<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 2000
REGISTRATION NO. 333-95539
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
WESTELL TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C> <C>
DELAWARE
(State or other jurisdiction 3661 36-3154957
of incorporation or (Primary Standard Industrial (I.R.S. Employer
organization) Classification Code Number) Identification No.)
</TABLE>
---------------------
750 NORTH COMMONS DRIVE
AURORA, ILLINOIS 60504
(630) 898-2500
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
MARC ZIONTS
CHIEF EXECUTIVE OFFICER
WESTELL TECHNOLOGIES, INC.
750 NORTH COMMONS DRIVE
AURORA, ILLINOIS 60504
(630) 898-2500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies To:
<TABLE>
<S> <C>
HELEN R. FRIEDLI, P.C. JODI A. SIMALA
MCDERMOTT, WILL & EMERY JENNER & BLOCK
227 WEST MONROE STREET, SUITE 3100 ONE IBM PLAZA, 40TH FLOOR
CHICAGO, ILLINOIS 60606-5096 CHICAGO, ILLINOIS 60611
312-372-2000 312-222-9350
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: As soon as practicable after the effective date of this registration
statement and the effective time of the merger described in this registration
statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
PROPOSED
AMOUNT MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE OFFERING
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class A Common Stock (par value $0.01 per
share)........................................ 20,885,700 shares $18.97 $396,155,844
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ------------------------------------------------ ----------------
- ------------------------------------------------ ----------------
AMOUNT OF
TITLE OF EACH CLASS OF REGISTRATION
SECURITIES TO BE REGISTERED FEE(3)
- ------------------------------------------------ ----------------
<S> <C>
Class A Common Stock (par value $0.01 per
share)........................................ $104,585
- -----------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the registrant's estimate of the maximum number of shares of
common stock, par value $.01 per share, of Teltrend Inc. which will be
outstanding at the effective time of the proposed merger described herein,
which shares will be exchanged for shares of Class A Common Stock, par value
$0.01 per share, of Westell Technologies, Inc. pursuant to the proposed
merger at an exchange ratio of 3.3 shares of Westell Class A Common Stock
for each share of Teltrend common stock.
(2) Calculated in accordance with Rule 457(f)(1) under the Securities Act of
1933, and estimated solely for purposes of calculating the registration fee.
The proposed maximum aggregate offering price was calculated by taking the
average high and low prices of Teltrend common stock as reported on the
Nasdaq National Market on February 7, 2000, and multiplying such number by
the number of shares of Teltrend common stock estimated to be exchanged
pursuant to the merger. The proposed maximum offering price per share was
calculated by dividing the proposed maximum aggregate offering price by the
number of shares of Westell Class A Common Stock to be registered hereunder.
(3) $67,821 of the fee has been paid. Accordingly, the balance of the
registration fee of $36,764 is paid herewith.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
[WESTELL LOGO] [TELTREND LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
TO THE STOCKHOLDERS OF WESTELL TECHNOLOGIES, INC. AND TELTREND INC.
The boards of directors of Westell Technologies, Inc. and Teltrend Inc.
have unanimously approved a merger of Teltrend with a wholly owned subsidiary of
Westell, pursuant to which Teltrend would become a wholly owned subsidiary of
Westell.
Upon completion of the merger, Teltrend stockholders will receive 3.3
shares of Westell Class A Common Stock in exchange for each share of Teltrend
common stock they own, subject to provisions regarding payment of cash in lieu
of fractional shares. The exchange ratio is fixed and will not change based on
any changes in the value of Westell's Class A Common Stock or Teltrend's common
stock. Westell's stockholders will continue to own their existing shares of
Westell Class A Common Stock and Class B Common Stock. After the merger, the
Teltrend stockholders will hold approximately 34% of Westell's outstanding Class
A Common Stock and Class B Common Stock, considered together, or approximately
17% of the total voting power of Westell. Assuming the exercise of all
outstanding options and warrants to purchase Class A Common Stock and the
conversion of Westell's outstanding convertible debentures at their current
conversion price, these percentages would be approximately 29% and 16%,
respectively.
The merger requires the stockholders of Teltrend to adopt the merger
agreement and the stockholders of Westell to approve the stock issuance in the
merger and a related amendment to Westell's Amended and Restated Certificate of
Incorporation to increase the number of shares of authorized Westell Class A
Common Stock. We have scheduled meetings for our stockholders to vote on these
matters.
Regardless of the number of shares you own or whether you plan to attend a
meeting, it is important that your shares be represented and voted. We ask that
you take the time to vote by completing and mailing the enclosed proxy card
promptly. Voting instructions are inside.
The dates, times and places of the meetings are as follows:
<TABLE>
<S> <C>
FOR WESTELL STOCKHOLDERS: FOR TELTREND STOCKHOLDERS:
March 16, 2000 March 16, 2000
10:00 a.m., local time 10:00 a.m., local time
Westell's Corporate Headquarters Teltrend's Corporate Headquarters
750 North Commons Drive 620 Stetson Avenue
Aurora, Illinois 60504 St. Charles, Illinois 60174
</TABLE>
This document provides detailed information about the merger. In addition,
you can find more information about Westell and Teltrend in the documents each
company has filed with the Securities and Exchange Commission. Instructions on
how to obtain these documents are included in this joint proxy
statement/prospectus. Westell's Class A Common Stock is listed on the Nasdaq
National Market under the symbol "WSTL".
Thank you.
<TABLE>
<S> <C>
/s/ MARK ZIONTS /s/ HOWARD L. KIRBY, JR.
Marc Zionts Howard L. Kirby, Jr.
Chief Executive Officer Chairman, President and Chief Executive
Westell Technologies, Inc. Officer
Teltrend Inc.
</TABLE>
FOR A DISCUSSION OF RISKS YOU SHOULD CONSIDER IN EVALUATING THE MERGER, SEE
RISK FACTORS BEGINNING ON PAGE I-14.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THE MERGER DESCRIBED IN THIS JOINT PROXY STATEMENT/PROSPECTUS OR
THE WESTELL CLASS A COMMON STOCK TO BE ISSUED IN THE MERGER, NOR HAVE THEY
DETERMINED IF THIS JOINT PROXY STATEMENT/ PROSPECTUS IS ACCURATE OR ADEQUATE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This joint proxy statement/prospectus is dated February 14, 2000 and is
first being mailed to stockholders on or about February 16, 2000.
<PAGE> 3
REFERENCES TO ADDITIONAL INFORMATION
This document incorporates by reference important business and financial
information about our companies from documents that we have filed with the SEC
but have not included or delivered with this document. If you write or call us,
we will send you these documents, excluding exhibits unless they are
specifically incorporated by reference into these documents, without charge. You
may contact us:
<TABLE>
<S> <C>
Westell Technologies, Inc. Teltrend Inc.
Attention: Investor Relations Department Attention: Investor Relations Department
750 North Commons Drive 620 Stetson Avenue
Aurora, Illinois 60504 St. Charles, Illinois
Tel.: 800-323-6883 (toll free) Tel.: 630-377-1700
</TABLE>
PLEASE REQUEST DOCUMENTS FROM EITHER COMPANY NO LATER THAN MARCH 9, 2000 TO
ENSURE TIMELY DELIVERY. See "Where You Can Find More Information" on page VI-1
for more information about the documents incorporated by reference into this
document.
<PAGE> 4
WESTELL TECHNOLOGIES, INC.
750 NORTH COMMONS DRIVE
AURORA, ILLINOIS 60504
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of
Westell Technologies, Inc.:
Westell Technologies, Inc. will hold a special meeting of its stockholders
on March 16, 2000, at 10:00 a.m., local time, at Westell's corporate
headquarters, 750 North Commons Drive, Aurora, Illinois 60504, for the following
purposes:
(1) To consider and act upon a proposal to approve the issuance of
shares of Westell's Class A Common Stock, in accordance with the agreement
and plan of merger dated December 13, 1999 among Westell, Theta Acquisition
Corp., a wholly owned subsidiary of Westell, and Teltrend Inc., as we
describe in the attached joint proxy statement/prospectus;
(2) To consider and act upon a proposal to amend Westell's Amended and
Restated Certificate of Incorporation to increase to 85 million from 65.5
million the total number of shares of Westell Class A Common Stock that
Westell is authorized to issue, effective as of the effective time of the
proposed merger; and
(3) To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The close of business on February 11, 2000 is the record date for the
Westell special meeting. Holders of Westell's Class A Common Stock and Class B
Common Stock on the record date will be entitled to vote at the meeting. On the
record date, there were 18,553,346 shares of Westell Class A Common Stock and
19,124,869 shares of Westell Class B Common Stock outstanding. Each share of
Westell Class A Common Stock entitles its holder to one vote and each share of
Westell Class B Common Stock entitles its holder to four votes.
Each proposal will be voted upon separately by Westell's stockholders, with
the holders of shares of Class A Common Stock and Class B Common Stock voting
together as a single class with respect to each proposal. The merger will not be
completed unless each proposal is approved by the required vote. The affirmative
vote of a majority of the total votes cast is required to approve the issuance
of shares of Westell's Class A Common Stock in the merger and the affirmative
vote of a majority of the total votes outstanding on the record date is required
to approve the amendment to Westell's Amended and Restated Certificate of
Incorporation. The co-trustees of the Westell Technologies, Inc. Voting Trust,
who beneficially own approximately 80% of the voting power of Westell, have
agreed to vote in favor of these proposals if a majority of Westell's
non-affiliated, public stockholders who vote also vote in favor. In addition,
the co-trustees may also vote in favor of the proposals even if a majority of
the non-affiliated, public stockholders reject the proposals. The co-trustees
have indicated their current intention to vote as the majority of Westell's
non-affiliated, public stockholders vote with respect to the proposals. The
voting agreement is described in more detail in the attached joint proxy
statement/prospectus.
Westell's Board of Directors believes that the merger will provide
significant benefits to Westell's stockholders, customers and employees.
Westell's Board of Directors has unanimously approved the merger and the
proposals to be presented at the meeting and recommends that Westell
stockholders vote in favor of the proposals.
PLEASE SIGN AND PROMPTLY RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE,
WHETHER OR NOT YOU EXPECT TO ATTEND THE WESTELL SPECIAL MEETING. A PROMPT
RESPONSE IS HELPFUL, AND YOUR COOPERATION WILL BE APPRECIATED. A stockholder who
executes a proxy may revoke it any time before it is exercised by giving written
notice of revocation to the corporate secretary of Westell, by subsequently
filing another later-dated proxy or by attending the Westell special meeting and
voting in person.
By Order of the Board of Directors,
/s/ NICHOLAS C. HINDMAN, SR.
Nicholas C. Hindman, Sr.
Acting Vice President, Secretary,
Treasurer and Chief Financial Officer
<PAGE> 5
TELTREND INC.
620 STETSON AVENUE
ST. CHARLES, ILLINOIS 60174
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders
of Teltrend Inc.:
Teltrend Inc. will hold a special meeting of its stockholders on March 16,
2000 at 10:00 a.m., local time, at Teltrend's corporate headquarters, 620
Stetson Avenue, St. Charles, Illinois 60174, for the following purposes:
(1) To consider and vote upon a proposal to adopt the agreement and
plan of merger dated December 13, 1999 among Teltrend, Westell
Technologies, Inc., and Theta Acquisition Corp., a wholly owned subsidiary
of Westell, as we describe in the attached joint proxy
statement/prospectus. If the merger is consummated:
- Teltrend stockholders will receive 3.3 shares of Westell Class A
Common Stock for each share of Teltrend common stock that they own,
subject to provisions regarding payment of cash in lieu of
fractional shares; and
- Teltrend will become a wholly-owned subsidiary of Westell.
(2) To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The close of business on February 11, 2000 is the record date for the
Teltrend special meeting. Holders of Teltrend's common stock on the record date
will be entitled to vote at the meeting. On the record date, there were
5,853,303 shares of Teltrend common stock outstanding (excluding treasury
shares), each of which is entitled to one vote.
The affirmative vote of a majority of the shares of Teltrend common stock
outstanding on the record date is required to adopt the merger agreement.
Detailed information concerning the merger agreement and the merger is contained
in the attached joint proxy statement/prospectus, which you are urged to read
carefully.
Teltrend's Board of Directors has unanimously determined that the merger is
fair to, and in the best interests of, the Teltrend stockholders, has approved
the merger agreement and the merger, and recommends that the Teltrend
stockholders vote to adopt the merger agreement at the Teltrend special meeting.
PLEASE SIGN AND PROMPTLY RETURN THE PROXY CARD IN THE ENCLOSED ENVELOPE,
WHETHER OR NOT YOU EXPECT TO ATTEND THE TELTREND SPECIAL MEETING. A PROMPT
RESPONSE IS HELPFUL, AND YOUR COOPERATION WILL BE APPRECIATED. A stockholder who
executes a proxy may revoke it any time before it is exercised by giving written
notice of revocation to the corporate secretary of Teltrend, by subsequently
filing another later-dated proxy or by attending the Teltrend special meeting
and voting in person.
STOCKHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES WHEN RETURNING
THEIR PROXIES. If the merger agreement is adopted and the merger is consummated,
stockholders will be notified and furnished instructions on how and when to
surrender their stock certificates.
By Order of the Board of Directors,
/s/ DOUGLAS P. HOFFMEYER
Douglas P. Hoffmeyer
Sr. Vice President, Finance; Chief
Financial
Officer; Secretary and Treasurer
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
CHAPTER ONE: OVERVIEW
Questions and Answers About the
Merger.......................... I-1
Summary............................ I-3
The Companies................... I-3
Reasons for the Merger.......... I-3
Recommendations to
Stockholders.................. I-3
The Merger...................... I-4
Comparative Per Share Market
Price Information............. I-4
Ownership of Westell After the
Merger........................ I-4
Stockholders Meetings........... I-5
Stockholder Vote Required....... I-5
Opinions of Financial
Advisors...................... I-5
Interests of Officers and
Directors in the Merger....... I-6
Comparison of Rights of Teltrend
and Westell Stockholders...... I-6
Accounting Treatment............ I-7
Material Federal Income Tax
Consequences.................. I-7
No Appraisal Rights............. I-7
Regulatory Approval............. I-7
Termination of the Merger
Agreement; Termination Fees... I-7
Summary Selected Historical
Consolidated And Pro Forma
Financial Data................ I-8
How We Prepared the Financial
Statements.................... I-8
Accounting Treatment of the
Merger........................ I-8
Merger-Related Expenses......... I-8
Selected Historical Consolidated
Financial Data of Westell..... I-9
Selected Historical Consolidated
Financial Data of Teltrend.... I-10
Selected Unaudited Pro Forma
Consolidated Financial Data... I-12
Unaudited Comparative Per Share
Data.......................... I-13
Recent Developments................ I-14
Risk Factors....................... I-14
Since the market price of the
Westell Class A Common Stock
fluctuates, Teltrend
stockholders cannot be sure of
the market value of the
Westell Class A Common Stock
they will receive in the
merger........................ I-14
We may not be able to
successfully integrate our
operations.................... I-14
Westell has incurred and
continues to expect losses.... I-15
Westell is controlled by a
limited number of
stockholders, whose actions
from time to time could limit
the rights of Teltrend
stockholders as holders of
Westell Class A Common Stock.. I-15
Following the merger, Teltrend
stockholders may be adversely
affected by future issuances
and sales of Westell's Class A
Common Stock.................. I-16
The combined company will depend
on digital subscriber line
market acceptance and growth
for future success............ I-18
Pricing pressures on products
may adversely affect the
combined company's
profitability................. I-18
Evolving industry standards may
adversely affect the combined
company's DSL sales........... I-19
The combined company's products
will face competition from
other existing products,
products under development and
changing technology, and the
combined company must develop
new commercially successful
products to achieve its
business goals and generate
revenue....................... I-19
The combined company may
experience delays in the
deployment of new products.... I-20
</TABLE>
i
<PAGE> 7
<TABLE>
<S> <C>
Industry consolidation could
make competing more
difficult..................... I-20
The failure to maintain and
further develop partners and
alliances would adversely
affect the combined company's
business...................... I-20
Westell's and Teltrend's lack of
backlog may affect the
combined company's ability to
adjust to an unexpected
shortfall in orders........... I-21
The combined company will depend
on a limited number of
customers who are able to
exert a high degree of
influence over it............. I-21
Westell's and Teltrend's
customers have lengthy
purchase cycles which affect
their ability to sell
products...................... I-22
Westell and Teltrend are
dependent on, and would not be
able to compete without,
third-party technology........ I-22
Westell and Teltrend are
dependent on sole or limited
source suppliers and could not
sell their products without
these suppliers............... I-23
Westell's and Teltrend's
services are affected by
uncertain government
regulation and changes in
current or future laws or
regulations could restrict the
way the combined company
operates its business......... I-23
Westell's failure to manage the
combined company's growth
effectively could impair its
ability to supply and support
the manufacture of large
volumes of DSL products....... I-24
The combined company's failure
to retain key personnel and
hire additional key personnel
could adversely affect its
ability to successfully
compete, and develop and sell
new products.................. I-24
Westell's stock price is
volatile...................... I-24
The combined company's quarterly
operating results are likely
to fluctuate significantly and
should not be relied upon as
an indication of future
performance................... I-25
Conference Plus' large
competitors could adversely
affect Conference Plus'
ability to maintain or
increase its market share..... I-25
Cautionary Note Concerning
Forward-Looking Statements...... I-26
CHAPTER TWO -- THE TRANSACTION
The Companies...................... II-1
Westell Technologies, Inc. ..... II-1
Teltrend Inc. .................. II-2
Theta Acquisition Corp.......... II-3
The Merger......................... II-3
General......................... II-3
Background of the Merger........ II-3
Westell's Reasons for the
Merger; Recommendation of the
Westell Board................. II-5
Teltrend's Reasons For the
Merger; Recommendation of the
Teltrend Board................ II-6
Opinion and Advice of Westell's
Financial Advisors............ II-8
Opinion of Teltrend's Financial
Advisor....................... II-15
Voting Agreement With Westell
Controlling Stockholders...... II-19
Material Federal Income Tax
Consequences.................. II-20
Accounting Treatment............ II-21
Regulatory Approvals............ II-21
No Appraisal Rights............. II-21
Restrictions on Resales by
Affiliates.................... II-22
Market Prices and Dividends........ II-22
Westell and Teltrend Unaudited Pro
Forma Condensed Consolidated
Financial Data.................. II-24
Interests of Teltrend's Directors
and Officers in the Merger...... II-30
Teltrend Severance Plan......... II-30
Teltrend Stock Option Plans..... II-31
Indemnification and Insurance... II-32
Directors and Executive Officers
of Westell Following the
Merger........................ II-32
</TABLE>
ii
<PAGE> 8
<TABLE>
<S> <C>
CHAPTER THREE -- THE MEETINGS AND VOTING
The Westell Special Meeting................. III-1
Purpose of the Meeting................... III-1
Date, Place and Time..................... III-1
Record Date; Stock Outstanding........... III-2
Votes Required for Approval.............. III-2
Quorum Requirement....................... III-2
Stock Ownership of Management; Voting
Agreement.............................. III-2
Voting and Revocation of Proxies......... III-3
Solicitation of Proxies.................. III-3
The Teltrend Special Meeting................ III-3
General.................................. III-3
Purpose of the Meeting................... III-3
Date, Place and Time..................... III-4
Record Date; Stock Outstanding........... III-4
Votes Required for Approval.............. III-4
Quorum Requirement....................... III-4
Stock Ownership of Management............ III-4
Voting and Revocation of Proxies......... III-4
Solicitation of Proxies.................. III-5
CHAPTER FOUR -- THE MERGER AGREEMENT
Terms of the Merger......................... IV-1
Exchange of Shares.......................... IV-1
Treatment of Teltrend Stock Options......... IV-2
Conditions to the Merger.................... IV-2
Representations and Warranties.............. IV-3
Principal Covenants......................... IV-4
Termination of the Merger Agreement;
Termination Fees......................... IV-8
Other Expenses.............................. IV-11
Amendment; Waiver........................... IV-11
CHAPTER FIVE -- CERTAIN LEGAL INFORMATION
Material Differences in Rights of Teltrend
and Westell Stockholders................. V-1
Authorized Capital Stock................. V-1
Dividends................................ V-1
Voting Rights............................ V-2
Convertibility........................... V-3
Liquidation Rights....................... V-3
Other Provisions......................... V-3
Preferred Stock.......................... V-3
Rights Plan.............................. V-4
Directors................................ V-4
Special Meetings......................... V-4
Amendment to Certificate of Incorporation
and Bylaws............................. V-5
Stockholder Proposals.................... V-5
Business Combinations.................... V-6
Limitation on Liability and
Indemnification of Directors and
Officers............................... V-6
Experts..................................... V-7
Legal Matters............................... V-8
CHAPTER SIX -- ADDITIONAL INFORMATION FOR
STOCKHOLDERS
Submission of Future Stockholder
Proposals................................ VI-1
Where You Can Find More Information......... VI-1
Appendix A: Agreement and Plan of Merger,
dated as of December 13, 1999, by and among
Westell Technologies, Inc., Theta
Acquisition Corp. and Teltrend Inc.
Appendix B: Opinion of Goldman, Sachs & Co.
Appendix C: Opinion of SoundView Technology
Group, Inc.
</TABLE>
iii
<PAGE> 9
CHAPTER ONE
OVERVIEW
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHEN AND WHERE ARE THE STOCKHOLDER MEETINGS?
A: The Westell meeting will take place on March 16, 2000 at 10:00 a.m., local
time, at Westell's corporate headquarters, 750 North Commons Drive, Aurora,
Illinois 60504. The Teltrend meeting will take place on March 16, 2000 at
10:00 a.m., local time, at Teltrend's corporate headquarters, 620 Stetson
Avenue, St. Charles, Illinois 60174.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document, please fill out, sign and mail your signed proxy card in the
enclosed return envelope as soon as possible, so that we may vote your
shares at the appropriate meeting.
In order to assure that we obtain your vote, please give your proxy as
instructed on your proxy card even if you currently plan to attend the
meeting in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: If you do not provide your broker with instructions on how to vote your
"street name" shares, your broker cannot vote them. You should therefore be
sure to provide your broker with instructions on how to vote your shares.
If you do not give voting instructions to your broker, you will, in effect,
be voting against the merger unless you appear in person at the appropriate
meeting with a proxy from your broker authorizing you to vote your "street
name" shares, and vote in favor of the applicable proposal(s).
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
applicable stockholder meeting. You can do this in one of three ways: (1)
you can send a written notice stating that you would like to revoke your
proxy, (2) you can complete and submit a new proxy card which bears a later
date (if you choose either (1) or (2), you must submit your notice of
revocation or your new proxy card to the appropriate corporate secretary),
or (3) you can attend your meeting and vote in person. Simply attending the
meeting, however, will not revoke your proxy. If you have instructed a
broker to vote your shares, you must follow directions received from your
broker to change those instructions.
Q: WHAT WILL TELTREND STOCKHOLDERS RECEIVE FOR THEIR TELTREND SHARES?
A: In the merger, Teltrend stockholders will receive 3.3 shares of Westell
Class A Common Stock in exchange for each share of Teltrend common stock
they hold. This exchange ratio will not change, even if the market price of
Westell or Teltrend shares increases or decreases between now and the date
the merger is completed. Because the market price of Westell Class A Common
Stock may fluctuate from day to day, Teltrend stockholders cannot be sure
of the market value of the Westell Class A Common Stock they will receive
in the merger at the time they vote their shares.
Westell will not issue fractional shares in the merger. The Teltrend
stockholders will receive cash in lieu of fractional shares based on the
average closing price of the Westell Class A Common Stock during the 10
trading days immediately preceding the merger.
Q: WILL THE MERGER BE TAXABLE TO ME?
A: We expect that the merger generally will not be taxable to either Westell
or Teltrend or Teltrend's stockholders for
I-1
<PAGE> 10
U.S. federal income tax purposes, except for cash received in lieu of any
fractional shares.
Q: WHAT RISKS SHOULD I CONSIDER?
A: You should review "Risk Factors" beginning on page I-14. You should also
review the countervailing factors considered by each company's Board of
Directors. See "Westell's Reasons for the Merger; Recommendation of the
Westell Board" beginning on page II-5 and "Teltrend's Reasons for the
Merger; Recommendation of the Teltrend Board" beginning on page II-6.
Q: HOW MANY CLASSES OF COMMON STOCK DOES WESTELL HAVE?
A: Westell has two classes of common stock: Class A Common Stock and Class B
Common Stock. Generally, both classes vote together as a single class with
each share of Class A Common Stock having one vote and each share of Class
B Common Stock having four votes. Economically, Westell's Class A Common
Stock and Class B Common Stock are equivalent.
Q: WILL WESTELL STOCKHOLDERS RECEIVE ANY SHARES AS A RESULT OF THE MERGER?
A: No. Westell stockholders will continue to hold the Westell shares they
currently own. After the merger, these shares will represent an ownership
interest in the combined businesses of Westell and Teltrend.
Q: SHOULD TELTREND STOCKHOLDERS SEND IN THEIR STOCK CERTIFICATES NOW?
A: No. After we complete the merger, we will send to the Teltrend stockholders
written instructions to exchange the Teltrend common stock for Westell
Class A Common Stock.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We expect to complete the merger as soon as possible after the stockholder
meetings, assuming the stockholders of both companies approve the
transaction. However, because the merger is subject to certain conditions,
we cannot predict the exact timing.
Q: WHO CAN HELP ANSWER QUESTIONS?
A: If you have more questions about the merger you may contact our proxy
solicitor:
Morrow Co., Inc.
1-800-566-9061
I-2
<PAGE> 11
SUMMARY
This summary highlights selected information from this joint proxy
statement/prospectus and may not contain all of the information that is
important to you. To understand the merger more fully and for a more complete
description of the legal terms of the merger, you should read this entire
document and the documents we have referred you to. The merger agreement is
attached as Appendix A. We encourage you to read the merger agreement. It is the
legal document that governs the merger.
THE COMPANIES
Westell Technologies, Inc.
750 North Commons Drive
Aurora, Illinois 60504
800-323-6883
Since 1980, Westell has developed telecommunications products that address
the needs of telephone companies to upgrade their existing network
infrastructures in order to deliver advanced data and voice services to their
customers. Westell designs, manufactures, markets and services a broad range of
digital and analog products used by telephone companies to deliver services
primarily over existing copper telephone wires that connect end users to a
telephone company's central office. This existing infrastructure is commonly
referred to as the local loop or the local access network. Westell also markets
its products and services to other telecommunications and information service
providers seeking direct access to end user customers. In addition, Conference
Plus, Inc., Westell's 88% owned subsidiary, provides audio, video, and data
conferencing services. Businesses and individuals use these services to hold
voice, video or data conferences with many people at the same time. Conference
Plus sells its services directly to large customers, including Fortune 100
companies, and serves customers indirectly through its private reseller program.
Westell is currently considering a proposal to spin-off Conference Plus in the
next 12 to 24 months.
Teltrend Inc.
620 Stetson Avenue
St. Charles, Illinois 60174
630-377-1700
Teltrend designs, manufactures and markets a broad range of transmission
products used by telephone companies to provide voice and data service over the
telephone network. Historically, substantially all of Teltrend's products have
been sold directly to the regional bell operating companies and their local
affiliates (RBOCs) for use with the copper wireline that is generally used to
carry voice and data across the local loop. Teltrend's strong reliance on the
RBOCs continues, but its purchase of Teltrend Limited in September 1997 expanded
its markets and product lines. With the addition of Teltrend Limited, Teltrend
has entered the telecommunication signaling interworking market, providing
products that interpret and translate transmission signals to allow for
interoperability between older-generation and next-generation telecommunications
networks. Teltrend Limited sales are primarily targeted in Europe.
REASONS FOR THE MERGER
Both the Westell Board and the Teltrend Board believe that the combined
company will have the potential to realize long-term synergies and improved
financial and operating results. We believe that the combined company will be
positioned to provide leading network and telecommunication service providers
world-wide with digital subscriber line system and technology solutions that
meet the standards for network level interoperability.
RECOMMENDATIONS TO STOCKHOLDERS
Both the Westell Board and the Teltrend Board believe that the merger is in
the best interests of their respective company's stockholders and that the
strong management teams from both companies will work to achieve potential
long-term synergies and realize growth opportunities.
Teltrend: The Teltrend Board has unanimously approved the merger and the
merger agreement. The Teltrend Board recommends
I-3
<PAGE> 12
that Teltrend stockholders vote FOR the
proposal to adopt the merger agreement, under which a wholly owned subsidiary of
Westell will be merged with Teltrend.
Westell: The Westell Board has unanimously approved the merger and the
merger agreement. The Westell Board unanimously recommends that Westell
stockholders vote FOR the proposals submitted for Westell stockholder approval
in connection with the merger.
THE MERGER
The agreement and plan of merger dated December 13, 1999 among Teltrend,
Westell and Theta Acquisition Corp. is the legal document that governs the
merger. The merger agreement is attached as Appendix A to this joint proxy
statement/prospectus. We encourage you to read the merger agreement carefully.
In the merger, Teltrend will become a wholly owned subsidiary of Westell,
and each share of Teltrend common stock will be converted into the right to
receive 3.3 shares of Westell Class A Common Stock. Cash will be paid in lieu of
any fractional shares, based on the average closing price of the Westell Class A
Common Stock during the 10 trading days immediately preceding the merger.
Each option to purchase shares of Teltrend common stock which is unexpired
and unexercised as of the merger effective time will be automatically converted
into an option to purchase a number of shares of Westell Class A Common Stock
equal to the number of shares of Teltrend common stock subject to such option
multiplied by the exchange ratio, at an exercise price per share equal to the
exercise price in effect under such option immediately prior to the effective
time divided by the exchange ratio. See "Treatment of Teltrend Stock Options" on
page IV-2.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Both the Westell Class A Common Stock and the Teltrend common stock are
quoted on the Nasdaq National Market. An application will be made to quote the
Westell Class A Common Stock to be issued in the merger on the Nasdaq National
Market. After the merger, shares of Westell Class A Common Stock will continue
to be traded on the Nasdaq National Market under the symbol "WSTL."
On December 10, 1999, the last trading date prior to the public
announcement of the proposed merger, the reported closing price on the Nasdaq
National Market for the Westell Class A Common Stock was $10 3/4 and for the
Teltrend common stock was $23 1/8. On February 11, 2000, the most recent
available date prior to printing this joint proxy statement/prospectus, the
reported closing price on the Nasdaq National Market for the Westell Class A
Common Stock was $26 7/16 and for the Teltrend common stock was $77 1/16.
OWNERSHIP OF WESTELL AFTER THE MERGER
Westell will issue approximately 19.3 million shares of its Class A Common
Stock to Teltrend stockholders in the merger. Upon completion of the merger,
this will represent approximately:
- 51% of Westell's outstanding Class A Common Stock;
- 34% of Westell's outstanding Class A Common Stock and Class B Common
Stock, considered together; and
- 17% of Westell's outstanding voting power.
This information is based on the number of shares of Westell Class A Common
Stock and Class B Common Stock and shares of Teltrend common stock outstanding
on February 11, 2000, and does not take into account stock options, Westell's
warrants or Westell's convertible debentures. Assuming the exercise of all
outstanding options (including options issued upon conversion of the outstanding
Teltrend options) and warrants to purchase Class A Common Stock and the
conversion of Westell's outstanding convertible debentures at the current
conversion price, upon completion of the merger, the Class A Common Stock to be
received by the Teltrend stockholders will represent
I-4
<PAGE> 13
approximately 40% of the outstanding Class A
Common Stock, 29% of the outstanding Class A Common Stock and Class B Common
Stock, considered together, and 16% of Westell's outstanding voting power.
STOCKHOLDERS MEETINGS
Both Teltrend and Westell are holding special meetings at which their
stockholders will vote on proposals related to the merger. If you were a record
holder of Teltrend common stock at the close of business on February 11, 2000,
you will be entitled to vote at the Teltrend meeting. If you were a record
holder of Westell Class A Common Stock or Westell Class B Common Stock on
February 11, 2000, you will be entitled to vote at the Westell meeting.
STOCKHOLDER VOTE REQUIRED
The affirmative vote of a majority of the shares of Teltrend common stock
outstanding on the record date is required to adopt the merger agreement. As a
result, a Teltrend stockholder that abstains or does not vote on the merger is
effectively voting against the merger. Each share of Teltrend common stock is
entitled to one vote. On the record date, directors and executive officers of
Teltrend and their affiliates owned and were entitled to vote 169,148 shares of
Teltrend common stock, or approximately 3% of the outstanding shares of Teltrend
common stock. These individuals and their affiliates have indicated that they
will vote in favor of adoption of the merger agreement.
The affirmative vote of a majority of the total votes cast is required to
approve the issuance of shares of Westell's Class A Common Stock in the merger
and the affirmative vote of a majority of the total votes outstanding on the
record date is required to approve the amendment to Westell's Amended and
Restated Certificate of Incorporation. As a result, a Westell stockholder that
abstains or does not vote on the amendment to Westell's Certificate of
Incorporation is effectively voting against such amendment. Because Westell does
not presently have enough unreserved shares of Class A Common Stock available to
issue in the merger, such a vote is accordingly a vote against the merger.
Each share of Westell Class A Common Stock entitles its holder to one vote
and each share of Westell Class B Common Stock entitles its holder to four
votes. On the record date, directors and executive officers of Westell and their
affiliates owned or were entitled to vote 596,159 shares of Westell Class A
Common Stock and all outstanding shares of Class B Common Stock, or
approximately 81% of Westell's outstanding votes. Two of Westell's directors,
who are the co-trustees of the Westell Technologies, Inc. Voting Trust and
beneficially own approximately 80% of the voting power of Westell, have agreed
to vote in favor of the merger proposals if a majority of Westell's
non-affiliated public stockholders who vote also vote in favor. In addition, the
co-trustees may also vote in favor of the merger proposals even if a majority of
the non-affiliated, public stockholders reject the proposals. The co-trustees
have indicated their current intention to vote as the majority of Westell's
non-affiliated, public stockholders vote with respect to the proposals. The
voting agreement is described in more detail in this joint proxy statement/
prospectus. See "Voting Agreement with Westell Controlling Stockholders" on page
II-19.
OPINIONS OF FINANCIAL ADVISORS
In deciding to approve the merger, among the factors that the Westell Board
considered was the opinion of its financial advisor, Goldman, Sachs & Co., that,
as of December 13, 1999, the exchange ratio of 3.3 shares of Westell Class A
Common Stock for each share of Teltrend common stock pursuant to the merger
agreement was fair, from a financial point of view, to Westell. The full text of
the written opinion of Goldman Sachs, which sets forth assumptions made,
procedures followed, matters considered and limitations on the review undertaken
in connection with the opinion, is attached as Appendix B. Goldman Sachs'
opinion does not constitute a recommendation as to how any holder of Westell
Class A Common Stock should vote with respect to the merger proposals. We
encourage Westell stockholders to
I-5
<PAGE> 14
read the Goldman Sachs opinion. In deciding to approve the merger, the Westell
Board also considered the advice of Hambrecht & Quist, an additional financial
advisor retained by the Westell Board to provide general advisory services with
respect to the merger.
In deciding to approve the merger, among the factors that the Teltrend
Board considered was the opinion of its financial advisor, SoundView Technology
Group, Inc., that, as of December 13, 1999, the exchange ratio pursuant to the
merger agreement was fair, from a financial point of view, to the holders of
Teltrend common stock. The full text of the written opinion of SoundView, which
sets forth the assumptions made, procedures followed, matters considered and
limitations on the review undertaken in connection with the opinion, is attached
hereto as Appendix C. SoundView's opinion does not constitute a recommendation
as to how any holder of Teltrend common stock should vote with respect to the
merger. We encourage Teltrend stockholders to read the SoundView opinion.
INTERESTS OF TELTREND'S OFFICERS AND DIRECTORS IN THE MERGER
When you consider the Teltrend Board's recommendation that the Teltrend
stockholders vote in favor of adoption of the merger agreement, you should be
aware that the officers and directors of Teltrend may have interests in the
merger that may be different from yours.
These interests exist in part because of the rights some of the executive
officers have under a severance plan maintained by Teltrend that Westell has
agreed to assume upon completion of the merger. This severance plan will provide
these officers with severance benefits if their employment is terminated either
by Westell or, in certain situations, by the executive, after the merger. If
severance benefits were to be paid under this plan at the time of the merger,
the executive officers subject to the plan would receive an aggregate of
approximately $3.2 million.
In addition, Westell's Board of Directors has agreed to appoint Howard L.
Kirby, Jr. and Bernard F. Sergesketter, currently the chairman of the board and
chief executive officer, and a director, respectively, of Teltrend to the
Westell Board upon completion of the merger.
In addition, under the terms of Teltrend's existing option agreements, all
unvested options to purchase Teltrend common stock, including those held by
directors and executive officers, will become fully vested and exercisable in
connection with the merger. Those options which are not exercised or expired
before the merger will be converted into options to purchase Westell's Class A
Common Stock.
Please review the section entitled "Interests of Teltrend's Directors and
Officers in the Merger" beginning on page II-30.
COMPARISON OF RIGHTS OF TELTREND AND
WESTELL STOCKHOLDERS
After the merger, Teltrend stockholders will become holders of Westell
Class A Common Stock and their rights as stockholders will be governed by the
Amended and Restated Certificate of Incorporation and bylaws of Westell. There
are some differences between the certificates of incorporation and bylaws of
Teltrend and Westell. For example, Westell has two classes of common stock:
Class A Common Stock and Class B Common Stock. Generally, both classes vote
together as a single class, with each share of Class B Common Stock having four
votes and each share of Class A Common Stock having one vote. In addition, the
Class B Common Stock is effectively controlled by two Westell directors as
co-trustees of a voting trust. This control gives these individuals
approximately 80% of Westell's current voting power and is expected to give them
approximately 67% of Westell's voting power upon consummation of the merger.
Accordingly, the rights of Teltrend stockholders as stockholders of Westell may
be limited from time to time by actions taken by the holders of the Class B
Common Stock. For a more complete discussion, see "Material Differences in
Rights of Teltrend and Westell Stockholders" beginning on page V-1.
I-6
<PAGE> 15
ACCOUNTING TREATMENT
Westell and Teltrend will account for the merger as a purchase. Merger
related costs of approximately $7 million will be included in the determination
of the purchase price. Please see the section entitled "Westell and Teltrend
Unaudited Pro Forma Condensed Consolidated Financial Data" beginning on page
II-24.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The merger is expected to be tax-free to Westell and Teltrend for U.S.
federal income tax purposes. The merger is also expected to be tax-free for U.S.
federal income tax purposes to Teltrend stockholders, except with respect to
cash these stockholders receive in lieu of fractional shares. Stockholders are
urged to consult their own tax advisors.
NO APPRAISAL RIGHTS
Neither the Teltrend stockholders nor the Westell stockholders are entitled
to appraisal rights under Delaware law in connection with the merger.
REGULATORY APPROVAL
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibited us from
completing the merger until we furnished certain information and materials to
the U.S. Department of Justice and Federal Trade Commission and a required
waiting period had ended. The required information was furnished and the waiting
period expired on February 2, 2000. However, the Department of Justice and the
Federal Trade Commission continue to have the authority to challenge the merger
on antitrust grounds before or after the merger is completed.
TERMINATION OF THE MERGER AGREEMENT;
TERMINATION FEES
Each of Westell and Teltrend can terminate the merger agreement under
certain circumstances. You should review the section entitled "The Merger
Agreement -- Termination of the Merger Agreement; Termination Fees" beginning on
page IV-8 for details in that regard.
Teltrend has agreed to pay to Westell a break-up fee of approximately $7.2
million under the following circumstances:
- Teltrend terminates the merger agreement as a result of a superior
proposal, in accordance with the termination rights described on page
IV-9;
- Westell terminates the merger agreement because the Teltrend Board has
resolved to accept a superior proposal or has recommended to the Teltrend
stockholders that they tender their shares in a tender offer commenced by
a third party; or
- either Westell or Teltrend terminates the merger agreement because the
Teltrend stockholders have not adopted the merger agreement at a duly
held meeting, but only if Teltrend enters into a definitive agreement
with respect to an acquisition transaction within three months following
such termination.
Westell has agreed to pay to Teltrend a break-up fee of approximately $7.2
million under the following circumstances:
- either Westell or Teltrend terminates the merger agreement because the
Westell Board resolves to accept a superior proposal which requires the
merger agreement to be terminated, but only if Westell enters into a
definitive agreement with respect to an acquisition transaction within
nine months following such termination; or
- Westell, in the limited circumstances permitted by the merger agreement,
does not recommend to its stockholders approval of the proposals
described in this joint proxy statement/ prospectus and Teltrend
terminates the merger agreement because the Westell stockholders have
failed to approve such matters at a duly held meeting called for that
purpose, but only if Westell enters into a definitive agreement with
respect to an acquisition transaction within three months following such
termination.
I-7
<PAGE> 16
SUMMARY SELECTED HISTORICAL CONSOLIDATED AND PRO FORMA FINANCIAL DATA
HOW WE PREPARED THE FINANCIAL STATEMENTS
We are providing the following information to aid you in your analysis of
the financial aspects of the merger. We derived this information from the
consolidated financial statements of Westell and of Teltrend. The information is
only a summary and you should read it together with Westell's and Teltrend's
historical financial statements and related notes contained in the underlying
reports and other information that Westell and Teltrend have filed with the SEC
and incorporated into this joint proxy statement/prospectus by reference. See
"Where You Can Find More Information" on page VI-1.
ACCOUNTING TREATMENT OF THE MERGER
The merger will be accounted for by Westell as a purchase of a business.
This means that, for accounting and financial reporting purposes, the assets and
liabilities of Teltrend will be recorded at their fair value, and any excess of
Westell's purchase price over the fair value of Teltrend's net assets will be
recorded as intangible assets, including goodwill.
We have presented unaudited pro forma condensed consolidated financial
information that reflects the purchase method of accounting to give you a better
understanding of what our businesses might have looked like had they been
combined since April 1, 1998. The companies may have performed differently had
they always been combined. You should not rely on the unaudited pro forma
condensed consolidated financial information as being indicative of the
historical results that the combined company would have had or the future
results that it will experience after the merger.
MERGER-RELATED EXPENSES
We estimate that merger-related fees and expenses, consisting primarily of
fees and expenses of investment bankers, attorneys and accountants, SEC filing
fees, fees and expenses of financial printing, and other related charges, will
be approximately $7.0 million. After the merger, Westell may also incur charges
and expenses relating to integrating the operations of Teltrend.
I-8
<PAGE> 17
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF WESTELL
In the table below, we provide you with selected historical consolidated
financial data of Westell. Westell prepared this information using its
consolidated financial statements as of the dates indicated and for each of the
fiscal years in the five-year period ended March 31, 1999 and for the nine-month
periods ended December 31, 1999 and 1998. Westell derived the data below for
each of the fiscal years presented from consolidated financial statements
audited by Arthur Andersen LLP, independent auditors. Westell derived the data
for the nine-month periods presented from unaudited consolidated financial
statements. In the opinion of Westell's management, the unaudited consolidated
interim financial data contain all adjustments, consisting only of normal,
recurring accruals unless otherwise indicated, necessary for a fair statement of
these interim periods. The information provided below is only a summary and you
should read it together with the financial information incorporated by reference
in this document. See "Where You Can Find More Information" on page VI-1.
WESTELL SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
---------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
------- ------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Total revenues..................... $74,029 $83,236 $ 79,385 $ 86,351 $ 93,180 $ 69,058 $79,180
Gross margin....................... 29,535 32,457 21,553(1) 27,492 24,864 17,603 21,395
Loss from operations............... (178) (2,254) (26,412) (32,896) (35,100) (27,179) (7,273)
Net loss........................... (508) (2,075) (14,706) (13,971) (34,992) (26,252) (7,786)
PER SHARE DATA:
Net loss per basic and diluted
common share..................... (0.02) (0.07) (0.41) (0.38) (0.96) (0.73) (0.21)
Cash dividends..................... -- -- -- -- -- -- --
Book value per basic and diluted
common share..................... 0.26 1.26 2.40 2.01 1.07 1.29 0.94
Weighted average basic and diluted
common shares outstanding(2)..... 28,952 30,846 35,940 36,348 36,427 36,422 36,561
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF
---------------------------------------------------- DEC. 31,
1995 1996 1997 1998 1999 1999
------- ------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital............................... $ 1,280 $28,741(3) $ 65,105(3) $47,481 $12,213 $23,861
Total assets.................................. 40,276 64,448 108,049 98,405 64,407 77,924
Long-term debt, including current portion..... 4,129 4,427 6,487 4,420 4,814 21,472
Stockholders' equity.......................... 7,558 38,985(3) 86,188(3) 73,141 39,124 34,253
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
---------------------------------------------------- ------------------
1995 1996 1997 1998 1999 1998 1999
------- ------- -------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(4)............................ 2,828 1,184 (18,021) (11,653) (27,674) (20,753) (888)
</TABLE>
- ---------------
(1) Includes a charge for establishment of ADSL piece part inventory reserve in
the amount of $5.0 million.
(2) Adjusted to reflect a two-for-one stock split in the form of a 100% stock
dividend paid on June 7, 1996 to holders of record on May 20, 1996.
(3) During fiscal years 1996 and 1997, Westell issued approximately 5.7 million
and 1.7 million shares of Westell Class A Common Stock, respectively. The
number of shares issued during fiscal 1996 has been as adjusted to reflect
to the two-for-one stock split described in note 2 above; the issuance in
fiscal 1997 occurred after the stock-split. The net proceeds of the
offerings ($34.4 million in 1996 and $62.1 million in 1997) were used to
reduce debt and for working capital purposes.
(4) EBITDA represents income from continuing operations before interest expense,
income taxes and depreciation and amortization. EBITDA is not a calculation
based upon generally accepted accounting principles. The amounts included in
the EBITDA calculation, however, are derived from amounts included in the
consolidated historical or pro forma statements of income data. EBITDA
should not be construed as an alternative to operating income or net income
(as determined in accordance with generally accepted accounting principles)
as an indicator of operating performance, or as an alternative to cash flows
generated by operating, investing and financing activities as an indicator
of cash flow or a measure of liquidity. We believe EBITDA assists investors
in comparing a company's performance on a consistent basis without regard to
depreciation and amortization, which can vary significantly depending upon
accounting methods (particularly when acquisitions are involved) or
nonoperating factors. However, the EBITDA measure presented in this document
may not always be comparable to similarly titled measures reported by other
companies due to differences in the components of the calculation.
I-9
<PAGE> 18
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF TELTREND
In the table below, we provide you with selected historical consolidated
financial data of Teltrend. Teltrend prepared this information using its
consolidated financial statements as of the dates indicated and for each of the
fiscal years in the five-year period ended July 31, 1999 and for the three-month
periods ended October 30, 1999 and October 31, 1998. Teltrend derived the data
below for each of the fiscal years presented from consolidated financial
statements audited by Ernst & Young LLP, independent auditors. Teltrend derived
the data for the three-month periods presented from unaudited consolidated
financial statements. In the opinion of Teltrend's management, the unaudited
consolidated interim financial data contain all adjustments, consisting only of
normal, recurring accruals unless otherwise indicated, necessary for a fair
statement of these interim periods. The information provided is only a summary
and you should read it together with the financial information incorporated by
reference in this document. See "Where You Can Find More Information" on page
VI-1.
TELTREND SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED JULY,(1) OCTOBER,(1)
------------------------------------------------ -----------------
1995(2) 1996 1997 1998(4) 1999(5) 1998 1999
------- ------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS DATA:
Total revenues............... $62,052 $85,913 $81,243 $96,762 $107,031 $30,198 $25,989
Gross margin................. 26,061 39,269 35,947 44,637 48,694 13,927 12,060
Income from operations....... 11,391 19,852 14,433 5,916 10,648 3,700 3,491
Net income................... 4,330 12,164 9,628 2,239 7,162 2,531 2,467
PER SHARE DATA:
Net income per basic share... -- 1.94 1.50 0.35 1.20 0.41 0.43
Net income per diluted
share...................... -- 1.86 1.45 0.34 1.18 0.41 0.42
Cash dividends per share..... -- -- -- -- -- -- --
Book value per diluted
share...................... 2.60 6.51 7.88 8.20 8.44 $ 8.25 $ 9.03
Weighted average basic common
shares outstanding......... -- 6,261 6,430 6,434 5,965 6,162 5,786
Weighted average diluted
common shares
outstanding................ -- 6,552 6,654 6,503 6,071 6,205 5,930
Pro forma earnings per share
(unaudited)(3)............. 1.19
Pro forma average common
shares outstanding
(unaudited)(3)............. 5,941
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY,(1)
----------------------------------------------- AS OF OCTOBER,
1995 1996 1997 1998 1999 1999(1)
------- ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital.................... $10,188 $35,901 $44,088 $38,209 $38,963 $41,537
Total assets....................... 28,699 57,284 62,831 69,916 66,983 69,303
Long-term debt, including current
portion.......................... -- -- -- -- -- --
Stockholders' equity............... 15,417 42,645 52,435 53,304 51,239 53,523
</TABLE>
I-10
<PAGE> 19
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED JULY,(1) OCTOBER,(1)
----------------------------------------------- ---------------
1995(2) 1996 1997 1998(4) 1999(5) 1998 1999
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(6)....................... $12,130 $22,376 $17,898 $13,806 $14,991 $4,990 $4,634
</TABLE>
- ---------------
(1) Teltrend's fiscal year normally consists of four 13-week quarters, with each
of the first three quarters ending on the last Saturday of such quarter and
the fourth quarter ending on the last Saturday in July. The three months
ended October refer to Teltrend's first fiscal quarter. First quarter 1998
consisted of 14 weeks compared to 13 weeks in first quarter 1999.
