection with the merger, whereby such shareholders may receive payment of the “fair market value” of their shares of Company common stock in cash from the Company, if shareholders holding in the aggregate at least five percent of the Company’s outstanding shares of common stock properly exercise their dissenting shareholder rights under Chapter 13 of the California General Corporation Law. Failure to take any of the steps required under Chapter 13 of the California General Corporation Law on a timely basis may result in a loss of those dissenting shareholder rights. For a detailed discussion of dissenting shareholder rights under California law, see “Rights of Dissenting Shareholders” beginning on page [                    ].

Delisting and Deregistration of Company Common Stock (Page [                     ])

If the merger is completed, Company common stock will be delisted from Nasdaq and deregistered under the Securities Exchange Act of 1934, as amended, or the “Exchange Act.” As such, our stock would cease to be publicly traded and we would no longer be required to file periodic reports with the U.S. Securities and Exchange Commission, or the “SEC,” on account of Company common stock.

 

 

11


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE MERGER AND THE SPECIAL MEETING

The following questions and answers address briefly some questions you may have regarding the proposed merger and the special meeting. These questions and answers may not address all questions that may be important to you as a holder of shares of Tekelec common stock. For important additional information, please refer to the “Summary Term Sheet” and the more detailed information contained elsewhere in this proxy statement, the annexes to this proxy statement and the documents referred to or incorporated by reference in this proxy statement.

 

Q. What is the proposed transaction and what effects will it have on the Company?

 

A. The proposed transaction is the acquisition of the Company by Parent pursuant to the Agreement and Plan of Merger, dated as of November 6, 2011, by and among Parent, Merger Subsidiary and the Company, as it may be amended from time to time, which we refer to as the “merger agreement.” If the proposal to approve the merger agreement is approved by our shareholders and the other closing conditions under the merger agreement are satisfied or waived, Merger Subsidiary will merge with and into the Company, with the Company being the surviving corporation. We refer to this transaction as the merger. As a result of the merger, the Company will become an indirect wholly-owned subsidiary of Parent and will no longer be a publicly held corporation, our common stock will be delisted from Nasdaq and deregistered under the Securities Exchange Act of 1934, as amended (which we refer to as the “Exchange Act”), we will no longer be required to file periodic reports with the SEC on account of the common stock, and you will no longer have any interest in our future earnings or growth.

 

Q. What will I receive if the merger is completed?

 

A. Upon completion of the merger, you will be entitled to receive the per share merger consideration of $11.00 in cash, without interest, less any applicable withholding taxes, for each share of common stock that you own, unless you have properly exercised and not withdrawn your dissenting shareholder rights under the California General Corporation Law with respect to such shares. You will not own any shares of the capital stock in the surviving corporation of the merger.

 

Q. How does the per share merger consideration compare to the market price of the Company’s common stock prior to announcement of the merger?

 

A. The per share merger consideration represents a premium of approximately 11% to the closing sales price of the common stock on November 4, 2011, the last trading day prior to the public announcement of the merger agreement, and a 38% premium over the average closing sales price of the Company’s common stock over the thirty trading days prior to the public announcement of the execution of the merger agreement.

 

Q. How does the board of directors recommend that I vote?

 

A. The board of directors unanimously recommends that you vote “FOR” the proposal to approve the merger agreement. You should read “The Merger — Reasons for the Merger; Recommendation of the Board of Directors” beginning on page [                    ] for a discussion of the material factors that our board of directors considered in deciding to recommend approval of the merger agreement to our shareholders. Our board of directors also unanimously recommends that our shareholders vote “FOR” the proposal to adjourn or postpone the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement and “FOR” the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements.

 

12


Table of Contents
Q. When do you expect the merger to be completed?

 

A. Subject to the satisfaction or waiver of the conditions precedent contained in the merger agreement and compliance with the applicable requirements of the California General Corporation Law (including our shareholders’ approval of the merger agreement), the merger will be completed when the certificate of merger is filed with the California Secretary of State. We expect that the filing of the certificate of merger and completion of the merger will take place in the first quarter of 2012.

 

Q. What happens if the merger is not completed?

 

A. If the shareholders of the Company do not approve the merger agreement, or if the merger is not completed for any other reason, the shareholders of the Company will not receive any payment for their shares of common stock in connection with the proposed merger. Instead, the Company will remain an independent public company and the Company’s common stock will continue to be listed and traded on Nasdaq. Under specified circumstances, the Company may be required to pay to or receive from Parent a fee with respect to the termination of the merger agreement as described under “The Merger Agreement — Termination Fees and Expenses” beginning on page [                    ].

 

Q. Is the merger expected to be taxable to me?

 

A. Yes. The exchange of shares of the Company’s common stock for cash pursuant to the merger generally will be a taxable transaction to U.S. holders for U.S. federal income tax purposes. If you are a U.S. holder and you exchange your shares of the Company’s common stock in the merger, you will generally recognize gain or loss in an amount equal to the difference, if any, between the cash payments made pursuant to the merger and your adjusted tax basis in your shares of the Company’s common stock. Backup withholding may also apply to the cash payments made pursuant to the merger unless the U.S. holder or other payee provides a taxpayer identification number, certifies that such number is correct and otherwise complies with the backup withholding rules. See “The Merger — Material United States Federal Income Tax Consequences of the Merger” for more information. You should also consult your tax advisor for a complete analysis of the effect of the merger on your federal, state and local and/or foreign taxes.

 

Q. Do any of the Company’s directors or executive officers have interests in the merger that may differ from or be in addition to my interests as a shareholder?

 

A. Yes. In considering the recommendation of the board of directors with respect to the merger agreement, you should be aware that the Company’s directors and executive officers may have interests in the merger that are different from, or in addition to, the interests of our shareholders generally. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the principal terms of the merger agreement and in recommending that the merger agreement be approved by the shareholders of the Company. See “The Merger — Interests of Our Directors and Executive Officers” beginning on page [                    ].

 

Q. Why am I receiving this proxy statement and proxy card or voting instruction form?

 

A. You are receiving this proxy statement and proxy card or voting instruction form because you own shares of the Company’s common stock. This proxy statement describes matters on which we urge you to vote and is intended to assist you in deciding how to vote your shares of common stock with respect to such matters.

 

Q. When and where is the special meeting?

 

A. The special meeting of shareholders of the Company will be held on [                    ], 2012 at [                    ] Eastern time at the Company’s offices located at 5200 Paramount Parkway, Morrisville, North Carolina 27560.

 

13


Table of Contents
Q. What am I being asked to vote on at the special meeting?

 

A. You are being asked to consider and vote on a proposal to approve the merger agreement that provides for the acquisition of the Company by Parent, to approve the adjournment or postponement of the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the foregoing proposal and to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements.

 

Q. What vote is required for the Company’s shareholders to approve the merger agreement?

 

A. Approval of the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote thereon.

Because the affirmative vote required to approve the merger agreement is based upon the total number of outstanding shares of the Company’s common stock, if you fail to submit a proxy or vote in person at the special meeting, or abstain, or you do not provide your broker with instructions to vote, this will have the same effect as a vote “AGAINST” the proposal to approve the merger agreement.

 

Q. What vote of our shareholders is required to approve the proposal to adjourn or postpone the special meeting, if necessary or appropriate?

 

A. Approval of the proposal to adjourn or postpone the special meeting, if necessary or appropriate, requires the affirmative vote of the holders of a majority of (i) the shares of the Company’s common stock present in person or represented by proxy and entitled to vote on the matter at the meeting, and (ii) the quorum required to transact business at the meeting.

 

Q. What vote of our shareholders is required to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements?

 

A. Approval of the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements requires the affirmative vote of the holders of a majority of (i) the votes cast at the meeting with respect to such proposal, and (ii) the quorum required to transact business at the meeting.

 

Q. Why am I being asked to approve certain merger-related executive compensation arrangements on a non-binding, advisory basis?

 

A. The SEC recently approved new rules that require us to seek a vote, on a non-binding, advisory basis, with respect to certain merger-related executive compensation arrangements, or “golden parachute” compensation that will be paid or may become payable to the Company’s named executive officers.

 

Q. What will happen if shareholders do not approve the “golden parachute” compensation at the special meeting?

 

A. Approval of “golden parachute” compensation that the Company’s named executive officers will or may receive in connection with the merger is not a condition to completion of the merger. The vote with respect to “golden parachute” compensation is on an advisory basis and will not be binding on the Company. Therefore, regardless of whether shareholders approve the “golden parachute” compensation, if the merger agreement is approved by the shareholders and the merger is completed, the “golden parachute” compensation will be paid or may become payable to the Company named executive officers to the extent provided in the merger agreement and in our officer severance plans.

 

Q. Who can vote at the special meeting?

 

A.

All holders of record of our common stock as of the close of business on [            ], 2011, the record date for the special meeting, are entitled to receive notice of, and to vote at, the special meeting. Each holder of our

 

14


Table of Contents
  common stock is entitled to cast one vote on each matter properly brought before the special meeting for each share of common stock that such holder owned as of the record date.

 

Q. What is a quorum?

 

A. A majority of the shares of common stock outstanding at the close of business on the record date and entitled to vote, present in person or represented by proxy, at the special meeting constitutes a quorum for the purposes of the special meeting. Abstentions and broker non-votes are counted as present for the purpose of determining whether a quorum is present.

 

Q. How do I vote?

 

A. If you are a shareholder of record, you may have your shares of common stock voted on matters presented at the special meeting in any of the following ways:

in person — you may attend the special meeting and cast your vote there; or

by proxy — shareholders of record have a choice of voting by proxy:

 

   

over the Internet — the website for Internet voting is on your proxy card;

 

   

by using the toll-free telephone number noted on your proxy card; or

 

   

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

If you are a beneficial owner, please refer to the instructions provided by your bank, brokerage firm or other nominee to see which of the above choices are available to you. Please note that if you are a beneficial owner and wish to vote in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee.

A control number, located on your proxy card, is designed to verify your identity and to allow you to vote your shares of common stock, and to confirm that your voting instructions have been properly recorded when voting over the Internet or by telephone. Please be aware that if you vote over the Internet, you may incur costs such as telephone and Internet access charges for which you will be responsible.

 

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

 

A. If your shares of common stock are registered directly in your name with our transfer agent, Computershare Investor Services, you are considered, with respect to those shares of common stock, the “shareholder of record.” This proxy statement, and your proxy card, have been sent directly to you by the Company.

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

 

Q. If my shares of common stock are held in “street name” by my bank, brokerage firm or other nominee, will my bank, brokerage firm or other nominee vote my shares of common stock for me?

 

A.

Your bank, brokerage firm or other nominee will only be permitted to vote your shares of common stock of the Company if you instruct your bank, brokerage firm or other nominee how to vote. You should follow the procedures provided by your bank, brokerage firm or other nominee regarding the voting of your shares of

 

15


Table of Contents
  common stock. If you do not instruct your bank, brokerage firm or other nominee to vote your shares of common stock, your shares of common stock will not be voted and the effect will be the same as a vote “AGAINST” the proposal to approve the merger agreement, and your shares of common stock may have an effect on the non-binding, advisory vote regarding certain merger-related executive compensation arrangements.

 

Q. How can I change or revoke my vote?

 

A. You have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is exercised, by voting again at a later date through any of the methods available to you, by giving written notice of revocation to our Corporate Secretary, which must be filed with our Corporate Secretary by the time the special meeting begins, or by attending the special meeting and voting in person.

 

Q. What is a proxy?

 

A. A proxy is your legal designation of another person, referred to as a “proxy,” to vote your shares of stock. The written document describing the matters to be considered and voted on at the special meeting is called a “proxy statement.” The document used to designate a proxy to vote your shares of stock is called a “proxy card.” Our board of directors has designated Ronald L. de Lange and Gregory S. Rush, with full power of substitution, as proxies for the special meeting.

 

Q. If a shareholder gives a proxy, how are the shares of common stock voted?

 

A. Regardless of the method you choose to vote, the individuals named on the enclosed proxy card, or your proxies, will vote your shares of common stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of common stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

If you properly sign your proxy card but do not mark the boxes showing how your shares should be voted on a matter, the shares represented by your properly signed proxy will be voted “FOR” the proposal to approve the merger agreement, “FOR” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, and “FOR” the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements.

 

Q. How are votes counted?

 

A. For the proposal to approve the merger agreement and the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Abstentions and broker non-votes will have the same effect as votes “AGAINST” the proposal to approve the merger agreement and may also have the same effect as votes “AGAINST” the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements if the number of affirmative votes is a majority of the votes cast but does not constitute a majority of the quorum required to transact business at the meeting.

For the proposal to adjourn or postpone the special meeting, if necessary or appropriate, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Abstentions will have the same effect as if you voted “AGAINST” the proposal to adjourn or postpone the special meeting, if necessary or appropriate, but broker non-votes will not have an effect on the proposal.

 

Q. Who will solicit and pay the cost of soliciting proxies for the special meeting?

 

A.

The cost of soliciting proxies, including expenses incurred in connection with preparing and mailing this proxy statement, pursuant to the merger agreement will be borne by the Company. The Company has engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies for the special meeting. The

 

16


Table of Contents
  Company estimates that it will pay MacKenzie Partners, Inc. a fee of approximately $15,000. The Company will reimburse MacKenzie Partners, Inc. for reasonable out-of-pocket expenses and will indemnify MacKenzie Partners, Inc. and its affiliates against certain claims, liabilities, losses, damages and expenses. The Company may also reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares of common stock for their expenses in forwarding soliciting materials to beneficial owners of our common stock and in obtaining voting instructions from those owners. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person. They will not be paid any additional amounts for soliciting proxies.

 

Q. What do I do if I receive more than one proxy or set of voting instructions?

 

A. If you hold shares of common stock in “street name” and also directly as a record holder or otherwise, you may receive more than one proxy and/or set of voting instructions relating to the special meeting. These should each be voted and/or returned separately in accordance with the instructions provided in this proxy statement in order to ensure that all of your shares of common stock are voted.

 

Q. What happens if I sell my shares of common stock before the special meeting?

 

A. The record date for shareholders entitled to vote at the special meeting is earlier than both the date of the special meeting and the consummation of the merger. If you transfer your shares of common stock after the record date but before the special meeting you will, unless special arrangements are made, retain your right to vote at the special meeting but will transfer the right to receive the merger consideration to the person to whom you transfer your shares.

 

Q. What do I need to do now?

 

A. Even if you plan to attend the special meeting, after carefully reading and considering the information contained in this proxy statement, please vote promptly to ensure that your shares are represented at the special meeting. If you hold your shares of common stock in your own name as the shareholder of record, please vote your shares of common stock by completing, signing, dating and returning the enclosed proxy card in the accompanying prepaid reply envelope; using the telephone number printed on your proxy card; or using the Internet voting instructions printed on your proxy card. If you decide to attend the special meeting and vote in person, your vote by ballot will revoke any proxy previously submitted. If you are a beneficial owner, please refer to the instructions provided by your bank, brokerage firm or other nominee to see which of the above choices are available to you.

 

Q. Should I send in my stock certificates now?

 

A. No. You will be sent a letter of transmittal after the completion of the merger, describing how you may exchange your shares of common stock for the merger consideration. If your shares are held in “street name” by your bank, brokerage firm or other nominee, you will receive instructions from your bank, brokerage firm or other nominee as to how to effect the surrender of your “street name” shares of common stock in exchange for the merger consideration. Please do NOT return your stock certificate(s) with your proxy.

 

Q. Am I entitled to exercise dissenting shareholder rights under the California General Corporation Law instead of receiving the merger consideration for my shares of common stock?

 

A.

Yes. As a holder of common stock, you are entitled to dissenting shareholder rights under the California General Corporation Law in connection with the merger if you take certain actions and meet certain conditions and if shareholders holding in the aggregate at least five percent of the Company’s outstanding shares of common stock properly exercise their dissenting shareholder rights under Chapter 13 of the

 

17


Table of Contents
  California General Corporation Law. See “Rights of Dissenting Shareholders” beginning on page [                    ]. If you desire to exercise dissenting shareholder rights and receive cash in the amount of the fair market value of your shares of common stock instead of the merger consideration, your shares cannot be voted “FOR” the proposal to approve the merger agreement. If you return a signed proxy without voting instructions or with instructions to vote “FOR” the proposal to approve the merger agreement, your shares will be voted in favor of the merger agreement and you will lose your dissenting shareholder rights.

 

Q. Who can help answer my other questions?

 

A. If you have additional questions about the merger, need assistance in submitting your proxy or voting your shares of common stock, or need additional copies of the proxy statement or the enclosed proxy card, please call MacKenzie Partners, Inc., which is assisting us in the solicitation of proxies, toll-free at (800) 322-2885 or collect at (212) 929-5500.

 

Q. How do our directors and executive officers intend to vote?

 

A. As of the record date, our directors and executive officers beneficially held and are entitled to vote, in the aggregate, [            ] shares of our common stock, representing [                    ]% of our outstanding shares, excluding options to purchase shares of our common stock, share appreciation rights and restricted stock units. Our directors and executive officers have informed us that they currently intend to vote all of their shares of common stock beneficially owned as of the record date “FOR” the proposal to approve the merger agreement, “FOR” the proposal to adjourn or postpone the special meeting to a later date, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement and “FOR” the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements.

 

Q. I do not know where my stock certificate is. How will I get my cash?

 

A. The materials the paying agent will send you after completion of the merger will include the procedures that you must follow if you cannot locate your stock certificate. These materials will include an affidavit that you will need to sign attesting to the loss of your certificate. You may also be required to provide a bond to us in order to cover any potential loss.

 

18


Table of Contents

Cautionary Statement Concerning Forward-Looking Information

This proxy statement, and the documents to which we refer you in this proxy statement, as well as information included in oral statements or other written instruments made or to be made by us, contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. You can generally identify forward-looking statements by the appearance in such a statement of words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “foresee,” “likely,” “future,” “will” and similar expressions, which appear in a number of places in this proxy statement (and the documents to which we refer you in this proxy statement) and include, but are not limited to, all statements relating directly or indirectly to the timing or likelihood of completing the merger to which this proxy statement relates, plans for future growth and other business development activities as well as capital expenditures, financing sources and the effects of regulation and competition and all other statements regarding our intent, plans, beliefs or expectations or those of our directors or officers. Investors are cautioned that such forward-looking statements are not assurances for future performance or events and involve risks and uncertainties that could cause actual results and developments to differ materially from those covered in such forward-looking statements. These risks and uncertainties include, but are not limited to, the risks detailed in our filings with the SEC, including our most recent filings on Forms 10-Q and 10-K, facts and matters contained in this document, and the following factors:

 

   

the current market price of our common stock may reflect a market assumption that the merger will occur, and a failure to complete the merger could result in a decline in the market price of our common stock;

 

   

the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, including termination under circumstances that could require us to pay a termination fee;

 

   

the inability to consummate the merger due to the failure to obtain shareholder approval for the merger or the failure to satisfy other conditions to consummate the merger, including obtaining required regulatory approvals;

 

   

the failure of the merger to close for any other reason;

 

   

our remedies against Parent with respect to certain breaches of the merger agreement may not be adequate to cover our damages;

 

   

the failure to obtain the necessary equity and debt financing set forth in financing commitments received in connection with the merger or the failure of that financing to be sufficient to complete the merger and the transactions contemplated thereby;

 

   

risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the announced merger;

 

   

the potential inability to respond effectively to competitive pressures, industry developments and future opportunities due to restrictions imposed in the merger agreement;

 

   

the effect of the announcement of the merger on our business relationships, operating results and business generally;

 

   

the amount of the costs, fees, expenses and charges related to the merger, whether or not the merger is completed;

 

   

the outcome of legal proceedings that have been and may be initiated against us and/or others related to the merger; and

 

   

the matters discussed under “The Merger — Reasons for the Merger; Recommendations of the Board of Directors” beginning on page [                    ].

Consequently, all of the forward-looking statements we make in this document are qualified by the information contained herein, including, but not limited to (a) the information contained under this heading and

 

19


Table of Contents

(b) the information contained under the headings “Risk Factors” and “Business” and information in our consolidated financial statements and notes thereto included in our most recent filings on Forms 10-Q and 10-K (see “Where You Can Find More Information” beginning on page [                    ]).

Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof and are not guarantees of performance or results. There can be no assurance that forward-looking statements will prove to be accurate. Shareholders should also understand that it is not possible to predict or identify all risk factors and that neither this list nor the factors identified in our SEC filings should be considered a complete statement of all potential risks and uncertainties. We undertake no obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date hereof except as required by law.

PARTIES TO THE MERGER

The Company

Tekelec

5200 Paramount Parkway

Morrisville, North Carolina 27560

(919) 460-5500

The Company is a California corporation with its headquarters in Morrisville, North Carolina. We are a leading global provider of core network solutions. See also “Where You Can Find More Information” beginning on page [            ]. Company common stock is publicly traded on Nasdaq under the symbol “TKLC.”

Parent

Titan Private Holdings I, LLC

540 Madison Avenue, 9th Floor

New York, New York 10022

(212) 231-0095

Parent is a Delaware limited liability company that was formed by Siris Capital Group, LLC solely for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement and related financing transactions. Siris is a private equity firm focused on the technology, telecommunications and healthcare industries. Following consummation of the merger, Holdings will own all of our outstanding shares of common stock and we will be an indirect wholly-owned subsidiary of Parent.

Merger Subsidiary

Titan Private Acquisition Corp.

540 Madison Avenue, 9th Floor

New York, New York 10022

(212) 231-0095

Merger Subsidiary is a California corporation that was formed by Holdings solely for the purpose of entering into the merger agreement and completing the transactions contemplated by the merger agreement and the related financing transactions. Merger Subsidiary is a direct wholly-owned subsidiary of Holdings and an indirect wholly-owned subsidiary of Parent and has not engaged in any business except for activities incidental to its formation and as contemplated by the merger agreement and the related financing transactions. Upon completion of the merger, Merger Subsidiary will cease to exist, and the Company will continue as the surviving corporation.

 

20


Table of Contents

THE SPECIAL MEETING

Date, Time and Place

The special meeting will be held at [            ] Eastern time, on [            ], 2012 at the 5200 Paramount Parkway, Morrisville, North Carolina 27560. We are sending this proxy statement to you in connection with the solicitation of proxies for use at the special meeting and any adjournments or postponements of the special meeting.

Purpose

At the special meeting, shareholders will be asked to consider and vote upon proposals to:

 

   

approve the merger agreement;

 

   

adjourn or postpone the special meeting to a later date, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the foregoing proposal;

 

   

approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements; and

 

   

transact such other business as may properly come before the special meeting or any adjournment or postponement of the special meeting.

Our shareholders must approve the proposal to approve the merger agreement in order for the merger to occur. If our shareholders fail to approve the proposal to approve the merger agreement, the merger will not occur. A copy of the merger agreement is attached as Annex A to this proxy statement, which we encourage you to read carefully in its entirety.

Our Board Recommendation

The board of directors has unanimously determined that the merger agreement is advisable, fair to and in the best interests of us and our shareholders and has unanimously approved the merger, the merger agreement and the transactions contemplated thereby. The board of directors unanimously recommends that you vote “FOR” approval of the merger agreement, “FOR” the adjournment or postponement of the special meeting to a later date, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement and “FOR” approval, on a non-binding, advisory basis, of the proposal relating to certain merger-related executive compensation arrangements.

Record Date, Outstanding Shares and Quorum

We have fixed the close of business on [            ], 2011 as the record date for the special meeting, and only holders of record of Company common stock on the record date will be entitled to vote at the special meeting or any adjournment or postponement of the special meeting. You are entitled to receive notice of, and to vote at, the special meeting if you owned shares of Company common stock at the close of business on the record date. On the record date, there were [            ] shares of Company common stock outstanding and entitled to vote. Each share of Company common stock entitles its holder to one vote on all matters properly presented at the special meeting. Votes may be cast at the special meeting in person or represented by proxy.

A majority of the shares of Company common stock outstanding at the close of business on the record date and entitled to vote, present in person or represented by proxy, at the special meeting constitutes a quorum for the purposes of the special meeting. Shares of Company common stock present or represented at the special meeting but not voted, including shares of Company common stock for which a shareholder directs an “abstention” from

 

21


Table of Contents

voting, as well as broker non-votes, will be counted for purposes of establishing a quorum. A quorum is necessary to transact business at the special meeting. Once a share of Company common stock is present or represented at the special meeting, it will be counted for the purpose of determining a quorum at the special meeting and at any adjourned or postponed special meeting. However, if a new record date is set for the adjourned or postponed special meeting, then a new quorum will have to be established. In the event that a quorum is not present or represented at the special meeting, it is expected that the special meeting will be adjourned or postponed.

Attendance

Only shareholders of record or their duly authorized proxies have the right to attend the special meeting. To gain admittance, you must present valid photo identification, such as a driver’s license or passport. If your shares of Company common stock are held through a bank, brokerage firm or other nominee, please bring to the special meeting a copy of your brokerage statement evidencing your beneficial ownership of Company common stock and valid photo identification. If you are the representative of a corporate or institutional shareholder, you must present valid photo identification along with proof that you are the representative of such shareholder. Please note that cameras, recording devices and other electronic devices will not be permitted at the special meeting.

Vote Required

The merger cannot be completed unless the merger agreement is approved by the affirmative vote of a majority of the outstanding shares of our common stock. For the proposal to approve the merger agreement, you may vote “FOR,” “AGAINST” or “ABSTAIN.” Abstentions will not be counted as votes cast in favor of the proposal to approve the merger agreement, but will count for the purpose of determining whether a quorum is present. If you fail to submit a proxy or to vote in person at the special meeting, or abstain, it will have the same effect as a vote “AGAINST” the proposal to approve the merger agreement.

Banks, brokerage firms or other nominees who hold shares in street name for customers have the authority to vote on “routine” proposals when they have not received instructions from beneficial owners. However, banks, brokerage firms or other nominees are precluded from exercising their voting discretion with respect to approving non-routine matters, such as the proposal to approve the merger agreement, and, as a result, absent specific instructions from the beneficial owner of such shares of Company common stock, banks, brokerage firms or other nominees are not empowered to vote those shares of Company common stock on such non-routine matters. These broker non-votes will be counted for purposes of determining a quorum but will have the same effect as a vote “AGAINST” the proposal to approve the merger agreement.

Approval of the adjournment or postponement of the meeting to a later date, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement requires the affirmative vote of the holders of a majority of the shares of our common stock present, in person or represented by proxy, and entitled to vote at the special meeting on that matter, even if less than a quorum. For the proposal to adjourn or postpone the special meeting, you may vote “FOR,” “AGAINST” or “ABSTAIN.”

For purposes of this proposal, if your shares of Company common stock are present at the special meeting but are not voted on this proposal, or if you have given a proxy and abstained on this proposal, this will have the same effect as if you voted “AGAINST” the proposal. If you fail to submit a proxy and you are not present to vote in person at the special meeting, or if there are broker non-votes on the issue, as applicable, your shares of Company common stock not voted will not be counted in respect of, and will not have an effect on, the proposal to adjourn or postpone the special meeting.

The proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements requires the affirmative vote of a majority of (i) the votes cast at the meeting with respect to such proposal and (ii) the number of shares of Company common stock representing the quorum required to transact

 

22


Table of Contents

business at the meeting. For the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements, you may vote “FOR,” “AGAINST “or “ABSTAIN.” For purposes of this proposal, abstentions and broker non-votes will not be counted in respect of, and will not have an effect on, the proposal unless the number of affirmative votes is a majority of the votes cast but does not constitute a majority of the required quorum, in which case abstentions and broker non-votes will have the effect of “AGAINST” votes.

If you are a shareholder of record, in order to vote, you should simply indicate on your proxy card how you want to vote and sign and mail your proxy card in the enclosed prepaid return envelope as soon as possible so that your shares will be represented at the special meeting. You may also vote your shares by telephone or Internet using the instructions on your proxy card. If you receive more than one proxy card, it means that you have multiple accounts at the transfer agent and/or with brokers, banks or other nominees. Please sign and return all the proxy cards you have received to ensure that all your shares are voted.

If you are a beneficial owner, you will receive instructions from your bank, brokerage firm or other nominee that you must follow in order to have your shares of Company common stock voted. Those instructions will identify which of the above choices are available to you in order to have your shares voted. Please note that if you are a beneficial owner and wish to vote in person at the special meeting, you must provide a legal proxy from your bank, brokerage firm or other nominee.

Please refer to the instructions on your proxy or voting instruction card to determine the deadlines for voting over the Internet or by telephone. If you choose to vote by mailing a proxy card, your proxy card must be filed with our Corporate Secretary by the time the special meeting begins. Please do not return your stock certificates with your proxy card. When the merger is completed, a separate letter of transmittal will be mailed to you that will enable you to receive the per share merger consideration in exchange for your stock certificates.

If you vote by proxy, regardless of the method you choose to vote, the individuals named on the enclosed proxy card, and each of them, with full power of substitution, as your proxies, will vote your shares of Company common stock in the way that you indicate. When completing the Internet or telephone processes or the proxy card, you may specify whether your shares of Company common stock should be voted for or against or to abstain from voting on all, some or none of the specific items of business to come before the special meeting.

If you have any questions or need assistance voting your shares, please call MacKenzie Partners, Inc., which is assisting us in the solicitation of proxies, toll-free at (800) 322-2885 or collect at (212) 929-5500.

It is important that you vote your shares of Company common stock promptly. Whether or not you plan to attend the special meeting, please complete, date, sign and return, as promptly as possible, the enclosed proxy card in the accompanying prepaid reply envelope, or submit your proxy by telephone or the Internet. Shareholders who attend the special meeting may revoke their proxies by voting in person.

As of [            ], 2011, the record date, our directors and executive officers beneficially owned and were entitled to vote, in the aggregate, [            ] shares of Company common stock (excluding any shares of Company common stock deliverable upon exercise of any options or share appreciation rights or upon vesting of restricted stock units), representing [            ]% of our outstanding shares on the record date. Our directors and executive officers have informed us that they currently intend to vote all of their shares of our common stock beneficially owned by them “FOR” the proposal to approve the merger agreement, “FOR” the proposal to adjourn or postpone the special meeting to a later date, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement and “FOR” the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements.

 

23


Table of Contents

Voting of Proxies

Shares of our common stock represented by duly executed and unrevoked proxies in the form of the enclosed proxy card received by our Corporate Secretary will be voted at the special meeting in accordance with specifications made therein by the shareholders, unless authority to do so is withheld. If no specification is made, shares represented by duly executed and unrevoked proxies in the form of the enclosed proxy card will be voted “FOR” the proposal to approve the merger agreement, “FOR” the proposal to adjourn or postpone the special meeting to a later date, if necessary or appropriate, for the purpose of soliciting additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement and “FOR” the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements.

If your shares of Company common stock are held in “street name” by your bank, brokerage firm or other nominee, you should instruct your bank, brokerage firm or other nominee on how to vote your shares of Company common stock using the instructions provided by your bank, brokerage firm or other nominee. If you fail to submit a proxy or vote in person at the special meeting, or abstain, or do not provide your bank, brokerage firm or other nominee with voting instructions, as applicable, your shares of Company common stock will not be voted on the proposal to approve the merger agreement, which will have the same effect as a vote “AGAINST” the proposal to approve the merger agreement.

