As filed with the Securities and Exchange Commission on July 16, 2010

Registration No. 333-167665

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

Amendment No. 1 to

Form S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

 

 

Comtech Telecommunications Corp.

(Exact Name of Registrant as Specified in Its Charter)

 

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)

 

 

 

 

Mr. Fred Kornberg

Comtech Telecommunications Corp.

68 South Service Road, Suite 230

Melville, New York 11747

(631) 962-7000

 

 

 

(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)

 

 

 

Copies to:

 

 

 

 

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 of Angels Acquisition Corp. (“Merger Sub”), a wholly owned subsidiary of Comtech Telecommunications Corp. (“Comtech”), with and into CPI International, Inc. (“CPI”), as described in the Agreement and Plan of Merger dated as of May 8, 2010 among CPI, Comtech and Merger Sub.

 

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.  o

 

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, as amended (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.  o

 

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.  o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”).

 

 

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer) o

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer) o

 

 

CALCULATION OF REGISTRATION FEE

 

 

 

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 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

PRELIMINARY — SUBJECT TO COMPLETION — DATED JULY 16, 2010

 

 

MERGER PROPOSAL — YOUR VOTE IS VERY IMPORTANT

 

July [l], 2010

 

Dear CPI International, Inc. Stockholder:

 

You are cordially invited to attend our upcoming special meeting of stockholders of CPI International, Inc., referred to as CPI, to be held on August 27, 2010 at 10:00 a.m., local time, at The Waldorf Astoria, 301 Park Avenue, New York, New York. As announced on May 10, 2010, CPI, Comtech Telecommunications, Inc., referred to as Comtech, and Angels Acquisition Corp. entered into an agreement and plan of merger, dated May 8, 2010, which provides for a merger in which CPI will become a wholly owned subsidiary of Comtech. The CPI board of directors has unanimously determined that the merger and the merger agreement are advisable and in the best interests of CPI and its stockholders and has approved the merger agreement and the merger.

 

If the merger is completed, each outstanding share of CPI common stock will be converted into the right to receive a combination of $9.00 in cash, without interest, and a fraction of a share of Comtech common stock equal to the conversion ratio. The conversion ratio will equal $8.10 divided by the average closing trading price of Comtech common stock over a specified period prior to the closing of the merger, but will not be greater than 0.2382 nor less than 0.2132.

 

The common stock of CPI and common stock of Comtech are each traded on the NASDAQ Global Select Market under the symbols “CPII” and “CMTL,” respectively.

 

CPI is holding the special meeting of stockholders to obtain your vote to adopt the merger agreement. Your vote is important. The merger cannot be completed unless the holders of a majority of the shares of CPI common stock outstanding and entitled to vote affirmatively vote for the adoption of the merger agreement at the special meeting. As described in the accompanying proxy statement/prospectus, Cypress Associates II LLC and certain of its affiliates have entered into a voting and standstill agreement under which, subject to limited exceptions, they have agreed to vote shares representing 49.9% of the outstanding shares of CPI common stock as of the record date for the special meeting in favor of the adoption of the merger agreement.

 

The CPI board of directors unanimously recommends that CPI stockholders vote “FOR” the adoption of the merger agreement.

 

On behalf of the CPI board of directors, you are invited to attend the special meeting. Whether or not you expect to attend the CPI special meeting in person, you are urged to submit your proxy as promptly as possible through one of the delivery methods described in the accompanying proxy statement/prospectus. In addition, you are urged to read carefully the accompanying proxy statement/prospectus (and the documents incorporated by reference into the accompanying proxy statement/prospectus), which includes important information about the merger agreement, the proposed merger, CPI, Comtech and the special meeting. Please pay particular attention to the section titled “Risk Factors” beginning on page [l] of the accompanying proxy statement/prospectus.

 

On behalf of the CPI board of directors, thank you for your continued support.

 

 

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the securities to be issued under the accompanying proxy statement/prospectus or determined that the accompanying proxy statement/prospectus is accurate or complete. Any representation to the contrary is a criminal offense.

 

The accompanying proxy statement/prospectus is dated July [l], 2010 and is first being mailed to the stockholders of CPI on or about July [l], 2010.