(2) Substantially all of Teltrend's long-term indebtedness was repaid in full
upon consummation of its initial public offering which occurred in fiscal
1995 in conjunction with a recapitalization of Teltrend. In addition,
Teltrend eliminated its valuation allowance for net deferred tax assets of
approximately $3.4 million.
(3) Pro forma earnings per share and average number of shares for fiscal 1995
give effect to Teltrend's initial public offering and the other components
of its recapitalization, as if they occurred as of July 31, 1994.
(4) On September 18, 1997, Teltrend purchased the outstanding shares of
Securicor 3net Limited (since renamed Teltrend Limited). The transaction was
accounted for as a purchase and therefore the results of Teltrend Limited
are included with the operations of Teltrend since that date. As required by
generally accepted accounting principles, Teltrend recorded a $4.0 million
charge immediately after the acquisition to write off the portion of the
purchase price allocated to in-process research and development costs.
(5) On May 28, 1999 Teltrend sold substantially all of the assets of its packet
switched product line to Centrecom Systems Limited of England for
approximately $3.1 million. The sale resulted in a $1.3 million loss,
composed largely of the write-off of intangible assets associated with the
packet switched product line.
(6) EBITDA represents income from continuing operations before interest expense,
income taxes and depreciation and amortization. EBITDA is not a calculation
based upon generally accepted accounting principles. The amounts included in
the EBITDA calculation, however, are derived from amounts included in the
consolidated historical or pro forma statements of income data. EBITDA
should not be construed as an alternative to operating income or net income
(as determined in accordance with generally accepted accounting principles)
as an indicator of operating performance, or as an alternative to cash flows
generated by operating, investing and financing activities as an indicator
of cash flow or a measure of liquidity. We believe EBITDA assists investors
in comparing a company's performance on a consistent basis without regard to
depreciation and amortization, which can vary significantly depending upon
accounting methods (particularly when acquisitions are involved) or
nonoperating factors. However, the EBITDA measure presented in this document
may not always be comparable to similarly titled measures reported by other
companies due to differences in the components of the calculation.
I-11
<PAGE> 20
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
For pro forma purposes, Westell's consolidated statements of operations for
the fiscal year ended March 31, 1999 and the unaudited nine months ended
December 31, 1999, have been combined with the unaudited consolidated statements
of operations of Teltrend for the twelve months ended May 1, 1999, and for the
nine months ended October 30, 1999, respectively, both of which end within 90
days of the Westell fiscal year end and interim reporting period, respectively.
In addition, Westell's unaudited consolidated balance sheet as of December 31,
1999 has been combined with Teltrend's unaudited consolidated balance sheet as
of October 30, 1999. This selected unaudited pro forma consolidated financial
information should be read in conjunction with the separate historical financial
statements and accompanying notes of Westell and Teltrend, which are
incorporated by reference in this joint proxy statement/prospectus. See "Where
You Can Find More Information" on page VI-1. The unaudited pro forma
consolidated financial data do not reflect any cost savings anticipated as a
result of the merger. You should not rely on the selected unaudited pro forma
consolidated financial information as an indication of the results of operations
or financial position that would have been achieved if the merger had taken
place earlier or of the results of operations or financial position of Westell
after the completion of the merger.
We have included detailed unaudited pro forma condensed consolidated
financial data beginning on page II-24.
SELECTED UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1999(1) DECEMBER 31, 1999(1)
----------------- --------------------
<S> <C> <C>
PRO FORMA CONSOLIDATED OPERATIONS DATA:
Total revenues............................................ $201,214 $134,786
Operating loss............................................ (51,542) (18,667)
Net loss.................................................. (50,611) (18,430)
PRO FORMA PER SHARE DATA:
Net loss.................................................. (0.89) (0.33)
Book value................................................ 10.95 10.86
EQUIVALENT PER SHARE DATA:(2)
Net loss.................................................. (2.94) (1.09)
Book value................................................ 36.14 35.84
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999(1)
--------------------
<S> <C>
PRO FORMA CONSOLIDATED BALANCE SHEET DATA:
Working capital........................................... $ 56,198
Total assets.............................................. 676,807
Long term debt, including current portion................. 21,472
Total stockholders' equity................................ 613,156
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
MARCH 31, 1999(1) DECEMBER 31, 1999(1)
----------------- --------------------
<S> <C> <C>
PRO FORMA OTHER DATA:
EBITDA(3)................................................. (12,782) 11,026
</TABLE>
- ---------------
(1) The unaudited pro forma consolidated statements of operations data give
effect to the merger as if it occurred on April 1, 1998, and the unaudited
pro forma consolidated balance sheet data give effect to the merger as if it
occurred on December 31, 1999. The merger will be accounted for as a
purchase. See Note 1 of the Notes to Pro Forma Condensed Consolidated
Financial Data on page II-28 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the Westell and
Teltrend annual and quarterly reports incorporated by reference herein.
(2) Equivalent pro forma amounts are calculated by multiplying the pro forma net
loss per share before non-recurring charges directly attributable to the
transaction and pro forma book value per share by an exchange ratio of 3.3
so that the per share amounts are equated to be respective values for one
share of Teltrend common stock.
(3) EBITDA represents income from continuing operations before interest expense,
income taxes and depreciation and amortization. EBITDA is not a calculation
based upon generally accepted accounting principles. The amounts included in
the EBITDA calculation, however, are derived from amounts included in the
consolidated historical or pro forma statements of income data. EBITDA
should not be construed as an alternative to operating income or net income
(as determined in accordance with generally accepted accounting principles)
as an indicator of operating performance, or as an alternative to cash flows
generated by operating, investing and financing activities (as an indicator
of cash flows generated by operating, investing and financial activities as
an indicator of cash flow or a measure or liquidity. We believe EBITDA
assists investors in comparing a company's performance on a consistent basis
without regard to depreciation and amortization, which can vary
significantly depending upon accounting
I-12
<PAGE> 21
methods (particularly when acquisitions are involved) or nonoperating
factors. In the case of the merger, this calculation allows investors to
consider performance without regard to the impact of goodwill amortization
related to the merger. However, the EBITDA measure presented in this
document may not always be comparable to similarly titled measures reported
by other companies due to differences in the components of the calculation.
UNAUDITED COMPARATIVE PER SHARE DATA
In the table below, we provide you with historical and pro forma per share
information for Westell and historical and pro forma equivalent per share
information for Teltrend as of and for the nine months ended December 31, 1999
and the fiscal year ended March 31, 1999. We have assumed for purposes of the
Westell pro forma financial information that the merger had been completed on
April 1, 1998 for income statement purposes, and that the merger had been
completed on December 31, 1999 for balance sheet purposes. The Teltrend pro
forma equivalent information presents Westell pro forma per share data
multiplied by the exchange ratio of 3.3.
The table also sets forth:
- for December 10, 1999 (the last trading day before the announcement of
the merger agreement) and February 11, 2000 (the last practicable trading
day before the printing of this joint proxy statement/prospectus), the
closing sales prices of a share of Westell Class A Common Stock and
Teltrend common stock, as reported on the Nasdaq National Market; and
- the equivalent pro forma market price per share of Teltrend common stock
as of those dates, assuming that the merger had been consummated on those
dates. This equivalent pro forma market price was determined by
multiplying the exchange ratio of 3.3:1 by the applicable price of
Westell Class A Common Stock.
It is important that when you read this information, you read along with it
the separate historical financial statements and accompanying notes of Westell
and Teltrend, which are incorporated by reference in this joint proxy
statement/prospectus. See "Where You Can Find More Information" on page VI-1.
You should not rely on the unaudited selected pro forma per share information as
an indication of the results of operations or financial position that would have
been achieved if the merger had taken place earlier or of the results of
operations or financial position of Westell after the completion of the merger.
In addition, no assurances can be given as to the market prices of Westell Class
A Common Stock or Teltrend common stock at, or, in the case of Westell Class A
Common Stock, after, the effective time of the merger. STOCKHOLDERS ARE ADVISED
TO OBTAIN CURRENT MARKET QUOTATIONS FOR WESTELL CLASS A COMMON STOCK AND
TELTREND COMMON STOCK.
<TABLE>
<CAPTION>
TELTREND
TELTREND WESTELL WESTELL PRO FORMA
HISTORICAL HISTORICAL PRO FORMA EQUIVALENT
---------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Book value per common share:
December 31, 1999................................ $ 8.88 $ 0.94 $10.86 $35.84
March 31, 1999................................... 8.13 1.07 10.95 36.14
Income from continuing operations:
Earnings (loss) per common share -- basic:
For the nine months ended December 31, 1999...... 1.01 (0.21) (0.33) (1.09)
For the fiscal year ended March 31, 1999......... 1.11 (0.96) (0.89) (2.94)
Earnings (loss) per common share -- diluted:
For the nine months ended December 31, 1999...... 0.99 (0.21) (0.33) (1.09)
For the fiscal year ended March 31, 1999......... 1.10 (0.96) (0.89) (2.94)
Closing sales price per share, December 10, 1999... 23.13 10.75 N/A 35.48
Closing sales price per share, February 11, 2000... 77.06 26.44 N/A 87.25
</TABLE>
I-13
<PAGE> 22
RECENT DEVELOPMENTS
On February 8, 2000, Teltrend announced results for its second quarter
ended January 29, 2000. Earnings, excluding a $.05 per share increase related to
the disposition of the packet switched product line in the fourth quarter of
fiscal 1999, increased 33%, to $0.24 per diluted share, from $0.18 per diluted
share for the second quarter of fiscal 1999. Sales for the quarter were $23.5
million, compared to $24.4 million for the second quarter of fiscal 1999. The
lower year-to-year quarterly sales are attributable primarily to the sale of
Teltrend's UK-based router business in the fourth quarter of fiscal 1999.
Teltrend's US-based sales increased to $21.5 million for the second quarter of
fiscal 2000, compared to $20.3 million for the second quarter of fiscal 1999.
RISK FACTORS
Both Teltrend stockholders and Westell stockholders should carefully
consider the following important factors, in addition to those discussed
elsewhere in this document, and in the documents that Westell and Teltrend have
filed with the SEC which are incorporated herein by reference, to determine
whether to vote for the proposals relating to the merger.
SINCE THE MARKET PRICE OF THE WESTELL CLASS A COMMON STOCK FLUCTUATES, TELTREND
STOCKHOLDERS CANNOT BE SURE OF THE MARKET VALUE OF THE WESTELL CLASS A COMMON
STOCK THEY WILL RECEIVE IN THE MERGER.
At the time the merger is completed, each share of Teltrend common stock
will be converted into the right to receive 3.3 shares of Westell Class A Common
Stock. This exchange ratio of shares of Teltrend common stock for shares of
Westell Class A Common Stock is fixed and will not be adjusted in the event of
any increase or decrease in the market price of either the Teltrend common stock
or the Westell Class A Common Stock. The price of either the Teltrend common
stock or the Westell Class A Common Stock on the date of the merger may vary
from its price on the date of this joint proxy statement/prospectus and on the
dates of the stockholder meetings. The variations may be the result of changes
in the business, operations or prospects of Teltrend or Westell, market
assessments of the likelihood that the merger will be completed and its timing,
regulatory considerations, general market and economic conditions and other
factors. As a result, the value of the Westell Class A Common Stock received by
Teltrend stockholders in the merger may be higher or lower than the market value
of the Westell Class A Common Stock at the time you vote or at the date of this
joint proxy statement/prospectus.
WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE OUR OPERATIONS.
In determining that the issuance of shares of Westell Class A Common Stock
to the Teltrend stockholders and the merger is fair to and in the best interests
of their stockholders, both Boards considered, among other things, the financial
benefits, operating efficiencies and synergies expected to result from the
completion of the merger.
A successful combination of the two companies will require, among other
things, integration of the two companies' respective:
- technological expertise and licensed technologies;
- strategic alliances;
- products and product development efforts;
- sales and distribution channels;
- manufacturing and sourcing;
I-14
<PAGE> 23
- key personnel; and
- management information systems.
Neither company has been involved in a strategic merger of this size, in
which effective integration of corporate cultures may be especially important
over the long term to achieve the benefits of the merger. This integration may
not be successfully accomplished. Moreover, the integration of the operations
following the merger will require the dedication of management and other
personnel which may distract their attention from the day-to-day business of the
combined companies, the development or acquisition of new products and the
pursuit of other business acquisition activities. Failure to successfully
accomplish the integration of the two companies' operations and technologies, or
a prolonged delay in accomplishing a reasonable measure of integration, may have
a material adverse effect on the combined company.
In addition, as a consequence of the merger, both the Westell stockholders
and the Teltrend stockholders will lose the opportunity to invest in the
development and exploitation of their company's products on a stand-alone basis.
Further, with respect to Teltrend, the combined company will have different
management than Teltrend's current management, and consequently the management
of the combined company may make strategic and operational decisions that differ
from those of Teltrend's current management. It is possible that either Westell
or Teltrend, if it were to remain independent, could achieve economic
performance superior to that of the combined company.
WESTELL HAS INCURRED AND CONTINUES TO EXPECT LOSSES.
Due to Westell's significant ongoing investment in digital subscriber line
technology, which can be used by telephone companies and other service providers
to increase the transmission speed and capacity of copper telephone wires, it
has incurred losses and anticipates that its losses may extend through March 31,
2000. To date, Westell has incurred operating losses, net losses and negative
cash flow on both an annual and quarterly basis. For the fiscal year ended March
31, 1999, Westell had net losses of approximately $35.0 million. For the nine
months ended December 31, 1999, Westell had net losses of approximately $7.8
million.
In addition, Westell expects the combined company to continue to evaluate
new product opportunities and engage in extensive research and development
activities. As a result, the combined company will continue to invest heavily in
research and development and sales and marketing, which will adversely affect
its short-term operating results. Westell can offer no assurances that it will
achieve profitability in the future.
WESTELL IS CONTROLLED BY A LIMITED NUMBER OF STOCKHOLDERS, WHOSE ACTIONS FROM
TIME TO TIME COULD LIMIT THE RIGHTS OF TELTREND STOCKHOLDERS AS HOLDERS OF
WESTELL CLASS A COMMON STOCK.
At February 11, 2000, Robert C. Penny III and Melvin J. Simon, as trustees
of a voting trust containing Westell Class B Common Stock held for the benefit
of the Penny family and the Simon family, had the exclusive power to vote over
80% of the votes entitled to be cast by the holders of Westell common stock. In
addition, all members of the Penny family who are beneficiaries under this
voting trust are parties to a stock transfer restriction agreement which
prohibits them from transferring any Class B Common Stock or their beneficial
interests in the voting trust without first offering such to the other Penny
family members. Consequently, Westell is effectively under the control of
Messrs. Penny and Simon, as co-trustees, who have sufficient voting power to
elect all of the directors and to determine the outcome of most corporate
transactions or other matters submitted to the Westell stockholders for
approval. This control may have the effect of discouraging transactions
involving an actual or potential change of control of Westell, including
transactions in which the holders of Westell Class A Common Stock might
otherwise receive a premium for their shares over the then-current market price.
I-15
<PAGE> 24
Upon completion of the merger, we expect that Messrs. Penny and Simon, as
co-trustees, will continue to have effective control over Westell as described
above. This is because, even after Westell issues approximately 19.3 million
shares of Class A Common Stock to Teltrend stockholders in the merger, Messrs.
Penny and Simon will continue to have the exclusive power to vote over 67% of
the votes entitled to be cast by the holders of Westell common stock.
Concurrently with the execution of the merger agreement, Messrs. Penny and
Simon, individually and as co-trustees of the voting trust, entered into an
agreement with Teltrend under which each of them has agreed to vote all of the
capital stock of Westell which he has the power to vote in favor of the merger
proposals if a majority of Westell's public stockholders who vote also vote in
favor of these proposals. For purposes of the voting agreement, Westell's public
stockholders include all holders of Westell Class A Common Stock, other than
Messrs. Penny and Simon and members of their families and any officers or
directors of Westell. In addition, the co-trustees may also vote in favor of the
merger proposals even if a majority of the public stockholders reject the
proposals. The co-trustees have indicated their current intention to vote as the
majority of Westell's non-affiliated, public stockholders vote with respect to
the proposals. For a description of the voting agreement, you should see "Voting
Agreement with Westell Controlling Stockholders" on page II-19.
FOLLOWING THE MERGER, TELTREND STOCKHOLDERS MAY BE ADVERSELY AFFECTED BY FUTURE
ISSUANCES AND SALES OF WESTELL'S CLASS A COMMON STOCK.
Sales of substantial amounts of Westell Class A Common Stock in the public
market following the merger could adversely affect the market price of the
Westell Class A Common Stock. Westell has outstanding the following obligations
which require it to issue additional shares of Class A Common Stock:
- Westell has outstanding options to purchase approximately 3.9 million
shares of Westell Class A Common Stock which were granted to employees
from time to time as part of Westell's compensation programs. Upon the
merger, outstanding options to purchase Teltrend common stock will be
converted into options to purchase Westell Class A Common Stock,
resulting in additional options to purchase approximately 2.9 million
shares of Westell Class A Common Stock becoming outstanding.
- Westell has reserved 131,825 shares of Class A Common Stock for issuance
under its employee stock purchase plan.
- The 19,124,869 shares of Westell Class B Common Stock outstanding are
convertible into an equal number of shares of Class A Common Stock under
circumstances which are under the control of the holders thereof. Messrs.
Penny and Simon, as co-trustees of the Westell Technologies, Inc. Voting
Trust, are entitled to require Westell to register for sale with the SEC
the shares of Class A Common Stock issuable upon conversion of the Class
B Common Stock.
- In April 1999, Westell issued $20 million of debentures, $14 million of
which are currently outstanding. These debentures are convertible into
shares of Class A Common Stock. Currently, the outstanding debentures are
convertible into approximately 2.2 million shares, which upon issuance
would represent approximately 12% of Westell's currently outstanding
Class A Common Stock and 2% of Westell's current voting power. In
addition, in connection with the issuance of the debentures, Westell
issued warrants to purchase 909,091 shares of Class A Common Stock which
currently have an exercise price of $5.92.
I-16
<PAGE> 25
Westell's convertible debentures are convertible into a number of shares of
Class A Common Stock determined by dividing the principal amount of the
convertible debentures by the lesser of:
- a variable conversion price which is initially $6.372 per share, but will
be increased under the terms of the convertible debentures; and
- the floating market price of the Class A Common Stock at the time of
conversion, except that the market price can be imposed only under
specific conditions.
The number of shares of Class A Common Stock that may ultimately be issued upon
conversion is presently indeterminable and could fluctuate significantly. To
illustrate the potential dilution that may occur upon conversion of the
convertible debentures, the following table sets forth the number of shares of
Class A Common Stock that are convertible from the outstanding convertible
debentures if the conversion price is $6.372, which is the initial conversion
price, $4 and $2 per share.
<TABLE>
<CAPTION>
SHARES ISSUABLE FROM PRE-MERGER PRE-MERGER
CONVERTIBLE DEBENTURES PERCENTAGE OWNERSHIP OF PERCENTAGE OWNERSHIP OF
CONVERSION PRICE AND WARRANTS CLASS A COMMON STOCK TOTAL VOTING POWER
- ---------------- ---------------------- ----------------------- -----------------------
<S> <C> <C> <C>
$6.372 (the initial
conversion price)........ 3,106,203 16.7% 3.3%
$4.00...................... 4,409,091 23.7% 4.6%
$2.00...................... 7,909,091 42.6% 8.3%
</TABLE>
The variable conversion price formula could affect the Class A Common Stock as
follows:
- If Westell's Class A Common Stock trades at a price less than the
variable conversion price, which is initially $6.372 per share, then the
convertible debentures will be convertible into shares of Class A Common
Stock at variable rates based on future trading prices of the Class A
Common Stock and events that may occur in the future. The number of
shares of Class A Common Stock issuable upon conversion of the
convertible debentures will be inversely proportional to the market price
of the Class A Common Stock at the time of conversion.
- To the extent that the holders of the convertible debentures convert and
then sell their Class A Common Stock, the Class A Common Stock price may
decrease due to the additional shares in the market, allowing holders to
convert the remaining convertible debentures into greater amounts of
Class A Common Stock, further depressing the stock price.
- The interest payable on the convertible debentures may be paid in cash,
additional convertible debentures or Class A Common Stock at Westell's
option. In this regard, the lower the Class A Common Stock price, the
more shares of Class A Common Stock the holders of the convertible
debentures will receive in payment of dividends.
- The significant downward pressure on the price of the Class A Common
Stock as the debenture holders convert and sell material amounts of Class
A Common Stock could encourage short sales by the holders or others,
placing further downward pressure on the price of the Class A Common
Stock.
The warrants are also subject to anti-dilution protection, which may result
in the issuance of more shares than originally anticipated if Westell issues
securities at less than market value or the applicable exercise price. These
factors may result in substantial future dilution to the holders of Westell's
Class A Common Stock, including, following the merger, the former Teltrend
stockholders. Westell has filed a registration statement with the SEC to
register the resale of the shares issuable upon conversion of the debentures and
exercise of the warrants.
I-17
<PAGE> 26
As a result of these obligations, Teltrend stockholders may be subject to
substantial dilution after the merger as holders of Westell Class A Common
Stock. This dilution could adversely impact Teltrend stockholders by disrupting
the market for, and causing a decline in the trading price of, the Westell Class
A Common Stock.
THE COMBINED COMPANY WILL DEPEND ON DIGITAL SUBSCRIBER LINE MARKET ACCEPTANCE
AND GROWTH FOR FUTURE SUCCESS.
Westell expects to continue to invest significant resources in the
development of digital subscriber line ("DSL") products. Because the DSL market
is in its early stages, Westell's DSL revenues have been difficult to forecast.
If the DSL market fails to grow or grows more slowly than anticipated, then the
combined company's business, revenues and operating results would be materially
adversely affected.
Customers have only recently begun to consider implementing DSL products in
their networks. Westell has shipped most of its DSL products for trials and
early deployment. Most of Westell's customers are in initial service deployments
and are not contractually bound to purchase Westell's DSL systems in the future.
Westell is unable to predict whether these initial service deployments or other
technical or marketing trials will be successful and when significant commercial
deployment of Westell's DSL products will begin, if at all. The timing of DSL
orders and shipments can significantly impact the combined company's revenues
and operating results.
Even if the combined company's customers adopt policies favoring full-scale
implementation of DSL technology, the combined company's DSL-based sales may not
become significant. There is no guaranty that customers will select the combined
company's DSL products instead of competitive products. If the combined company
fails to significantly increase its DSL sales, then its business, operating
results and financial condition will suffer.
PRICING PRESSURES ON PRODUCTS MAY ADVERSELY AFFECT THE COMBINED COMPANY'S
PROFITABILITY.
Due to competition in the DSL market, bids for recent field trials of DSL
products reflect:
- the forward pricing of DSL products below production costs to take into
account the expectation of large future volumes and corresponding
reductions in manufacturing costs; or
- suppliers providing DSL products at a lower price as part of a sale of a
package of products and/or services that include but are not limited to
DSL products.
Westell is offering DSL products with a gross profit substantially lower
than its other products. Such pricing will have a negative impact on the gross
margins of the combined company on a substantial portion of its product sales
unless and until it can reduce the costs associated with its DSL products.
Westell believes that the DSL product costs may decrease when:
- more cost-effective transceiver and microprocessor technologies are
available;
- product design efficiencies are obtained; and
- additional economies of scale are obtained related to increased volume.
There is no guaranty that the combined company will be able to secure
significant additional orders and reduce per unit product costs of DSL products.
The combined company could continue to experience low gross margins in
connection with sales of DSL products even if its DSL unit volume increases. Low
gross margins from DSL products could result in fluctuations in quarterly
operating results and would materially and adversely affect the combined
company's profitability and ability to implement its business goals.
I-18
<PAGE> 27
EVOLVING INDUSTRY STANDARDS MAY ADVERSELY AFFECT THE COMBINED COMPANY'S DSL
SALES.
Industry wide standardization organizations such as the American National
Standards Institute and the European Telecommunications Standards Institute are
responsible for setting transceiver technology standards for DSL products.
Because Westell has not internally developed a transceiver technology for its
products, it is dependent on transceiver technologies from third parties. Absent
the proper relationships with key transceiver technology vendors, the combined
company's products may not comply with the developing standards for DSL. If
customers require standards-based products that require transceiver technologies
not available to the combined company under reasonable terms, then its DSL
revenues would significantly decrease and its business and operating results
would materially suffer.
The combined company will continue to rely on third-party suppliers for
access to transceiver technologies for new DSL products. Since standards have
not been established for such products, there can be no assurance that
standards-compliant transceiver technologies will be available to the combined
company in a timely manner for the purpose of product development.
In addition, the introduction of competing standards or implementation
specifications could result in confusion in the market and delay any decisions
regarding deployment of DSL systems. Delay in the announcement of standards
would materially and adversely impact sales of the combined company's DSL
product offerings and could have a material adverse effect on its business and
operating results.
THE COMBINED COMPANY'S PRODUCTS WILL FACE COMPETITION FROM OTHER EXISTING
PRODUCTS, PRODUCTS UNDER DEVELOPMENT AND CHANGING TECHNOLOGY, AND THE COMBINED
COMPANY MUST DEVELOP NEW COMMERCIALLY SUCCESSFUL PRODUCTS TO ACHIEVE ITS
BUSINESS GOALS AND GENERATE REVENUE.
The markets for Westell's and Teltrend's products are characterized by:
- intense competition,
- rapid technological advances,
- evolving industry standards,
- changing demographics such as shifts to home offices,
- modifications in end-user requirements,
- frequent new product introductions and enhancements, and
- evolving telephone company service offerings.
New product introductions or changes in telephone company services could
render Westell's existing products and products under development obsolete and
unmarketable. For example, High Bit-Rate DSL, a product that enhances the signal
quality of the transmission over copper wire, may reduce the demand for
Westell's traditional T-1 products. These products accounted for at least 50% of
its revenues in each of the last three fiscal years. Further, the demand for
many of Westell's traditional analog products is decreasing, and will likely
continue to decrease, as high capacity digital transmission becomes less
expensive and more widely deployed. Many of Teltrend's products face similar
trends. There can be no assurance that the combined company will have the
financial and manufacturing resources necessary to continue to successfully
develop new products or to otherwise successfully respond to changing technology
standards and telephone company service offerings. The combined company's future
success will largely depend upon its ability to continue to enhance Westell's
and Teltrend's existing products and to successfully develop and market new
products on a cost-effective and timely basis.
I-19
<PAGE> 28
Westell's and Teltrend's current product offerings apply primarily to the
delivery and monitoring of digital communications over copper wire in the local
access network. The combined company expects that the increasing deployment of
fiber and wireless broadband transmission in the local access network will
reduce the demand for these existing products. Telephone companies also face
competition from cable operators, new local access providers and wireless
service providers that are capable of providing high speed digital transmission
to end-users. If telephone companies decide not to aggressively respond to this
competition and fail to offer high speed digital transmission, then the overall
demand for DSL products will decline. Consequently, to remain competitive the
combined company must develop new products to meet the demands of these emerging
transmission media and new local access network providers.
If the combined company's products become obsolete or fail to gain
widespread commercial acceptance due to competing products and technologies,
then its product revenues would significantly decrease and its business and
operating results will be materially adversely affected.
THE COMBINED COMPANY MAY EXPERIENCE DELAYS IN THE DEPLOYMENT OF NEW PRODUCTS.
Westell's and Teltrend's past sales have resulted from their ability to
anticipate changes in technology, industry standards and telephone company
service offerings, and to develop and introduce new and enhanced products and
services. The combined company's continued ability to adapt to such changes will
be a significant factor in maintaining or improving its competitive position and
its prospects for growth. Factors resulting in delays in product development
include:
- rapid technological changes in the telecommunications industry;
- the regional bell operating companies' lengthy product approval and
purchase processes;
- reliance on third-party technology for the development of new products;
and
- consolidation among the customer base resulting in operational
disruptions.
There can be no assurance that the combined company will successfully introduce
new products on a timely basis or achieve sales of new products in the future.
If the combined company fails to deploy new products on a timely basis, then its
product sales will decrease, its quarterly operating results could fluctuate,
and its competitive position and financial condition would be materially and
adversely affected.
INDUSTRY CONSOLIDATION COULD MAKE COMPETING MORE DIFFICULT.
Consolidation of companies offering high speed telecommunications products
is occurring through acquisitions, joint ventures and licensing arrangements
involving Westell's and Teltrend's competitors and customers. Westell cannot
provide any assurances that the combined company will be able to compete
successfully in an increasingly consolidated telecommunications industry. Any
heightened competitive pressures that the combined company may face may have a
material adverse effect on its business, prospects, financial condition and
result of operations.
THE FAILURE TO MAINTAIN AND FURTHER DEVELOP PARTNERS AND ALLIANCES WOULD
ADVERSELY AFFECT THE COMBINED COMPANY'S BUSINESS.
Instead of directly competing with large telecommunications equipment
suppliers, Westell has begun to develop and maintain partnerships and alliances
with other companies in order to secure complementary technologies, to lower
costs, and to better market and sell products. These partnerships and alliances
are expected to provide important resources and channels for the combined
company to compete successfully. Some of Westell's partnerships provide it with
third-party technology that it relies on to manufacture its products. In
addition, instead of directly competing with large suppliers such as Lucent
Technologies and Fujitsu in the DSL market, Westell has entered into alliances
with these companies to offer products within a package of
I-20
<PAGE> 29
products sold by these companies to telephone companies. Westell cannot provide
any assurances that these partnerships will continue in the future. As
competition increases in the DSL market, these alliances will become even more
important to the combined company. A loss of one or more partnerships and
alliances could affect the combined company's ability to sell its products and
therefore could materially adversely affect its business and operating results.
WESTELL'S AND TELTREND'S LACK OF BACKLOG MAY AFFECT THE COMBINED COMPANY'S
ABILITY TO ADJUST TO AN UNEXPECTED SHORTFALL IN ORDERS.
Because Westell and Teltrend each generally ship products within a short
period after receipt of an order, neither company typically has a material
backlog of unfilled orders, and revenues in any quarter are substantially
dependent on orders booked in that quarter. Westell's and Teltrend's expense
levels are based in large part on anticipated future revenues and are relatively
fixed in the short-term. Therefore, the combined company may be unable to adjust
spending in a timely manner to compensate for any unexpected shortfall of
orders. Accordingly, any significant shortfall of demand in relation to
expectations or any material delay of customer orders would adversely affect
quarterly operating results and have an immediate adverse impact on the combined
company's business and operating results.
THE COMBINED COMPANY WILL DEPEND ON A LIMITED NUMBER OF CUSTOMERS WHO ARE ABLE
TO EXERT A HIGH DEGREE OF INFLUENCE OVER IT.
Westell and Teltrend each have depended, and the combined company will
continue to depend on a small number of customers for substantially all of its
revenues. These customers consist primarily of the large regional bell operating
companies, which are the telephone companies that emerged from the break-up of
AT&T. Sales to the regional bell operating companies accounted for 61.9%, 51.1%
and 46.6% of Westell's revenues in fiscal 1997, 1998 and 1999, respectively, and
95.8%, 81.7% and 75.5% of Teltrend's revenues in fiscal 1997, 1998 and 1999,
respectively. Consequently, the combined company's future success will depend
significantly upon:
- the timeliness and size of future purchase orders from the regional bell
operating companies;
- the product requirements of the regional bell operating companies;
- the financial and operating success of the regional bell operating
companies; and
- the success of the regional bell operating companies' services that use
its products.
The regional bell operating companies and Westell's and Teltrend's other
customers are significantly larger and are expected to be able to exert a high
degree of influence over the combined company. Customers purchasing Westell's or
Teltrend's products may generally reschedule orders without penalty to the
customer. Even if demand for the combined company's products is high, the
regional bell operating companies have sufficient bargaining power to demand low
prices and other terms and conditions that may materially adversely affect the
combined company's business and operating results.
Any attempt by a regional bell operating company or other customers to seek
out additional or alternative suppliers or to undertake the internal production
of products would have a material adverse effect on the combined company's
business and operating results. The loss of any customer could result in an
immediate decrease in product sales and materially and adversely affect the
combined company's business.
Conference Plus, Westell's 88% owned subsidiary, has a customer base that
is very concentrated as well, with its top ten customers representing a large
portion of revenue. Customers of Conference Plus have expanded their
requirements for its services, but there can
I-21
<PAGE> 30
be no assurance that such expansion will increase in the future. Additionally,
Conference Plus' customers continually undergo review and evaluation of their
conferencing services to evaluate the merits of bringing those services in-house
rather than outsourcing those services. There can be no assurance in the future
that Conference Plus' customers will bring some portion or all of their
conferencing services in-house. Conference Plus must continually provide higher
quality, lower cost services to provide, maintain and grow their customer base.
Any loss of a major account would have a material adverse effect on Conference
Plus. In addition, any merger or acquisition of a major customer could have a
material adverse effect on Conference Plus.
WESTELL'S AND TELTREND'S CUSTOMERS HAVE LENGTHY PURCHASE CYCLES WHICH AFFECT
THEIR ABILITY TO SELL PRODUCTS.
Prior to selling products to telephone companies, Westell and Teltrend each
must undergo lengthy approval and purchase processes. Evaluation can take as
little as a few months for products that vary slightly from existing products or
up to a year or more for products based on new technologies such as DSL
products. Accordingly, each company is continually submitting successive
generations of its current products as well as new products to its customers for
approval. The length of the approval process can vary and is affected by a
number of factors, including the:
- complexity of the product involved,
- priorities of telephone companies,
- telephone companies' budgets, and
- regulatory issues affecting telephone companies.
The requirement that telephone companies obtain Federal Communications
Commission (FCC) approval for most new telephone company services prior to their
implementation has in the past delayed the approval process. Such delays in the
future could have a material adverse affect on the combined company's business
and operating results. While Westell and Teltrend have each been successful in
the past in obtaining product approvals from their customers, there is no
guaranty that such approvals or that ensuing sales of such products will
continue to occur.
WESTELL AND TELTREND ARE DEPENDENT ON, AND WOULD NOT BE ABLE TO COMPETE WITHOUT,
THIRD-PARTY TECHNOLOGY.
Many of Westell's and Teltrend's products incorporate technology developed
and owned by third parties. Consequently, each company must rely upon third
parties to develop and introduce technologies which enhance its current products
and to develop new products. Any impairment or termination of Westell's or
Teltrend's relationship with any licensors of technology would force the
combined company to find other developers on a timely basis or develop its own
technology. There is no guaranty that the combined company will be able to
obtain the third-party technology necessary to continue to develop and introduce
new and enhanced products, that it will obtain third-party technology on
commercially reasonable terms or that it will be able to replace third-party
technology in the event such technology becomes unavailable, obsolete or
incompatible with future versions of the combined company's products. The
combined company would have severe difficulty competing if it cannot obtain or
replace the third-party technology used in its products. Any absence or delay
would materially adversely affect the combined company's business and operating
results.
For example, Westell's ability to produce DSL products is dependent upon
third-party transceiver technologies. Westell's licenses for DSL transceiver
technology are nonexclusive and the transceiver technologies either have been
licensed to numerous other manufacturers or do not require a license to acquire.
If Westell's DSL transceiver licensors fail to deliver
I-22
<PAGE> 31
implementable or standards-compliant transceiver solutions to it and other
alternative sources of DSL transceiver technologies are not available to it at
commercially acceptable terms, then the combined company's business and
operating results would be materially and adversely affected.
WESTELL AND TELTREND ARE DEPENDENT ON SOLE OR LIMITED SOURCE SUPPLIERS AND COULD
NOT SELL THEIR PRODUCTS WITHOUT THESE SUPPLIERS.
Integrated circuits and other electronic components used in Westell's and
Teltrend's products are currently available from only one source or a limited
number of suppliers. For example, Westell currently depends on GlobeSpan
Technologies, Alcatel Microelectronics and Analog Devices, Inc. to provide
critical integrated transceiver circuits used in its DSL products. In addition,
some of the electronic components used in Westell's and Teltrend's products are
currently in short supply and are provided on an allocation basis to Westell and
other users based upon past usage. There is no guaranty that the combined
company will be able to continue to obtain sufficient quantities of integrated
circuits or other electronic components as required, or that such components, if
obtained, will be available to the combined company on commercially reasonable
terms. Integrated transceiver circuits and electronic components are key
components in all of Westell's and Teltrend's products and are fundamental to
the combined company's business strategy of developing new and succeeding
generations of products at reduced unit costs without compromising functionality
or serviceability. In the past, Westell has experienced delays in the receipt of
key components which have resulted in delays in related product deliveries.
Westell anticipates that integrated circuit production capacity and availability
of some electronic components may be insufficient to meet the demand for such
components in the future. The inability to obtain sufficient key components or
to develop alternative sources for such components as required, could result in
delays or reductions in product shipments, and consequently have a material
adverse effect on the combined company's customer relationships and its business
and operating results.
WESTELL'S AND TELTREND'S SERVICES ARE AFFECTED BY UNCERTAIN GOVERNMENT
REGULATION AND CHANGES IN CURRENT OR FUTURE LAWS OR REGULATIONS COULD RESTRICT
THE WAY THE COMBINED COMPANY OPERATES ITS BUSINESS.
Many of Westell's and Teltrend's customers are subject to regulation from
federal and state agencies, including the FCC and various state public utility
and service commissions. While such regulations do not affect Westell and
Teltrend directly, the effects of such regulations on their customers may
adversely impact the combined company's business and operating results. For
example, FCC regulatory policies affecting the availability of telephone company
services and other terms on which telephone companies conduct their business may
impede the combined company's penetration of local access markets. The
Telecommunications Act of 1996 lifted certain restrictions on telephone
companies' ability to provide interactive multimedia services. Rules to
implement these new statutory provisions are now being considered by the FCC.
While the statutory and regulatory framework for telephone companies providing
multimedia services has become more favorable, it is uncertain at this time how
this will affect telephone companies' demand for products based upon DSL
technology. In addition, the combined company's business and operating results
may also be adversely affected by the imposition of tariffs, duties and other
import restrictions on components that it obtains from non-domestic suppliers or
by the imposition of export restrictions on products that it sells
internationally. Internationally, governments of the United Kingdom, Canada,
Australia and numerous other countries actively promote and create competition
in the telecommunications industry. Changes in current or future laws or
regulations, in the U.S. or elsewhere, could materially and adversely affect the
combined company's business and operating results.
In addition, the Telecommunications Act permits the regional bell operating
companies to engage in manufacturing activities after the FCC authorizes a
regional bell operating company to
I-23
<PAGE> 32
provide long distance services within its service territory. A regional bell
operating company must first meet specific statutory and regulatory tests
demonstrating that its monopoly market for local telephone services is open to
competition before it will be permitted to enter the long-distance market. When
these tests are met, a regional bell operating company will be permitted to
engage in manufacturing activities and the regional bell operating companies,
which are Westell's and Teltrend's largest customers, may become the combined
company's competitors as well.
WESTELL'S FAILURE TO MANAGE THE COMBINED COMPANY'S GROWTH EFFECTIVELY COULD
IMPAIR ITS ABILITY TO SUPPLY AND SUPPORT THE MANUFACTURE OF LARGE VOLUMES OF DSL
PRODUCTS.
Westell is in the process of planning for the manufacturing capabilities
necessary to supply and support large volumes of DSL products and in the future
the combined company may become increasingly dependent on subcontractors.
Reliance on third-party subcontractors involves several risks, including the
potential absence of adequate capacity and reduced control over product quality,
delivery schedules, manufacturing yields and costs. Although Westell believes
that alternative subcontractors or sources could be developed if necessary, the
use of subcontractors could result in material delays or interruption of supply
as a consequence of required re-tooling, retraining and other activities related
to establishing and developing a new subcontractor or supplier relationship. Any
material delays or difficulties in connection with increased manufacturing
production or the use of subcontractors could have a material adverse effect on
the combined company's business and operating results. The combined company's
failure to effectively manage its growth would have a material adverse effect on
its business and operating results.
THE COMBINED COMPANY'S FAILURE TO RETAIN KEY PERSONNEL AND HIRE ADDITIONAL KEY
PERSONNEL COULD ADVERSELY AFFECT ITS ABILITY TO SUCCESSFULLY COMPETE, AND
DEVELOP AND SELL NEW PRODUCTS.
Because of Westell's and Teltrend's need to continually evolve their
businesses with new product developments and strategies, the combined company's
success will be dependent, in part, on its ability to attract and retain
qualified technical, marketing, sales and management personnel. To remain
competitive in the telecommunications industry, the combined company must
maintain top management talent, employees who are involved in the development
and testing of new products, and employees who have developed important
relationships with key customers. Because of the high demand for these types of
key employees, especially in the DSL market, it is difficult to retain existing
key employees and attract new key employees. While most of Westell's executive
officers have severance agreements in which the officers have agreed not to
compete with it and not to solicit any of its employees for a period of one year
after termination of the officer's employment in most circumstances, Teltrend
generally does not have similar noncompetition and nonsolicitation agreements
for its employees and Westell does not have similar agreements for other
employees who are important in its product development and sales. The combined
company's inability to attract and retain additional key employees or the loss
of one or more of Westell's or Teltrend's current key employees could materially
adversely affect the combined company's ability to successfully develop new
products and implement its strategy.
WESTELL'S STOCK PRICE IS VOLATILE.
Westell's Class A Common Stock price has experienced substantial volatility
in the past and is likely to remain volatile in the future due to factors such
as:
- Westell's historical and anticipated quarterly and annual operating
results;
- Variations between Westell's actual results and analyst and investor
expectations;
- Announcements by Westell or others and developments affecting its
business;
I-24
<PAGE> 33
- Investor perceptions of Westell and comparable public companies; and
- Conditions and trends in the data communications and Internet-related
industries.
In particular, the stock market has from time to time experienced
significant price and volume fluctuations affecting the common stocks of
technology companies, which may include telecommunications manufacturers like
Westell. Volatility can also arise as a result of the activities of short
sellers and risk arbitrageurs regardless of the combined company's performance.
This volatility may result in a material decline in the market price of the
Westell Class A Common Stock, and may have little relationship to the combined
company's financial results or prospects.
THE COMBINED COMPANY'S QUARTERLY OPERATING RESULTS ARE LIKELY TO FLUCTUATE
SIGNIFICANTLY AND SHOULD NOT BE RELIED UPON AS INDICATIONS OF FUTURE
PERFORMANCE.
Westell expects to continue to experience significant fluctuations in
quarterly operating results. Due to the factors set forth below and elsewhere
contained in these "Risk Factors," sales to Westell's and Teltrend's largest
customers have fluctuated and are expected to fluctuate significantly between
quarters. Sales to customers typically involve large purchase commitments, and
customers purchasing Westell's or Teltrend's products may generally reschedule
or cancel orders without penalty. As a result, Westell's quarterly operating
results have fluctuated significantly in the past three fiscal years. Other
factors that have had and may continue to influence Westell's quarterly
operating results include:
- the impact of changes in the DSL customer mix or product mix sold;
- timing of product introductions or enhancements by the combined company
or its competitors;
- changes in operating expenses which can occur because of product
development costs, timing of customer reimbursements for research and
development, pricing pressures and other reasons;
- write-offs for obsolete inventory; and
- the other risks that are contained in this "Risk Factors" section.
Due to Westell's fluctuations in quarterly results, it believes that
period-to-period comparisons of its quarterly operating results are not
necessarily meaningful. Quarterly fluctuations make it more difficult to
forecast the combined company's revenues. It is likely that in some future
quarters Westell's operating results will be below the expectations of
securities analysts and investors, which may adversely affect its stock price.
This occurred in fiscal 1999. Westell attempts to address this possible
divergence through its public announcements and reports. The degree of
specificity Westell can offer in such announcements, however, and the likelihood
that any forward-looking statements it makes will prove correct, can and will
vary. As long as the combined company continues to depend on DSL and new
products, there is substantial risk of widely varying quarterly results,
including the so-called "missed quarter" relative to investor expectations.
CONFERENCE PLUS' LARGE COMPETITORS COULD ADVERSELY AFFECT CONFERENCE PLUS'
ABILITY TO MAINTAIN OR INCREASE ITS MARKET SHARE.
Conference Plus, Westell's 88% owned subsidiary, participates in the highly
competitive industry of voice, video, and multimedia conferencing services.
Competitors include stand-alone conferencing companies and major
telecommunications providers. In addition, internet service providers and other
entrants may attempt to expand their revenue base by providing
I-25
<PAGE> 34
conferencing services. Conference Plus' ability to sustain growth and
performance is dependent on its:
- maintenance of high quality standards and low cost position;
- international expansion;
- retention and addition of key personnel; and
- evolving technological capability.
Any increase in competition could reduce Westell's gross margin, require
increased spending on research and development and sales and marketing, and
otherwise materially adversely affect the combined company's business and
operating results. Westell is currently considering a proposal to spin-off
Conference Plus in the next 12 to 24 months.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
All statements and other information contained in this joint proxy
statement/prospectus or any document incorporated by reference herein relating
to the financial condition, results of operations, cash flows, business
strategies, operating efficiencies or synergies, growth opportunities, plans and
objectives of management and other matters that are not historical facts are
hereby identified as forward-looking statements under the Private Securities
Litigation Reform Act of 1995. The words will, should, could, anticipate,
believe, plan, estimate, expect, intend, project, forecast, and other similar
expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout this joint
proxy statement/prospectus and the documents incorporated herein by reference.
Forward-looking statements involve known and unknown risks and uncertainties
that may cause results and conditions to differ materially.
Important factors that could cause actual results to differ materially from
the expectations reflected in the forward-looking statements include those
described in the "Risk Factors" section beginning on page I-14. In addition, the
forward-looking statements are subject to uncertainties relating to the
synergies, charges and expenses associated with the merger. Westell and Teltrend
expressly disclaim any duty to update any forward-looking statements to reflect
events or circumstance after the date of this joint proxy statement/prospectus
or to reflect the occurrence of unanticipated events.
I-26
<PAGE> 35
CHAPTER TWO
THE TRANSACTION
THE COMPANIES
WESTELL TECHNOLOGIES, INC.
Since 1980, Westell has developed telecommunications products that address
the needs of telephone companies to upgrade their existing network
infrastructures in order to deliver advanced data and voice services to their
customers. Westell designs, manufactures, markets and services a broad range of
digital and analog products used by telephone companies to deliver services
primarily over existing copper telephone wires that connect end users to a
telephone company's central office. This is commonly referred to as the local
loop or the local access network. Westell also markets its products and services
to other telecommunications and information service providers seeking direct
access to end user customers.
Traditionally, telephone companies have provided services using analog
transmission, which involves the transmission of wave signals that correspond to
the information being transmitted. Analog transmission, however, is unable to
provide the requisite volume, speed and reliability to support the growing
demands for services over telephone wires. In contrast, digital transmission
makes it possible to reduce all forms of images, sounds and data to simple
digital signals of ones and zeros and consequently permits high-speed,
high-volume and highly reliable data transmission. In the U.S., the digital
conversion of the analog network has been built on the format known as T-1. T-1
transmission utilizes a data rate that is 24 times faster than standard analog
transmission, or a rate equal to 1.54 megabits per second. Further, T-1
transmission can be aggregated or subdivided into channels that can deliver data
transmission tailored to specific end user requirements.
Westell's products can be categorized into three groups:
- HiCAP products: products that maintain, repair and monitor special
circuits in the local loop that have higher capacity than normal
telephone circuits. Special circuits are those that enable high-speed
digital transmission at rates that are called T-1 or DS-3 rates in the
U.S. and E-1 rates outside the U.S.
- CPE (Customer Premise Equipment) products: modems that reside at end-user
locations based on digital subscriber line (DSL) technologies. DSL
technology allows the simultaneous transmission of data at speeds up to
140 times faster than traditional analog telephone service in one
direction, or 8 megabits per second, and up to 17 times faster than
traditional analog telephone service in the reverse direction, or 1
megabit per second, while also providing traditional analog telephone
service over a single pair of copper wires at distances of up to 18,000
feet, depending on the transmission rates.
- Transport systems products: products that include both DSL equipment that
is used in telephone companies' and service providers' equipment offices,
commonly referred to as central offices, as well as products that
monitor, maintain, and safeguard wireless networks and the demarcation
points between wireless networks and traditional phone networks that are
used in central offices, in outdoor locations and on customers' premises.
Conference Plus, Inc., Westell's 88% owned subsidiary, provides audio,
video, and data conferencing services. Businesses and individuals use these
services to hold voice, video or data conferences with many people at the same
time. Conference Plus sells its services directly to large customers, including
Fortune 100 companies, and serves customers indirectly through its private
reseller program. Westell is currently considering a proposal to spin-off
Conference Plus in the next 12 to 24 months.