The board of directors does not know of any matters other than those described in the notice of the special meeting that are expected to come before the special meeting. However, if any other matters are properly presented at the special meeting for consideration, the persons named in the proxy card and acting thereunder generally will have discretion to vote on such matters in accordance with their best judgment unless authority is specifically withheld.

Revocation of Proxies

Any holder of shares of our common stock giving a proxy with respect to such shares may revoke it at any time prior to its exercise at the special meeting by sending us a written notice of such revocation or completing and submitting a new proxy card bearing a later date to our Corporate Secretary at our executive offices, or attending the special meeting and voting in person. You may also submit a later-dated proxy using the telephone or Internet voting procedures on the proxy card so long as you do so before the deadline of 11:59 p.m. Eastern time, on [            ], 2011. Attendance at the special meeting will not, by itself, constitute revocation of a proxy. If your shares are held in “street name” and you have instructed a broker to vote your shares, you must follow directions received from your broker to change your vote or to vote at the special meeting.

Solicitation of Proxies and Expenses

The cost of soliciting proxies, including expenses incurred in connection with preparing and mailing this proxy statement, pursuant to the merger agreement will be borne by the Company. The Company has engaged MacKenzie Partners, Inc. to assist in the solicitation of proxies for the special meeting. The Company estimates that it will pay MacKenzie Partners, Inc. a fee of approximately $15,000. The Company will reimburse MacKenzie Partners, Inc. for reasonable out-of-pocket expenses and will indemnify MacKenzie Partners, Inc. and its affiliates against certain claims, liabilities, losses, damages and expenses. The Company may also reimburse brokers, banks and other custodians, nominees and fiduciaries representing beneficial owners of shares of Company common stock for their expenses in forwarding soliciting materials to beneficial owners of Company common stock and in obtaining voting instructions from those owners. Our directors, officers and employees may also solicit proxies by telephone, by facsimile, by mail, on the Internet or in person, but they will not be paid any additional amounts for soliciting proxies.

Adjournment or Postponement of the Special Meeting

Although it is not currently expected, the special meeting may be adjourned or postponed, including for the purpose of soliciting additional proxies, if there are insufficient votes at the time of the special meeting to

 

24


Table of Contents

approve the proposal to approve the merger agreement or if a quorum is not present at the special meeting. Other than an announcement to be made at the special meeting of the time, date and place of an adjourned or postponed meeting, an adjournment or postponement generally may be made without notice. Any adjournment or postponement of the special meeting for the purpose of soliciting additional proxies will allow the Company’s shareholders who have already sent in their proxies to revoke them at any time prior to their use at the special meeting as adjourned or postponed.

Questions and Additional Information

If you have more questions about the merger or how to submit your proxy, or if you need additional copies of this proxy statement or the enclosed proxy card or voting instructions, please call MacKenzie Partners, Inc., which is assisting us in the solicitation of proxies, toll-free at 1-800-322-2885 or collect at (212) 929-5500.

 

25


Table of Contents

THE MERGER

This discussion of the merger is qualified in its entirety by reference to the merger agreement, which is attached to this proxy statement as Annex A. You should read the entire merger agreement carefully because it is the legal document that governs the merger.

The merger agreement provides that Merger Subsidiary will merge with and into the Company. The Company will be the surviving corporation in the merger and will continue to do business following the merger. As a result of the merger, the Company will cease to be a publicly traded company. You will not own any shares of the capital stock of the surviving corporation.

Background of the Merger

The Company’s board of directors regularly discusses and reviews possible strategic directions for the Company in light of its financial performance, developments in the industry and the competitive markets in which the Company operates and considers opportunities to maximize value for the Company’s shareholders. As part of this process, from time to time, the Company’s board of directors, in consultation with the Company’s management and outside legal and financial advisors, has evaluated and pursued a number of opportunities to expand and diversify the Company’s business and strategic alternatives.

In early December 2010, S.A.C. Private Capital Group, LLC (“SAC PCG”), a private equity fund that was managed by founders of Siris and which owns a controlling interest in Airvana Network Solutions (“ANS”), approached the Company regarding a potential transaction with the Company. On December 10, 2010, SAC PCG wrote the Company a letter to express an interest in discussing a possible all cash acquisition of the Company at a price ranging from $14.50 to $16.50 per share. At this time, SAC PCG’s expression of interest was based solely on publicly available information (including analysts’ estimates), as the Company had made no public statements regarding its forecasted operating results for 2011 or beyond. Analysts’ estimates, which were not based on any guidance from the Company, forecasted the Company’s 2011 revenue to range between $430 million and $480 million and the Company’s 2011 non-GAAP net income per share to range between $0.60 and $0.90 per share. The closing sales price of the Company’s common stock on December 10, 2010 was $11.72 per share.

On December 15, 2010, the corporate development committee of the Company’s board of directors consisting of Messrs. Krish Prabhu, Michael Ressner, Ron Buckly and Hubert de Pesquidoux met to discuss the letter from SAC PCG. At the meeting, Mr. Stuart Kupinsky reviewed with the committee the fiduciary duties of the Company’s officers and directors. At the meeting the committee advised management that the Company was not for sale or pursuing a sales process. Following the meeting, the Company’s management communicated this to SAC PCG.

In February 2011, a financial prospective buyer (“Party A”) approached the Company regarding a potential transaction with the Company. Party A and members of the Company’s management, including Messrs. Greg Rush, Krish Prabhu, and Kupinsky, met to discuss a potential transaction. In late February 2011, Party A notified the Company that it was not interested in pursuing a transaction with the Company.

On February 10, 2011, the Company announced full year guidance for 2011. This guidance included a revenue range of $360 million to $400 million and a non-GAAP net income range of approximately $0.20 to $0.30 per share. The closing sales price of the Company’s common stock on February 10, 2011 was $8.36 per share. The Company’s non-GAAP net income guidance excluded stock-based compensation, amortization of intangible assets, and restructuring charges associated with the resignation of the former chief executive officer. Full year GAAP net income guidance was in the range of ($0.25) to ($0.15) per share.

In February 2011, SAC PCG again contacted the Company expressing its interest in discussing a possible transaction between the two companies. On March 1, 2011, SAC PCG (on behalf of itself and ANS) wrote the

 

26


Table of Contents

Company another letter continuing to express an interest in discussing a possible all cash acquisition of the Company, but lowering its price range to $11.00 to $14.00 per share based in part on the Company’s full year guidance for 2011.

Also in March 2011, a potential strategic buyer of the Company (“Party B”) contacted members of management of the Company regarding a possible acquisition of the Company.

On March 31, 2011, the Company’s board of directors met to review and consider various strategic alternatives for the Company. Among other things, the Company’s board of directors assessed the Company’s industry and business environment generally, reviewed the Company’s recent stock price performance and considered the Company’s business prospects, and its financial metrics relative to other companies within the Company’s industry. The Company’s board of directors discussed in detail the expression of interest received from SAC PCG and Party B.

In April 2011, on two occasions, representatives of Party B met with certain members of management of the Company, including Messrs. Rush, Prabhu, Kupinsky and Jeffrey Key, vice president of corporate development for the Company, to discuss possible synergies between the companies in the event of an acquisition of the Company by Party B. On April 14, 2011, the Company entered into a nondisclosure agreement with Party B providing for the limited exchange of information between the parties. On April 22, 2011, the Company’s board of directors held a telephonic meeting and discussed the recent expression of interest by Party B.

On May 19, 2011, the Company entered into a nondisclosure agreement with Siris providing for the limited exchange of information between the parties. At this time, the Company provided Siris and Party B with the Company’s preliminary financial forecast for 2011, 2012 and 2013. In late May, SAC PCG and ANS notified the Company that they were no longer interested in pursuing a transaction with the Company.

On May 13, 2011, the Company’s board of directors met and reviewed the pending discussions with interested parties and the process by which inquiries from such parties should be considered, including how they should be communicated to the Company’s board of directors.

On May 19, 2011, Party B submitted to the Company a written initial indication of interest of a possible all cash acquisition of the Company at a price of $10.75 per share. The closing sales price of the Company’s common stock on May 19, 2011 was $8.59 per share.

On June 2, 2011, Siris submitted to the Company an indication of interest of a possible all cash acquisition of the Company at a price of $12.00 per share. This indication of interest was based on the preliminary financial forecast provided on May 19, 2011, which was subsequently revised downward by management on June 13, 2011. The closing sales price of the Company’s common stock on June 2, 2011 was $8.76 per share.

On May 22, 2011 and June 13, 2011, the Company’s board of directors met and discussed the indications of interest and discussions with Siris and Party B. At the June 13th board meeting the Company’s board of directors also reviewed an updated forecast of the Company’s operating results for 2011, 2012 and 2013. Following the meeting, management of the Company provided these updated forecasts to Siris and Party B.

On July 8, 2011, the Company’s board of directors met and reviewed the latest discussions with Siris, Party B, and other prospective strategic buyers. The Company’s board of directors determined that it was in the best interests of the Company’s shareholders to engage an outside financial advisor to assist the Company’s board of directors and management in exploring possible strategic alternatives and authorized management and certain board members to schedule interviews with potential investment bankers.

During the week of July 11, 2011, Messrs. Coleman and de Pesquidoux, members of the Company’s board of directors, and Messrs. Rush, Kupinsky, Key and de Lange interviewed and met with various investment bankers.

 

27


Table of Contents

On July 14, 2011, the Company’s board of directors met and reviewed discussions with Siris and Party B, reviewed the results of interviews with investment bankers, and authorized the retention of Goldman Sachs on behalf of the Company’s board of directors following its review of the results of interviews with investment bankers. The Company’s board of directors selected Goldman Sachs because of its qualifications, expertise and reputation. On July 20, 2011, the Company engaged Goldman Sachs to assist the Company’s board of directors with its exploration of possible strategic alternatives and to begin a process to explore a potential sale of all or a portion of the Company.

On July 29, 2011, Goldman Sachs reviewed with the Company’s board of directors certain key considerations of a potential sale of the Company, including a list of prospective strategic and financial buyers it had identified in consultation with the Company’s management and an illustrative timeline for a potential sale transaction. At the meeting, the general counsel of the Company reviewed with the Company’s board of directors the fiduciary duties of the Company’s directors. The Company’s board of directors considered the merits of each of the prospective buyers, including such party’s financial capacity to consummate a transaction with the Company and strategic considerations related to each of the prospective buyers and the Company. At this meeting, the Company’s board of directors directed Goldman Sachs to contact 18 prospective strategic and financial buyers (including Siris) on a confidential basis to ascertain levels of interest in a potential transaction with the Company. The closing sales price of the Company’s common stock on July 29, 2011 was $7.85 per share.

Following the July 29, 2011 meeting, at the direction of the Company’s board of directors, Goldman Sachs contacted the 18 prospective buyers that the board of directors and Goldman Sachs had identified as potential interested parties. Of the 18 prospective buyers contacted, seven parties indicated that they were not interested in participating in the process. Each of the remaining 11 prospective buyers (including Siris) entered into new nondisclosure agreements, received a summary package of non-public information regarding the Company, which included the Company’s updated forecasts previously provided to Siris and Party B, and were asked to confirm their interest in continuing to pursue a potential acquisition of the Company prior to meeting with management and receiving additional information.

From August 9, 2011 through August 30, 2011, the Company’s management and representatives from Goldman Sachs met with representatives from their identified prospective buyers to provide a detailed overview of the Company’s business. During this period, Party B indicated its decision to withdraw from the process over concerns around value and indicated that if it were to be interested it would be at a share price in the range of $8.00 to $9.00.

On August 12, 2011, the Company’s board of directors held a meeting at which members of management briefed the board on the meetings and interactions with the prospective buyers.

As part of the auction process, during the week of August 22, 2011, each of the 11 prospective buyers (including Siris and Party B) was invited to submit an indication of interest by September 7, 2011. Ahead of the September 7, 2011 indication of interest date, Goldman Sachs received notification from five of the 11 prospective buyers (including Party B) that they were formally withdrawing from the process and would not submit initial indications of interest due principally to concerns around value. Party B indicated its decision to withdraw from the process over concerns around value and indicated that if it were to be interested it would be at a share price in the range of $8.00 to $9.00.

On September 2, 2011, another prospective strategic buyer (“Party C”) contacted the Company expressing an interest in discussing a possible acquisition of the Company.

On or about September 8, 2011, six parties (including Siris) submitted written initial indications of interest with a purchase price per share in the range of $8.00 - $11.00. At the direction of the Company, Goldman Sachs approached Siris and two other bidders to inform them that their respective bids were too low and they would

 

28


Table of Contents

likely not be moving forward to the next round. Subsequent to that discussion, on September 9, 2011, Siris indicated in writing that it may be willing to increase its bid from its original bid of $10.00 by as much as $2.00 if provided additional due diligence. The two other bidders that Goldman Sachs approached submitted revised bids in the range of $11.00 to $11.50 per outstanding share of the Company’s common stock. The closing sales price of the Company’s common stock on September 8, 2011 was $6.49 per share.

On September 12, 2011, the Company’s board of directors held a meeting at which members of management briefed the board on the meetings and interactions with the prospective buyers up to that date. On September 13, 2011, the Company’s board of directors held a meeting at which representatives from Goldman Sachs reviewed with the Company’s board of directors each of the six preliminary indications of interest and provided an update on its preliminary financial analysis of the Company. Representatives from Goldman Sachs reviewed with the Company’s board of directors an illustrative timeline for continuing a potential sale process with the prospective buyers, which included detailed due diligence, solicitations of final offers and negotiation of definitive agreements. At this meeting, the Company’s board of directors determined based on the bids received to allow four prospective buyers (including Siris, the two prospective financial buyers which Goldman Sachs had approached to increase their purchase price, and one prospective strategic buyer (“Party D”)) to proceed onto the next round.

Over the next several weeks, all four of the prospective buyers continued their business, financial and legal due diligence review of the Company. On separate days during the weeks of September 19th, September 26th and October 3rd, each of the four prospective buyers met with members of the Company’s management and Goldman Sachs to review management presentations.

On or about September 19, 2011, a majority-owned portfolio company (“Party E”) of one of the prospective financial buyers that had been a part of the first round of the process but had not been invited to the second round contacted the Company expressing an interest in discussing a possible acquisition of the Company at a price ranging from $11.00 to $13.00 per share. On or about September 19, 2011 the Company entered into a nondisclosure agreement with Party E and shared confidential information with Party E. Goldman Sachs informed Party E that it would need to submit a joint written indication of interest with its financial sponsor parent before the Company’s board of directors would consider including Party E in the next round of the process. On September 29, 2011, Party E communicated via text message to the Company its continued interest in a possible acquisition of the Company at a price ranging from $11.00 to $13.00 per share. Goldman Sachs again requested that Party E submit a joint written indication of interest with its financial sponsor parent reflecting this range. Party E never submitted a joint written indication of interest.

On or about September 30, 2011, the Company entered into a nondisclosure agreement with Party C and shared confidential information of the Company with Party C.

On October 4, 2011, Goldman Sachs, on behalf of the Company’s board of directors, sent a bid process letter to the four remaining prospective buyers (including Siris) requesting the submission of formal bid proposals, including a marked merger agreement, on or before October 21, 2011.

On the evening of October 6, 2011, one of the prospective buyers (“Party F”) told Goldman Sachs that they could not reach the value range of their initial indication of interest. At that time, Party F stated that it was withdrawing from the process to buy all of the Company and submitted instead a proposal to acquire only the global signaling solutions business for an aggregate purchase price in the range of $150 to $200 million.

On October 13, 2011, Party C notified Goldman Sachs that they were going to withdraw from the process and would not be submitting a bid.

On the evening of October 17, 2011, Party D indicated that it would not submit a formal bid proposal and would not pursue an acquisition of the Company due to a combination of lack of internal comfort with the business, timing and value expectations.

 

29


Table of Contents

On October 18, 2011, Goldman Sachs contacted Party D. At that time, Party D reiterated that it would not be submitting a formal bid proposal due to lack of internal comfort with the business, timing and value expectations.

On October 19, 2011, the Company pre-announced its third quarter earnings.

On October 20, 2011, outside legal counsel for Party D contacted outside legal counsel for the Company, and asked whether the Company would consider waiving the standstill provision contained in Party D’s nondisclosure agreement that, among other things, would effectively prevent Party D from presenting a bid after announcement of an agreement with another party to acquire the Company. After consultation with the Company, outside legal counsel for the Company notified outside legal counsel for Party D that the Company was not willing to waive the standstill provision.

On the evening of October 21, 2011, Siris submitted its formal bid package, which included a proposed purchase price of $10.50 per outstanding share of the Company’s common stock, draft financing commitments and a mark-up of the merger agreement. None of the other prospective buyers submitted a formal bid. The closing sales price of the Company’s common stock on October 21, 2011 was $9.15 per share.

On October 22, 2011 and October 23, 2011, Goldman Sachs contacted multiple representatives of Party D and offered Party D the opportunity to still submit a formal bid. At that time, Party D confirmed that it was not interested in pursuing a transaction with the Company on the bases of lack of internal comfort with the business, timing and value expectations.

In a telephonic meeting of the Company’s board of directors held on October 24, 2011, Goldman Sachs reviewed with the Company’s board of directors the sale process to date. Goldman Sachs also presented to the Company’s board of directors its preliminary financial analyses with respect to the bid received from Siris. Bryan Cave LLP (“Bryan Cave”), outside legal counsel to the Company, reviewed the comments to the merger agreement submitted by Siris in its formal bid package. Goldman Sachs, Bryan Cave, and the Company’s management discussed Siris’ ability to finance an acquisition of the Company. The Company’s board of directors directed Goldman Sachs to communicate to Siris that the Company’s board of directors would proceed at a price of $11.00 per share if Siris were to accept certain changes to the merger agreement, including provisions relating to certain closing conditions.

In the afternoon of October 24, 2011, representatives of Goldman Sachs communicated to representatives of Siris that the Company’s board of directors was prepared to proceed at a price of $11.00 per outstanding share of the Company’s common stock if Siris changed its position on a number of items contained in its draft of the merger agreement, including provisions relating to certain closing conditions.

Siris communicated to Goldman Sachs that it would reevaluate its proposed price per share and consider improving its position on several matters in the merger agreement if it were allowed to conduct additional financial due diligence. Over the following two days, Siris conducted additional financial due diligence on the Company.

On October 27, 2011, Siris informed representatives from Goldman Sachs that Siris was willing to purchase 90% of the outstanding shares of the Company’s common stock at a price of $11.00 per share or purchase 100% of the outstanding shares of the Company’s common stock at a price of $10.50 per share.

On the evening of October 27, 2011, Goldman Sachs notified Siris that the Company’s board of directors was not likely to be willing to accept either proposal. Later that evening, Siris informed Goldman Sachs that it was willing to purchase 100% of the Company for a price of $10.75 per share. At that time, Goldman Sachs informed Siris of its belief that the Company’s board of directors would likely not agree to a price of $10.75 per share. Later that evening, Siris contacted Goldman Sachs again and informed Goldman Sachs that Siris was willing to increase its purchase price to $11.00 per outstanding share of the Company’s common stock, but that this price represented Siris’ “best and final” offer. Siris also revised certain aspects of its draft merger agreement.

 

30


Table of Contents

On the evening of October 27, 2011, Goldman Sachs also notified Party D that the Company’s board of directors was negotiating a transaction for the sale of the Company at a purchase price of $11.00 per share. Party D reiterated that it was not interested in purchasing the Company on the bases of lack of internal comfort with the business, timing and value expectations.

In a telephonic meeting of the Company’s board of directors on October 29, 2011, Goldman Sachs updated the Company’s board of directors on the process relating to the sale of the Company that had been undertaken between October 24, 2011 and the current meeting and presented to the Company’s board of directors its preliminary financial analyses of Siris’ $11.00 per share price. Representatives of Bryan Cave reviewed with the Company the terms and conditions of the merger agreement and debt and equity financing commitments obtained by Siris. At this meeting, the Company’s board of directors formed a negotiating committee comprised of Messrs. Ressner, Buckly, and de Pesquidoux, three members of the Company’s board of directors, to negotiate the final terms of the merger agreement. After the meeting, at the direction of the Company’s board of directors, Goldman Sachs informed Siris that the Company would be willing to move forward at a price of $11.00 per share, provided that Siris improved certain terms of the merger agreement.

During the week of October 30th, another prospective buyer (“Party G”) contacted the Company expressing an interest in discussing a possible transaction with the Company. Party G did not execute a nondisclosure agreement with the Company. Thereafter, Party G failed to submit a bid.

On October 30, 2011, Bryan Cave delivered to Simpson Thacher & Bartlett LLP (“STB”), outside legal counsel to Siris, a revised draft of the merger agreement and financing commitments.

On October 31st and November 1st, the Company’s negotiating committee met and discussed the terms of the draft of the merger agreement. From October 30 through November 6, 2011, the Company’s negotiating committee, senior management and legal and financial advisors continued to negotiate with Siris’ senior management and its legal and financial advisors to finalize the proposed transaction, including exchanging several drafts of the merger agreement and financing commitments.

On November 1, 2011, Parent provided three of the Company’s executive officers (one of whom is also a director of the Company) with draft agreements proposed to be entered into between such executive officers, on the one hand, and Parent and Merger Subsidiary, on the other hand, related to the merger, their post-closing employment with the Company and ownership of equity interests in Parent. On two occasions during the period of November 1, 2011 through November 6, 2011, such executive officers and Mr. de Pesquidoux met with Mr. Baker to discuss the executive officers’ post-closing employment with the Company and ownership of equity interests in Parent.

On November 1 and November 5, 2011, Goldman Sachs contacted Party D again, who reiterated that it was still not interested in purchasing the Company due to lack of internal comfort with the business, timing and value expectations.

On November 3, 2011, Party E contacted the Company to determine whether it could reenter the process. The Company directed Party E to call Goldman Sachs. Party E never called Goldman Sachs.

At the direction of the Company’s board of directors, Goldman Sachs called Party E’s financial sponsor parent to inform it of the inquiry from Party E and provide guidance as to the price level where a transaction was likely to occur. Goldman Sachs further required that Party E’s financial sponsor parent submit a joint initial bid with Party E if they were interested in pursuing a transaction. Party E’s financial sponsor parent informed Goldman Sachs that it was unaware of the inquiry from Party E and that such inquiry was not sanctioned by the board of directors of Party E. On November 3, 2011, Party E’s financial sponsor parent informed Goldman Sachs that, after deliberations with Party E, they would not be submitting a formal bid for the Company.

At a board of directors meeting on November 6, 2011, representatives of Bryan Cave reviewed with the members of the Company’s board of directors their fiduciary duties with respect to the proposed transaction.

 

31


Table of Contents

Representatives of Bryan Cave also reviewed the terms of the proposed merger agreement with the Company’s board of directors. Also at this meeting, Goldman Sachs presented to the Company’s board of directors its financial analysis of the per share merger consideration offered by Siris. At the end of its presentation, and at the request of the Company’s board of directors, Goldman Sachs then orally rendered its opinion to the Company’s board of directors (subsequently confirmed in writing) that, as of November 6, 2011, and based upon and subject to the factors and assumptions set forth in the written opinion, the $11.00 per share of the Company’s common stock in cash to be paid to the holders (other than Parent or its affiliates) of the outstanding shares of the Company’s common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders.

After additional discussion and deliberation and considering Goldman Sachs’ financial analysis and opinion and a variety of other factors described below, including regarding whether to sell the Company, the Company’s board of directors unanimously resolved that the merger agreement and the transactions contemplated thereby were advisable and fair to, and in the best interests of, the Company and its shareholders, approved the merger agreement and the transactions contemplated thereby, and recommended that the Company’s shareholders vote to approve the merger agreement and the transactions contemplated thereby.

The merger agreement was executed by the Company, Parent and Merger Subsidiary on November 6, 2011. On the morning of November 7, 2011, prior to the commencement of trading on Nasdaq, the Company issued a press release announcing the signing of the merger agreement.

Reasons for the Merger; Recommendation of the Board of Directors

Our board of directors, at a meeting held on November 6, 2011, unanimously determined that the merger is fair to, and in the best interests of, the Company and its shareholders and approved and declared advisable the merger agreement, the merger and other transactions contemplated by the merger agreement. The board of directors resolved that the merger agreement be submitted for consideration by the shareholders of the Company at a special meeting of the shareholders and recommended that the shareholders of the Company vote to approve the merger agreement. The merger agreement was finalized and executed on behalf of the Company on November 6, 2011. Thereafter, on November 7, 2011, the Company issued a press release announcing the execution of the merger agreement prior to the commencement of trading on Nasdaq.

In evaluating the merger agreement, the merger and the other transactions contemplated by the merger agreement, the board of directors consulted with our senior management team, as well as our independent legal and financial advisors, and considered a number of factors, including the following material factors (not in any relative order of importance):

 

   

the current unstable macro-economic environment, including recent activity related to U.S. governmental debt, unemployment rates, consumer sentiment and Europe’s debt crisis;

 

   

the process leading to the announcement of the merger agreement, including the level of interest of private equity sponsors and other parties in a transaction with the Company and that the sale process conducted by the board of directors, with the assistance of Goldman Sachs, did not result in any definitive proposals to acquire the Company at a price higher than $11.00 per share;

 

   

the fact that the all-cash per share merger consideration will provide our shareholders with immediate fair value, in cash, for their shares of Company common stock, while avoiding long-term business risk and while also providing such shareholders with certainty of value for their shares of Company common stock;

 

   

the fact that the per share merger consideration represents a premium of approximately 11% to the closing sales price of our common stock on November 4, 2011, the last trading day prior to the public announcement of the merger agreement, and a 38% premium over the average closing sales price of the Company’s common stock over the thirty trading days prior to the public announcement of the execution of the merger agreement;

 

32


Table of Contents
   

the belief of the board of directors that the merger is more favorable to the Company’s shareholders than the alternatives to the merger, which belief was formed based on the review of the board of directors, with the assistance of its financial advisors, of the strategic alternatives available to the Company;

 

   

the judgment of the board of directors, after consultation with management and its advisors, that continuing discussions with Parent or any of the other bidders, or soliciting interest from additional third parties, would be unlikely to lead to an equivalent or better offer and could lead to the loss of the proposed offer from Parent;

 

   

the understanding of the board of directors of the business, operations, earnings, financial condition and competitive position of the Company on both a historical and prospective basis and of the prospects and strategic direction of the Company;

 

   

the various background data and analyses thereof reviewed with the board of directors by the Company’s outside financial and legal advisors and management;

 

   

the financial analyses as well as the opinion, dated November 6, 2011, of Goldman Sachs, to the board of directors that, as of November 6, 2011, and based upon and subject to the factors and assumptions set forth therein, the $11.00 per share of the Company’s common stock to be paid in cash to the holders (other than Parent or its affiliates) of the outstanding shares of the Company’s common stock pursuant to the merger agreement was fair to such holders, from a financial point of view, as more fully described below under the caption “The Merger — Opinion of Our Financial Advisor” beginning on page [                ];

 

   

the terms and conditions of the proposed merger agreement and the likelihood that the conditions to the proposed merger will be satisfied;

 

   

factors relating to continuation as an independent company, including the uncertainties of the economy in general and uncertainties in the markets for the Company’s products;

 

   

the likelihood that the merger would be completed based on, among other things (not in any relative order of importance):

 

  o the absence of any material antitrust risk;

 

  o the absence of a financing condition in the merger agreement;

 

  o Parent’s and the guarantor’s familiarity with the Company;

 

  o the fact that the merger agreement provides that, in the event of a failure of the merger to be consummated under certain circumstances, Parent will pay us the $40 million parent fee, and the guarantor’s guarantee of such payment obligation pursuant to the limited guarantee;

 

  o the reputation and financial resources of the guarantor;

 

  o the receipt of executed financing commitments from Parent’s sources of debt and equity financing for the merger, and the terms of the financing commitments;

 

  o the reputation of the financing sources which, in the reasonable judgment of the board of directors, increase the likelihood of such financings being completed; and

 

  o the belief that the debt financing commitment represents a strong commitment on the part of the lenders thereto with few conditions that would permit the lenders to terminate their commitments;

 

   

the Company’s ability, under certain circumstances, to engage in negotiations or discussions with a third party, furnish such third party information relating to the Company or any of its subsidiaries pursuant to a confidentiality agreement and make an Adverse Recommendation Change (as defined on page [                ]) as described under “The Merger Agreement — No Solicitations of Competing Proposals” beginning on page [                ];

 

   

the Company’s ability, under certain circumstances, to terminate the merger agreement in order to enter into an agreement concerning a Superior Proposal (as defined on page [                ]) as described under “The Merger Agreement — Termination of the Merger Agreement” beginning on page [                ];

 

33


Table of Contents
   

the availability of dissenting shareholder rights under the California General Corporation Law to holders of Company common stock who comply with all of the requirements and procedures under the California General Corporation Law, which allows such holders to seek appraisal of the fair value of their shares of Company common stock as determined in California Superior Court;

 

   

the fact that the termination date under the merger agreement allows for time that is expected to be sufficient to complete the merger;

 

   

the level of effort that Parent and Merger Subsidiary must use under the merger agreement to obtain the proceeds of the financing for the merger on the terms and conditions described in the applicable financing commitments, including using their reasonable best efforts to enforce their rights under the debt financing commitment and to cause (including by bringing legal action or other appropriate proceedings) the lenders and other persons providing financing to fund the financing on the closing date of the merger; and

 

   

that the board of directors had independent financial and legal advisors.

The board of directors also considered a variety of potentially negative factors in its deliberations concerning the merger agreement, including the following (not in any relative order of importance):

 

   

the merger would preclude the Company’s shareholders from having the opportunity to participate in the future performance of its assets, future potential earnings growth and future potential appreciation of the value of Company common stock;

 

   

the significant costs involved in connection with entering into and completing the merger and the substantial time and effort of management required to complete the merger and related potential disruptions to the operation of the Company’s business;

 

   

the restrictions on the conduct of the Company’s business prior to the completion of the merger which, subject to specific exceptions, could delay or prevent the Company from undertaking business opportunities that may arise or any other action it would otherwise take with respect to the operations of the Company absent the pending completion of the merger;

 

   

the announcement and pendency of the merger, or failure to complete the merger, may cause substantial harm to relationships with the Company’s employees, vendors and customers and may divert management and employee attention away from the day-to-day operation of our business;

 

   

the possibility that the $15 million termination fee payable by the Company upon termination of the merger agreement under certain circumstances could discourage other potential acquirers from making a competing bid to acquire the Company;

 

   

the fact that, while the Company expects that the merger will be consummated, there can be no assurance that all conditions to the parties’ obligations to complete the merger agreement will be satisfied, and, as a result, the merger may not be consummated;

 

   

the fact that an all-cash transaction would be taxable to the Company’s shareholders that are U.S. holders for U.S. federal income tax purposes;

 

   

the risk that the financing contemplated by the debt financing commitment for the consummation of the merger might not be obtained; and

 

   

the fact that certain of our directors and executive officers may have interests in the merger that are different from, or in addition to, our shareholders. See “The Merger — Interests of Our Directors and Executive Officers” beginning on page [                ].

