Published:
Tollgrade Sends Letter to Shareholders
PITTSBURGH , July 2 /PRNewswire-FirstCall/ -- Tollgrade Communications, Inc. (Nasdaq: TLGD) today announced that it is has sent the following letter to shareholders:
(Logo: http://www.newscom.com/cgi-bin/prnh/20050603/CLF046LOGO )
Dear Fellow Tollgrade Shareholder:
RE-ELECT TOLLGRADE'S DIRECTORS
VOTE THE WHITE PROXY CARD TODAY
As you decide how to vote at the upcoming 2009 Annual Meeting of the Shareholders of Tollgrade Communications, Inc. to be held on August 5, 2009, ask yourself the following question:
WHO WOULD YOU RATHER HAVE OVERSEEING THE TRANSFORMATION OF TOLLGRADE?
THE TOLLGRADE BOARD, WHICH HAS:
-- Developed a comprehensive plan to transform Tollgrade and reinvigorate
its global franchise by refocusing on Tollgrade's core business and
emphasizing its service assurance offerings to the telecom market. In
2008, the Tollgrade Board retained the investment banking firm of
Needham & Company LLC to help it evaluate a range of strategic
alternatives to enhance shareholder value. At the conclusion of this
process, the Board determined that the most appropriate strategy to
enhance value was to emphasize Tollgrade's service assurance
offerings to the telecom market and capitalize on the strength of its
current customer relationships as it extended its capabilities to next
generation architectures. Our refocused strategy, which involves the
creation of new software offerings and partnerships, allows us to
leverage our strong embedded base of customers, and enhance the value of
our long term relationships and services agreements. Tollgrade also has
the financial flexibility to execute on our refocused strategy, thanks
to our strong balance sheet, which includes no debt and healthy cash
reserves of more than $60 million.
-- Embarked on a plan to enhance telecom industry expertise on the
Tollgrade Board through a comprehensive search process. As part of the
Tollgrade Board's plan to transform Tollgrade and reinvigorate its
global franchise, the Board was unanimous in its view that Tollgrade
would benefit from the addition of independent directors with deep
experience in the telecom sector. Accordingly, the Board retained CT
Partners, a nationally-recognized executive search firm, to assist in
identifying candidates through a comprehensive search process.
-- Appointed veteran telecom executive Edward H. Kennedy as its newest
independent director pursuant to its plan to enhance the telecom
industry expertise of the Tollgrade Board. Mr. Kennedy has over 25 years
of experience in the telecommunications industry including tenures as
the President of Tellabs' North American operations and, prior to
that, as the Chief Executive Officer, President and Co-Founder of Ocular
Networks until its sale to Tellabs. Given Mr. Kennedy's years of
telecom industry experience and technological expertise, as well as his
experience as a business executive and a public company board member, we
expect him to be a tremendous resource to Tollgrade as we refocus
Tollgrade's core business by emphasizing our service assurance
offerings to the telecom market and position Tollgrade for long-term
growth, a return to profitability, market leadership and increasing
returns for investors. Mr. Kennedy is the first candidate to join the
Tollgrade Board who was identified through the comprehensive search
process initiated by the Board to identify independent directors with
deep experience in the telecom sector, and Tollgrade anticipates adding
additional expertise to the Board in the future
-- Sold off non-core assets, including Tollgrade's cable product line
in May 2009 because the line did not support our refocused growth
strategy. The sale of the cable line will afford us the opportunity to
focus more on our core service assurance solutions and the data
correlations aspects of test and measurement.
-- Bolstered cash reserves, with particular emphasis on ensuring that we
build on our current cash and short-term investment position to preserve
significant financial flexibility and appropriate liquidity, an
advantage in a tight financial market when we may be presented with
attractive investment opportunities.
-- Streamlined operations and reduced corporate overhead including: (i)
consolidating functions performed at remote locations in Sarasota,
Florida (acquired from Acterna) and Deerfield, Illinois (acquired from
Teradyne) to our headquarters in Pittsburgh, Pennsylvania; (ii) reducing
the number of members of our senior management team by almost 60%; and
(iii) comprehensively reducing corporate operating expenses and other
costs by more than $6 million annualized, based on Q1 2009 versus Q1
2008. A further $1.5 million in additional annual cost savings are
expected based on actions taken in February of 2009.
-- Strengthened the efficiencies of our supply chain by moving products
representing 80% of our hardware revenue to a new direct fulfillment
model. We expect to move all remaining products to this model by
year's end, allowing us to reduce our internal fixed cost
requirements which should drive improvements to gross margins. We have
also reduced inventories by over $3 million year over year (Q1 2008 to
Q1 of 2009), a reduction of almost 25%.
-- Authorized a $15 million stock buyback program which reflects the faith
that your Board and management have in Tollgrade's growth prospects
and our belief that the current market valuation of Tollgrade's
shares does not reflect Tollgrade's underlying long-term value.