II-1
<PAGE> 36
Westell was incorporated in 1980 under the laws of the State of Delaware
and has its principal executive offices at 750 North Commons Drive, Aurora,
Illinois 60504 (telephone number: 630-898-2500). Internet users can obtain
information about Westell and its services at http://www.westell.com.
TELTREND INC.
Like Westell, Teltrend designs, manufactures and markets a broad range of
transmission products that are used by telephone companies to provide data and
voice services over the existing telephone network, primarily in the local loop.
Teltrend also manufactures a wide range of products that convert, change and
amplify transmission protocols and are used worldwide in public and private
communications networks. Teltrend's products provide transmission of data and
voice over the copper-wire network and permit the telephone companies to
maximize use of the existing infrastructure of copper wireline.
Teltrend manufactures a broad range of products necessary to provision the
local loop which are designed for installation either at the end-user's
premises, along the copper wires of the local loop or at the telephone
companies' central offices. Teltrend's principal products are as follows:
- High capacity products: Teltrend's high capacity products include
traditional T-1 line and office repeaters, which are installed to restore
and amplify T-1 signals that degrade as they are transmitted, and T-1
network interface units and associated mountings. Its products also
include CellPak(TM) units for cellular and wireless base station sites,
and high bit-rate digital subscriber line ("HDSL") systems, which are an
alternate method of delivering T-1 services in the local loop that do not
require line conditioning or the installation of mid-span repeaters for
distances up to 12,000 feet.
- Channelized products: Teltrend's channelized products include digital
loop carrier and voice frequency products, including a small digital loop
carrier system, plug-in units for existing digital loop carrier systems
and traditional voice frequency products. Digital loop carriers are
deployed within the local loop to interface fiber-optic or some other
transmission medium to the copper wire line that runs to an end-user's
premises. Teltrend's products also include integrated services digital
network ("ISDN")/digital data system ("DDS") products, including ISDN and
DDS line repeaters, and ISDN and DDS D-4 circuit assemblies commonly
referred to as channel units. ISDN and DDS are alternate technologies
used to provide digital services in the local loop at rates from 64 to
128 kilobits per second.
- Conversion products: These products include network interfacing and
protocol conversion products.
During the first nine months of Teltrend's fiscal year ended July 31, 1999,
Teltrend also offered a line of connections for local area computer networks,
remote network access solutions and secure networking products which it referred
to as its packet switched products business. On May 28, 1999, Teltrend sold
substantially all of the assets of its packet switched products business.
Teltrend was incorporated in 1987 under the laws of the State of Delaware
and has its principal executive offices at 620 Stetson Avenue, St. Charles,
Illinois 60174 (telephone number: 630-377-1700). Internet users can obtain
information about Teltrend and its services at http://www.teltrend.com.
II-2
<PAGE> 37
THETA ACQUISITION CORP.
Theta Acquisition Corp. is a Delaware corporation formed by Westell in
December 1999 under the laws of the State of Delaware solely for the purpose of
merging into Teltrend. Theta Acquisition Corp. is wholly owned by Westell. The
mailing address of Theta Acquisition Corp.'s principal executive offices is c/o
Westell Technologies, Inc., 750 North Commons Drive, Aurora, Illinois 60504
(telephone number: 630-898-2500).
THE MERGER
GENERAL
Each of the Westell Board and the Teltrend Board is using this joint proxy
statement/ prospectus to solicit proxies from the holders of its common stock
for use at the Westell special meeting or the Teltrend special meeting, as the
case may be. See Chapter III -- "The Meetings and Voting."
The merger agreement provides for the merger of a subsidiary of Westell
with and into Teltrend. As a result of the proposed merger, Teltrend will become
a wholly owned subsidiary of Westell. Based on the closing price of Westell
Class A Common Stock on December 10, 1999, the last trading day before we
publicly announced the signing of the merger agreement, had the merger taken
place each share of Teltrend common stock would have been converted into the
right to receive 3.3 shares of Westell Class A Common Stock with a value of
$10.75 per share. This represented a 53% premium over the closing price of
Teltrend common stock on that date. Had the merger taken place on February 11,
2000, the last available trading date before the printing of this joint proxy
statement/prospectus, each share of Teltrend common stock would have been
converted into the right to receive 3.3 shares of Westell Class A Common Stock
with a value of $26.44 per share, based on that day's closing price for Westell.
When we complete the merger, the market value of consideration into which each
share of Teltrend common stock is converted in the merger may be more or less
than either of these amounts, depending on the market value of Westell Class A
Common Stock at that time.
BACKGROUND OF THE MERGER
In early October 1998, a representative of Teltrend's investment banking
firm, SoundView, contacted Marc Zionts, Westell's chief executive officer, and
expressed Teltrend's interest in exploring the acquisition of Westell's HiCAP
business (as described in the section entitled "Westell Technologies, Inc." on
page II-1). At this time, Westell was exploring its options for improving its
operating efficiencies, and expansion was selected as one option to consider. In
this regard, Westell had reviewed numerous companies in the Chicago area,
including Teltrend, and had concluded that Teltrend's complementary technology,
customer base and close proximity provided the best option for expansion. As a
result of the Teltrend inquiry, discussions were held between Westell and
Teltrend to explore possibilities of a strategic business transaction.
Throughout November and December 1998, J. Nelson, Westell's president, and
Howard Kirby, Teltrend's chief executive officer, met and discussed mutual
business opportunities. Throughout these discussions, Mr. Kirby conveyed
Teltrend's desire to purchase Westell's HiCAP and non-DSL transport businesses,
but expressed a growing interest in a potential merger.
In December 1998, Teltrend signed an agreement with SoundView to pursue
merger and acquisition opportunities.
Discussions between Westell and Teltrend ceased until March 1999, when
Messrs. Nelson and Kirby again agreed that they believed there were compelling
synergies that could be achieved in a merger.
II-3
<PAGE> 38
In late May, Westell contacted its investment bankers, Goldman Sachs, to
assist Westell in determining whether it should pursue continued merger
discussions with Teltrend. Westell determined that such a merger still made
sense to pursue. As a result, Westell management continued developing models
using publicly available data to ascertain the validity of such a business
combination. Westell also retained Hambrecht & Quist, investment bankers, to
review the analysis prepared by Westell's management. Based upon the findings of
management and both investment banking firms, the Westell board requested that
Westell management re-engage in discussions with Teltrend management.
On June 1, 1999, Mr. Zionts, Mr. Nelson and Melvin J. Simon, a director of
Westell, met with Mr. Kirby and Douglas Hoffmeyer, Teltrend's chief financial
officer to discuss possible valuations in a merger transaction. On August 11,
1999, Mr. Nelson and Mr. Kirby met again to discuss a possible transaction.
Discussions continued between Teltrend and Westell throughout August.
On September 9, 1999, Westell and Teltrend executed a confidentiality
agreement. Also on that date, a meeting was held with executives from Westell
(Messrs. Zionts and Nelson, together with Marc Hafner, an executive vice
president of Westell and Bill Noll, a senior vice president of Westell) and
Teltrend (Messrs. Kirby and Hoffmeyer, together with Jack Parker, a senior vice
president of Teltrend), with investment bankers representing both companies
present. At this meeting, Westell presented a general overview of its company
and business units and products, a summary of its manufacturing capability and
facility capacity and a financial summary and perspective on the benefits of the
proposed merger. Teltrend presented its strategic directions for fiscal years
2000-2002, including an overview of Teltrend's base products and growth targets
by business unit. Teltrend also presented a financial update and its perspective
on the synergy that could be achieved in a merger.
On September 17, 1999, Westell presented Teltrend with a non-binding
proposal outlining the terms under which Westell was prepared to enter into
merger discussions. From September 21 through November 2, 1999, representatives
of the parties and their financial advisors negotiated the terms of the
non-binding term sheet, including the exchange ratio, board representation and
treatment of options. In the course of these negotiations, on October 22, 1999,
Messrs. Zionts and Nelson, together with Robert Gaynor, Westell's chairman of
the board and then chief executive officer, made a presentation to the Teltrend
Board with respect to the potential merger. On November 2, 1999, the parties
executed the non-binding term sheet.
Throughout November 1999, representatives of the companies met to discuss
due diligence issues as well as corporate communication and synergies. The
parties' formal due diligence investigations began the week of November 8, 1999
and continued until the merger agreement was signed.
On November 11, 1999, Westell presented Teltrend with a draft merger
agreement and on November 23, 1999, representatives of both Westell and
Teltrend, together with their legal counsel and financial advisors, met to
negotiate the terms of the merger agreement and related documents. From November
24, 1999 through December 13, 1999, representatives of Westell and Teltrend and
their respective financial advisors and legal counsel held a series of
telephonic meetings, at which the parties negotiated the final terms of the
merger, the merger agreement and related documents. During November and early
December, the Teltrend Board and the Westell Board each, separately, held
several meetings to discuss the progress of due diligence, the negotiations and
the transaction generally.
On December 13, 1999, the Board of Directors of Westell held a special
meeting, at which the Westell Board members unanimously approved the merger
agreement and recommended that the stockholders of Westell vote in favor of the
merger proposals.
II-4
<PAGE> 39
Also on December 13, 1999, the Board of Directors of Teltrend held a
special meeting, at which the Teltrend Board members unanimously approved the
merger agreement and recommended that the stockholders of Teltrend vote in favor
of the adoption of the merger agreement.
WESTELL'S REASONS FOR THE MERGER; RECOMMENDATION OF THE WESTELL BOARD
Westell is pursuing the merger for the following reasons:
- Combining the Teltrend business into Westell's facility is expected to
result in operating efficiencies at the gross margin and operating income
levels. Larger volume material purchases, facility overhead allocable to
more revenue, operating expenses synergies and other cost reductions
should account for these efficiencies.
- The positive impact on cash flow generated from the combined businesses,
Teltrend's significant cash balances and the opportunity to turn
redundant assets into additional cash, will help provide additional
resources to grow the combined companies' DSL businesses.
- Westell's income tax loss carryover will be available to offset future
taxable income of the combined companies, providing another positive
effect on cash flow and earnings.
- The addition of Teltrend products such as HDSL, channelized products and
conversion products will broaden Westell's product portfolio.
- In the areas where Westell and Teltrend have similar products, the
opportunity will exist for the selection of a "best of breed" product
platform which should provide the combined entities with additional
flexibility and efficiencies.
- With the current consolidation in their customer base, the combined
companies should be in a stronger position to gain mindshare of these
larger companies and to meet their expanding needs with the additional
operating scale provided by a combined Westell and Teltrend.
On December 13, 1999, the Westell Board unanimously approved the merger
agreement and the transactions contemplated thereby. In making its decision, the
Westell Board consulted with Westell's management and its financial and legal
advisors and considered various factors, including those listed below:
- information concerning the financial performance and condition, business
operations, capital levels, asset quality and prospects of each company,
and the projected future financial performance of each company as a
separate entity and on a combined basis;
- current industry, economic and market conditions and trends;
- the importance of significant scale and scope and financial resources to
a company's ability to compete effectively globally;
- the possibility that achieving cost savings, operating efficiencies and
synergies as a result of consummating the merger at this time might not
be available to the same degree to either company on its own;
- the risk that the combined company may not realize the anticipated cost
savings, operating efficiencies and synergies;
- the judgment, advice and analysis of Westell's management, including the
results of Westell's due diligence investigations;
- the terms of the merger agreement;
- the current and historical market prices of the common stock of each
company;
II-5
<PAGE> 40
- the risks associated with a fixed exchange ratio, including the risk
that, because the exchange ratio will not be adjusted for changes in the
market price of either Westell Class A Common Stock or Teltrend common
stock, the per share value of the consideration to be received by
Teltrend stockholders might be significantly more than the price per
share implied by the exchange ratio immediately prior to the announcement
of the merger;
- the quantitative analysis of the financial terms of the merger performed
by Goldman Sachs, its financial advisor;
- the opinion of Goldman Sachs described below as to the fairness, from a
financial point of view, of the exchange ratio, which was determined
through arms-length negotiations between the companies;
- the assurance of Hambrecht & Quist, Westell's additional financial
advisor, that, based on Hambrecht & Quist's limited review of the
transaction and certain related documents, it had identified no
significant risks not also identified by Goldman Sachs or Westell's
management with respect to the merger;
- Teltrend's and Westell's respective businesses, assets, product mixes,
manufacturing facilities, liabilities, managements, strategic objectives,
and prospects;
- the challenges of combining the businesses of two corporations the size
of Westell and Teltrend and the attendant risk of diverting management
resources from other strategic opportunities and from operational matters
for an extended period of time; and
- the anticipated impact of the merger on the customers and employees of
each company.
The foregoing discussion of the information and factors considered and
given weight by the Westell Board is not intended to be exhaustive but
summarizes the material factors considered. The Westell Board did not assign any
relative or specific weights to the various factors considered. Instead, the
Westell Board conducted an overall analysis of the factors described above,
including through discussions with and asking questions of Westell's management
and legal and financial advisors. In considering the factors described above,
the individual directors may have given different weight to different factors.
ACCORDINGLY, THE WESTELL BOARD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF WESTELL CLASS A COMMON
STOCK AND CLASS B COMMON STOCK VOTE FOR APPROVAL OF THE ISSUANCE OF THE WESTELL
CLASS A COMMON STOCK IN THE MERGER AND THE AMENDMENT TO WESTELL'S AMENDED AND
RESTATED CERTIFICATE OF INCORPORATION TO INCREASE TO 85 MILLION FROM 65.5
MILLION THE TOTAL NUMBER OF SHARES OF CLASS A COMMON STOCK THAT WESTELL IS
AUTHORIZED TO ISSUE.
TELTREND'S REASONS FOR THE MERGER; RECOMMENDATION OF THE TELTREND BOARD
On December 13, 1999, the Teltrend Board unanimously determined that the
merger agreement and the transactions contemplated thereby, including, without
limitation, the merger, are advisable and in the best interests of Teltrend and
the Teltrend stockholders and decided to recommend adoption of the merger
agreement to the Teltrend stockholders.
In evaluating the merger, the Teltrend Board consulted with its management,
financial advisors and legal counsel and gave careful consideration to a number
of factors which supported the Board's determinations, including the following:
- the various alternatives to the merger, including remaining independent,
and the risks associated with those alternatives;
- the relative risks to Teltrend's business if the merger is not completed;
II-6
<PAGE> 41
- the results of due diligence reviews conducted by Teltrend's management,
legal advisors and financial advisors examining Westell's business,
operations, technology and competitive position;
- the fact that Teltrend's stockholders would have the opportunity to
participate in the potential for growth of the combined company after the
merger, as the merger is expected to result in a combined company with
greater financial, technological and human resources to develop new
generations of products, and greater marketing resources to develop and
promote each company's existing products;
- the price per share implied by the exchange ratio in the merger, as of
the last trading day prior to the announcement of the merger, represented
a premium of 53% to the closing price of Teltrend's common stock on the
last trading day prior to the announcement of the merger, and a premium
of 72% to the average closing price of Teltrend's common stock over the
twenty trading days prior to the announcement of the merger;
- the shares of Westell Class A Common Stock issuable to Teltrend's
stockholders in the merger will have a significantly larger market float
and average trading volume upon the merger, and may provide greater
liquidity, than the Teltrend common stock currently has;
- the fact that the merger would be a tax-free reorganization for federal
income tax purposes;
- Teltrend's ability to terminate the merger agreement if the Teltrend
Board were presented with a superior offer, upon the payment of a fee of
$7,177,632 to Westell, as well as other scenarios under which termination
is possible, with or without termination fees;
- the Teltrend Board of Directors' review with its legal advisors of the
terms and conditions of the merger agreement and voting agreement. In
particular, the Board considered the events triggering payment of the
termination fee and the limitations on Teltrend's ability to negotiate an
alternative transaction with other companies, and the potential effect
these provisions would have on Teltrend receiving alternative proposals
which could be superior to the merger;
- the opinion of SoundView Technology Group, Inc. delivered orally on
December 13, 1999, and confirmed in writing, that as of such date and
subject to assumptions made and matters considered and limitations on the
review set forth in its opinion, the consideration to be received by
Teltrend stockholders in the merger was fair to Teltrend stockholders
from a financial point of view; and
- the willingness of Robert C. Penny III and Melvin J. Simon, individually
and as trustees of the Westell Technologies, Inc. Voting Trust, to vote
in accordance with the voting by Westell's other, non-affiliated
stockholders with respect to the transactions contemplated by the merger,
according to the terms and conditions of the voting agreement.
The Teltrend Board of Directors also considered a variety of risks and
other potentially negative factors in its consideration of the merger agreement
and the merger, including the following:
- the risk that the benefits sought to be achieved by the merger will not
be realized;
- the fact that Teltrend's obligation to pay a termination fee to Westell
in specified circumstances might deter other parties from proposing an
alternative transaction that might be more advantageous to Teltrend
stockholders;
- the risks associated with a fixed exchange ratio, including the risk
that, because the exchange ratio will not be adjusted for changes in the
market price of either Westell Class A Common Stock or Teltrend common
stock, the per share value of the
II-7
<PAGE> 42
consideration to be received by Teltrend stockholders might be
significantly less than the price per share implied by the exchange ratio
immediately prior to the announcement of the merger;
- the possibility of management disruption associated with the merger, the
challenges and costs of integrating the operations of the companies and
the risk that key management and technical personnel might leave Teltrend
before or after the merger is completed;
- the expectation that current Westell stockholders would own approximately
83% in voting power and 66% in value of the combined company immediately
following the merger, based upon the outstanding shares of both companies
as of December 10, 1999;
- the fact that Robert C. Penny III and Melvin J. Simon, as stockholders
and as trustees of the Westell Technologies, Inc. Voting Trust, are
expected to control approximately 67% of the voting power of Westell upon
the merger;
- the potential loss of revenues and business opportunities for Teltrend as
a result of confusion in the marketplace after announcement of the
merger, or possible adverse reactions by existing or prospective Teltrend
customers who compete with Westell or its affiliates, and the possible
exploitation of such issues by Teltrend's and Westell's competitors; and
- other applicable risks described in this joint proxy statement/prospectus
under "Risk Factors," starting on page I-14.
The foregoing discussion of the information and factors considered and
given weight by the Teltrend Board is not intended to be exhaustive but
summarizes the material factors considered. The Teltrend Board relied on the
experience and expertise of SoundView Technology Group, Inc., its financial
advisor, for quantitative analysis of the financial terms of the merger. See
"Opinion of Teltrend's Financial Advisor" beginning on page II-15. The Teltrend
Board did not assign any relative or specific weights to the various factors
considered. Instead, the Teltrend Board conducted an overall analysis of the
factors described above, including through discussions with and asking questions
of Teltrend's management and legal and financial advisors. In considering the
factors described above, the individual directors may have given different
weight to different factors.
FOR THE REASONS DISCUSSED ABOVE, THE TELTREND BOARD HAS UNANIMOUSLY
APPROVED AND DEEMED ADVISABLE AND IN THE BEST INTERESTS OF THE TELTREND
STOCKHOLDERS THE MERGER AGREEMENT AND THE MERGER, AND UNANIMOUSLY RECOMMENDS
THAT THE TELTREND STOCKHOLDERS VOTE FOR APPROVAL OF THE ADOPTION OF THE MERGER
AGREEMENT.
OPINION AND ADVICE OF WESTELL'S FINANCIAL ADVISORS
OPINION OF GOLDMAN SACHS
On December 13, 1999, Goldman Sachs delivered its oral opinion to the Board
of Directors of Westell that, as of such date, the exchange ratio was fair from
a financial point of view to Westell. Goldman Sachs subsequently confirmed its
oral opinion by delivery of its written opinion dated December 13, 1999.
THE FULL TEXT OF THE WRITTEN OPINION OF GOLDMAN SACHS, DATED DECEMBER 13,
1999, WHICH SETS FORTH ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON
THE REVIEW UNDERTAKEN IN CONNECTION WITH THE OPINION, IS ATTACHED AS APPENDIX B
AND IS INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. YOU
SHOULD READ THE OPINION IN ITS ENTIRETY.
II-8
<PAGE> 43
In connection with its opinion, Goldman Sachs reviewed, among other things:
- the merger agreement;
- annual reports to stockholders and annual reports on Form 10-K of
Teltrend and Westell for the five fiscal years ended July 31, 1999 and
the four fiscal years ended March 31, 1999, respectively;
- interim reports to stockholders and quarterly reports on Form 10-Q of
Teltrend and Westell;
- other communications from Teltrend and Westell to their respective
stockholders; and
- internal financial analyses and forecasts for Teltrend and Westell
prepared by their respective managements, including costs savings and
operating synergies projected by the management of Westell to result from
the merger.
Goldman Sachs also held discussions with members of the senior management
of Teltrend and Westell regarding the strategic rationale for, and the potential
benefits of, the merger and the past and current business operations, financial
condition and future prospects of their respective companies. In addition,
Goldman Sachs:
- reviewed the reported price and trading activity for the Teltrend common
stock and Westell Class A Common Stock;
- compared financial and stock market information for Teltrend and Westell
with similar information for other publicly-traded companies;
- reviewed the financial terms of recent business combinations in the
telecommunications equipment, data communications and networking
industries specifically and in other industries generally; and
- performed other studies and analyses Goldman Sachs considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and assumed such accuracy and
completeness for purposes of rendering its opinion. In that regard, Goldman
Sachs assumed, with the consent of the Westell Board, that the internal
financial forecasts prepared by the managements of Teltrend and Westell,
including any synergies, have been reasonably prepared on a basis reflecting the
best currently available estimates and judgments of Teltrend and Westell and
that such forecasts and synergies will be realized in the amounts and the time
periods contemplated thereby. Goldman Sachs did not make an independent
evaluation or appraisal of the assets and liabilities of Teltrend or Westell or
any of their subsidiaries and was not furnished with any such evaluation or
appraisal. Goldman Sachs also assumed that all material governmental, regulatory
or other consents and approvals necessary for the consummation of the merger
will be obtained without any adverse effect on Teltrend or Westell or on the
benefits of the merger. The advisory services and opinion of Goldman Sachs were
provided for the information and assistance of the Westell Board in connection
with its consideration of the merger, and the opinion does not constitute a
recommendation as to how any holder of Westell Class A Common Stock or Class B
Common Stock should vote with respect to the merger proposals.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to the Westell Board on
December 13, 1999.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
(1) Exchange Ratio History. Goldman Sachs calculated the ratio of the
average market price of Teltrend common stock to the average market price of
Westell Class A Common Stock during
II-9
<PAGE> 44
selected weekly periods ending the week of December 6, 1999. The results are
shown in the following table:
<TABLE>
<CAPTION>
PERIOD AVERAGE SHARE EXCHANGE RATIO
- ------ ----------------------------
<S> <C>
3 months ending December 9, 1999.......................... 2.33x
1 year ending December 9, 1999............................ 2.95x
3 years ending December 9, 1999........................... 2.03x
</TABLE>
(2) Public Market Comparison. Goldman Sachs compiled and reviewed selected
financial information and calculated certain ratios and public market multiples
for two groups of publicly traded companies in the communications equipment
industry.
<TABLE>
<CAPTION>
GROUP A CONSISTED OF: GROUP B CONSISTED OF:
<S> <C>
- ADC Telecommunications, Inc.; - Allen Telecom Inc.;
- ADTRAN, Inc.; - Andrew Corporation; and
- Aware, Inc.; - Tollgrade Communications, Inc.
- Copper Mountain Networks, Inc.;
- Orckit Communications Ltd.;
- Pairgain Technologies, Inc.;
- Paradyne Networks Inc.;
- Redback Networks Inc.; and
- Westell Technologies, Inc.
</TABLE>
The selected companies were chosen because they are publicly-traded
communications equipment companies with operations that for purposes of analysis
may be considered similar to Westell or Teltrend. The selected companies were
placed into Group A or Group B based on relative valuation metrics. Companies
trading at a multiple of levered market capitalization (equity market
capitalization plus net debt) to 1999 estimated revenue of 4.0x or greater were
put in Group A. Other relevant comparable companies were put in Group B. The
multiples and ratios were calculated using the closing price for the common
stock of each of the selected companies on December 10, 1999 and, except as
otherwise indicated below, were based on Institutional Brokers Estimate System,
or IBES, estimates, and published equity research reports and the most recent
publicly available information.
Goldman Sachs calculated low, high and median values for each of the three
ratios or multiples set forth below:
- The ratio of price to estimated earnings per share, or EPS, for calendar
years 1999 and 2000, respectively;
- Levered market capitalization as a multiple of revenues for the last
twelve months ("LTM"), estimated revenues for calendar year 1999 and
estimated revenues for calendar year 2000, respectively;
- Levered market capitalization as a multiple of LTM earnings before
interest, taxes, depreciation and amortization, or EBITDA, for the last
12 months.
The high, low and median multiples for the two groups of comparable
companies were applied to the corresponding operating metric for Teltrend, using
Westell management's estimates of Teltrend's 1999 and 2000 EPS and revenues. On
this basis, Goldman Sachs calculated a range of implied prices per share for
Teltrend shares and a range of implied
II-10
<PAGE> 45
exchange ratios, using a $10.75 per share price for Westell shares. The results
of such analyses are set forth in the following table:
<TABLE>
<CAPTION>
COMPARABLE MULTIPLES IMPLIED EXCHANGE RATIO
----------------------- ----------------------
LOW HIGH MEDIAN LOW HIGH MEDIAN
----- ------ ------ ---- ------ ------
<S> <C> <C> <C> <C> <C> <C>
GROUP A
P/E Ratio
Calendar Year 1999.................. 39.3x 245.8x 105.6x 5.2x 32.6x 14.0x
Calendar Year 2000.................. 31.1x 641.4x 96.7x 4.7x 96.2x 14.5x
Levered revenue multiple
LTM................................. 3.6x 298.2x 6.3x 5.8x 455.6x 10.0x
Calendar Year 1999.................. 4.1x 121.0x 5.7x 7.1x 199.3x 9.7x
Calendar Year 2000.................. 3.2x 57.4x 4.6x 6.1x 102.8x 8.6x
Levered EBITDA multiple
LTM................................. 23.0x 430.1x 70.9x 5.6x 608.2x 16.4x
GROUP B
P/E Ratio
Calendar Year 1999.................. 22.3x 223.4x 25.0x 3.0x 29.6x 3.3x
Calendar Year 2000.................. 16.5x 22.3x 21.9x 2.5x 3.4x 3.3x
Levered revenue multiple
LTM................................. 1.1x 3.9x 1.4x 2.0x 6.3x 2.5x
Calendar Year 1999.................. 1.1x 3.7x 1.4x 2.2x 6.4x 2.7x
Calendar Year 2000.................. 0.9x 3.2x 1.3x 2.1x 6.1x 2.7x
Levered EBITDA multiple
LTM................................. 8.0x 16.2x 13.4x 2.2x 4.0x 3.4x
</TABLE>
(3) Selected Transaction Analysis. Goldman Sachs compiled and reviewed
selected financial information for 282 selected transactions in the
communications equipment industry from 1988 to the present. Goldman Sachs
calculated high, low and median values for the selected transactions for each of
the three ratios or multiples set forth below.
- The ratio of equity consideration paid in each such transaction to the
acquired company's LTM and forward calendar year earnings for calendar
year 1999, respectively;
- Levered consideration as a multiple of the acquired company's LTM sales;
and
- The percentage premium paid to equity holders calculated using the price
paid per share by the acquirer relative to the target's price five days
prior to announcement.
The high, low and median multiples for the selected transactions were
applied to the corresponding value for Teltrend, using Westell management's
estimates of Teltrend's 1999 earnings. On this basis, Goldman Sachs calculated a
range of implied prices per share for Teltrend shares and a range of implied
exchange ratios, using a $10.75 per share price for Westell shares. The results
of such analyses are set forth below:
<TABLE>
<CAPTION>
COMPARABLE
MULTIPLES/PERCENT IMPLIED EXCHANGE RATIO
----------------------- -----------------------
LOW HIGH MEDIAN LOW HIGH MEDIAN
----- ------ ------ ----- ----- -------
<S> <C> <C> <C> <C> <C> <C>
P/E Ratio
LTM....................................... 4.1x 189.1x 35.1x 0.5x NM 4.1x
Calendar Year 1999........................ 2.5x 171.3x 32.5x 0.3x NM 4.3x
Levered revenue multiple
LTM....................................... 0.3x 677.3x 2.8x 0.8x NM 4.6x
Premium to market value..................... (25.8)% 141.6% 36.5% 1.6x 5.2x 2.9x
</TABLE>
II-11
<PAGE> 46
(4) Contribution Analysis. Goldman Sachs calculated the respective
percentage contribution by Teltrend and Westell to the combined company assuming
Westell's fiscal years 1999, 2000 and 2001 estimated revenue and 2001 estimated
operating income on a pro forma basis. The analysis did not take into account
any synergies that may result from the merger. In addition, Goldman Sachs
calculated the pro forma share ownership of the combined company immediately
following the merger, assuming a 3.30:1 exchange ratio, in order to determine
the percentages of the combined company that will be owned immediately following
consummation of the merger by stockholders of Westell and Teltrend,
respectively. The results of such analyses are summarized below.
PRO FORMA OWNERSHIP OF THE COMBINED COMPANY
(IN PERCENT)
<TABLE>
<S> <C>
Westell stockholders........................................ 66.2
Teltrend stockholders....................................... 33.8
</TABLE>
REVENUE CONTRIBUTION
(IN PERCENT)
<TABLE>
<CAPTION>
WESTELL TELTREND
------- --------
<S> <C> <C>
1999........................................................ 47.8 52.2
2000........................................................ 50.2 49.8
2001........................................................ 60.1 39.9
</TABLE>
OPERATING INCOME CONTRIBUTION
(IN PERCENT)
<TABLE>
<CAPTION>
WESTELL TELTREND
------- --------
<S> <C> <C>
2001........................................................ 44.3 55.7
</TABLE>
(5) Pro Forma Merger Analysis. Goldman Sachs prepared pro forma analyses of
the financial impact of the merger for fiscal years ended March 1999, 2000, 2001
and 2002 using estimates of earnings for those fiscal years that were provided
by Westell management for both Westell and Teltrend. Goldman Sachs compared the
EPS of Westell on a stand-alone basis to the estimated unadjusted and cash EPS
(which excludes the effects of goodwill amortization) of the combined company on
a pro forma basis, both including and not including the synergies estimated by
Westell management to result from the merger. The results of such analyses
indicate that for the fiscal year ended March 31, 1999 the merger would be
dilutive on an EPS basis, not including synergies, and accretive on an EPS
basis, including synergies, and on a cash EPS basis, both including and not
including synergies. For the fiscal years ended March 31, 2001 and 2002, the
merger would be dilutive on an EPS basis, both including and excluding
synergies, but accretive on a cash EPS basis, both including and excluding
synergies.
(6) Discounted Cash Flow Analysis -- Teltrend. Goldman Sachs performed a
discounted cash flow analysis of the expected cash flows of Teltrend using
projections from Westell's management under the following two scenarios: (a) not
including the synergies estimated by Westell management to result from the
merger (the "Base Case") and (b) including the synergies estimated by Westell
management to result from the merger (the "Synergies Case"). Goldman Sachs
calculated a net present value of Teltrend's free cash flows for the fiscal
years 2000 through 2004 using discount rates ranging from 8% to 12%. Goldman
Sachs also calculated Teltrend's terminal values in the year 2004 based on
multiples ranging from 7x EBITDA to 12x EBITDA. The terminal values were then
discounted to present value using discount rates from 8% to 12%. The implied
values per Teltrend share derived from such analysis ranged from $25.03 to
$44.45 in the Base Case and from $43.36 to $75.71 in the Synergies Case.
II-12
<PAGE> 47
(7) Discounted Cash Flow Analysis -- Westell. Goldman Sachs also performed
a discounted cash flow analysis of the expected cash flows of Westell using
projections from Westell's management. Goldman Sachs calculated a net present
value of Westell's free cash flows for the fiscal years 2001 through 2005 using
discount rates ranging from 13% to 21%. Goldman Sachs also calculated Westell's
terminal values in the year 2005 based on multiples ranging from 8x EBITDA to
18x EBITDA. The terminal values were then discounted to present value using
discount rates from 13% to 21%. The implied values per Westell share derived
from such analysis ranged from $5.99 to $17.94.
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 such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Westell or Teltrend or the contemplated merger.
The analyses were prepared solely for purposes of providing an opinion to
the Westell Board as to the fairness from a financial point of view to Westell
of the share exchange ratio. The analyses do not purport to be appraisals or
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 such analyses. Because such 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 Westell, Teltrend,
Goldman Sachs or any other person assumes responsibility if future results are
materially different from those forecast.
As described above, Goldman Sachs' opinion to the Westell Board was one of
many factors taken into consideration by the Westell Board in making its
determination to approve the merger. The foregoing summary does not purport to
be a complete description of the analyses performed by Goldman Sachs.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements
and valuations for estate, corporate and other purposes. Goldman Sachs is
familiar with Westell, having acted as its financial advisor in connection with,
and having participated in certain of the negotiations leading to, the merger
agreement. Goldman Sachs provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of Westell or Teltrend for its own account and for the accounts of
customers.
In addition, Goldman Sachs has been informed that SoundView Technology
Group, Inc. has acted as financial advisor to Teltrend in connection with the
merger. SoundView and Wit Capital Group, Inc. have entered into an agreement
pursuant to which Wit will acquire SoundView. Goldman Sachs currently owns
approximately 16.5% of the outstanding shares of common stock of Wit and
warrants to acquire additional shares of common stock of Wit which, if
exercised, would result in Goldman Sachs owning approximately 24.7% of the
outstanding shares of common stock of Wit.
II-13
<PAGE> 48
Pursuant to a letter agreement dated September 8, 1999, Westell engaged
Goldman Sachs to act as its financial advisor in connection with the possible
acquisition by Westell or any of its affiliates of all or a portion of the stock
or assets of Teltrend. Pursuant to the terms of this letter agreement, Westell
has agreed to pay Goldman Sachs a transaction fee based on the outcome of the
merger as follows:
- if the merger is consummated, Goldman Sachs will receive a fee of $2.3
million; or
- if the merger is not consummated and pursuant to the merger agreement
Westell receives a payment in connection with the termination of the
merger agreement or the failure to consummate the merger, Goldman Sachs
will receive a fee of $1.0 million.
Westell also has agreed to reimburse Goldman Sachs for its reasonable
out-of-pocket expenses, including attorneys' fees, and to indemnify Goldman
Sachs against certain liabilities, including certain liabilities under the
federal securities laws.
ADVICE OF HAMBRECHT & QUIST
In addition to engaging Goldman Sachs, the Westell Board also engaged the
services of Hambrecht & Quist LLC to provide general advisory services with
respect to the merger. Hambrecht & Quist reviewed the merger agreement, all the
material presented to the Westell Board by Goldman Sachs, as well as certain due
diligence materials prepared by Westell's management. In addition, Hambrecht &
Quist had several conversations with the Westell Board and Westell's management
regarding the transaction, the negotiation process and general financial market
conditions. As a result of this limited review, on December 13, 1999, Hambrecht
& Quist orally advised the Westell Board that it had identified no significant
risks not also identified by Goldman Sachs or Westell's management with respect
to the merger. The Westell Board did not retain Hambrecht & Quist to deliver an
opinion with regard to its general advice or the fairness, from a financial
point of view, of the exchange ratio, and Hambrecht & Quist did not prepare any
such opinion.
The advisory services of Hambrecht & Quist were provided for the
information and assistance of the Westell Board in connection with its
consideration of the merger, and such do not constitute a recommendation as to
how any holder of Westell Class A Common Stock or Class B Common Stock should
vote with respect to the merger proposals. As described above, Hambrecht &
Quist's advice to the Westell Board was one of many factors taken into
consideration by the Westell Board in making its determination to approve the
merger.
Hambrecht & Quist, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. Hambrecht &
Quist is familiar with Westell, having acted as its general financial advisor in
connection with the merger agreement. Hambrecht & Quist provides a full range of
financial advisory and securities services and, in the course of its normal
trading activities, may from time to time effect transactions and hold
securities, including derivative securities, of Westell or Teltrend for its own
account and for the accounts of customers.
Pursuant to a letter agreement dated August 15, 1999, Westell engaged
Hambrecht & Quist to act as its secondary financial advisor in connection with
the possible acquisition by Westell or any of its affiliates of all or a portion
of the stock or assets of Teltrend, providing general guidance and advice to the
Westell Board, but not rendering an opinion regarding the fairness of the
ultimate consideration to be paid by Westell in such a transaction. Pursuant to
the terms of this letter agreement, Westell has agreed to pay to Hambrecht &
Quist a fee of $225,000 upon the effectiveness of the merger. Westell also has
agreed to reimburse Hambrecht & Quist for its
II-14
<PAGE> 49
reasonable out-of-pocket expenses, including attorneys' fees, and to indemnify
Hambrecht & Quist against certain liabilities, including certain liabilities
under the federal securities laws.
OPINION OF TELTREND'S FINANCIAL ADVISOR
SoundView Technology Group, Inc. was retained by the Teltrend Board to
render an opinion as to whether the exchange ratio to be offered in the merger
is fair, from a financial point of view, to the Teltrend stockholders.
On December 13, 1999, SoundView delivered its opinion to the Teltrend Board
that, as of such date, based upon the facts and circumstances as they existed at
that time, and subject to certain assumptions made, matters considered and
limits of review set forth therein, the exchange ratio to be offered in the
merger is fair, from a financial point of view, to the Teltrend stockholders.
THE FULL TEXT OF THE WRITTEN OPINION OF SOUNDVIEW, DATED DECEMBER 13, 1999,
WHICH SETS FORTH, AMONG OTHER THINGS, THE ASSUMPTIONS MADE, MATTERS CONSIDERED,
AND THE SCOPE AND LIMITATIONS OF THE REVIEW UNDERTAKEN AND PROCEDURES FOLLOWED
BY SOUNDVIEW IN RENDERING ITS OPINION, IS INCLUDED IN APPENDIX C AND IS
INCORPORATED BY REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS. SoundView's
opinion is directed only to the fairness, from a financial point of view, to the
Teltrend stockholders of the exchange ratio to be offered in the merger.
SoundView's opinion was delivered for the use and benefit of the Teltrend Board
in its consideration of the merger and is not intended to be and does not
constitute a recommendation to any Teltrend stockholder as to how such
stockholder should vote with respect to the proposed merger. The summary of the
opinion of SoundView set forth below is qualified by reference to the full text
of the opinion. TELTREND STOCKHOLDERS ARE URGED TO READ THIS OPINION IN ITS
ENTIRETY.
In connection with rendering its opinion, SoundView, among other things:
- reviewed the draft agreement and plan of merger dated December 13, 1999
and the specific terms of the merger set forth therein;
- reviewed the draft voting agreement dated December 13, 1999;
- reviewed Teltrend's financial and operating information for the two-year
period ended July 31, 1999 and the three-month period ended October 30,
1999;
- reviewed Westell's financial and operating information for the two-year
period ended March 31, 1999 and the six-month period ended September 30,
1999;
- reviewed certain information regarding the private placement by Westell
of 6% subordinated convertible debentures and stock purchase warrants to
Capital Ventures International, Castle Creek Technology Partners LLC, and
Marshall Capital Management, Inc.;
- reviewed certain financial and operating information regarding the
business, operations and prospects of Teltrend and Westell, including
forecasts and projections, provided to it by the managements of Teltrend
and Westell, respectively;
- reviewed certain publicly available information concerning certain other
companies which it deemed to be reasonably similar to Teltrend and
Westell and the trading markets for certain of such companies'
securities;
- reviewed the financial terms of certain recent mergers and acquisitions
which it deemed relevant;
II-15
<PAGE> 50
- conducted discussions with certain members of senior management of
Teltrend and Westell concerning their respective businesses and
operations, assets, present conditions and future prospects; and
- performed such other analyses, examinations and procedures, reviewed such
other agreements and documents, and considered such other factors as it
deemed, in its sole judgment, to be necessary, appropriate or relevant to
render its opinion.
In arriving at its opinion, SoundView did not make, obtain or assume any
responsibility for any independent evaluation or appraisal of the properties and
facilities or of the assets and liabilities (contingent or otherwise) of either
Teltrend or Westell. SoundView assumed and relied upon the accuracy and
completeness of the financial and other information supplied to or otherwise
used by it in arriving at its opinion, and did not attempt independently to
verify, or undertake any obligation to verify, such information. SoundView
further relied upon the assurances of the managements of Teltrend and Westell
that they were not aware of any facts that would make such information
inaccurate or misleading. In addition, SoundView assumed that the forecasts and
projections provided to it by Westell and Teltrend represented the best
currently available estimates and judgments of Westell's and Teltrend's
managements as to the future financial condition and results of operations of
Westell and Teltrend, respectively, and assumed that such forecasts and
projections were reasonably prepared based on such currently available estimates
and judgments. SoundView assumed no responsibility for and expressed no view as
to such forecasts and projections or the assumptions on which they were based.
SoundView also took into account its assessment of general economic, market
and financial conditions and its experience in similar transactions, as well as
its experience in securities valuation in general. Its opinion is necessarily
based upon conditions as they existed and could be evaluated as of December 13,
1999.
SoundView did not express any view as to the price at which Teltrend's
stock will trade prior to the closing of the merger, or the price at which
Westell's stock will trade prior to or subsequent to the closing of the merger.
Its opinion did not constitute a recommendation of the merger over any other
alternative transactions which may have been available to Teltrend and did not
address the underlying business decision of the Teltrend Board to proceed with
or effect the merger.
The following is a brief summary of the material aspects of the analyses
performed by SoundView in connection with rendering its opinion.
Analyses Relating to Teltrend
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information, SoundView compared certain financial, market and
operating information of selected publicly traded telecommunications equipment
manufacturers that were, in SoundView's judgment, similar to Teltrend. For each
of the selected companies, SoundView calculated a multiple of enterprise value
to calendar 1998 and projected calendar 1999 and 2000 revenues. Enterprise value
was calculated by adding net debt to the company's market capitalization. Net
debt was calculated by subtracting cash and cash equivalents from total debt.
Companies analyzed by SoundView in connection with this analysis included ADC
Telecommunications, Inc., ADTRAN,
II-16
<PAGE> 51
Inc., Larscom Incorporated, PairGain Technologies, Inc. and Tollgrade
Communications, Inc. The table below shows the results of such analysis.
<TABLE>
<CAPTION>
COMPARABLE COMPANIES
---------------------------
TELTREND* LOW MEAN MEDIAN HIGH
--------- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Enterprise Value/1998 Revenue (Actual)....... 1.8x 0.7x 4.1x 3.9x 6.6x
Enterprise Value/1999 Revenue (Projected).... 1.9x 0.5x 3.4x 3.7x 5.3x
Enterprise Value/2000 Revenue (Projected).... 1.5x 0.4x 2.8x 3.3x 4.3x
</TABLE>
- ---------------
* Enterprise value computed based on closing price of Westell Class A Common
Stock on December 10, 1999.
Comparable Transaction Analysis. Using publicly available information,
SoundView analyzed the purchase prices and multiples paid in selected
acquisitions of telecommunications equipment manufacturers that, in SoundView's
judgment, were comparable to the business of Teltrend. However, SoundView noted
that none of such acquisitions took place under market conditions or competitive
conditions or circumstances that are directly comparable to a merger as of the
date of SoundView's opinion and that, accordingly, qualitative judgments must be
made concerning the difference between the characteristics of these transactions
and other factors and issues which would affect the price an acquiror is willing
to pay in an acquisition. For each of the selected targets, SoundView calculated
a multiple of enterprise value to LTM revenue. Enterprise value was calculated
by adding net debt to the company's market capitalization. Net debt was
calculated by subtracting cash and cash equivalents from total debt. SoundView
analyzed 19 transactions that were completed between November 21, 1994 and
November 21, 1999, and the table below shows the results of such analysis.
<TABLE>
<CAPTION>
COMPARABLE TRANSACTIONS
---------------------------
TELTREND* LOW MEAN MEDIAN HIGH
--------- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Enterprise Value/LTM Revenue................. 1.9x 0.2x 1.9x 1.6x 5.4x
</TABLE>
- ---------------
* Enterprise value computed based on closing price of Westell Class A Common
Stock on December 10, 1999.
Premiums Paid Analysis. SoundView reviewed publicly available information
for selected completed stock-for-stock merger and acquisition transactions,
which were announced between November 21, 1996 and November 21, 1999, with a
value of $50 million to $500 million and in which the acquiring company
purchased greater than 50% of a public target.
SoundView performed its analysis on 424 transactions that satisfied the
criteria, and the table below shows a comparison of those premiums paid to the
premium that would be paid to Teltrend stockholders based upon the implied value
payable in the transaction. The premium calculations for Teltrend stock are
based upon the value of Westell Class A Common Stock on December 10, 1999.
<TABLE>
<CAPTION>
COMPARABLE TRANSACTIONS
---------------------------------
TELTREND LOW MEAN MEDIAN HIGH
-------- ------- ----- ------ ------
<S> <C> <C> <C> <C> <C>
One day before announcement........... 53.4% (48.5)% 27.6% 22.9% 234.7%
</TABLE>
Discounted Cash Flow Analysis. SoundView conducted an unleveraged
discounted cash flow analysis based upon financial information for Teltrend
provided by its management. SoundView calculated a range of net present values
of the projected unleveraged free cash flows in the forecast using various
discount rates reflecting weighted average costs of capital in the range of 15%
to 20%. SoundView then combined such values with the terminal values calculated
by multiplying projected revenue for the year 2004 by a range of exit multiples
from 0.5 to 1.5 times
II-17
<PAGE> 52
and using the same discount rates as those utilized for unleveraged free cash
flows to obtain ranges of implied total enterprise value for Teltrend. The net
present value of free cash flow, when combined with the terminal values, yielded
an implied total enterprise value in the range of $96.1 million to $249.3
million. In order to derive implied equity value per share ranges for Teltrend,
SoundView subtracted the estimated net debt of Teltrend as of October 31, 1999
from the implied total enterprise values and divided the result by the fully
diluted shares outstanding for Teltrend. Net debt was calculated by subtracting
cash and cash equivalents from total debt. The implied equity value per share
for Teltrend was in the range of $18.45 to $41.25 per share.
Analyses Relating to Westell
Analysis of Selected Comparable Publicly Traded Companies. Using publicly
available information, SoundView analyzed certain financial, market and
operating information of selected publicly traded companies in the two market
segments where Westell operates. These segments are asymmetric digital
subscriber line (ADSL) products and telecommunications equipment. Companies
analyzed by SoundView in the ADSL industry included Aware, Inc., Orckit
Communications Ltd. and Paradyne Networks, Inc. For each of the selected
companies, SoundView calculated enterprise value as a multiple of calendar 1998
and projected calendar 1999 and 2000 revenues. Enterprise value was calculated
by adding net debt to the company's market capitalization. Net debt was
calculated by subtracting cash and cash equivalents from total debt. The table
below shows the results of such analysis.
<TABLE>
<CAPTION>
COMPARABLE COMPANIES
-----------------------------
WESTELL* LOW MEAN MEDIAN HIGH
-------- ---- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Enterprise Value/1998 Revenue (Actual)........... 4.7x 4.5x 33.0x 14.3x 80.3x
Enterprise Value/1999 Revenue (Projected)........ 4.1x 4.1x 19.1x 7.4x 45.9x
Enterprise Value/2000 Revenue (Projected)........ 2.9x 3.8x 12.7x 3.8x 30.5x
</TABLE>
- ---------------
* Revenues are for the fiscal years ended March 31, 1999 (shown as 1998
revenue), 2000 (shown as projected 1999 revenue) and 2001 (shown as projected
2000 revenue).
Companies analyzed by SoundView in the telecommunications equipment market
analysis included ADC Telecommunications, Inc., ADTRAN, Inc., Larscom
Incorporated, PairGain Technologies, Inc. and Tollgrade Communications, Inc. For
each of the selected companies, SoundView calculated enterprise value as a
multiple of 1998 and projected 1999 and 2000 revenues. Enterprise value was
calculated by adding net debt to the company's market capitalization. Net debt
was calculated by subtracting cash and cash equivalents from total debt. The
following table shows the results of such analysis.
<TABLE>
<CAPTION>
COMPARABLE COMPANIES
---------------------------
WESTELL* LOW MEAN MEDIAN HIGH
-------- ---- ---- ------ ----
<S> <C> <C> <C> <C> <C>
Enterprise Value/1998 Revenue (Actual)........ 4.7x 0.7x 4.1x 3.9x 6.6x
Enterprise Value/1999 Revenue (Projected)..... 4.1x 0.5x 3.4x 3.7x 5.3x
Enterprise Value/2000 Revenue (Projected)..... 2.9x 0.4x 2.8x 3.3x 4.3x
</TABLE>
- ---------------
* Revenues are for the fiscal years ended March 31, 1999 (shown as 1998
revenue), 2000 (shown as projected 1999 revenue) and 2001 (shown as projected
2000 revenue).