The foregoing discussion of the information and factors considered by the board of directors is not intended to be exhaustive but includes the material factors considered by the board of directors. In view of the variety of factors considered in connection with its evaluation of the merger, the board of directors did not find it practicable to, and did not, quantify or otherwise assign relative weights to the specific factors considered in

 

34


Table of Contents

reaching its determination and recommendation. In addition, individual directors may have given different weights to different factors. The board of directors did not undertake to make any specific determination as to whether any factor, or any particular aspect of any factor, supported or did not support its ultimate determination. The board of directors based its recommendation on the totality of the information presented.

The board of directors of the Company unanimously recommends that you vote “FOR” the proposal to approve the merger agreement, “FOR” the proposal to adjourn or postpone the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement, and “FOR” the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements.

When you consider the recommendation of the Company’s board of directors, you should be aware that three of the Company’s executive officers (one of whom is also a director of the Company) have entered into agreements with Parent and Merger Subsidiary related to the merger, their post-closing employment with the Company and their post-closing ownership of equity interests in Parent, and therefore have interests in the merger that may be different from, or in addition to, the interests of the Company’s shareholders generally. In addition, certain of the Company’s directors and all of the Company’s executive officers have interests in the merger that include (i) the accelerated vesting of all unvested stock options, unvested share appreciation rights and unvested restricted stock units held by them and (ii) the potential payment in connection with the merger of severance benefits to our executive officers pursuant to the terms of the Company’s officer severance plans. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement, and in recommending that the merger agreement be approved by the shareholders of the Company. See the section entitled “The Merger — Interests of Our Directors and Executive Officers” beginning on page [                ].

Opinion of Our Financial Advisor

Goldman, Sachs & Co. delivered its opinion to the Company’s board of directors that, as of November 6, 2011, and based upon and subject to the factors and assumptions set forth therein, the $11.00 per share of the Company’s common stock in cash to be paid to the holders (other than Parent or its affiliates) of the outstanding shares of the Company’s common stock pursuant to the merger agreement was fair from a financial point of view to such holders.

The full text of the written opinion of Goldman Sachs, dated November 6, 2011, which sets forth assumptions made, procedures followed, matters considered, qualifications and limitations on the review undertaken in connection with the opinion, is attached as Annex B to this proxy statement. Goldman Sachs provided its opinion for the information and assistance of the Company’s board of directors in connection with its consideration of the merger. The Goldman Sachs opinion is not a recommendation as to how any holder of the Company’s common stock should vote with respect to the merger or any other matter.

In connection with rendering the opinion described above and performing its related financial analyses, Goldman Sachs reviewed, among other things:

 

   

the merger agreement, dated November 6, 2011;

 

   

annual reports to shareholders and Annual Reports on Form 10-K of the Company for the five years ended December 31, 2010;

 

   

certain interim reports to shareholders and Quarterly Reports on Form 10-Q of the Company;

 

   

certain other communications from the Company to its shareholders;

 

   

certain publicly available research analyst reports for the Company; and

 

35


Table of Contents
   

certain internal financial analyses and forecasts for the Company prepared by its management, as approved for Goldman Sachs’ use by the Company, which we refer to as the “Forecasts.” For more information on the Forecasts, please see “The Merger — Projected Financial Information” beginning on page [                ] of this proxy statement.

Goldman Sachs also held discussions with the board of directors and members of the senior management of the Company regarding their assessment of the past and current business operations, financial condition and future prospects of the Company. In addition, Goldman Sachs reviewed the reported price and trading activity for the Company’s common stock, compared certain financial and stock market information for the Company with similar information for certain other companies the securities of which are publicly traded, reviewed the financial terms of certain recent business combinations in the telecommunications equipment industry and in other industries, and performed such other studies and analyses, and considered such other factors, as Goldman Sachs deemed appropriate.

For purposes of rendering the opinion described above, Goldman Sachs relied upon and assumed, without assuming any responsibility for independent verification, the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by Goldman Sachs. In that regard, Goldman Sachs assumed with the consent of the Company’s board of directors that the Forecasts were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the Company’s management. In addition, Goldman Sachs did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of the Company or any of its subsidiaries nor was Goldman Sachs furnished with any such evaluation or appraisal. Goldman Sachs assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without any adverse effect on the expected benefits of the merger in any way meaningful to Goldman Sachs’ analysis. Goldman Sachs also assumed that the merger will be consummated on the terms set forth in the merger agreement, without the waiver or modification of any term or condition the effect of which would be in any way meaningful to Goldman Sachs’ analysis.

Goldman Sachs’ opinion did not address the underlying business decision of the Company to engage in the merger, or the relative merits of the merger as compared to any strategic alternatives that may be available to the Company, nor did it address any legal, regulatory, tax or accounting matters. Goldman Sachs’ opinion addressed only the fairness from a financial point of view, as of November 6, 2011, of the $11.00 per share of the Company’s common stock in cash to be paid to the holders (other than Parent or its affiliates) of the outstanding shares of the Company’s common stock pursuant to the merger agreement. Goldman Sachs did not express any view on, and Goldman Sachs’ opinion did not address, any other term or aspect of the merger agreement or the merger or any term or aspect of any other agreement or instrument contemplated by the merger agreement or entered into or amended in connection with the merger, including, without limitation, the fairness of the merger to, or any consideration received in connection therewith by, the holders of any other class of securities, creditors, or other constituencies of the Company; nor as to the fairness of the amount or nature of any compensation to be paid or payable to any of the officers, directors or employees of the Company, or class of such persons, in connection with the merger, whether relative to the $11.00 per share of the Company’s common stock in cash to be paid to the holders (other than Parent or its affiliates) of the outstanding shares of the Company’s common stock pursuant to the merger agreement or otherwise. Goldman Sachs did not express any opinion as to the impact of the merger on the solvency or viability of the Company or Parent or the ability of the Company or Parent to pay their respective obligations when they come due. Goldman Sachs’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Goldman Sachs as of, the date of the opinion, and Goldman Sachs assumed no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of its opinion. Goldman Sachs’ advisory services and its opinion were provided for the information and assistance of the Company’s board of directors in connection with its consideration of the merger and its opinion does not constitute a recommendation as to how any holder of the Company’s common stock should vote with respect to the merger or any other matter. Goldman Sachs’ opinion was approved by a fairness committee of Goldman Sachs.

 

36


Table of Contents

The following is a summary of the material financial analyses delivered by Goldman Sachs to the Company’s board of directors in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Goldman Sachs, nor does the order of analyses described represent relative importance or weight given to those analyses by Goldman Sachs. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Goldman Sachs’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before November 4, 2011 (the last trading day prior to the announcement of the merger) and is not necessarily indicative of current market conditions.

Historical Trading Analysis

Goldman Sachs reviewed the historical trading prices for the Company’s common stock for the two years ended November 4, 2011. In addition, Goldman Sachs analyzed the consideration of $11.00 per share to be paid to the holders (other than Parent or its affiliates) of outstanding shares of the Company’s common stock pursuant to the merger agreement in relation to the historical trading prices of the Company’s common stock.

This analysis indicated that the $11.00 per share to be paid to the holders (other than Parent or its affiliates) of outstanding shares of the Company’s common stock pursuant to the merger agreement represented:

 

   

a premium of 11.1% based on the closing price of $9.90 per share on November 4, 2011;

 

   

a premium of 38.0% based on the average closing price of $7.97 per share for the thirty trading days ended November 4, 2011;

 

   

a premium of 50.4% based on the average closing price of $7.31 for the three-month period ended November 4, 2011;

 

   

a premium of 39.2% based on the average closing price of $7.90 for the six-month period ended November 4, 2011;

 

   

a discount of 19.1% based on the latest 52-week high closing price of $13.60; and

 

   

a premium of 93.0% based on the latest 52-week low closing price of $5.70 per share.

Selected Companies Analysis

Goldman Sachs reviewed and compared certain financial information, financial ratios and multiples for the Company corresponding to financial information, financial ratios and multiples for the following publicly traded companies in the telecommunications equipment industry:

 

   

Acme Packet, Inc.

 

   

Alcatel-Lucent

 

   

Aruba Networks, Inc.

 

   

BroadSoft Inc.

 

   

Ciena Corporation

 

   

Cisco Systems, Inc.

 

   

Comverse Technology, Inc.

 

   

Infinera Corp.

 

   

Juniper Networks, Inc.

 

   

Openwave Systems Inc.

 

37


Table of Contents
   

Riverbed Technology, Inc.

 

   

Sandvine Corporation

 

   

Sonus Networks, Inc.

 

   

Telefonaktiebolaget L.M. Ericsson

 

   

Tellabs, Inc.

Although none of the selected companies is directly comparable to the Company, the companies included were chosen because they are all publicly traded companies in the telecommunications equipment industry with certain operations that for purposes of analysis may be considered similar to certain operations of the Company.

Goldman Sachs calculated and compared the financial multiples and ratios for the selected companies based on publicly available financial information, estimates from Institutional Brokers’ Estimate System, which we refer to as “IBES,” and common stock closing prices on November 4, 2011. Goldman Sachs calculated the financial multiples and ratios for the Company based on publicly available financial information, Wall Street research, the Forecasts and the closing price of the Company’s common stock on November 4, 2011 of $9.90 per share. Goldman Sachs calculated:

 

   

enterprise value as a multiple of estimated 2011 sales and estimated 2012 sales for each of the selected companies;

 

   

enterprise value as a multiple of estimated 2011 sales and estimated 2012 sales for the Company;

 

   

enterprise value as a multiple of estimated 2011 earnings before interest, tax, depreciation and amortization, which we refer to as “EBITDA” and estimated 2012 EBITDA for each of the selected companies;

 

   

enterprise value as a multiple of estimated 2011 EBITDA and estimated 2012 EBITDA for the Company;

 

   

price as a multiple of estimated 2011 non-GAAP earnings per share (defined as GAAP earnings per share excluding certain items such as amortization of acquired intangibles, restructuring and other charges, non-cash stock-based compensation charges, and unusual, non-recurring gains and charges), which we refer to as “Adjusted EPS,” and estimated 2012 Adjusted EPS for each of the selected companies;

 

   

price as a multiple of estimated 2011 Adjusted EPS and estimated 2012 Adjusted EPS for the Company;

 

   

price as a multiple of estimated 2012 Adjusted EPS (excluding cash) for each of the selected companies;

 

   

price as a multiple of estimated 2012 Adjusted EPS (excluding cash) for the Company;

 

   

price/Adjusted EPS ratio as a multiple of estimated 2011 Adjusted EPS growth and estimated 2012 Adjusted EPS growth for each of the selected companies; and

 

   

price/Adjusted EPS ratio as a multiple of estimated 2011 Adjusted EPS growth and estimated 2012 Adjusted EPS growth for the Company.

 

38


Table of Contents

Goldman Sachs also compared the estimated rate of growth in revenues and EBITDA for the selected companies with the estimated rate of growth in revenues and EBITDA for the Company for calendar years 2011, 2012 and 2013 and compared the estimated 2011 EBITDA margin for the selected companies with the estimated 2011 EBITDA margin for the Company. The following table presents the results of these analyses:

 

    2011-2012
Revenue
Growth
    2012-
2013
Revenue
Growth
    2011-
2013
EBITDA
Growth
    2011
EBITDA
Margin
    2011
EV/
Revenue
    2012
EV/
Revenue
    2011
P/Adjusted
EPS
    2012 P/
Adjusted
EPS
    2012 P/
Adjusted
EPS (ex.
cash)
    2011
P/E/
G
    2012
P/E/
G
 

The Company (Forecasts)

    (2.7 %)      5.0     25.3     16.4     1.1x        1.1x        22.2x        16.5x        10.7x        0.8x        0.6x   

The Company (IBES)

    (1.5 %)      5.4     0.0     16.4     1.1x        1.1x        24.8x        22.5x        14.9x        NM        NM   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Low

    (5.6 %)      (2.5 %)      (5.2 %)      4.0     0.3x        0.3x        8.6x        6.4x        5.5x        0.6x        0.5x   

High

    35.6     41.0     78.8     44.1     7.9x        6.2x        46.9x        38.7x        33.2x        2.1x        1.5x   

Illustrative Present Value of Future Share Price Analysis

Goldman Sachs performed an illustrative analysis of the implied present value of the future price per share of the Company’s common stock using the Forecasts, which is designed to provide an indication of the present value of a theoretical future value of a company’s equity as a function of such company’s estimated future earnings and its assumed price to future Adjusted EPS multiple. For this analysis, Goldman Sachs used certain financial information from the Forecasts for each of the calendar years 2012 to 2015.

Goldman Sachs first calculated the implied values per share of the Company’s common stock for calendar years 2011 to 2014 by applying illustrative one-year forward Adjusted EPS multiples of 9.0x to 13.0x to estimated Adjusted EPS of the shares of the Company’s common stock for each of the calendar years 2012 to 2015 and then calculated implied present values per share of the Company’s common stock as of November 4, 2011, by applying an illustrative discount rate of 14.7%, reflecting an estimate of the Company’s cost of equity. The following table presents the results of these analyses:

 

2011

 

2012

 

2013

 

2014

$5.29 - $7.65

  $6.34 - $9.15   $7.95 - $11.48   $7.97 - $11.51

Goldman Sachs also performed an illustrative sensitivity analysis of the implied present value of the future price per share of the Company’s common stock using the same range of one-year forward Adjusted EPS multiples of 9.0x to 13.0x and discount rates ranging from 12.7% to 16.7%, reflecting estimates of the Company’s cost of equity. This analysis resulted in the ranges of illustrative implied values for fiscal years 2012 through 2014 presented in the table below:

 

2012

 

2013

 

2014

$6.21 – $9.34

  $7.66 – $11.93   $7.54 – $12.17

Illustrative Discounted Cash Flow Analysis

Goldman Sachs performed an illustrative discounted cash flow analysis on the Company to determine a range of implied present values per share of the Company’s common stock using the Forecasts and publicly available historical information. First, Goldman Sachs calculated the net present value of the unlevered free cash flows for the Company’s Global Signaling Solutions (“GSS”) business for the fiscal years 2012 through 2020, and calculated the net present value of the illustrative terminal value of the GSS business in the fiscal year 2021 by applying a range of enterprise value to EBITDA multiples of 0.0x to 2.0x to the estimated EBITDA in the fiscal year 2021 for the GSS business, in each case using discount rates ranging from 10.2% to 14.2%, reflecting estimates of the GSS business’ weighted average cost of capital. Goldman Sachs then calculated the implied present value of the GSS business by adding the present value of the projected cash flows from the GSS business

 

39


Table of Contents

for the fiscal years 2012 through 2020 to the present value of the terminal value for the GSS business in the fiscal year 2021. Goldman Sachs then calculated indications of net present value of the unlevered free cash flows for the Company’s Broadband Network Solutions (“BNS”) business for the fiscal years 2012 through 2020, and calculated the net present value of the illustrative terminal value of the BNS business in the fiscal year 2021 by applying a range of perpetuity growth rates of 1.0% to 5.0% to the estimated unlevered free cash flows in the fiscal year 2021 for the BNS business, in each case using discount rates ranging from 16.8% to 20.8%, reflecting estimates of the BNS business’ weighted average cost of capital. Goldman Sachs then calculated the implied present value of the BNS business by adding the present value of the projected cash flows from the BNS business for the fiscal years 2012 through 2020 to the present value of the terminal value for the BNS business in the fiscal year 2021. Using the Forecasts, Goldman Sachs also calculated the illustrative present value of the Company’s net operating loss, using a discount rate of 14.7%, reflecting an estimate of the Company’s cost of equity.

Goldman Sachs then calculated the implied present value of the Company on a per share basis by adding (i) the implied present value of the GSS business, divided by the number of shares of the Company’s common stock outstanding (as determined on a fully diluted basis using implied price and treasury method for options) as of November 4, 2011, which we refer to as the “Fully Diluted Shares Outstanding,” (ii) the implied present value of the BNS business, divided by the Fully Diluted Shares Outstanding, (iii) the amount of the Company’s estimated total cash as of December 31, 2011 according to the Forecasts, divided by the Fully Diluted Shares Outstanding, and (iv) the implied present value of the Company’s net operating loss, divided by the Fully Diluted Shares Outstanding. This analysis resulted in a range of illustrative per share value indications from $10.38 to $13.40.

Goldman Sachs also performed an illustrative sensitivity analysis for the GSS and BNS businesses on a per share basis to illustrate the effect of increases or decreases in annual revenue growth and EBITDA margins for the Company. For the GSS business, the analysis utilized (i) an illustrative range of EBITDA margins achieved for the fiscal years 2011 through 2020 of 50.0% to 100.0% of the GSS business’ EBITDA margins according to the Forecasts, (ii) an illustrative range of incremental revenue growth rates of (7.5%) to 2.5% in each of the fiscal years 2011 through 2020 and (iii) a 2021 enterprise value to EBITDA multiple of 1.0x and discount rate of 12.2% (representing the midrange of the enterprise value to EBITDA multiples and discount rates utilized in the illustrative discounted cash flow analysis described above, which we refer to as the “GSS Midrange Values”) discounted to December 31, 2011. For the BNS business, the analysis utilized (i) an illustrative range of EBITDA margins achieved for the fiscal years 2011 through 2020 of 50.0% to 100.0% of the BNS business’ EBITDA margins according to the Forecasts, (ii) an illustrative range of incremental revenue growth rates of (7.5%) to 2.5% in each of the fiscal years 2011 through 2020 and (iii) a perpetuity growth rate of 3.0% and a discount rate of 18.8% (representing the midrange of the perpetuity growth rates and discount rates utilized in the illustrative discounted cash flow analysis described above, which we refer to as the “BNS Midrange Values”) discounted to December 31, 2011. This sensitivity analysis resulted in (i) impacts to the illustrative per share value attributable to the GSS business calculated in the discounted cash flow analysis described above using the GSS Midrange Values ranging from ($2.44) to $0.41, and (ii) impacts to the illustrative per share value attributable to the BNS business calculated in the discounted cash flow analysis described above using the BNS Midrange Values ranging from ($3.31) to $0.90.

Illustrative Leveraged Buyout Analysis

Goldman Sachs performed an illustrative leveraged buyout analysis using the Forecasts and publicly available historical information. In performing the illustrative leveraged buyout analysis, Goldman Sachs assumed (i) a net operating loss balance of $182.6 million, as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, (ii) a first-out term loan of $100 million with an assumed annual interest rate of 7.50% over the London Interbank Offered Rate (“LIBOR”) with a LIBOR floor of 1.50%, (iii) a last-out term loan of $300 million with an assumed annual interest rate of 12.00% over LIBOR with a LIBOR floor of 1.50%, (iv) a purchase price per share of the Company’s common stock of $11.00 in cash, and

 

40


Table of Contents

(v) closing of the transaction at the end of calendar year 2011. Based on a range of illustrative one-year forward exit enterprise value to EBITDA multiples of 4.5x to 6.5x for the assumed exit at the end of 2016, which reflect illustrative implied prices at which a hypothetical financial buyer might exit its investment through a sale transaction, this analysis resulted in illustrative internal rate of equity returns to a hypothetical financial buyer ranging from 26.6% to 36.8%.

Using the Forecasts, Goldman Sachs also performed an illustrative sensitivity analysis to illustrate the effect of decreases in annual revenue growth and EBITDA margins for the Company. The analysis utilized (i) an illustrative range of EBITDA margins achieved for the fiscal years 2012 through 2016 of 50.0% to 100.0% of the Company’s EBITDA margins according to the Forecasts, (ii) an illustrative range of incremental revenue growth rates of (5.0%) to 0.0% in each of the fiscal years 2012 through 2016 and (iii) a 2016 one-year forward exit enterprise value to EBITDA multiple of 5.5x. This sensitivity analysis resulted in illustrative internal rate of equity returns to a hypothetical financial buyer ranging from not meaningful (i.e., did not result in a positive illustrative internal rate of equity return) to 32.1%.

General

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Goldman Sachs’ opinion. In arriving at its fairness determination, Goldman Sachs considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Goldman Sachs made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company used in the above analyses as a comparison is directly comparable to the Company or the contemplated merger.

Goldman Sachs prepared these analyses for purposes of providing its opinion to the Company’s board of directors as to the fairness from a financial point of view of the $11.00 per share of the Company’s common stock in cash to be paid to the holders (other than Parent or its affiliates) of outstanding shares of the Company’s common stock pursuant to the merger agreement. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of the Company, Parent, Goldman Sachs or any other person assumes responsibility if future results are materially different from those forecast.

The merger consideration was determined through arm’s-length negotiations between the Company and Parent and was approved by the Company’s board of directors. Goldman Sachs provided advice to the Company during these negotiations. Goldman Sachs did not, however, recommend any specific amount of consideration to the Company or its board of directors or that any specific amount of consideration constituted the only appropriate consideration for the merger.

As described above, Goldman Sachs’ opinion to the Company’s board of directors was one of many factors taken into consideration by the Company’s board of directors in making its determination to approve the merger agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Goldman Sachs in connection with the fairness opinion and is qualified in its entirety by reference to the written opinion of Goldman Sachs attached as Annex B.

Goldman Sachs and its affiliates are engaged in investment banking and financial advisory services, commercial banking, securities trading, investment management, principal investment, financial planning, benefits counseling, risk management, hedging, financing, brokerage activities and other financial and non-financial activities and services for various persons and entities. In the ordinary course of these activities and

 

41


Table of Contents

services, Goldman Sachs and its affiliates may at any time make or hold long or short positions and investments, as well as actively trade or effect transactions, in the equity, debt and other securities (or related derivative securities) and financial instruments (including bank loans and other obligations) of third parties, the Company, Parent, any of their respective affiliates and the Sponsors (as defined in the merger agreement) and any of their respective affiliates and portfolio companies, or any currency or commodity that may be involved in the merger for their own account and for the accounts of their customers. Goldman Sachs acted as financial advisor to the Company in connection with, and participated in certain of the negotiations leading to, the merger. Goldman Sachs also provided certain investment banking services to GSO Capital Partners LP, a Sponsor, and its affiliates and portfolio companies from time to time for which its Investment Banking Division received, and may receive, compensation, including having acted as a joint bookrunner for a public offering by Reader’s Digest, a portfolio company of GSO Capital Partners LP, of its LIBOR + 6.5% floating rate notes due February 2017 (aggregate principal amount $525,000,000) in February 2010. Goldman Sachs also provided certain investment banking services to Credit Suisse First Boston Private Equity (UK), an affiliate of a Sponsor, and its affiliates and portfolio companies from time to time for which its Investment Banking Division received, and may receive, compensation, including having acted as financial adviser to Wittur AG, a portfolio company of Credit Suisse First Boston Private Equity (UK), in connection with its sale in December 2010; and as financial advisor to Nycomed Pharma AS, a portfolio company of Credit Suisse First Boston Private Equity (UK), in connection with its sale in September 2011. Goldman Sachs may also in the future provide investment banking services to the Company, Parent, their respective affiliates and the Sponsors and their respective affiliates and portfolio companies for which its Investment Banking Division may receive compensation. Affiliates of Goldman Sachs may have co-invested with the Sponsors and their respective affiliates from time to time and may have invested in limited partnership units or other equity interests of affiliates of the Sponsors and their respective affiliates from time to time and may do so in the future.

The Company’s board of directors selected Goldman Sachs as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the transaction. Pursuant to a letter agreement dated July 20, 2011, as amended as of November 6, 2011, the Company engaged Goldman Sachs to act as its financial advisor in connection with the contemplated transaction. Pursuant to the terms of this engagement letter, the Company has agreed to pay Goldman Sachs a transaction fee of approximately $6.7 million, all of which is payable upon consummation of the transaction. In addition, the Company has agreed to reimburse Goldman Sachs for its expenses, including attorneys’ fees and disbursements, and to indemnify Goldman Sachs and related persons against certain liabilities that may arise out of their engagement.

Projected Financial Information

During our consideration of strategic alternatives, as described in “The MergerBackground of the Merger,” the Company’s management prepared and provided Goldman Sachs with financial forecasts of the Company’s operating performance for fiscal years 2011 through 2020. Management provided these forecasts on a consolidated basis for the Company and its newly formed business units, GSS and BNS. GSS includes the Company’s Eagle 5, Performance Management and Mobile Messaging products, and BNS includes the Company’s Session Management, Policy, and Subscriber Data Management products.

 

42


Table of Contents

Set forth below are the financial forecasts of the Company and its business units prepared by the Company’s management in October 2011, which we refer to as the “Management Projections.” In connection with Siris’ due diligence review of the Company, the Company provided to Siris and its financing sources portions of the Management Projections. The Management Projections represented management’s then best estimate of the Company’s future results.

 

Management Projections  

(In millions)

 
     2011     2012     2013     2014      2015      2016      2017      2018      2019      2020  

Orders:

                          

GSS

   $ 287      $ 200      $ 158      $ 128       $ 106       $ 86       $ 73       $ 62       $ 53       $ 45   

BNS

     113        190        260        325         390         449         493         518         544         571   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     400        390        418        453         496         535         566         580         597         616   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Revenues:

                          

GSS

   $ 352      $ 272      $ 198      $ 164       $ 127       $ 106       $ 82       $ 70       $ 59       $ 50   

BNS

     54        123        217        291         364         422         481         506         528         555   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     406        395        415        455         491         528         563         576         587         605   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

EBITDA:

                          

GSS

   $ 142      $ 129      $ 93      $ 78       $ 59       $ 50       $ 37       $ 30       $ 24       $ 19   

BNS

     (76     (47     12        60         97         121         148         157         164         174   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     66        82        105        138         156         171         185         187         188         193   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

non-GAAP net income:

                          

GSS

   $ 88      $ 83      $ 59      $ 52       $ 40       $ 34       $ 25       $ 20       $ 16       $ 12   

BNS

     (57     (41     (1     32         57         73         92         98         103         110   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     31        42        58        84         97         107         117         118         119         122   
  

 

 

   

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Orders, EBITDA, and non-GAAP net income are non-GAAP measures that are used by management as supplemental financial measures to evaluate the Company’s operational trends. Orders represent contractual commitments of customers to purchase the Company’s products, services, and maintenance support. The Company believes orders are a consistent measure of its sales activities from period to period and a leading indicator of future revenues, but should not be relied upon as an alternative to revenue. EBITDA is non-GAAP earnings before interest, provision for taxes, depreciation and amortization. In the calculation of EBITDA and non-GAAP net income, the Company generally excludes certain items such as amortization of acquired intangibles, restructuring and other charges, non-cash stock-based compensation charges, and unusual, non-recurring gains and charges. None of orders, EBITDA or non-GAAP net income is defined under GAAP and, accordingly, they may not be comparable measurements to those used by other companies.

The financial forecasts shown above are included in this proxy statement to provide our shareholders access to certain nonpublic information considered by our board of directors in connection with their evaluation of the merger and provided to Goldman Sachs in connection with rendering its opinion to our board of directors that, as of November 6, 2011 and based upon and subject to the factors and assumptions set forth therein, the $11.00 per share in cash to be paid to the holders (other than Parent or its affiliates) of shares of the Company’s common stock pursuant to the merger agreement was fair from a financial point of view to such holders. The inclusion of this information should not be regarded as an indication to any shareholder that our board of directors, Goldman Sachs, their respective representatives or any other recipient of this information considered, or now considers, it to be predictive of actual future results, and they should not be relied on as such. The forecasts reflect numerous estimates and assumptions with respect to industry performance, general business, economic, regulatory, market and financial conditions, as well as matters specific to the Company’s business, all of which are difficult to predict and many of which are beyond the Company’s control. Further, management does not have significant

 

43


Table of Contents

experience in forecasting its operating results by business unit, because the Company has historically only prepared financial information on a consolidated basis. Further, in preparing the forecast by business unit, management did not have historical results for the business units with which to form a basis for such forecast. In addition, the products offered by the Company’s BNS business unit are in the early stages of market adoption, have only been offered by the Company for one to two years, and the market is highly competitive. As a result of each of the above factors, the risk factors included in our most recent filings on Forms 10-Q and 10-K, there can be no assurance that the forecasted results will be realized or that actual results will not be significantly higher or lower than such forecasts. Because the forecasts cover multiple years, such information by its nature becomes less predictive with each successive year. The forecasts become increasingly less predictive in the years beyond 2013. Also, the economic and business environments can and do change quickly, which adds a significant level of unpredictability, unreliability and execution risk. These factors create significant doubt as to whether the forecasts for fiscal years 2011 and beyond are likely to be achieved. As a result, the forecasts are not necessarily indicative of future results. In addition, the Company’s management prepared the forecasts prior to the execution of the merger agreement and, accordingly, the forecasts do not reflect the effects of the merger, which may cause results to differ materially. Accordingly, readers of this proxy statement are cautioned not to place undue reliance on the financial forecasts.

The financial forecasts stated above were prepared for internal use and not with a view toward public disclosure or toward complying with generally accepted accounting principles in the United States, or GAAP, the published guidelines of the SEC regarding forecasts or the guidelines established by the American Institute of Certified Public Accountants for preparation and presentation of prospective financial information. The forecasts included in this proxy statement were prepared by, and are the responsibility of, our management. We do not assume any responsibility to update these forecasts. Neither our independent registered public accounting firm, nor any other independent accountants, have compiled, examined, or performed any procedures with respect to the financial forecasts contained herein, nor have they expressed any opinion or any other form of assurance on such forecasts or their achievability, and assume no responsibility for, and disclaim any association with, the financial forecasts. Furthermore, the financial forecasts do not take into account any circumstances or events occurring after the date the forecasts were prepared that were unforeseen by our management at the time of preparation. We have made publicly available our actual results of operations for the nine months ended September 30, 2011 and the three years ended December 31, 2010. The Company’s shareholders should review our Form 10-Q for the quarter ended September 30, 2011, and our Annual Report on Form 10-K for the year ended December 31, 2010, to obtain this information. Because the Company just recently formed the GSS and BNS business units, historical information for these business units is not available. Accordingly, all historical information in the Company’s Form 10-Q and Form 10-K is on a consolidated basis only. See “Where You Can Find More Information” on page [                ].

None of the Company or our affiliates, advisors, officers, directors or representatives has made or makes any representation to any shareholder or other person regarding the ultimate performance of the Company compared to the information contained in the forecasts or that forecasted results will be achieved.

BY INCLUDING IN THIS PROXY STATEMENT A SUMMARY OF ITS INTERNAL FINANCIAL FORECASTS, THE COMPANY UNDERTAKES NO OBLIGATIONS TO UPDATE, OR PUBLICLY DISCLOSE ANY UPDATE TO, THESE FINANCIAL FORECASTS TO REFLECT CIRCUMSTANCES OR EVENTS, INCLUDING UNANTICIPATED EVENTS, THAT MAY HAVE OCCURRED OR THAT MAY OCCUR AFTER THE PREPARATION OF THESE FORECASTS, EVEN IN THE EVENT THAT ANY OR ALL OF THE ASSUMPTIONS UNDERLYING THE FINANCIAL FORECASTS ARE SHOWN TO BE IN ERROR OR CHANGE.