 

ADDITIONAL INFORMATION

 

The accompanying document is the proxy statement of CPI for its special meeting of stockholders and the prospectus of Comtech for the shares of Comtech common stock to be issued as consideration in the merger. The accompanying proxy statement/prospectus incorporates important business and financial information about Comtech and CPI from documents that are not included in or delivered with the accompanying proxy statement/prospectus. This information is available to you without charge upon your written or oral request. You can obtain documents incorporated by reference into the accompanying proxy statement/prospectus by requesting them in writing or by telephone from Comtech or CPI at the following addresses and telephone numbers:

 

 

In addition, if you have questions about the merger or the accompanying proxy statement/prospectus, would like additional copies of the accompanying proxy statement/prospectus or need to obtain proxy cards or other information related to the proxy solicitation, please contact CPI Investor Relations at (650) 846-2900. You will not be charged for any of these documents that you request.

 

If you would like to request documents, please do so by August 20, 2010 in order to receive them before the special meeting.

 

See “Where You Can Find More Information” beginning on page [l] of the accompanying proxy statement/prospectus for further information.

 

811 Hansen Way
Palo Alto, California 94303

 

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

 

To the Stockholders of CPI International, Inc.:

 

Notice is hereby given that a special meeting of stockholders of CPI International, Inc., a Delaware corporation, which is referred to as CPI, will be held on August 27, 2010 at 10:00 a.m., local time, at The Waldorf Astoria, 301 Park Avenue, New York, New York, solely for the following purposes:

 

 

These items of business, including the merger agreement and the proposed merger, are described in detail in the accompanying proxy statement/prospectus. The CPI board of directors has determined that the merger agreement and the transactions contemplated by the merger agreement, including the merger, are advisable and in the best interests of CPI and its stockholders and recommends that CPI stockholders vote “FOR” the proposal to adopt the merger agreement and “FOR” the adjournment of the CPI special meeting if necessary to solicit additional proxies in favor of such adoption.

 

Only stockholders of record as of the close of business on July 20, 2010 are entitled to notice of the CPI special meeting and to vote at the CPI special meeting or at any adjournment thereof. A list of stockholders entitled to vote at the special meeting will be available in CPI’s offices located at 811 Hansen Way, Palo Alto, California 94303, during regular business hours for a period of no less than 10 days before the special meeting, as well as at the place of the special meeting during the meeting.

 

Adoption of the merger agreement by the CPI stockholders is a condition to the merger and requires the affirmative vote of holders of a majority of the shares of CPI common stock outstanding and entitled to vote thereon. Therefore, your vote is very important. Your failure to vote your shares will have the same effect as a vote “AGAINST” the adoption of the merger agreement.

 

By order of the board of directors,

 

Joel Littman
Corporate Secretary

 

Palo Alto, California

July [l], 2010

YOUR VOTE IS IMPORTANT!

 

WHETHER OR NOT YOU EXPECT TO ATTEND THE CPI SPECIAL MEETING IN PERSON, WE URGE YOU TO SUBMIT YOUR PROXY AS PROMPTLY AS POSSIBLE (I) THROUGH THE INTERNET, (II) BY TELEPHONE OR (III) BY MARKING, SIGNING AND DATING THE ENCLOSED PROXY CARD AND RETURNING IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. You may revoke your proxy or change your vote at any time before the CPI special meeting. If your shares are held in the name of a bank, broker or other fiduciary, please follow the instructions on the voting instruction card furnished to you by such record holder.

 

You are urged to read the accompanying proxy statement/prospectus, including all documents incorporated by reference into the accompanying proxy statement/prospectus, and its annexes carefully and in their entirety. If you have any questions concerning the merger, the special meeting or the accompanying proxy statement/prospectus, would like additional copies of the accompanying proxy statement/prospectus or need help voting your shares of CPI common stock, please contact CPI Investor Relations at:

 

CPI International, Inc.
811 Hansen Way
Palo Alto, California 94303
Attention: Investor Relations
Telephone: (650) 846-2900

 

TABLE OF CONTENTS

 

 

The following are some questions that you, as a stockholder of CPI, may have regarding the merger and the special meeting, and brief answers to those questions. You are urged to read this proxy statement/prospectus and the other documents referred to in this proxy statement/prospectus carefully and in their entirety because this section may not provide all of the information that is important to you with respect to the merger and the special meeting. Additional important information is contained in the annexes to, and the documents incorporated by reference into, this proxy statement/prospectus.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SUMMARY

 

Information about Comtech Telecommunications Corp., Angels Acquisition Corp. and CPI International, Inc. (See Page [l])

 

The Merger (See Page [l])

 

Special Meeting of CPI Stockholders (See Page [l])

	•	to adopt the merger agreement; and
	•	to approve the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting.