Discounted Cash Flow Analysis. SoundView conducted an unleveraged
discounted cash flow analysis based upon financial information for Westell
provided by its management. SoundView calculated a range of net present values
of the projected unleveraged free cash flows in the forecast using various
discount rates reflecting weighted average costs of capital in the range of 15%
to 25%. SoundView then combined such values with the terminal values calculated
by multiplying projected revenue for the year 2004 by a range of exit multiples
from 2.0 to 4.0 times
II-18
<PAGE> 53
and using the same discount rates as those utilized for unleveraged free cash
flows to obtain ranges of implied total enterprise value for Westell. The net
present value of free cash flow, when combined with the terminal value, yielded
an implied total enterprise value in the range of $300.8 million to $778.1
million. In order to derive implied equity value per share ranges for Westell,
SoundView subtracted the estimated net debt of Westell as of September 30, 1999
from the implied total enterprise values and divided the result by the fully
diluted shares outstanding for Westell. The implied equity value per share for
Westell was in the range of $6.98 to $17.70 per share.
In arriving at its opinion and in discussing its opinion with the Teltrend
Board, SoundView performed various financial analyses. While the foregoing
summary describes all material analyses and factors considered by SoundView in
rendering its opinion, such summary does not purport to be a complete
description of SoundView's analyses. SoundView believes that its analyses and
summaries should be considered as a whole, and that selecting portions of its
analyses or the factors considered by it, without considering all factors and
analyses, could create a misleading view of the process underlying its opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analyses and summary description. In
performing its analyses, SoundView considered general economic, market and
financial conditions and other matters, many of which are beyond the control of
Teltrend and Westell. The analyses performed by SoundView are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than those suggested by such analyses. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
SoundView is a nationally recognized investment banking firm. As part of
its investment banking services, SoundView is frequently engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, underwritings, secondary distributions of securities, private
placements and valuations for estate, corporate and other purposes. SoundView
was retained by the Teltrend Board to act as its financial advisor in connection
with the merger based upon SoundView's experience as a financial advisor in
mergers and acquisitions as well as SoundView's familiarity with the
telecommunications equipment manufacturing industry.
Except as described above, SoundView has not rendered material financial
advisory or investment banking services to Teltrend or to Westell during the
last three years. In the ordinary course of its business, SoundView may actively
trade in the equity securities of Teltrend and Westell for its own account and
for the accounts of its customers and, accordingly, may at any time hold a long
or short position in such securities.
Pursuant to the terms of its engagement letter with SoundView, Teltrend has
agreed to pay SoundView a cash fee at the closing of the merger equal to: (1)
1.50% of the first $40 million of consideration paid by Westell at closing
(defined as gross value of cash and the fair market value of all other property
paid by Westell in connection with the merger); plus (2) 1.00% of the next $40
million of consideration; plus (3) 0.50% of any consideration over $80 million.
In addition, Teltrend has agreed to reimburse SoundView for all reasonable
expenses incurred by it in connection with the merger, including reasonable
professional fees and disbursements. Teltrend has also agreed to indemnify
SoundView against certain liabilities in connection with its engagement.
VOTING AGREEMENT WITH WESTELL CONTROLLING STOCKHOLDERS
Concurrently with the execution of the merger agreement, Robert C. Penny
III and Melvin J. Simon, individually and as co-trustees of the Westell
Technologies, Inc. Voting Trust, entered into an agreement with Teltrend under
which each of them has agreed to vote all of the capital stock of Westell for
which he has the power to vote in favor of the merger proposals if a majority of
the
II-19
<PAGE> 54
votes held by Westell's public stockholders are voted in favor of these
proposals. For purposes of the voting agreement, Westell's public stockholders
include all holders of Westell Class A Common Stock, other than Messrs. Penny
and Simon and members of their families and any officers or directors of
Westell.
While the co-trustees are obligated to vote in favor of the merger
proposals if a majority of Westell's public stockholders so vote, the voting
agreement does not prevent or prohibit the co-trustees from also voting in favor
of the proposals even if a majority of Westell's public stockholders reject the
proposals. The co-trustees have indicated their current intention to vote as the
majority of Westell's non-affiliated, public stockholders vote with respect to
the proposals.
Messrs. Penny and Simon, as co-trustees of the Westell Technologies, Inc.
Voting Trust, beneficially own approximately 80% of the voting power entitled to
vote at the Westell special meeting. The affirmative vote of a majority of the
total votes cast is required to approve the issuance of shares of Westell's
Class A Common Stock in the merger and the affirmative vote of a majority of the
total votes outstanding is required to approve the amendment to Westell's
Amended and Restated Certificate of Incorporation.
Until the merger is completed or the merger agreement is terminated, the
voting agreement only allows the co-trustees to transfer shares of Westell's
Class B Common Stock in transactions where:
- the Class B Common Stock is converted into Class A Common Stock which is
then sold to unaffiliated third parties; or
- the recipient of the Class B Common Stock agrees to be bound by the terms
of the voting agreement.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following outlines the material United States federal income tax
consequences of the merger and is not a complete analysis of all tax effects of
the merger. The discussion does not address the effect of state, local or
non-U.S. tax laws, or the effect of any U.S. federal tax laws other than those
pertaining to United States federal income tax.
Westell and Teltrend intend that the merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986. As a reorganization under Section 368(a) of the Code, the
following are the material United States federal income tax consequences of the
merger:
- no gain or loss will be recognized by Teltrend, Westell or Theta
Acquisition Corp. as a result of the merger;
- no gain or loss will be recognized by Teltrend stockholders upon the
conversion of Teltrend common stock into shares of Westell Class A Common
Stock pursuant to the merger, except with respect to cash, if any,
received in lieu of fractional shares of Westell Class A Common Stock;
- the aggregate tax basis of the shares of Westell Class A Common Stock
received in exchange for shares of Teltrend common stock pursuant to the
merger, including a fractional share of Westell Class A Common Stock for
which cash is received, will be the same as the aggregate tax basis of
the shares of Teltrend common stock exchanged therefor;
II-20
<PAGE> 55
- the holding period of the shares of Westell Class A Common Stock received
in the merger will include the holding period of the shares of Teltrend
common stock exchanged therefor; and
- a Teltrend stockholder who receives cash in lieu of a fractional share of
Westell Class A Common Stock will recognize gain or loss equal to the
difference, if any, between the stockholder's tax basis in the fractional
share and the amount of cash received.
THE CONCLUSIONS EXPRESSED ABOVE ARE BASED ON CURRENT LAW. FUTURE
LEGISLATIVE, ADMINISTRATIVE OR JUDICIAL CHANGES OR INTERPRETATIONS, WHICH CAN
APPLY RETROACTIVELY, COULD AFFECT THE ACCURACY OF THOSE CONCLUSIONS. NO RULINGS
HAVE OR WILL BE SOUGHT FROM THE INTERNAL REVENUE SERVICE CONCERNING THE TAX
CONSEQUENCES OF THE MERGER.
THE DISCUSSION DOES NOT ADDRESS ALL OF THE TAX CONSEQUENCES THAT MAY BE
RELEVANT TO PARTICULAR TAXPAYERS IN LIGHT OF THEIR PERSONAL CIRCUMSTANCES OR TO
TAXPAYERS SUBJECT TO SPECIAL TREATMENT UNDER THE CODE. SUCH TAXPAYERS INCLUDE
NON-U.S. PERSONS, INSURANCE COMPANIES, TAX-EXEMPT ENTITIES, RETIREMENT PLANS,
DEALERS IN SECURITIES, BANKS AND PERSONS WHO ACQUIRED TELTREND STOCK PURSUANT TO
THE EXERCISE OF EMPLOYEE STOCK OPTIONS OR OTHERWISE AS COMPENSATION.
BECAUSE OF THE COMPLEXITY OF THE TAX LAWS, AND BECAUSE THE TAX CONSEQUENCES
TO ANY PARTICULAR TELTREND STOCKHOLDER MAY BE AFFECTED BY MATTERS NOT DISCUSSED
ABOVE, EACH TELTREND STOCKHOLDER IS URGED TO CONSULT A PERSONAL TAX ADVISOR WITH
RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER TAKING INTO
ACCOUNT HIS OR HER OWN PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICABILITY AND
EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS OF THE FEDERAL TAX
LAWS.
ACCOUNTING TREATMENT
Westell and Teltrend anticipate that the merger will be accounted for as a
purchase. Merger related costs of approximately $7 million will be included in
the determination of the purchase price. See "Westell and Teltrend Unaudited
Condensed Consolidated Pro Forma Financial Data" beginning on page II-24.
The unaudited pro forma financial information contained in this joint proxy
statement/ prospectus has been prepared by accounting for the merger as a
purchase.
REGULATORY APPROVALS
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibited us from
completing the merger until we furnished certain information and materials to
the U.S. Department of Justice (DOJ) and Federal Trade Commission (FTC) and a
required waiting period had ended. The required information was furnished and
the waiting period expired on February 2, 2000.
However, notwithstanding the expiration of the waiting period, at any time
before or after the effective time of the merger, the FTC, the DOJ or others
could take action under the antitrust laws with respect to the merger, including
seeking to enjoin the consummation of the merger, to rescind the merger or to
require the divestiture of substantial assets of Westell or Teltrend. While the
companies believe that the merger is legal under the antitrust laws, there can
be no assurance that a challenge to the merger on antitrust grounds will not be
made or, if such a challenge is made, that it would not be successful.
NO APPRAISAL RIGHTS
Neither the Teltrend stockholders nor the Westell stockholders are entitled
to appraisal rights under Delaware law in connection with the merger.
II-21
<PAGE> 56
RESTRICTIONS ON RESALES BY AFFILIATES
All shares of Westell Class A Common Stock to be issued in connection with
the merger have been registered under the Securities Act of 1933, as amended. As
a result, these shares may be traded freely and without restriction by those
stockholders not deemed to be "affiliates" of Teltrend prior to the date of the
Teltrend special meeting, as that term is defined under the Securities Act, or
of Westell following the effective time of the merger. Affiliates are generally
defined as persons who control, are controlled by or are under common control
with Teltrend at the time of the Teltrend special meeting, or Westell following
the effective time, and include directors and executive officers of Teltrend or
Westell.
This joint proxy statement/prospectus does not cover any resales of Westell
Class A Common Stock to be received by these affiliates and no person is
authorized to make any use of this joint proxy statement/prospectus in
connection with any such resale. As a result, any subsequent transfer by an
affiliate of Teltrend must be one permitted by the resale provisions of Rule 145
under the Securities Act, or Rule 144 under the Securities Act in the case of
such persons who become affiliates of Westell, or as otherwise permitted under
the Securities Act. These restrictions are expected to apply to the directors,
executive officers and holders of 10% or more of the Teltrend common stock, as
well as to certain other related individuals or entities. The merger agreement
requires Teltrend to obtain from its executive officers and directors, and to
use its reasonable best efforts to obtain from its other affiliates, a written
agreement to the effect that such persons will not offer, sell or otherwise
dispose of any shares of Westell Class A Common Stock issued to them in the
merger, except as permitted by the Securities Act or the rules promulgated
thereunder.
MARKET PRICES AND DIVIDENDS
The Westell Class A Common Stock is quoted on the Nasdaq National Market
under the symbol "WSTL." The Teltrend common stock is quoted on the Nasdaq
National Market under the symbol "TLTN." An application will be made to quote
the shares of Westell Class A Common Stock to be issued in the merger on the
Nasdaq National Market. There is no established public trading market for either
the Westell Class B Common Stock or Teltrend's class A common stock (no shares
of which are outstanding).
On February 11, 2000, there were approximately 600 holders of record of
Westell Class A Common Stock and 5 holders of record of Westell Class B Common
Stock and 18,553,346 shares of Westell Class A Common Stock and 19,124,869
shares of Westell Class B Common Stock were outstanding. On February 11, 2000,
there were approximately 86 holders of record of Teltrend common stock and
5,853,303 shares of Teltrend common stock were outstanding.
The following tables set forth the range of high and low closing sales
prices of Westell Class A Common Stock and Teltrend common stock, each as
reported on the Nasdaq National Market, for the quarterly periods indicated.
Westell's fiscal year ends on March 31 each year and its interim fiscal quarters
end on June 30, September 30 and December 31 of each year.
II-22
<PAGE> 57
Teltrend's fiscal year ends on the last Saturday of July each year, and its
interim fiscal quarters generally end on the last Saturday of October, January
and April each year.
<TABLE>
<CAPTION>
WESTELL CLASS A
COMMON STOCK
---------------
HIGH LOW
---- -----
<S> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1998
First Quarter............................................. 25 7/8 10 3/4
Second Quarter............................................ 27 5/8 17 1/4
Third Quarter............................................. 24 7/8 10 1/2
Fourth Quarter............................................ 15 1/4 10 3/4
FISCAL YEAR ENDED MARCH 31, 1999
First Quarter............................................. 13 7/8 8 7/8
Second Quarter............................................ 10 3 3/4
Third Quarter............................................. 8 1/4 2 3/4
Fourth Quarter............................................ 9 3 3/16
FISCAL YEAR TO END MARCH 31, 2000
First Quarter............................................. 10 3/16 3 7/8
Second Quarter............................................ 9 1/2 6 7/8
Third Quarter............................................. 13 6 7/16
Fourth Quarter (through February 11, 2000)................ 27 1/2 9 11/16
</TABLE>
<TABLE>
<CAPTION>
TELTREND
COMMON STOCK
--------------
HIGH LOW
---- ----
<S> <C> <C>
FISCAL YEAR ENDED JULY 25, 1998
First Quarter............................................. 21 1/4 14 7/8
Second Quarter............................................ 18 13/16 14 1/8
Third Quarter............................................. 16 7/8 12 1/4
Fourth Quarter............................................ 18 5/8 14 3/4
FISCAL YEAR ENDED JULY 31, 1999
First Quarter............................................. 16 1/2 11 7/8
Second Quarter............................................ 25 1/16 13 1/8
Third Quarter............................................. 26 1/4 14 5/8
Fourth Quarter............................................ 22 3/8 17 1/2
FISCAL YEAR TO END JULY 30, 2000
First Quarter............................................. 23 13/16 17
Second Quarter............................................ 53 5/8 17 7/8
Third Quarter (through February 11, 2000)................. 78 7/8 50 7/8
</TABLE>
On December 10, 1999, the last trading date prior to the public
announcement of the proposed merger, the last reported closing price on the
Nasdaq National Market for the Westell Class A Common Stock was $10 3/4 and for
the Teltrend common stock was $23 1/8. On February 11, 2000, the most recent
available date prior to printing this joint proxy statement/ prospectus, the
reported closing price on the Nasdaq National Market for the Westell Class A
Common Stock was $26 7/16 and for the Teltrend common stock was $77 1/16.
No assurances can be given as to the market prices of Westell Class A
Common Stock or Teltrend common stock at or, in the case of Westell Class A
Common Stock, after the effective time of the merger. STOCKHOLDERS ARE ADVISED
TO OBTAIN CURRENT MARKET QUOTATIONS FOR WESTELL CLASS A COMMON STOCK AND
TELTREND COMMON STOCK.
Neither Westell nor Teltrend have declared or paid any cash dividends on
their common stock since 1988 and neither company anticipates paying any cash
dividends in the foreseeable future. Westell currently intends to retain any
future earnings to finance the growth and development of its business.
II-23
<PAGE> 58
WESTELL AND TELTREND
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma condensed consolidated financial
statements give effect to the proposed acquisition of Teltrend by Westell under
the purchase method of accounting as defined in APB Opinion No. 16.
When reviewing the following pro forma information, you should note that:
- the pro forma condensed consolidated balance sheet as of December 31,
1999 assumes that the merger took place on December 31, 1999 and combines
Westell's December 31, 1999 unaudited consolidated balance sheet with
Teltrend's October 30, 1999 unaudited consolidated balance sheet;
- the pro forma condensed consolidated statement of operations for the
fiscal year ended March 31, 1999 assumes the merger took place as of
April 1, 1998, and combines Westell's consolidated statement of
operations for its fiscal year ended March 31, 1999 with Teltrend's
unaudited consolidated statement of operations for the comparable twelve
month period ending May 1, 1999; and
- the pro forma condensed consolidated statement of operations for the nine
month period ended December 31, 1999 assumes that the merger took place
as of April 1, 1999, and combines the unaudited consolidated statement of
operations of Westell for the nine month period ending December 31, 1999
with Teltrend's unaudited consolidated statement of operations for the
comparable nine month period ending October 30, 1999.
The unaudited pro forma condensed consolidated financial data have been
included for illustrative purposes only, and do not reflect any cost savings and
other synergies anticipated by Westell's management as a result of the merger or
any nonrecurring charges directly attributable to the merger. The unaudited pro
forma condensed consolidated financial data are not necessarily indicative of
the results of operations or financial position that would have occurred had the
merger been completed on the dates indicated, nor are they necessarily
indicative of future results of operations or financial position of the
consolidated company.
The purchase price reflected in the accompanying pro forma condensed
consolidated financial data has been calculated based upon an estimated fair
market value of Westell's Class A Common Stock of $26.70 per share which was the
average high/low on February 11, 2000. The effects resulting from any
differences in the final purchase price may differ significantly from the
estimate used herein, and changes in the fair market value of the Westell Class
A Common Stock through the date of consummation of the merger will affect the
purchase price to be allocated. For example, every $1 increase in the market
price of Westell's Class A Common Stock would result in a purchase price
increase of approximately $22.2 million and a goodwill increase of approximately
$22.2 million, and would decrease annual earnings per share by approximately
$.02 per share after the merger.
The acquired assets and liabilities of Teltrend are stated in the
accompanying pro forma condensed consolidated financial statements at values
representing a preliminary allocation of the purchase price. Westell is
currently in the process of obtaining valuations for the tangible and intangible
assets of Teltrend. The effects resulting from any differences in the final
allocation of the purchase price may differ significantly from the estimates
used herein.
The accompanying pro forma information should be read in conjunction with
the historical financial statements and related notes for both Westell and
Teltrend, which are included in their annual and quarterly reports on file with
the SEC and are incorporated by reference in this joint proxy
statement/prospectus. See "Where You Can Find More Information" on page VI-1.
II-24
<PAGE> 59
WESTELL AND TELTREND
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
HISTORICAL
------------------- PRO FORMA
WESTELL TELTREND ADJUSTMENTS
12/31/99 10/30/99 (NOTE 2) PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.................... $10,621 $ 19,067 $ (7,000)(a) $ 22,688
Short term investments....................... -- 8,768 -- 8,768
Accounts receivable (net of allowances)...... 18,886 15,568 -- 34,454
Inventories.................................. 13,912 10,132 2,000(c) 26,044
Prepaid expenses and other current assets.... 2,528 3,782 6,310
------- -------- -------- --------
Total current assets................. 45,947 57,317 (5,000) 98,264
Property and equipment, net of accumulated
depreciation and amortization................ 12,802 9,611 816(c) 23,229
Intangible assets, net......................... -- 1,431 533,764(d) 535,195
Deferred tax asset and other long term
assets....................................... 19,175 944 20,119
------- -------- -------- --------
Total assets......................... $77,924 $ 69,303 $529,580 $676,807
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities............................ $22,086 $ 15,780 $ 4,200(e) $ 42,066
Other long term liabilities.................... 3,281 -- -- 3,281
Convertible debt (net of debt discount of
$1,696)...................................... 18,304 -- -- 18,304
------- -------- -------- --------
Total liabilities.................... 43,671 15,780 4,200 63,651
------- -------- -------- --------
Stockholders equity
Class A common stock, par $0.01.............. 176 65 157(b) 398
Class B common stock, par $0.01.............. 191 -- -- 191
Preferred stock, par $0.01................... -- -- -- --
Additional paid in capital................... 100,850 100,135 478,546(b) 679,531
Treasury stock............................... (11,728) 11,728(b)
Cumulative translation adjustment............ 78 140 (140)(b) 78
Accumulated deficit.......................... (67,042) (35,089) 35,089(b) (67,042)
------- -------- -------- --------
Total stockholders' equity........... 34,253 53,523 525,380 613,156
------- -------- -------- --------
Total liabilities and stockholders'
equity............................. $77,924 $ 69,303 $529,580 $676,807
======= ======== ======== ========
</TABLE>
II-25
<PAGE> 60
WESTELL AND TELTREND
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE TWELVE MONTH PERIOD ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------- PRO FORMA
WESTELL TELTREND ADJUSTMENTS
3/31/99 5/01/99 (NOTE 2) PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Equipment sales............................ $ 71,863 $108,034 $ -- $ 179,897
Service revenue............................ 21,317 -- -- 21,317
-------- -------- -------- ---------
Total revenue............................ 93,180 108,034 -- 201,214
Cost of equipment sales.................... 55,439 58,284 -- 113,723
Cost of services........................... 12,877 -- -- 12,877
-------- -------- -------- ---------
Total cost of goods sold................. 68,316 58,284 -- 126,600
-------- -------- -------- ---------
Gross profit.......................... 24,864 49,750 -- 74,614
Operating expenses:
Sales and marketing...................... 19,442 14,359 -- 33,801
Research and development................. 26,605 15,475 -- 42,080
General and administrative............... 13,117 8,265 105(f) 21,487
Restructuring and loss on sale of
disposal of product line.............. 800 1,300 -- 2,100
Intangible amortization.................. -- -- 26,688(g) 26,688
-------- -------- -------- ---------
Total operating expenses......... 59,964 39,399 26,793 126,156
Operating income (loss).................... (35,100) 10,351 (26,793) (51,542)
Other income, net.......................... 404 823 -- 1,227
Interest expense........................... 296 -- -- 296
-------- -------- -------- ---------
Income (loss) before income taxes.......... (34,992) 11,174 (26,793) (50,611)
Provision (benefit) for income taxes....... 4,383 (4,383)(h) --
-------- -------- -------- ---------
Net income (loss).......................... $(34,992) $ 6,791 $(22,410) $ (50,611)
-------- -------- -------- ---------
Net income (loss) per basic common share... $ (0.96) $ 1.11 $ -- $ (0.89)
======== ======== ======== =========
Net income (loss) per diluted common
share.................................... $ (0.96) $ 1.10 $ -- $ (0.89)
======== ======== ======== =========
Weighted basic average of common shares and
common share equivalents................. 36,427 6,116 14,067(i) 56,610
======== ======== ======== =========
Weighted diluted average of common shares
and common share equivalents............. 36,427 6,200 14,261(i) 56,888
======== ======== ======== =========
</TABLE>
II-26
<PAGE> 61
WESTELL AND TELTREND
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE NINE MONTH PERIOD ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------- PRO FORMA
WESTELL TELTREND ADJUSTMENTS
12/31/99 10/30/99 (NOTE 2) PRO FORMA
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Equipment sales............................... $56,478 $78,386 $ -- $134,786
Service revenue............................... 22,702 -- -- 22,780
------- ------- -------- --------
Total revenue............................... 79,180 78,386 -- 157,566
Cost of equipment sales....................... 43,002 42,761 -- 85,763
Cost of services.............................. 14,783 -- -- 14,783
------- ------- -------- --------
Total cost of goods sold.................... 57,785 42,761 -- 100,546
------- ------- -------- --------
Gross profit............................. 21,395 35,625 -- 57,020
Operating expenses
Sales and marketing......................... 10,966 8,461 -- 19,427
Research and development.................... 8,183 11,400 -- 19,583
General and administrative.................. 9,519 5,789 53(f) 15,361
Loss on sale of disposal of product line.... -- 1,300 1,300
Intangible amortization..................... -- -- 20,016(g) 20,016
------- ------- -------- --------
Total operating expenses............ 28,668 26,950 20,069 75,687
Operating income (loss)....................... (7,273) 8,675 (20,069) (18,667)
Other income, net............................. 905 750 -- 1,655
Interest expense.............................. 1,418 -- -- 1,418
------- ------- -------- --------
Income (loss) before income taxes............. (7,786) 9,425 (20,069) (18,430)
Provision (benefit) for income taxes.......... 3,436 (3,436)(h) --
------- ------- -------- --------
Net income (loss)............................. $(7,786) $ 5,989 $(16,633) $(18,430)
------- ------- -------- --------
Net income (loss) per basic common share...... $ (0.21) $ 1.01 $ -- $ (0.33)
======= ======= ======== ========
Net income (loss) per diluted common share.... $ (0.21) $ 0.99 $ -- $ (0.33)
======= ======= ======== ========
Weighted basic average of common shares and
common share equivalents.................... 36,561 5,906 13,584(i) 56,051
======= ======= ======== ========
Weighted diluted average of common shares and
common share equivalents.................... 36,561 6,024 13,855(i) 56,440
======= ======= ======== ========
</TABLE>
II-27
<PAGE> 62
WESTELL AND TELTREND
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA
NOTE 1 -- PURCHASE PRICE ALLOCATION
Westell estimates that the purchase price for the acquisition will be
approximately $590.1 million, based upon an estimated fair market value of
Westell's Class A Common Stock of $26.70 per share which was the average
high/low on February 11, 2000, and the issuance of 19.316 million shares of
Westell Class A Common Stock in exchange for all shares of Teltrend common
stock, plus the fair market value of the 2.9 million Westell stock options
issued in exchange for the outstanding Teltrend stock options. The effects
resulting from any differences in the final purchase price may differ
significantly from the estimate used herein, and changes in the fair market
value of the Westell Class A Common Stock through the date of consummation of
the merger will affect the purchase price to be allocated. For example, every $1
increase in the market price of Westell's Class A Common Stock would result in a
purchase price increase of approximately $22.2 million and a goodwill increase
of approximately $22.2 million, and would decrease annual earnings per share by
approximately $.02 per share after the merger.
The acquired assets and liabilities of Teltrend are stated in the
accompanying pro forma condensed consolidated financial statements at values
representing a preliminary allocation of the purchase price. Westell is
currently in the process of obtaining valuations for the tangible and intangible
assets of Teltrend. The effects resulting from any differences in the final
allocation of the purchase price may differ significantly from the estimates
used herein.
Total purchase consideration and allocation of increase in basis used in
the preparation of these statements was computed as follows (in thousands):
<TABLE>
<S> <C>
Purchase price:
Acquisition of outstanding shares of common stock......... $515,644
Conversion of Teltrend options for Westell options........ 63,259
Acquisition expenses...................................... 7,000
Severance costs........................................... 4,200
--------
Total purchase price.............................. $590,103
Allocation of purchase price:
Book value of assets acquired............................. $ 53,523
Increase in inventory to fair market value less selling
costs.................................................. 2,000
Increase in basis of property and equipment to estimated
fair
market value........................................... 816
Goodwill.................................................. 533,764
--------
Total purchase price.............................. $590,103
</TABLE>
NOTE 2 -- PRO FORMA ADJUSTMENTS
Certain pro forma adjustments have been made to the historical amounts in
the unaudited pro forma condensed consolidated financial data:
a) Total costs associated with the merger are estimated to be
approximately $7.0 million. Costs to be incurred by Westell and Teltrend in
connection with the merger include investment banking, legal, accounting
and other related fees, and have been reflected in the accompanying
unaudited pro forma condensed consolidated balance sheet as a reduction to
cash.
II-28
<PAGE> 63
WESTELL AND TELTREND
NOTES TO UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED FINANCIAL DATA -- (CONTINUED)
b) Reflects (i) the issuance of 19.316 million shares of Westell Class
A Common Stock in exchange for all shares of Teltrend common stock based
upon an exchange ratio of 3.3 shares of Westell Class A Common Stock for
each share of Teltrend common stock at an estimated fair market value of
$26.70 per share of Westell Class A Common Stock and (ii) the fair market
value of 2.9 million Westell stock options issued in exchange for the
outstanding Teltrend stock options. Also reflects the elimination of
Teltrend equity accounts.
c) Adjustment to record inventory and property and equipment to
estimated fair market value, less selling costs.
d) Excess of purchase price consideration over fair market value of
identifiable tangible and intangible assets.
e) Estimated severance costs that will be accrued at the acquisition
date and paid over the following year.
f) Additional depreciation as a result of the increase of property and
equipment to fair market value.
g) Amortization of goodwill on a straight-line basis over a 20 year
life.
h) Elimination of tax provision recorded due to the combined entity
operating at a pro forma loss. All tax benefit is offset by a valuation
allowance in pro forma analysis.
i) The calculation of weighted average common and common equivalent
shares assumes an exchange ratio of 3.3 shares of Westell Class A Common
Stock for each share of Teltrend common stock. Common equivalent shares
consist of dilutive shares issuable upon the exercise of stock options and
have been excluded from the calculation, as their effect would be
anti-dilutive.
NOTE 3 -- OTHER DATA:
The following information is income from operations before interest
expense, income taxes, depreciation and amortization (EBITDA) for the Westell
twelve months ended March 31, 1999 and the nine months ended December 31, 1999
and the Teltrend 12 months ended May 1, 1999 and nine months ended October 30,
1999, respectively.
<TABLE>
<CAPTION>
WESTELL TELTREND PRO FORMA
------- -------- ---------
<S> <C> <C> <C>
12 months ended 3/31/99................................ (27,674) 14,892 (12,782)
9 months ended 12/31/99................................ (888) 11,914 11,026
</TABLE>
EBITDA represents income from operations before interest expense, income
taxes, depreciation and amortization. EBITDA is not a calculation based upon
generally accepted accounting principles. The amounts included in the EBITDA
calculation, however, are derived from amounts included in the consolidated
historical financial statements. EBITDA should not be construed as an
alternative for operating income or net income (as determined in accordance with
generally accepted accounting principles) as an indicator of operating
performance or as an alternative for cash flows generated by operating,
investing and financing activities as an indicator of cash flow or a measure of
liquidity. We believe EBITDA assists investors in comparing a company's
performance on a consistent basis without regard to depreciation and
amortization, which can vary significantly depending upon accounting methods or
nonoperating factors. However, the EBITDA measure presented in this document may
not always be comparable to similarly titled measures reported by other
companies due to differences in the components of the calculation.
II-29
<PAGE> 64
INTERESTS OF TELTREND'S DIRECTORS AND OFFICERS IN THE MERGER
In considering the recommendation of the Teltrend Board with respect to the
merger agreement, Teltrend stockholders should be aware that certain members of
Teltrend's management and the Teltrend Board may have interests in the merger
that are different from, or in addition to, the interests of Teltrend
stockholders generally, and which may create potential conflicts of interest.
The Teltrend Board was aware of, and considered, the interests of its directors
and officers when it approved the merger agreement and the merger.
TELTREND SEVERANCE PLAN
The merger agreement provides that Westell will assume, and (subject to
Westell's right to thereafter amend, modify or terminate the policy) Westell
will thereafter pay, perform and discharge when due, all of Teltrend's
obligations under Teltrend's Executive Officer Severance Plan with respect to
the individuals who participate therein. The following executive officers of
Teltrend currently participate in the severance policy:
<TABLE>
<S> <C>
- - Howard L, Kirby, Jr. - Michael S. Grzeskowiak
- - Douglas P. Hoffmeyer - Theodor A. Maxeiner
- - Laurence L. Sheets - Michael A. Samocki
- - Jack C. Parker - Janice Lollini
- - Steven R. Snow - Michael Burgess
- - Gilbert H. Hosie
</TABLE>
The severance policy provides for the payment of certain severance amounts
to the participants if they are involuntarily terminated from Teltrend.
Involuntary termination includes the participant's resignation or retirement as
a result of a change of control of Teltrend if such resignation or retirement:
- is requested or required by the acquiring entity as a condition to the
change of control; or
- occurs within one year of the completion of the change of control.
Notwithstanding those provisions, however, no severance will be paid to
participants who accept employment, or refuse comparable employment, with
Teltrend or the acquiring company in a change in control.
Severance amounts to be paid to the participants will be based on the
participant's annual base salary in effect on the date of termination of
employment and will vary depending upon his or her position with Teltrend at the
time of the termination and whether or not the termination follows a change of
control, as follows. Ten years' service is the maximum period available.
<TABLE>
<CAPTION>
EXECUTIVE STANDARD TERMINATION CHANGE-IN-CONTROL
- --------- ----------------------------- -----------------------------
<S> <C> <C>
CEO.......................... 2.4 months base pay for each 4.8 months base pay for each
year of service year of service
Senior Vice President........ 1.8 months base pay for each 3.6 months base pay for each
year of service year of service
Vice President............... 1.2 months base pay for each 2.4 months base pay for each
year of service year of service
Assistant Vice President..... 0.6 months base pay for each 1.2 months base pay for each
year of service year of service
</TABLE>
In addition to the base salary amounts, the participants will receive the
same life, health and disability plan participation to which they were entitled
as an employee immediately before the termination.
II-30
<PAGE> 65
Participants who are eligible to receive severance payments under the
policy may also request that Teltrend amend their stock options to extend the
period during which the option will vest and be exercisable during the severance
period. Pursuant to Teltrend's stock option plans, the vesting of all stock
options held by the participants in the severance policy will accelerate upon
the merger. Teltrend and Westell have agreed that, prior to the consummation of
the merger, Teltrend will amend the stock options held by the participants to
permit an extension of the time during which the options may be exercised if the
participant becomes so entitled pursuant to the severance policy.
The severance policy provides that, while it may be terminated or amended
at any time, no such termination or amendment may reduce or adversely affect the
severance of any participant whose employment terminates within two years of the
policy's termination or amendment.
Neither Westell nor Teltrend has determined whether any of the above-named
executives who participate in the severance policy will be offered comparable
employment following the effective time of the merger. Assuming that all such
executives are terminated or are not offered comparable employment and resign,
Westell will pay to such executive officers an aggregate severance payment
estimated to be approximately $3.2 million.
TELTREND STOCK OPTION PLANS
In the merger agreement, Westell and Teltrend have each agreed to take all
actions necessary to cause each option to purchase shares of Teltrend common
stock which is unexpired and unexercised as of the merger effective time to be
automatically converted at the effective time into an option (1) to purchase a
number of shares of Westell Class A Common Stock equal to the number of shares
of Teltrend common stock subject to the option multiplied by the exchange ratio
of 3.3, (2) at an exercise price per share equal to the exercise price in effect
under the option immediately prior to the effective time divided by the exchange
ratio. The date of grant of each converted option will be the date on which the
corresponding Teltrend option was granted. Each option, as converted, will
otherwise be subject to the same terms and conditions as the corresponding
Teltrend option, except that:
- if the applicable Teltrend option provides for acceleration of vesting
upon the merger, the converted option will be so vested following the
merger; and
- the terms of Teltrend options outstanding under Teltrend's 1997
Non-Employee Director Stock Option Plan will be amended so that the
options may be exercised for longer periods than previously provided, as
follows:
- with respect to those Teltrend directors who do not become directors of
Westell following the merger, until six months following the effective
time of the merger, or the date on which the options expire (whichever
is earlier), and
- with respect to Bernard F. Sergesketter, a Teltrend non-employee
director who will become a director of Westell following the merger,
until 90 days following the date on which he ceases to be a director of
Westell, or the date on which the options expire (whichever is earlier).
Substantially all of Teltrend's stock options will vest upon the
consummation of the merger. With respect to the following executive officers of
Teltrend: Howard L. Kirby, Jr., Steven R. Snow, Douglas P. Hoffmeyer, Jack C.
Parker, Michael S. Grzeskowiak, Gilbert H. Hosie, Laurence L. Sheets, Janice
Lollini, Theodor A. Maxeiner, Michael A. Samocki and Michael Burgess, options to
acquire an aggregate of approximately 167,575 shares of Teltrend common stock
will vest upon the merger. With respect to the following non-employee directors
of Teltrend: Frank T. Cary, Harry Crutcher, III, William R. Delk, Donald R.
Hollis, Susan B. Major and Bernard F.
II-31
<PAGE> 66
Sergesketter, options to acquire an aggregate of approximately 27,000 shares of
Teltrend common stock will vest upon the merger.
INDEMNIFICATION AND INSURANCE
Westell has agreed that, from and after the effective time of the merger,
Teltrend, as a wholly owned subsidiary of Westell, will indemnify and hold
harmless all of Teltrend's past and present officers and directors to the same
extent and in the same manner and subject to the same limits as these persons
were indemnified on the date the merger agreement was signed.
Further, for six years following the merger, Westell has agreed to cause
Teltrend to use its reasonable best efforts to provide one or more policies of
directors' and officers' liability insurance that provide(s) coverage for events
occurring prior to the effective time of the merger. This insurance must be
substantially similar to Teltrend's existing policy or, if substantially
equivalent insurance coverage is unavailable, the most similar available
coverage; provided, however, that in no event will Teltrend be required to pay
an annual premium for the insurance in excess of 150% of the last annual premium
paid prior to the date the merger agreement was signed. If the insurance
expires, is terminated or canceled during the six-year period or exceeds the
maximum premium, Westell will cause Teltrend to obtain as much directors' and
officers' liability insurance as can be obtained for the remainder of the period
for an annualized premium not in excess of the maximum premium, on terms and
conditions no less advantageous than Teltrend's existing directors' and
officers' liability insurance.
In addition, in the event that
- the indemnification or advancement of expenses to be provided by Teltrend
following the merger, together with the insurance to be maintained by
Teltrend, after each is fully exhausted, is not adequate to fully
indemnify or provide advancement of expenses to any covered party to the
same extent and in the same manner that such indemnification or
advancement of expenses would have been required to be provided by
Teltrend prior to the effective time of the merger, and
- there has been a diminution in Teltrend's net book value from its net
book value as reflected on its October 30, 1999 balance sheet,
then Westell has agreed to indemnify the covered party to the extent of the
diminution.
DIRECTORS AND EXECUTIVE OFFICERS OF WESTELL FOLLOWING THE MERGER
Westell has agreed to take such actions as are necessary so that the
Westell Board immediately following the merger includes Howard L. Kirby, Jr. and
Bernard F. Sergesketter, each of whom is currently a director of Teltrend. It is
expected that all of the directors currently serving on the Westell Board will
continue to serve as members of the Westell Board immediately following the
merger. In January 2000, Westell's Board increased its size from six members to
eight and elected Marc Zionts, Westell's chief executive officer, and J. William
Nelson, Westell's president, as directors to fill the newly created
directorships. In addition, in January 2000, Ormand Wade resigned as a director
and was replaced, by the vote of the remaining directors, by Thomas A. Reynolds,
III. Mr. Reynolds is a partner with Winston & Strawn, an international law firm
headquartered in Chicago which he joined in 1983. Mr. Reynolds is also a member
of the board of directors of Smurfit Stone Container Corporation, an integrated
producer of paperboard and paper-based packaging products.
Mr. Kirby has served as the president, the chief executive officer and a
director of Teltrend since January 1990. Mr. Kirby was named chairman of the
Teltrend Board in February 1997. Mr. Kirby began his career in the
telecommunications industry in 1962 with Collins Radio Company (which
subsequently became a part of Rockwell International Corporation), where he
spent 20 years in various management positions in engineering, marketing and
sales. From 1982 to 1984, Mr. Kirby was the director of planning and business
development for U.S. Telephone,
II-32
<PAGE> 67
now part of Sprint Corporation. In 1984, Mr. Kirby became the vice president and
general manager at Pulse Communications, Inc., a subsidiary of Hubbell
Incorporated, and held that position until he joined Teltrend in 1990. Mr. Kirby
is 63 years old.
Mr. Sergesketter has been a director of Teltrend since January 1996. Since
August 1994, Mr. Sergesketter has been the president and chief executive officer
of Sergesketter & Associates Inc., a firm which provides consulting services in
the areas of marketing, telecommunications and quality management. Prior to
that, Mr. Sergesketter held various positions (including positions in
engineering, finance, sales and marketing) during his 36-year career with AT&T,
including, from January 1983 to August 1994, vice president -- central region.
As vice president -- central region of AT&T, Mr. Sergesketter's principal
responsibilities were for AT&T's sales and marketing operations in the midwest.
Mr. Sergesketter is a director of the Illinois Institute of Technology, The
Cradle, The Sigma Chi Foundation, and Mather Foundation. Mr. Sergesketter is 63
years old.
Upon consummation of the merger, Teltrend will be a wholly owned subsidiary
of Westell. The current directors of Teltrend will resign at the effective time,
and Westell will name a new board of directors for Teltrend.
Westell has not yet determined whether the current executive officers of
Teltrend will continue to serve in executive positions at Westell or in their
current positions with Teltrend, which will become a subsidiary of Westell,
after the effective time of the merger. Such decisions are expected to be made
promptly following the effective time.
II-33
<PAGE> 68
CHAPTER THREE
THE MEETINGS AND VOTING
THE WESTELL SPECIAL MEETING
PURPOSE OF THE MEETING
At the Westell special meeting, Westell stockholders will be asked to
consider and vote upon the proposals described below. Each proposal will be
voted upon separately by Westell stockholders; however, the merger will not be
completed and the actions contemplated in the merger proposals will not be
effected unless each of the proposals is approved by the required vote of
Westell stockholders.
(1) Westell stockholders are being asked to approve the issuance of
shares of Westell Class A Common Stock in accordance with the merger
agreement.
(2) Westell stockholders are being asked to approve and adopt an
amendment to Westell's Amended and Restated Certificate of Incorporation to
increase the number of shares of Class A Common Stock that Westell is
authorized to issue to 85 million from 65.5 million.
Westell does not currently have enough unreserved authorized shares of
Westell Class A Common Stock to consummate the merger. As a result, and given
the reservation of the shares to be issued upon conversion of Westell's Class B
Common Stock and convertible debentures and upon the exercise of outstanding
options and warrants, the authorized shares must be increased to at least
approximately 71 million shares in order to effect the merger. In addition,
since the number of shares of Class A Common Stock into which Westell's
convertible debentures and warrants is variable, and therefore may increase in
certain circumstances, Westell must have the ability to reserve additional
shares for issuance with respect thereto. The Westell Board believes that
increasing the authorized shares to 85 million is advisable since it will allow
Westell to reserve such additional shares, if necessary, and will provide
Westell with some additional flexibility to issue shares of Class A Common Stock
in connection with employee benefit plans, possible future financing
transactions, acquisitions of other companies or business properties, stock
splits, and other corporate purposes. While the issuance of additional shares of
Class A Common Stock may dilute the ownership interests of a person seeking to
obtain control of Westell, and thus discourage a change in control of Westell by
making it more difficult or costly, Westell is not aware of anyone seeking to
accumulate Class A Common Stock for such purpose and has no present intention of
using any additional Class A Common Stock to deter a change in control. Except
as otherwise required by applicable law or the rules of the National Association
of Securities Dealers, Inc., authorized but unissued shares of Class A Common
Stock may be issued at such time, for such purposes, and for such consideration
as the Westell Board may determine to be appropriate, without further
authorization by the Westell stockholders.
It is not expected that any matters other than the proposals described
above will be brought before the Westell special meeting. If, however, other
matters are properly presented, the persons named in the proxy will have
authority to vote in accordance with their judgment on any such matters, except
that no proxy that directs a vote against or abstention with respect to the
merger proposals will be voted to adjourn or postpone the Westell special
meeting.
DATE, PLACE AND TIME
The Westell special meeting will be held at 10:00 a.m., local time, on
March 16, 2000, at Westell's corporate headquarters, 750 North Commons Drive,
Aurora, Illinois 60504.
III-1
<PAGE> 69
RECORD DATE; STOCK OUTSTANDING
The Westell Board has fixed the close of business on February 11, 2000 as
the record date for determining the holders of Westell common stock that are
entitled to receive notice of and to vote at the Westell special meeting. On the
record date, there were 18,553,346 shares of Westell Class A Common Stock and
19,124,869 shares of Westell Class B Common Stock outstanding. Each share of
Westell Class A Common Stock entitles its holder to one vote and each share of
Westell Class B Common Stock entitles its holder to four votes.
VOTES REQUIRED FOR APPROVAL
Each proposal will be voted upon separately by Westell's stockholders, with
the holders of shares of Class A Common Stock and Class B Common Stock voting
together as a single class with respect to each proposal. The affirmative vote
of a majority of the total votes cast is required to approve the issuance of
shares of Westell's Class A Common Stock in the merger and the affirmative vote
of a majority of the total votes outstanding as of the record date is required
to approve the amendment to Westell's Amended and Restated Certificate of
Incorporation.
Because the amendment to Westell's Amended and Restated Certificate of
Incorporation requires the approval of a majority of the total votes
outstanding, abstentions or the failure to vote and broker non-votes will have
the same effect as a negative vote. A broker non-vote occurs when a nominee
holding shares for a beneficial owner does not vote on a proposal because the
nominee does not have discretionary voting power with respect to that item and
has not received instructions from the beneficial owner. With respect to the
proposal to approve the issuance of Class A Common Stock in the merger, broker
non-votes will have no effect on, and abstentions will have the effect of a vote
against, the proposal. This is because the vote standard for this proposal is a
majority of votes cast, and broker non-votes are not considered to be cast.
QUORUM REQUIREMENT
A quorum of Westell stockholders is necessary to hold a valid meeting. The
presence in person or by proxy of holders of shares representing a majority of
Westell's outstanding votes on the record date is a quorum. Abstentions and
broker non-votes count as present for establishing a quorum. Shares held by
Westell in its treasury are not counted as outstanding for quorum or voting
purposes.
STOCK OWNERSHIP OF MANAGEMENT; VOTING AGREEMENT
On February 11, 2000, directors and executive officers of Westell and their
affiliates owned or were entitled to vote 596,159 shares of Westell Class A
Common Stock and all outstanding shares of Class B Common Stock, or
approximately 81% of Westell's outstanding votes.
Messrs. Penny and Simon, two of Westell's directors, who are the
co-trustees of the Westell Technologies, Inc. Voting Trust, and beneficially own
approximately 80% of the voting power of Westell, have agreed to vote in favor
of the merger proposals if a majority of Westell's public stockholders so vote.
For purposes of the voting agreement, Westell's public stockholders include all
holders of Westell Class A Common Stock, other than Messrs. Penny and Simon and
members of their families and any officers or directors of Westell.
While the co-trustees are obligated to vote in favor of the merger
proposals if a majority of Westell's public stockholders so vote, the voting
agreement does not prevent or prohibit the co-trustees from also voting in favor
of the proposals even if a majority of Westell's public stockholders reject the
proposals. The co-trustees have indicated their current intention to vote as the
majority of Westell's non-affiliated, public stockholders vote with respect to
the proposals.
III-2
<PAGE> 70
The voting agreement is described in more detail in "Voting Agreement with
Westell Controlling Stockholders" on page II-19.
VOTING AND REVOCATION OF PROXIES
Westell Class A Common Stock represented by a proxy properly signed and
received at or prior to the Westell special meeting, unless subsequently
revoked, will be voted in accordance with the instructions thereon. IF A PROXY
IS SIGNED AND RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES
REPRESENTED BY THE PROXY WILL BE VOTED "FOR" EACH OF THE PROPOSALS. If you vote
in favor of either of the proposals, the proxy holders may, in their discretion,
vote your shares to adjourn the Westell special meeting to solicit additional
proxies in favor of the proposals.
A Westell stockholder who executes a proxy may revoke it any time before it
is exercised by giving written notice of revocation to the corporate secretary
of Westell, by subsequently filing another, later-dated proxy or by attending
the Westell special meeting and voting in person. Attendance at the Westell
special meeting will not in and of itself constitute revocation of a proxy.
SOLICITATION OF PROXIES
The Westell Board is soliciting proxies on behalf of Westell. In addition
to solicitation by mail, directors, officers and employees of Westell, none of
whom will be specifically compensated for such services, may solicit proxies
from the stockholders of Westell, personally or by telephone or other forms of
communication. Westell and Teltrend have each engaged Morrow & Co., Inc., a
proxy solicitation firm, to assist in the solicitation of proxies. Westell
expects to pay Morrow & Co. a fee of $7,500 plus expenses to help with the
solicitation with respect to the Westell stockholders. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in sending proxy materials to beneficial owners.
THE TELTREND SPECIAL MEETING
GENERAL
This joint proxy statement/prospectus is furnished to the holders of
Teltrend common stock in connection with the solicitation of proxies by the
Teltrend Board for use at the Teltrend special meeting to be held for the
purposes described in this document.
This joint proxy statement/prospectus is also furnished to Teltrend
stockholders as a prospectus in connection with the issuance by Westell of
shares of Westell Class A Common Stock pursuant to the merger.
PURPOSE OF THE MEETING
At the Teltrend special meeting, Teltrend stockholders will be asked to
consider and vote upon a proposal to adopt the merger agreement. The merger
agreement is attached as Appendix A to this joint proxy statement/prospectus and
described under "The Merger Agreement" beginning on page IV-1.
It is not expected that any matters other than the proposal described above
will be brought before the Teltrend special meeting. If, however, other matters
are properly presented, the persons named in the proxy will have authority to
vote in accordance with their judgment on any such matters, except that no proxy
that directs a vote against or abstention with respect to the adoption of the
merger agreement will be voted to adjourn or postpone the Teltrend special
meeting.
III-3
<PAGE> 71
DATE, PLACE AND TIME
The Teltrend special meeting will be held at 10:00 a.m., local time, on
March 16, 2000, at Teltrend's corporate headquarters, 620 Stetson Avenue, St.
Charles, Illinois 60174.
RECORD DATE; STOCK OUTSTANDING
The Teltrend Board has fixed the close of business on February 11, 2000 as
the record date for determining the holders of Teltrend common stock that are
entitled to receive notice of and to vote at the Teltrend special meeting. On
the record date, there were 5,853,303 shares of Teltrend common stock
outstanding. Each share of Teltrend common stock entitles its holder to one
vote.
VOTES REQUIRED FOR APPROVAL
The affirmative vote of a majority of the total votes outstanding as of the
record date is required to approve the adoption of the merger agreement.