Effects of the Merger

If the merger is consummated, Merger Subsidiary will be merged with and into the Company, and the Company will continue as the surviving corporation. Following the consummation of the merger, all of the Company’s issued and outstanding shares of common stock will be owned by Holdings.

 

44


Table of Contents

Upon consummation of the merger, each share of Company common stock outstanding immediately prior to the merger (other than shares owned by Parent or any of its subsidiaries or by shareholders who properly exercise their dissenting shareholder rights under California law for such shares) will be cancelled and converted into the right to receive $11.00 in cash, less any applicable withholding taxes. At the effective time of the merger, each option to acquire shares of our common stock that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will vest (if unvested) and will be cancelled in exchange for the right to receive a cash payment equal to the number of shares of our common stock subject to the option, multiplied by the excess, if any, by which $11.00 exceeds the exercise price of the option, less any applicable withholding taxes. At the effective time of the merger, each option for which the exercise price per share of our common stock equals or exceeds $11.00 will be cancelled and have no further force or effect without any right to receive any consideration therefor. At the effective time of the merger, each share appreciation right entitling the holder thereof the right to receive shares of Company common stock (or a cash payment determined in relation to the value thereof) upon exercise that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will vest (if unvested) and will be cancelled in exchange for the right to receive a cash payment equal to the number of shares of our common stock subject to the share appreciation right, multiplied by the excess, if any, by which $11.00 exceeds the exercise price of the share appreciation right, less any applicable withholding taxes. Each share appreciation right for which the exercise price per share of our common stock equals or exceeds $11.00 will be cancelled and have no further force or effect without any right to receive any consideration therefor. At the effective time of the merger, each restricted stock unit to acquire shares of our common stock that is outstanding immediately prior to the effective time of the merger will vest and will be cancelled in exchange for the right to receive a cash payment of $11.00, less any applicable withholding taxes.

If the merger is consummated, our shareholders will have no interest in the Company’s net book value or net earnings after the merger.

The Company’s common stock is currently registered under the Exchange Act, and is listed on Nasdaq under the symbol “TKLC.” As a result of the merger, the Company, as the surviving corporation, will become a privately held corporation. The Company common stock will be delisted from Nasdaq and deregistered under the Exchange Act and will cease to be publicly traded. As a result, after the merger the Company common stock will cease to be listed on Nasdaq, and prices with respect to sales of shares of the Company common stock in the public market will no longer be available.

At the effective time of the merger, our articles of incorporation will be amended and will become the articles of incorporation of the surviving corporation in the form attached to the merger agreement, until thereafter amended in accordance with applicable law. The bylaws of Merger Subsidiary, as in effect at the effective time of the Merger, will become the bylaws of the surviving corporation, except as to the name of the surviving corporation, until thereafter amended in accordance with applicable law. The board of directors of the surviving corporation will, from and after the effective time of the merger, consist of the directors of Merger Subsidiary until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the articles of incorporation and bylaws of the surviving corporation. The officers of the Company will, from and after the effective time of the merger, be the officers of the surviving corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the articles of incorporation and bylaws of the surviving corporation.

Interests of Our Directors and Executive Officers

When considering the unanimous recommendation of the board of directors that you vote to approve the proposal to approve the merger agreement, you should be aware that three of our executive officers (one of whom is also a director of the Company) have entered into agreements with Parent and Merger Subsidiary related to the merger, their post-closing employment with the Company and their post-closing ownership of equity interests in Parent, and therefore have interests in the merger that may be different from, or in addition to, yours. In addition, certain of the Company’s directors and all of the Company’s executive officers have interests in the merger that include (i) the accelerated vesting of all unvested stock options, unvested share appreciation rights

 

45


Table of Contents

and unvested restricted stock units held by them and (ii) the potential payment in connection with the merger of severance benefits to our executive officers pursuant to the terms of the Company’s officer severance plans. The board of directors was aware of and considered these interests, among other matters, in evaluating and negotiating the merger agreement and in recommending that the merger agreement be approved by the shareholders of the Company. For the purposes of all of the agreements and plans described below, the completion of the transactions contemplated by the merger agreement will constitute a change in control.

Treatment of Stock Options

In connection with the merger and in accordance with the terms of the merger agreement and the Company’s equity incentive plans, at the effective time of the merger, each option to purchase shares of Company common stock which is outstanding immediately prior to the effective time of the merger will become fully vested, to the extent not already fully vested, and will be cancelled in exchange for the right to receive as soon as practicable after the effective time of the merger (but in any event not later than three business days following the effective time of the merger), a cash payment equal to the product of (i) the number of shares of Company common stock subject to such option immediately prior to the effective time of the merger, and (ii) the excess, if any, of the merger consideration over the exercise price per share of the Company common stock subject to such option, less any applicable withholding taxes. At the effective time of the merger, each option for which the exercise price per share of Company common stock equals or exceeds the merger consideration will be cancelled and have no further effect, with no right to receive any consideration therefor.

As of November 3, 2011, our directors and executive officers held outstanding options to purchase an aggregate of 163,279 shares of Company common stock. Because the exercise prices of all options held by our directors and executive officers exceed $11.00 per share, at the effective time, such options will be cancelled without the right to receive any consideration therefor.

Treatment of Share Appreciation Rights

In connection with the merger and in accordance with the terms of the merger agreement and the Company’s equity incentive plans, at the effective time of the merger, each share appreciation right entitling the holder thereof to the right to receive shares of Company common stock (or a cash payment determined in relation to the value thereof) which is outstanding immediately prior to the effective time of the merger will become fully vested, to the extent not already fully vested, and will be cancelled in exchange for the right to receive, as soon as practicable after the effective time of the merger, a cash payment equal to the product of (i) the number of shares of Company common stock subject to such share appreciation right immediately prior to the effective time of the merger, and (ii) the excess, if any, of the merger consideration over the exercise price per share of the Company share appreciation right, less any applicable withholding taxes. At the effective time of the merger, each share appreciation right for which the exercise price per share of Company common stock equals or exceeds the merger consideration will be cancelled and have no further effect, with no right to receive any consideration therefor.

 

46


Table of Contents

None of our directors (other than Mr. de Lange, who is also our President and Chief Executive Officer) currently holds any share appreciation rights. The following table sets forth, as of November 8, 2011, for each person who has served as an executive officer of the Company since the beginning of our last fiscal year and who currently holds share appreciation rights: (a) the aggregate number of shares of Company common stock subject to vested share appreciation rights and the value of such vested share appreciation rights, on a pre-tax basis, based on the merger consideration; (b) the aggregate number of unvested share appreciation rights that will vest in connection with the merger, assuming the executive officer remains employed by the Company and continues to hold such share appreciation rights through the effective time of the merger, and the value of those unvested share appreciation rights, on a pre-tax basis, based on the merger consideration; (c) the aggregate number of shares of Company common stock subject to vested and unvested share appreciation rights for each individual, assuming the executive officer remains employed by the Company at the effective time of the merger; and (d) the aggregate pre-tax amount of consideration that we expect will be paid to such individuals with respect to their share appreciation rights in connection with the merger:

 

     Vested Share
Appreciation Rights
     Unvested Share
Appreciation Rights
     Aggregate Share
Appreciation Rights
 
     Shares      Value(1)      Shares      Value(1)      Shares      Value(1)  

Executive Officers

                 

Ronald J. de Lange(2)

     81,000       $ 0         230,300       $ 462,142         311,300       $ 462,142   

Gregory S. Rush

     —           —           64,000         213,760         64,000         213,760   

Stuart H. Kupinsky

     90,126         0         110,500         190,380         200,626         190,380   

Houck S. Reed

     5,000         0         18,000         60,120         23,000         60,120   

David K. Rice

     73,375         0         110,500         190,380         183,875         190,380   

Douglas A. Suriano

     —           —           18,000         60,120         18,000         60,120   

Marykay Wells

     11,250         0         46,200         154,308         57,450         154,308   

Wolrad Claudy(3)

     15,000         0         —           —           15,000         0   

 

(1) Calculated for such share appreciation right by multiplying (i) the excess of the merger consideration over the per share exercise price of the share appreciation right by (ii) the number of shares of Company common stock subject to the share appreciation right.
(2) Mr. de Lange is also a member of our board of directors.
(3) Mr. Claudy resigned from his position as Executive Vice President, Global Sales of the Company on April 29, 2011 and as an employee of the Company effective October 31, 2011.

Treatment of Restricted Stock Units

In connection with the merger and in accordance with the terms of the merger agreement and the Company’s equity incentive plans, at the effective time of the merger, each restricted stock unit representing the right to receive one share of Company common stock which is outstanding immediately prior to the effective time of the merger will become fully vested and cancelled in exchange for the right to receive, as soon as practicable after the effective time of the merger (but in any event not later than three business days following the effective time of the merger), a cash payment equal to the merger consideration, less any applicable withholding taxes.

 

47


Table of Contents

The following table sets forth, as of November 3, 2011, for each person who has served as a director or executive officer of the Company since the beginning of our last fiscal year and who currently holds restricted stock units: (a) the aggregate number of restricted stock units that will vest in connection with the merger, assuming the director or executive officer remains employed by, or continues serving as a director of, the Company through the effective time of the merger; and (b) the aggregate pre-tax amount of consideration that we expect will be paid to such individuals with respect to their restricted stock units in connection with the merger:

 

     Aggregate Number of
Restricted Stock Units
     Value of Restricted
Stock Units (1)
 

Executive Officers

     

Ronald J. de Lange(2)

     149,946       $ 1,649,406   

Gregory S. Rush

     56,861         625,471   

Stuart H. Kupinsky

     57,656         634,216   

David K. Rice

     57,356         630,916   

Marykay Wells

     28,261         310,871   

Douglas A. Suriano

     20,228         222,508   

Houck S. Reed

     20,128         221,408   

Directors

     

Hubert de Pesquidoux

     11,334       $ 124,674   

Ronald W. Buckly

     8,000         88,000   

Anthony Colaluca, Jr.

     18,000         198,000   

Thomas J. Coleman

     —           —     

Jean-Yves Courtois

     18,000         198,000   

Carol G. Mills

     8,000         88,000   

Michael P. Ressner

     8,000         88,000   

 

(1) Calculated by multiplying the merger consideration to be paid for each restricted stock unit by the number of restricted stock units.
(2) Mr. de Lange is an executive officer and a member of the board of directors.

New Agreements with Parent and Merger Subsidiary

On November 6, 2011, Parent and Merger Subsidiary entered into an “Agreement and Intent to Continue Employment” with each of Ronald J. de Lange, our President and Chief Executive Officer, Gregory S. Rush, our Senior Vice President and Chief Financial Officer, and Stuart Kupinsky, our Senior Vice President, Corporate Affairs and General Counsel. Under the terms of these agreements, subject to the closing of the merger and each such officer’s execution of an effective release of claims in favor of the Company, within eight days following the merger, Messrs. de Lange, Rush and Kupinsky will receive lump sum payments equal to $2,200,000, $928,000 and $744,000, respectively. Upon receipt of any such payments, Mr. de Lange will have no further rights under the Company’s 2011 Officer Severance Plan, and Messrs. Rush and Kupinsky will have no further rights under the Company’s 2007 Officer Severance Plan.

Each agreement also provides that Parent, Merger Subsidiary and the officer who is a party thereto intends to continue employment with the Company following the merger. In the event that prior to the closing of the merger any of the officers is terminated by the Company without cause (as defined in the applicable officer severance plan) or terminates employment for good reason (as defined in the applicable officer severance plan), he will be eligible to receive only those benefits he may be entitled to receive under the terms of the Company’s 2011 Officer Severance Plan or the Company’s 2007 Officer Severance Plan, as applicable. In the event of any such termination of an officer prior to the closing, no amounts will be payable under his Agreement and Intent to Continue Employment. For information regarding potential benefits payable to these officers in connection with the merger, see “Golden Parachute Compensation” beginning on page [                ].

 

48


Table of Contents

New Arrangements with Surviving Corporation after Closing — Employment and Equity Term Sheets

On November 6, 2011, Parent and each of Messrs. de Lange, Rush and Kupinsky entered into a “Summary of Employment and Equity Terms,” which provides that it will become effective upon the closing of the merger and sets forth the principal terms of the employment arrangements between the Company and the officer, to be effective as of the closing of the merger. The principal terms of such arrangements are set forth below:

 

   

Title. Each officer is expected to retain his current title and position in the Company following the merger.

 

   

Term. There will be no fixed term of employment.

 

   

Base Salary. The annual base salaries for Messrs. de Lange, Rush and Kupinsky will be $465,000, $310,000 and $320,000, respectively.

 

   

Annual Target Cash Bonus Opportunity; Net Cash Collections Bonus. The annual cash bonus opportunity for Messrs. de Lange, Rush and Kupinsky will be targeted at 100%, 60% and 60%, respectively, of the officer’s annual base salary. Each of the officers will also be eligible to receive annual cash bonuses based on net cash collections in the Company’s Global Signaling Solutions, or GSS, business unit (the “Cash Collection Bonuses”). The target Cash Collection Bonuses for Messrs. de Lange, Rush and Kupinsky are $600,000, $400,000 and $200,000, respectively.

 

   

Severance Upon a Qualifying Termination of Employment. In the event the Company terminates the officer’s employment without “cause” or the officer resigns for “good reason,” the officer will be entitled to severance benefits that include (i) cash severance equal to one year of base salary (for Mr. de Lange, the severance amount will be equal to one year of base salary plus target bonus if he is terminated within 24 months after the closing of the merger), payable in installments (or in a lump sum if such termination occurs during the one-year period following a subsequent change in control of the Company); and (ii) reimbursement of COBRA premiums for a period of between 12 and 24 months after termination of employment, with the exact time period depending on the officer’s position and on the number of months that have then elapsed following the closing of the merger.

 

   

Equity Investments. Each officer will invest in Parent by purchasing Parent equity following the closing. Mr. de Lange will invest $400,000, and Messrs. Rush and Kupinsky will each invest $50,000.

 

   

Stock Options. At or after the closing of the merger, the Company expects that its Broadband Network Solutions business unit will be separated out into a separate operating subsidiary which is referred to as “BNS.” Each officer will be granted a nonqualified stock option to acquire common stock of BNS. Messrs. de Lange, Rush and Kupinsky will be granted options to acquire 1.5%, 0.31% and 0.27%, respectively, of the fully diluted common stock of BNS. Subject to the officer’s continued employment on each applicable vesting date, the option will vest as to 25% of the shares subject to the option on the first anniversary of the grant date and, as to the remaining 75% of the shares, in three equal installments on the second, third and fourth anniversaries thereof. The option will be subject to accelerated vesting in the event of a subsequent change in control (as will be defined in the applicable stock option plan).

 

   

Restrictive Covenants. Each officer will be subject to standard covenants relating to non-disclosure of confidential information, ownership of intellectual property and non-disparagement, as well as covenants not to compete or to solicit employees or customers for a period of 12 months after termination of employment for any reason.

 

   

New Employment Agreements. Each officer agrees to negotiate a new employment agreement with Parent following the closing of the merger, which agreement will be consistent with the terms of the employment and equity term sheets and will govern the terms of the officer’s employment with the Company. The new employment agreements will be effective retroactively to the closing of the merger.

Golden Parachute Compensation

The following table sets forth the information required by Item 402(t) of Regulation S-K regarding “golden parachute” compensation that as a result of the merger may (in the case of “double trigger” arrangements) or will

 

49


Table of Contents

(in the case of “single trigger” arrangements) become payable to those individuals who are our “named executive officers” as set forth in the proxy statement for the Company’s 2011 Annual Meeting of Shareholders.

In the event the merger occurs, the golden parachute compensation that will or may be paid to the named executive officers of the Company will consist of:

 

   

cash severance and reimbursement of COBRA premiums that Messrs. de Lange, Rush and Kupinsky may be entitled to receive under the “double trigger” change in control provisions in our 2011 Officer Severance Plan and 2007 Officer Severance Plan, as applicable, or, alternatively, and as described above under “New Agreements with Parent and Merger Subsidiary,” cash payments that each of Messrs. de Lange, Rush and Kupinsky will be entitled to receive on a “single trigger” basis within eight days following the closing of the merger in consideration for such officer’s waiver of his rights under the Company’s 2011 Officer Severance Plan or 2007 Officer Severance Plan, as applicable; and

 

   

cash compensation that the officers will be entitled to receive on a “single trigger” basis following the effective time of the merger as a result of the accelerated vesting of outstanding share appreciation rights and restricted stock units that are held by them at the effective time of the merger.

The below table assumes that:

 

   

the merger consideration per share of common stock of the Company is $11.00;

 

   

the merger closed on November 8, 2011; and

 

   

for purposes of our officer severance plans, the officers experience qualifying terminations of employment at the effective time of the merger.

Golden Parachute Compensation

Name

   Cash(1)(2)      Equity(3)      Perquisites/
Benefits(4)
     Total(5)  

Ronald L. de Lange

   $ 2,200,000       $ 2,111,548       $ 8,957       $ 4,311,548   

Gregory S. Rush

     928,000         839,231         26,700         1,793,931   

Stuart H. Kupinsky

     744,000         824,596         20,025         1,588,621   

Frank Plastina(6)

     —           —           —           —     

William H. Everett(7)

     —           —           —           —     

Wolrad Claudy(8)

     —           —           —           —     

 

(1) Cash. In the event that the merger occurs and as described above under “New Agreements with Parent and Merger Subsidiary,” (i) Parent will cause these “single trigger” amounts to be paid to the officers within eight days following the closing of the merger, subject to each officer’s execution of an effective release of claims in favor of the Company, and (ii) the officers will thereafter have no further rights under the Company’s 2011 Severance Plan (in the case of Mr. de Lange) or 2007 Officer Severance Plan (in the case of Messrs. Rush and Kupinsky). Any payments made under the applicable Agreement and Intent to Continue Employment will not be made pursuant to our officer severance plans and are not subject to the non-binding, advisory vote that we are seeking from our shareholders as discussed under “Advisory Vote on Golden Parachute Compensation”beginning on page [            ].

 

(2)

Cash. In the event that the merger occurs but an officer does not receive the golden parachute compensation described in Footnote 1 above, the officer will remain subject to our officer severance plans and may become entitled to receive, subject to the terms and conditions set forth therein, (i) in the case of Mr. de Lange and under our 2011 Officer Severance Plan, the lesser amount of $1,800,000, which represents lump sum cash severance in an amount equal to two times Mr. de Lange’s “annual compensation,” which consists of annual base salary and bonus components as described in more detail below under “Narrative to Golden Parachute Compensation Table,” and (ii) in the case of Messrs. Rush and Kupinsky and under our 2007 Officer Severance Plan, this same amount, which represents lump sum cash severance in an amount equal to two times (for Mr. Rush) and one and one-half times (for Mr. Kupinsky) the officer’s “annual compensation,” which consists of annual base salary and bonus components as described in more detail

 

50


Table of Contents
  below under “Narrative to Golden Parachute Compensation Table.” Any such payments would result from the “double trigger” change in control provisions in our officer severance plans. Under these “double trigger” provisions, the cash severance is payable only if (i) the merger occurs and (ii) the officer’s employment terminates under certain qualifying circumstances as described below under “Narrative to Golden Parachute Compensation Table.”

 

(3) Equity. Represents the aggregate lump sum payments to be made in respect of unvested options, unvested share appreciation rights and restricted stock units as discussed on page [            ]. Such values would result, pursuant to the terms of the merger agreement, from the accelerated vesting, cancellation and cash payment with respect to such equity awards upon consummation of the merger. Such payments therefore result from “single trigger” arrangements and will be paid regardless of whether the officer’s employment terminates. With respect to unvested options and share appreciation rights, the value of the cash payments set forth above is equal to the number of outstanding options and share appreciation rights held by the executive multiplied by the product of (i) the number of shares of Company common stock subject to each option and/or share appreciation right, and (ii) the excess, if any, of the merger consideration over the exercise price per share of the option and/or share appreciation right. With respect to unvested restricted stock units, the value of the cash payment set forth above is equal to the number of outstanding restricted stock units held by the executive multiplied by the merger consideration. For Mr. de Lange, the aggregate value of stock options that will vest is $0, the aggregate value of share appreciation rights that will vest is $462,142 and the aggregate value of restricted stock units that will vest is $1,649,406; for Mr. Rush, the aggregate value of stock options that will vest is $0, the aggregate value of share appreciation rights that will vest is $213,760 and the aggregate value of restricted stock units that will vest is $625,471; and for Mr. Kupinsky the aggregate value of stock options that will vest is $0, the aggregate value of share appreciation rights that will vest is $190,380 and the aggregate value of restricted stock units that will vest is $634,216.

 

(4) Perquisites/Benefits. Represents the estimated value of two years (for Messrs. de Lange and Rush) and one and one-half years (for Mr. Kupinsky) of reimbursement of COBRA premiums for continued health coverage under the Company’s group health plan to the same extent to which the officers were covered under such plan on the date immediately preceding the assumed date of the merger. These amounts would result from the “double trigger” change in control provisions in the Company’s 2011 Officer Severance Plan and the Company’s 2007 Officer Severance Plan and are applicable only if an officer’s employment terminates under certain circumstances as described below under “Narrative to Golden Parachute Compensation Table.” None of Messrs. de Lange, Rush and Kupinsky will be entitled to these payments under the terms of the applicable Agreement and Intent to Continue Employment between Parent and Merger Subsidiary.

 

(5) Represents the maximum amount of the golden parachute compensation payable to the officers. For Mr. de Lange, excludes the value of “perquisites/benefits,” which will not become payable in the event of the payment of a cash lump sum to Mr. de Lange of $2,200,000 pursuant to Mr. de Lange’s Agreement and Intent to Continue Employment with Parent and Merger Subsidiary. See Footnote 1 above.

 

(6) Mr. Plastina, our former President and Chief Executive Officer, ceased to be an executive officer of the Company on January 4, 2011 and will receive no compensation that is based on or otherwise related to the merger.

 

(7) Mr. Everett, our former Executive Vice President and Chief Financial Officer, ceased to be an executive officer of the Company on March 31, 2010 and will receive no compensation that is based on or otherwise related to the merger.

 

(8) Mr. Claudy, our former Executive Vice President, Global Sales, ceased to be an executive officer of the Company on April 29, 2011 and will receive no compensation that is based on or otherwise related to the merger.

Narrative to Golden Parachute Compensation Table

In connection with the merger and under the terms of our 2011 Officer Severance Plan, if within the period commencing two months prior to and ending 18 months after the merger, Mr. de Lange elects for good reason (as

 

51


Table of Contents

defined in the plan, and which would include, among other things, “a significantly adverse change in the nature or status of the officer’s responsibilities or the conditions of such officer’s employment from those in effect prior to the merger”) to terminate his employment with the Company or is terminated by the Company without cause (as defined in the plan), Mr. de Lange will be entitled to receive the change in control cash severance compensation and reimbursement of COBRA premiums described in the tables above. The lump sum cash payment that would be payable to Mr. de Lange under such circumstances is equal to 200% of his annual compensation, which is defined as his annual base salary and target bonus at the time he terminates employment.

In connection with the merger and under the terms of our 2007 Officer Severance Plan, if Messrs. Rush or Kupinsky elect for good reason (as defined in the plan, and which would include, among other things, “a significantly adverse change in the nature or status of the officer’s responsibilities or the conditions of such officer’s employment from those in effect prior to the merger”) to terminate employment within eighteen months (in the case of Mr. Rush) or one year (in the case of Mr. Kupinsky) after the closing of the merger or if the officer is terminated by the Company without cause (as defined in the plan) within two years after the closing of the merger, the officer will be entitled to receive the change in control cash severance compensation and reimbursement of COBRA premiums described in the table above. The lump sum cash payments that would be payable to Messrs. Rush and Kupinsky under such circumstances are equal to 200% and 150%, respectively, of their highest annual compensation, which is defined as the officer’s highest annual base salary and target bonus at the time the officer terminates employment.

As a condition of receiving change in control severance benefits under either the 2011 Officer Severance Plan or the 2007 Officer Severance Plan, the officer must sign a severance agreement that includes a release of any claims he may have against the Company (including a covenant not to sue) and post-termination non-disclosure, non-compete, non-solicitation, non-disparagement and cooperation provisions.

In connection with the merger, the vesting of all outstanding stock options, share appreciation rights and restricted stock units will accelerate in full so that such stock awards will become fully vested, to the extent not already fully vested, immediately prior to the completion of the merger. Once vested, each outstanding stock option and share appreciation right will represent the right to receive a cash payment equal to the product of (i) the number of shares of our common stock subject to such option or share appreciation right outstanding immediately prior to the effective time of the merger, and (ii) the excess, if any, of the merger consideration over the exercise price of the option or share appreciation right, less applicable withholding taxes. Once vested, each outstanding restricted stock unit will represent the right to receive the merger consideration less any applicable withholding taxes.

Under the terms of the officer severance plans, in the event that any amounts or benefits of any type paid or provided by the Company to or for the benefit of Messrs. de Lange, Rush or Kupinsky under the officer severance plans or otherwise would exceed the statutory golden parachute limits so as to result in an excise tax or similar tax imposed on such officer, then the officer is entitled in full satisfaction of his rights under the Company’s officer severance plans (i) the amounts and benefits provided under our officer severance plans as summarized above, or (ii) an amount equal to 2.99 times the officer’s “base amount” of compensation (as defined under Code Section 280G), whichever yields the highest after-tax benefit to the officer. If the amount equal to 2.99 times the officer’s base amount results in the highest after-tax benefit, such amount will be paid in a lump sum, less all applicable withholding taxes.

Indemnification and Insurance

The merger agreement contains provisions relating to the indemnification of and insurance for the Company’s and its subsidiaries’ directors and officers. Pursuant to the merger agreement, Parent has agreed that for six years after the effective time of the merger, it will cause the Company to indemnify and hold harmless the Company’s and its subsidiaries’ present and former directors and officers for acts or omissions occurring at or prior to the effective time of the merger to the fullest extent provided under applicable law or provided under the

 

52


Table of Contents

Company’s amended and restated articles of incorporation, amended and restated bylaws, and indemnification agreements with its directors and officers (in each case, as in effect as of the date of the merger agreement), subject to any limitation imposed under applicable law.

Under the merger agreement, Parent will maintain for a period of six years after the effective time an insurance policy covering persons who were directors and officers of the Company and its subsidiaries prior to the merger for the actions taken by such directors and officers in their capacities as directors and officers of the Company and its subsidiaries prior to the merger on terms with respect to coverage and amounts no less favorable than those of such policy in effect on the date of the merger agreement, provided, however, that Parent will not be required to pay annual premiums in excess of 300% of the amount of the premium per annum the Company paid in its last full fiscal year. Alternatively, prior to the effectiveness of the merger, at the Company’s request, Parent may purchase a six year prepaid “tail policy” on terms and conditions reasonably acceptable to Parent providing coverage benefits and terms no less favorable than the Company’s current policy, provided that Parent will not be required to pay annual premiums in excess of 300% of the premium amount of the premium per annum the Company paid in its last full fiscal year.

The present and former directors and officers of the Company and its subsidiaries will have the right to enforce provisions of the merger agreement relating to their indemnification and are express third party beneficiaries of the merger agreement solely for this purpose.

Intent to Vote in Favor of the Merger

As of the record date, the directors and executive officers of the Company beneficially owned and were entitled to vote, in the aggregate, [            ] shares of Company common stock (not including any shares of Company common stock deliverable upon exercise of any options or share appreciation rights to acquire shares of Company common stock or deliverable upon vesting of restricted stock units), representing [            ]% of the outstanding shares of Company common stock on the record date. The directors and executive officers of the Company have informed the Company that they currently intend to vote all of their shares of Company common stock “FOR” the proposal to approve the merger agreement, “FOR” the proposal to approve, on a non-binding, advisory basis, certain merger-related executive compensation arrangements and “FOR” the proposal to adjourn or postpone the special meeting to a later date, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the special meeting to approve the proposal to approve the merger agreement.

Financing of the Merger

We anticipate that the total funds needed to complete the merger, including the funds needed to:

 

   

pay our shareholders (and holders of our other equity-based interests) the amounts due to them under the merger agreement, which, based upon the shares (and our other equity-based interests) outstanding as of [                ], 2011, would be approximately $780 million; and

 

   

pay fees and expenses related to the merger and the debt that will finance the merger,

will be funded through a combination of:

 

   

equity financing to be provided as described below by an investor group including the Credit Suisse investors, the Comvest investor, the GSO investor, the Parish investor, the Rosemont Solebury investors, the Sankaty investors, the ZM Capital investor and the Siris investor;

 

   

debt financing to be provided as described below by investment funds managed or advised by Sankaty Advisors, LLC and GSO Capital Partners LP; and

 

   

cash on hand of the Company.

Parent has obtained the equity financing commitments and the debt financing commitment described below. The funding under the financing commitments are subject to certain conditions, including conditions that do not

 

53


Table of Contents

relate directly to the merger agreement. We cannot assure you that the amounts committed under the financing commitments will be sufficient to complete the merger. Those amounts might be insufficient if, among other things, one or more of the parties to the financing commitments fail to fund the committed amounts in breach of such financing commitments and/or if any of the conditions to such financing commitments are not satisfied. Although obtaining the proceeds of any financing, including the financing under the financing commitments, is not a condition to the completion of the merger, the failure of Parent and Merger Subsidiary to obtain any portion of the committed financing (or alternative financing) is likely to result in the failure of the merger to be completed. In that case, Parent may be obligated to pay the Company the $40 million parent fee. The obligation of Parent to pay the parent fee of $40 million is guaranteed by the guarantor referred to below.

Equity Financing

Parent has received equity financing commitments from the equity investors, each dated November 6, 2011, pursuant to which they have committed to make contributions to Parent at or prior to the closing of the merger in an aggregate amount of up to $224.4 million. The obligation to fund the commitment under each equity financing commitment is subject to the following conditions:

 

   

satisfaction in full, or waiver by Parent, of the conditions precedent to Parent’s and Merger Subsidiary’s obligation to complete the merger (except those conditions the failure of which to be satisfied resulted from a breach by Parent or Merger Subsidiary or those which by their nature cannot be satisfied except at the time of closing);

 

   

the substantially simultaneous funding of the debt financing and at least 90% of the equity financing from the other equity investors; and

 

   

the substantially simultaneous consummation of the merger in accordance with the terms of the merger agreement.