 

What CPI Stockholders Will Receive in the Merger (See Page [l])

 

Treatment of Equity Awards (See Page [l])

 

Recommendation of the CPI Board of Directors (See Page [l])

 

Opinion of CPI’s Financial Advisors (See Page [l])

 

Ownership of Comtech After the Merger (See Page [l])

Comtech Stockholder Approval Is Not Required

Interests of Certain Persons in the Merger (See Page [l])

Listing of Comtech Common Stock and Delisting and Deregistration of CPI Common Stock (See Page [l])

Appraisal Rights Available (See Page [l])

Completion of the Merger Is Subject to Certain Conditions (See Page [l])

	•	adoption of the merger agreement by holders of a majority of the outstanding shares of CPI common stock in accordance with applicable law, the amended and restated certificate of incorporation of CPI and the amended and restated bylaws of CPI;
	•	absence of any law, injunction or other order of a court or governmental entity of competent jurisdiction preventing completion of the merger;

	•	(i) expiration or termination of any applicable waiting period (or extensions thereof) relating to the merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which is referred to in this proxy statement/prospectus as the HSR Act, and (ii) expiration or termination of any applicable waiting periods, or receipt of all consents required under any other applicable competition laws;

	•	approval for trading on the NASDAQ Global Select Market of the shares of Comtech common stock to be issued in the merger, subject to official notice of issuance;
	•	the effectiveness of, and the absence of any stop order (or proceedings for that purpose) with respect to, the registration statement on Form S-4 of which this proxy statement/prospectus forms a part;
	•	accuracy of the representations and warranties made in the merger agreement by the other party, subject to certain materiality thresholds;
	•	performance and compliance in all material respects by the other party of the obligations required to be performed by it or complied with at or prior to the effective time of the merger;
	•	absence of a material adverse effect on the other party since the date of the merger agreement (see “The Merger Agreement — Definition of ‘Material Adverse Effect’” beginning on page [l] of this proxy statement/prospectus for the definition of material adverse effect); and
	•	except as previously disclosed to the other party, the absence of any pending litigation or proceeding of any kind which would reasonably be expected to have a material adverse effect on the disclosing party.

	•	the absence of any pending action or proceeding of any kind by any governmental entity that (i) challenges or seeks to make illegal, delay materially or otherwise directly or indirectly prohibit the completion of the merger, (ii) seeks to prohibit Comtech’s or Merger Sub’s ability effectively to exercise full rights of ownership of CPI’s common stock following the completion of the merger or (iii) seeks to compel Comtech, CPI or any of their respective subsidiaries to take any burdensome action described under “The Merger Agreement — Covenants and Agreements — Efforts to Complete Transactions” beginning on page [l] of this proxy statement/prospectus.

 

The Merger May Not Be Completed Without All Required Regulatory Approvals (See Page [l])

 

No Solicitation of Transactions by CPI (See Page [l])

	•	CPI may, in response to an unsolicited acquisition proposal from a third party that the CPI board of directors or a committee thereof determines constitutes or would reasonably be expected to lead to a superior acquisition proposal (as defined under “The Merger Agreement — Covenants and Agreements — No Solicitation of Transactions by CPI” beginning on page [l] of this proxy statement/prospectus), directly or through its representatives participate in negotiations or discussions with such party and furnish non-public information to such third party pursuant to a customary confidentiality agreement (provided that all such information is or has been provided or made available to Comtech).
	•	The CPI board of directors or any committee thereof may fail to make, or withdraw or modify in a manner adverse to Comtech, its recommendation in favor of the adoption of the merger agreement or may approve, recommend or endorse an unsolicited acquisition proposal, in each case either (i) following receipt of an unsolicited acquisition proposal made after the date of the merger agreement that CPI’s board of directors or a committee thereof determines constitutes a superior acquisition proposal or (ii) in response to a material event, development, circumstance, occurrence or change in circumstances or facts not related to a competing acquisition proposal that was not known to CPI’s board of directors or a committee thereof on the date of the merger agreement (or if known, the magnitude or material consequences of which were not known or understood as of that date).