-- Made key management changes to strengthen the leadership and functional
expertise needed to execute our growth strategy, including bolstering
our sales and marketing organization and adding new talent and
resources. The collective technology experience of these individuals,
along with other members of our management team and our foreign and
domestic employees, is an important ingredient in creating a path for
growth in our core test and measurement markets where Tollgrade has an
excellent reputation and significant embedded customer base.
-- Continued to build on our solid foundation of already strong corporate
governance practices by (i) adopting a stricter standard for determining
director independence than the standard that applied to Tollgrade under
the rules of the Nasdaq Stock Market; (ii) requiring that at least
two-thirds of the membership of the Tollgrade Board of Directors be
comprised of independent directors that meet this new stricter standard;
and (iii) requiring that the Tollgrade Board's Audit, Compensation
and Nominating and Governance Committees be comprised exclusively of
independent directors that meet this new stricter standard.
-- Attempted to avoid a costly, distracting and disruptive proxy contest so
that we could move beyond this unnecessary distraction and keep our full
attention focused on delivering on Tollgrade's very significant
potential and our various initiatives for enhancing long-term value for
all Tollgrade shareholders. Consider the following:
-- Since February 2009, we have attempted to constructively engage with
the Ramius Group to avoid a proxy contest which not only is very
costly to Tollgrade but also distracts management's attention
from working to build long-term value for you. In light of this, we
made numerous attempts to settle this proxy contest with the Ramius
Group.
-- Subject to the execution of a customary proxy contest settlement
agreement that would contain a standstill preventing the Ramius
Group from waging another costly, distracting and disruptive proxy
contest against Tollgrade at our 2010 Annual Meeting of
Shareholders, we offered to nominate a slate of candidates for
election to the Tollgrade Board at our 2009 Annual Meeting that
would include three new directors comprised of one Ramius
representative and two independent telecom industry experts. One of
the industry experts would be chosen by the Ramius Group and one by
Tollgrade.
-- The Ramius Group adamantly refused to consider a settlement
agreement that would prevent it from pursuing another proxy contest
against Tollgrade at our 2010 Annual Meeting and the only standstill
that it offered us was, effectively, less than a year in duration.
In addition, the proxy contest settlement that was proposed to us by
the Ramius Group would have required us to appoint Peter A. Feld, a
Ramius employee with no telecom industry experience, to the
Tollgrade Board.
OR ...
THE RAMIUS GROUP, WHICH HAS:
-- Initiated a distracting, disruptive and costly proxy contest against
Tollgrade that only serves to interfere with the significant and
substantial progress we are making in implementing our refocused
strategy and effecting the transformation of Tollgrade.
-- Disclosed no new ideas, plans or proposals to enhance value for ALL
Tollgrade shareholders or their strategic "vision" for
Tollgrade, despite a number of in-person meetings in Pittsburgh and New
York City and numerous telephone calls between representatives of the
Ramius Group and Tollgrade's Board and management.
-- Failed to disclose their true plans and intentions for Tollgrade, should
they be successful in having their hand-picked nominees elected to your
Board. We believe that additional information concerning the ultimate
plans of the Ramius Group represents material information that
shareholders need to know, and are entitled to know, in order to make an
informed decision on how to vote at the 2009 Annual Meeting.
-- Historically been known as an opportunistic hedge fund with a focus on
short-term gains and as specialists in financial reengineering.
Accordingly, we are very concerned that the Ramius Group may be more
attracted by our more than $60 million in cash reserves than
Tollgrade's very significant potential for growing long-term
shareholder value and may have undisclosed plans with respect to
Tollgrade's cash reserves. We believe that the Ramius Group's
nominees, if elected, will seek to advance the short-term focus of the
Ramius Group and will be highly disruptive to the efforts of your Board
and management team to create long-term shareholder value.
-- Historically been known for being a highly disruptive and destabilizing
influence on a public company's board of directors, following the
appointment or election or its hand-picked nominees. If our shareholders
have any doubt as to the disruptive and destabilizing influence that the
Ramius Group can have on a public company's board of directors, we
suggest that they observe the very bitter and acrimonious proxy contest
currently being waged by the Ramius Group against CPI Corp., a company
against which the Ramius Group had a few years earlier waged a consent
solicitation that resulted in the Ramius Group securing representation
on the CPI Board.
-- Refused to enter into any proxy contest settlement agreement with
Tollgrade that includes any "standstill" or other restrictions
that would prevent the Ramius Group from initiating another costly,
distracting and disruptive proxy contest against Tollgrade at the 2010
annual meeting of shareholders. We believe the Ramius Group's
strident and adamant opposition to such a "standstill" and
their steadfast insistence on preserving their ability to acquire
substantial influence, if not effective control, over the Tollgrade
Board, as opposed to working with us to identify a mutually acceptable
independent director with telecom industry expertise, is clear and
convincing evidence that the ultimate goal of the Ramius Group is to be
able to exert substantial influence and effective control over Tollgrade
disproportionate to their investment in Tollgrade: The Ramius
Group's nominees, if elected, would account for close to 40% of the
membership of your Board.