Debt Financing

In connection with the entry into the merger agreement, Parent received a debt financing commitment, dated November 6, 2011, from the debt investors providing for up to $400 million of term debt financing. The Company will be the borrower under the facility (the “Borrower”). The proceeds of borrowings under the facility will be used to finance, in part, the payment of the amounts payable under the merger agreement, the payment of fees and expenses incurred in connection with the merger and the refinancing or repayment of any existing debt. The debt financing is conditioned on the consummation of the merger on the terms set forth in the merger agreement, as well as other customary conditions, including, but not limited to:

 

   

accuracy of certain specified representations and warranties in all material respects (including no material adverse effect with respect to the Company);

 

   

completion of the equity financing;

 

   

substantially simultaneously with initial borrowing under the facility, Parent and its subsidiaries having no indebtedness except for the facility, trade payables, capital leases, equipment financings and other indebtedness permitted to remain outstanding;

 

   

receipt of certain audited and unaudited financial statements of the Company;

 

   

execution and delivery of all documents necessary for the creation and perfection of security interests in certain collateral;

 

   

receipt of all reasonably requested documentation and other information about the Borrower and the guarantors needed to comply with certain regulatory requirements;

 

   

delivery of customary legal opinions, closing certificates (including a solvency certificate) and insurance certificates;

 

   

payment of all fees and expenses;

 

54


Table of Contents
   

concurrently with funding of the facility, issuance to the initial lenders co-investing with the equity investors equity constituting $65 million of the equity interests of Parent;

 

   

after giving effect to the merger and the payment of fees and expenses accrued or incurred on or prior to the closing date of the merger, the Borrower having cash and cash equivalents of at least $90 million (including $80 million in the United States);

 

   

issuance to the initial lenders, on a pro rata basis based on their respective “last out” loan commitments equity constituting 1.00% to 4.00% of the membership interests of Parent (depending on the issuance of additional junior capital prior to the closing) on the closing date after giving effect to the merger; and

   

receipt of all sources and uses and funds flow for the merger and related transactions consistent with the conditions to the closing date.

Under the merger agreement, if any portion of the debt financing becomes unavailable on substantially the terms and conditions contemplated in the debt financing commitment, Parent must use its reasonable best efforts to arrange and obtain alternative financing from alternative sources on terms and conditions that are no less favorable to Parent, taken as a whole, than those set forth in the debt financing commitment, in an amount sufficient to consummate the transactions contemplated by the merger agreement as promptly as practicable following the occurrence of such event. As of the date of this proxy statement, no such alternative financing arrangements have been made. The documentation governing the facility has not been finalized and, accordingly, the actual terms may differ from those described in this proxy statement. There is no plan or arrangement regarding the refinancing or repayment of the debt financing except as described herein.

The first-out loans under the facility are expected to bear interest at a rate of adjusted LIBOR plus 7.5% or the alternate base rate (“ABR”) plus 6.5%, at the option of the Borrower. The last-out loans under the facility are expected to bear interest at a rate of adjusted LIBOR plus 12.0% or ABR plus 11.0%, at the option of the Borrower. Adjusted LIBOR shall not be less than 1.5% at any time and ABR shall not be less than 2.5% at any time.

All obligations of the Borrower under the facility are expected to be guaranteed on a senior secured basis by Holdings and by each of Borrower’s existing and subsequently acquired or organized direct or indirect U.S. subsidiaries, subject to certain exceptions (the “Guarantors”).

The obligations of the Borrower and the Guarantors under the facility are expected to be secured, subject to permitted liens and other agreed upon exceptions, by perfected first-priority security interests in substantially all of the present and after acquired assets of the Borrower and each Guarantor and by a first-priority lien on all of equity interests of the Borrower and each direct subsidiary of the Borrower and each subsidiary Guarantor (limited, in the case of foreign subsidiaries, to 100% of the non-voting capital stock and 65% of the voting capital stock of such subsidiaries).

Limited Guarantee

Pursuant to a limited guarantee delivered by an affiliate of Siris in favor of the Company, dated November 6, 2011, the guarantor has guaranteed payment of the $40 million parent fee in the event that it becomes payable by Parent to the Company under the merger agreement. This limited guarantee will remain in full force and effect until the earlier of (i) closing of the transactions contemplated by the merger agreement, (ii) the termination of the merger agreement under circumstances in which Parent would not be obligated to pay the parent fee or make other payments and (iii) the payment in full by Parent, the guarantor, Merger Subsidiary, or any other person of all of the obligations of Parent to the Company under the limited guarantee.

If the Company or any of its affiliates asserts a claim other than as permitted under the limited guarantee, including that the limitations on the guarantor’s liability under the limited guarantee or that any provision of the limited guarantee is illegal, invalid or unenforceable in whole or in part, then the limited guarantee will immediately terminate and become null and void by its terms.

 

55


Table of Contents

Interim Investors Agreement

In connection with the execution and delivery of the merger agreement, Parent and the equity investors have entered into an interim investors agreement setting forth certain terms and conditions governing the relationship among the parties until the consummation of the merger. In addition to certain representations and warranties of the parties, the interim investors agreement provides for, among other things, (i) control by an affiliate of Siris over the specified actions or omissions of Parent and Merger Subsidiary (with respect to certain actions or omissions subject to the approval of equity investors making in the aggregate at least two-thirds of the total equity contribution set forth in the equity financing commitments), (ii) the entrance into, concurrently with the consummation of the merger, a new limited liability company agreement of Parent, (iii) the right of Parent to enforce (including by specific performance) the provisions of each equity financing commitment (provided such enforcement is applied equally, equitably and in good faith with respect to all equity investors in accordance with the interim investors agreement), (iv) restrictions on the transfer of obligations and/or rights under the interim investors agreement and any equity financing commitment, (v) the allocation among the equity investors of certain fees and expenses incurred by Parent and Merger Subsidiary, (vi) the ownership of Parent’s membership interests, (vii) the use of reasonable best efforts to pursue certain necessary antitrust approvals by the equity investors, and (viii) the entrance into by Parent, at or prior to the consummation of the merger, of a management agreement with Siris or one of its affiliates.

Interests of Our Directors and Executive Officers

In considering the recommendation of our board of directors, you should be aware that certain of our directors and executive officers have interests in the merger that are different from or in addition to your interests as a shareholder and that may present actual or potential conflicts of interest. Such interests include:

 

   

the accelerated vesting of all unvested stock options, unvested share appreciation rights and unvested restricted stock units held by our directors and executive officers;

 

   

Messrs. de Lange, Rush and Kupinsky have each entered into agreements with Parent and Merger Subsidiary related to, among other matters, their post-closing (i) employment with the Company and (ii) ownership of equity interests in Parent;

 

   

pursuant to such agreements, Parent has also agreed to pay, or to cause the Company to pay, to each of Messrs. de Lange, Rush and Kupinsky following the closing of the merger a lump sum cash amount in consideration for such officer’s waiver of his rights under the Company’s applicable officer severance plan; and

 

   

the potential payment in connection with the merger of severance benefits our executive officers pursuant to the terms of the Company’s officer severance plans.

Our board of directors was aware of these interests and considered that such interests may be different from or in addition to the interests of our shareholders generally in approving the merger agreement and the transactions contemplated thereby, including the merger, and in determining to unanimously recommend that our shareholders vote to approve the merger agreement. You should consider these and other interests of our directors and executive officers that are described in this proxy statement.

Regulatory Approvals

The HSR Act and the regulations promulgated thereunder require the Company and Parent to file premerger notification and report forms with respect to the merger and related transactions with the Antitrust Division of the U.S. Department of Justice and the FTC. The Parties filed their respective required premerger notification and report forms on [            ], 2011.

At any time before or after the completion of the merger, and before or after the expiration of the premerger waiting period under the HSR Act, the Antitrust Division of the U.S. Department of Justice or the Federal Trade

 

56


Table of Contents

Commission or any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the merger, to rescind the merger or to seek divestiture of particular assets. Private parties also may seek to take legal action under the antitrust laws under certain circumstances. Although there is no assurance that they will not do so, we do not expect any regulatory authority, state or private party to take legal action under the antitrust laws.

Although we do not expect these regulatory authorities to raise any significant concerns in connection with their review of the merger, there is no assurance that we will obtain all required regulatory approvals, or that those approvals will not include terms, conditions or restrictions that may have an adverse effect on the Company or, after the completion of the transaction, on Parent or the surviving corporation.

The merger may be subject to certain regulatory requirements of other municipal, state, federal and foreign governmental and self-regulatory agencies and authorities, including those relating to the offer and sale of securities. Together with Parent, we are currently working to evaluate and comply in all material respects with these requirements, as appropriate, and do not currently anticipate that they will hinder, delay or restrict completion of the merger. If any approval or action is needed, however, we may not be able to obtain it or any of the other necessary approvals. Even if we could obtain all necessary approvals and the merger agreement is approved by our shareholders, conditions may be placed on the merger by regulatory authorities that could cause us to abandon it.

Closing and Effective Time of the Merger

Unless Parent and the Company otherwise agree, the closing of the merger will take place on the second business day following the date on which the last of the conditions to closing of the merger (described under “The Merger Agreement — Conditions to the Merger” beginning on page [                ]) has been satisfied or waived (other than the conditions that by their nature are to be satisfied at the closing of the merger, but subject to the satisfaction or, to the extent permissible, the waiver of those conditions at the closing of the merger) or an earlier day as may be mutually agreed by Parent and the Company.

Assuming timely satisfaction of the necessary closing conditions, we are targeting to complete the merger by the end of the first quarter of 2012; provided, however that, the parties cannot predict the exact timing of the completion of the merger or whether the merger will be completed at a later time as agreed to by the parties or at all. The effective time of the merger will occur as soon as practicable following the closing of the merger upon the filing of the certificate of merger with the Secretary of State of the State of California (or at such later date as permitted by California law, as the Company and Parent may agree and specify in the certificate of merger).

Payment of Merger Consideration and Surrender of Stock Certificates

Each record holder of shares of Company common stock (other than holders of certain excluded shares) will be sent a letter of transmittal describing how such holder may exchange such holders’ shares of Company common stock for the per share merger consideration after the completion of the merger.

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

You will not be entitled to receive the per share merger consideration until you deliver a duly completed and executed letter of transmittal to the paying agent. If your shares are certificated, you must also surrender your stock certificate or certificates to the paying agent. If ownership of your shares is not registered in the transfer records of the Company, a check for any cash to be delivered will only be issued if the applicable letter of transmittal is accompanied by all documents reasonably required by the Company to evidence and effect such transfer and to evidence that any applicable stock transfer taxes have been paid or are not applicable.

 

57


Table of Contents

Dissenting Shareholders Rights

Shareholders may be entitled, under certain circumstances, to dissenting shareholder rights under California law. Company shareholders who do not vote “FOR” approval of the merger agreement and otherwise comply with the requirements of Chapter 13 of the California General Corporation Law will be entitled to dissenting shareholder rights in connection with the merger, whereby such shareholders may receive payment of the “fair market value” of their shares of Company common stock in cash from the Company, if shareholders holding in the aggregate at least five percent of the Company’s outstanding shares of common stock properly exercise their dissenting shareholder rights under Chapter 13 of the California General Corporation Law. Failure to take any of the steps required under Chapter 13 of the California General Corporation Law on a timely basis may result in a loss of those dissenting shareholder rights. For a detailed discussion of dissenting shareholder rights under California law, see “Rights of Dissenting Shareholders” beginning on page [                ].

Material United States Federal Income Tax Consequences of the Merger

The following is a summary of the material U. S. federal income tax consequences of the merger to U.S. holders (as defined below) and non-U.S. holders (as defined below) of Company common stock whose shares will be converted to cash in the merger. It is assumed the holders of Company common stock hold their shares as capital assets within the meaning of section 1221 of the Internal Revenue Code of 1986, as amended, which we refer to as the “Code.” This summary is based on the provisions of the Code, Treasury regulations, administrative rulings and judicial authority, all as in effect as of the date of this proxy statement, and all of which are subject to change, possibly with retroactive effect. No assurances can be given that any change in these laws or authorities will not affect the accuracy of the discussion set forth herein.

This summary is not a complete description of all the tax consequences of the merger and, in particular, may not address U.S. federal income tax considerations applicable to holders of Company common stock who are subject to special treatment under U.S. federal income tax law, including, for example, certain U.S. expatriates, financial institutions or broker-dealers, mutual funds, regulated investment companies, S corporations, partnerships, limited liability companies taxed as partnerships, or other pass-through entities (or an investor, partner or member in such pass-through entity), dealers in securities or currencies, traders in securities that elect mark-to-market treatment, insurance companies, tax-exempt entities, U.S. holders (as defined below) whose “functional currency” is not the U.S. dollar, controlled foreign corporations, passive foreign investment companies, holders subject to the U.S. federal alternative minimum tax, holders who acquired Company common stock pursuant to the exercise of an employee stock option or right or otherwise as compensation, holders exercising dissenting shareholder rights, and holders who hold Company common stock as part of a hedge, straddle, constructive sale or conversion transaction.

This summary does not address U.S. federal income tax considerations applicable to holders of options to purchase Company common stock, holders of Company restricted stock units, or holders of Company share appreciation rights. In addition, this summary does not address any aspect of state, local or non-U.S. laws or estate, gift, excise or other non-income tax laws. Furthermore, the discussion below neither binds the U.S. Internal Revenue Service (the “IRS”) nor precludes it from adopting a contrary position.

WE URGE ALL HOLDERS TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES AND THE CONSEQUENCES OF THE MERGER UNDER U.S. FEDERAL NON-INCOME TAX LAWS AND STATE, LOCAL AND NON-U.S. TAX LAWS.

U.S. Holders

Definition. For purposes of this discussion, the term “U.S. holder” means a beneficial holder of Company common stock that is:

 

   

an individual citizen or resident of the U.S.;

 

58


Table of Contents
   

a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia;

 

   

a trust that (i) is subject to both the primary supervision of a court within the U.S. and the control of one or more U.S. persons; or (ii) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person; or

 

   

an estate that is subject to U.S. federal income tax on its income regardless of its source.

If a partnership (including any entity or arrangement, domestic or foreign, that is treated as a partnership for U.S. federal income tax purposes) holds Company common stock, the tax treatment of a partner will generally depend on the status of the partners and the activities of the partnership. Partnerships and partners in such a partnership should consult their tax advisors about the tax consequences of the merger to them.

Tax Consequences of the Merger. The exchange of Company common stock for cash in the merger will be a taxable transaction for U.S. federal income tax purposes. A U.S. holder whose Company common stock is converted into the right to receive cash in the merger will recognize gain or loss for U.S. federal income tax purposes equal to the difference, if any, between the amount of cash received by such holder in the merger, and the U.S. holder’s adjusted tax basis in such Company common stock. Gain or loss will be determined separately for each block of Company common stock. A block of stock is generally a group of shares acquired at the same cost in a single transaction. Such gain or loss will be long-term capital gain or loss provided that a U.S. holder’s holding period for such Company common stock is more than one year (12 months) at the time of the completion of the merger. The deductibility of capital losses is subject to limitations. U.S. Holders who directly or indirectly own equity interests in Parent or who will acquire equity interests in Parent should consult their tax advisors as their tax consequences may vary.

Non-U.S. Holders

Definition. A “non-U.S. holder” is a beneficial owner of Company common stock (other than an entity treated as a partnership for U.S. federal income tax purposes) that is not a U.S. holder.

Tax Consequences of the Merger. Any gain a non-U.S. holder recognizes from the exchange of Company common stock for cash in the merger generally will not be subject to U.S. federal income tax unless (i) the gain is effectively connected with a trade or business conducted by the non-U.S. holder in the United States (and, if required by an applicable income tax treaty, is attributable to a United States permanent establishment or fixed base of the non-U.S. holder), or (ii) in the case of a non-U.S. holder who is an individual, such holder is present in the United States for 183 days or more in the taxable year of the sale and other conditions are met.

Non-U.S. holders described in (i) above will be subject to tax on gain recognized at applicable U.S. federal income tax rates and, in addition, non-U.S. holders that are corporations (or treated as corporations for U.S. federal income tax purposes) may be subject to a “branch profits tax” equal to 30% (or lesser rate under an applicable income tax treaty) on their effectively connected earnings and profits for the taxable year, which would include such gain. Non-U.S. holders described in (ii) above will be subject to a flat 30% tax on any gain recognized, which may be offset by U.S. source capital losses. Non-U.S. Holders who directly or indirectly own equity interests in Parent or who will acquire equity interests in Parent should consult their tax advisors as their tax consequences may vary.

Information Reporting and Backup Withholding

In general, information reporting requirements may apply to the amounts paid to U.S. holders and non-U.S. holders in connection with the cash received in connection with the merger, unless an exemption applies. Backup withholding may be imposed (at 28% for 2011 and 31% for 2012 under current law) on the above payments if a U.S. holder or non-U.S. holder (1) fails to provide a taxpayer identification number or appropriate certifications or (2) fails to report certain types of income in full.

 

59


Table of Contents

Any amounts withheld under the backup withholding rules are not additional tax and will be allowed as a refund or credit against applicable U.S. federal income tax liability provided the required information is furnished to the IRS. Both U.S. and non-U.S. holders should consult their own tax advisors regarding the application of backup withholding based on their particular circumstances and the availability and procedure for obtaining an exemption from backup withholding.

THE FOREGOING DISCUSSION OF UNITED STATES FEDERAL INCOME TAX CONSEQUENCES IS FOR GENERAL INFORMATION PURPOSES ONLY AND IS NOT INTENDED TO CONSTITUTE A COMPLETE DESCRIPTION OF ALL TAX CONSEQUENCES RELATING TO THE MERGER. TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO HOLDERS WILL DEPEND UPON THE FACTS OF THEIR PARTICULAR SITUATION. BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, HOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING THE APPLICABILITY TO THEM OF THE RULES DISCUSSED ABOVE AND THE PARTICULAR TAX EFFECTS TO THEM OF THE MERGER, INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.

Litigation Relating to the Merger

The Company is aware of five lawsuits relating to the merger.

On November 8, 2011, Joel Friedberg and Nicholas Geiste filed a lawsuit in the Superior Court of the State of California, County of San Diego, claiming that the Company’s board of directors breached its fiduciary duties by agreeing to the merger and that the Company and the other defendants (Siris, Parent and Merger Subsidiary) aided and abetted the board of directors’ breach of fiduciary duties. Specifically, plaintiffs claim that the deal undervalues the Company, that the agreed-upon deal protection devices are improper, and that four directors agreed to the merger as a way of extinguishing their liability for breaches of fiduciary duties in connection with public statements that form the basis for a separate shareholder derivative action that is currently pending in the United States District Court for the Central District of California (Dulberg v. Plastina, Case No. 8:11-cv-00351-JVS-RNB). Friedberg and Geiste purport to bring this action on their own behalf and on behalf of a class of the Company’s shareholders. They seek damages, as well as an injunction against the merger. The individual defendants and the Company accepted services of process on November 11, 2011, and their responses to the complaint are due on December 12, 2011.

On November 15, 2011, Neil Meislin filed a lawsuit in the Superior Court of the State of California, County of San Diego, purportedly on behalf of himself and a class of shareholders, seeking damages and injunctive relief for breach of fiduciary duty. The claims mirror those described above. To the Company’s knowledge, no defendant has been served with the complaint and no schedule has been set by the court.

Similar lawsuits were filed by Hilary Coyne in the Superior Court of the State of North Carolina, Wake County, Maria C. Limson-Mitchell in the Superior Court of the State of California, County of San Mateo, and Larry D. Ferguson in the Superior Court of the State of North Carolina, Wake County.

 

60


Table of Contents

THE MERGER AGREEMENT (PROPOSAL NO. 1)

The following summary describes the material terms of the merger agreement and is qualified in its entirety by reference to the merger agreement, a copy of which is attached to this proxy statement as Annex A and which we incorporate by reference into this document. This summary does not purport to be complete and may not contain all of the information about the merger that is important to you. We encourage you to read carefully the merger agreement in its entirety because it, and not this proxy statement, is the legal document that governs the merger.

Explanatory Note Regarding the Merger Agreement

The merger agreement is included to provide you with information regarding its terms. Factual disclosures about the Company contained in this proxy statement or in the Company’s public reports filed with the SEC may supplement, update or modify the factual disclosures about the Company contained in the merger agreement. The representations, warranties and covenants made in the merger agreement by the Company, Parent and Merger Subsidiary were qualified and subject to important limitations agreed to by the Company, Parent and Merger Subsidiary in connection with negotiating the terms of the merger agreement. In particular, in your review of the representations and warranties contained in the merger agreement and described in this summary, it is important to bear in mind that the representations and warranties were negotiated with the principal purposes of establishing the circumstances in which a party to the merger agreement may have the right not to consummate the merger if the representations and warranties of the other parties prove to be untrue due to a change in circumstance or otherwise, and allocating risk between the parties to the merger agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to shareholders and reports and documents filed with the SEC and in some cases may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures exchanged between the parties in connection with the execution of the merger agreement. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this proxy statement, may have changed since the date of the merger agreement and subsequent developments or new information qualifying a representation or warranty may have been included in this proxy statement.

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

Subject to the terms and conditions of the merger agreement, and in accordance with California law, at the effective time of the merger, Merger Subsidiary will be merged with and into the Company and, as a result of the merger, the separate corporate existence of Merger Subsidiary will cease and the Company will continue as the surviving corporation and become an indirect wholly-owned subsidiary of Parent.

The board of directors of the surviving corporation will, from and after the effective time of the merger, consist of the directors of Merger Subsidiary until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the articles of incorporation and bylaws of the surviving corporation. The officers of the Company at the effective time of the merger will, from and after the effective time of the merger, be the officers of the surviving corporation until their successors have been duly elected or appointed and qualified or until their earlier death, resignation or removal in accordance with the articles of incorporation and bylaws of the surviving corporation.

The articles of incorporation of the surviving corporation will be in the form of the articles of incorporation attached as an annex to the merger agreement, until amended in accordance with applicable law. The bylaws of the surviving corporation will be the bylaws of Merger Subsidiary in effect at the effective time of the merger, except as to the name of the surviving corporation, until amended in accordance with applicable law.

Following the completion of the merger, the Company common stock will be delisted from Nasdaq and deregistered under the Exchange Act and cease to be publicly traded.

 

61


Table of Contents

Closing and Effective Time of the Merger

Unless Parent and the Company agree otherwise, the closing of the merger will take place on the second business day following the date on which the last of the conditions to the closing of the merger (described under “The Merger Agreement — Conditions to the Merger”) has been satisfied or waived (other than the conditions that by their nature are to be satisfied at the closing of the merger, but subject to the satisfaction or, to the extent permissible, the waiver of those conditions at the closing of the merger), or at such other place, time or on such date as Parent and the Company mutually agree.

Assuming timely satisfaction of the necessary closing conditions, we are targeting a closing of the merger prior to the end of the first quarter of 2012; however, the parties cannot predict the exact timing of the completion of the merger or whether the merger will be completed at a later time as agreed to by the parties or at all. The effective time of the merger will occur at such time as the certificate of merger is filed with the Secretary of State of the State of California (or at such later date as permitted by California law as the Company and Parent may agree and specify in the certificate of merger).

Merger; Treatment of Company Common Stock

The merger agreement provides that each share of Company common stock outstanding immediately prior to the effective time of the merger (other than shares held by the Company or owned by Parent or any of its subsidiaries, or by shareholders who properly exercise their dissenting shareholder rights under California law for such shares) will be converted at the effective time of the merger, by virtue of the merger, into the right to receive cash in the amount of $11.00 per share, without interest and less any applicable withholding taxes. Any outstanding shares of Company common stock that are held by the Company or owned by Parent or any of its subsidiaries will be cancelled without any conversion into a right to payment.

Each share of common stock of Merger Subsidiary outstanding immediately prior to the effective time of the merger will be converted into and become one share of common stock of the surviving corporation.

Treatment of Other Equity Securities

Stock Options

At the effective time of the merger, each option to acquire shares of Company common stock that is outstanding immediately prior to the effective time of the merger, whether vested or unvested, will vest (if unvested) and will be cancelled as of the effective time of the merger in exchange for the right to receive, as soon as reasonably practicable after the effective time of the merger (but in any event, no later than three business days after the effective time of the merger) a cash payment equal to the number of shares of Company common stock subject to the option, multiplied by the excess, if any, by which $11.00 exceeds the per-share exercise price of the option, less any applicable taxes required to be withheld with respect to such payment. Each option for which the exercise price per share of Company common stock equals or exceeds $11.00 will be cancelled and have no further effect, with no right to receive any consideration therefor. In accordance with the terms of the merger agreement, all equity based plans of the Company under which any options are granted (other than a plan under which the only outstanding awards provide fixed cash payment rights), shall be terminated, effective as of the effective time of the merger.

Restricted Stock Units

At the effective time of the merger, each outstanding Company restricted stock unit will become fully vested and be cancelled in exchange for the right to receive, as soon as reasonably practicable after the effective time of the merger (but in no event later than three business days after the effective time of the merger), an amount in cash equal to the product of (a) the total number of shares of Company common stock subject to such restricted stock unit immediately prior to the effective time of the merger, multiplied by (b) $11.00, less any

 

62


Table of Contents

applicable taxes required to be withheld with respect to such payment. In accordance with the terms of the merger agreement, all equity-based plans of the Company under which any restricted stock units are awarded (other than a plan under which the only outstanding awards provide for fixed cash payment rights) shall be terminated, effective as of the effective time of the merger.

Share Appreciation Rights

At the effective time of the merger, each outstanding share appreciation right entitling the holder thereof the right to receive shares of Company common stock (or a cash payment determined in relation to the value thereof), whether or not exercisable or vested, for which the exercise price per share of Company common stock is less than $11.00 shall be cancelled in exchange for the right to receive, promptly after the effective time for the merger, an amount in cash equal to the product of (a) the excess, if any, of $11.00 over the applicable exercise price of such share appreciation right, and (b) the number of shares of Company common stock subject to such share appreciation right, less any applicable taxes required to be withheld with respect to such payment. Each Company share appreciation right for which the exercise price per share of Company common stock equals or exceeds $11.00 shall be cancelled and have no further effect, with no right to receive any consideration therefor. In accordance with the terms of the merger agreement, all equity-based plans of the Company under which any share appreciation rights are granted (other than a plan under which the only outstanding awards provide fixed cash payment rights) shall be terminated, effective as of the effective time of the merger.

Employee Stock Purchase Plan

The merger agreement provides that as soon as practicable following the date of the merger agreement, the board of directors or the compensation committee of the board of directors will adopt resolutions and take any other reasonable actions to provide that with respect to the Company’s Employee Stock Purchase Plan, which we refer to as the “ESPP”: (a) participants in the ESPP may not alter their payroll deductions from those in effect on the date of the merger agreement (other than to discontinue their participation in the ESPP), (b) no offering period will be commenced after the date of the merger agreement, (c) any offering period under the ESPP that is in effect as of the date of the merger agreement shall terminate on the twentieth business day following the date of the merger agreement and all amounts credited to the accounts of participants shall be used to purchase shares of Company common stock in accordance with the terms of the ESPP, and (d)  the ESPP shall be terminated, effective as of the effective time of the merger.

Payment Procedures

At or prior to the effective time of the merger, Parent will deposit, or cause to be deposited, with the paying agent the aggregate consideration to be paid to holders of shares of Company common stock in the merger.

Promptly after the effective time of the merger (and in any event within two business days following the day on which the closing of the merger occurs), Parent will send, or will cause the paying agent to send, to each person who was a record holder of shares of Company common stock immediately prior to the effective time of the merger a letter of transmittal and instructions (which will specify that the delivery will be effected, and risk of loss and title will pass, only upon proper delivery of the certificates of Company common stock or transfer of uncertificated shares to the paying agent in accordance with the procedures set forth in the letter of transmittal) for use in such payment. You should not return your stock certificates until you receive the letter of transmittal and you must follow all instructions set forth in the letter of transmittal when submitting your stock certificates.

You should not return your stock certificates with the enclosed proxy card, and you should not forward your stock certificates to the paying agent without a letter of transmittal.

After the effective time of the merger, each holder of a certificate previously representing shares of issued and outstanding Company common stock will, upon surrender to the paying agent of a certificate, together with a

 

63


Table of Contents

properly completed and validly executed letter of transmittal (or upon receipt by the paying agent of an “agent’s message” in the case of a book-entry transfer of uncertificated shares), be entitled to receive the applicable cash payment for each share of Company common stock represented by such certificate. Until so surrendered or transferred, as the case may be, each such certificate or uncertificated share will represent after the effective time of the merger only the right to receive the merger consideration. You will not be entitled to receive the per share merger consideration until you deliver a duly completed and executed letter of transmittal to the paying agent.

If payment is to be made to a person other than the person in whose name the common stock certificate surrendered (or the transferred uncertificated share) is registered, it will be a condition of payment that the certificate so surrendered be properly endorsed or otherwise be in proper form for transfer (or that an uncertificated share be properly transferred) and that the person requesting such payment pay to the paying agent any transfer or other taxes required by reason of such payment to a person other than the registered holder of the certificate (or uncertificated share), or that such person establish to the satisfaction of the paying agent that such tax has been paid or is not applicable.

From and after the effective time of the merger, there will be no further registration of transfers on our stock transfer books of shares of Company common stock that were outstanding immediately prior to the effective time of the merger. If, after the effective time of the merger, a certificate is (or uncertificated shares are) presented to the surviving corporation, Parent or the paying agent for any reason, such certificate (or uncertificated shares) will be cancelled and, subject to compliance with the exchange procedures set forth in the merger agreement, exchanged for the cash amount to which such person is entitled pursuant to the merger agreement.

Any portion of the merger consideration made available to the paying agent unclaimed by our shareholders six months after the effective time of the merger will be delivered to Parent and any shareholders who have not properly exchanged their shares of Company common stock will thereafter look only to Parent for payment of the merger consideration in the amount due to them under the merger agreement (without interest).

If you have lost a certificate, or if it has been stolen or destroyed, then, before you will be entitled to receive the per share merger consideration, you will have to make an affidavit of the loss, theft or destruction, and, if required by the surviving corporation or paying agent, post a bond in a reasonable amount as the surviving corporation or paying agent will direct, as indemnity against any claim that may be made against it or the surviving corporation with respect to such certificate. These procedures will be described in the letter of transmittal that you will receive, which you should read carefully in its entirety.

Representations and Warranties

The merger agreement contains customary representations and warranties made by the Company that are subject, in some cases, to specific exceptions and qualifications contained in the merger agreement, the Company’s SEC filings and the matters contained in the disclosure schedule delivered by the Company in connection with the merger agreement. These representations and warranties relate to, among other things:

 

   

corporate existence, good standing and qualification to conduct business;

 

   

due authorization for the execution and delivery of, and the valid and binding nature of, the merger agreement;

 

   

governmental authorizations necessary to complete the merger;

 

   

absence of any conflict with organizational documents or any violation of agreements, laws or regulations as a result of the execution, delivery and performance by the Company of the merger agreement and the consummation of the merger;

 

   

disclosure documents relating to the merger agreement;

 

   

finders’ fees and fees payable to financial advisors in connection with the merger;

 

64


Table of Contents
   

our capital structure;

 

   

the declaration of advisability of the merger agreement by the board of directors and the approval of the merger agreement by the board of directors;

 

   

our subsidiaries;

 

   

SEC filings since January 1, 2008 and our financial statements included therein;

 

   

compliance with the Sarbanes-Oxley Act;

 

   

disclosure controls and procedures and internal controls over financial reporting;

 

   

indebtedness of the Company and its subsidiaries;

 

   

the absence of certain changes and actions since July 1, 2011, including any material adverse effect on the Company (as described below);

 

   

the absence of certain undisclosed liabilities;

 

   

the absence of legal proceedings and government orders;

 

   

compliance with applicable laws and permits;

 

   

our material contracts and the absence of any default under any material contract;

 

   

tax matters;

 

   

our employees and employee benefit plans;

 

   

intellectual property, real property, personal property, information technology and environmental matters;

 

   

inapplicability of state anti-takeover statutes to the merger agreement and the merger;

 

   

the receipt of a fairness opinion from Goldman, Sachs & Co.;

 

   

affiliate transactions; and

 

   

insurance matters.