 

Termination of the Merger Agreement (See Page [l])

	•	a court or other government entity has issued an order enjoining or has otherwise prohibited the merger and such injunction or prohibition has become final and non-appealable;
	•	CPI stockholder approval is not received at the duly called and held special meeting of CPI stockholders; or
	•	the closing has not occurred on or before December 1, 2010; provided that either Comtech or CPI may extend such date by 45 days, subject to certain limitations, if the closing has not occurred because of the failure to obtain a required approval from one or more regulatory authorities.

	•	CPI has breached or failed to perform any of its representations, warranties, covenants or agreements, such that CPI could not satisfy the applicable conditions to the closing related to its representations, warranties, covenants, and obligations, and such breach or failure to perform is incapable of being cured by December 1, 2010 (or valid extension of such date) or has not been cured within 30 days of written notice from Comtech;
	•	the CPI board of directors changes its recommendation in favor of the adoption of the merger agreement in a manner adverse to Comtech in connection with a superior acquisition proposal (see “The Merger Agreement — Covenants and Agreements — No Solicitation of Transactions by CPI” beginning on page [l] of this proxy statement/prospectus); or
	•	the CPI board of directors changes its recommendation in favor of the adoption of the merger agreement in a manner adverse to Comtech in response to a material event, development, circumstance, occurrence or change in circumstances or facts not related to a competing acquisition proposal that was not known to CPI’s board of directors on the date of the merger agreement (or if known, the magnitude or material consequences of which were not known or understood as of that date) (see “The Merger Agreement — Covenants and Agreements — No Solicitation of Transactions by CPI” beginning on page [l] of this proxy statement/prospectus).

	•	if Comtech has breached or failed to perform any of its representations, warranties, covenants or agreements, such that Comtech could not satisfy the applicable conditions to the closing related to its representations,

		warranties, covenants, and obligations, and such breach or failure to perform is incapable of being cured by December 1, 2010 (or valid extension of such date) or has not been cured within 30 days of written notice from CPI; or

	•	in order to enter into a superior acquisition proposal, subject to its obligations to pay Comtech a termination fee (see “The Merger Agreement — Covenants and Agreements — No Solicitation of Transactions by CPI” beginning on page [l] of this proxy statement/prospectus).

 

Termination Fee and Liquidated Damages Payable by CPI (See Page [l])

	•	Comtech terminates the merger agreement because the CPI board of directors changes its recommendation in favor of the adoption of the merger agreement in a manner adverse to Comtech in connection with a superior acquisition proposal;
	•	CPI terminates the merger agreement in order to enter into a superior acquisition proposal;
	•	the CPI board of directors changes its recommendation in favor of the adoption of the merger agreement in a manner adverse to Comtech, and Comtech or CPI terminates the merger agreement because CPI stockholder approval is not received at the duly called and held special meeting of CPI stockholders;
	•	(i) an acquisition proposal is made for CPI; (ii) the CPI board of directors does not change its recommendation in favor of the adoption of the merger agreement in a manner adverse to Comtech; (iii) Comtech or CPI terminates the merger agreement because CPI stockholder approval is not received at the duly called and held special meeting of CPI stockholders; and (iv) within 12 months, CPI enters into a definitive agreement or consummates an alternative transaction (as defined under “The Merger Agreement — Termination of the Merger Agreement — Termination Fee Payable by CPI” beginning on page [l] of this proxy statement/prospectus); or
	•	(i) an acquisition proposal is made for CPI; (ii) Comtech or CPI terminates the merger agreement because (a) a court or other government entity has issued an order enjoining or has otherwise prohibited the merger and such injunction or prohibition has become final and non-appealable or (b) the closing has not occurred on or before December 1, 2010 (or as otherwise validly extended); and (iii) within 12 months, CPI enters into a definitive agreement or consummates an alternative transaction (as defined under “The Merger Agreement — Termination of the Merger Agreement — Termination Fee Payable by CPI” beginning on page [l] of this proxy statement/prospectus).

