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April 13, 2006 Chelmsford, MA -- Sycamore Networks, a provider of optical networking products, has entered into a definitive agreement with Allen Organ Company which will result in Sycamore acquiring Allen Organ's majority-owned subsidiary Eastern Research, Inc., a provider of network access platforms for wireline, wireless, and private network operators.
According to a press release, the acquisition will be part of a multi-step transaction which will include the corporate reorganization of the Allen Organ group of companies. The addition of Eastern Research's "field-proven" products and technology is expected to enable Sycamore to extend its intelligent networking capabilities to a complementary suite of access platforms.
Under the terms of the agreement, Allen Organ will spin off to newly-formed entities assets and operations not related to Eastern Research and will undertake an inter-company merger which will result in Allen Organ owning all of the outstanding shares of Eastern Research. Sycamore will then acquire Allen Organ and its sole remaining operating subsidiary, Eastern Research.
The total consideration to be paid by Sycamore will be approximately $92.5 million, consisting of $8 million in cash and approximately 17.8 million shares, subject to certain closing adjustments and collar provisions. The number of shares to be issued was determined based on a pre-signing average stock price of $4.75. A portion of the shares will be used as consideration to the minority shareholders of Eastern Research in the Allen Organ inter-company merger.
Sycamore currently expects the transaction to be accretive within 12 months of closing, exclusive of purchase accounting adjustments and other one-time merger-related charges.
"The acquisition of Eastern Research is a first step towards leveraging our strengths in the core to offer a more comprehensive suite of solutions optimized for emerging broadband networks," comments Daniel E. Smith, president and CEO of Sycamore Networks. "As wireless and wireline infrastructure networks evolve to support a broader mix of services and applications, network operators will require new levels of efficiency, agility, and scalability throughout their networks. With an established Tier 1 customer base and proven expertise in access networking, the talented team at Eastern Research will significantly enhance our ability to meet these emerging challenges with best-in-class solutions that extend to the network edge."
New Jersey-based Eastern Research, with calendar year 2005 revenue of approximately $62 million and 250 employees, says it has thousands of systems installed worldwide and a large customer base that includes major Tier 1 fixed line and mobile network operators, utility companies, government agencies, and military networks. Eastern's product portfolio includes multiservice cross-connects and access gateways that aggregate, groom, and manage bandwidth in access portions of wireline and wireless infrastructure networks. The company says its products enable network operators to cost-efficiently optimize service bandwidth, streamline network operations, and deploy new services while improving performance and reliability.
"We look forward to joining the Sycamore team and continuing to solve our customers' networking challenges with a shared commitment to innovation, technical excellence, and customer-centric solutions," comments Mike Doyle, president of Eastern Research.
Pursuant to the collar provisions of the agreement, if the average closing price of Sycamore common stock on the 15 consecutive trading days ending five days prior to the closing date is less than $4.28 per share or greater than $5.23 per share then the stock consideration will be adjusted back to the collar limits. In addition, if the average closing price prior to closing is less than $4.28 per share, Sycamore has the right, at its discretion, to substitute cash for stock to satisfy the additional consideration to be paid.
Sycamore expects the transaction to qualify as a tax-free reorganization. The transaction has been approved by the board of directors of both Sycamore Networks and Allen Organ and is subject to certain closing conditions, including approval by the shareholders of Allen Organ, Sycamore's registration statement having been declared effective by the Securities and Exchange Commission, the expiration or termination of the applicable waiting period under the Hart Scott Rodino Antitrust Improvements Act of 1976, and any other required regulatory approvals. Sycamore currently expects the transaction to close in the summer of 2006.
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