Many of the representations and warranties in the merger agreement are qualified as to “materiality” or “material adverse effect.” For purposes of the merger agreement, “material adverse effect” means, with respect to the Company, any change, effect, circumstance, development or event that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the financial condition, business, assets or results of operations of the Company and its subsidiaries, taken as a whole, other than any changes, effects, circumstances, developments or events resulting from, arising out of or attributable to:

 

   

the economy or the financial, credit or securities markets in general (including changes in interest or exchange rates);

 

   

the industries in which the Company and its subsidiaries operate, except to the extent such changes, effects, circumstances, developments or events are materially and disproportionately adverse to the Company and its subsidiaries, relative to other persons operating in the industries in which the Company and its subsidiaries operate;

 

   

the announcement or pendency of the transactions contemplated by the merger agreement, the identity of Parent or the performance or compliance with the terms of the merger agreement (including, in each case, any loss of customers, suppliers or employees or disruption in business relationships);

 

   

the failure of the Company to meet internal forecasts, budgets or financial projections or fluctuations in the trading price or volume of the Company’s common stock, it being understood that the underlying causes of such failure or fluctuation may, if not otherwise excluded from the definition of material adverse effect, be taken into account when determining the occurrence of a material adverse effect;

 

65


Table of Contents
   

acts of God, natural disasters, calamities, national or international political or social conditions, including the engagement by any country in hostility, or the occurrence of a military or terrorist attack, except to the extent such changes, effects, circumstances, developments or events are materially and disproportionately adverse to the Company and its subsidiaries, relative to other persons operating in the industries in which the Company and its subsidiaries operate;

 

   

any litigation matters set forth on the disclosure schedule to the merger agreement; and

 

   

changes in applicable law or United States generally accepted accounting principles consistently applied, which we refer to as “GAAP” (or any interpretation thereof), after the date of the merger agreement, except to the extent such changes, effects, circumstances, developments or events are materially and disproportionately adverse to the Company and its subsidiaries, relative to other persons operating in the industries in which the Company and its subsidiaries operate.

For purposes of the merger agreement, “material adverse effect” means, with respect to Parent, any change, effect, circumstance, development or event that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of Parent or Merger Subsidiary to timely perform its obligations under the merger agreement or consummate the merger.

The merger agreement also contains customary representations and warranties made by Parent with respect to Parent and Merger Subsidiary that are subject, in some cases, to specified exceptions and qualifications contained in the merger agreement. The representations and warranties of Parent relate to, among other things:

 

   

corporate existence, good standing and corporate power to conduct business;

 

   

due authorization for the execution and delivery of, and the valid and binding nature of, the merger agreement;

 

   

governmental authorizations necessary to complete the merger;

 

   

absence of any conflict with organizational documents or any violation of agreements, laws or regulations as a result of the consummation of the merger;

 

   

disclosure documents relating to the merger agreement;

 

   

finders’ fees and fees payable to financial advisors in connection with the merger;

 

   

payment of fees under the financing commitments;

 

   

sufficiency of funds;

 

   

validity and enforceability of the financing commitments;

 

   

absence of default under financing commitments;

 

   

absence of contingencies related to the funding of financing other than as set forth in the financing commitments;

 

   

absence of certain litigation;

 

   

the limited guarantee; and

 

   

its independent investigation of the Company.

The representations and warranties of the parties contained in the merger agreement will expire at the effective time of the merger or termination of the merger agreement.

Conduct of Business Pending the Merger

Interim Operations of the Company

From the date of the merger agreement until the earlier to occur of the effective time of the merger and the termination of the merger agreement, the merger agreement requires that the Company will, and will cause each

 

66


Table of Contents

of its subsidiaries to, conduct its business in the ordinary course consistent with past practice and in compliance in all material respects with applicable laws and governmental authorizations, and, except as set forth in the disclosure schedules delivered by the Company in connection with the merger agreement, use its reasonable best efforts to:

 

   

preserve intact its and each of its subsidiaries’ present business organization and good standing under applicable law and maintain in effect all permits;

 

   

keep available the services of its current directors, officers and employees; and

 

   

maintain satisfactory relationships with its and each of its subsidiaries’ customers, lenders, suppliers and others having material business relationships with it.

In addition, except as set forth in the disclosure schedules delivered by the Company in connection with the merger agreement or with Parent’s prior written consent (which consent, other than in the case of the fifth bullet point below, shall not be unreasonably withheld, conditioned or delayed), from the date of the merger agreement until the effective time of the merger, the Company will not, and will not permit any of its subsidiaries to, take any of the following actions:

 

   

amend its organizational documents;

 

   

split, reclassify, subdivide, pledge, modify or combine any shares of its capital stock or any of its other securities or rights, make any change in the number of shares of capital stock authorized, issued or outstanding;

 

   

declare, set aside or pay any dividend on, or make any other distribution (whether in cash, stock, property or any combination thereof) in respect of, any shares of its capital stock or other securities (other than dividends or distributions made in the ordinary course of business by any of its wholly-owned subsidiaries);

 

   

redeem, repurchase, cancel or otherwise acquire or offer to redeem, repurchase or otherwise acquire, any of its securities or any securities of any of its subsidiaries, other than the cancellation of Company stock options and Company share appreciation rights in connection with the exercise thereof or the cancellation of Company restricted stock units upon the vesting thereof; provided that any such cancellation shall be in accordance with the terms of the applicable stock plan in effect on the date of the merger agreement;

 

   

issue, deliver, sell, grant, pledge or otherwise dispose of or encumber any Company securities (other than the issuance of any shares of Company common stock upon the exercise of Company stock options and Company share appreciation rights or upon the vesting of Company restricted stock units, in each case, that are outstanding on the date of the merger agreement in accordance with the terms of those Company securities on the date of the merger agreement);

 

   

issue, deliver, sell, or subject to any lien, or authorize the issuance, delivery, or sale of or the imposition of any lien on, any shares of any Company securities or Company subsidiary securities, other than the issuance of any shares of Company common stock upon the exercise of Company stock options and Company share appreciation rights or upon the vesting of Company restricted stock units, in each case, that are outstanding on the date of the merger agreement in accordance with the terms of those Company securities on the date of the merger agreement;

 

   

amend the terms of any Company security or any Company subsidiary security;

 

   

acquire all or substantially all of the equity interest or assets of any other entity or person;

 

   

merge or consolidate with any other entity or person;

 

   

adopt a plan or agreement of complete or partial liquidation, dissolution, recapitalization, restructuring or other reorganization of the Company or any of its subsidiaries including with respect to a business, division or subdivision thereof;

 

67


Table of Contents
   

acquire any non-capital assets greater than $1 million in the aggregate, except purchases of prepaid expenses, goods and services, inventory and raw materials in the ordinary course of business consistent with past practice;

 

   

acquire any real property;

 

   

sell, lease, license, pledge or otherwise dispose of or encumber any subsidiary or any assets, securities or properties which are greater than $250,000 in the aggregate, except in the ordinary course of business consistent with past practice;

 

   

create or incur any lien on any material asset other than certain permitted liens or any immaterial lien incurred in the ordinary course of business consistent with past practices;

 

   

enter into or make any loan, advance or investment, subject to certain exceptions;

 

   

create, incur, assume or otherwise be liable with respect to any material indebtedness other than in the ordinary course of business on terms consistent with past practice or such indebtedness for borrowed money existing on the date of the merger agreement;

 

   

issue or sell any debt securities or warrants or other rights to acquire any debt securities of the Company or any of its subsidiaries, guarantee any debt securities of another person, enter into any keep well or other agreement to maintain any financial statement condition of another person or enter into any arrangement having the economic effect of the foregoing;

 

   

enter into any derivatives or hedging agreement or similar contract other than in the ordinary course of business;

 

   

enter into any material contract (as defined in the merger agreement) other than in the ordinary course of business consistent with past practices, or terminate, modify or amend any material contract or waive any material right thereunder, other than in the ordinary course of business consistent with past practice;

 

   

grant any material refunds, credits, rebates or other allowances by the Company or its subsidiaries to any end user, customer, reseller or distributor, in each case, other than in the ordinary course of business consistent with past practice;

 

   

enter into any new contract that contains a change in control provision in favor of the other party or parties thereto which would be triggered by the transactions contemplated by the merger agreement or would otherwise require a payment to such other party or parties in connection with the transactions contemplated by the merger agreement;

 

   

terminate, suspend, abrogate, amend or modify in any material respect any material permit of the Company;

 

   

except as required by applicable law or employee benefit plans in effect on the date of the merger agreement,

 

  o grant or increase any severance or termination pay to (or amend any existing arrangement with) any current or former directors, officers, employees or independent contractors;

 

  o increase benefits payable under any severance or termination pay policies or employment agreements existing as of the date of the merger agreement;

 

  o adopt, enter into, terminate or materially amend any employment, severance, deferred compensation or other similar agreement (or any amendment to any such existing agreement) with any current or former directors, officers or employees, other than employment agreements for non-officer employees with annual base salary of $175,000 or less;

 

  o establish, adopt or amend any collective bargaining or benefit plan or arrangement covering current or former directors, officers, employees or independent contractors;

 

68


Table of Contents
  o increase the compensation, bonus or other benefits payable to any of their respective directors, officers or employees, subject to certain exceptions;

 

  o loan or advance any money or other property to any present or former director, officer or employee of the Company its subsidiaries;

 

  o accelerate the payment, right to payment or vesting of any material compensation or benefits, other than as expressly contemplated by the merger agreement; or

 

  o grant any equity compensation;

 

   

make any material change in any method of accounting or accounting principles or practice (or change an annual accounting period), except for any change required by reason of a concurrent change in GAAP or Regulation S-X, as approved by its independent registered public accounting firm;

 

   

pay, discharge, settle or offer to pay, discharge or settle any pending or threatened litigation, investigation, arbitration, proceeding or other claim, or action involving or against the Company or any of its subsidiaries which (i) requires a payment by the Company or its subsidiaries in excess of $500,000 in any single instance or in excess of $1 million in the aggregate, (ii) involves injunctive or equitable relief or restrictions on the business activities of the Company or its subsidiaries, (iii) would involve the issuance of Company securities, or (iv) relates to the transactions contemplated by the merger agreement; provided, however that the Company and its subsidiaries may pay, discharge or settle, or offer to pay, discharge or settle, any pending or threatened litigation, investigation, arbitration, proceeding or other claim or action if the amount required to be paid by the Company and its subsidiaries is covered by insurance and there are no additional obligations or restrictions on the Company or its subsidiaries following such payment, discharge or settlement;

 

   

fail to use reasonable efforts to maintain in full force and effect existing insurance policies or comparable replacement policies to the extent available for a similar reasonable cost;

 

   

subject to certain exceptions, make any capital expenditures with respect to property, plant or equipment in excess of $2 million in the aggregate for the Company and its subsidiaries, taken as a whole;

 

   

enter into any new line of business material to the Company and its subsidiaries, taken as a whole;

 

   

adopt or implement any shareholder rights plan;

 

   

make or change any material tax election, file any material amendment to any tax return with respect to any material amount of taxes, settle or compromise any material tax liability, agree to any extension or waiver of the statue of limitations with respect to the assessment or determination of a material amount of taxes, enter into any material closing agreement with respect to any tax or take any action to surrender any right to claim a material tax refund;

 

   

effectuate or permit a plant closing or mass layoff affecting in whole or in part any site of employment, facility, operating unit or employee of the Company or any of its subsidiaries; and

 

   

agree, resolve or commit to do any of the foregoing.

Shareholders’ Meeting

Unless the merger agreement has been validly terminated, we are required to cause a meeting of our shareholders to be called and held as soon as reasonably practicable following confirmation from the SEC that it has no further comments to this proxy statement for the purpose of voting on the approval of the merger agreement. Subject to the provisions described below under “No Solicitations of Competing Proposals,” the board of directors of the Company shall recommend approval of the merger agreement by the Company’s shareholders. In connection with the meeting of the Company’s shareholders, the Company shall (i) after consultation with Parent, promptly prepare and file with the SEC, use its reasonable best efforts to respond to the SEC’s comments or requests for additional information regarding and thereafter mail to its shareholders as

 

69


Table of Contents

promptly as practicable a proxy statement with respect to the shareholder meeting and all other proxy materials for such meeting, (ii) use its reasonable best efforts to obtain the approval of the Company’s shareholders of the merger agreement, including soliciting proxies from its shareholders, and (iii) otherwise comply in all material respects with all legal requirements applicable to such meeting; provided, however, that the Company shall be permitted to delay or postpone convening the shareholder meeting (but not beyond April 30, 2012) (a) if and to the extent necessary to obtain a quorum (either in person or represented by proxy) of its shareholders to take action at the shareholder meeting, (b) if and to the extent the Company determines in good faith that such delay, adjournment or postponement is required by applicable law and/or (c) if in the good faith judgment of the board of directors of the Company or any committee thereof (after consultation with its legal counsel) such delay or postponement is necessary or appropriate, including in order to give the Company’s shareholders sufficient time to evaluate any new information or disclosure that the Company has sent them or otherwise made available to the Company’s shareholders by issuing a press release, filing materials with the SEC, or otherwise.

No Solicitations of Competing Proposals

The merger agreement provides that the Company will not, and will cause its subsidiaries not to, and the Company shall direct its and their directors, officers, employees, investment bankers, attorneys, accountants, consultants and other agents, advisors or representatives not to, directly or indirectly:

 

   

solicit, initiate or take any action to knowingly facilitate or encourage the submission of any proposal or offer that constitutes, or could reasonably be expected to lead to, an Acquisition Proposal (as defined on page [                    ]);

 

   

enter into or participate in any discussions or negotiations with, furnish any information relating to the Company or any of it subsidiaries or afford access to the business, properties, assets, books or records of the Company or any of its subsidiaries to any third party that to the Company’s knowledge is seeking to make, or has made, an Acquisition Proposal;

 

   

withdraw, qualify or modify in a manner adverse to Parent or publicly propose to withdraw, qualify or modify in a manner adverse to Parent the recommendation of the board of directors, or recommend, adopt or approve or publicly propose to recommend, adopt or approve an Acquisition Proposal (any of these, an “Adverse Recommendation Change”);

 

   

terminate, amend, modify, grant any waiver or release under or fail to enforce any standstill, confidentiality or similar agreement with respect to any equity or voting securities of the Company or any of its subsidiaries, or publically propose to do any of the foregoing; or

 

   

enter into any agreement in principle, letter of intent, term sheet, merger agreement, acquisition agreement or other similar instrument that constitutes or relates to an Acquisition Proposal.

The merger agreement requires the Company and its subsidiaries and their representatives to immediately cease and terminate any and all existing activities, discussions or negotiations, if any, with any such third party conducted prior to the date of the merger agreement with respect to any Acquisition Proposal and to instruct any such third party in possession of confidential information about the Company that was furnished by or on behalf of the Company to return or destroy all such information.

However, the board of directors, directly or indirectly, through advisors, agents or other intermediaries, may, at any time prior to the approval of the merger agreement by the Company’s shareholders,

 

  (i) engage in negotiations or discussions with a third party that, subject to our compliance with the requirements of the preceding paragraphs, has made after the date of the merger agreement a “Superior Proposal” (as defined on page [                    ]) or an unsolicited Acquisition Proposal that the board of directors believes in good faith (after consultation with a financial advisor of nationally recognized reputation and outside legal counsel) is reasonably likely to lead to a Superior Proposal;

 

  (ii)

thereafter furnish to such third party nonpublic information relating to the Company or any of its subsidiaries pursuant to a confidentiality agreement with terms no less favorable to the Company than

 

70


Table of Contents
  those contained in the confidentiality agreement between the Company and Parent (except for such changes specifically necessary for the Company to comply with its obligations under the merger agreement and it being understood that the Company may enter into a confidentiality agreement without a standstill provision); provided that all such information (to the extent that it has not been previously provided or made available to Parent) is provided or made available to Parent prior to or substantially concurrently with the time it is provided or made available to the third party; and

 

  (iii) make an Adverse Recommendation Change.

but in each case referred to in the foregoing clauses (i) through (iii) only if the board of directors determines in good faith, after consultation with a financial advisor of nationally recognized reputation and outside legal counsel to the Company, that failure to take such action could reasonably be expected to be inconsistent with its fiduciary duties under applicable law.

The board of directors cannot take any of the actions referred to in clauses (i) through (iii) above unless the Company has delivered to Parent a prior written notice advising Parent that it intends to take such action, and the Company continues to advise Parent after delivery of such notice of the status and material terms of any discussions and negotiations with the third party. In addition, the Company must notify Parent promptly (but in no event later than 48 hours) after receipt by the Company (or any of its Representatives) of any Acquisition Proposal, any inquiry that would be reasonably expected to lead to an Acquisition Proposal or of any request for information relating to the Company or any of its subsidiaries or for access to the business, properties, assets, books or records of the Company or any of its subsidiaries by any third party that to the knowledge of the Company may be considering making, or has made, an Acquisition Proposal.

The merger agreement provides that the board of directors shall not be permitted to approve or recommend another Acquisition Proposal unless:

 

   

it has in all material respects complied with the no-solicitation provisions of the merger agreement,

 

   

the board of directors determines in good faith, after consultation with a financial advisor of nationally recognized reputation and outside legal counsel to the Company, that such Acquisition Proposal constitutes a Superior Proposal,

 

   

prior to any such approval or recommendation of another Acquisition Proposal, the Company has provided a written notice to Parent that the Company intends to take such action and describing the material terms and conditions of the Superior Proposal that is the basis of such action, including a copy of the relevant proposed transaction documents;

 

   

during the three business day period following Parent’s receipt of the notice of Superior Proposal, the Company shall, and shall cause its financial and legal advisors, to negotiate with Parent and Merger Subsidiary to make such adjustments in the terms and conditions of the merger agreement so that such Superior Proposal ceases to constitute a Superior Proposal, and

 

   

following the end of such three business day period, the board of directors shall have determined in good faith, taking into account any changes to the terms of the merger agreement proposed in writing by Parent to the Company in response to the notice of Superior Proposal or otherwise, that the Superior Proposal giving rise to the notice of Superior Proposal continues to constitute a Superior Proposal. Any amendment to the financial terms or any other material amendment of such Superior Proposal shall require a new notice of Superior Proposal (provided that references to three business days shall be 48 hours).

“Acquisition Proposal” means, other than the transactions contemplated by the merger agreement, any offer or proposal relating to:

 

   

any acquisition or purchase, direct or indirect, of 20% or more of the equity or voting securities of the Company;

 

71


Table of Contents
   

any tender offer or exchange offer that, if consummated, would result in such third party beneficially owning 20% or more of the equity or voting securities of the Company; or

 

   

a sale of assets equal to 20% or more of the Company’s consolidated assets or to which 20% or more of the Company’s revenue or earnings on a consolidated basis are attributable, or a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving the Company or any of its subsidiaries whose business, individually or in the aggregate, constitutes 20% or more of the consolidated assets, consolidated revenues or consolidated earnings of the Company.

“Superior Proposal” means any Acquisition Proposal (with the percentages set forth in the definition of Acquisition Proposal above changed from 20% to 50%) made in writing and not solicited in violation of the no-solicitation provisions in the merger agreement that the board of directors determines in good faith, after consultation with a financial advisor of nationally recognized reputation and outside legal counsel and taking into account all the terms and conditions of the Acquisition Proposal would result in a transaction (i) that, if consummated, is more favorable to the Company’s shareholders from a financial point of view than the merger or, if applicable, any binding proposal by Parent capable of being accepted by the Company to amend the terms of the merger agreement, (ii) that is reasonably capable of being completed on the terms proposed and (iii) for which financing, if a cash transaction (whether in whole or in part), is then fully committed or reasonably determined to be available by the board of directors.

Access to Information; Confidentiality

From the date of the merger agreement until the earlier of the effective time of the merger or the termination of the merger agreement, subject to certain exceptions described in the merger agreement, the Company has agreed to, and to cause its subsidiaries to, upon reasonable notice and request, give Parent and its representatives reasonable access during normal business hours to its offices, properties, books and records and will furnish Parent and its representatives with such financial and operating data and other information as such persons may reasonably request and will instruct its employees, counsel, financial advisors, auditors and other representatives to cooperate with Parent in its investigation. In addition, Parent and the Company have agreed that all such information will be subject to the confidentiality agreement executed by the Company and Siris prior to the execution of the merger agreement.

Financing

Parent and Merger Subsidiary have agreed to use their respective reasonable best efforts to do all things necessary, proper or advisable to arrange and obtain debt financing on the terms and conditions described in the debt financing commitment in the most expeditious manner possible and shall not amend, modify or permit any amendment or modification to be made to, or any waiver of any provision or remedy under, the financing commitments if such amendment, modification or waiver would reduce the aggregate amount of the debt financing to the extent that Parent would then not have sufficient funds to pay the merger consideration, or impose new or additional conditions, or otherwise amend, modify or expand any conditions, to the receipt of the debt financing, in each case, in a manner that would reasonably be expected to (1) impair, delay or prevent the closing of the merger, (2) make the funding of the debt financing less likely to occur, or (3) adversely impact the ability of Parent to enforce its rights against the other parties to the debt financing commitment, the ability of Parent to consummate the transactions contemplated by the merger agreement or the likelihood of consummation of the transactions contemplated by the merger agreement.

Parent and Merger Subsidiary have agreed to use their reasonable best efforts to:

 

   

maintain in full force and effect the debt financing commitment in accordance with its terms until the consummation of the merger;

 

   

satisfy all conditions and covenants applicable to Parent and Merger Subsidiary in the debt financing commitment;

 

72


Table of Contents
   

enter into definitive agreements with respect thereto on the terms and conditions contemplated by the debt financing commitment or on such other terms as shall be acceptable to Parent and the financing sources (which do not adversely affect the amount of the financing or the likelihood of the financing);

 

   

consummate the financing;

 

   

fully enforce their rights under the debt financing commitment, including by bringing legal action; and

 

   

cause the lenders and other Persons providing financing to fund on the closing date of the merger the financing contemplated to be funded on the closing date of the merger.

Parent and Merger Subsidiary have agreed to give the Company prompt written notice: (A) of any breach or default related to the financing of which Parent or its affiliates becomes aware; (B) of the receipt of any written communication with respect to any (x) actual or potential breach, default, termination or repudiation by any party related to the financing or (y) material dispute or disagreement related to the financing; and (C) if for any reason Parent or Merger Subsidiary believes in good faith it will not be able to obtain the financing.

If any portion of the debt financing becomes unavailable on substantially the terms and conditions contemplated in the debt financing commitment, Parent will use its reasonable best efforts to arrange and obtain alternative financing from alternative sources on terms and conditions that are no less favorable to Parent, taken as a whole, than those set forth in the debt financing commitment, in an amount sufficient to consummate the transactions contemplated by the merger agreement as promptly as practicable following the occurrence of such event.

The Company has agreed to use its reasonable best efforts to cooperate in connection with the debt financing and causing the conditions in the debt financing commitment to be satisfied. However, the Company is not required to bear any expense (other than reasonable out-of-pocket costs) in connection with the financing prior to the effective time of the merger. If the merger agreement is terminated, Parent shall reimburse the Company for all documented and reasonable out-of-pocket costs incurred by the Company or its subsidiaries in connection with the financing.

Parent and Merger Subsidiary acknowledge and agree that the obtaining of financing is not a condition to the closing of the merger.

Parent and Merger Subsidiary have acknowledged that they have committed to provide the equity financing as described herein, and to maintain in effect and satisfy the conditions of the equity financing commitments that are within their control.

Parent and Merger Subsidiary have agreed not to amend or waive any term of the equity financing commitments without the consent of the Company and to notify the Company if (i) the equity financing commitments expire or are terminated (or if any person attempts or purports to terminate the equity financing commitments), (ii) the investor parties refuse to provide or express an intent in writing to refuse to provide the full equity financing or (iii) Parent or Merger Subsidiary no longer believe in good faith that they will be able to obtain all or any portion of the equity financing on the terms set forth in the equity financing commitments.

Other Covenants

Indemnification and Insurance

The merger agreement contains provisions relating to the indemnification of and insurance for the Company’s and its subsidiaries’ current and former directors and officers. Parent has agreed that for six years after the effective time of the merger, it will cause the Company, as the surviving corporation, to indemnify and hold harmless the Company’s and its subsidiaries’ current and former directors and officers (and any entity or person who served as a fiduciary under or with respect to any employee benefit plan of the Company and its

 

73


Table of Contents

subsidiaries) (which we refer to as the “Indemnified Persons”) for acts or omissions occurring or alleged to have occurred at or prior to the effective time of the merger to the fullest extent permitted under applicable law or provided under the Company’s organizational documents and indemnification agreements with its directors and officers, each as in effect as of the date of the merger agreement, subject to any limitation imposed under applicable law.

For six years after the effective time of the merger, Parent will cause the surviving corporation to provide officers’ and directors’ liability, fiduciary and similar insurance in respect of acts or omissions occurring prior to the effective time of the merger covering each Indemnified Person covered as of the date of the merger agreement by the Company’s officers’ and directors’ liability, fiduciary and similar insurance on terms with respect to coverage and amount no less favorable than those of such policies in effect on the date of the merger agreement, provided, however, that the surviving corporation will not be required to pay annual premiums in excess of 300% of the amount of the premium per annum the Company paid in its last full fiscal year. Alternatively, prior to the effectiveness of the merger, at the Company’s request, Parent may purchase a six year prepaid “tail policy” providing coverage benefits and terms no less favorable to the Indemnified Persons than the Company’s current policies, provided that the surviving corporation will not be required to pay annual premiums in excess of 300% of the amount of the premium per annum the Company paid in its last full fiscal year.

If Parent, the Company as the surviving corporation, or any of its successors or assigns (i) consolidates with or merges into any other person and shall not be the continuing or the surviving corporation or entity of such consolidation or merger, or (ii) transfers or conveys all or substantially all of its properties and assets to any person, then, and in each such case, to the extent necessary, proper provision will be made so that the successors and assigns of Parent or the Company, as the case may be, will assume the foregoing indemnification obligations.

The rights of each Indemnified Person as described in this section will be in addition to any rights such person may have under the organizational documents of the Company or any of its subsidiaries, or under California law or any other applicable law or under any agreement of any Indemnified Person with the Company or any of its subsidiaries.

Filings; Other Actions; Notification

The Company and Parent will use their respective reasonable best efforts to take or cause to be taken all actions and to do or cause to be done all things necessary, proper or advisable under applicable law to consummate in the most expeditious manner possible the merger and the other transactions contemplated by the merger agreement, including effecting the regulatory filings described in the merger agreement, and to obtain as promptly as practicable all consents, registrations, approvals, permits and authorizations necessary or advisable to be obtained from any third party or any governmental entity in order to consummate the merger or any of the other transactions contemplated by the merger agreement.

In the event that the Federal Trade Commission, Department of Justice or any other governmental authority requires the divestiture or the holding separate by Parent of any assets, no adjustment will be made to the merger consideration and Parent shall be required to hold such assets separate, or to divest them, as the case may be, following the closing of the merger.

The Company and Parent have agreed, subject to certain exceptions and applicable law, to:

 

   

make an appropriate filing under the HSR Act with respect to the merger and all other filings required under any applicable non-U.S. antitrust or competition laws deemed necessary, advisable or appropriate with respect to the merger as promptly as practicable and, with respect to the HSR filing only, within ten business days after the date of the merger agreement;

 

   

supply as promptly as practicable any additional information and documentary material that may be requested pursuant to the antitrust filings and use their reasonable best efforts to take all other actions

 

74


Table of Contents
 

necessary to cause grant of clearance or the expiration or termination of the applicable waiting periods with respect to the antitrust filings as soon as practicable;

 

   

cooperate with one another in connection with the preparation of this proxy statement, in determining whether any action by or in respect of, or filing with, any governmental authority is required or any actions, consents, approvals or waivers are required to be obtained from parties to any contracts to which the Company or any of its subsidiaries is a party in connection with the merger and in taking such actions or making such filings, furnishing information required in connection therewith or with this proxy statement and seeking timely to obtain any such actions, consents, approvals or waivers;

 

   

promptly notify the other party of any communication it receives from any governmental authority relating to the merger agreement and permit the other party to review in advance any proposed communication to such governmental authority and provide copies of all correspondence relating thereto. Neither Parent nor the Company will agree to participate in any meetings with any governmental authority unless it consults with the other party in advance and, to the extent permitted by such governmental authority, gives the other party an opportunity to attend and participate in such meeting;

 

   

consult with each other prior to issuing any press release, making any other public statement or scheduling any press conference or conference call with investors or analysts with respect to the merger agreement or merger, and except as may be required by applicable law or any listing agreement with or rule of any national securities exchange, not issue any such press release, make any such other public statement or schedule any such press conference or conference call before such consultation;

 

   

cooperate and use commercially reasonable efforts to take all actions reasonably necessary, proper or advisable to enable de-listing by the surviving corporation of the Company common stock from Nasdaq and deregistration under the Exchange Act as promptly as practicable after the effective time of the merger (and in any event no more than five business days after the closing date of the merger); and

 

   

notify the other party of: (i) any notice or other communication from any governmental authority in connection with the merger; (ii) any inaccuracy of any representation or warranty in the merger agreement at any time that could reasonably be expected to give rise to a risk of termination as further set forth in the merger agreement; and (iii) any failure of that party to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it under the merger agreement that could reasonably be expected to give rise to a right of termination as further set forth in the merger agreement.

In addition, the Company cannot settle or offer to settle any shareholder litigation brought against the Company and/or its directors prior to the effective time of the merger relating to the merger agreement and the transactions related thereto without Parent’s prior written consent (such consent not to be unreasonably withheld, delayed or conditioned), and the Company is required to use its reasonable best efforts to keep Parent reasonably informed with respect to the status of any such litigation. Further, the Company must reasonably consult with Parent with respect to the defense or settlement of any such shareholder litigation.