 

The Voting and Standstill Agreement (See Page [l])

 

Certain Material U.S. Federal Income Tax Consequences of the Merger (See Page [l])

 

Accounting Treatment (See Page [l])

 

Rights of CPI Stockholders Will Change as a Result of the Merger (See Page [l])

 

Repayment of Existing CPI Indebtedness (See Page [l])

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF COMTECH

		As of / for Nine Months
		Ended April 30,								As of / for Year Ended July 31,
		(unaudited)								As Adjusted
						2009				(audited)
		2010				As Adjusted				2009				2008				2007				2006				2005
		(In thousands, except per share amounts)
Net sales		$	521,251			$	464,346			$	586,372			$	531,627			$	445,684			$	391,511			$	307,890
Net income		$	47,161			$	41,347			$	47,525			$	73,650			$	62,637			$	42,884			$	34,449
Net income per share
Basic		$	1.67			$	1.61			$	1.81			$	3.05			$	2.70			$	1.88			$	1.59
Diluted		$	1.48			$	1.55			$	1.73			$	2.76			$	2.42			$	1.72			$	1.42
Total assets		$	1,013,910			$	724,711			$	938,671			$	652,723			$	555,780			$	454,542			$	381,517
Long-term obligations		$	202,420			$	2,211			$	202,283			$	91,946			$	87,475			$	83,359			$	79,565
Cash dividends per common share		$	—			$	—			$	—			$	—			$	—			$	—			$	—

 

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF CPI

		As of / for Six Months Ended								As of / for Year Ended
		(unaudited)								(audited)
		April 2,				April 3,				October 2,				October 3,				September 28,				September 29,				September 30,
		2010				2009				2009				2008				2007				2006				2005
		(In thousands, except per share amounts)
Sales		$	171,119			$	159,049			$	332,876			$	370,014			$	351,090			$	339,717			$	320,732
Net income		$	8,333			$	11,344			$	23,466			$	20,449			$	22,503			$	17,219			$	13,672
Net income per share
Basic		$	0.50			$	0.69			$	1.44			$	1.25			$	1.39			$	1.20			$	1.05
Diluted		$	0.46			$	0.65			$	1.34			$	1.16			$	1.27			$	1.09			$	0.98
Total assets		$	470,575			$	463,756			$	458,254			$	466,948			$	476,222			$	441,759			$	454,544
Long-term obligations		$	197,169			$	219,813			$	197,149			$	226,349			$	246,321			$	245,108			$	284,231
Cash dividends per common share		$	—			$	—			$	—			$	—			$	—			$	1.19			$	5.80

 

SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

	•	The unaudited pro forma condensed combined balance sheet data as of April 30, 2010 is presented as if Comtech’s acquisition of CPI had occurred on April 30, 2010, and combines historical balance sheet data of Comtech as of April 30, 2010 with historical balance sheet data of CPI as of April 2, 2010.
	•	The unaudited pro forma condensed combined statement of operations data for the nine months ended April 30, 2010 is presented as if Comtech’s acquisition of CPI had occurred on August 1, 2009, and combines Comtech’s historical statement of operations data for the nine months ended April 30, 2010 with CPI’s historical statement of operations data for the nine months ended April 2, 2010. CPI’s historical statement of operations for the nine months ended April 2, 2010 was derived by taking CPI’s historical results of operations for the six months ended April 2, 2010, and adding CPI’s historical results of operations for the three months ended October 2, 2009.
	•	The unaudited pro forma condensed combined statement of operations data for the fiscal year ended July 31, 2009 is presented as if Comtech’s acquisition of CPI had occurred on August 1, 2008, and combines Comtech’s historical statement of operations data for the fiscal year ended July 31, 2009, as adjusted for the retroactive application of FASB ASC 470-20, “Debt — Debt with Conversion and Other Options,” with CPI’s historical statement of operations data for the fiscal year ended October 2, 2009.

		Nine Months Ended				Year Ended
		April 30, 2010				July 31, 2009
		(Unaudited)
		(in thousands, except per share amounts)
Net sales		$	782,476			$	917,717
Net income		$	62,007			$	68,854
Net income per share
Basic		$	1.90			$	2.24
Diluted		$	1.70			$	2.13
Total assets		$	1,321,816				—
Long-term obligations		$	203,757				—
Cash dividends per common share			—				—

 

COMPARATIVE PER SHARE DATA

		As of / for the				As of / for the
		Nine Months Ended				Year Ended
		April 30, 2010				July 31, 2009
Basic Earnings Per Share
Comtech Historical		$	1.67			$	1.81
CPI Historical		$	1.01			$	1.44
Pro Forma Combined		$	1.90			$	2.24
CPI Equivalent		$	0.45			$	0.53
Diluted Earnings Per Share
Comtech Historical		$	1.48			$	1.73
CPI Historical		$	0.94			$	1.34
Pro Forma Combined		$	1.70			$	2.13
CPI Equivalent		$	0.40			$	0.51