Because the adoption of the merger agreement requires the approval of a
majority of the total votes outstanding, abstentions or the failure to vote and
broker non-votes will have the same effect as a negative vote. A broker non-vote
occurs when a nominee holding shares for a beneficial owner does not vote on a
proposal because the nominee does not have discretionary voting power with
respect to that item and has not received instructions from the beneficial
owner.
QUORUM REQUIREMENT
A quorum of Teltrend stockholders is necessary to hold a valid meeting. The
presence in person or by proxy of holders of shares representing a majority of
the Teltrend's outstanding common stock on the record date is a quorum.
Abstentions and broker non-votes count as present for establishing a quorum.
Shares held by Teltrend in its treasury are not counted as outstanding for
quorum or voting purposes.
STOCK OWNERSHIP OF MANAGEMENT
On February 11, 2000, directors and executive officers of Teltrend and
their affiliates owned and were entitled to vote 169,148 shares of Teltrend
common stock, or approximately 3% of the outstanding shares of Teltrend common
stock. These individuals and their affiliates have indicated that they will vote
in favor of approval and adoption of the merger agreement.
VOTING AND REVOCATION OF PROXIES
Teltrend common stock represented by a proxy properly signed and received
at or prior to the Teltrend special meeting, unless subsequently revoked, will
be voted in accordance with the instructions thereon. IF A PROXY IS SIGNED AND
RETURNED WITHOUT INDICATING ANY VOTING INSTRUCTIONS, SHARES REPRESENTED BY THE
PROXY WILL BE VOTED "FOR" THE ADOPTION OF THE MERGER AGREEMENT. If you vote in
favor of adoption of the merger agreement, the proxy holders may, in their
discretion, vote your shares to adjourn the Teltrend special meeting to solicit
additional proxies in favor of adoption of the merger agreement.
A Teltrend stockholder who executes a proxy may revoke it any time before
it is exercised by giving written notice of revocation to the corporate
secretary of Teltrend, by subsequently filing another, later-dated proxy or by
attending the Teltrend special meeting and voting in person. Attendance at the
Teltrend special meeting will not in and of itself constitute revocation of a
proxy.
III-4
<PAGE> 72
SOLICITATION OF PROXIES
The Teltrend Board is soliciting proxies on behalf of Teltrend. In addition
to solicitation by mail, directors, officers and employees of Teltrend, none of
whom will be specifically compensated for such services, may solicit proxies
from the stockholders of Teltrend, personally or by telephone or other forms of
communication. Westell and Teltrend have each engaged Morrow & Co., Inc., a
proxy solicitation firm, to assist in the solicitation of proxies. Teltrend
expects to pay Morrow & Co. a fee of $5,000 plus expenses to help with the
solicitation with respect to the Teltrend stockholders. Brokerage houses,
nominees, fiduciaries and other custodians will be requested to forward
soliciting materials to beneficial owners and will be reimbursed for their
reasonable expenses incurred in sending proxy materials to beneficial owners.
III-5
<PAGE> 73
CHAPTER FOUR
THE MERGER AGREEMENT
The following is a summary of certain provisions of the merger agreement, a
copy of which is attached as Appendix A to this joint proxy statement/prospectus
and which is incorporated herein by reference. This summary is qualified in its
entirety by reference to the merger agreement. All Westell stockholders and
Teltrend stockholders are urged to read the merger agreement carefully for a
complete description of the merger.
TERMS OF THE MERGER
After the conditions precedent to the merger have been fulfilled or waived,
a certificate of merger will be filed with the Delaware Secretary of State. The
merger will become effective upon the filing of the certificate of merger, and
Teltrend will become a wholly owned subsidiary of Westell.
At the effective time of the merger:
- each share of Teltrend common stock outstanding will be converted into
the right to receive 3.3 shares of Westell Class A Common Stock, subject
to the provisions below regarding fractional shares;
- each option or warrant exercisable for Teltrend common stock will be
converted into an option or warrant exercisable for Westell Class A
Common Stock, for a number of shares and at an exercise price adjusted to
reflect the exchange ratio; and
- all shares of Teltrend common stock, when converted, will no longer be
outstanding and will automatically be canceled.
No fractional shares of Westell Class A Common Stock will be issued in the
merger. Instead, each Teltrend stockholder who would otherwise be entitled to
receive a fraction of a share of Westell Class A Common Stock, after aggregating
all shares of Westell Class A Common Stock which the holder is entitled to
receive, will be paid an amount in cash, determined by multiplying the fraction
by the average closing price per share of Westell Class A Common Stock on the
Nasdaq National Market during the 10 trading days immediately preceding the
effective time.
Because the exchange ratio is fixed, the number of shares of Westell Class
A Common Stock to be received by Teltrend stockholders upon consummation of the
merger will depend only on the number of shares of Teltrend common stock
outstanding at the effective time and will not be adjusted due to any increase
or decrease in the market price of the Teltrend common stock or the Westell
Class A Common Stock. This includes any such increase or decrease after the date
of this joint proxy statement/prospectus and after the dates of the Westell
special meeting and the Teltrend special meeting.
EXCHANGE OF SHARES
Westell will appoint an exchange agent to handle the exchange of Teltrend
stock certificates in the merger for Westell Class A Common Stock certificates
and the payment of cash in lieu of fractional shares of Westell Class A Common
Stock.
Soon after the effective time, the exchange agent will mail a letter of
transmittal which will contain instructions for delivery of Teltrend stock in
exchange for Westell Class A Common Stock (and cash in lieu of fractional
shares) to each Teltrend stockholder. Upon delivery of Teltrend common stock to
the exchange agent and the signed letter of transmittal, the Teltrend
stockholder will receive certificates representing the number of whole shares of
Westell Class A Common Stock to which the holder of the certificate is entitled
under the merger agreement, and cash in lieu of any fractional shares, and the
Teltrend certificates surrendered will be canceled.
IV-1
<PAGE> 74
TELTREND STOCKHOLDERS SHOULD NOT SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT.
TREATMENT OF TELTREND STOCK OPTIONS
Westell and Teltrend have each agreed to take all actions necessary to
cause each option to purchase shares of Teltrend common stock which is unexpired
and unexercised as of the effective time to be automatically converted at the
effective time into an option (1) to purchase a number of shares of Westell
Class A Common Stock equal to the number of shares of Teltrend common stock
subject to such option multiplied by the exchange ratio of 3.3, (2) at an
exercise price per share equal to the exercise price in effect under such option
immediately prior to the effective time divided by the exchange ratio. The date
of grant of each converted option will be the date on which the corresponding
Teltrend option was granted. Each option, as converted, will otherwise be
subject to the same terms and conditions as the corresponding Teltrend option,
except that:
- if the applicable Teltrend option provides for acceleration of vesting
upon the merger, the converted option will be so vested following the
merger; and
- the terms of Teltrend options outstanding under Teltrend's 1997
Non-Employee Director Stock Option Plan will be amended so that the
options may be exercised for longer periods than previously provided, as
follows:
- with respect to those Teltrend directors who do not become directors of
Westell following the merger, until six months following the effective
time, or the date on which the options expire (whichever is earlier),
and
- with respect to Bernard F. Sergesketter, a Teltrend non-employee
director who will become a director of Westell following the merger,
until 90 days following the date on which he ceases to be a director of
Westell, or the date on which the options expire (whichever is earlier).
Westell will file with the SEC a registration statement on Form S-8 with
respect to the issuance of shares of Westell Class A Common Stock upon exercise
of the converted options.
CONDITIONS TO THE MERGER
Mutual Closing Conditions. The obligations of Westell and Teltrend to
effect the merger are subject to the satisfaction, or to the extent legally
permissible, the waiver, of the following conditions:
- approval by the Westell stockholders of the issuance of Westell Class A
Common Stock in the merger and the amendment to Westell's Amended and
Restated Certificate of Incorporation;
- adoption by the Teltrend stockholders of the merger agreement;
- approval for listing on the Nasdaq National Market of the shares of
Westell Class A Common Stock to be issued in the merger and those to be
reserved for issuance upon exercise of converted Teltrend stock options;
- expiration or termination of the waiting period applicable to the merger
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976;
- Westell's registration statement on Form S-4, which includes this joint
proxy statement/ prospectus, being effective and not subject to any stop
order by the SEC;
- absence of legal prohibition on completion of the merger; and
IV-2
<PAGE> 75
- the receipt of all governmental waivers, consents, orders and approvals
legally required for the consummation of the merger, unless the failure
to obtain the same would not be reasonably likely to have a material
adverse effect on Teltrend.
Additional Closing Conditions for Teltrend's Benefit. Teltrend's obligation
to complete the merger is subject to the following additional conditions:
- Westell's and Theta Acquisition Corp.'s performance in all material
respects of the obligations required to be performed by them under the
merger agreement on or prior to the closing date;
- the accuracy, in all material respects, of the representations and
warranties of Westell and Theta Acquisition Corp. to the extent specified
in the merger agreement;
- the absence of any changes or events that have a material adverse effect
on Westell or Theta Acquisition Corp.; and
- the receipt of certain closing certificates from officers of Westell and
Theta Acquisition Corp.
Additional Closing Conditions for Westell's Benefit. Westell's obligation
to complete the merger are subject to the following additional conditions:
- Teltrend's performance in all material respects of the obligations
required to be performed by it under the merger agreement on or prior to
the closing date;
- the accuracy, in all material respects, of the representations and
warranties of Teltrend, to the extent specified in the merger agreement;
- the delivery of agreements from certain of Teltrend's affiliates
regarding restrictions on the resale of the Westell Class A Common Stock
received by those persons in the merger, to the extent required by the
merger agreement;
- the amendment of certain Teltrend options, to the extent required by the
merger agreement;
- the absence of any changes or events that have a material adverse effect
on Teltrend; and
- the receipt of certain closing certificates from officers of Teltrend.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains substantially reciprocal representations and
warranties made by Westell and Theta Acquisition Corp., on the one hand, and
Teltrend, on the other hand. The most significant of these relate to:
- corporate existence;
- capitalization;
- ownership of subsidiaries;
- authorization to enter into the merger; government or other approvals
required in connection with the merger; and absence of any breaches of
organizational documents, laws or material agreements as a result of the
merger;
- filings with the SEC and financial statements;
- the absence of material undisclosed liabilities;
- litigation;
IV-3
<PAGE> 76
- information provided for inclusion in this joint proxy
statement/prospectus;
- compliance with laws and material agreements;
- tax matters;
- employee benefits matters;
- labor matters;
- environmental matters;
- title to assets;
- the stockholder vote required to approve the matters to be submitted to
the applicable stockholders;
- broker's or advisor's fees; and
- opinions of financial advisors.
Teltrend also represented that it had taken all action necessary to exempt
the merger from the provisions of the Delaware anti-takeover statute and to
render the Teltrend rights plan inapplicable to the merger.
The representations and warranties in the merger agreement will not survive
the closing of the merger or termination of the merger agreement.
PRINCIPAL COVENANTS
Each of Westell and Teltrend has undertaken covenants in the merger
agreement. The following summarizes the more significant of these covenants.
Interim Operations. Each of Westell and Teltrend has undertaken a separate
covenant that places restrictions on it and its subsidiaries until the effective
time of the merger. The following summarizes the more significant restrictions
undertaken by each of Westell and Teltrend, each of which is subject to
exception in the event of the prior consent of the other.
Restrictions on Interim Operations of Teltrend. Teltrend has agreed that it
and each of its subsidiaries will:
- conduct its business in the ordinary and usual course of business,
consistent with past practice;
- not amend or propose to amend its certificate of incorporation, by-laws
or other similar governing documents;
- not split, combine or reclassify its outstanding capital stock or declare
any dividend, other than dividends by wholly owned subsidiaries of
Teltrend;
- not issue, dispose of, or redeem or purchase any shares of its capital
stock, or any options or securities exercisable for or convertible into
its capital stock, subject to the exceptions set forth in the merger
agreement;
- not incur any indebtedness, subject to certain ordinary course
exceptions;
- not take or fail to take any action which would cause Teltrend or its
stockholders to recognize gain or loss for federal income tax purposes as
a result of the consummation of the merger, except to the extent that any
stockholders receive cash in lieu of fractional shares;
IV-4
<PAGE> 77
- not make any acquisition of any assets or businesses other than
expenditures for current assets in the ordinary course of business and
expenditures for fixed or capital assets in the ordinary course of
business and consistent with Teltrend's capital budget;
- not sell, pledge, dispose of or encumber any material assets or
businesses other than sales in the ordinary course of business;
- except as otherwise permitted pursuant to the merger agreement, not take
any action which would be reasonably likely to prevent Teltrend from (1)
obtaining any necessary governmental approvals, (2) performing its
covenants and agreements under the merger agreement, or (3) consummating
the transactions contemplated by the merger agreement;
- use all reasonable efforts to preserve intact its business organization
and goodwill, keep available the services of its present officers and key
employees, and preserve the goodwill and business relationships with
customers and others having business relationships with it and not engage
in any action, directly or indirectly, with the intent to adversely
impact the transactions contemplated by the merger agreement;
- not enter into or amend in any material respect any employment,
severance, special pay arrangement with respect to termination of
employment or other similar arrangements or agreements with any
directors, officers or key employees, except in the ordinary course and
consistent with past practice, and not, in any event, enter into any
written employment agreements, subject to specified exceptions with
respect to employees of Teltrend's subsidiary in the United Kingdom;
- not adopt, enter into or amend in any material respect any employee
benefit plan or arrangement, except as required to comply with changes in
applicable law or as otherwise contemplated by the merger agreement;
- use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice;
- not implement any change in accounting principles, practices or methods,
other than as may be required by United States generally accepted
accounting principles, the financial accounting standards board, the SEC
or any other government authority or oversight agency; and
- not make, change or revoke any material tax election or make any material
agreement or settlement regarding taxes with any taxing authority.
Restrictions on the Interim Operations of Westell. Westell has agreed that
it and each of its subsidiaries will:
- conduct its business in the ordinary and usual course of business,
consistent with past practice;
- not amend or propose to amend its certificate of incorporation, other
than as contemplated by this joint proxy statement/prospectus, by-laws or
other similar governing documents,
- not split, combine or reclassify its outstanding capital stock or declare
any dividend, other than dividends by wholly owned subsidiaries of
Westell;
- not issue, dispose of, or redeem or purchase any shares of its capital
stock, or any options or securities exercisable for or convertible into
its capital stock, subject to the exceptions set forth in the merger
agreement;
- not incur any indebtedness, subject to certain ordinary course
exceptions;
IV-5
<PAGE> 78
- not take or fail to take any action which would cause Westell or
Teltrend's stockholders to recognize gain or loss for federal income tax
purposes as a result of the consummation of the merger, except to the
extent that any stockholders receive cash in lieu of fractional shares;
- not make any acquisition of any assets or businesses other than in the
ordinary course of business;
- not sell, pledge, dispose of or encumber any material assets or
businesses other than sales in the ordinary course of business;
- except as otherwise permitted pursuant to the merger agreement, not take
any action which would be reasonably likely to prevent Westell from (1)
obtaining any necessary governmental approvals, (2) performing its
covenants and agreements under the merger agreement, or (3) consummating
the transactions contemplated by the merger agreement;
- use all reasonable efforts to preserve intact its business organization
and goodwill, keep available the services of its present officers and key
employees, and preserve the goodwill and business relationships with
customers and others having business relationships with it and not engage
in any action, directly or indirectly, with the intent to adversely
impact the transactions contemplated by the merger agreement;
- not implement any change in accounting principles, practices or methods,
other than as may be required by United States generally accepted
accounting principles, the financial accounting standards board, the SEC
or any other government authority or oversight agency; and
- use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice.
No Solicitation by Teltrend
Teltrend has agreed that it and its subsidiaries and their officers,
directors, employees and advisors will not initiate, solicit, negotiate,
knowingly encourage or provide non-public or confidential information to
facilitate any proposal or offer to acquire all or any substantial part of the
business and properties of Teltrend or any capital stock of Teltrend.
However, notwithstanding the restrictions in the preceding paragraph,
Teltrend may, in response to an unsolicited written proposal or indication of
interest with respect to a potential or proposed acquisition transaction,
- furnish confidential or non-public information to a financially capable
potential acquirer, subject to a confidentiality and standstill agreement
no more favorable than the one between Teltrend and Westell; and
- negotiate with such potential acquirer,
but only if the Teltrend Board in good faith, after consultation with its
outside legal counsel, determines that the failure to provide such confidential
or non-public information to or negotiate with such potential acquirer would
constitute a breach of its fiduciary duty to the Teltrend stockholders.
Teltrend must notify Westell as soon as practicable after (1) Teltrend has
received any acquisition proposal, (2) the Teltrend Board or its chief executive
officer or chief financial officer has actual knowledge that anyone intends to
make an acquisition proposal, or (3) Teltrend has received specified requests
for non-public information relating to it or its subsidiaries. The notice must
be made orally and in writing and must indicate in reasonable detail the
identity of the
IV-6
<PAGE> 79
offeror and the terms and conditions of the proposal, inquiry or contact.
Teltrend must keep Westell fully informed of the status and details of any such
acquisition proposal or request.
Teltrend Board's Covenant to Recommend
Teltrend has agreed that it will submit the merger agreement for adoption
at a meeting of its stockholders as promptly as practicable and, subject to the
next sentence, will use its reasonable best efforts to obtain stockholder
adoption of the merger agreement. Further, Teltrend's Board has agreed to
recommend adoption of the merger agreement to the Teltrend stockholders, except
as may be required in response to any unsolicited bona fide written acquisition
proposal, in order to comply with its fiduciary duties under Delaware corporate
law as it determines in good faith, after consultation with Teltrend's outside
legal counsel.
Westell Board's Covenant to Recommend
Westell has agreed that it will submit the issues described in this joint
proxy statement/ prospectus for approval at a meeting of its stockholders as
promptly as practicable and, subject to the next sentence, will use its
reasonable best efforts to obtain stockholder approval thereof. Further, the
Westell Board has agreed to recommend approval of such issues, except as may be
required in response to any bona fide acquisition proposal with respect to
Westell, in order to comply with the Westell Board's fiduciary duties under
Delaware corporate law as it determines in good faith, after consultation with
Westell's outside legal counsel.
Westell has also agreed to authorize and cause an officer of Westell to
vote Westell's shares of capital stock of Theta Acquisition Corp. for adoption
of the merger agreement and to take all additional actions as the sole
stockholder of Theta Acquisition Corp. necessary to adopt the merger agreement.
Listing of Westell Class A Common Stock
Westell has agreed to cause the shares of its Class A Common Stock which
will be issued in connection with the merger and reserved for issuance upon the
exercise of the converted Teltrend stock options to be listed on the Nasdaq
National Market.
Covenant to Cooperate
Westell and Teltrend have each agreed to use all reasonable efforts to do
everything necessary or advisable to consummate the merger and the other
transactions contemplated by the merger agreement. In addition, Teltrend has
granted to Westell the right, at Westell's expense, to participate in any
litigation commenced against Teltrend relating to the transactions contemplated
by the merger agreement. Teltrend has also agreed that it will not settle any
such litigation without Westell's prior consent, unless the Teltrend Board
determines in good faith after consultation with Teltrend's outside legal
counsel that the existence or exercise of such right with respect to a
particular settlement would violate the fiduciary duties of the Teltrend Board.
Director's and Officer's Indemnification
Westell has agreed that from and after the effective time of the merger,
Teltrend, as a wholly owned subsidiary of Westell, will indemnify and hold
harmless all of Teltrend's past and present officers and directors to the same
extent and in the same manner and subject to the same limits as such persons
were indemnified on December 13, 1999 pursuant to Delaware corporate law,
Teltrend's certificate of incorporation or Teltrend's bylaws for acts or
omissions occurring at or prior to the effective time of the merger.
Further, for six years following the merger, Westell has agreed to cause
Teltrend to use its reasonable best efforts to provide one or more policies of
directors' and officers' liability
IV-7
<PAGE> 80
insurance that provide(s) coverage for events occurring prior to the effective
time of the merger. This insurance must be substantially similar to Teltrend's
existing policy or, if substantially equivalent insurance coverage is
unavailable, the most similar available coverage; provided, however, that in no
event will Teltrend be required to pay an annual premium for the insurance in
excess of 150% of the last annual premium paid prior to the December 13, 1999.
If the insurance expires, is terminated or canceled during the six-year period
or exceeds the maximum premium, Westell will cause Teltrend to obtain as much
directors' and officers' liability insurance as can be obtained for the
remainder of the period for an annualized premium not in excess of the maximum
premium, on terms and conditions no less advantageous than Teltrend's existing
directors' and officers' liability insurance.
In addition, in the event that
- the indemnification or advancement of expenses to be provided by the
Teltrend following the merger, together with the insurance to be
maintained by Teltrend, after each is fully exhausted, is not adequate to
fully indemnify or provide advancement of expenses to any covered party
to the same extent and in the same manner that such indemnification or
advancement of expenses would have been required to be provided by
Teltrend prior to the effective time of the merger, and
- there has been a diminution in Teltrend's net book value from its net
book value as reflected on its October 30, 1999 balance sheet,
then Westell has agreed to indemnify the covered party to the extent of the
diminution.
Teltrend Severance Policy
Westell has agreed that, at the effective time of the merger, it will
assume, and, subject to its right to thereafter amend, modify or terminate the
policy in accordance with its terms, Westell will thereafter pay, perform and
discharge when due, all of Teltrend's obligations under Teltrend's Executive
Officer Severance Plan with respect to the individuals who participated in the
policy as of December 13, 1999, the date the merger agreement was signed.
Other Covenants
The merger agreement contains various other covenants, the most significant
of which are as follows:
- Westell and Teltrend have each agreed to provide reasonable access to the
other to its properties and records;
- Westell and Teltrend have each agreed to prepare and file this joint
proxy statement/ prospectus and to use all reasonable efforts to have the
registration statement, of which this joint proxy statement/prospectus is
a part, declared effective by the SEC;
- Westell and Teltrend have each agreed to consult with each other before
issuing any press release or similar written public statement with
respect to the merger agreement or the merger; and
- Westell and Teltrend have each agreed to promptly notify each other of
specified events.
TERMINATION OF THE MERGER AGREEMENT; TERMINATION FEES
Right to Terminate
The merger agreement may be terminated at any time prior to the effective
time of the merger in any of the following ways, even if it was previously
adopted by the Teltrend stockholders or if the issuance of Westell Class A
Common Stock and amendment to Westell's
IV-8
<PAGE> 81
Amended and Restated Certificate of Incorporation have been approved by the
Westell stockholders:
Teltrend will have the right to terminate the merger agreement:
- if the merger is not completed by June 30, 2000 (unless due to a delay or
default on the part of Teltrend), provided, however, that such date shall
be extended to September 30, 2000 if, as of June 30, 2000, the parties
are engaged in ongoing discussions with the FTC or Antitrust Division
regarding the transactions contemplated by the merger agreement;
- if the merger is enjoined by a final, unappealable court order not
entered at the request or with the support of Teltrend and if Teltrend
shall have used reasonable efforts to prevent the entry of such order;
- if:
- Teltrend receives an offer or proposal from any potential acquirer,
excluding any Teltrend director or officer or any group of which any
Teltrend director or officer is a member, with respect to a merger, sale
of substantial assets or other business combination involving Teltrend;
- the Teltrend Board determines, in good faith and after consultation with
an independent financial advisor, that such offer or proposal, if
consummated pursuant to its terms, would result in an transaction more
favorable to Teltrend's stockholders than the merger and resolves to
accept this superior proposal;
- Teltrend shall have given Westell two days' prior written notice of its
intention to terminate pursuant to this provision; and
- such termination shall not be effective until Teltrend pays to Westell
the $7.2 million break-up fee described below;
- if the Westell stockholders fail to approve the issuance of the Westell
Class A Common Stock in the merger and the amendment to Westell's Amended
and Restated Certificate of Incorporation, each as contemplated by this
joint proxy statement/prospectus;
- if the Teltrend stockholders fail to adopt the merger agreement at a duly
held meeting called for such purpose or any adjournment thereof;
- if Westell's representations and warranties fail to be true and correct
in all material respects in accordance with the merger agreement;
- if Westell fails to perform in any material respect any of its material
covenants in the merger agreement and does not cure such default in all
material respects within 30 days after notice of such default is given by
Teltrend; or
- if the Board of Directors of Westell shall have resolved to accept a
superior proposal.
Westell will have the right to terminate the merger agreement:
- if Teltrend's representations and warranties fail to be true and correct
in all material respects in accordance with the merger agreement;
- if the merger is not completed by June 30, 2000 (unless due to a delay or
default on the part of Westell or Theta Acquisition Corp.), provided,
however, that such date shall be extended to September 30, 2000 if, as of
June 30, 2000, the parties are engaged in ongoing discussions with the
FTC or Antitrust Division regarding the transactions contemplated hereby;
IV-9
<PAGE> 82
- if the merger is enjoined by a final, unappealable court order not
entered at the request or with the support of Westell or Theta
Acquisition Corp. and if Westell shall have used reasonable efforts to
prevent the entry of such order;
- if the Teltrend Board shall have resolved to accept a superior proposal
or shall have recommended to the Teltrend stockholders that they tender
their shares in a tender or an exchange offer commenced by a third party,
excluding any affiliate of Westell or any group of which any affiliate of
Westell is a member;
- if Teltrend fails to perform in any material respect any of its material
covenants in the merger agreement and does not cure such default in all
material respects within 30 days after notice of such default is given by
Westell;
- if the Teltrend stockholders fail to adopt the merger at a duly held
meeting of stockholders called for such purpose or any adjournment
thereof; or
- if:
- Parent receives an acquisition proposal, which proposal expressly states
in writing that it is subject to Westell terminating the merger
agreement or to otherwise not consummating the transactions contemplated
thereby,
- as a result, the Westell Board does not recommend to Westell's
stockholders approval of the issuance of the Westell Class A Common
Stock in the merger and the amendment of Westell's Amended and Restated
Certificate of Incorporation, and
- the Westell Board determines, in good faith and after consultation with
an independent financial advisor, that such offer or proposal, if
consummated pursuant to its terms, would result in a transaction more
favorable to Westell's stockholders than the merger and resolves to
accept such superior proposal.
Termination Fees
Teltrend has agreed to pay to Westell a break-up fee of approximately $7.2
million under the following circumstances:
- Teltrend terminates the merger agreement as a result of a superior
proposal, in accordance with the termination right described above;
- Westell terminates the merger agreement because the Teltrend Board has
resolved to accept a superior proposal or has recommended to the Teltrend
stockholders that they tender their shares in a tender offer commenced by
a third party; or
- either Westell or Teltrend terminates the merger agreement because the
Teltrend stockholders have not adopted the merger agreement at a duly
held meeting, but only if Teltrend enters into a definitive agreement
with respect to an acquisition transaction within three months following
such termination.
IV-10
<PAGE> 83
Westell has agreed to pay to Teltrend a break-up fee of approximately $7.2
million under the following circumstances:
- either Westell or Teltrend terminates the merger agreement because the
Westell Board resolves to accept a superior proposal, which requires the
merger agreement to be terminated, but only if Westell enters into a
definitive agreement with respect to an acquisition transaction within
nine months following such termination; or
- Westell, in accordance with the merger agreement as described above, does
not recommend to its stockholders approval of the issuance of the Westell
Class A Common Stock in the merger or the amendment to Westell's Amended
and Restated Certificate of Incorporation, each as described in this
joint proxy statement/prospectus, and Teltrend terminates the merger
agreement because the Westell stockholders have failed to approve these
matters at a duly held meeting called for that purpose, but only if
Westell enters into a definitive agreement with respect to an acquisition
transaction within three months following such termination.
OTHER EXPENSES
Except as described above, all costs and expenses incurred in connection
with the merger agreement and the transactions contemplated thereby will be paid
by the party incurring such expenses, except that all expenses incurred in
connection with printing and filing this joint proxy statement/prospectus will
be shared equally by Teltrend and Westell.
AMENDMENT; WAIVER
Amendment. The merger agreement may not be amended except by action taken
by the parties' respective Boards of Directors or duly authorized committees
thereof and then only by an instrument in writing signed on behalf of each of
the parties and in compliance with applicable law. An amendment may take place
at any time prior to the closing date, whether before or after approval by the
stockholders of Westell or Teltrend; provided, however, that after any such
approval, there shall not be made any amendment that by law requires the further
approval of such stockholders without such further approval.
Waiver. At any time prior to the effective time of the merger, Teltrend and
Westell may:
- extend the time for the performance of any of the obligations or other
acts of the other party;
- waive any inaccuracies in the representations and warranties contained in
the merger agreement or in any document delivered pursuant thereto; and
- waive compliance with any of the agreements or conditions contained in
the merger agreement.
Any agreement by Teltrend or Westell to any extension or waiver must be in
writing.
IV-11
<PAGE> 84
CHAPTER FIVE
CERTAIN LEGAL INFORMATION
MATERIAL DIFFERENCES IN RIGHTS OF TELTREND AND WESTELL STOCKHOLDERS
The following summary compares certain rights of the holders of Teltrend
common stock to the rights of the holders of Westell Class A Common Stock. The
rights of holders of Teltrend common stock are principally governed by Delaware
law, the Teltrend Restated Certificate of Incorporation and the Teltrend bylaws.
Upon completion of the merger, the Teltrend stockholders will become holders of
Westell Class A Common Stock, and their rights will be principally governed by
Delaware law, the Westell Amended and Restated Certificate of Incorporation and
the Westell bylaws. The rights of holders of Westell Class A Common Stock are
different in certain material respects from those of holders of Teltrend common
stock.
The statements set forth this section with respect to the Delaware General
Corporation Law, Westell's Amended and Restated Certificate of Incorporation and
bylaws, and Teltrend's Restated Certificate of Incorporation and bylaws are
brief summaries. For more information as to how you can obtain copies of
Westell's Amended and Restated Certificate of Incorporation and bylaws and
Teltrend's Restated Certificate of Incorporation and bylaws, see "Where You Can
Find More Information" on page VI-1.
AUTHORIZED CAPITAL STOCK
Westell's authorized capital stock currently consists of 65.5 million
shares of Class A Common Stock, 25 million shares of Class B Common Stock, and 1
million shares of preferred stock, each with a par value of $0.01 per share. If,
at the Westell special meeting, the Westell stockholders approve the amendment
to Westell's Amended and Restated Certificate of Incorporation, the number of
authorized shares of Westell Class A Common Stock will be increased to 85
million. As of February 11, 2000, 18,553,346 shares of Class A Common Stock and
19,124,869 shares of Class B Common Stock were issued and outstanding. As of the
date of this joint proxy statement/prospectus, no classes or series of preferred
stock had been designated by the Westell Board and therefore no shares of
Westell preferred stock were issued or outstanding.
Teltrend's authorized capital stock consists of 15 million shares of common
stock, 1 million shares of class A common stock, and 750,000 shares of preferred
stock, each with a par value of $.01 per share. As of February 11, 2000,
5,853,303 shares of Teltrend common stock were issued and outstanding and
735,000 shares of Teltrend common stock were held as treasury shares. As of the
date of this joint proxy statement/prospectus, 80,000 shares of preferred stock
had been designated as Series A Junior Participating Preferred Stock in
connection with Teltrend's stockholder rights plan, described below, and no
shares of Teltrend class A common stock or Teltrend preferred stock or Series A
Junior Participating Preferred Stock were issued or outstanding.
DIVIDENDS
The holders of Teltrend common stock are entitled to dividends when and as
they are declared, whether in cash, property or securities of the corporation.
In the event Teltrend issues shares of its class A common stock, then the
holders of Teltrend common stock and Teltrend class A common stock will be
entitled to dividends at the same rate per share, provided that if dividends are
declared which are payable in shares of common stock or class A common stock,
dividends will be declared payable at the same rate on each class of common
stock and the dividends payable to holders of common stock will be paid in
shares of common stock and the dividends payable to holders of class A common
stock will be paid in shares of class A common stock. In the event Teltrend
issues shares of its Series A Junior Participating Preferred Stock, holders of
that series will be entitled to receive quarterly dividends when, as and if
declared by
V-1
<PAGE> 85
the Teltrend Board out of funds legally available for such purposes. The
holders' right to any dividend is subject to any prior and superior rights of
any holders of Teltrend stock ranking prior and superior to the Series A Junior
Participating Preferred Stock with respect to dividends.
Holders of record of shares of Westell Class A Common Stock are entitled to
receive dividends when, if and as may be declared by the Westell Board out of
funds legally available for such purposes, although no dividends may be declared
or paid with respect to Westell's Class A Common Stock unless a dividend, at the
same rate per share, is simultaneously declared or paid with respect to
Westell's Class B Common Stock. In the case of a stock dividend or distribution,
holders of Class A Common Stock are entitled to receive the same percentage
dividend or distribution as holders of Class B Common Stock except that stock
dividends and distributions shall be made in shares of Class A Common Stock to
the holders of Class A Common Stock and Class B Common Stock to the holders of
Class B Common Stock.
VOTING RIGHTS
The holders of Teltrend common stock are each entitled to one vote per
share held on all matters voted on by the stockholders. The holders of Westell
Class A Common Stock are each entitled to one vote per share held and the
holders of shares of Westell Class B Common Stock are entitled to four votes per
share on all matters voted on by the stockholders. Holders of shares of both
classes of Westell's common stock will vote as a single class on all matters
submitted to a vote of stockholders except:
- with respect to future issuances of Class B Common Stock (which must be
approved by the affirmative vote of a majority of each class of Westell's
common stock, voting separately as a class, unless the Class B Common
Stock is being issued as payment of stock dividends on Class B Common
Stock or in a stock split, reclassification or other subdivision of the
shares of common stock); and
- as otherwise required by law.
In the merger, approximately 19.3 million shares of Class A Common Stock
will be issued to Teltrend's stockholders, which will represent approximately:
- 51% of Westell's then outstanding Class A Common Stock;
- 34% of Westell's then outstanding Class A Common Stock and Class B Common
Stock, considered together; and
- 17% of Westell's then outstanding voting power.
This information is based on the number of shares of Westell Class A Common
Stock and Class B Common Stock and shares of Teltrend common stock outstanding
on February 11, 2000, and does not take into account stock options, Westell's
warrants or Westell's convertible debentures. Assuming the exercise of all
outstanding options (including the options issued by Westell upon conversion of
the outstanding Teltrend options) and warrants to purchase Class A Common Stock
and the conversion of Westell's outstanding convertible debentures at the
current conversion price, upon completion of the merger, the Class A Common
Stock to be received by the Teltrend stockholders will represent approximately
40% of the outstanding Class A Common Stock, 29% of the outstanding Class A
Common Stock and Class B Common Stock, considered together, and 16% of Westell's
outstanding voting power.
Under Delaware law, the affirmative vote of the holders of a majority of
the outstanding voting power of any class of common stock is required to
approve, among other things, an adverse change in the designations, preferences
or limitations of the shares of such class of common stock.
V-2
<PAGE> 86
CONVERTIBILITY
Each share of Westell Class B Common Stock is convertible, at the option of
its holder, into one share of Westell Class A Common Stock at any time. In
addition, each share of Westell Class B Common Stock will automatically be
converted into one share of Class A Common Stock in the event:
- such share is transferred to any person or entity other than a "permitted
transferee" or
- the number of shares of Class B Common Stock outstanding at any time
represents less than 10% of the total number of outstanding shares of
Class B Common Stock and Class A Common Stock.
A "permitted transferee" includes (i) any other holder of Class B Common
Stock, (ii) any member of Robert C. Penny, III's family or Melvin J. Simon's
family, (iii) Gary F. Seamans, his spouse or any of their descendants, and (iv)
certain other permitted transferees.
The Westell Class A Common Stock is not convertible into Westell Class B
Common Stock.
LIQUIDATION RIGHTS
As the only class of Teltrend capital stock outstanding, the Teltrend
common stock is currently entitled to all assets available for distributions
after payment in full to creditors upon the liquidation, dissolution or
winding-up of Teltrend. Upon liquidation, dissolution or winding-up of Westell,
the holders of Westell Class A Common Stock will share ratably with the holders
of Westell Class B Common Stock in all assets available for distributions after
payment in full to creditors.
OTHER PROVISIONS
Neither the holders of Teltrend common stock nor Westell Class A Common
Stock are entitled to preemptive or subscription rights and neither have any
cumulative voting rights. In any merger, consolidation or business combination
at Westell, the consideration to be received per share by holders of Westell
Class A Common Stock must be identical to that received by holders of Westell
Class B Common Stock. In addition, no class of Westell common stock may be
subdivided, consolidated, reclassified or otherwise changed unless the other
class of common stock concurrently is subdivided, consolidated, reclassified or
otherwise changed in the same proportion and in the same manner.
PREFERRED STOCK
The Westell Board and the Teltrend Board each has the authority to issue
shares of preferred stock in one or more series (up to 1 million shares of
preferred stock may be issued by the Westell Board and up to 750,000 shares of
preferred stock may be issued by the Teltrend Board). Each Board has the
authority to fix the rights, preferences, privileges and restrictions thereof
(including dividend rights, conversion rights, voting rights, terms of
redemption, and liquidation preferences) and the number of shares constituting
any series or the designation of such series, without any further vote or action
by stockholders.
The issuance of preferred stock by Westell could adversely affect the
voting power of holders of both classes of Westell common stock and the
likelihood that such holders will receive dividend payments and payments upon
liquidation and could have the effect of delaying, deferring or preventing a
change in control of Westell. Westell has no present plan to issue any shares of
preferred stock.
V-3
<PAGE> 87
RIGHTS PLAN
On January 16, 1997, the Teltrend Board declared a dividend of one
preferred share purchase right for each outstanding share of Teltrend common
stock. The dividend was payable on January 27, 1997 to holders of record of the
common stock as of the close of business on that date. Each right entitles the
registered holder to purchase from Teltrend, under certain circumstances
involving the acquisition or the announcement of the intent to acquire 20% or
more of Teltrend's common stock, one one-hundredth of a share of Teltrend's
Series A Junior Participating Preferred Stock at a price of $160.00 per one
one-hundredth of a share, subject to adjustment. The description and terms of
the rights are detailed in a rights agreement dated January 16, 1997, as amended
on June 1, 1998 and further amended on December 13, 1999, and as the same may be
further amended from time to time, between Teltrend and LaSalle Bank National
Association, as rights agent. The amendment dated as of December 13, 1999
excepted the adoption of the merger agreement and the consummation of the merger
and any related transactions from the events which trigger the purchase rights
under the rights agreement.
Westell does not have a rights plan.
DIRECTORS
Number and Election
The Teltrend bylaws provide that the number of directors who shall
constitute the whole Board of Directors shall not be less than three nor more
than nine, as fixed from time to time by resolution of the Board of Directors by
a majority vote of the directors then in office. Directors of Teltrend are
elected at the annual meeting of Teltrend stockholders and hold office until
their respective successors are elected and qualified or until their earlier
resignation or removal. The Teltrend Board currently consists of seven
directors.
The Westell bylaws provide that the number of directors which constitute
the whole board will be not less than six nor more than ten. The Westell Board
currently consists of eight directors. Following the merger, the number of
directors serving on the Westell Board will be increased by two and Messrs.
Kirby and Sergesketter, currently members of Teltrend's Board, will be added.
Removal
Directors of Teltrend may be removed, with or without cause, by the
stockholders at any special meeting as long as the notice for that meeting
states that it is for that purpose. Similarly, directors of Westell may be
removed, with or without cause, at any meeting of the stockholders by a majority
vote of those stockholder entitled to vote in elections of directors.
SPECIAL MEETINGS
The Teltrend bylaws provide that a special meeting of the stockholders may
be called at any time by the Teltrend Board, the chairman of the Teltrend Board
or Teltrend's president and chief executive officer and shall be called be
called by the chairman of the Board, the president and chief executive officer
or the secretary at the request in writing of Teltrend stockholders holding at
least fifty percent of the shares of stock outstanding and entitled to vote at
that meeting. The Teltrend bylaws provide that special meetings of the Teltrend
Board may be called by the chairman of the Board, the president and chief
executive officer or by any two of the directors then in office.
The Westell Amended and Restated Certificate of Incorporation provides that
special meetings of the stockholders may be called by the chairman of the
Westell Board, the president, a majority of the Westell Board then in office or
stockholders owning at least a majority of the voting power represented by all
of the issued and outstanding capital stock of the corporation.
V-4
<PAGE> 88
The Westell bylaws provide that a special meeting of the Westell Board may be
called by the chairman of the Board, the president or any two or more directors.
AMENDMENT TO CERTIFICATE OF INCORPORATION AND BYLAWS
Certificate of Incorporation
Under the Delaware General Corporation Law, the certificate of
incorporation of a corporation may be amended by resolution of the board of
directors and the affirmative vote of the holders of the majority of the
outstanding voting power entitled to vote thereon. With respect to any amendment
to the certificate of incorporation of a corporation that would adversely affect
a particular class or series of stock, Delaware law also requires the separate
approval by the holders of the affected class or series of stock, voting
together as a single class.
Bylaws
Under the Delaware General Corporation Law, the power to adopt, amend, or
repeal bylaws is vested exclusively in the stockholders entitled to vote, unless
the corporation's certificate of incorporation confers such power on the board
of directors as well.
The Teltrend Restated Certificate of Incorporation and the Teltrend bylaws
provide for bylaw amendments by the Teltrend Board and by the Teltrend
stockholders.
The Westell Amended and Restated Certificate of Incorporation and the
Westell bylaws provide for bylaw amendments by either the Westell Board, or by
the Westell stockholders, provided that any bylaw provision adopted by the
stockholders may be amended or repealed only by a majority of the Westell
stockholders, voting as a single class.
STOCKHOLDER PROPOSALS
Each of Teltrend's and Westell's bylaws establish an advance notice
procedure for stockholders to bring business before an annual meeting of
stockholders.
Teltrend's bylaws require that any Teltrend stockholder who wishes to bring
any matter before an annual meeting, including the nomination of any person for
election as a Teltrend director, must provide written notice to Teltrend at its
principal executive offices not less than 60 nor more than 90 days prior to the
date of the meeting, except that if less than 70 days' notice or prior public
disclosure of the meeting date is given or made to Teltrend stockholders, notice
of the matter must be received no later than the 10th day following the date of
notice or public disclosure of the meeting date, whichever occurs first. Such
notice must include detailed information about the stockholder giving the notice
and a description of the proposed business or nominees for director, as
applicable.
Westell's bylaws require that any Westell stockholder who wishes to bring
business before a stockholders meeting, including the nomination of any person
for election as a Westell director, must provide written notice to Westell no
later than 60 days prior to the annual meeting date.
The notice requirements in each of Teltrend's and Westell's bylaws are
independent of the notice provisions and deadlines under SEC Rule 14a-8.
V-5
<PAGE> 89
BUSINESS COMBINATIONS
Teltrend and Westell are both subject to Section 203 of the Delaware
General Corporation Law, which prohibits a publicly held Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time that the person became an interested
stockholder, unless:
- prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder;
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the outstanding voting stock at the time the transaction
commenced, excluding certain shares held by employee directors and
employee stock plans; or
- at or subsequent to such time, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
the stockholders by the affirmative vote of at least 66 2/3% of the
outstanding voting stock that is not owned by the interested stockholder.
For purposes of Section 203, a "business combination" includes, among other
things, a merger, asset sale or other transaction resulting in a financial
benefit to the interested stockholder, and an "interested stockholder" is
generally a person who, together with affiliates and associates, owns (or within
three years, did own) 15% or more of the corporation's voting stock.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Limitations on Liability Permitted by Delaware Law. The Delaware General
Corporation Law provides that a corporation's certificate of incorporation may
include a provision eliminating or limiting the personal liability of a director
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director. However, no provision can eliminate or limit the
liability of a director for:
- any breach of the director's duty of loyalty to the corporation or its
stockholders;
- acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of the law;
- any improper distribution to stockholders;
- any transaction from which the director derived an improper personal
benefit; or
- any acts or omissions prior to the adoption of such a provision in the
certificate of incorporation.
Indemnification Permitted by Delaware Law. The Delaware General Corporation
Law generally permits a corporation to indemnify its directors, officers,
employees and agents against expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with a third-party
action, other than a derivative action, and against expenses actually and
reasonably incurred in the defense or settlement of a derivative action,
provided that there is a determination that the individual acted in good faith
and in a manner reasonably believed to be
V-6
<PAGE> 90
in or not opposed to the best interests of the corporation. Such determination
shall be made, in the case of an individual who is a director or officer at the
time of such determination:
- by a majority of the disinterested directors, even though less than a
quorum;
- by a committee of such directors designated by a majority vote of such
directors, even though less than a quorum;
- if there are no independent directors or if the independent directors so
direct, by independent legal counsel in a written opinion; or
- by the stockholders.
Without court approval, however, no indemnification may be made in respect
of any derivative action in which such individual is adjudged liable to the
corporation. The Delaware General Corporation Law requires indemnification of
directors and officers for expenses relating to a successful defense on the
merits or otherwise of a derivative or third-party action.
Westell and Teltrend Provisions Regarding Limitations of Liability and
Indemnification. Westell's Amended and Restated Certificate of Incorporation and
Teltrend's Restated Certificate of Incorporation each contain provisions:
- eliminating the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the fullest extent
permitted by the Delaware General Corporation Law; and
- indemnifying its directors and officers to the fullest extent permitted
by the Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary.
Westell's and Teltrend's bylaws each provide that the applicable company
will indemnify its directors and executive officers, and may indemnify its other
officers, employees and other agents, to the fullest extent permitted by law.
The bylaws also permit each company to secure insurance on behalf of any person
it is required or permitted to indemnify for any liability arising out of his or
her actions in such capacity, regardless of whether the bylaws would permit
indemnification. Westell and Teltrend each maintain liability insurance for its
directors and officers.
EXPERTS
The audited consolidated financial statements of Westell included in
Westell's Annual Report on Form 10-K for the year ended March 31, 1999 have been
audited by Arthur Andersen LLP, independent public accountants, as described in
their report included in the Annual Report on Form 10-K. Arthur Andersen's
report and the consolidated financial statements have been incorporated by
reference in this document in reliance upon such report given upon authority of
that firm as experts in accounting and auditing.
The consolidated financial statements of Teltrend incorporated by reference
in Teltrend's Annual Report on Form 10-K for the year ended July 31, 1999, have
been audited by Ernst & Young LLP, independent public auditors, as set forth in
their report thereon incorporated by reference therein. Such report and the
consolidated financial statements are incorporated by reference in this document
in reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
Representatives of Arthur Andersen LLP are expected to be present at the
Westell special meeting and representatives of Ernst & Young LLP are expected to
be present at the Teltrend
V-7
<PAGE> 91
special meeting. These representatives will have an opportunity to make
statements at these meetings if they so desire and will be available to respond
to appropriate questions.
LEGAL MATTERS
The validity of the shares of Westell Class A Common Stock to be issued
pursuant to the merger will be passed upon for Westell by McDermott, Will &
Emery, Chicago, Illinois.
V-8
<PAGE> 92
CHAPTER SIX
ADDITIONAL INFORMATION FOR STOCKHOLDERS
SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS
A stockholder proposal to be included in Westell's proxy statement and
presented at Westell's 2000 annual meeting must be received at Westell's
executive offices, 750 North Commons Drive Aurora, Illinois 60504 by no later
than May 3, 2000 for evaluation as to inclusion in the proxy statement in
connection with that meeting. Westell stockholders wishing to nominate a
director or bring a proposal before the 2000 annual meeting, but not include the
proposal in Westell's proxy statement, must cause written notice of the proposal
to be received by the secretary of Westell at Westell's principal executive
offices by no later than 60 days prior to the annual meeting date, as well as
comply with specified provisions of Westell's bylaws. In order for a Westell
stockholder to nominate a candidate for director, the related notice must
describe various matters regarding the nominee and the stockholder giving the
notice, including such information as name, address, occupation and shares held.
In order for a Westell stockholder to bring other business before a stockholders
meeting, the notice for the meeting must include various matters regarding the
stockholder giving the notice and a description of the proposed business. These
requirements are separate from and in addition to the requirements a stockholder
must meet to have a proposal included in Westell's proxy statement.
Teltrend will hold an annual meeting in the year 2000 only if the merger
has not already been completed. If a meeting is held, a stockholder proposal to
be included in Teltrend's proxy statement and presented at the annual meeting
must be received at Teltrend's executive offices by no later than June 24, 2000
for evaluation as to inclusion in the proxy statement in connection with the
meeting. In addition, under certain SEC rules, a proxy may confer discretionary
authority to vote on any matter in the event that, among other situations,
Teltrend does not have notice of the matter at least 45 days before the date on
which Teltrend's proxy materials were mailed for the 1999 annual meeting. For
the 2000 annual meeting, this date would be September 7, 2000. This is in
addition to the date for submission of business at the annual meeting under
Teltrend's bylaws which require, among other things, that notice of any matter
be received by Teltrend at its principal executive offices not less than 60 nor
more than 90 days prior to the date of the meeting, except that if less than 70
days' notice or prior public disclosure of the meeting date is given or made to
stockholders, notice of the matter must be received no later than the 10th day
following the date of notice or public disclosure of the meeting date, whichever
occurs first.
The SEC rules set forth standards for the exclusion of some stockholder
proposals from a proxy statement for an annual meeting.