Employee Benefit Matters

Parent has agreed that during the period commencing at the effective time of the merger and ending one year later, the employees of the Company and its subsidiaries as of the effective time of the merger who remain employed by the surviving corporation or any of its subsidiaries following the effective time of the merger (the “current employees”) will be provided with:

 

   

base salary and cash bonus opportunities (excluding long-term incentive opportunities and transaction or retention bonuses) which are no less favorable in the aggregate than the aggregate base salary and cash bonus opportunities (excluding long-term incentive opportunities and transaction or retention bonuses) provided by the Company and its subsidiaries immediately prior to the effective time of the merger;

 

75


Table of Contents
   

retirement and welfare benefits and perquisites (excluding equity and equity-based benefits and defined benefit pension benefits, except as required by applicable law) that are substantially comparable in the aggregate those provided by the Company and its subsidiaries immediately prior the effective time of the merger; and

 

   

severance benefits that are no less favorable than those set forth in any employment or severance agreement between the Company and any such current employee or any severance policy or practice of the Company and our subsidiaries, as applicable, with respect to our employees as of the date of the merger agreement.

With respect to any employee benefit plan in which any current employee first becomes eligible to participate, on or after the effective time of the merger, Parent will (i) waive all pre-existing conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to such current employee under any new health and welfare company plans in which such current employee may be eligible to participate after the effective time of the merger and (ii) recognize service of current employees (or otherwise credited by the Company or its subsidiaries) accrued prior to the effective time of the merger for purposes of eligibility to participate in and vesting credit under (but not for the purposes of benefit accrual) any new Company plan in which such current employees may be eligible to participate after the effective time of the merger; provided, however, that in no event shall any credit be given to the extent it would result in the duplication of benefits for the same period of service.

Parent will cause the Company following the closing of the merger to maintain, and fulfill all of its obligations under, the Company’s 2007 Officer Severance Plan, as amended, and 2011 Officer Severance Plan, in each case as in effect as of the date of the merger agreement.

Credit Agreement

On or prior to the fifth business day prior to the effective time of the merger, the Company will deliver to Parent a fully executed copy of a payoff letter, in customary form, from Wells Fargo Bank, N.A., or “Wells Fargo,” regarding the Company’s current credit agreement with Wells Fargo. The Company will, and will cause its subsidiaries to, use reasonable best efforts to deliver all notices and take all other actions to facilitate the termination of commitments under the Company’s credit agreement, the repayment in full of all obligations then outstanding thereunder and the release of all liens and termination of all guarantees in connection therewith on the closing date of the merger.

Other Tax Matters

To the extent requested by Parent, the Company and its subsidiaries will cooperate in good faith and use commercially reasonable efforts to repatriate (for U.S. income tax purposes) to the United States from non-U.S. subsidiaries of the Company an amount of cash in excess of the reasonable needs of the non-U.S. subsidiaries prior to closing of the merger, as requested by the Parent, in as tax- and cost-efficient manner as reasonably practicable effective immediately prior to the closing of the merger; provided however that the Company (i) may undertake any action it reasonably believes necessary to mitigate risk to the Company and its subsidiaries from such repatriation should the transactions contemplated by the merger agreement not close and (ii) will not be required to undertake any action that in its reasonable belief would create a material liability to the Company and its subsidiaries or any officer or director of the Company or any of its subsidiaries.

The Company will use commercially reasonable efforts to, as promptly as practicable after the date of the merger agreement, file a claim for a refund of U.S. federal income taxes paid by the Company with respect to its 2008 and/or 2009 tax year by carrying back tax losses generated in the 2010 tax year to such year(s), to the extent permitted by law.

 

76


Table of Contents

Conditions to the Merger

Conditions to Each Party’s Obligations

The obligations of Parent and Merger Subsidiary, on the one hand, and the Company, on the other hand, to consummate the merger are subject to the satisfaction (or, to the extent permissible, waiver) of the following mutual conditions:

 

   

approval of the proposal to approve the merger agreement by the Company’s shareholders in accordance with California law;

 

   

absence of legal prohibitions on completion of the merger; and

 

   

the termination or expiration of the waiting period (and any extension thereof) applicable to the merger under the HSR Act.

Conditions to Parent’s and Merger Subsidiary’s Obligations

The obligations of Parent and Merger Subsidiary to consummate the merger are subject to the satisfaction or waiver (to the extent permissible) of the following additional conditions:

 

   

the Company must have performed in all material respects all of its obligations under the merger agreement that are required to be performed by it at or prior to the effective time of the merger;

 

   

the representations and warranties of the Company relating to corporate existence and power, corporate authorization, capitalization, antitakeover statutes, and finders’ fees must be true and correct in all material respects at and as of the date of the merger agreement and at and as of the effective time of the merger (or, in the case of those representations and warranties that are made as of a particular date or period, as of such date or period);

 

   

the representations and warranties of the Company relating to the absence of a material adverse effect on the Company since July 1, 2011 must be true and correct in all respects at and as of the date of the merger agreement and at and as of the effective time of the merger (or, in the case of those representations and warranties that are made as of a particular date or period, as of such date or period);

 

   

the other representations and warranties of the Company must be true and correct (disregarding all qualifications or limitations as to “materially” or “material adverse effect”) at and as of the date of the merger agreement and at and as of the effective time of the merger (or, in the case of those representations and warranties that are made as of a particular date, as of such date), except where the failure to be so true and correct had not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on the Company;

 

   

Parent must have received a certificate signed by the chief executive officer or chief financial officer of the Company certifying the satisfaction of the conditions described in the previous four bullets; and

 

   

since the date of the merger agreement, there has not occurred and there is not continuing as of the effective time of the merger any effect, development, event, change or circumstance that has had any material adverse effect of the Company.

Conditions to the Company’s Obligations

The obligations of the Company to consummate the merger are subject to the satisfaction (or, to the extent permissible, waiver) of the following additional conditions:

 

   

each of Parent and Merger Subsidiary must have performed in all material respects all of their obligations under the merger agreement that are required to be performed by them at or prior to the effective time of the merger;

 

   

the representations and warranties of Parent must be true and correct (disregarding all qualifications or limitations as to “materially” or “material adverse effect”) at and as of the date of the merger agreement

 

77


Table of Contents
 

and at and as of the effective time of the merger (or, in the case of those representations and warranties that are made as of a particular date or period, as of such date or period), except where the failure to be so true and correct has not had and would not reasonably be expected to have, individually or in the aggregate, a material adverse effect on Parent; and

 

   

the Company must have received a certificate signed by the chief executive officer or chief financial officer of Parent certifying the satisfaction of the conditions described in the previous two bullets.

Termination of the Merger Agreement

The Company and Parent may, by mutual written consent, terminate the merger agreement and abandon the merger at any time prior to the effective time of the merger, whether before or after the approval of the merger agreement by our shareholders.

The merger agreement may also be terminated and the merger abandoned at any time prior to the effective time of the merger, whether before or after the approval of the merger agreement by our shareholders, as follows:

 

   

by either Parent or the Company, if:

 

  o the merger has not been consummated by April 30, 2012 (however, this right to terminate the merger agreement will not be available to any party whose breach of the merger agreement results in the failure of the merger to be consummated by April 30, 2012);

 

  o the Company’s shareholder approval has not been obtained at the Company’s shareholder meeting at which a vote on the approval of the merger agreement was taken; or

 

  o any applicable law either (i) makes consummation of the merger illegal or otherwise prohibited or (ii) enjoins the Company or Parent from consummating the merger, which enjoinment will have become final and nonappealable, provided that the party seeking to terminate the merger agreement has used all reasonable best efforts required by the merger agreement to prevent, oppose and remove the applicable law.

 

   

by Parent, if:

 

  o an Adverse Recommendation Change (as defined on page             ) has occurred; or

 

  o a breach of any representation or warranty or failure to perform any covenant or agreement on the part of the Company set forth in the merger agreement has occurred that would cause the condition to closing of the merger relating to the accuracy of the representations and warranties of the Company or compliance by the Company with its obligations under the merger agreement not to be satisfied and such breach or failure is not cured by the earlier of April 30, 2012 or thirty days following the Company’s receipt of written notice of such condition, provided that, at the time of the delivery of such notice, Parent is not in material breach of its obligations under the merger agreement.

 

   

by the Company, if:

 

  o the board of directors authorizes the Company, subject to complying with the terms of the merger agreement and prior to receipt of the Company shareholder approval, to enter into a written agreement concerning a Superior Proposal, and the Company has paid any termination fee due as described in “The Merger Agreement — Termination Fees and Expenses”;

 

  o

a breach of any representation or warranty or failure to perform any covenant or agreement on the part of Parent or Merger Subsidiary set forth in the merger agreement has occurred that would cause the condition to closing of the merger relating to the accuracy of the representations and warranties of Parent or Merger Subsidiary or compliance by Parent or Merger Subsidiary with their obligations under the merger agreement not to be satisfied and such condition is not cured by

 

78


Table of Contents
  the earlier of April 30, 2012 or thirty days following Parent’s receipt of written notice of such breach or failure, provided that, at the time of delivery of such notice, the Company is not in material breach of its obligations under the merger agreement; or

 

  o if all of the Parent’s conditions to closing of the merger (other than those conditions that by their nature are to be satisfied by actions taken at closing of the merger) have been satisfied, Parent and Merger Subsidiary fail to consummate the merger within three business days following the date on which the closing of the merger should have occurred, and the Company has given Parent written notice that it believes the two business day period contemplated for the closing of the merger has commenced and that it is prepared to close the merger.

If the merger agreement is validly terminated, the merger agreement will become void without any liability on the part of any party (or any Parent related party or Company related party) except as related to termination fees as provided in the merger agreement. The provisions of the merger agreement relating to reimbursement by Parent of the Company’s reasonable and documented out-of-pocket expenses in cooperating with Parent’s financing, effect of termination, notice, amendments and waivers, fees and expenses, binding effect, assignment, governing law, jurisdiction, and waiver of jury trial will continue in effect notwithstanding termination of the merger agreement.

Termination Fees and Expenses

Termination Fees Payable by the Company

The Company has agreed to pay Parent a termination fee equal to $15 million, if any of the following payment events occurs:

 

   

Parent terminates the merger agreement due to an Adverse Recommendation Change; or

 

   

the Company terminates the merger agreement because the board of directors has authorized the Company to enter into a written agreement concerning a Superior Proposal after complying with the terms of the merger agreement;

In addition, the Company has agreed to pay Parent a termination fee equal to $15 million if any of the following payment events occurs:

 

   

either Parent or the Company terminates the merger agreement because the merger has not been consummated on or before April 30, 2012 and the Company shareholders meeting has not been held by April 30, 2012;

 

   

either Parent or the Company terminates the merger agreement because the Company shareholders meeting shall have been convened and a vote to approve the merger agreement shall have been taken thereat and the approval of the Company’s shareholders shall not have been obtained; or

 

   

Parent terminates the merger agreement due to a breach of a representation or warranty or failure to perform any covenant or agreement on the part of the Company that would cause the condition to closing of the merger relating to the accuracy of the representations and warranties of Company or the compliance by the Company with its obligations under the merger agreement not to be satisfied and such condition is not cured by the Company by the earlier of April 30, 2012 or thirty days following the Company’s receipt of written notice of such breach or failure, provided that at the time of delivery of such notice, Parent is not in material breach of its obligations under the merger agreement;

provided, however, that the Company shall only be required to pay a termination fee if (A) prior to such termination under the first or third bullet points above or the taking of a vote to approve the merger agreement in the case of a termination under the second bullet point above, an Acquisition Proposal shall have been made to the shareholders of the Company generally or shall have otherwise been publicly disclosed or proposed by a third

 

79


Table of Contents

party and not withdrawn prior to such termination or vote to approve the merger agreement, as applicable, and (B) within twelve months following the date of such termination, the Company consummates a transaction described in the definition of “Acquisition Proposal” (provided that for this purpose all references to 20% in the definition of “Acquisition Proposal” on page         are deemed instead to be 50%).

Termination Fees Payable by the Parent

Parent has agreed to pay the Company a termination fee equal to $40 million, if any of the following events occurs:

 

   

the Company terminates the merger agreement due to a breach of any representation or warranty or failure to perform any covenant or agreement on the part of Parent or Merger Subsidiary set forth in the merger agreement has occurred that would cause the condition to closing of the merger relating to the accuracy of the representations and warranties of Parent or Merger Subsidiary or compliance by Parent or Merger Subsidiary with their obligations under the merger agreement not to be satisfied and such condition is not cured by the earlier of April 30, 2012 or thirty days following Parent’s receipt of written notice of such breach or failure, provided that, at the time of delivery of such notice, the Company is not in material breach of its obligations under the merger agreement; or

 

   

the Company terminates the merger agreement because all of the conditions to closing of the merger (other than those conditions that by their nature are to be satisfied by actions taken at closing of the merger) have been satisfied, or to the extent permissible, waived by the party entitled to the benefit of such conditions, Parent and Merger Subsidiary fail to consummate the merger within three business days following the date on which the closing of the merger should have occurred, and the Company has given Parent written notice that it believes the two business day period for the closing of the merger has commenced and that the Company is prepared to close the merger.

Expenses

Except for the costs and expenses to be borne by Parent in connection with the Company’s and its subsidiaries efforts relating to the debt financing (as described in “Financing” above) and the termination fees described immediately above, all costs and expenses incurred in connection with the merger agreement will be paid by the party incurring such cost or expense, except Parent shall bear the filing fees of the filings made under applicable antitrust laws.

Remedies

In the event Parent and Merger Subsidiary fail to effect the closing of the merger or otherwise breach the merger agreement or fail to perform thereunder, then, except for certain rights to equitable relief, including specific performance, and our rights under the confidentiality agreement previously executed between the Company and Siris, our receipt of the parent fee is our sole and exclusive remedy against the Parent related parties for any losses suffered with respect to the merger agreement, any contract executed in connection with the merger agreement, the limited guarantee, the transactions contemplated by the merger agreement and the limited guarantee, the termination of the merger agreement, the failure of the merger to be consummated or any breach of the merger agreement by Parent or Merger Subsidiary. Upon payment of the parent fee, none of the Parent related parties will have any further liability or obligation to the Company relating to or arising out of the merger agreement, any contract executed in connection with the merger agreement or the transactions contemplated by the merger agreement or the transactions contemplated by the merger agreement, or any claims or actions under applicable law arising out of any breach, termination or failure described in the preceding sentence except with respect to the confidentiality agreement between the Company and Siris described above.

If the merger agreement is terminated in circumstances in which we are required to pay the termination fee, Parent’s and Merger Subsidiary’s sole and exclusive remedy against us will be to receive payment of the termination fee payable by us.

 

80


Table of Contents

The parties to the merger agreement are entitled to an injunction, specific performance and other equitable relief to prevent breaches of the merger agreement and to enforce specifically the terms of the merger agreement in addition to any other remedy to which they are entitled at law or in equity.

Notwithstanding the foregoing, but subject to the merger agreement’s provisions regarding the parent fee, the Company is entitled to specific performance to cause Parent and/or Merger Subsidiary (1) to enforce the terms of the debt financing commitment (including by demanding Parent and/or Merger Subsidiary to file one or more lawsuits against the sources of the debt financing to fully enforce such sources’ obligations thereunder and their rights thereunder) and (2) to draw down the full proceeds of the equity financing pursuant to the terms and conditions of the equity financing commitments and to cause Parent and/or Merger Subsidiary to effect the closing of the merger, with respect to clause (2), if and only if (a) all closing conditions have been satisfied (other than those conditions that, by their nature, are to be satisfied at the closing of the merger and, at the time the Company seeks specific performance, are capable of being satisfied if the closing of the merger were to occur at such time) or the failure of which to be satisfied is attributable primarily to a breach by Parent or Merger Subsidiary of their respective representations, warranties, covenants or agreements contained in the merger agreement, (b) the debt financing has been funded or will be funded at the date the closing of the merger is required to have occurred upon delivery of a drawdown notice by Parent or Merger Subsidiary and/or notice from Parent that the equity financing will be funded at such date, (c) Parent and Merger Subsidiary fail to complete the closing of the merger by the date the closing of the merger is required to have occurred, (d) the Company has confirmed in writing to Parent that all conditions to the Company’s obligations to consummate the merger have been satisfied or that it would be willing to waive any such unsatisfied conditions for purposes of consummating the merger, and (e) such specific performance would result in the consummation of the merger substantially contemporaneously with the consummation of the debt financing and the equity financing.

In no event is the Company permitted to obtain both a grant of specific performance that results in the merger occurring and the payment of all or a portion of the parent fee.

Amendments; Waivers

Any provision of the merger agreement may be amended or waived before the effective time of the merger if, but only if, the amendment or waiver is in writing and signed, in the case of an amendment, by each party to the merger agreement or, in the case of a waiver, by each party against whom the waiver is to be effective, provided that, after approval of the merger agreement by the Company’s shareholders and without their further approval, no amendment or waiver that requires shareholder approval under California law may be made.

 

81


Table of Contents

MARKET PRICE OF COMPANY COMMON STOCK

Our common stock, without par value, is listed on the Nasdaq Global Select Market under the symbol “TKLC.” The following table shows, for the periods indicated, the high and low sales prices, as the case may be, of a share of common stock for each quarter during fiscal years 2009 and 2010, and for the first, second, third and fourth (through [            ], 2011) quarters of fiscal 2011, as reported by published financial sources.

 

     Sales Price  
     High      Low  

2009

     

First Quarter

   $ 14.43       $ 11.25   

Second Quarter

   $ 17.46       $ 12.74   

Third Quarter

   $ 19.68       $ 15.02   

Fourth Quarter

   $ 17.87       $ 13.86   

2010

     

First Quarter

   $ 18.83       $ 14.28   

Second Quarter

   $ 19.89       $ 12.67   

Third Quarter

   $ 14.55       $ 10.75   

Fourth Quarter

   $ 13.98       $ 11.21   

2011

     

First Quarter

   $ 13.41       $ 7.21   

Second Quarter

   $ 9.27       $ 7.36   

Third Quarter

   $ 9.32       $ 5.80   

Fourth Quarter (through [        ], 2011)

     

On November 4, 2011, the last full trading day prior to the public announcement of the execution of the merger agreement, the closing sales price of Company common stock was $9.90. On [        ], 2011, the most recent practicable date before the printing of this proxy statement, the closing sales price of Company common stock was $[        ]. You are urged to obtain a current market price listing for our common stock. Also on [        ], 2011, there were [            ] shares of our common stock outstanding that were held of record by approximately [        ] holders. Following completion of the merger, our common stock will be delisted from Nasdaq.

We have never paid any cash dividends on our common stock, and we do not have any present intention to commence payment of any cash dividends. We are currently restricted by the merger agreement from paying cash dividends.

 

82


Table of Contents

COMMON STOCK OWNERSHIP OF

PRINCIPAL SHAREHOLDERS AND MANAGEMENT

The following table summarizes information regarding beneficial ownership of our common stock as of November 8, 2011 by (i) each person who is known to us to own beneficially more than 5% of the outstanding shares of our common stock, (ii) each of our directors, (iii) each of our current and former executive officers who was named in the Summary Compensation Table in the proxy statement relating to our 2011 Annual Meeting of Shareholders and (iv) all of our current directors and executive officers as a group.

Beneficial ownership is determined in accordance with the applicable rules of the SEC and includes voting or investment power with respect to shares of our common stock. Shares of our common stock issuable pursuant to options and share appreciation rights that are exercisable or become exercisable, within 60 days after November 8, 2011 are deemed to be beneficially owned by the person holding the, options or share appreciation rights for purposes of calculating the percentage ownership of that person but are not deemed outstanding for purposes of calculating the percentage ownership of any other person. The information set forth below is not necessarily indicative of beneficial ownership for any other purpose, and the inclusion of any shares deemed beneficially owned in this table does not constitute an admission of beneficial ownership of those shares. Unless otherwise indicated, to our knowledge, all persons named in the table have sole voting and investment power with respect to the shares of our common stock beneficially owned by them, except, where applicable, to the extent authority is shared by spouses under community property laws.

 

Name and Address of

Beneficial Owner(1)

  Shares Beneficially Owned     Percent of Class  

BlackRock, Inc.

40 East 52nd Street

New York, NY 10022

    7,345,179 (2)      10.6

Kensico Capital Management Corporation

55 Railroad Avenue, 2nd Floor

Greenwich, CT 06830

    6,974,844 (3)      10.1

Thomas J. Coleman

    6,974,844 (4)      10.1

Brookside Capital Trading Fund, L.P.

111 Huntington Avenue

Boston, MA 02199

    6,463,954 (5)      9.3

Katelia Capital Investments Ltd.

Trident Chambers

P.O. Box 146, Road Town

Tortola, British Virgin Islands

    6,133,922 (6)      8.9

Ronald J. de Lange

    206,028 (7)      *   

Franco Plastina

    165,881 (8)      *   

Stuart H. Kupinsky

    119,671 (9)      *   

Carol G. Mills

    50,250 (10)      *   

Wolrad Claudy

    47,341 (11)      *   

Michael P. Ressner

    37,250 (12)      *   

Ronald W. Buckly

    30,833 (13)      *   

Gregory S. Rush

    24,625        *   

Hubert de Pesquidoux

    21,666        *   

William H. Everett

    10,000 (14)      *   

Anthony Colaluca, Jr.

    —          —     

Jean-Yves Courtois

    —          —     
All current directors and executive officers as a group (14 persons)     7,581,753 (15)      10.9

 

83


Table of Contents

 

* Less than one percent.
(1)

Unless otherwise indicated, the address of each beneficial owner is care of Tekelec, 5200 Paramount Parkway, Morrisville, North Carolina 27560.

(2)

Based on an amended Schedule 13G filed on February 10, 2011, wherein BlackRock, Inc. reported that, as of January 31, 2011, it had sole voting and dispositive power as to these shares.

(3)

Based on an amended Schedule 13D filed on February 16, 2011, wherein Kensico, Michael Lowenstein and Thomas J. Coleman reported that, as of February 15, 2011, they had shared voting and dispositive power as to these shares.

(4)

Mr. Coleman is a Co-President of Kensico. See Footnote (3) above.

(5)

Based on an amended Schedule 13G filed on February 14, 2011, wherein Brookside Capital Trading Fund, L.P. reported that, as of December 31, 2010, it had sole voting and dispositive power as to these shares.

(6)

Based on an amended Schedule 13D filed on September 22, 2011, wherein Katelia Capital Investments Ltd. (“Katelia Capital”), as the record owner of the shares, The Katelia Trust, as the principal beneficial owner of Katelia Capital, Butterfield Trust (Switzerland) Limited, as trustee of The Katelia Trust, and Laurent Asscher, as an advisor to Katelia Capital, reported that as of September 16, 2011, they shared voting and dispositive power as to these shares.

(7)

Includes 100,000 shares subject to options held by Mr. de Lange, which are exercisable or become exercisable within 60 days after November 8, 2011, and 81,000 shares subject to share appreciation rights held by Mr. de Lange, which are exercisable or become exercisable within 60 days after November 8, 2011.

(8)

Stock ownership information for Mr. Plastina is provided to the best of our knowledge as Mr. Plastina resigned as President and Chief Executive Officer on January 4, 2011.

(9)

Includes 90,126 shares subject to share appreciation rights held by Mr. Kupinsky, which are exercisable or become exercisable within 60 days after November 8, 2011.

(10)

Includes 26,250 shares subject to options held by Ms. Mills, which are exercisable or become exercisable within 60 days after November 8, 2011.

(11) 

Includes 15,000 shares subject to share appreciation rights held by Mr. Claudy, which are exercisable or become exercisable within 60 days after November 8, 2011. Additional stock ownership information for Mr. Claudy is provided to the best of our knowledge as Mr. Claudy resigned as Executive Vice President, Global Sales on April 29, 2011.

(12)

Includes 21,250 shares subject to options held by Mr. Ressner, which are exercisable or become exercisable within 60 days after November 8, 2011.

(13)

Includes 14,833 shares subject to options held by Mr. Buckly, which are exercisable or become exercisable within 60 days after November 8, 2011.

(14)

Stock ownership information for Mr. Everett is provided to the best of our knowledge as Mr. Everett retired from his position as our Executive Vice President and Chief Financial Officer on March 31, 2010.

(15)

Includes 163,279 shares subject to options held by all current directors and executive officers as a group, which are exercisable or become exercisable within 60 days after November 8, 2011, and 260,751 shares subject to share appreciation rights held by all current directors and executive officers as a group, which are exercisable or become exercisable within 60 days after November 8, 2011.

 

84


Table of Contents

PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS

Except as described under “The Merger — Background of the Merger” beginning on page [            ] of this proxy statement, there have not been any negotiations, transactions or material contacts during the past two years concerning any merger, consolidation, acquisition, tender offer or other acquisition of any class of the Company’s securities, election of the Company directors or sale or other transfer of a material amount of our assets (i) between the Company or any of its affiliates, on the one hand, and Siris, Parent, Merger Subsidiary or their respective executive officers, directors, members or controlling persons, on the other hand, (ii) between any affiliates of the Company or (iii) between the Company and its affiliates, on the one hand, and any person not affiliated with the Company who would have a direct interest in such matters, on the other hand.

DISSENTING SHAREHOLDERS RIGHTS

The discussion of the provisions set forth below is not a complete summary regarding your dissenting shareholder rights under California law and is qualified in its entirety by reference to the text of the relevant provisions of Chapter 13 of the California General Corporation Law, which are attached to this proxy statement as Annex C. Shareholders intending to exercise their rights that the Company purchase, at the fair market value, the shares of common stock of the Company held by them should carefully review Annex C. Failure to follow precisely any of the statutory procedures set forth in Annex C may result in a termination or waiver of these rights.

If the merger is completed, any holder of shares of common stock of the Company as of the record date may, by complying with the provisions of Chapter 13 of the California General Corporation Law, require the Company to purchase such holder’s shares of common stock of the Company at their fair market value. The fair market value will be determined as of [        ], 2011, the last trading day immediately prior to the first announcement of the terms of the proposed merger, excluding any appreciation or depreciation as a result of the proposed merger. Company shareholders who are considering asserting and exercising dissenting shareholder rights should consult their legal advisors.

Exercise of your rights as a dissenting shareholder under California law requires strict compliance with the procedures set forth in Chapter 13 of the California General Corporation Law. Failure to follow any of these procedures may result in a termination or waiver of dissenting shareholder rights under California law. The applicable provisions of California law are summarized below. Company shareholders who choose to exercise dissenting shareholder rights under California law must fully comply with the requirements of Chapter 13 of the California General Corporation Law.

Under the California General Corporation Law, a Company shareholder may be entitled to dissenting shareholder rights with respect to the shares of common stock of the Company held by such shareholder if such shares:

 

   

were outstanding on the record date;

 

   

were not voted in favor of the merger; and

 

   

if shareholders holding in the aggregate at least five percent of the Company’s outstanding shares of common stock properly exercise their dissenting shareholder rights under Chapter 13 of the California General Corporation Law.

If you desire to exercise dissenting shareholder rights and receive the fair value of your shares of common stock in cash instead of the merger consideration, your shares cannot be voted “FOR” the proposal to approve the merger agreement. If you return a signed proxy without voting instructions or with instructions to vote “FOR” the proposal to approve the merger agreement, your shares will be voted in favor of the approval of the merger agreement and you will lose dissenting shareholder rights. In addition, any proxy or vote against approval of the merger agreement will not in and of itself constitute a demand for dissenting shareholder rights within the meaning of Chapter 13.

 

85


Table of Contents

Within ten days after approval of the approval of the merger agreement by the Company’s shareholders, each shareholder who is entitled to dissenting shareholder rights will receive a notice of such approval and a statement of the price determined by the Company to represent the fair market value of the shares. The notice will also describe the rights to which such shareholders are entitled and shall be accompanied by a copy of Chapter 13 of the California General Corporation Law (attached as Annex [                    ] to this proxy statement). Within thirty days after the date of the mailing of such notice, the Company’s shareholders must assert their dissenting shareholder rights by delivering a written demand to the Company or its transfer agent. The written demand must set forth the number and class of shares that such shareholder desires to be repurchased, include a statement as to what such shareholder claims to be the true fair market value of such shares. The statement of fair market value will constitute an offer by such shareholder to sell his shares at the price indicated therein.

If the shareholder and Company agree upon the fair market value and the shares held by such Company shareholder qualify as dissenting shares, the Company shareholder will be entitled to the agreed upon price plus the legal rate of interest on judgments from the date of such agreement. If the shareholder and Company are unable to agree upon the fair market value of the shares or whether the shares qualify as dissenting shares, the shareholder may file a complaint in California Superior Court seeking a determination by the court of the fair market value of the shares and/or whether the shares qualify as dissenting shares. The complaint must be filed within six months after the date on which the notice of the approval of the merger agreement by the company shareholders was mailed to the Company’s shareholders.

After determining which shareholders are entitled to dissenting shareholder rights, the court will evaluate the shares, determining their fair value exclusive of any element of value arising from the accomplishment or expectation of the merger, together with a fair rate of interest, if any, to be paid upon the amount determined to be the fair value. The court will then direct payment of the fair value of the shares, together with interest, if any, to the dissenting shareholders. Any cash dividends declared and paid upon the dissenting shares after the date of approval of the merger agreement by the Company’s shareholders shall be credited against the total amount to be paid to the dissenting shareholders. The costs of proceedings may be determined by the court and shared by the parties as the court deems fit.

DELISTING AND DEREGISTRATION OF COMPANY COMMON STOCK

If the merger is completed, the Company’s common stock will be delisted from Nasdaq and deregistered under the Exchange Act. We would no longer be required to file periodic reports with the SEC on account of Company common stock.

ADJOURNMENT OR POSTPONEMENT OF THE SPECIAL MEETING (PROPOSAL NO. 2)

Tekelec is also submitting a proposal for consideration at the special meeting to authorize the named proxies to approve one or more adjournments or postponements of the special meeting if there are not sufficient votes to approve the merger agreement at the time of the special meeting. Even though a quorum may be present at the special meeting, it is possible that Tekelec may not have received sufficient votes to approve the merger agreement by the time of the special meeting. In that event, Tekelec would need to adjourn or postpone the special meeting in order to solicit additional proxies. The adjournment/postponement proposal relates only to an adjournment or postponement of the special meeting for purposes of soliciting additional proxies to obtain the requisite shareholder approval to approve the merger agreement.

To allow the proxies that have been received by Tekelec at the time of the special meeting to be voted for an adjournment or postponement, if necessary, Tekelec is submitting a proposal to approve one or more adjournments or postponements, and only under those circumstances, to you for consideration. If the new date,

 

86


Table of Contents

time and place are announced at the special meeting before the adjournment or postponement, Tekelec is not required to give notice of the time and place of the adjourned or postponed meeting unless the board of directors fixes a new record date for the special meeting.

The adjournment/postponement proposal relates only to an adjournment or postponement of the special meeting occurring for purposes of soliciting additional proxies for approval of the proposal to approve the merger agreement in the event that there are insufficient votes to approve that proposal. Subject to the terms of the merger agreement, our board of directors retains full authority to the extent set forth in our amended and restated bylaws and California law to adjourn or postpone the special meeting for any other purpose, or to postpone the special meeting before it is convened, without the consent of any shareholders.

If approval of the adjournment/postponement proposal is submitted to the Company’s shareholders, the approval requires the vote of a majority of the votes represented by the shares of the Company’s common stock present and entitled to vote thereon, whether or note a quorum is present.