		As of / for the				As of / for the
		Nine Months Ended				Year Ended
		April 30, 2010				July 31, 2009
Dividends Per Share
Comtech Historical		$	—			$	—
CPI Historical		$	—			$	—
Pro Forma Combined		$	—			$	—
CPI Equivalent		$	—			$	—
Book Value Per Share
Comtech Historical		$	20.10			$	—
CPI Historical		$	10.47			$	—
Pro Forma Combined		$	20.96			$	—
CPI Equivalent		$	4.99			$	—

 

COMPARATIVE PER SHARE MARKET PRICE AND DIVIDEND INFORMATION

		Comtech
		Common Stock
		High				Low
Fiscal Year 2008:
First Quarter (August 1, 2007 to October 31, 2007)		$	58.00			$	35.45
Second Quarter (November 1, 2007 to January 31, 2008)			56.07				43.01
Third Quarter (February 1, 2008 to April 30, 2008)			48.41				37.59
Fourth Quarter (May 1, 2008 to July 31, 2008)			51.21				38.63
Fiscal Year 2009:
First Quarter (August 1, 2008 to October 31, 2008)		$	50.55			$	40.00
Second Quarter (November 1, 2008 to January 31, 2009)			50.34				38.62
Third Quarter (February 1, 2009 to April 30, 2009)			41.91				19.56
Fourth Quarter (May 1, 2009 to July 31, 2009)			34.24				26.40
Fiscal Year 2010:
First Quarter (August 1, 2009 to October 31, 2009)		$	36.74			$	31.22
Second Quarter (November 1, 2009 to January 31, 2010)			38.39				28.42
Third Quarter (February 1, 2010 to April 30, 2010)			35.74				29.56
Fourth Quarter (May 1, 2010 through July 13, 2010)			33.10				27.59

		CPI Common Stock
		High				Low
Fiscal Year 2008:
First Quarter (September 29, 2007 to December 28, 2007)		$	21.00			$	15.81
Second Quarter (December 29, 2007 to March 28, 2008)			18.09				8.80
Third Quarter (March 29, 2008 to June 27, 2008)			14.31				9.25
Fourth Quarter (June 28, 2008 to October 3, 2008)			16.02				11,42
Fiscal Year 2009:
First Quarter (October 4, 2008 to January 2, 2009)		$	12.43			$	5.07
Second Quarter (January 3, 2009 to April 3, 2009)			9.83				5.67
Third Quarter (April 4, 2009 to July 3, 2009)			12.93				7.13
Fourth Quarter (July 4, 2009 to October 2, 2009)			12.22				8.37
Fiscal Year 2010:
First Quarter (October 3, 2009 to January 1, 2010)		$	14.48			$	9.27
Second Quarter (January 2, 2010 to April 2, 2010)			14.27				10.80
Third Quarter (April 3, 2010 to July 2, 2010)			16.14				12.16
Fourth Quarter (July 3, 2010 through July 13, 2010)			16.16				15.19

										Implied Per Share
										Value of Merger
		Comtech Common Stock				CPI Common Stock				Consideration
May 7, 2010		$	31.06			$	13.05			$	16.40
July 13, 2010		$	31.11			$	16.05			$	16.41

 

In addition to the other information contained or incorporated by reference into this proxy statement/prospectus, including the matters addressed in “Cautionary Statement Regarding Forward-Looking Statements” beginning on page [l] of this proxy statement/prospectus, you should carefully consider the following risk factors in determining whether to vote for the adoption of the merger agreement. You should also read and consider the risk factors associated with each of the businesses of Comtech and CPI because these risk factors may affect the operations and financial results of the combined company. These risk factors may be found under Part I, Item IA, “Risk Factors” in Comtech’s Annual Report on Form 10-K for the year ended July 31, 2009 and CPI’s Annual Report on Form 10-K for the year ended October 2, 2009, and Part II, Item IA, “Risk Factors” in Comtech’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2010, and CPI’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2010, each of which is on file with the SEC and all of which are incorporated by reference into this proxy statement/prospectus.

 

The conversion ratio for the stock portion of the merger consideration will not be greater than 0.2382. As a result, the value of the shares of Comtech common stock that CPI stockholders will receive in connection with the merger could be less than the value of those shares today.