WHERE YOU CAN FIND MORE INFORMATION
Westell and Teltrend file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
reports, statements or other information that either company files at the SEC's
public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SEC's public reference rooms in New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. The companies' public filings are also available from
commercial document retrieval services and at the Internet web site maintained
by the SEC at http://www.sec.gov. In addition, reports, proxy statements and
other information concerning either company may be inspected at the offices of
the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C. 20006.
Westell has filed a registration statement on Form S-4 to register with the
SEC the shares of Westell Class A Common Stock to be issued to Teltrend
stockholders in the merger. This joint proxy statement/prospectus is a part of
that registration statement and constitutes a prospectus
VI-1
<PAGE> 93
of Westell, as well as a proxy statement of Westell for the Westell special
meeting and a proxy statement of Teltrend for the Teltrend special meeting.
As allowed by SEC rules, this joint proxy statement/prospectus does not
contain all the information that stockholders can find in the registration
statement or the exhibits to the registration statement.
THE SEC ALLOWS WESTELL AND TELTREND TO "INCORPORATE BY REFERENCE"
INFORMATION INTO THIS JOINT PROXY STATEMENT/PROSPECTUS, WHICH MEANS THAT THE
COMPANIES CAN DISCLOSE IMPORTANT INFORMATION TO YOU BY REFERRING YOU TO ANOTHER
DOCUMENT FILED SEPARATELY WITH THE SEC. THE INFORMATION INCORPORATED BY
REFERENCE IS DEEMED TO BE PART OF THIS JOINT PROXY STATEMENT/ PROSPECTUS, EXCEPT
FOR ANY INFORMATION SUPERSEDED BY INFORMATION CONTAINED, OR INCORPORATED BY
REFERENCE, IN THIS JOINT PROXY STATEMENT/PROSPECTUS. THIS JOINT PROXY
STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE THE DOCUMENTS SET FORTH BELOW
THAT WESTELL AND TELTREND HAVE PREVIOUSLY FILED WITH THE SEC. THESE DOCUMENTS
CONTAIN IMPORTANT INFORMATION ABOUT THE COMPANIES AND THEIR FINANCIAL CONDITION.
<TABLE>
<CAPTION>
WESTELL SEC FILINGS (FILE NO. 0-27266) PERIOD
- -------------------------------------- ------
<S> <C>
Annual Report on Form 10-K............... Year ended March 31, 1999 (as amended by
Form 10-K/A on August 4, 1999; August 19,
1999; and August 31, 1999)
Quarterly Reports on Form 10-Q........... Fiscal quarters ended June 30, 1999 (as
amended by Form 10-Q/A on August 31,
1999), September 30, 1999 and December
31, 1999
Current Reports on Form 8-K.............. Dated April 16, 1999, June 11, 1999,
December 17, 1999 and February 3, 2000
</TABLE>
Description of the Westell Class A Common Stock contained in Westell's
registration statement on Form 8-A dated November 22, 1995,
incorporating by reference the description included under "Description
of Common Stock" in Westell's registration statement on Form S-1
(Registration No. 33-98024).
<TABLE>
<CAPTION>
TELTREND SEC FILINGS (FILE NO. 0-26114) PERIOD
- --------------------------------------- ------
<S> <C>
Annual Report on Form 10-K............... Year ended July 31, 1999
Quarterly Report on Form 10-Q............ Fiscal quarter ended October 30, 1999
Current Reports on Form 8-K.............. Dated December 17, 1999, February 3, 2000
and February 11, 2000
</TABLE>
We are also incorporating by reference additional documents that Westell or
Teltrend may file with the SEC pursuant to sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act of 1934 between the date of this joint proxy
statement/prospectus and the date of the special meetings. These documents
include periodic reports, such as annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K, as well as proxy statements.
Westell has supplied all information contained or incorporated by reference
in this joint proxy statement/prospectus relating to Westell, and Teltrend has
supplied all such information relating to Teltrend.
If you are a stockholder, we may have sent you some of the documents
incorporated by reference, but you can obtain any of them through us or the SEC
or the SEC's Internet site described above. Documents incorporated by reference
are available from us without charge, excluding all exhibits unless we have
specifically incorporated by reference an exhibit in this joint proxy
statement/prospectus. Stockholders may obtain documents incorporated by
reference in
VI-2
<PAGE> 94
this joint proxy statement/prospectus by requesting them in writing or by
telephone from the appropriate company at the following addresses:
<TABLE>
<S> <C>
WESTELL TECHNOLOGIES, INC. TELTREND INC.
Attention: Investor Relations Department Attention: Investor Relations Department
750 N. Commons Drive 620 Stetson Avenue
Aurora, IL 60504 St. Charles, IL 60174
Tel.: 800-323-6883 (toll free) Tel.: 630-377-1700
</TABLE>
If you would like to request documents from either of us, please do so by
March 9, 2000 to ensure you will receive them before the special meetings.
You can also get more information by visiting Westell's web site at
http://www.westell.com and Teltrend's web site at http://www.teltrend.com. Web
site materials are not part of this document and are not incorporated by
reference.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS JOINT PROXY STATEMENT/PROSPECTUS TO VOTE YOUR SHARES AT THE
SPECIAL MEETINGS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION
THAT IS DIFFERENT FROM WHAT IS CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS.
THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OR THE SOLICITATION OF A
PROXY IN ANY JURISDICTION OR FROM ANY PERSON WHOM IT IS NOT LAWFUL TO MAKE SUCH
OFFER OR SOLICITATION IN SUCH JURISDICTION.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED FEBRUARY 14, 2000. YOU
SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THAT DATE, AND
NEITHER THE MAILING OF THIS JOINT PROXY STATEMENT/PROSPECTUS TO STOCKHOLDERS NOR
THE ISSUANCE OF WESTELL CLASS A COMMON STOCK IN THE MERGER SHALL CREATE ANY
IMPLICATION TO THE CONTRARY.
VI-3
<PAGE> 95
APPENDIX
A
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 13, 1999
BY AND AMONG
WESTELL TECHNOLOGIES, INC.
THETA ACQUISITION CORP.
AND
TELTREND INC.
A-1
<PAGE> 96
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ARTICLE I THE MERGER.................................................. A-4
Section 1.1 The Merger.................................................. A-4
Section 1.2 Effective Time of the Merger................................ A-4
ARTICLE II THE SURVIVING AND PARENT CORPORATIONS....................... A-4
Section 2.1 Certificate of Incorporation of Surviving Corporation....... A-4
Section 2.2 By-Laws of Surviving Corporation............................ A-4
Section 2.3 Directors and Officers of Surviving Corporation............. A-5
Section 2.4 Directors of Parent......................................... A-5
ARTICLE III CONVERSION OF SHARES........................................ A-5
Section 3.1 Conversion of Company Shares in the Merger.................. A-5
Section 3.2 Conversion of Subsidiary Shares............................. A-5
Section 3.3 Exchange of Certificates.................................... A-5
Section 3.4 No Fractional Securities.................................... A-7
Section 3.5 The Closing................................................. A-7
Section 3.6 Closing of the Company's Transfer Books..................... A-7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT
AND SUBSIDIARY.............................................. A-8
Section 4.1 Organization and Qualification.............................. A-8
Section 4.2 Capitalization.............................................. A-8
Section 4.3 Subsidiaries................................................ A-9
Section 4.4 Authority; Non-Contravention; Approvals..................... A-10
Section 4.5 Reports and Financial Statements............................ A-11
Section 4.6 Absence of Undisclosed Liabilities.......................... A-11
Section 4.7 Absence of Certain Changes or Events........................ A-12
Section 4.8 Litigation.................................................. A-12
Section 4.9 Registration Statement and Proxy Statement.................. A-12
Section 4.10 No Violation of Law......................................... A-12
Section 4.11 Compliance with Agreements.................................. A-13
Section 4.12 Taxes....................................................... A-13
Section 4.13 Employee Benefit Plans; ERISA............................... A-14
Section 4.14 Labor Controversies......................................... A-15
Section 4.15 Environmental Matters....................................... A-15
Section 4.16 Title to Assets............................................. A-16
Section 4.17 Reorganization.............................................. A-16
Section 4.18 Parent Stockholders' Approval............................... A-16
Section 4.19 Brokers and Finders......................................... A-17
Section 4.20 Opinion of Financial Advisor................................ A-17
Section 4.21 Company Stock............................................... A-17
Section 4.22 Section 203................................................. A-17
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... A-17
Section 5.1 Organization and Qualification.............................. A-17
Section 5.2 Capitalization.............................................. A-18
Section 5.3 Subsidiaries................................................ A-19
Section 5.4 Authority; Non-Contravention; Approvals..................... A-19
Section 5.5 Reports and Financial Statements............................ A-20
Section 5.6 Absence of Undisclosed Liabilities.......................... A-21
Section 5.7 Absence of Certain Changes or Events........................ A-21
Section 5.8 Litigation.................................................. A-21
</TABLE>
A-2
<PAGE> 97
<TABLE>
<S> <C> <C>
Section 5.9 Registration Statement and Proxy Statement.................. A-21
Section 5.10 No Violation of Law......................................... A-22
Section 5.11 Compliance with Agreements.................................. A-22
Section 5.12 Taxes....................................................... A-22
Section 5.13 Employee Benefit Plans; ERISA............................... A-23
Section 5.14 Labor Controversies......................................... A-24
Section 5.15 Environmental Matter........................................ A-24
Section 5.16 Title to Assets............................................. A-24
Section 5.17 Reorganization.............................................. A-25
Section 5.18 Company Stockholders' Approval.............................. A-25
Section 5.19 Brokers and Finders......................................... A-25
Section 5.20 Opinion of Financial Advisor................................ A-25
Section 5.21 Section 203................................................. A-25
Section 5.22 Rights Agreement............................................ A-25
Section 5.23 No Recent Negotiations with Affiliates...................... A-25
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER...................... A-26
Section 6.1 Conduct of Business by the Company Pending the Merger....... A-26
Section 6.2 Conduct of Business by Parent and Subsidiary Pending the
Merger...................................................... A-27
Section 6.3 Acquisition Transactions.................................... A-29
ARTICLE VII ADDITIONAL AGREEMENTS....................................... A-30
Section 7.1 Access to Information....................................... A-30
Section 7.2 Registration Statement and Proxy Statement.................. A-31
Section 7.3 Stockholders' Approvals..................................... A-31
Section 7.4 Compliance with the Securities Act and Exchange Act......... A-32
Section 7.5 Nasdaq Listing.............................................. A-33
Section 7.6 Expenses and Fees........................................... A-33
Section 7.7 Agreement to Cooperate...................................... A-33
Section 7.9 Option Plans................................................ A-34
Section 7.10 Notification of Certain Matters............................. A-35
Section 7.11 Directors' and Officers' Indemnification.................... A-35
Section 7.12 Certain Benefits............................................ A-36
Section 7.13 SEC Reports................................................. A-37
ARTICLE VIII CONDITIONS.................................................. A-37
Section 8.1 Conditions to Each Party's Obligation to Effect the
Merger...................................................... A-37
Section 8.2 Conditions to Obligation of the Company to Effect the
Merger...................................................... A-38
Section 8.3 Conditions to Obligations of Parent and Subsidiary to Effect
the Merger.................................................. A-38
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER........................... A-39
Section 9.1 Termination................................................. A-39
Section 9.2 Effect of Termination....................................... A-41
Section 9.3 Amendment................................................... A-41
Section 9.4 Waiver...................................................... A-41
ARTICLE X GENERAL PROVISIONS.......................................... A-41
Section 10.1 Non-Survival and Scope of Representations and Warranties and
Agreements.................................................. A-41
Section 10.2 Notices..................................................... A-41
Section 10.3 Interpretation.............................................. A-42
Section 10.4 Miscellaneous............................................... A-42
Section 10.5 Counterparts................................................ A-42
Section 10.6 Parties in Interest......................................... A-42
Section 10.7 Severability................................................ A-43
</TABLE>
A-3
<PAGE> 98
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 13, 1999 (this
"Agreement"), by and among Westell Technologies, Inc., a Delaware corporation
("Parent"), Theta Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Parent ("Subsidiary"), and Teltrend Inc., a Delaware corporation
(the "Company");
WITNESSETH:
WHEREAS, the Boards of Directors of Parent, Subsidiary and the Company have
approved the merger of Subsidiary with and into the Company on the terms set
forth in this Agreement (the "Merger"); and
WHEREAS, Parent, Subsidiary and the Company intend the Merger to qualify as
a tax-free reorganization under the provisions of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) in accordance
with the General Corporation Law of the State of Delaware (the "DGCL"),
Subsidiary shall be merged with and into the Company and the separate existence
of Subsidiary shall thereupon cease. The Company shall be the surviving
corporation in the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation ."
SECTION 1.2 Effective Time of the Merger. The Merger shall become
effective at such time a certificate of merger, in a form mutually acceptable to
Parent and the Company, is filed with the Secretary of State of the State of
Delaware in accordance with the DGCL (the "Merger Filing") or such later time as
may be agreed to by the parties hereto and specified in such certificate of
merger (the "Effective Time"). The Merger Filing shall be made simultaneously
with or as soon as practicable after the closing of the transactions
contemplated by this Agreement in accordance with Section 3.5. The parties
acknowledge that it is their mutual desire and intent to consummate the Merger
as soon as practicable after the date hereof. Accordingly, the parties shall,
subject to the provisions hereof, use all reasonable efforts to consummate, as
soon as practicable, the transactions contemplated by this Agreement in
accordance with Section 3.5.
ARTICLE II
THE SURVIVING AND PARENT CORPORATIONS
SECTION 2.1 Certificate of Incorporation of Surviving Corporation. The
Restated Certificate of Incorporation, as amended, of the Company shall be
amended in the Merger to read in its entirety as set forth as Exhibit 2.1, and,
as so amended, shall be the Certificate of Incorporation of the Surviving
Corporation from and after the Effective Time, until thereafter amended in
accordance with its terms and as provided in the DGCL.
SECTION 2.2 By-Laws of Surviving Corporation. The By-laws of Subsidiary as
in effect immediately prior to the Effective Time shall be the By-laws of the
Surviving Corporation from
A-4
<PAGE> 99
and after the Effective Time, and thereafter may be amended in accordance with
their terms and as provided by the Certificate of Incorporation of the Surviving
Corporation and the DGCL.
SECTION 2.3 Directors and Officers of Surviving Corporation. At the
Effective Time, the directors and officers of the Surviving Corporation shall be
as designated by Parent in writing prior to the Effective Time, and such
directors and officers shall thereafter serve in accordance with the By-laws of
the Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
SECTION 2.4 Directors of Parent. Parent and its Board of Directors shall
take all action as is necessary so that, at the Effective Time, (i) the size of
the board of directors of Parent is increased to include two additional
directors and (ii) two individuals, each of whom (a) currently serves as a
director of the Company, (b) agrees to serve as a director of Parent, and (c) is
identified by Parent, are elected as directors of Parent, each to serve in
accordance with the Amended and Restated Certificate of Incorporation and
Amended and Restated By-laws, as amended, of Parent and until his or her
successor is duly elected and qualified.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Conversion of Company Shares in the Merger. At the Effective
Time, by virtue of the Merger and without any action on the part of any holder
of any capital stock of Parent or the Company:
(a) each share of the common stock, par value $.01 per share, of the
Company issued and outstanding immediately prior to the Effective Time
(other than shares described in Section 3.1(b)) (the "Company Common
Stock") shall, subject to Sections 3.3 and 3.4, be converted into the right
to receive, without interest, 3.3 (the "Exchange Ratio") shares of the
Class A Common Stock, par value $0.01 per share, of Parent ("Parent
Stock");
(b) each share of capital stock of the Company, if any, owned by
Parent or any subsidiary of Parent or held in treasury by the Company or
any subsidiary of the Company immediately prior to the Effective Time shall
be canceled and cease to exist and no consideration shall be paid in
exchange therefor; and
(c) subject to and as more fully provided in Section 7.9, each
unexpired option or warrant to purchase Company Common Stock that is
outstanding at the Effective Time, whether or not exercisable, shall
automatically and without any action on the part of the holder thereof be
converted into an option or warrant to purchase a number of shares of
Parent Stock equal to the number of shares of Company Common Stock that
could be purchased under such option or warrant multiplied by the Exchange
Ratio, at a price per share of Parent Stock equal to the per share exercise
price of such option or warrant divided by the Exchange Ratio.
SECTION 3.2 Conversion of Subsidiary Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent as the sole
stockholder of Subsidiary, each issued and outstanding share of common stock,
par value $.01 per share, of Subsidiary ("Subsidiary Common Stock") shall be
converted into one share of common stock, par value $.01 per share, of the
Surviving Corporation.
SECTION 3.3 Exchange of Certificates.
(a) From and after the Effective Time, each holder of a certificate
which immediately prior to the Effective Time represented issued and
outstanding shares of Company Common Stock (other than shares described in
Section 3.1(b)) shall be entitled to receive in exchange therefor, upon
surrender thereof to an exchange agent reasonably satisfactory to
A-5
<PAGE> 100
Parent and the Company (the "Exchange Agent"), a certificate or
certificates representing the number of whole shares of Parent Stock to
which such holder is entitled pursuant to Section 3.1(a), any dividends and
distributions in respect of such shares of Parent Stock and any cash in
lieu of a fractional share, as contemplated by Sections 3.3 and 3.4 hereof.
Notwithstanding any other provision of this Agreement, (i) until holders or
transferees of certificates formerly representing shares of Company Common
Stock have surrendered them for exchange as provided herein, no dividends
or distributions on shares of Parent Stock shall be paid with respect to
any shares of Parent Stock to which the holder of any such certificate
would be entitled pursuant to the terms hereof and no payment for
fractional shares shall be made and (ii) without regard to when such
certificates formerly representing shares of Company Common Stock are
surrendered for exchange as provided herein, no interest shall be paid on
any dividends or distributions or any payment for fractional shares. Upon
surrender of a certificate which immediately prior to the Effective Time
represented issued and outstanding shares of Company Common Stock (other
than shares described in Section 3.1(b)), there shall be paid to the holder
of such certificate (i) at the time of such surrender, the amount of any
cash payable in lieu of a fractional share of Parent Stock to which such
holder is entitled pursuant to Section 3.4 and the amount of any dividends
or other distributions with a record date after the Effective Time
theretofore paid with respect to the whole shares of Parent Stock issuable
upon surrender of such certificate, and (ii) at the appropriate payment
date, the amount of any dividends or other distributions with a record date
after the Effective Time but prior to such surrender and a payment date
subsequent to such surrender payable with respect to such whole shares of
Parent Stock.
(b) If any certificate for shares of Parent Stock is to be issued in a
name other than that in which the certificate formerly representing shares
of Company Common Stock surrendered in exchange therefor is registered in
the Company's transfer records, it shall be a condition of such exchange
that the person requesting such exchange shall pay any applicable transfer
or other taxes required by reason of such issuance.
(c) As soon as practicable after the Effective Time, Parent shall make
available to the Exchange Agent the certificates representing shares of
Parent Stock required to effect the exchanges referred to in paragraph (a)
above and cash for payment of any fractional shares referred to in Section
3.4.
(d) As soon as practicable after the Effective Time, the Exchange
Agent shall mail to each holder of record of a certificate or certificates
that immediately prior to the Effective Time represented issued and
outstanding shares of Company Common Stock (other than shares described in
Section 3.1(b)) (the "Company Certificates") (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Company Certificates shall pass, only upon actual delivery of
the Company Certificates to the Exchange Agent) and (ii) instructions for
use in effecting the surrender of the Company Certificates in exchange for
certificates representing shares of Parent Stock. Upon surrender of Company
Certificates for cancellation to the Exchange Agent, together with a duly
executed letter of transmittal and such other documents as the Exchange
Agent shall reasonably require, the holder of such Company Certificates
shall be entitled to receive in exchange therefor a certificate or
certificates representing that number of whole shares of Parent Stock into
which the shares of Company Common Stock formerly represented by the
Company Certificates so surrendered shall have been converted into the
right to receive pursuant to the provisions of Section 3.1(a), any cash
paid in lieu of a fractional share and any dividends and distributions
contemplated by Section 3.3(a), and the Company Certificates so surrendered
shall be canceled. Notwithstanding the foregoing, neither the Exchange
Agent nor any party hereto shall be liable to a holder of a Company
Certificate for any shares of Parent Stock, dividends or distributions
thereon or cash payment in lieu of a
A-6
<PAGE> 101
fractional share delivered to a public official pursuant to applicable
abandoned property, escheat or similar laws.
(e) Promptly following the date which is nine months after the
Effective Time, the Exchange Agent shall deliver to Parent all cash,
certificates (including any Parent Stock) and other documents in its
possession relating to the transactions described in this Agreement, and
the Exchange Agent's duties shall terminate. Thereafter, each holder of a
Company Certificate may surrender such Company Certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and
similar laws) receive in exchange therefor the Parent Stock, any cash paid
in lieu of a fractional share and any dividends and distributions
contemplated by Section 3.3(a), without any interest thereon.
Notwithstanding the foregoing, none of the Exchange Agent, Parent,
Subsidiary, the Company or the Surviving Corporation shall be liable to a
holder of a Company Certificate for any shares of Parent Stock, dividends
or distributions thereon or cash payment in lieu of a fractional share
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
(f) In the event any Company Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Company Certificate to be lost, stolen or destroyed, the
Surviving Corporation shall issue in exchange for such lost, stolen or
destroyed Company Certificate the Parent Stock deliverable in respect
thereof determined in accordance with this Article III. When authorizing
such issuance in exchange therefor, the Board of Directors of the Surviving
Corporation may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
Company Certificate to give the Surviving Corporation such indemnity as it
may reasonably direct as protection against any claim that may be made
against the Surviving Corporation with respect to the Company Certificate
alleged to have been lost, stolen or destroyed.
SECTION 3.4 No Fractional Securities. Notwithstanding any other provision
of this Agreement, no fractional shares and no certificates or scrip for
fractional shares of Parent Stock shall be issued in connection with the Merger.
In lieu of any such fractional shares, each holder of shares of Company Common
Stock who would otherwise have been entitled to receive a fraction of a share of
Parent Stock upon surrender of Company Certificates for exchange pursuant to
this Article III (after taking into account all Company Certificates registered
in the name of such holder), shall be entitled to receive from the Exchange
Agent a cash payment equal to such fraction multiplied by the average closing
price per share of Parent Stock on the Nasdaq National Market, as reported by
the Wall Street Journal, during the 10 trading days immediately preceding the
Effective Time.
SECTION 3.5 The Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at a location mutually agreeable
to Parent and the Company as promptly as practicable following the date on which
the last of the conditions set forth in Article VIII is fulfilled or waived, or
at such other time and place as Parent and the Company shall agree. The date on
which the Closing occurs is referred to in this Agreement as the "Closing Date."
SECTION 3.6 Closing of the Company's Transfer Books. At and after the
Effective Time, holders of Company Certificates shall cease to have any rights
as stockholders of the Company, except for the right to receive shares of Parent
Stock pursuant to Section 3.1 and the right to receive cash for payment of
fractional shares pursuant to Section 3.4. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of shares of
Company Common Stock which were outstanding immediately prior to the Effective
Time shall thereafter be made. If, after the Effective Time, subject to the
terms and conditions of this Agreement, Company Certificates formerly
representing shares of Company Common Stock are presented to
A-7
<PAGE> 102
the Surviving Corporation, they shall be canceled and exchanged for shares of
Parent Stock in accordance with this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
Parent and Subsidiary each represent and warrant to the Company that,
except as set forth in the Disclosure Schedule dated as of the date hereof and
signed by an authorized officer of Parent (the "Parent Disclosure Schedule"),
each of which exceptions shall specifically identify the relevant Section hereof
to which it relates:
SECTION 4.1 Organization and Qualification. Each of Parent and Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation and has the requisite power and authority
to own, lease and operate its assets and properties and to carry on its business
as it is now being conducted. Each of Parent and Subsidiary is qualified to do
business and is in good standing in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
and in good standing is not reasonably likely to, when taken together with all
other such failures, have a Parent Material Adverse Effect. For purposes of this
Agreement, a "Parent Material Adverse Effect" is any event, change or effect
that (i) is materially adverse to the business, operations, properties, assets,
condition (financial or other) or results of operations of Parent and its
subsidiaries, taken as a whole, other than any event, change or effect resulting
from (a) changes in general economic conditions (including United States stock
market conditions) or (b) changes in the market price for Parent Stock or
Company Common Stock as reflected on the Nasdaq National Market, or (ii)
prevents Parent or Subsidiary from consummating the transactions contemplated
hereby, including the Merger, prior to the date specified in Section 9.1(b)(i)
hereof. True, accurate and complete copies of each of Parent's and Subsidiary's
certificate of incorporation and by-laws, in each case as in effect on the date
hereof, including all amendments thereto, have heretofore been made available to
the Company.
SECTION 4.2 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of
Parent consists of (a) 65,500,000 shares of Parent Stock, (b) 25,000,000
shares of Class B Common Stock , par value $0.01 per share ("Parent Class B
Common Stock"), and (c) 1,000,000 shares of preferred stock, par value
$0.01 per share ("Parent Preferred Stock"). As of the close of business on
September 30, 1999, (i) 17,489,521 shares of Parent Stock and 19,124,869
shares of Parent Class B Common Stock were issued and outstanding, (ii) no
shares of Parent Preferred Stock were issued and outstanding, (iii) no
shares of Parent Stock, Parent Class B Common Stock or Parent Preferred
Stock were held in the treasury of Parent, (iv) 4,768,304 shares of Parent
Stock were reserved for issuance pursuant to the exercise of outstanding
options and warrants to purchase Parent Stock, (v) 131,825 shares of Parent
Stock were reserved for issuance under Parent's Employee Stock Purchase
Plan and (vi) 19,124,869 shares of Parent Stock were reserved for issuance
upon conversion of Parent's Class B Common Stock. Between September 30,
1999 and the date of this Agreement, Parent has issued no shares of its
capital stock except for 62,836 shares of Parent Stock issued upon the
exercise of options granted pursuant to Parent's 1995 Stock Incentive Plan.
As of the date of this Agreement all outstanding shares of Parent Stock and
Parent Class B Common Stock are, and immediately prior to the Effective
Time all outstanding shares of Parent Stock and Parent Class B Common Stock
will be, validly issued, fully paid and nonassessable and free of any
preemptive (or similar) right.
A-8
<PAGE> 103
(b) The authorized capital stock of Subsidiary consists of 1,000
shares of Subsidiary Common Stock, of which 100 shares are issued and
outstanding, which shares are owned beneficially and of record by Parent.
(c) Except as disclosed in the Parent Disclosure Schedule, as of the
date hereof, there are no outstanding subscriptions, options, puts, calls,
contracts, commitments, understandings, restrictions, arrangements, rights
or warrants, including any right of conversion or exchange under any
outstanding security, instrument or other agreement and also including any
rights plan or other anti-takeover agreement, obligating Parent or any
subsidiary of Parent to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of the capital stock of Parent or any
subsidiary of Parent or obligating Parent or any subsidiary of Parent to
grant, extend or enter into any such agreement or commitment. Except as
otherwise disclosed in the Parent Disclosure Schedule, there are no voting
trusts, proxies or other agreements or understandings to which Parent or
any subsidiary of Parent is a party or by which Parent or any subsidiary of
Parent is bound with respect to the voting of any shares of capital stock
of Parent, and there are no registration rights or similar agreements with
respect to any shares of capital stock of Parent or any of its
subsidiaries. The shares of Parent Stock issued to stockholders of the
Company in connection with the Merger will be duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights.
(d) Except for the Parent Stock and Parent Class B Common Stock or as
otherwise described in the Parent Disclosure Schedule, Parent has
outstanding no bonds, debentures, notes or other obligations or securities
the holders of which have the right to vote (or are convertible or
exchangeable into or exercisable for securities having the right to vote)
with the stockholders of Parent on any matter.
SECTION 4.3 Subsidiaries. Each direct and indirect corporate subsidiary of
Parent is duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the requisite power and authority
to own, lease and operate its assets and properties and to carry on its business
as it is now being conducted. Each subsidiary of Parent is qualified to do
business, and is in good standing, in each jurisdiction in which the properties
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to be so qualified
and in good standing would not, when taken together with all such other
failures, have a Parent Material Adverse Effect. Except as disclosed in the
Parent Disclosure Schedule, all of the outstanding shares of capital stock of
each corporate subsidiary of Parent are validly issued, fully paid,
nonassessable and free of preemptive rights, and are owned directly or
indirectly by Parent, free and clear of any liens, claims or encumbrances,
except that such shares are pledged to secure Parent's credit facilities. Except
as disclosed in the Parent Disclosure Schedule, there are no subscriptions,
options, warrants, rights, puts, calls, contracts, voting trusts, proxies or
other commitments, understandings, restrictions or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights with respect to any
shares of capital stock of any corporate subsidiary of Parent, including any
right of conversion or exchange under any outstanding security, instrument or
agreement.
As used in this Agreement, the term "subsidiary" shall mean, when used with
reference to any person or entity, any corporation, partnership, limited
liability company, joint venture or other entity of which such person or entity
(either acting alone or together with its other subsidiaries) owns, directly or
indirectly, 50% or more of the stock or other voting interests, the holders of
which are entitled to vote for the election of a majority of the board of
directors or any similar governing body of such corporation, partnership,
limited liability company, joint venture or other entity.
A-9
<PAGE> 104
SECTION 4.4 Authority; Non-Contravention; Approvals.
(a) Parent and Subsidiary each have full corporate power and authority
to enter into this Agreement and, subject to the Parent Stockholders'
Approval (as defined in Section 7.3(b)) and the Parent Required Statutory
Approvals (as defined in Section 4.4(c)), to consummate the transactions
contemplated hereby. This Agreement has been approved by the Boards of
Directors of Parent and Subsidiary, and has been approved by a majority of
the non-employee members of the Board of Directors of Parent, and no other
corporate proceedings on the part of Parent or Subsidiary are necessary to
authorize the execution and delivery of this Agreement or, except for the
Parent Stockholders' Approval, the consummation by Parent and Subsidiary of
the transactions contemplated hereby. This Agreement has been duly executed
and delivered by each of Parent and Subsidiary, and, assuming the due
authorization, execution and delivery hereof by the Company, constitutes a
valid and legally binding agreement of each of Parent and Subsidiary
enforceable against each of them in accordance with its terms, except that
such enforcement may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) general equitable
principles.
(b) The execution and delivery of this Agreement by each of Parent and
Subsidiary do not and will not violate, conflict with or result in a breach
of any provision of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or
result in the termination of, or accelerate the performance required by, or
result in a right of termination, acceleration or amendment under, or
result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of Parent or any of its
subsidiaries under any of the terms, conditions or provisions of (i) the
respective certificates of incorporation or by-laws of Parent or any of its
subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or
governmental authority applicable to Parent or any of its subsidiaries or
any of their respective properties or assets or (iii) any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, concession,
contract, lease or other instrument, obligation or agreement of any kind to
which Parent or any of its subsidiaries is now a party or by which Parent
or any of its subsidiaries or any of their respective properties or assets
may be bound. The consummation by Parent and Subsidiary of the transactions
contemplated hereby will not result in any violation, conflict, breach,
default, termination, acceleration or creation of rights or liens under any
of the terms, conditions or provisions described in clauses (i) through
(iii) of the preceding sentence, subject (x) in the case of the terms,
conditions or provisions described in clauses (i) and (ii) above, to
obtaining (prior to the Effective Time) the Parent Required Statutory
Approvals and the Parent Stockholder's Approval and (y) in the case of the
terms, conditions or provisions described in clause (iii) above, to
obtaining (prior to the Effective Time) consents required from commercial
lenders, lessors or other third parties as specified on the Parent
Disclosure Schedule. Excluded from the foregoing sentences of this
paragraph (b), insofar as they apply to the terms, conditions or provisions
described in clauses (ii) and (iii) of the first sentence of this paragraph
(b), are such violations, conflicts, breaches, defaults, terminations,
accelerations or creations of liens, security interests, charges or
encumbrances that would not, in the aggregate, have a Parent Material
Adverse Effect.
(c) Except for (i) the filings by Parent required by, and the
expiration or termination of any applicable waiting period under, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Joint Proxy Statement/Prospectus (as defined
in Section 4.9) with the Securities and Exchange Commission (the "SEC")
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the Securities Act of 1933, as amended (the "Securities Act"),
and the declaration of the effectiveness thereof by the SEC and filings
with various state blue sky authorities, (iii) the
A-10
<PAGE> 105
making of the Merger Filing with the Secretary of State of the State of
Delaware in connection with the Merger, and (iv) the filings by Parent
required in order for the Parent Stock to be issued in connection with the
Merger to be listed on the Nasdaq National Market (the filings and
approvals referred to in clauses (i) through (iv) are collectively referred
to as the "Parent Required Statutory Approvals"), no declaration, filing or
registration with, or notice to, or authorization, consent or approval of,
any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by Parent or Subsidiary or the
consummation by Parent or Subsidiary of the transactions contemplated
hereby, other than such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as
the case may be, would not, in the aggregate, have a Parent Material
Adverse Effect.
SECTION 4.5 Reports and Financial Statements. Parent has filed with the
SEC all forms, statements, reports and documents (including all post-effective
amendments and supplements thereto) required to be filed by it under each of the
Securities Act, the Exchange Act and the respective rules and regulations
thereunder, all of which, as amended if applicable, complied when filed in all
material respects with all applicable requirements of the appropriate act and
the rules and regulations thereunder. Parent has made available to the Company
copies (including all exhibits, post-effective amendments and supplements
thereto) of its (a) Annual Reports on Form 10-K for the fiscal year ended March
31, 1999 and for the immediately preceding fiscal year, as filed with the SEC,
(b) proxy and information statements relating to (i) all meetings of its
stockholders (whether annual or special) and (ii) actions by written consent in
lieu of a stockholders' meeting from January 1, 1997, until the date hereof, and
(c) all other reports, including quarterly reports, and registration statements
filed by Parent with the SEC since January 1, 1997 (other than registration
statements filed on Form S-8) (the documents referred to in clauses (a), (b) and
(c) filed prior to the date hereof are collectively referred to as the "Parent
SEC Reports"). The Parent SEC Reports are identified on the Parent Disclosure
Schedule. As of their respective filing dates (and, in the case of any
registration statement, on the date it was declared effective), the Parent SEC
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim consolidated financial statements of Parent included in the
Parent SEC Reports (collectively, the "Parent Financial Statements") have been
prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis (except as may be indicated therein or
in the notes thereto) and fairly present, in all material respects, the
financial position of Parent and its subsidiaries as of the dates thereof and
the results of their operations and their cash flows for the periods then ended,
subject, in the case of the unaudited interim financial statements, to normal
year-end and audit adjustments and any other adjustments described therein.
SECTION 4.6 Absence of Undisclosed Liabilities. Except as disclosed in the
Parent SEC Reports or as contemplated by this Agreement, neither Parent nor any
of its subsidiaries had at September 30, 1999, or has incurred since that date,
any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except: (a) liabilities, obligations or contingencies
(i) which are accrued or reserved against in the Parent Financial Statements or
reflected in the notes thereto or (ii) which were incurred after September 30,
1999, and were incurred in the ordinary course of business and consistent with
past practices; (b) liabilities, obligations or contingencies which (i) would
not, in the aggregate, have a Parent Material Adverse Effect, or (ii) have been
discharged or paid in full prior to the date hereof; and (c) liabilities and
obligations which are of a nature not required to be reflected in the
consolidated financial statements of Parent and its subsidiaries prepared in
accordance with United States generally accepted accounting principles
consistently applied and which were incurred in the ordinary course of business.
A-11
<PAGE> 106
SECTION 4.7 Absence of Certain Changes or Events. Since the date of the
balance sheet included in the most recently filed Parent SEC Report (the "Last
Parent SEC Report") that contains consolidated financial statements of Parent,
there has not been any Parent Material Adverse Effect other than changes that
affect the industries in which Parent and its subsidiaries operate generally.
SECTION 4.8 Litigation. Except as disclosed in the Last Parent SEC Report,
there are no claims, suits, actions or proceedings pending or, to the knowledge
of Parent, threatened against Parent or any of its subsidiaries, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that seek to restrain or enjoin the consummation of
the Merger or which would reasonably be expected, either alone or in the
aggregate with all such claims, actions or proceedings, to have a Parent
Material Adverse Effect. Except as set forth in the Last Parent SEC Report,
neither Parent nor any of its subsidiaries is subject to any judgment, decree,
injunction, rule or order of any court, governmental department, commission,
agency, instrumentality or authority or any arbitrator which prohibits or
restricts the consummation of the transactions contemplated hereby or would have
any Parent Material Adverse Effect.
SECTION 4.9 Registration Statement and Proxy Statement. None of the
information to be supplied by Parent or its subsidiaries or Affiliates for
inclusion in (a) the Registration Statement on Form S-4 to be filed under the
Securities Act with the SEC by Parent in connection with the Merger for the
purpose of registering the shares of Parent Stock to be issued in connection
with the Merger (the "Registration Statement") or (b) the proxy statement to be
distributed in connection with the Company's and Parent's meetings of their
respective stockholders to vote upon this Agreement and the transactions
contemplated hereby (the "Proxy Statement" and, together with the prospectus
included in the Registration Statement, the "Joint Proxy Statement/ Prospectus")
will contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading, at any of: (i) the time the Registration Statement (or any
amendment or supplement thereto) is declared effective; (ii) the time the Joint
Proxy Statement/Prospectus (or any amendment or supplement thereto) is first
mailed to the stockholders of Parent and Company; (iii) the time of each of the
meetings of the stockholders of Parent and Company to be held in connection with
the transactions contemplated by this Agreement; and (iv) the Effective Time.
The Joint Proxy Statement/Prospectus will, as of its mailing date, comply as to
form in all material respects with all applicable laws, including the provisions
of the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation is made by Parent or
Subsidiary with respect to information supplied by the Company or the
stockholders of the Company for inclusion therein. For purposes of this
Agreement, the term "Affiliate" means, when used with respect to a specified
person or entity, another person or entity that, directly or indirectly through
one or more intermediaries, controls or is controlled by or is under common
control with the person or entity specified. For the purpose of this definition,
"control" means (i) the ownership or control of more than 50% of the equity
interest in any person or entity, or (ii) the ability to direct or cause the
direction of the management or affairs of a person or entity, whether through
the direct or indirect ownership of voting interests, by contract or otherwise.
SECTION 4.10 No Violation of Law. Except as disclosed in the Last Parent
SEC Report, neither Parent nor any of its subsidiaries is in violation of, or
has been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance, or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority, except for violations which, in the aggregate,
would not reasonably be expected to have a Parent Material Adverse Effect.
Except as disclosed in the Last Parent SEC Report, as of the date of this
Agreement, to the knowledge of Parent, no investigation or review by any
governmental or regulatory body or authority is pending or
A-12
<PAGE> 107
threatened, nor has any governmental or regulatory body or authority indicated
an intention to conduct the same, other than, in each case, those the outcome of
which, as far as reasonably can be foreseen, will not have a Parent Material
Adverse Effect. Parent and its subsidiaries have all permits, licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct their businesses as presently
conducted (collectively, the "Parent Permits"), except for permits, licenses,
franchises, variances, exemptions, orders, authorizations, consents and
approvals the absence of which, alone or in the aggregate, would not have a
Parent Material Adverse Effect. Parent and its subsidiaries are not in violation
of the terms of any Parent Permit, except for delays in filing reports or
violations which, alone or in the aggregate, would not have a Parent Material
Adverse Effect.
SECTION 4.11 Compliance with Agreements. Except as disclosed in the Last
Parent SEC Report, each of Parent and its subsidiaries is not in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party, could result in a default under (a) the respective certificates of
incorporation, by-laws or other similar organizational instruments of Parent or
any of its subsidiaries or (b) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which Parent or any of its subsidiaries is a party or by which any
of them is bound or to which any of their properties or assets are subject,
other than, in the case of clause (b) of this Section 4.11, breaches, violations
and defaults which would not have, in the aggregate, a Parent Material Adverse
Effect.
SECTION 4.12 Taxes.
(a) Parent and its subsidiaries have (i) duly filed with the
appropriate governmental authorities all Tax Returns (as defined in Section
4.12(c)) required to be filed by them for all periods ending on or prior to
the Effective Time, other than those Tax Returns the failure of which to
file would not have a Parent Material Adverse Effect, and such Tax Returns
were, as of their respective dates of filing, true, correct and complete in
all material respects and (ii) duly paid in full or made adequate provision
for the payment of all Taxes (as defined in Section 4.12(b)) for all past
and current periods. The liabilities and reserves for Taxes reflected in
the Parent balance sheet included in the Last Parent SEC Report are
adequate to cover all Taxes for all periods ending at or prior to the date
of such balance sheet and there is no liability for Taxes for any period
beginning after such date other than Taxes arising in the ordinary course
of business. There are no material liens for Taxes upon any property or
assets of Parent or any subsidiary thereof, except for liens for Taxes not
yet due. There are no unresolved issues of law or fact arising out of a
notice of deficiency, proposed deficiency or assessment from the Internal
Revenue Service (the "IRS") or any other governmental taxing authority with
respect to Taxes of the Parent or any of its subsidiaries which, if decided
adversely, singly or in the aggregate, would have a Parent Material Adverse
Effect. Except as disclosed on the Parent Disclosure Schedule, neither
Parent nor its subsidiaries has waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency other than waivers and extensions which are no
longer in effect. Neither Parent nor any of its subsidiaries is a party to
any agreement providing for the allocation or sharing of Taxes with any
entity that is not, directly or indirectly, a corporate subsidiary of
Parent other than agreements the consequences of which are fully and
adequately reserved for in the Parent Financial Statements. Neither Parent
nor any of its corporate subsidiaries has, with regard to any assets or
property held, acquired or to be acquired by any of them, filed a consent
to the application of Section 341(f) of the Code.
(b) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, including, without limitation, income, gross receipts, excise,
property, sales, withholding, social security, occupation, use, service,
license, payroll, franchise, transfer and recording taxes, fees and
charges, windfall profits, severance, customs, import, export, employment
or similar taxes,
A-13
<PAGE> 108
charges, fees, levies or other assessments imposed by the United States, or
any state, local or foreign government or subdivision or agency thereof,
whether computed on a separate, consolidated, unitary, combined or any
other basis, and such term shall include any interest, fines, penalties or
additional amounts and any interest in respect of any additions, fines or
penalties attributable or imposed or with respect to any such taxes,
charges, fees, levies or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall mean
any return, report or other document or information required to be supplied
to a taxing authority in connection with Taxes.
SECTION 4.13 Employee Benefit Plans; ERISA.
(a) Except as disclosed in the Parent SEC Reports, at the date hereof,
Parent and its subsidiaries do not maintain or contribute to or have any
obligation or liability to or with respect to any material employee benefit
plans, programs, arrangements or practices (such plans, programs,
arrangements or practices of Parent and its subsidiaries being referred to
as the "Parent Plans"), including employee benefit plans within the meaning
set forth in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or other similar material arrangements for the
provision of benefits. Neither Parent nor any of its subsidiaries maintains
or has any financial or funding liability with respect to any
"Multi-employer Plan" within the meaning of Section 3(37) of ERISA or a
"Multiple Employer Plan" within the meaning of Section 413(c) of the Code.
Neither Parent nor any of its subsidiaries has any obligation to create or
contribute to any additional such plan, program, arrangement or practice or
to amend any such plan, program, arrangement or practice so as to increase
benefits or contributions thereunder, except as required under the terms of
the Parent Plans, under existing collective bargaining agreements or to
comply with applicable law. Neither Parent nor any of its subsidiaries has
any obligation to contribute to any plan subject to Title IV of ERISA.
(b) Except as disclosed in the Parent SEC Reports, (i) there have been
no prohibited transactions within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the Code with respect to any of the Parent Plans
that could result in penalties, taxes or liabilities which, singly or in
the aggregate, could have a Parent Material Adverse Effect, (ii) each of
the Parent Plans has been operated and administered in all material
respects in accordance with applicable laws during the period of time
covered by the applicable statute of limitations, (iii) each of the Parent
Plans which is intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined by the Internal Revenue Service to
be so qualified and such determination has not been modified, revoked or
limited by failure to satisfy any condition thereof or by a subsequent
amendment thereto or a failure to amend, except that it may be necessary to
make additional amendments retroactively to maintain the "qualified" status
of such Parent Plans, and the period for making any such necessary
retroactive amendments has not expired, (iv) to the best knowledge of
Parent and its subsidiaries, there are no material pending, threatened or
anticipated claims involving any of the Parent Plans other than claims for
benefits in the ordinary course, and (v) no act, omission or transaction
(individually or in the aggregate) has occurred with respect to any Parent
Plan that has resulted or could result in any material liability (direct or
indirect) of Parent or any subsidiary under Sections 409 or 502(c)(i) or
(l) of ERISA or Chapter 43 of Subtitle (A) of the Code. Each Parent Plan
can be unilaterally terminated by Parent or a subsidiary at any time
without material liability, other than for amounts previously reflected in
the financial statements (or notes thereto) included in the Parent SEC
Reports.
(c) The Parent SEC Reports contain a true and complete summary or list
of or otherwise describe all material employment contracts and other
employee benefit arrange-
A-14
<PAGE> 109
ments with "change of control" or similar provisions and all severance
agreements with executive officers.
SECTION 4.14 Labor Controversies. Except as disclosed in the Parent SEC
Reports, (a) there are no material controversies pending or, to the knowledge of
Parent, threatened between Parent or its subsidiaries and any representatives of
any of their employees and (b) to the knowledge of Parent, there are no material
organizational efforts presently being made involving any of the presently
unorganized employees of Parent and its subsidiaries except for such
controversies and organizational efforts which, singly or in the aggregate,
could not reasonably be expected to have a Parent Material Adverse Effect.
SECTION 4.15 Environmental Matters.
(a) Except as disclosed in the Last Parent SEC Report, (i) Parent and
its subsidiaries have conducted their respective businesses in compliance
with all applicable Environmental Laws (defined in Section 4.15(b)),
including, without limitation, having all permits, licenses and other
approvals and authorizations necessary for the operation of their
respective businesses as presently conducted, (ii) none of the properties
owned by Parent or any of its subsidiaries contain any Hazardous Substance
(defined in Section 4.15(c)) as a result of any activity of Parent or any
of its subsidiaries in amounts exceeding the levels permitted by applicable
Environmental Laws, (iii) neither Parent nor any of its subsidiaries has
received any notices, demand letters or requests for information from any
Federal, state, local or foreign governmental entity or third party
indicating that Parent or any of its subsidiaries may be in violation of,
or liable under, any Environmental Law in connection with the ownership or
operation of their businesses, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or, to the knowledge of Parent, threatened, against
Parent or any of its subsidiaries relating to any violation, or alleged
violation, of any Environmental Law, (v) no reports have been filed, or are
required to be filed, by Parent or any of its subsidiaries concerning the
release of any Hazardous Substance or the threatened or actual violation of
any Environmental Law, (vi) no Hazardous Substance has been disposed of,
released or transported in violation of any applicable Environmental Law
from any properties owned by Parent or any of its subsidiaries as a result
of any activity of Parent or any of its subsidiaries during the time such
properties were owned, leased or operated by Parent or any of its
subsidiaries, (vii) no underground storage tanks have been installed,
closed or removed from any properties owned by Parent or any of its
subsidiaries during, in the case of Parent, the time such properties were
owned, leased or operated by Parent and during, in the case of each
subsidiary, the time such subsidiary has been owned by Parent, (viii) there
is no asbestos or asbestos containing material present in any of the
properties owned by Parent and its subsidiaries, and no asbestos has been
removed from any of such properties during the time such properties were
owned, leased or operated by Parent or any of its subsidiaries, and (ix)
neither Parent, its subsidiaries nor any of their respective properties are
subject to any liabilities or expenditures (fixed or contingent) relating
to any suit, settlement, court order, administrative order, regulatory
requirement, judgment or claim asserted or arising under any Environmental
Law, except for violations of the foregoing clauses (i) through (ix) that,
singly or in the aggregate, would not reasonably be expected to have a
Parent Material Adverse Effect.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the
environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface land, subsurface land,
plant and animal life or any other natural resource) or to human health or
safety or (y) the exposure to, or the use, storage,
A-15
<PAGE> 110
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances, in each
case as amended and as in effect on the Closing Date. The term
"Environmental Law" includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of
1980, the Superfund Amendments and Reauthorization Act, the Federal Water
Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976
(including the Hazardous and Solid Waste Amendments thereto), the Federal
Solid Waste Disposal Act and the Federal Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, and the Federal
Occupational Safety and Health Act of 1970, each as amended and as in
effect on the Closing Date, and (ii) any common law or equitable doctrine
(including, without limitation, injunctive relief and tort doctrines such
as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of, effects of or exposure to any Hazardous
Substance.
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as
hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under
any Environmental Law. Hazardous Substance includes any substance to which
exposure is regulated by any government authority or any Environmental Law
including, without limitation, any toxic waste, pollutant, contaminant,
hazardous substance, toxic substance, hazardous waste, special waste,
industrial substance or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos, or asbestos containing material,
urea formaldehyde foam insulation, lead or polychlorinated biphenyls.