The board of directors of Tekelec unanimously recommends that our shareholders vote FOR the adjournment/postponement proposal.

ADVISORY VOTE ON GOLDEN PARACHUTE COMPENSATION (PROPOSAL NO. 3)

Section 14A of the Exchange Act, which was enacted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, requires that Tekelec seek a non-binding, advisory vote from its shareholders to approve certain of the “golden parachute” compensation that the Company’s named executive officers will or may receive in connection with the merger. We are therefore asking our shareholders to approve such compensation, by voting for or against the following resolution:

“RESOLVED, that the shareholders approve, on a non-binding, advisory basis, the golden parachute compensation that will be paid or that may become payable to Tekelec’s named executive officers in connection with the merger, and that is disclosed under ‘Advisory Vote on Golden Parachute Compensation’ in the proxy statement for the special meeting.”

Information required by Item 402(t) of Regulation S-K regarding the golden parachute compensation that will or may be paid to our named executive officers based on or otherwise relating to the merger, including certain alternative change in control compensation arrangements that involve Parent and that are not subject to this proposal, is disclosed under “The Merger — Interests of our Directors and Executive Officers — Golden Parachute Compensation” and “The Merger — Interests of our Directors and Executive Officers — Narrative to Golden Parachute Compensation Table” beginning on page [            ].

The golden parachute compensation that is subject to this proposal is set forth in the table below. The table assumes that the merger consideration per share of common stock of the Company is $11.00, that the merger closed on November 8, 2011, and that the officers experienced qualifying terminations of employment at the effective time of the merger.

 

Golden Parachute Compensation Subject to the Advisory Vote

 

                   Perquisites/         

Name

   Cash(1)      Equity(2)      Benefits(3)      Total  

Ronald L. de Lange

   $ 1,800,000       $ 2,111,548       $ 8,957       $ 3,920,505   

Gregory S. Rush

     928,000         839,231         26,700         1,793,931   

Stuart H. Kupinsky

     744,000         824,596         20,025         1,588,621   

 

(1)

Cash. In the case of Mr. de Lange and under our 2011 Officer Severance Plan, represents lump sum cash severance in an amount equal to two times Mr. de Lange’s “annual compensation,” which consists of annual

 

87


Table of Contents
  base salary and bonus components. In the case of Messrs. Rush and Kupinsky and under our 2007 Officer Severance Plan, represents lump sum cash severance in an amount equal to two times (for Mr. Rush) and one and one-half times (for Mr. Kupinsky) the officer’s “annual compensation,” which consists of annual base salary and bonus components. Any such payments would result from the “double trigger” change in control provisions in our officer severance plans. Under these “double trigger” provisions, the cash severance is payable only if (i) the merger occurs and (ii) the officer’s employment terminates under certain qualifying circumstances as provided in the applicable officer severance plan.
(2) Equity. Represents the lump sum aggregate payments to be made in respect of unvested share appreciation rights and restricted stock units. Such values would result, pursuant to the terms of the merger agreement, from the “single trigger” acceleration of vesting upon consummation of the merger and are applicable regardless of whether the officer’s employment terminates. Such values consist of the following: for Mr. de Lange, the aggregate value of share appreciation rights that will vest is $462,142, and the aggregate value of restricted stock units that will vest is $1,649,406; for Mr. Rush, the aggregate value of share appreciation rights that will vest is $213,760, and the aggregate value of restricted stock units that will vest is $625,471; and for Mr. Kupinsky the aggregate value of share appreciation rights that will vest is $190,380, and the aggregate value of restricted stock units that will vest is $634,216.
(3) Perquisites/Benefits. Represents the estimated value of two years (for Messrs. de Lange and Rush) and one and one-half years (for Mr. Kupinsky) of reimbursement of COBRA premiums for continued health coverage under the Company’s group health plan to the same extent to which the officers were covered under such plan on the date immediately preceding the assumed date of the merger. These amounts would result from the “double trigger” change in control provisions in the Company’s 2011 Officer Severance Plan (for Mr. de Lange) and the Company’s 2007 Officer Severance Plan (for Messrs. Rush and Kupinsky) and are applicable only if an officer’s employment terminates under certain qualifying circumstances as provided in the applicable officer severance plan.

For additional information regarding the golden parachute compensation described in the above table, including information regarding (i) the definition of an officer’s “annual compensation” for purposes of the applicable officer severance plan and (ii) the “qualifying” circumstances under which, for purposes of the applicable severance plan, the termination of an officer’s employment may entitle the officer to cash severance compensation and health benefits, please refer to “The Merger — Interests of Our Directors and Executive Officers — Narrative to Golden Parachute Compensation Table” beginning on page [ ].

This proposal 3 will be approved if the above resolution receives the approval of a majority of (i) the votes represented by the shares of common stock present or represented at the special meeting and voting on this proposal and (ii) the number of shares representing the quorum required to transact business at the meeting

Approval of this proposal is not a condition to completion of the merger, and the vote with respect to this proposal is advisory only and will not be binding on the Company. Therefore, regardless of whether our shareholders vote to approve the golden parachute compensation that is described in this proposal 3, if the merger is approved by the Company’s shareholders and completed, such golden parachute compensation will be paid or may become payable to the named executive officers to the extent provided in the terms of the relevant compensation arrangements.

The board of directors of the Company unanimously recommends that our shareholders approve the golden parachute compensation arrangements described in this proposal 3 by voting FOR the above resolution.

 

88


Table of Contents

OTHER MATTERS

Other Matters for Action at the Special Meeting

We currently know of no matters to be submitted at the special meeting other than those described in this proxy statement. If any other matters properly come before the Special Meeting, it is the intention of the persons named on the enclosed proxy card to vote the shares they represent as the board of directors may recommend.

Future Shareholder Proposals

If we obtain the requisite shareholder vote at the special meeting and the merger is consummated, we will not have public shareholders and there will be no public participation in any future meetings of shareholders.

If the merger is not consummated, we expect to hold an annual meeting of our shareholder in 2012, which we refer to as the “2012 Annual Meeting.” We must receive any proposed resolutions that our shareholders intend to present at the 2012 Annual Meeting and include in our proxy materials no later than December 10, 2011; provided, however, that if the date of the 2012 Annual Meeting is more than thirty days before or after the anniversary date of the Annual Meeting, then we must receive written notice of such matters within a reasonable time before we begin to print and mail our proxy materials. It is recommended that shareholders submitting proposals direct them to our Corporate Secretary via certified mail, return receipt requested, in order to ensure timely delivery.

In addition, our amended and restated bylaws require that we be given advance notice of shareholder nominations for election to our board of directors and of other matters that shareholders wish to present for action at an annual meeting of shareholders. The required notice must be in writing, include the information set forth in our amended and restated bylaws and be received by our Corporate Secretary not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty days, or delayed by more than 60 days, from the anniversary date of the preceding year’s annual meeting, then we must receive written notice of such matters no earlier than the 120th day prior to that annual meeting and not later than (i) the 90th day prior to that annual meeting or (ii) the tenth day following the day on which the date of the meeting is first publicly announced by us. We have not yet established the date of the 2012 Annual Meeting in the event it is held, but assuming it is held in May 2012, in order to comply with the time periods set forth in our amended and restated bylaws, appropriate notice for the 2012 Annual Meeting would need to be provided to our Corporate Secretary no earlier than January 14, 2012 and no later than February 13, 2012.

Householding of Special Meeting Materials

The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements with respect to two or more shareholders sharing the same address by delivering a single proxy statement addressed to those shareholders. This process, which is commonly referred to as “householding,” potentially provides extra convenience for shareholders and cost savings for companies. The Company and some brokers household proxy materials, delivering a single proxy statement to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once you have received notice from your broker or us that they or we will be householding materials to your address, householding will continue until you are notified otherwise or until you revoke your consent. If at any time you no longer wish to participate in householding and would prefer to receive a separate proxy statement, or if you are receiving multiple copies of the proxy statement and wish to receive only one, please notify your broker if your shares are held in a brokerage account or us, or our transfer agent, if you hold registered shares. You can notify us by sending a written request to Tekelec, Attention: Corporate Secretary, 5200 Paramount Parkway, Morrisville, North Carolina 27560, or by calling the Corporate Secretary at (919) 460-5500. You can notify our transfer agent, Computershare Investor Services, by sending them a written request to 250 Royall Street, Canton, Massachusetts 02021 or by calling 1-877-373-6374.

 

89


Table of Contents

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. Our SEC filings are available to the public from the SEC’s website site at http://www.sec.gov, which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. You may also read and copy any document we file at the SEC’s Public Reference Room in Washington D.C. located at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may also obtain copies of any document we file at prescribed rates by writing to the Public Reference Section of the SEC at that address. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Information about us, including our SEC filings, is also available on our website at http://www.tekelec.com. The information provided on our website, other than copies of the documents listed below that have been filed with the SEC, is not a part of this proxy statement, and therefore is not incorporated herein by reference.

Should you want more information regarding us, please refer to the annual, quarterly and current reports, as applicable, filed with the SEC.

Statements contained in this proxy statement, or in any document incorporated by reference in this proxy statement regarding the contents of any contract or other document, are not necessarily complete and each such statement is qualified in its entirety by reference to that contract or other document filed as an exhibit with the SEC. The SEC allows us to “incorporate by reference” into this proxy statement documents we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be a part of this proxy statement, and later information that we file with the SEC will update and supersede that information. We incorporate by reference the documents listed below and any documents filed by us pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this proxy statement and before the date of the special meeting.

 

  1. Annual Report on Form 10-K for the year ended December 31, 2010;

 

  2. Quarterly Reports on Form 10-Q for the quarters ended March 31, 2011, June 30, 2011 and September 30, 2011;

 

  3. Current Reports on Form 8-K filed on January 5, 2011, January 18, 2011, February 10, 2011, February 16, 2011, March 3, 2011, April 6, 2011, April 12, 2011, May 16, 2011, June 1, September 13, 2011, November 7, 2011 and November 16, 2011;

 

  4. Our definitive proxy materials filed with the SEC on April 7, 2011, for our 2011 Annual Meeting of Shareholders held on May 13, 2011; and

 

  5. The description of our stock contained in our registration statement on Form 8-A filed with the SEC on November 12, 1986.

Notwithstanding the foregoing, information furnished under Items 2.02 and 7.01 of any Current Report on Form 8-K, including the related exhibits, is not incorporated by reference into this proxy statement.

 

90


Table of Contents

Any person, including any beneficial owner, to whom this proxy statement is delivered may request copies of proxy statements and any of the documents incorporated by reference in this document or other information concerning us, without charge, by written or telephonic request directed to our Corporate Secretary, at the Company’s headquarters at 5200 Paramount Parkway, Morrisville, North Carolina 27560; by calling MacKenzie Partners, Inc., which is assisting us in the solicitation of proxies, toll-free at (800) 322-2885 or collect at (212) 929-5500; or from the SEC through the SEC website at the address provided above. Documents incorporated by reference are available without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference into those documents.

The information concerning us contained in this document has been provided by us and the information concerning Parent and Merger Subsidiary included in this document has been provided by Parent.

THIS PROXY STATEMENT DOES NOT CONSTITUTE THE SOLICITATION OF A PROXY IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH PROXY SOLICITATION IN THAT JURISDICTION. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT TO VOTE YOUR SHARES OF COMPANY COMMON STOCK AT THE SPECIAL MEETING. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. THIS PROXY STATEMENT IS DATED [            ], 2011. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND THE MAILING OF THIS PROXY STATEMENT TO SHAREHOLDERS DOES NOT CREATE ANY IMPLICATION TO THE CONTRARY.

 

BY ORDER OF THE BOARD OF DIRECTORS

Stuart H. Kupinsky

Corporate Secretary

 

Morrisville, North Carolina

[            ], 2011

 

91


Table of Contents

EXECUTION COPY

 

 

 

APPENDIX A

AGREEMENT AND PLAN OF MERGER

dated as of

November 6, 2011

among

TITAN PRIVATE HOLDINGS I, LLC,

TITAN PRIVATE ACQUISITION CORP.

and

TEKELEC

 

 


Table of Contents

TABLE OF CONTENTS

 

     Page  

ARTICLE 1 DEFINITIONS

     A-5   

Section 1.01. Definitions

     A-5   

Section 1.02. Other Definitional and Interpretative Provisions

     A-11   

ARTICLE 2 THE MERGER

     A-12   

Section 2.01. The Merger

     A-12   

Section 2.02. Conversion of Shares

     A-12   

Section 2.03. Surrender and Payment

     A-13   

Section 2.04. Dissenting Shares

     A-14   

Section 2.05. Stock Options and Other Equity Awards

     A-14   

Section 2.06. Adjustments

     A-15   

Section 2.07. Withholding Rights

     A-15   

Section 2.08. Lost Certificates

     A-15   

ARTICLE 3 THE SURVIVING CORPORATION

     A-16   

Section 3.01. Articles of Incorporation

     A-16   

Section 3.02. Bylaws

     A-16   

Section 3.03. Directors and Officers

     A-16   

ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     A-16   

Section 4.01. Corporate Existence and Power

     A-16   

Section 4.02. Corporate Authorization

     A-16   

Section 4.03. Governmental Authorization

     A-17   

Section 4.04. Non-contravention

     A-17   

Section 4.05. Capitalization

     A-18   

Section 4.06. Subsidiaries

     A-19   

Section 4.07. SEC Filings and the Sarbanes-Oxley Act

     A-19   

Section 4.08. Financial Statements

     A-20   

Section 4.09. Disclosure Documents

     A-21   

Section 4.10. Absence of Certain Changes

     A-21   

Section 4.11. No Undisclosed Material Liabilities

     A-21   

Section 4.12. Litigation

     A-21   

Section 4.13. Compliance with Applicable Laws

     A-22   

Section 4.14. Material Contracts

     A-22   

Section 4.15. Taxes

     A-22   

Section 4.16. Employees and Employee Benefit Plans

     A-23   

Section 4.17. Intellectual Property

     A-26   

Section 4.18. Properties

     A-27   

Section 4.19. Environmental Matters

     A-27   

Section 4.20. Antitakeover Statutes

     A-27   

Section 4.21. Opinion of Financial Advisor

     A-27   

Section 4.22. Finders’ Fees

     A-28   

Section 4.23. Insurance

     A-28   

Section 4.24. Affiliate Transactions

     A-28   

Section 4.25. No Other Representations or Warranties

     A-28   

ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF PARENT

     A-28   

Section 5.01. Corporate Existence and Power

     A-28   

Section 5.02. Corporate Authorization

     A-28   

 

ii


Table of Contents
     Page  

Section 5.03. Governmental Authorization

     A-28   

Section 5.04. Non-contravention

     A-29   

Section 5.05. Disclosure Documents

     A-29   

Section 5.06. Financing

     A-29   

Section 5.07. Finders’ Fees

     A-30   

Section 5.08. Litigation

     A-30   

Section 5.09. Investigation by Parent and Merger Subsidiary

     A-31   

Section 5.10. Ownership of Company Common Stock

     A-31   

Section 5.11. Limited Guarantee

     A-31   

Section 5.12. No Other Representations or Warranties

     A-31   

ARTICLE 6 COVENANTS OF THE COMPANY

     A-31   

Section 6.01. Conduct of the Company

     A-31   

Section 6.02. Shareholder Meeting; Proxy Material

     A-34   

Section 6.03. No Solicitation; Other Offers

     A-35   

Section 6.04. Access to Information; Confidentiality

     A-36   

ARTICLE 7 COVENANTS OF PARENT

     A-37   

Section 7.01. Director and Officer Liability

     A-37   

Section 7.02. Employee Matters

     A-38   

ARTICLE 8 COVENANTS OF PARENT AND THE COMPANY

     A-39   

Section 8.01. Reasonable Best Efforts

     A-39   

Section 8.02. Certain Filings

     A-40   

Section 8.03. Financing

     A-40   

Section 8.04. Public Announcements

     A-42   

Section 8.05. Stock Exchange De-listing

     A-43   

Section 8.06. Further Assurances

     A-43   

Section 8.07. Notices of Certain Events

     A-43   

Section 8.08. Director Resignations

     A-43   

Section 8.09. Takeover Statutes

     A-43   

Section 8.10. Shareholder Litigation

     A-43   

Section 8.11. Rule 16b-3

     A-44   

Section 8.12. Credit Facility Termination

     A-44   

Section 8.13. Equity Financing Commitments

     A-44   

Section 8.14. Cash Repatriation

     A-45   

Section 8.15. Loss Carryback

     A-45   

ARTICLE 9 CONDITIONS TO THE MERGER

     A-45   

Section 9.01. Conditions to the Obligations of Each Party

     A-45   

Section 9.02. Conditions to the Obligations of Parent and Merger Subsidiary

     A-45   

Section 9.03. Conditions to the Obligations of the Company

     A-46   

ARTICLE 10 TERMINATION

     A-46   

Section 10.01. Termination

     A-46   

Section 10.02. Effect of Termination

     A-47   

ARTICLE 11 MISCELLANEOUS

     A-48   

Section 11.01. Notices

     A-48   

Section 11.02. Non-Survival of Representations and Warranties

     A-48   

 

iii


Table of Contents
     Page  

Section 11.03. Amendments and Waivers

     A-48   

Section 11.04. Fees and Expenses

     A-49   

Section 11.05. Disclosure Schedule References

     A-50   

Section 11.06. Binding Effect; Benefit; Assignment

     A-51   

Section 11.07. Governing Law

     A-51   

Section 11.08. Jurisdiction

     A-51   

Section 11.09. WAIVER OF JURY TRIAL

     A-52   

Section 11.10. Counterparts; Effectiveness

     A-52   

Section 11.11. Entire Agreement

     A-52   

Section 11.12. Severability

     A-52   

Section 11.13. Specific Performance

     A-52   

Annex I           Parent Knowledge Group

  

Annex II           Articles of Incorporation of the Surviving Corporation

  

 

iv


Table of Contents

AGREEMENT AND PLAN OF MERGER

AGREEMENT AND PLAN OF MERGER (this “Agreement”) dated as of November 6, 2011 among Titan Private Holdings I, LLC, a Delaware limited liability company (“Parent”), Titan Private Acquisition Corp., a California corporation and a direct or indirect, wholly-owned subsidiary of Parent (“Merger Subsidiary”) and Tekelec, a California corporation (the “Company”).

WHEREAS, the Boards of Directors of Parent, Merger Subsidiary and the Company have approved and declared advisable this Agreement and the Merger (as defined below), on the terms and subject to the conditions set forth in this Agreement; and

WHEREAS, concurrently with the execution of this Agreement, and as a condition and inducement to the willingness of the Company to enter into this Agreement, the Guarantor (as defined below) is entering into a Limited Guarantee (as defined below) in favor of the Company with respect to certain of Parent’s and Merger Subsidiary’s obligations under this Agreement.

NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements herein contained, the parties hereto agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.01. Definitions. As used herein, the following terms have the following meanings:

1933 Act” means the Securities Act of 1933, as amended.

1934 Act” means the Securities Exchange Act of 1934, as amended.

Acquisition Proposal” means, other than the transactions contemplated by this Agreement, any offer or proposal (other than an offer or proposal by Merger Subsidiary or Parent) relating to (A) any acquisition or purchase, direct or indirect, of 20% or more of the equity or voting securities of the Company, (B) any tender offer or exchange offer that, if consummated, would result in such Third Party beneficially owning 20% or more of the equity or voting securities of the Company, or (C) a sale of assets equal to 20% or more of the Company’s consolidated assets or to which 20% or more of the Company’s revenue or earnings on a consolidated basis are attributable, or a merger, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution or other similar transaction involving the Company or any of its Subsidiaries whose business, individually or in the aggregate, constitutes 20% or more of the consolidated assets, consolidated revenues or consolidated earnings of the Company.

Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by, or under common control with such Person.

Applicable Law” means, with respect to any Person, any federal, state, local or foreign law (statutory, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling or other similar requirement enacted, adopted, promulgated or applied by a Governmental Authority that is binding upon or applicable to such Person, as the same may be amended from time to time unless expressly specified otherwise herein.

Business Day” means a day, other than Saturday, Sunday or other day on which commercial banks in New York, New York are authorized or required by Applicable Law to close.

California Law” means the General Corporation Law of the State of California, as amended.

Code” means the Internal Revenue Code of 1986, as amended.


Table of Contents

Company 10-Q” means the Company’s quarterly report on Form 10-Q for the fiscal quarter ended July 1, 2011.

Company Balance Sheet” means the consolidated balance sheet of the Company and its Subsidiaries as of July 1, 2011 and the footnotes thereto set forth in the Company 10-Q.

Company Balance Sheet Date” means July 1, 2011.

Company Common Stock” means the common stock, without par value, of the Company.

Company Disclosure Schedule” means the disclosure schedule dated the date hereof regarding this Agreement that has been provided by the Company to Parent and Merger Subsidiary.

“Company Owned Intellectual Property” means all Intellectual Property owned or purported to be owned by the Company or any of its Subsidiaries and includes all Intellectual Property listed on Section 4.17 of the Company Disclosure Schedule.

Company Related Parties” means (i) the Company and its Subsidiaries, (ii) the former, current and future holders of any equity, partnership or limited liability company interest, controlling persons, directors, officers, employees, agents, attorneys, Affiliates, members, managers, general or limited partners, stockholders or assignees of the Company or its Subsidiaries or (iii) any future holders of any equity, partnership or limited liability company interest, controlling persons, directors, officers, employees, agents, attorneys, Affiliates, members, managers, general or limited partners, stockholders, or assignees of any of the foregoing.

Company Restricted Stock Unit” means each outstanding restricted stock unit (whether subject to time-vesting or performance-vesting conditions) under the Stock Plans representing the right to receive a share of Company Common Stock.

Contract” means any legally binding contract, agreement, obligation, commitment, arrangement, understanding, instrument, permit, lease, license, note, bond, mortgage, indenture, debenture or deed of trust.

DOJ” means the United States Department of Justice.

Environmental Law” means any Applicable Law relating to (i) the control of any potential Hazardous Substance or protection of the air, water or land, (ii) solid, gaseous or liquid waste generation, handling, treatment, storage, disposal or transportation of a Hazardous Substance, (iii) human health and safety with respect to exposures to and management of Hazardous Substances, or (iv) the environment or natural resources.

Environmental Permits” means all permits, licenses, franchises, certificates, approvals and other similar authorizations of Governmental Authorities required by Environmental Laws and affecting, or relating to, the business of the Company or any of its Subsidiaries.

ERISA” means the Employee Retirement Income Security Act of 1974, as amended.

ERISA Affiliate” of any entity means any other entity that, together with such entity, would be treated as a single employer under Section 414 of the Code.

Financing Sources” means the entities that have committed to provide or otherwise entered into agreements in connection with the Debt Financing or other financings (other than the Equity Financing) in connection with the transactions contemplated hereby and their respective Affiliates, including the parties to the Debt Financing Commitment and any joinder agreements or credit agreements relating thereto.

FTC” means the United States Federal Trade Commission.

 

A-6


Table of Contents

GAAP” means United States generally accepted accounting principles consistently applied.

Governmental Authority” means any transnational, domestic or foreign federal, state or local governmental, regulatory, executive, judicial, legislative, police, taxing or administrative authority, department, court, tribunal, board, bureau, agency, commission, official, or arbitral body, including any political subdivision thereof, or any non-governmental self-regulatory agency (including any stock exchange), commission or authority.

Hazardous Substance” means any chemical, substance, waste or material listed or defined as a “waste,” “pollutant,” “contaminant,” “toxic,” “radioactive,” “ignitable,” “corrosive,” “reactive,” “hazardous” or other term of similar regulatory import under any Environmental Law or that is regulated by a Governmental Authority, or that could result in liability, under any Environmental Law, including petroleum, petroleum products, polychlorinated biphenyls and asbestos.

HSR Act” means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Indebtedness” of any Person means, without duplication, (i) the principal of, accrued interest of, premium (if any) in respect of and prepayment and other penalties, charges, expenses and fees associated with (A) indebtedness of such Person for money borrowed and (B) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all obligations of such Person under derivatives contracts; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations of such Person and all obligations of such Person under any title retention agreement (but excluding trade accounts payable and other accrued current liabilities arising in the ordinary course of business consistent with past practice); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction; (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons for the payment of which such Person is responsible or liable, directly or indirectly, as obligor, guarantor, surety or otherwise, including guarantees of such obligations; and (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person).

“Intellectual Property” shall mean all worldwide intellectual and industrial property rights, including (i) trademarks, service marks, brand names, certification marks, trade dress, domain names and other indications of origin, the goodwill associated with the foregoing and registrations in any jurisdiction of, and applications in any jurisdiction to register, the foregoing, including any extension, modification or renewal of any such registration or application; (ii) inventions and discoveries, whether patentable or not, in any jurisdiction; patents, applications for patents (including, without limitation, divisions, continuations, continuations in part and renewal applications), and any renewals, extensions or reissues thereof, in any jurisdiction (the “Patents”); (iii) know-how, trade secrets and confidential information and rights in any jurisdiction to limit the use or disclosure thereof by any Person (the “Trade Secrets”); (iv) writings and other tangible works, whether copyrightable or not, in any jurisdiction, Software and any and all copyright rights, whether registered or not; and registrations or applications for registration of copyrights in any jurisdiction, and any renewals or extensions thereof; and (v) moral rights, database rights, design rights, industrial property rights, publicity rights and privacy rights.

IT Assets” shall mean computers, Software, servers, workstations, routers, hubs, switches, data communications lines, and all other information technology equipment, and all associated documentation owned by the Company or its Subsidiaries or licensed or leased by the Company or its Subsidiaries pursuant to written agreement (excluding any public networks).

knowledge of Parent” means the actual knowledge of the individuals set forth on Annex I attached hereto.

knowledge of the Company” means the actual knowledge of the Company’s executive officers.

 

A-7


Table of Contents

Lien” means, with respect to any property or asset, any mortgage, lien, pledge, charge, security interest, restriction on transfer, right of first offer or right of first refusal, encumbrance or other adverse right, claim or interest of any kind in respect of such property or asset. For purposes of this Agreement, a Person shall be deemed to own subject to a Lien any property or asset that it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement relating to such property or asset.

Material Adverse Effect” means with respect to any Person, any change, effect, circumstance, development or event that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the financial condition, business, assets or results of operations of such Person and its Subsidiaries, taken as a whole; provided, however, that no change, effect, circumstance, development or event (by itself or when aggregated or taken together with any and all other changes, effects, circumstances, developments or events) resulting from, arising out of, or attributable to, any of the following shall be taken into account when determining whether a “Material Adverse Effect” has occurred or may, would or could occur: (A) any changes, effects, circumstances, developments or events in the economy or the financial, credit or securities markets in general (including changes in interest or exchange rates), (B) any changes, effects, circumstances, developments or events in the industries in which such Person and its Subsidiaries operate, (C) any changes, effects, developments, circumstances or events resulting from the announcement or pendency of the transactions contemplated by this Agreement, the identity of Parent or the performance or compliance with the terms of this Agreement (including, in each case, any loss of customers, suppliers or employees or any disruption in business relationships), (D) any changes, effects, circumstances, developments or events resulting from the failure of such Person to meet internal forecasts, budgets or financial projections or fluctuations in the trading price or volume of such Person’s common stock (it being understood that the underlying causes of such failure or fluctuations may, if they are not otherwise excluded from the definition of Material Adverse Effect, be taken into account in determining whether a Material Adverse Effect has occurred), (E) acts of God, natural disasters, calamities, national or international political or social conditions, including the engagement by any country in hostility (whether commenced before, on or after the date hereof, and whether or not pursuant to the declaration of a national emergency or war), or the occurrence of a military or terrorist attack, (F) any matters set forth on Section 4.12 of the Company Disclosure Schedule, or (G) any changes in Applicable Law or GAAP (or any interpretation thereof) after the date hereof; provided that any change, effect, circumstance, development or event referred to in clauses (B), (E) and (G) above shall not be taken into account in determining whether a Material Adverse Effect has occurred only to the extent as such change, effect, circumstance, development or event is not materially and disproportionately adverse to such Person and its Subsidiaries relative to other Persons operating in the industries in which such Person and its Subsidiaries operate.

NASDAQ” means The NASDAQ Stock Market LLC.

Organizational Documents” means (i) with respect to any entity that is a corporation, such corporation’s certificate or articles of incorporation and bylaws, (ii) with respect to any entity that is a limited liability company, such limited liability company’s certificate or articles of formation and operating agreement, and (iii) with respect to any other entity, such entity’s organizational or charter documents.

Parent Material Adverse Effect” means any change, effect, circumstance, development or event that has had or would reasonably be expected to have, individually or in the aggregate, a material adverse effect on the ability of Parent or Merger Subsidiary to timely perform its obligations under this Agreement or consummate the Merger.

Parent Related Parties” means (i) Parent, Merger Subsidiary, the Guarantor, the Sponsors and the Financing Sources, (ii) the former, current and future holders of any equity, partnership or limited liability company interest, controlling persons, directors, officers, employees, agents, attorneys, Affiliates, members, managers, general or limited partners, stockholders or assignees of Parent, Merger Subsidiary, the Guarantor, the

 

A-8


Table of Contents

Sponsors or the Financing Sources or (iii) any future holders of any equity, partnership or limited liability company interest, controlling persons, directors, officers, employees, agents, attorneys, Affiliates, members, managers, general or limited partners, stockholders, or assignees of any of the foregoing.

PBGC” means the Pension Benefit Guaranty Corporation or any successor thereto.

Permitted Liens” shall mean any of the following: (i) Liens for Taxes, assessments and governmental charges or levies either not yet due and delinquent or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with GAAP; (ii) mechanics, carriers’, workmen’s, warehouseman’s, repairmen’s, materialmen’s or similar Liens incurred in the ordinary course of business that are not yet due; (iii) Liens to secure obligations to landlords, lessors or renters under leases or rental agreements or underlying leased property; (iv) pledges or deposits to secure obligations under workers’ compensation laws or similar legislation; (v) pledges and deposits to secure the performance of bids, trade contracts, leases, surety and appeal bonds, performance bonds and other obligations of a similar nature, in each case incurred in the ordinary course of business consistent with past practice; and (vi) Liens that do not materially detract from the value or materially interfere with the present use of the property or asset subject thereto or affected thereby.

Person” means an individual, corporation, partnership, limited liability company, joint venture, association, estate, trust or other entity or organization, including a government or political subdivision or an agency or instrumentality thereof.

Sarbanes-Oxley Act” means the Sarbanes-Oxley Act of 2002.

SEC” means the United States Securities and Exchange Commission.

Section 16 Officers” means those officers of the Company required to file reports with the SEC pursuant to Section 16 of the 1934 Act.

Software” means any and all computer programs, software (in object and source code), firmware, middleware, applications, API’s, code and related algorithms, models and methodologies, files, documentation and all other tangible embodiments thereof.

Stock Plans” means the Company’s Amended and Restated 2004 Equity Incentive Plan for New Employees, the Amended and Restated 2003 Equity Incentive Plan, the Amended and Restated Non-Employee Director Stock Option Plan, the Amended a