-- Proposed two nominees to your Board, Scott C. Chandler and Edward B.
Meyercord, III, who are receiving significant compensation from the
Ramius Group for agreeing to be named and serve as nominees of the
Ramius Group, irrespective of whether they are elected as directors of
Tollgrade. In addition to receiving $20,000 each as compensation, each
of Messrs. Chandler and Meyercord are being indemnified for any claims
that may arise from the proxy contest being waged against Tollgrade by
the Ramius Group. Given these compensatory arrangements, we question
whether Messrs. Chandler and Meyercord can be expected to take actions
that may be in the best interests of ALL Tollgrade shareholders other
than the Ramius Group or that may conflict with the interests and agenda
of the Ramius Group.
Given the above, we believe the choice is clear. Please vote today to support your Board's plan for the transformation of Tollgrade by electing your company's highly qualified and very experienced nominees on the WHITE proxy card TODAY.
YOUR VOTE IS IMPORTANT! RE-ELECT YOUR DIRECTORS BY VOTING THE WHITE PROXY CARD TODAY
Your vote is important, no matter how many or how few shares you own. To vote your shares, please vote TODAY by telephone, Internet or by signing, dating and returning the enclosed WHITE proxy card in the enclosed postage-paid envelope provided. You may also vote by phone or Internet by following the instructions on the enclosed proxy card.
If you have any questions or need assistance in voting your WHITE proxy card, we encourage you to call our proxy solicitor, The Altman Group, Inc.,Toll-Free at (866) 340-6685 or (201) 806-7300.
Thank you for your continued support of Tollgrade. We look forward to communicating with you further in the coming weeks.
Sincerely,
Joseph A. Ferrara
Chairman of the Board of Directors, President and
Chief Executive Officer
Your Vote Is Important, No Matter How Many Or How Few Shares You Own.
If you have questions about how to vote your shares, or need additional assistance, please contact the firm assisting us in the solicitation of proxies:
The Altman Group
1200 Wall Street West
Lyndhurst, NJ 07071
Shareholders Call Toll-Free: (866) 340-6685
Banks and Brokerage Firms Call Collect: (201) 806-7300
Important Information
In connection with the solicitation of proxies, Tollgrade Communications, Inc. has filed with the SEC and mailed to shareholders on or about June 22, 2009 a definitive proxy statement in connection with its 2009 Annual Meeting of Shareholders. Tollgrade, its directors, nominees for director and certain officers, employees and other persons are deemed to be participants in the solicitation of proxies from shareholders in connection with the 2009 Annual Meeting of Shareholders. Information regarding the interests of such participants is included in the definitive proxy statement and other relevant documents filed and to be filed by Tollgrade with the SEC in connection with the proxy solicitation. WE URGE INVESTORS TO READ THE DEFINITIVE PROXY STATEMENT (INCLUDING ANY SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS THAT TOLLGRADE WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. Shareholders will be able to obtain, free of charge, copies of the definitive proxy statement and any other documents filed by Tollgrade with the SEC in connection with the proxy solicitation at the SEC's website at http://www.sec.gov and Tollgrade's website at http://www.tollgrade.com.
About Tollgrade
Tollgrade Communications, Inc. is a leading provider of network service assurance products and services for centralized test systems around the world. Tollgrade designs, engineers, markets and supports centralized test systems, test access and next generation network assurance technologies. Tollgrade's customers range from the top telecom providers, to numerous independent telecom and broadband providers around the world. Tollgrade's network testing, measurement and monitoring solutions support the infrastructure of telecom companies, as well as for power distribution companies. For more information, visit Tollgrade's web site at www.tollgrade.com.
Forward-Looking Statements
The foregoing release contains "forward-looking statements" regarding future events or results within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. The Company cautions readers that such "forward-looking statements" are, in fact, predictions that are subject to risks and uncertainties and that actual events or results may differ materially from those anticipated events or results expressed or implied by such forward-looking statements. The Company disclaims any current intention to update its "forward-looking statements," and the estimates and assumptions within them, at any time or for any reason. Any number of factors that could cause actual events or results to differ materially from those contained in the "forward-looking statements" is included in the Company's filings with the U.S. Securities and Exchange Commission (the "SEC") including, but not limited to, the Company's Form 10-K for the year ended December 31, 2008 and any subsequently filed reports. All documents are also available through the SEC's Electronic Data Gathering Analysis and Retrieval system at www.sec.gov or from the Company's website at www.tollgrade.com.
SOURCE Tollgrade Communications, Inc.
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