SECTION 4.16 Title to Assets. Parent and each of its subsidiaries has good
and marketable title in fee simple to all its real property and good title to
all its leasehold interests and other owned properties as reflected in the most
recent balance sheet included in the Parent Financial Statements, except for
such properties and assets that have been disposed of in the ordinary course of
business since the date of such balance sheet, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i) the
lien for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract from
the value or interfere with the present use of the property subject thereto or
affected thereby, or otherwise materially impair the Parent's business
operations (in the manner presently carried on by the Parent), or (iii) as
disclosed in the Last Parent SEC Report, and except for such matters which,
singly or in the aggregate, could not reasonably be expected to have a Parent
Material Adverse Effect. All leases under which Parent leases any real or
personal property are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing default or event
which with notice or lapse of time or both would become a default other than
failures to be valid and effective and defaults under such leases which in the
aggregate will not have a Parent Material Adverse Effect.
SECTION 4.17 Reorganization. None of the Parent, Subsidiary or, to their
knowledge, any of their Affiliates has taken or agreed or intends to take any
action or has any knowledge of any fact or circumstance that would prevent the
Merger from constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code.
SECTION 4.18 Parent Stockholders' Approval. The affirmative vote of
stockholders of Parent required for approval of (i) the issuance of Parent Stock
in connection with the Merger (the "Parent Stock Issuance") is a majority of the
total votes cast thereon, in person or by proxy at a meeting of such
stockholders, by holders of Parent Stock and Parent Class B Common Stock
entitled to vote thereon, voting together as a single class and (ii) the
amendment to Parent's Amended and Restated Certificate of Incorporation to
increase the authorized Parent Stock to
A-16
<PAGE> 111
85,000,000 shares in connection with the Merger (the "Parent Charter Amendment")
is a majority of the votes of the outstanding shares of Parent Stock and Parent
Class B Common Stock entitled to vote thereon, voting together as a single
class.
SECTION 4.19 Brokers and Finders. Except for the fees and expenses payable
to Goldman, Sachs & Co. and Hambrecht & Quist LLC, which fees are reflected in
their respective agreements with Parent (a copy of each of which has been
delivered to the Company), Parent has not entered into any contract, arrangement
or understanding with any person or firm which may result in the obligation of
Parent to pay any investment banking fees, finder's fees, brokerage or agent
commissions or other like payments in connection with the transactions
contemplated hereby.
SECTION 4.20 Opinion of Financial Advisor. The financial advisor of
Parent, Goldman, Sachs & Co., has rendered a written opinion, dated December 13,
1999, to the Board of Directors of Parent to the effect that as of December 13,
1999, the Exchange Ratio pursuant to this Agreement is fair from a financial
point of view to Parent.
SECTION 4.21 Company Stock. Neither Parent nor Subsidiary is, nor at any
time during the last three years has it been, an "interested stockholder" of the
Company as defined in Section 203 of the DGCL (other than as contemplated by
this Agreement). Neither Parent nor Subsidiary owns (directly or indirectly,
beneficially or of record) or is a party to any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of, in
each case, any shares of capital stock of the Company (other than as
contemplated by this Agreement).
SECTION 4.22 Section 203. The action of the Board of Directors of Parent
in approving this Agreement (and the transactions provided for herein) is
sufficient to render inapplicable to this Agreement (and the transactions
provided for herein), in light of the Voting Agreement, dated as of the date
hereof, among the Company and certain of the stockholders of Parent, the
restrictions on "business combinations" (as defined in Section 203 of the DGCL)
as set forth in Section 203 of the DGCL.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Subsidiary that, except
as set forth in the disclosure schedule dated as of the date hereof and signed
by an authorized officer of the Company (the "Company Disclosure Schedule"),
each of which exceptions shall specifically identify the relevant Section hereof
to which it relates:
SECTION 5.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the requisite corporate power and authority to own,
lease and operate its assets and properties and to carry on its business as it
is now being conducted. The Company is qualified to do business and is in good
standing in each jurisdiction in which the properties owned, leased or operated
by it or the nature of the business conducted by it makes such qualification
necessary, except where the failure to be so qualified and in good standing is
not reasonably likely to, when taken together with all other such failures, have
a Company Material Adverse Effect. For purposes of this Agreement, a "Company
Material Adverse Effect" is any event, change or effect that (i) is materially
adverse to the business, operations, properties, assets, condition (financial or
other) or results of operations of the Company and its subsidiaries taken as a
whole, other than any event, change or effect resulting from (a) changes in
general economic conditions (including United States stock market conditions) or
(b) changes in the market price of the Company Common Stock or Parent Stock as
reflected on the Nasdaq National Market, or (ii) prevents the Company from
consummating the transactions contemplated hereby, including the Merger, prior
A-17
<PAGE> 112
to the date specified in Section 9.1(a)(i) hereof. True, accurate and complete
copies of the Company's Restated Certificate of Incorporation and Amended and
Restated Bylaws, in each case as in effect on the date hereof, including all
amendments thereto, have heretofore been delivered to Parent.
SECTION 5.2 Capitalization.
(a) The authorized capital stock of the Company consists of 15,000,000
shares of Company Common Stock, 1,000,000 shares of Class A Common Stock,
par value $.01 per share ("Company Class A Common Stock"), and 750,000
shares of Preferred Stock, par value $.01 per share, of which 80,000 shares
have been designated as Series A Junior Participating Preferred Stock
("Company Preferred Stock"). As of the close of business on September 30,
1999, (i) 5,779,720 shares of Company Common Stock were issued and
outstanding, (ii) no shares of Company Class A Common Stock or Company
Preferred Stock were issued and outstanding, (iii) 735,000 shares of
Company Common Stock were held in the treasury of the Company, (iv) no
shares of Company Class A Common Stock and no shares of Company Preferred
Stock were held in the treasury of the Company, (v) 929,904 shares of
Company Common Stock were reserved for issuance pursuant to the exercise of
outstanding options to purchase Company Common Stock; and (vi) 80,000
shares of Company Preferred Stock were reserved for issuance in connection
with the rights (the "Rights") to purchase shares of Company Preferred
Stock issued pursuant to the Rights Agreement, dated as of January 16,
1997, as amended (the "Rights Agreement"), between the Company and LaSalle
National Bank, as Rights Agent. Between September 30, 1999 and the date of
this Agreement, the Company has issued no shares of its capital stock
except for 1,117 shares of Company Common Stock issued upon the exercise of
options granted pursuant to the Company Option Plans (as defined below). As
of the date of this Agreement all outstanding shares of Company Common
Stock are, and immediately prior to the Effective Time all outstanding
shares of Company Common Stock will be, validly issued, fully paid and
nonassessable and free of any preemptive (or similar) right. As used
herein, "Company Option Plans" means the following, in each case as
amended: the TI Investors Inc. Stock Option Plan, Teltrend Inc. 1995 Stock
Option Plan, Teltrend Inc. 1996 Stock Option Plan, and Teltrend Inc. 1997
Non-Employee Director Stock Option Plan.
(b) Except as disclosed in the Company Disclosure Schedule, and except
for the Rights and the Rights Agreement, as of the date hereof there were
no outstanding subscriptions, options, puts, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including
any right of conversion or exchange under any outstanding security,
instrument or other agreement and also including any rights plan or other
anti-takeover agreement, obligating the Company or any subsidiary of the
Company to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of the capital stock of the Company or any
subsidiary of the Company or obligating the Company or any subsidiary of
the Company to grant, extend or enter into any such agreement or
commitment. There are no voting trusts, proxies or other agreements or
understandings to which the Company or any subsidiary of the Company is a
party or by which Company or any subsidiary of Company is bound with
respect to the voting of any shares of capital stock of the Company,
although the Company has been advised, as of the date hereof, that all of
its directors and executive officers intend to vote in favor of the
adoption of this Agreement, and, except as set forth on the Company
Disclosure Schedule, there are no registration rights or similar agreements
with respect to any shares of capital stock of the Company or any of its
subsidiaries.
(c) Except for the Company Common Stock, options to purchase Company
Common Stock granted under the Company Option Plans and the Rights, the
Company has outstanding no bonds, debentures, notes or other obligations or
securities the holders of
A-18
<PAGE> 113
which have the right to vote (or are convertible or exchangeable into or
exercisable for securities having the right to vote) with the stockholders
of Company on any matter.
SECTION 5.3 Subsidiaries. Each direct and indirect corporate subsidiary of
the Company is duly organized, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each subsidiary of the Company is
qualified to do business, and is in good standing, in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing will not, when taken together with all such
other failures, have a Company Material Adverse Effect. All of the outstanding
shares of capital stock of each corporate subsidiary of the Company are validly
issued, fully paid, nonassessable and free of preemptive rights and are owned
directly or indirectly by the Company free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever. There are no subscriptions, options, warrants, rights, puts, calls,
contracts, voting trusts, proxies or other commitments, understandings,
restrictions or arrangements relating to the issuance, sale, voting, transfer,
ownership or other rights with respect to any shares of capital stock of any
corporate subsidiary of the Company, including any right of conversion or
exchange under any outstanding security, instrument or agreement.
SECTION 5.4 Authority; Non-Contravention; Approvals.
(a) The Company has full corporate power and authority to enter into
this Agreement and, subject to the Company Stockholders' Approval (as
defined in Section 7.3(a)) and the Company Required Statutory Approvals (as
defined in Section 5.4(c)), to consummate the transactions contemplated
hereby. The Board of Directors of the Company has at a meeting duly called
and held and at which a quorum was present and acting throughout, by the
affirmative vote of the majority of the directors of the Company, (i)
determined that this Agreement and the Merger are advisable and in the best
interests of the Company and its stockholders, (ii) approved this Agreement
in accordance with the provisions of the DGCL, and (iii) resolved, in
accordance with and subject to the terms of this Agreement, to recommend
adoption of this Agreement by the Company's stockholders and directed that
this Agreement be submitted for consideration by the Company's
stockholders. No other corporate proceedings on the part of the Company are
necessary to authorize the execution and delivery of this Agreement or,
except for the Company Stockholders' Approval, the consummation by the
Company of the transactions contemplated hereby. This Agreement has been
duly executed and delivered by the Company, and, assuming the due
authorization, execution and delivery hereof by Parent and Subsidiary,
constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that
such enforcement may be subject to (a) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (b) general equitable
principles.
(b) The execution and delivery of this Agreement by the Company do not
and will not violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of
time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a
right of termination, acceleration or amendment under, or result in the
creation of any lien, security interest, charge or encumbrance upon any of
the properties or assets of the Company or any of its subsidiaries under
any of the terms, conditions or provisions of (i) the certificates of
incorporation, by-laws or similar organizational documents of the Company
or any of its subsidiaries, (ii) any statute, law, ordinance, rule,
regulation, judgment, decree, order, injunction, writ, permit or license of
any court or governmental authority applicable to the
A-19
<PAGE> 114
Company or any of its subsidiaries or any of their respective properties or
assets, or (iii) any note, bond, mortgage, indenture, deed of trust,
license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or any
of its subsidiaries is now a party or by which the Company or any of its
subsidiaries or any of their respective properties or assets may be bound.
The consummation by the Company of the transactions contemplated hereby
will not result in any violation, conflict, breach, default, termination,
acceleration or creation of liens or rights under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the
preceding sentence, subject (x) in the case of the terms, conditions or
provisions described in clauses (i) and (ii) above, to obtaining (prior to
the Effective Time) the Company Required Statutory Approvals and the
Company Stockholders' Approval and (y) in the case of the terms, conditions
or provisions described in clause (iii) above, to obtaining (prior to the
Effective Time) consents required from commercial lenders, lessors or other
third parties as specified in the Company Disclosure Schedule. Excluded
from the foregoing sentences of this paragraph (b), insofar as they apply
to the terms, conditions or provisions described in clauses (ii) and (iii)
of the first sentence of this paragraph (b), are such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, have a Company Material Adverse Effect.
(c) Except for (i) the filings by the Company required by, and the
expiration or termination of any applicable waiting period under, the HSR
Act, (ii) the filing of the Joint Proxy Statement/Prospectus with the SEC
pursuant to the Exchange Act, and (iii) the making of the Merger Filing
with the Secretary of State of the State of Delaware in connection with the
Merger (the filings and approvals referred to in clauses (i) through (iii)
are collectively referred to as the "Company Required Statutory
Approvals"), no declaration, filing or registration with, or notice to, or
authorization, consent or approval of, any governmental or regulatory body
or authority is necessary for the execution and delivery of this Agreement
by the Company or the consummation by the Company of the transactions
contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or
obtained, as the case may be, would not, in the aggregate, have a Company
Material Adverse Effect.
SECTION 5.5 Reports and Financial Statements. The Company has filed with
the SEC all material forms, statements, reports and documents (including all
post-effective amendments and supplements thereto) required to be filed by it
under each of the Securities Act, the Exchange Act and the respective rules and
regulations thereunder, all of which, as amended if applicable, complied when
filed in all material respects with all applicable requirements of the
appropriate act and the rules and regulations thereunder. The Company has
previously delivered to Parent copies (including all exhibits, post-effective
amendments and supplements thereto) of its (a) Annual Reports on Form 10-K for
the year ended July 31, 1999, and for the immediately preceding fiscal year, as
filed with the SEC, (b) proxy and information statements relating to (i) all
meetings of its stockholders (whether annual or special) and (ii) actions by
written consent in lieu of a stockholders' meeting from January 1, 1997, until
the date hereof, and (c) all other reports, including quarterly reports, and
registration statements filed by the Company with the SEC since January 1, 1997
(other than registration statements filed on Form S-8) (the documents referred
to in clauses (a), (b) and (c) filed prior to the date hereof are collectively
referred to as the "Company SEC Reports"). The Company SEC Reports are
identified on the Company Disclosure Schedule. As of their respective filing
dates (and, in the case of any registration statement, the date on which it was
declared effective), the Company SEC Reports did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The audited
consolidated financial statements and
A-20
<PAGE> 115
unaudited interim consolidated financial statements of the Company included in
the Company SEC Reports (collectively, the "Company Financial Statements") have
been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis (except as may be indicated therein or
in the notes thereto) and fairly present, in all material respects, the
financial position of the Company and its subsidiaries as of the dates thereof
and the results of their operations and their cash flows for the periods then
ended, subject, in the case of the unaudited interim financial statements, to
normal year-end and audit adjustments and any other adjustments described
therein.
SECTION 5.6 Absence of Undisclosed Liabilities. Except as disclosed in the
Company SEC Reports or as contemplated by this Agreement, neither the Company
nor any of its subsidiaries had at July 31, 1999, or has incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except (a) liabilities, obligations or contingencies
(i) which are accrued or reserved against in the Company Financial Statements or
reflected in the notes thereto or (ii) which were incurred after July 31, 1999,
and were incurred in the ordinary course of business and consistent with past
practices, (b) liabilities, obligations or contingencies which (i) would not, in
the aggregate, have a Company Material Adverse Effect or (ii) have been
discharged or paid in full prior to the date hereof, and (c) liabilities and
obligations which are of a nature not required to be reflected in the
consolidated financial statements of the Company and its subsidiaries prepared
in accordance with United States generally accepted accounting principles
consistently applied and which were incurred in the ordinary course of business.
SECTION 5.7 Absence of Certain Changes or Events. Since the date of the
balance sheet included in the most recently filed Company SEC Report (the "Last
Company SEC Report") that contains consolidated financial statements of the
Company, there has not been any Company Material Adverse Effect, other than
changes that affect the industries in which the Company and its subsidiaries
operate generally.
SECTION 5.8 Litigation. Except as disclosed in the Last Company SEC Report
or the Company Disclosure Schedule, there are no claims, suits, actions or
proceedings pending or, to the knowledge of the Company, threatened against the
Company or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator, that seek
to restrain the consummation of the Merger or which would reasonably be
expected, either alone or in the aggregate with all such claims, actions or
proceedings, to have a Company Material Adverse Effect. Except as set forth in
the Last Company SEC Report, neither the Company nor any of its subsidiaries is
subject to any judgment, decree, injunction, rule or order of any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator, which prohibits or restricts the consummation of the
transactions contemplated hereby or would have any Company Material Adverse
Effect.
SECTION 5.9 Registration Statement and Proxy Statement. None of the
information to be supplied by the Company or its subsidiaries or Affiliates for
inclusion in (a) the Registration Statement or (b) the Proxy Statement will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading, at any of: (i) the time the Registration Statement (or any amendment
or supplement thereto) is declared effective; (ii) the time the Joint Proxy
Statement/Prospectus (or any amendment or supplement thereto) is first mailed to
the stockholders of Parent and Company; (iii) the time of each of the meetings
of the stockholders of Parent and Company to be held in connection with the
transactions contemplated by this Agreement; and (iv) the Effective Time. The
Joint Proxy Statement/Prospectus, as it relates to the meeting of the Company's
stockholders to be held in connection with the transactions contemplated hereby,
will comply, as of its mailing date, as to form in all material respects with
all applicable laws, including the applicable provisions of the Securities Act
and the Exchange Act and the rules and regulations promulgated thereunder,
A-21
<PAGE> 116
except that no representation is made by the Company with respect to information
supplied by Parent, Subsidiary or any stockholder or Affiliate of Parent for
inclusion therein.
SECTION 5.10 No Violation of Law. Except as disclosed in the Last Company
SEC Report, neither the Company nor any of its subsidiaries is in violation of,
or has been given notice or been charged with any violation of, any law,
statute, order, rule, regulation, ordinance or judgment (including, without
limitation, any applicable environmental law, ordinance or regulation) of any
governmental or regulatory body or authority, except for violations which, in
the aggregate, could not reasonably be expected to have a Company Material
Adverse Effect. Except as disclosed in the Last Company SEC Report, as of the
date of this Agreement, to the knowledge of the Company, no investigation or
review by any governmental or regulatory body or authority is pending or
threatened, nor has any governmental or regulatory body or authority indicated
an intention to conduct the same, other than, in each case, those the outcome of
which, as far as reasonably can be foreseen, will not have a Company Material
Adverse Effect. The Company and its subsidiaries have all permits, licenses,
franchises, variances, exemptions, orders and other governmental authorizations,
consents and approvals necessary to conduct their businesses as presently
conducted (collectively, the "Company Permits"), except for permits, licenses,
franchises, variances, exemptions, orders, authorizations, consents and
approvals the absence of which, alone or in the aggregate, would not have a
Company Material Adverse Effect. The Company and its subsidiaries are not in
violation of the terms of any Company Permit, except for delays in filing
reports or violations which, alone or in the aggregate, would not have a Company
Material Adverse Effect.
SECTION 5.11 Compliance with Agreements. Except as disclosed in the Last
Company SEC Report, each of the Company and its subsidiaries is not in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party, could result in a default under, (a) the respective certificates of
incorporation, by-laws or similar organizational instruments of the Company or
any of its subsidiaries or (b) any contract, commitment, agreement, indenture,
mortgage, loan agreement, note, lease, bond, license, approval or other
instrument to which the Company or any of its subsidiaries is a party or by
which any of them is bound or to which any of their properties or assets are
subject, other than, in the case of clause (b) of this Section 5.11, breaches,
violations and defaults which would not have, in the aggregate, a Company
Material Adverse Effect.
SECTION 5.12 Taxes. The Company and its subsidiaries have as of the date
hereof and will have as of the Effective Time (i) duly filed with the
appropriate governmental authorities all Tax Returns required to be filed by
them for all periods ending on or prior to the Effective Time, other than those
Tax Returns the failure of which to file would not have a Company Material
Adverse Effect, and such Tax Returns were, as of their respective filing dates,
true, correct and complete in all material respects, and (ii) duly paid in full
or made adequate provision for the payment of all Taxes for all past and current
periods. The liabilities and reserves for Taxes reflected in the Company balance
sheet included in the Last Company SEC Report are adequate to cover all Taxes
for all periods ending at or prior to the date of such balance sheet and there
is no liability for Taxes for any period beginning after such date other than
Taxes arising in the ordinary course of business. There are no material liens
for Taxes upon any property or asset of the Company or any subsidiary thereof,
except for liens for Taxes not yet due. There are no unresolved issues of law or
fact arising out of a notice of deficiency, proposed deficiency or assessment
from the IRS or any other governmental taxing authority with respect to Taxes of
the Company or any of its subsidiaries which, if decided adversely, singly or in
the aggregate, would have a Company Material Adverse Effect. Except as set forth
in the Company Disclosure Schedule, neither the Company nor its subsidiaries has
waived any statute of limitations in respect of Taxes or agreed to any extension
of time with respect to a Tax assessment or deficiency other than waivers and
extensions which are no longer in effect. Except as set forth in
A-22
<PAGE> 117
the Company Disclosure Schedule, neither the Company nor any of its subsidiaries
is a party to any agreement providing for the allocation or sharing of Taxes
with any entity that is not, directly or indirectly, a wholly-owned corporate
subsidiary of Company other than agreements the consequences of which are fully
and adequately reserved for in the Company Financial Statements. Neither the
Company nor any of its corporate subsidiaries has, with regard to any assets or
property held, acquired or to be acquired by any of them, filed a consent to the
application of Section 341(f) of the Code.
SECTION 5.13 Employee Benefit Plans; ERISA.
(a) Except as disclosed in the Company SEC Reports, at the date
hereof, the Company and its subsidiaries do not maintain or contribute to
or have any obligation or liability to or with respect to any material
employee benefit plans, programs, arrangements or practices (such plans,
programs, arrangements or practices of the Company and its subsidiaries
being referred to as the "Company Plans"), including employee benefit plans
within the meaning set forth in Section 3(3) of ERISA, or other similar
material arrangements for the provision of benefits. Neither the Company
nor any of its subsidiaries maintains or has any financial or funding
liability with respect to any "Multi-employer Plan" within the meaning of
Section 3(37) of ERISA or "Multiple Employer Plan" within the meaning of
Section 413(c) of the Code. Neither the Company nor any of its subsidiaries
has any obligation to create or contribute to any additional such plan,
program, arrangement or practice or to amend any such plan, program,
arrangement or practice so as to increase benefits or contributions
thereunder, except as required under the terms of the Company Plans, under
existing collective bargaining agreements or to comply with applicable law.
Neither the Company nor any of its subsidiaries has any obligation to
contribute to any plan subject to Title IV of ERISA.
(b) Except as disclosed in the Company SEC Reports, (i) there have
been no prohibited transactions within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the Code with respect to any of the Company Plans
that could result in penalties, taxes or liabilities which, singly or in
the aggregate, could have a Company Material Adverse Effect, (ii) each of
the Company Plans has been operated and administered in all material
respects in accordance with applicable laws during the period of time
covered by the applicable statute of limitations, (iii) each of the Company
Plans which is intended to be "qualified" within the meaning of Section
401(a) of the Code has been determined by the Internal Revenue Service to
be so qualified and such determination has not been modified, revoked or
limited by failure to satisfy any condition thereof or by a subsequent
amendment thereto or a failure to amend, except that it may be necessary to
make additional amendments retroactively to maintain the "qualified" status
of such Company Plans, and the period for making any such necessary
retroactive amendments has not expired, (iv) to the best knowledge of the
Company and its subsidiaries, there are no material pending, threatened or
anticipated claims involving any of the Company Plans other than claims for
benefits in the ordinary course, and (v) no act, omission or transaction
(individually or in the aggregate) has occurred with respect to any Company
Plan that has resulted or could result in any material liability (direct or
indirect) of the Company or any subsidiary under Sections 409 or 502(c)(i)
or (l) of ERISA or Chapter 43 of Subtitle (A) of the Code. Except as set
forth in the Company Disclosure Schedule, each Company Plan can be
unilaterally terminated by the Company or a subsidiary at any time without
material liability, other than for amounts previously reflected in the
financial statements (or notes thereto) included in the Company SEC
Reports.
(c) The Company SEC Reports, together with the Company Disclosure
Schedule, contain a true and complete summary or list of or otherwise
describe all material employment contracts and other employee benefit
arrangements with "change of control" or similar provisions and all
severance agreements with executive officers.
A-23
<PAGE> 118
(d) There are no agreements which will or may provide payments to any
officer, employee, stockholder, or highly compensated individual which will
be "parachute payments" under Code Section 280G that are nondeductible to
the Company or subject to tax under Code Section 4999 for which the Company
or any ERISA Affiliate would have withholding liability.
SECTION 5.14 Labor Controversies. Except as disclosed in the Company SEC
Reports, (a) there are no material controversies pending or, to the knowledge of
the Company, threatened between the Company or its subsidiaries and any
representatives of any of their employees and (b) to the knowledge of the
Company, there are no material organizational efforts presently being made
involving any of the presently unorganized employees of the Company or its
subsidiaries, except for such controversies and organizational efforts, which,
singly or in the aggregate, could not reasonably be expected to have a Company
Material Adverse Effect.
SECTION 5.15 Environmental Matter. Except as disclosed in the Last Company
SEC Report or on the Company Disclosure Schedule, (i) the Company and its
subsidiaries have conducted their respective businesses in compliance with all
applicable Environmental Laws, including, without limitation, having all
permits, licenses and other approvals and authorizations necessary for the
operation of their respective businesses as presently conducted, (ii) none of
the properties owned by the Company or any of its subsidiaries contain any
Hazardous Substance as a result of any activity of the Company or any of its
subsidiaries in amounts exceeding the levels permitted by applicable
Environmental Laws, (iii) neither the Company nor any of its subsidiaries has
received any notices, demand letters or requests for information from any
Federal, state, local or foreign governmental entity or third party indicating
that the Company or any of its subsidiaries may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
their businesses, (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or, to
the knowledge of the Company, threatened against the Company or any of its
subsidiaries relating to any violation, or alleged violation, of any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company or any of its subsidiaries concerning the release of any
Hazardous Substance or the threatened or actual violation of any Environmental
Law, (vi) no Hazardous Substance has been disposed of, released or transported
in violation of any applicable Environmental Law from any properties owned by
the Company or any of its subsidiaries as a result of any activity of the
Company or any of its subsidiaries during the time such properties were owned,
leased or operated by the Company or any of its subsidiaries, (vii) no
underground storage tanks have been installed, closed or removed from any
properties owned by the Company or any of its subsidiaries during, in the case
of the Company, the time such properties were owned, leased or operated by the
Company and during, in the case of each subsidiary, the time such subsidiary has
been owned by the Company, (viii) there is no asbestos or asbestos containing
material present in any of the properties owned by the Company and its
subsidiaries, and no asbestos has been removed from any of such properties
during the time such properties were owned, leased or operated by the Company or
any of its subsidiaries, and (ix) neither the Company, its subsidiaries nor any
of their respective properties are subject to any material liabilities or
expenditures (fixed or contingent) relating to any suit, settlement, court
order, administrative order, regulatory requirement, judgment or claim asserted
or arising under any Environmental Law, except for violations of the foregoing
clauses (i) through (ix) that, singly or in the aggregate, either (A) would not
reasonably be expected to have a Company Material Adverse Effect or (B) would
not otherwise cause the Company to incur or otherwise become responsible for
liabilities or expenditures in excess of $4.0 million.
SECTION 5.16 Title to Assets. The Company and each of its subsidiaries has
good and marketable title in fee simple to all its real property and good title
to all its leasehold interests and other owned properties, as reflected in the
most recent balance sheet included in the
A-24
<PAGE> 119
Company Financial Statements, except for properties and assets that have been
disposed of in the ordinary course of business since the date of such balance
sheet, free and clear of all mortgages, liens, pledges, charges or encumbrances
of any nature whatsoever, except (i) the lien for current taxes, payments of
which are not yet delinquent, (ii) such imperfections in title and easements and
encumbrances, if any, as are not substantial in character, amount or extent and
do not materially detract from the value, or interfere with the present use of
the property subject thereto or affected thereby, or otherwise materially impair
the Company's business operations (in the manner presently carried on by the
Company) or (iii) as disclosed in the Last Company SEC Report, and except for
such matters which, singly or in the aggregate, could not reasonably be expected
to have a Company Material Adverse Effect. All leases under which the Company or
any of its subsidiaries leases any real or personal property are valid and
effective in accordance with their respective terms, and there is not, under any
of such leases, any existing default or event which with notice or lapse of time
or both would become a default, other than failures to be valid and effective
and defaults under such leases which in the aggregate will not have a Company
Material Adverse Effect.
SECTION 5.17 Reorganization. Neither the Company nor, to the knowledge of
the Company, any of its Affiliates has taken or agreed or intends to take any
action or has any knowledge of any fact or circumstance that would prevent the
Merger from constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code.
SECTION 5.18 Company Stockholders' Approval. The affirmative vote of
stockholders of the Company required for adoption of this Agreement is a
majority of the outstanding shares of Company Common Stock entitled to vote
thereon.
SECTION 5.19 Brokers and Finders. Except for the fees and expenses payable
to Soundview Technology Group, which fees are reflected in its agreement with
the Company (a copy of which has been delivered to Parent), the Company has not
entered into any contract, arrangement or understanding with any person or firm
which may result in the obligation of the Company to pay any investment banking
fees, finder's fees, brokerage or agent commissions or other like payments in
connection with the transactions contemplated hereby.
SECTION 5.20 Opinion of Financial Advisor. The financial advisor of the
Company, Soundview Technology Group, has rendered a written opinion to the Board
of Directors of the Company, dated December 13, 1999, to the effect that the
Exchange Ratio pursuant to this Agreement is fair from a financial point of view
to the stockholders of the Company.
SECTION 5.21 Section 203. Assuming the accuracy of the representation and
warranty set forth in Section 4.21, the action of the Board of Directors of the
Company in approving this Agreement (and the transactions provided for herein)
is sufficient to render inapplicable to this Agreement (and the transactions
provided for herein) the restrictions on "business combinations" (as defined in
Section 203 of the DGCL) as set forth in Section 203 of the DGCL.
SECTION 5.22 Rights Agreement. The Company has amended the Rights
Agreement to ensure that (a) none of a "Flip-In Event," a "Distribution Date" or
a "Stock Acquisition Date" (in each case as defined in the Rights Agreement)
will occur, and none of Parent, Subsidiary or any of their "Affiliates" or
"Associates" will be deemed to be an "Acquiring Person" (in each case as defined
in the Rights Agreement), by reason of the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby and (b)
the Rights will expire immediately prior to the Effective Time.
SECTION 5.23 No Recent Negotiations with Affiliates. None of the Company,
any of its subsidiaries, or any of its directors or officers has, and, to the
knowledge of the Company, no other employee of, or any attorney, accountant,
investment banker, financial advisor or other agent retained by, the Company or
any of its subsidiaries has, initiated, solicited, negotiated, knowingly
encouraged or provided non-public or confidential information to facilitate any
proposal
A-25
<PAGE> 120
or offer with respect to an Acquisition Transaction (as defined in Section 6.3)
with or to any "affiliate" of the Company or any group of which, to the
Company's knowledge, any "affiliate" of the Company is a member within the
twelve months prior to the date hereof. As used in this Section 5.23, (i)
"affiliate" has the meaning assigned to it in Section 7.4 and (ii) "group" has
the meaning set forth in Section 13(d) of the Exchange Act and the rules and
regulations thereunder.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Conduct of Business by the Company Pending the Merger. Except
as otherwise contemplated by this Agreement or disclosed in Section 6.1 of the
Company Disclosure Schedule, after the date hereof and prior to the Closing Date
or earlier termination of this Agreement, unless Parent shall otherwise agree in
writing, the Company shall, and shall cause its subsidiaries to:
(a) use their respective best efforts to conduct their respective
businesses in the ordinary and usual course of business and consistent with
past practice;
(b) not (i) amend or propose to amend their respective certificates of
incorporation, by-laws or other similar governing documents, (ii) split,
combine or reclassify their outstanding capital stock or (iii) declare, set
aside or pay any dividend or distribution payable in cash, stock, property
or otherwise, except for the payment of dividends or distributions by a
wholly-owned subsidiary of the Company;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of, their capital stock of any
class or any debt or equity securities convertible into or exchangeable for
such capital stock, except that the Company may issue (i) shares upon
conversion of convertible securities and exercise of options and warrants
outstanding on the date hereof (or granted hereafter in accordance with the
terms of this Agreement) in accordance with their terms or pursuant to the
Rights Agreement and (ii) options to purchase up to 25,000 shares of
Company Common Stock to employees who are hired by the Company after the
date hereof and prior to the Closing Date, provided, however, that all
options referenced in this clause (ii) shall be issued under the Company
Option Plans and the vesting of all such options shall not be accelerated
or otherwise modified as a result of the transactions contemplated hereby;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary
course of business or (B) borrowings to refinance existing indebtedness on
terms which are reasonably acceptable to Parent, (ii) redeem, purchase,
acquire or offer to purchase or acquire any shares of its capital stock or
any options, warrants or rights to acquire any of its capital stock or any
security convertible into or exchangeable for its capital stock, (iii) take
or fail to take any action which action or failure to take action would
cause the Company or its stockholders (except to the extent that any
stockholders receive cash in lieu of fractional shares and except to the
extent of stockholders in special circumstances) to recognize gain or loss
for federal income tax purposes as a result of the consummation of the
Merger or would otherwise cause the Merger not to qualify as a
reorganization under Section 368 of the Code, (iv) make any acquisition of
any assets or businesses other than expenditures for current assets in the
ordinary course of business and expenditures for fixed or capital assets in
the ordinary course of business and consistent with the Company's capital
budget disclosed in Section 6.1 of the Company Disclosure Schedule, (v)
sell, pledge, dispose of or encumber any material assets or businesses
other than sales in the ordinary course of
A-26
<PAGE> 121
business, (vi) except as otherwise permitted pursuant to the provisions
hereof, take any action which would be reasonably likely to prevent the
Company from (A) obtaining any Company Statutory Approvals, (B) performing
its covenants and agreements under this Agreement, or (C) consummating the
transactions contemplated hereby, or (vii) enter into any binding contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill
and business relationships with customers and others having business
relationships with them and not engage in any action, directly or
indirectly, with the intent to adversely impact the transactions
contemplated by this Agreement;
(f) not enter into or amend in any material respect any employment,
severance, special pay arrangement with respect to termination of
employment or other similar arrangements or agreements with any directors,
officers or key employees, except in the ordinary course and consistent
with past practice (it being expressly understood that the interpretation
and administration of any such arrangement by a duly authorized
administrator or administrative body consistent with the terms thereof
shall not constitute a breach hereof); provided, however, that the Company
and its subsidiaries shall in no event enter into any written employment
agreement, except for employment agreements entered into with new employees
of Theta Limited and then only so long as (i) such employment agreements
are entered into in the ordinary course of business and consistent with
past practices, (ii) such employment agreements contain terms and
provisions comparable to those applicable to current employees of Theta
Limited in comparable positions, and (iii) if the employees with whom Theta
Limited intends to enter written agreements will hold positions at or above
the Product Marketing Manager level, then such new employees may only fill
positions which are vacated or up to three additional newly created
positions;
(g) not adopt, enter into or amend in any material respect any bonus,
profit sharing, compensation, stock option, pension, retirement, deferred
compensation, health care, employment or other employee benefit plan,
agreement, trust, fund or arrangement for the benefit or welfare of any
employee or retiree, except as required to comply with changes in
applicable law (it being expressly understood that the interpretation and
administration of any such plan or arrangement by a duly authorized
administrator or administrative body consistent with the terms thereof
shall not constitute a breach hereof), provided, however, that the Company
may make such amendments to certain of its outstanding option agreements as
required by Section 7.12;
(h) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice; and
(i) not implement any change in accounting principles, practices or
methods, other than as may be required by United States generally accepted
accounting principles, the Financial Accounting Standards Board, the SEC or
any other government authority or oversight agency; and
(j) not make, change or revoke any material Tax election or make any
material agreement or settlement regarding Taxes with any taxing authority.
SECTION 6.2 Conduct of Business by Parent and Subsidiary Pending the
Merger. Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Closing Date or
A-27
<PAGE> 122
earlier termination of this Agreement, unless the Company shall otherwise agree
in writing, Parent shall, and shall cause its subsidiaries to:
(a) use their respective best efforts to conduct their respective
businesses in the ordinary and usual course of business and consistent with
past practice;
(b) not (i) amend or propose to amend their respective certificates of
incorporation (except for the amendment by Parent of its Amended and
Restated Certificate of Incorporation to increase the number of authorized
shares of Parent Stock as contemplated by the Parent Charter Amendment),
by-laws or similar organizational documents, (ii) split, combine or
reclassify (whether by stock dividend or otherwise) their outstanding
capital stock, or (iii) declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise, except for the
payment of dividends or distributions by a wholly-owned subsidiary of
Parent;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of, or any options, warrants or
rights of any kind to acquire any shares of, their capital stock of any
class or any debt or equity securities convertible into or exchangeable for
such capital stock, except that (i) Parent may issue shares upon conversion
of convertible securities and exercise of options outstanding on the date
hereof in accordance with their terms, (ii) Parent may issue options to
purchase Parent Stock (and shares upon exercise of such options) pursuant
to its employee stock option plans in effect on the date hereof in the
ordinary course of business, consistent with past practices and in an
aggregate amount not to exceed 2,000,000 shares of Parent Stock subject
thereto, (iii) Parent may issue shares in accordance with the terms of its
Employee Stock Purchase Plan in effect as of the date hereof, and (iv)
Conference Plus, Inc., a subsidiary of Parent, may issue options to
purchase shares of its common stock (the "CPI Common Stock") (and shares of
CPI Common Stock upon exercise of such options in accordance with their
terms) in the ordinary course of business, consistent with past practices,
and in an aggregate amount not to exceed 5,000 shares of CPI Common Stock.
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary
course of business or (B) borrowings to refinance existing indebtedness on
terms which are reasonably acceptable to the Company, (ii) redeem,
purchase, acquire or offer to purchase or acquire any shares of its capital
stock or any options, warrants or rights to acquire any of its capital
stock or any security convertible into or exchangeable for its capital
stock, (iii) take or fail to take any action which action or failure to
take action would cause Parent or its stockholders or Company's
stockholders (except to the extent that any Company stockholders receive
cash in lieu of fractional shares) to recognize gain or loss for federal
income tax purposes as a result of the consummation of the Merger or would
otherwise cause the Merger not to qualify as a reorganization under Section
368 of the Code, (iv) sell, pledge, dispose of or encumber any material
assets or businesses other than sales in the ordinary course of business,
(v) make any acquisition of any assets or businesses other than
expenditures for current assets in the ordinary course of business and
expenditures for fixed or capital assets in the ordinary course of
business, (vi) except as otherwise permitted pursuant to the provisions
hereof, take any action which would be reasonably likely to prevent Parent
or Subsidiary from (A) obtaining the Parent Statutory Approvals, (B)
performing its covenants and agreements under this Agreement, or (C)
consummating the transactions contemplated hereby, or (vii) enter into any
binding contract, agreement, commitment or arrangement with respect to any
of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill
and business relationships with customers and others
A-28
<PAGE> 123
having business relationships with them and not engage in any action,
directly or indirectly, with the intent to adversely impact the
transactions contemplated by this Agreement;
(f) not implement any change in accounting principles, practices or
methods, other than as may be required by United States generally accepted
accounting principles, the Financial Accounting Standards Board, the SEC or
any other governmental authority or oversight agency; and
(g) use commercially reasonable efforts to maintain with financially
responsible insurance companies insurance on its tangible assets and its
businesses in such amounts and against such risks and losses as are
consistent with past practice.
SECTION 6.3 Acquisition Transactions.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Company shall not, and shall not permit
any of its subsidiaries to, initiate, solicit, negotiate, knowingly
encourage or provide confidential information to facilitate, and the
Company shall, and shall cause each of its subsidiaries to, cause any
officer, director or employee of, or any attorney, accountant, investment
banker, financial advisor or other agent retained by it, not to initiate,
solicit, negotiate, knowingly encourage or provide non-public or
confidential information to facilitate, any proposal or offer to acquire
all or any substantial part of the business and properties of the Company
or any capital stock of the Company, whether by merger, purchase of assets,
tender offer or otherwise, whether for cash, securities or any other
consideration or combination thereof (any such transaction (other than the
Merger) being referred to herein as an "Acquisition Transaction").
(b) Notwithstanding the provisions of paragraph (a) above, the Company
may, in response to an unsolicited written proposal or indication of
interest with respect to a potential or proposed Acquisition Transaction
("Acquisition Proposal"), furnish (subject to the execution of a
confidentiality agreement and standstill agreement containing provisions
not more favorable than the confidentiality and standstill provisions of
the Confidentiality Agreements, as defined in Section 10.4) confidential or
non-public information to a financially capable corporation, partnership,
person or other entity or group (a "Potential Acquirer") and negotiate with
such Potential Acquirer if the Board of Directors of the Company in good
faith, after consultation with its outside legal counsel, determines that
the failure to provide such confidential or non-public information to or
negotiate with such Potential Acquirer would constitute a breach of its
fiduciary duty to the Company's stockholders. It is understood and agreed
that negotiations conducted in accordance with this paragraph (b) shall not
constitute a violation of paragraph (a) of this Section 6.3. The Company
and its subsidiaries have ceased, and have directed all of their respective
officers, directors, employees, financial advisors and other agents or
representatives to cease, all activities, discussions or negotiations, if
any, with any persons or entities conducted heretofore with respect to any
Acquisition Proposals.
(c) The Company shall notify Parent as soon as practicable after (i)
the Company has received any Acquisition Proposal, (ii) the Company's Board
of Directors or its chief executive officer or chief financial officer has
actual knowledge that any person or entity intends to make an Acquisition
Proposal, or (iii) the Company has received any request for nonpublic
information relating to the Company or its subsidiaries in connection with
an Acquisition Proposal or for access to the properties, books or records
of the Company or any subsidiary by any person or entity that informs the
Board of Directors of the Company or such subsidiary that it is considering
making, or has made, an Acquisition Proposal. Such notice to Parent shall
be made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal,
inquiry or contact. The Company will keep Parent fully informed of the
status and details of any such Acquisition Proposal or request.
A-29
<PAGE> 124
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information.
(a) The Company and its subsidiaries shall afford to Parent and
Subsidiary and their respective accountants, counsel, financial advisors
and other representatives (the "Parent Representatives") and Parent and its
subsidiaries shall afford to the Company and its accountants, counsel,
financial advisors and other representatives (the "Company
Representatives") access at reasonably scheduled times throughout the
period prior to the Effective Time to all of their respective properties,
books, contracts, commitments and records (including, but not limited to,
Tax Returns) and, during such period, shall furnish promptly to one another
(i) a copy of each report, schedule and other document filed or received by
any of them pursuant to the requirements of federal or state securities
laws or filed by any of them with the SEC throughout the period prior to
the Effective Time, (ii) a copy of each notice or other communication from
any governmental or regulatory agency or authority in connection with the
transactions contemplated by this Agreement, and (iii) such other
information concerning their respective businesses, properties and
personnel as Parent or Subsidiary or the Company, as the case may be, shall
reasonably request; provided, however, that (A) no investigation pursuant
to this Section 7.1 shall amend or modify any representations or warranties
made herein or the conditions to the obligations of the respective parties
to consummate the Merger and (B) no access or disclosure shall be required
to be provided if such access or disclosure would impair any
attorney-client privilege of the disclosing party or would violate any
applicable law or regulation. Parent and its subsidiaries shall hold and
shall use their reasonable best efforts to cause the Parent Representatives
to hold, and the Company and its subsidiaries shall hold and shall use
their reasonable best efforts to cause the Company Representatives to hold,
in strict confidence all non-public documents and information furnished to
Parent and Subsidiary or to the Company, as the case may be, in connection
with the transactions contemplated by this Agreement in accordance with the
provisions of the Confidentiality Agreements, except that (i) Parent,
Subsidiary and the Company may disclose such information as may be
necessary in connection with seeking the Parent Required Statutory
Approvals and Parent Stockholders' Approval, the Company Required Statutory
Approvals and the Company Stockholders' Approval and (ii) each of Parent,
Subsidiary and the Company may disclose any information that it is required
by law or judicial or administrative order to disclose.
(b) In the event that this Agreement is terminated in accordance with
its terms, each party shall promptly redeliver to the other all non-public
written material provided pursuant to this Section 7.1 and shall not retain
any copies, extracts or other reproductions in whole or in part of such
written material. In such event, all documents, memoranda, notes and other
writings prepared by Parent or the Company based on the information in such
material shall be destroyed (and Parent and the Company shall use their
respective reasonable best efforts to cause their respective advisors and
representatives to similarly destroy their documents, memoranda and notes),
and such destruction (and reasonable best efforts) shall be certified in
writing by an authorized officer supervising such destruction.
(c) The Company shall promptly advise Parent and Parent shall promptly
advise the Company in writing of any change or the occurrence of any event
after the date of this Agreement having, or which, insofar as can
reasonably be foreseen, in the future may have, any Parent Material Adverse
Effect or Company Material Adverse Effect, as the case may be, taken as a
whole.
A-30
<PAGE> 125
SECTION 7.2 Registration Statement and Proxy Statement.
(a) Parent and the Company shall file with the SEC as soon as is
reasonably practicable after the date hereof the Joint Proxy Statement/
Prospectus and shall use all reasonable efforts to have the Registration
Statement declared effective by the SEC as promptly as practicable. Parent
shall also take any action required to be taken under applicable state blue
sky or securities laws in connection with the issuance of Parent Stock
pursuant hereto. Parent and the Company shall promptly furnish to each
other all information, and take such other actions, as may reasonably be
requested in connection with any action by any of them in connection with
the preceding sentence. The information provided and to be provided by
Parent and the Company, respectively, for use in the Joint Proxy
Statement/Prospectus shall not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) Each of the parties agree that the financial information
(including pro forma financial data and information) supplied or to be
supplied by it or its representatives for inclusion or incorporation by
reference in the Registration Statement or the Joint Proxy
Statement/Prospectus shall comply as to form in all material respects with
applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, shall be prepared in
accordance with United States generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited financial
information, as permitted by the rules of the SEC) and shall fairly present
(subject, in the case of unaudited financial information, to normal,
recurring audit adjustments) the financial information reflected therein as
of the dates thereof or for the periods then ended.
(c) Prior to the date of approval of the Parent Stock Issuance and
Parent Charter Amendment by Parent's stockholders and adoption of this
Agreement by the Company's stockholders, each of the Company, Parent and
Subsidiary shall correct promptly any information provided by it to be used
specifically in the Joint Proxy Statement/Prospectus and Registration
Statement that shall have become false or misleading in any material
respect and shall take all steps necessary to file with the SEC and have
declared effective or cleared by the SEC any amendment or supplement to the
Joint Proxy Statement/Prospectus or the Registration Statement so as to
correct the same and to cause the Joint Proxy Statement/Prospectus as so
corrected to be disseminated to the stockholders of the Company and Parent,
in each case to the extent required by applicable law.
(d) None of the Joint Proxy Statement/Prospectus or the Registration
Statement shall be filed or distributed, and, prior to the termination of
this Agreement, no amendment or supplement to the Joint Proxy
Statement/Prospectus or the Registration Statement shall be filed or
distributed, by or on behalf of Parent or Company, without consultation
with the other party and its counsel or without providing the other party
the reasonable opportunity to review and comment thereon.
(e) Notwithstanding the foregoing, the Company shall not be required
to take any action pursuant to this Section 7.2 if, at the time, the
Company is not obligated to make the recommendation to its stockholders
contemplated by Section 7.3(a) hereof pursuant to the terms of such Section
7.3(a).
SECTION 7.3 Stockholders' Approvals.
(a) The Company shall, as promptly as practicable, submit this
Agreement for adoption by its stockholders at a meeting of stockholders
and, subject to the final sentence of this Section 7.3(a), shall use its
reasonable best efforts to obtain stockholder adoption (the "Company
Stockholders' Approval") of this Agreement. Such meeting of stockholders
shall
A-31
<PAGE> 126
be held as soon as practicable following the date upon which the
Registration Statement becomes effective. Except as may be required, in
response to any unsolicited bona fide written Acquisition Proposal, in
order to comply with the fiduciary duties of the Board of Directors under
the DGCL as determined by the Board of Directors in good faith, after
consultation with the Company's outside legal counsel, the Company's Board
of Directors shall recommend to the Company's stockholders adoption of this
Agreement.
(b) Parent shall, as promptly as practicable, submit the Parent Stock
Issuance and Parent Charter Amendment for the approval of its stockholders
at a meeting of stockholders and, subject to the third to last sentence of
this Section 7.3(b), shall use its reasonable best efforts to obtain
stockholder approval (the "Parent Stockholders' Approval") of the Parent
Stock Issuance and Parent Charter Amendment. Such meeting of stockholders
shall be held as soon as practicable following the date on which the
Registration Statement becomes effective. Except as may be required, in
response to any bona fide "Parent Acquisition Proposal", in order to comply
with the fiduciary duties of Parent's Board of Directors under the DGCL as
determined by Parent's Board of Directors in good faith, after consultation
with Parent's outside legal counsel, Parent's Board of Directors shall
recommend to its stockholders approval of the Parent Stock Issuance and
Parent Charter Amendment. As soon as practicable after the date hereof,
Parent shall authorize and cause an officer of Parent to vote Parent's
shares of Subsidiary Common Stock for adoption of this Agreement and shall
take all additional actions as the sole stockholder of Subsidiary necessary
to adopt this Agreement. As used herein, a "Parent Acquisition Proposal"
shall mean a proposal or offer to acquire all or any substantial part of
the business and properties of Parent or any capital stock of Parent,
whether by merger, purchase of assets, tender offer or otherwise, whether
for cash, securities or any other consideration or combination thereof.
(c) Subject to Sections 7.3(a) and (b), each of Parent and the Company
shall use its reasonable best efforts to schedule and hold their respective
stockholders' meetings so that the stockholders' meetings occur on the same
day, and otherwise so as not to delay the transactions contemplated hereby.
SECTION 7.4 Compliance with the Securities Act and Exchange Act.
(a) The Company shall cause each of its principal executive officers
and directors, and will use its reasonable best efforts to cause the other
persons who are "affiliates" (as that term is used in paragraphs (c) and
(d) of Rule 145 under the Securities Act) of the Company (collectively, the
"145 Affiliates"), to deliver to Parent on or prior to the Effective Time a
written agreement in form and substance reasonably satisfactory to Parent
and the Company (an "Affiliate Agreement") to the effect that such person
will not offer to sell, sell or otherwise dispose of any shares of Parent
Stock issued in connection with the Merger, except, in each case, pursuant
to an effective registration statement or in compliance with Rule 145, as
amended from time to time, or in a transaction which, in the opinion of
legal counsel reasonably satisfactory to Parent, is exempt from the
registration requirements of the Securities Act. In addition, Parent shall
cause all certificates for Parent Stock to be received by the 145
Affiliates to bear a legend substantially similar to the following:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE PROVISIONS
OF RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
BY THE HOLDER EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
FILED UNDER THE ACT AND IN COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF
ANY STATE WITH RESPECT THERETO, (B) IN ACCORDANCE WITH RULE 145(d) UNDER
THE ACT, OR (C) IN ACCORDANCE WITH AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE
A-32
<PAGE> 127
SATISFACTORY TO THE ISSUER THAT AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE.
(b) The Board of Directors or Compensation Committee of the Company
and Parent will each grant all approvals and take all other actions
required pursuant to Rules 16b-3(d) and 16b-3(e) under the Exchange Act to
cause the disposition in connection with the Merger of Company Common Stock
and Company Options (as hereinafter defined) and the acquisition in
connection with the Merger of Parent Stock and options to acquire Parent
Common Stock to be exempt from the provisions of Section 16(b) of the
Exchange Act.
SECTION 7.5 Nasdaq Listing. Parent shall cause, at or before the Effective
Time, authorization for listing on the Nasdaq National Market ("Nasdaq"), upon
official notice of issuance, of the shares of Parent Stock (i) to be issued in
connection with the Merger and (ii) to be reserved for issuance upon exercise of
stock options issued in connection with the Merger.
SECTION 7.6 Expenses and Fees.
(a) Except as set forth in this Section 7.6, all costs and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses,
except that those expenses incurred in connection with printing and filing
the Joint Proxy Statement/Prospectus shall be shared equally by Parent and
the Company.
(b) The Company agrees to immediately pay to Parent a fee of
$7,177,632 if:
(i) the Company terminates this Agreement pursuant to clause (iii)
of Section 9.1(a); or
(ii) Parent terminates this Agreement pursuant to clause (iv) of
Section 9.1(b); or
(iii) Parent terminates this Agreement pursuant to clause (vi) of
Section 9.1(b) or the Company terminates this Agreement pursuant to
clause (iv)(2) of Section 9.1(a), in each case if, but only if, the
Company enters into a definitive agreement with respect to an
Acquisition Transaction within three months following such termination.
(c) Parent agrees to immediately pay to the Company a fee of
$7,177,632 if:
(i) Parent terminates this Agreement pursuant to clause (vii) of
Section 9.1(b) or the Company terminates this Agreement pursuant to
clause (vii) of Section 9.1(a) and, in each case, if, but only if,
Parent enters into a definitive agreement with respect to a Parent
Acquisition Proposal within nine months following such termination; or
(ii) Parent, in accordance with Section 7.3(b), does not recommend
to its stockholders approval of the Parent Stock Issuance and the Parent
Charter Amendment and the Company terminates this Agreement pursuant to
clause (iv)(1) of Section 9.1(a), if, but only if, Parent enters into a
definitive agreement with respect to a Parent Acquisition Proposal
within three months following such termination.
SECTION 7.7 Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto shall use all reasonable efforts to take, or cause to be
taken, all action and to do, or cause to be done, all things necessary,
proper or advisable under applicable laws and regulations to consummate and
make effective the transactions contemplated by this Agreement, including
using its reasonable efforts to obtain all necessary or appropriate
waivers, consents or approvals of third parties required in order to
preserve material contractual relationships of the Company and its
subsidiaries, all necessary or appropriate waivers, consents and approvals
and SEC "no-action" letters to effect all necessary registrations, filings
and
A-33
<PAGE> 128
submissions and to lift any injunction or other legal bar to the Merger
(and, in such case, to proceed with the Merger as expeditiously as
possible).
(b) Without limitation of the foregoing, each of Parent and the
Company undertakes and agrees to file as soon as practicable after the date
hereof a Notification and Report Form under the HSR Act with the Federal
Trade Commission (the "FTC") and the Antitrust Division of the Department
of Justice (the "Antitrust Division"). Each of Parent and the Company shall
(i) use its reasonable efforts to comply as expeditiously as possible with
all lawful requests of the FTC or the Antitrust Division for additional
information and documents and (ii) not extend any waiting period under the
HSR Act or enter into any agreement with the FTC or the Antitrust Division
not to consummate the transactions contemplated by this Agreement, except
with the prior written consent of the other parties hereto.
(c) In the event any litigation is commenced against the Company by
any person or entity relating to the transactions contemplated by this
Agreement, including any Acquisition Transaction, Parent shall have the
right, at its own expense, to participate therein, and the Company will not
settle any such litigation without the consent of Parent, which consent
will not be unreasonably withheld or delayed; provided, however, that
nothing contained in this Section 7.7(c) shall be construed as granting
Parent a right to consent to a particular settlement, if the Company's
Board of Directors determines in good faith after consultation with the
Company's outside legal counsel that the existence or exercise of such
right with respect to that particular settlement would violate the
fiduciary duties of the Company's Board of Directors.
(d) Parent shall reasonably consider taking such actions as may be
useful in resolving any antitrust objections that may be asserted with
respect to the transactions contemplated by this Agreement by the FTC, the
Antitrust Division or any other federal or state agency.
SECTION 7.8 Each party hereto shall consult with each other before issuing
any press release or otherwise issuing any other similar written public
statement with respect to this Agreement or the Merger and shall not issue any
such press release or make any such public statement without the prior consent
of each other party, which consent shall not be unreasonably withheld or
delayed; provided, however, that a party may, without the prior consent of any
other party, issue such a press release or other similar written public
statement as may be required by law or any listing agreement with a national
securities exchange or market to which Parent or the Company is a party if it
has used all reasonable efforts to consult with such other party and to obtain
such other party's consent but has been unable to do so in a timely manner.
Further, the parties shall use their respective reasonable best efforts to
coordinate and jointly schedule and interface with the various governmental
authorities and other applicable regulatory bodies involved or otherwise
interested in the transactions contemplated by this Agreement.
SECTION 7.9 Option Plans.
(a) Prior to the Effective Time, the Company and Parent shall take
such action as may be necessary to cause each unexpired and unexercised
option to purchase shares of Company Common Stock (each a "Company Option")
to be automatically converted at the Effective Time into an option (each a
"Parent Option") which will be (1) to purchase a number of shares of Parent
Stock equal to the number of shares of Company Common Stock that could have
been purchased under the Company Option multiplied by the Exchange Ratio,
at a price per share of Parent Stock equal to the option exercise price
determined pursuant to the Company Option divided by the Exchange Ratio and
(2) otherwise subject to the same terms and conditions as the Company
Option; provided that (i) if the applicable agreement evidencing the
Company Option provides for acceleration of vesting of such Company Option
upon the Merger, the converted stock option will be so vested following the
Merger and, (ii) the terms of the Company Options outstanding under
A-34
<PAGE> 129
the Company's 1997 Non-Employee Director Stock Option Plan shall be amended
so that such options may be exercised (A) with respect to those directors
of the Company who do not become directors of Parent, until the earlier of
(x) six months following the Effective Time or (y) the date on which the
options expire in accordance with their terms, and (B) with respect to
those directors of the Company who are appointed directors of Parent
pursuant to Section 2.4, until the earlier of (x) 90 days following the
date on which such persons cease to be directors of Parent and (y) the date
on which the options expire in accordance with their terms. The date of
grant of a substituted Parent Option shall be the date on which the
corresponding Company Option was granted. At the Effective Time, all
references in the Company Options to the Company shall be deemed to refer
to Parent. Parent shall assume all of the Company's obligations with
respect to Company Options as so amended and shall, from and after the
Effective Time, make available for issuance upon exercise of the Parent
Options all shares of Parent Stock covered thereby and, at or prior to the
Effective Time, amend its Registration Statement on Form S-8 or file a new
registration statement to cover the additional shares of Parent Stock
subject to Parent Options granted in replacement of Company Options.
Following the Effective Time, Parent will use all reasonable efforts to
maintain the effectiveness of the foregoing registration statement (and
maintain the current status of the prospectus or prospectuses contained
therein) for so long as any of the converted Company Options remain
outstanding and unexercised.
(b) As soon as practicable after the Effective Time, Parent shall
deliver to the holders of Company Options immediately prior to the
Effective Time appropriate notices setting forth (1) such holders' rights
pursuant to the respective Company Options, and (2) stating that the
Company Options have been converted into Parent Options as contemplated
herein and have been assumed by Parent and shall continue in effect on the
same terms and conditions (subject to the adjustments required by this
Section to give effect to the Merger).
(c) The holders of Company Options immediately prior to the Effective
Time, and their respective legal representatives and heirs, shall be deemed
third-party beneficiaries of this Section 7.9.
SECTION 7.10 Notification of Certain Matters. Each of the Company, Parent
and Subsidiary agrees to give prompt notice to each other of, and to use their
respective reasonable best efforts to prevent or promptly remedy, (i) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time and (ii) any material failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 7.10 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 7.11 Directors' and Officers' Indemnification.
(a) From and after the Effective Time, the Surviving Corporation shall
indemnify and hold harmless all past and present officers and directors of
the Company (the "Covered Parties") to the same extent and in the same
manner and subject to the same limits as such persons are indemnified as of
the date of this Agreement by the Company pursuant to the DGCL, the
Company's Certificate of Incorporation or the Company's By-Laws for acts or
omissions occurring at or prior to the Effective Time.
(b) The Certificate of Incorporation and By-laws of the Surviving
Corporation shall contain, and Parent shall cause the Certificate of
Incorporation and By-laws of the Surviving Corporation to contain,
provisions no less favorable with respect to indemnification, advancement
of expenses and exculpation of present and former directors, officers,
A-35
<PAGE> 130
employees and agents of the Company and its subsidiaries than are presently
set forth in the Restated Certificate of Incorporation, as amended, and
Amended and Restated Bylaws of the Company.
(c) The Surviving Corporation shall use its reasonable best efforts to
provide, and Parent shall cause the Surviving Corporation to use its
reasonable best efforts to provide, for a period of not less than 6 years
from the Effective Time, one or more policies of directors' and officers'
liability insurance that provide(s) coverage for events occurring prior to
the Effective Time (the "D&O Insurance") that is/are substantially similar
to the Company's existing policy or, if substantially equivalent insurance
coverage is unavailable, the most similar available coverage; provided,
however, that in no event shall the Surviving Corporation be required to
pay an annual premium for the D&O Insurance in excess of 150% of the last
annual premium paid prior to the date hereof (the "Maximum Premium"). If
the Company's existing insurance expires, is terminated or canceled during
such six-year period or exceeds the Maximum Premium, the Surviving
Corporation shall obtain, and Parent shall cause the Surviving Corporation
to obtain, as much directors' and officers' liability insurance as can be
obtained for the remainder of such period for an annualized premium not in
excess of the Maximum Premium, on terms and conditions no less advantageous
to the Covered Parties than the Company's existing directors' and officers'
liability insurance.
(d) In addition to the indemnification and advancement of expenses
provisions set forth herein, in the event that (i) the indemnification or
advancement of expenses to be provided by the Surviving Corporation in
accordance with Section 7.11(a) or 7.11(b) above, together with the D&O
Insurance to be maintained by the Surviving Corporation in accordance with
Section 7.11(c) above, after each is fully exhausted, is not adequate to
fully indemnify or provide advancement of expenses to any Covered Party to
the same extent and in the same manner that such indemnification or
advancement of expenses would have been required to be provided by the
Company prior to the Effective Time, and (ii) there has been a diminution
of the net book value of the Surviving Corporation from the net book value
of the Company as reflected on the balance sheet included in the Last
Company SEC Report, then Parent shall indemnify such Covered Party to the
extent of such diminution.
(e) Notwithstanding anything herein to the contrary, if any claim,
action, suit, proceeding or investigation (whether arising before, at or
after the Effective Time) is made against any Covered Party, on or prior to
the sixth anniversary of the Effective Time, the provisions of this Section
7.11 shall continue in effect until the final disposition of such claim,
action, suit, proceeding or investigation.
(f) The covenants contained in this Section are intended to be for the
benefit of, and shall be enforceable by, each of the Covered Parties and
their respective heirs and legal representatives and shall not be deemed
exclusive of any other rights to which a Covered Party is entitled, whether
pursuant to law, contract or otherwise.
(g) In the event that Parent, the Surviving Corporation or any of
their respective successors or assigns (i) consolidates with or merges into
any other person and shall not be the continuing or 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, proper provision shall be made so that the successors or
assigns of Parent, the Surviving Corporation or any of their respective
successors or assigns, as the case may be, shall succeed to the obligations
set forth in this Section 7.11.
SECTION 7.12 Certain Benefits. At the Effective Time, Parent will assume,
and, subject to Parent's right to thereafter amend, modify or terminate the
Policy in accordance with its terms, Parent will thereafter pay, perform and
discharge when due, all of the Company's obligations under the Company's
Executive Officer Severance Plan, as amended (the "Policy"), with respect
A-36
<PAGE> 131
to the individuals who participate in the Policy (the "Participants"). A copy of
the Policy and a list of the Participants is attached to the Company Disclosure
Schedule. With respect to those Participants who become employed by Parent or
any of its subsidiaries in connection with the Merger, all references in the
Policy to the "Company" shall be deemed to be references to Parent and its
subsidiaries, each such Participant shall be an "Executive" for all purposes
under the Policy and such Participants' service to the Company and its
subsidiaries prior to the Merger shall be included in determining their total
years of services for purposes of the Policy. The Participants, and their
respective legal representatives and heirs, shall be third-party beneficiaries
of this Section 7.12. Prior to the Effective Time, the Company shall use its
reasonable best efforts to amend the options to acquire Company Common Stock
which are held by Participants so that the provisions of Section 2.6 of the
Policy are reflected in such options.
SECTION 7.13 SEC Reports. The parties agree that whenever a representation
or warranty contained in this Agreement is made subject to any fact or
circumstance referenced, disclosed, set forth or described in either the Parent
SEC Reports or the Company SEC Reports (collectively, the "SEC Reports"), such
representation or warranty shall be subject only to those matters that it is
reasonably apparent from a reading of such SEC Reports would apply thereto.
ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) the Parent Stock Issuance and Parent Charter Amendment shall have
been approved by the requisite vote of the stockholders of the Parent and
this Agreement shall have been adopted by the requisite vote of the
stockholders of the Company, in each case under applicable law and
applicable listing requirements of the Nasdaq National Market ("Nasdaq");
(b) the shares of Parent Stock issuable in connection with the Merger
and those to be reserved for issuance upon exercise of stock options or
warrants or the conversion of convertible securities shall have been
authorized for listing on Nasdaq upon official notice of issuance;
(c) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated;
(d) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect
and no proceeding for that purpose shall have been instituted, or to the
knowledge of Parent and the Company no such proceeding shall have been
threatened, by the SEC or any state regulatory authorities;
(e) no governmental authority of competent jurisdiction shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and which
materially restricts, prevents or prohibits consummation of the Merger or
any transaction contemplated by this Agreement (it being understood that
the parties hereto hereby agree to use their reasonable efforts to cause
any such decree, judgment, injunction or other order to be vacated or
lifted as promptly as possible);
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States
A-37
<PAGE> 132
which would prevent the consummation of the Merger or make the consummation
of the Merger illegal; and
(g) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions
contemplated hereby shall have been obtained and be in effect at the
Effective Time, except where the failure to obtain the same would not be
reasonably likely to have a Company Material Adverse Effect, following the
Effective Time.
SECTION 8.2 Conditions to Obligation of the Company to Effect the
Merger. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following additional conditions:
(a) Parent and Subsidiary shall have performed in all material
respects their agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of Parent and Subsidiary contained in this Agreement shall be
true and correct in all material respects on and as of the date made and
(except to the extent that such representations and warranties expressly
speak as of an earlier date, which shall be true and correct in all
material respects as of the specified date) on and as of the Closing Date
as if made at and as of such date;
(b) since the date hereof, there shall have been no changes that
constitute, and no event or events (including, without limitation,
litigation developments) shall have occurred which have resulted in or
constitute, a Parent Material Adverse Effect; and
(c) the Company shall have received certificates, dated the Closing
Date, of:
(i) the President or any Vice President of each of Parent and
Subsidiary certifying as to the matters specified in Sections 8.2(a) and
(b) hereof; and
(ii) the Secretary of each of Parent and Subsidiary certifying as
to: (A) the content and continuing effectiveness as of the Closing Date
of the resolutions of the Board of Directors of Parent approving this
Agreement and the transactions contemplated hereby; (B) the fact that
the Parent Stock Issuance and Parent Charter Amendment have been duly
approved by the requisite vote of the stockholders of Parent in
accordance with the certificate of incorporation and by-laws of Parent,
the rules of Nasdaq and the DGCL and that such approval is in full force
and effect; and (C) the fact that this Agreement has been duly adopted
by the requisite vote of Parent as the sole stockholder of Subsidiary in
accordance with the certificate of incorporation and by-laws of
Subsidiary and the DGCL and that such adoption is in full force and
effect.
SECTION 8.3 Conditions to Obligations of Parent and Subsidiary to Effect
the Merger. Unless waived by Parent and Subsidiary, the obligations of Parent
and Subsidiary to effect the Merger shall be subject to the fulfillment at or
prior to the Effective Time of the additional following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior
to the Closing Date and the representations and warranties of the Company
contained in this Agreement shall be true and correct in all material
respects on and as of the date made and (except to the extent that such
representations and warranties expressly speak as of an earlier date, which
shall be true and correct in all material respects as of the specified
date) on and as of the Closing Date as if made at and as of such date;
(b) the Affiliate Agreements to the extent required to be delivered to
Parent pursuant to Section 7.4, shall have been furnished as required by
Section 7.4;
A-38
<PAGE> 133
(c) those certain options to acquire Company Common Stock shall have
been amended, to the extent required by Section 7.12;
(d) since the date hereof, there shall have been no changes that
constitute, and no event or events (including, without limitation,
litigation developments) shall have occurred which have resulted in or
constitute, a Company Material Adverse Effect.
(e) Parent shall have received certificates, dated the Closing Date,
of:
(i) the President or any Vice President of the Company certifying
as to the matters specified in Sections 8.3(a) and (c) hereof; and
(ii) the Secretary of the Company certifying as to: (A) the content
and continuing effectiveness as of the Closing Date of the resolutions
of the Board of Directors of the Company (1) approving and declaring the
advisability of this Agreement, (2) rendering Section 203 of the DGCL
inapplicable to this Agreement and the transactions contemplated hereby,
and (3) amending the Rights Agreement as described in Section 5.22
hereof; and (B) the fact that this Agreement has been duly adopted by
the requisite vote of the stockholders of the Company in accordance with
the Company's Restated Certificate of Incorporation and Amended and
Restated Bylaws and the DGCL and that such adoption is in full force and
effect.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination. This Agreement may be terminated at any time
prior to the Closing Date, whether before or after adoption by the stockholders
of the Company or Parent, by the mutual written consent of the Company and
Parent or as follows:
(a) The Company shall have the right to terminate this Agreement:
(i) if the Merger is not completed by June 30, 2000 (unless due to
a delay or default on the part of the Company), provided, however, that
such date shall be extended to September 30, 2000 if, as of June 30,
2000, the parties are engaged in ongoing discussions with the FTC or
Antitrust Division regarding the transactions contemplated hereby;
(ii) if the Merger is enjoined by a final, unappealable court order
not entered at the request or with the support of the Company and if the
Company shall have used reasonable efforts to prevent the entry of such
order;
(iii) if (A) the Company receives an offer or proposal from any
Potential Acquirer (excluding any director or officer of the Company or
any group of which any director or officer of the Company is a member)
with respect to a merger, sale of substantial assets or other business
combination involving the Company, (B) the Company's Board of Directors
determines, in good faith and after consultation with an independent
financial advisor, that such offer or proposal (if consummated pursuant
to its terms) would result in an Acquisition Transaction more favorable
to the Company's stockholders than the Merger (any such offer or
proposal being referred to as a "Superior Proposal") and resolves to
accept such Superior Proposal and (C) the Company shall have given
Parent two days' prior written notice of its intention to terminate
pursuant to this provision; provided, however, that such termination
shall not be effective until such time as the payment required by
Section 7.6(b) shall have been received by Parent;
(iv) if (1) the stockholders of Parent fail to approve the Parent
Stock Issuance and Parent Charter Amendment at a duly held meeting of
stockholders called for such purpose or any adjournment thereof or (2)
the stockholders of the Company fail to
A-39
<PAGE> 134
adopt this Agreement at a duly held meeting of stockholders called for
such purpose or any adjournment thereof;
(v) if the representations and warranties of the Parent shall fail
to be true and correct in all material respects on and as of the date
made or, except in the case of any such representations and warranties
made as of a specified date, on and as of any subsequent date as if made
at and as of such subsequent date and such failure shall not have been
cured in all material respects within 30 days after written notice of
such failure is given to the Parent by the Company;
(vi) if Parent (A) fails to perform in any material respect any of
its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after notice of such
default is given to Parent by the Company; or
(vii) if the Board of Directors of Parent shall have resolved to
accept a Parent Superior Proposal.
(b) Parent shall have the right to terminate this Agreement:
(i) if the representations and warranties of the Company shall fail
to be true and correct in all material respects on and as of the date
made or, except in the case of any such representations and warranties
made as of a specified date, on and as of any subsequent date as if made
at and as of such subsequent date and such failure shall not have been
cured in all material respects within 30 days after written notice of
such failure is given to the Company by Parent;
(ii) if the Merger is not completed by June 30, 2000 (unless due to
a delay or default on the part of Parent or Subsidiary), provided,
however, that such date shall be extended to September 30, 2000 if, as
of June 30, 2000, the parties are engaged in ongoing discussions with
the FTC or Antitrust Division regarding the transactions contemplated
hereby;
(iii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of Parent or
Subsidiary and if Parent shall have used reasonable efforts to prevent
the entry of such order;
(iv) if the Board of Directors of the Company shall have resolved
to accept a Superior Proposal or shall have recommended to the
stockholders of the Company that they tender their shares in a tender or
an exchange offer commenced by a third party (excluding any affiliate of
Parent or any group of which any affiliate of Parent is a member);
(v) if the Company (A) fails to perform in any material respect any
of its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after notice of such
default is given to the Company by Parent;
(vi) if the stockholders of the Company fail to adopt this
Agreement at a duly held meeting of stockholders called for such purpose
or any adjournment thereof; or
(vii) if (A) Parent receives a Parent Acquisition Proposal, which
proposal expressly states in writing that it is subject to Parent
terminating this Agreement or to otherwise not consummating the
transactions contemplated hereby, (B) as a result thereof, Parent's
Board of Directors does not recommend to Parent's stockholders approval
of the Parent Stock Issuance and Parent Charter Amendment in reliance on
the third sentence of Section 7.3(b) hereof, and (C) Parent's Board of
Directors determines, in good faith and after consultation with an
independent financial advisor, that such offer or proposal (if
consummated pursuant to its terms) would result in a transaction more
favorable to Parent's stockholders than the Merger (any such offer or
proposal being
A-40
<PAGE> 135
referred to as a "Parent Superior Proposal") and resolves to accept such
Parent Superior Proposal.
SECTION 9.2 Effect of Termination. In the event of termination of this
Agreement by either Parent or the Company pursuant to the provisions of Section
9.1, this Agreement shall forthwith become void and there shall be no further
obligation on the part of the Company, Parent, Subsidiary or their respective
officers or directors (except as set forth in this Section 9.2, in the second
sentence of Section 7.1(a) and in Sections 7.1(b) and 7.6, all of which shall
survive the termination). Nothing in this Section 9.2 shall relieve any party
from liability for any willful or intentional breach of this Agreement.
SECTION 9.3 Amendment. This Agreement may not be amended except by action
taken by the parties' respective Boards of Directors or duly authorized
committees thereof and then only by an instrument in writing signed on behalf of
each of the parties hereto and in compliance with applicable law. Such amendment
may take place at any time prior to the Closing Date, whether before or after
approval by the stockholders of the Company, Parent or Subsidiary; provided,
however, that after any such approval, there shall not be made any amendment
that by law requires the further approval of such stockholders without such
further approval.
SECTION 9.4 Waiver. At any time prior to the Effective Time, subject to
applicable law, the parties hereto may (a) extend the time for the performance
of any of the obligations or other acts of the other parties hereto, (b) waive
any inaccuracies in the representations and warranties contained herein or in
any document delivered pursuant thereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid if set forth in an
instrument in writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 Non-Survival and Scope of Representations and Warranties and
Agreements. No representations, warranties or agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the Merger,
and after effectiveness of the Merger neither the Company, Parent, Subsidiary or
their respective officers or directors shall have any further obligation with
respect thereto except for the agreements contained in Articles II, III and X,
Section 7.9, Section 7.11 and Section 7.12. Except as set forth in Articles IV
and V hereof, the parties make no representations or warranties whatsoever, and
each party disclaims all liability and responsibility for any other
representation, warranty, statement or information made or communicated (orally
or in writing) to another party (including, but not limited to, any opinion,
information or advice which may have been provided to Parent by any officer,
stockholder, director, employee, agent or consultant of the Company, its
financial advisors or any other agent or representative of the Company).
SECTION 10.2 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or sent via facsimile to
the parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) If to Parent or Subsidiary to:
Westell Technologies, Inc.
750 N. Commons Drive
Aurora, Illinois 60504
Attention: Chief Executive Officer
Facsimile: 630-375-4128
A-41
<PAGE> 136
with a copy to:
McDermott, Will & Emery
227 West Monroe
Chicago, Illinois 60606
Attention: Helen R. Friedli, Esq.
Facsimile: 312-984-3669
(b) If to the Company, to:
Teltrend Inc.
620 Stetson Avenue
St. Charles, Illinois 60174
Attention: Chief Executive Officer
Facsimile: 630-377-0128
with a copy to:
Jenner & Block
One IBM Plaza
Chicago, Illinois 60611
Attention: Jodi A. Simala, Esq.
Facsimile: 312-840-7692
SECTION 10.3 Interpretation. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, (ii) reference to any Article or Section
means such Article or Section hereof and (iii) "including" shall be deemed to
mean including without limitation. No provision of this Agreement shall be
interpreted or construed against any party hereto solely because such party or
its legal representative drafted such provision.
SECTION 10.4 Miscellaneous. This Agreement (including the documents and
instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof
(provided, that the provisions of those certain agreements dated September 3,
1999 by and between the Company and Parent concerning confidentiality and
related matters (the "Confidentiality Agreements"), shall remain in effect), (b)
is not intended to confer upon any other person any rights or remedies
hereunder, except under Section 7.9, Section 7.11, Section 7.12 and Article III
and (c) shall not be assigned by operation of law or otherwise. THIS AGREEMENT
SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND
EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS EXECUTED
AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
SECTION 10.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
SECTION 10.6 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and except as set forth in
Article III, Section 7.9, Section 7.11 and Section 7.12, nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
A-42
<PAGE> 137
SECTION 10.7 Severability. Wherever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
IN WITNESS WHEREOF, Parent, Subsidiary and the Company have caused this
Agreement to be signed by their respective officers as of the date first written
above.
WESTELL TECHNOLOGIES, INC.
By: /s/ ROBERT H. GAYNOR
----------------------------------
Name: Robert H. Gaynor
Title: Chairman and Chief
Executive Officer
THETA ACQUISITION CORP.
By: /s/ ROBERT H. GAYNOR
----------------------------------
Name: Robert H. Gaynor
Title: Chairman and Chief
Executive Officer
TELTREND INC.
By: /s/ DOUGLAS P. HOFFMEYER
----------------------------------
Name: Douglas P. Hoffmeyer
Title: Sr. Vice President,
Finance
A-43
<PAGE> 138
APPENDIX B
GOLDMAN, SACHS & CO.
85 BROAD STREET
NEW YORK, NEW YORK 1004
TEL: 212-902-1000
PERSONAL AND CONFIDENTIAL
December 13, 1999
Board of Directors
Westell Technologies, Inc.
750 N. Commons Drive
Aurora, IL 60504
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Westell Technologies, Inc. (the "Company") of the exchange ratio (the
"Exchange Ratio") of 3.30 shares of Class A Common Stock, par value $0.01 per
share (the "Company Shares"), of the Company to be exchanged by the Company for
each share of Common Stock, par value $0.01 per share (the "Teltrend Shares"),
of Teltrend Inc. ("Teltrend") pursuant to the Agreement and Plan of Merger,
dated as of December 13, 1999, by and among the Company, Theta Acquisition
Corp., a wholly owned subsidiary of the Company, and Teltrend (the "Agreement").
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement. Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of the Company or Teltrend for its own account and for the accounts
of customers.
We understand that SoundView Technology Group, Inc. ("SoundView") is acting
as financial advisor to Teltrend in connection with the transaction contemplated
by the Agreement. SoundView and Wit Capital Group, Inc. ("Wit") have entered
into an agreement pursuant to which Wit will acquire SoundView. Goldman, Sachs &
Co. currently owns approximately 16.5% of the outstanding shares of common stock
of Wit and warrants to acquire additional shares of common stock of Wit which,
if exercised, would result in Goldman, Sachs & Co. owning approximately 24.7% of
the outstanding shares of common stock of Wit.
In connection with this opinion, we have reviewed, among other things, the
Agreement; Annual Reports to Stockholders and Annual Reports on Form 10-K of
Teltrend and of the Company for the five fiscal years ended July 31, 1999 and
the four fiscal years ended March 31, 1999, respectively; certain interim
reports to stockholders and Quarterly Reports on Form 10-Q of Teltrend and the
Company; certain other communications from Teltrend and the Company to their
respective stockholders; and certain internal financial analyses and forecasts
for Teltrend and the Company prepared by the managements of Teltrend and the
Company, including certain cost savings and operating synergies projected by the
management of the Company to result from the transaction contemplated by the
Agreement (the "Synergies"). We also have held discussions with members of the
senior management of Teltrend and the Company regarding their assessment of the
strategic rationale for, and the potential benefits of, the transaction
B-1
<PAGE> 139
contemplated by the Agreement and the past and current business operations,
financial condition and future prospects of their respective companies. In
addition, we have reviewed the reported price and trading activity for the
Teltrend Shares and the Company Shares, compared certain financial and stock
market information for Teltrend and 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, data communications and networking industries
specifically and in other industries generally and performed such other studies
and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information discussed with or reviewed by us and have assumed such
accuracy and completeness for purposes of rendering this opinion. In that
regard, we have assumed, with your consent, that the internal financial
forecasts prepared by the managements of Teltrend and the Company, including the
Synergies, have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of Teltrend and the Company, and
that the Synergies will be realized in the amounts and time periods contemplated
thereby. In addition, we have not made an independent evaluation or appraisal of
the assets and liabilities of Teltrend or the Company or any of their
subsidiaries and we have not been furnished with any such evaluation or
appraisal. We also have assumed that all material governmental, regulatory or
other consents and approvals necessary for the consummation of the transaction
contemplated by the Agreement will be obtained without any adverse effect on
Teltrend or the Company or on the benefits of the transaction contemplated by
the Agreement. Our advisory services and the opinion expressed herein are
provided for the information and assistance of the Board of Directors of the
Company in connection with its consideration of the transaction contemplated by
the Agreement, and such opinion does not constitute a recommendation as to how
any holder of Company Shares should vote with respect to such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Exchange Ratio pursuant to the Agreement is fair from a financial point of view
to the Company.
Very truly yours,
/s/ GOLDMAN, SACHS & CO.
------------------------------------
(GOLDMAN, SACHS & CO.)
B-2
<PAGE> 140
APPENDIX C
SOUNDVIEW TECHNOLOGY GROUP, INC.
22 GATEHOUSE ROAD
STAMFORD, CONNECTICUT 06902-7908
December 13, 1999
Board of Directors
Teltrend Inc.
620 Stetson Avenue
St. Charles, IL 60174
Ladies and Gentlemen:
We understand that Westell Technologies, Inc. ("Westell"), Theta
Acquisition Corp., a wholly owned subsidiary of Westell ("Merger Sub"), and
Teltrend Inc. ("Teltrend" or the "Company") are considering entering into an
agreement and plan of merger substantially in the form of the draft dated
December 13, 1999 (the "Draft Merger Agreement") pursuant to which, among other
things, Merger Sub shall be merged with and into the Company in a transaction
(the "Merger") in which each share of common stock, par value $.01 per share, of
the Company, subject to the conditions and limitations set forth in the Draft
Merger Agreement, shall be converted into the right to receive, without
interest, 3.3 shares (the "Exchange Ratio") of the Class A Common Stock, par
value $0.01 per share, of Westell. The terms and conditions of the Merger are
set forth in more detail in the Draft Merger Agreement, a copy of which has been
furnished to us.
You have requested our opinion as investment bankers as to the fairness,
from a financial point of view, to the stockholders of the Company, of the
Exchange Ratio.
In conducting our analysis and arriving at our opinion as expressed herein,
we have, among other things:
(i) reviewed the Draft Merger Agreement and the specific terms of the
Merger set forth therein;
(ii) reviewed the draft Voting Agreement dated December 13, 1999;
(iii) reviewed Teltrend's financial and operating information for the
two-year period ended July 31, 1999 and the three-month period ended
October 30, 1999;
(iv) reviewed Westell's financial and operating information for the
two-year period ended March 31, 1999 and the six-month period ended
September 30, 1999;
(v) reviewed certain information regarding the private placement by
Westell of 6% Subordinated Convertible Debentures and Stock Purchase
Warrants to Capital Ventures International, Castle Creek Technology
Partners LLC, and Marshall Capital Management, Inc.;
(vi) reviewed certain financial and operating information regarding
the business, operations and prospects of Teltrend and Westell, including
forecasts and projections, provided to us by the managements of the Company
and Westell, respectively;
(vii) reviewed certain publicly available information concerning
certain other companies we deemed to be reasonably similar to the Company
and Westell and the trading markets for certain of such companies'
securities;
(viii) reviewed the financial terms of certain recent mergers and
acquisitions that we deemed relevant;
C-1
<PAGE> 141
(ix) conducted discussions with certain members of senior management
of the Company and Westell concerning their respective businesses and
operations, assets, present condition and future prospects; and
(x) performed such other analyses, examinations and procedures,
reviewed such other agreements and documents, and considered such other
factors as we have deemed, in our sole judgment, to be necessary,
appropriate or relevant to render the opinion set forth herein.
In arriving at our opinion, we have not made, obtained or assumed any
responsibility for any independent evaluation or appraisal of the properties and
facilities or of the assets and liabilities (contingent or otherwise) of either
the Company or Westell. We have assumed and relied upon the accuracy and
completeness of the financial and other information supplied to or otherwise
used by us in arriving at our opinion and have not attempted independently to
verify, or undertaken any obligation to verify such information. We have further
relied upon the assurances of the managements of Teltrend and Westell that they
were not aware of any facts that would make such information inaccurate or
misleading. In addition, we have assumed that the forecasts and projections
provided to SoundView Technology Group, Inc. by Westell and the Company
represent the best currently available estimates and judgments of Westell's and
the Company's managements as to the future financial condition and results of
operations of Westell and the Company, respectively, and have assumed that such
forecasts and projections have been reasonably prepared based on such currently
available estimates and judgments. We assume no responsibility for and express
no view as to such forecasts and projections or the assumptions on which they
are based.
We have also taken into account our assessment of general economic, market
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion is necessarily
based upon conditions as they exist and can be evaluated on the date hereof.
We do not express any view as to the price at which the Company's stock
will trade prior to the closing of the Merger, or the price at which Westell's
stock will trade prior to or subsequent to the closing of the Merger. This
letter is for the benefit and use of the Board of Directors of the Company in
its consideration of the Merger. This letter does not constitute a
recommendation of the Merger over any other alternative transactions which may
be available to the Company and does not address the underlying business
decision of the Board of Directors of the Company to proceed with or effect the
Merger.
We have, in the past, provided financial advisory and investment banking
services for the Company and have received fees for the rendering of such
services. In the ordinary course of our business, we may trade in the equity
securities of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities. The Company has agreed to indemnify us for certain liabilities
that may arise out of the rendering of this opinion.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, as of the date hereof, the Exchange Ratio pursuant to the Draft
Merger Agreement is fair, from a financial point of view, to the Company's
stockholders.
Very truly yours,
/s/ SOUNDVIEW TECHNOLOGY GROUP,
INC.
--------------------------------------
SoundView Technology Group, Inc.
C-2
<PAGE> 142
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Delaware law, a corporation may indemnify any person who was or is a
party or is threatened to be made a party to an action (other than an action by
or in the right of the corporation) by reason of his service as a director,
officer, employee or agent of the corporation, or his service, at the
corporation's request, as a director, officer, employee or agent of another
corporation or other enterprise, against expenses (including attorneys' fees)
that are actually and reasonably incurred by him ("Expenses"), and judgments,
fines and amounts paid in settlement that are actually and reasonably incurred
by him in connection with the defense or settlement of such action, provided
that he acted in good faith and in a manner he reasonably believed to be in or
not opposed to the corporation's best interests and, with respect to any
criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful. Although Delaware law permits a corporation to indemnify
any person referred to above against Expenses in connection with the defense or
settlement of an action by or in the right of the corporation, provided that he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the corporation's best interests, if such person has been judged
liable to the corporation, indemnification is only permitted to the extent that
the Court of Chancery (or the court in which the action was brought) determines
that, despite the adjudication of liability, such person is entitled to
indemnity for such Expenses as the court deems proper. The determination as to
whether a person seeking indemnification has met the required standard of
conduct is to be made (1) by a majority vote of disinterested members of the
board of directors even though less than a quorum, or (2) by a committee of
disinterested directors designated by a majority vote of such directors, even
though less than a quorum, or (3) by independent legal counsel in a written
opinion, if there are no disinterested directors or if the disinterested
directors so direct, or (4) by the stockholders. The General Corporation Law of
the State of Delaware also provides for mandatory indemnification of any present
or former director or officer against Expenses to the extent such person has
been successful in any proceeding covered by the statute. In addition, the
General Corporation Law of the State of Delaware provides the general
authorization of advancement of a director's, officer's, employee's and agent's
litigation expenses and that indemnification and advancement of expenses
provided by the statute shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, agreement or otherwise.
Westell's Amended and Restated Certificate of Incorporation and Westell's
Amended and Restated By-laws provide for indemnification of Westell's directors,
officers, employees and other agents to the fullest extent not prohibited by the
Delaware law.
Westell maintains liability insurance for the benefit of its directors and
officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits.
<TABLE>
<C> <S>
2.1 -- Agreement and Plan of Merger, dated as of December 13,
1999, by and among Westell Technologies, Inc., Theta
Acquisition Corp. and Teltrend Inc. (included as Appendix
A to the joint proxy statement/prospectus and
incorporated herein by reference to Exhibit 99.2 to
Westell Technologies, Inc.'s Current Report on Form 8-K
filed December 17, 1999)
4.1 -- Amended and Restated Certificate of Incorporation, as
amended (incorporated herein by reference to Exhibit 3.1
to Westell Technologies, Inc.'s Registration Statement on
Form S-3, as amended, Registration No. 333-79407)
</TABLE>
II-1
<PAGE> 143
<TABLE>
<C> <S>
4.2 -- Amended and Restated By-laws*
5.1 -- Opinion of McDermott, Will & Emery
23.1 -- Consent of Arthur Andersen LLP, on behalf of Westell
Technologies, Inc.
23.2 -- Consent of Ernst & Young LLP, on behalf of Teltrend Inc.
23.3 -- Consent of McDermott, Will & Emery (included in Exhibit
5.1)
23.4 -- Consent of Goldman, Sachs & Co.
23.5 -- Consent of SoundView Technology Group, Inc.*
23.6 -- Consent of Hambrecht & Quist LLC
24.1 -- Powers of Attorney (included in the signature page of the
Registration Statement)
99.1 -- Voting Agreement, dated December 13, 1999, by and among
Robert C. Penny III and Melvin J. Simon, individually, as
trustees pursuant to a Voting Trust Agreement dated
February 23, 1994, as amended, and as trustees for any
Holder (as defined in the Voting Trust), and Teltrend
Inc. (incorporated herein by reference to Exhibit 99.3 to
Westell Technologies, Inc.'s Current Report on Form 8-K
filed December 17, 1999)
99.2 -- Consent of Howard L. Kirby, Jr. to become a director of
Westell Technologies, Inc.*
99.3 -- Consent of Bernard F. Sergesketter to become a director
of Westell Technologies, Inc.*
99.4 -- Form of Proxy Card to be mailed to stockholders of
Westell Technologies, Inc.*
99.5 -- Form of Proxy Card to be mailed to stockholders of
Teltrend Inc.*
</TABLE>
- ---------------
* Previously filed.
(b) Financial Statement Schedules. None
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within
II-2
<PAGE> 144
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(d) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the Registration Statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offering therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(e) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this Form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(f) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-3
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in Aurora,
Illinois on February 14, 2000.
WESTELL TECHNOLOGIES, INC.
By: /s/ MARC ZIONTS
----------------------------------
Marc Zionts,
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
has been signed by the following persons in the capacities set forth, on
February 14, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ROBERT H. GAYNOR Chairman of the Board of Directors
- -----------------------------------------------------
Robert H. Gaynor
/s/ MARC ZIONTS Chief Executive Officer (Principal
- ----------------------------------------------------- Executive Officer) and Director
Marc Zionts
/s/ NICHOLAS C. HINDMAN Interim Chief Financial Officer
- ----------------------------------------------------- (Principal Financial and Accounting
Nicholas C. Hindman Officer)
/s/ PAUL A. DWYER Director
- -----------------------------------------------------
Paul A. Dwyer
* Director
- -----------------------------------------------------
Robert C. Penny III
/s/ JOHN W. SEAZHOLTZ Director
- -----------------------------------------------------
John W. Seazholtz
/s/ MELVIN J. SIMON Director
- -----------------------------------------------------
Melvin J. Simon
/s/ J. WILLIAM NELSON Director
- -----------------------------------------------------
J. William Nelson
* Director
- -----------------------------------------------------
Thomas A. Reynolds, III
*By: /s/ MARC ZIONTS
-------------------------------------------------
Marc Zionts, Attorney-in-Fact
</TABLE>
II-4
<PAGE> 1
EXHIBIT 5.1
February 14, 2000
Westell Technologies, Inc.
750 North Commons Drive
Aurora, Illinois 60504
Re: Registration Statement on Form S-4 (No. 333-95539)
--------------------------------------------------
Ladies and Gentlemen:
This opinion is furnished to you in connection with the
above-referenced registration statement on Form S-4, as amended (the
"Registration Statement") filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended (the "Securities Act"), for the
registration of an aggregate of 20,885,700 shares of Class A Common Stock, (the
"Class A Common Stock"), par value $0.01 per share, of Westell Technologies,
Inc., a Delaware corporation ("Westell").
We have acted as counsel to Westell in connection with the issuance of
the shares of Class A Common Stock pursuant to an Agreement and Plan of Merger
(the "Merger Agreement") dated as of December 13, 1999, by and among Westell,
Theta Acquisition Corp. and Teltrend Inc.
In arriving at the opinion expressed below, we have examined the
Registration Statement, the Merger Agreement, the Amended and Restated
Certificate of Incorporation of Westell, as amended, the proposed amendment to
the Amended and Restated Certificate of Incorporation as described in the
Registration Statement (the "Amendment"), the Bylaws of Westell and such other
documents as we have deemed necessary to enable us to express the opinion
hereinafter set forth. In addition, we have examined and relied, to the extent
we deemed proper, on certificates of officers of Westell as to factual matters,
and on originals or copies certified or otherwise identified to our
satisfaction, of all such corporate records of Westell and such other
instruments and certificates of public officials and other persons as we have
deemed appropriate. In our examination, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the original documents
of all documents submitted to us as copies, the genuineness of all signatures on
documents reviewed by us and the legal capacity of natural persons.
We express no opinion as to the applicability of, compliance with or
effect of, the law of any jurisdiction other than the General Corporation Law of
the State of Delaware.
<PAGE> 2
Westell Technologies, Inc.
February 14, 2000
Page 2
Based upon and subject to the foregoing, we are of the opinion that,
upon the approval of the Amendment by the stockholders of Westell, as
contemplated in the Registration Statement, and the filing of the Amendment with
the Secretary of State of the State of Delaware, the shares of Class A Common
Stock to be issued pursuant to the Merger Agreement will have been duly
authorized and, when issued in accordance with the terms of the Merger
Agreement, will be validly issued, fully paid and non-assessable.
We hereby consent to the references to our firm under the caption
"Legal Matters" in the Registration Statement and to the use of this opinion as
an exhibit to the Registration Statement. In giving this consent, we do not
hereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act, as amended, or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/ McDermott, Will & Emery
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated May 11, 1999
included (or incorporated by reference) in Westell Technologies, Inc. and
Subsidiaries Form 10-K for the year ended March 31, 1999 and to all references
to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
Chicago, Illinois
February 14, 2000
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4-Amendment No. 1) and related Prospectus of
Westell Technologies, Inc. for the registration of 20,885,700 shares of its
Class A common stock and to the incorporation by reference therein of our report
dated August 24, 1999, with respect to the consolidated financial statements of
Teltrend Inc. included in its Annual Report (Form 10-K) for the year ended July
31, 1999, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Chicago, Illinois
February 14, 2000
<PAGE> 1
Exhibit 23.4
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004
Tel: 212-902-1000
PERSONAL AND CONFIDENTIAL
February 11, 2000
Board of Directors
Westell Technologies, Inc.
750 N. Commons Drive
Aurora, IL 60504
Re: Registration Statement (File No. 333-95539) of
Westell Technologies, Inc.
Dear Gentlemen:
Reference is made to our opinion letter dated December 13, 1999 with respect to
the fairness from a financial point of view to Westell Technologies, Inc. (the
"Company") of the exchange ratio of 3.30 shares of Class A Common Stock, par
value $0.01 per share, of the Company to be exchanged by the Company for each
share of Common Stock, par value $0.01 per share, of Teltrend, Inc. ("Teltrend")
pursuant to the Agreement and Plan of Merger, dated as of December 13, 1999, by
and among the Company, Theta Acquisition Corp., a wholly owned subsidiary of the
Company, and Teltrend.
The foregoing opinion letter is provided for the information and assistance of
the Board of Directors of the Company in connection with its consideration of
the transaction contemplated therein and is not to be used, circulated, quoted
or otherwise referred to for any other purpose, nor is it to be filed with,
included in or referred to in whole or in part in any registration statement,
proxy statement or any other document, except in accordance with our prior
written consent. We understand that the Company has determined to include our
opinion in the above-referenced Registration Statement.
In that regard, we hereby consent to the reference to the opinion of our Firm
under the captions "Summary -- Opinions of Financial Advisors," "The Merger --
Westell's Reasons for the Merger; Recommendation of the Westell Board" and "The
Merger -- Opinion and Advice of Westell's Financial Advisors" and to the
inclusion of the foregoing opinion in the Joint Proxy
<PAGE> 2
Board of Directors
Westell Technologies, Inc.
February 11, 2000
Page Two
Statement/Prospectus included in the above-mentioned Registration Statement, as
amended. In giving such consent, we do not thereby admit that we come within the
category of persons whose consent is required under Section 7 of the Securities
Act of 1933 or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ Goldman, Sachs & Co.
- ------------------------
(GOLDMAN, SACHS & CO.)
<PAGE> 1
EXHIBIT 23.6
CONSENT OF HAMBRECHT & QUIST LLC
We hereby consent to the references to, and summary of, our oral advice
which was given on December 13, 1999 to the Board of Directors of Westell
Technologies, Inc. ("Westell") in the Joint Proxy Statement/Prospectus which
forms part of the Registration Statement on Form S-4, as amended, relating to
the proposed merger involving Teltrend Inc. and Theta Acquisition Corp., a
subsidiary of Westell. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder, nor do we hereby admit that we
are experts with respect to any part of such Registration Statement within the
meaning of the term "experts" as used in the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder.
HAMBRECHT & QUIST LLC
By: /s/ Mark J. Zanoli
----------------------------------
Name: Mark J. Zanoli
Title: Managing Director
February 4, 2000