 

In the merger, CPI stockholders will be entitled to receive for each share of CPI common stock owned by them a combination of $9.00 in cash and a number of shares of Comtech common stock equal to the conversion ratio. The conversion ratio is equal to $8.10 divided by the average closing price of Comtech common stock for a specified period prior to the closing of the merger, but not to be less than 0.2132 or more than 0.2382. Accordingly, so long as the price of Comtech common stock remains below $34.00, the conversion ratio will be fixed at 0.2382. Comtech and CPI will not adjust the conversion ratio upward, regardless of the market price of Comtech common stock at any price below $34.00 per share. The market price of Comtech common stock will likely be different, and may be lower, on the date CPI stockholders receive their shares of Comtech common stock than the market price of Comtech common stock on the date of this proxy statement/prospectus. Differences in the market price of Comtech common stock may be the result of changes in the business, operations or prospects of Comtech, market reactions to the proposed merger, regulatory considerations, general market and economic conditions or other factors.

 

In addition, because it is possible that the merger will be completed later than the time of the special meeting, CPI stockholders may not know the exact value of the Comtech common stock that will be issued in the merger, and the exact value of the Comtech common stock issued in the merger may be less than it would have been had the merger occurred on the date of the special meeting. There is no minimum closing price of Comtech common stock on the closing date at which either CPI or Comtech may unilaterally terminate the merger agreement. CPI and Comtech encourage you to obtain current market quotations for Comtech common stock before you vote your shares.

 

During the twelve-month period ending on July 13, 2010, the closing price of Comtech common stock varied from a low of $27.70 to a high of $38.17, and ended that period at $31.11. If the average closing price of common stock for the specified period prior to the closing is equal to $31.11 (the closing price on July 13, 2010, the most recent practicable trading day prior to the date of this proxy statement/prospectus), the conversion ratio would be 0.2382 (or $7.41 worth of Comtech common stock per share of CPI common stock), resulting in total merger consideration value of $16.41 per share of CPI common stock.

 

Because the conversion ratio may be decreased in the event of an increase in the price of Comtech common stock, CPI stockholders may not receive the full benefit of that increase.

 

Because the conversion ratio is subject to adjustment pursuant to the terms of the merger agreement if the average closing price of Comtech common stock is between $34.00 and $38.00, CPI stockholders will not receive the full benefit of any increase in the average closing price of Comtech common stock between those price levels.

In order to complete the merger, CPI and Comtech must obtain certain governmental approvals, and if such approvals are not granted or are granted with conditions that bind the parties, the completion of the merger may be jeopardized or the anticipated benefits of the merger could be reduced.

 

Completion of the merger is conditioned upon the receipt of certain governmental clearances or approvals, including, but not limited to, the expiration or termination of the applicable waiting period relating to the merger under the HSR Act and the expiration or termination of the applicable waiting period, or receipt of approval, under certain foreign antitrust laws. Although CPI and Comtech have agreed in the merger agreement to use their reasonable best efforts to obtain the requisite governmental approvals, there can be no assurance that these approvals will be obtained. In addition, the governmental authorities from which these approvals are required have broad discretion in administering the governing regulations. As a condition to approval of the merger, these governmental authorities may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of Comtech’s business after the completion of the merger. Under the terms of the merger agreement, Comtech is generally not required to take actions (such as divesting or holding separate assets or entering into settlements or consent decrees with governmental authorities) if such action would reasonably be expected to result in the sale of a material asset or in a material adverse effect on CPI, Comtech or the benefits Comtech reasonably expects to be realized from the merger. However, if, notwithstanding the provisions of the merger agreement, either CPI or Comtech becomes subject to any term, condition, obligation or restriction (whether because such term, condition, obligation or restriction does not rise to the specified level of materiality or Comtech otherwise consents to its imposition), the imposition of such term, condition, obligation or restriction could adversely affect Comtech’s ability to integrate CPI’s operations into Comtech’s operations, reduce the anticipated benefits of the merger or otherwise adversely affect the combined companies’ business and results of operations after the completion of the merger. See “The Merger — Regulatory Approvals Required for the Merger” and “The Merger Agreement — Conditions to the Completion of the Merger” beginning on pages [l] and [l], respectively, of this proxy statement/prospectus.

 

CPI’s failure to achieve future results in line with Comtech’s expectations could adversely affect the combined businesses and Comtech’s stock price.

 

The acquisition of CPI may pose certain risks to Comtech’s business. If, in the future, CPI experiences substantially lower results than Comtech expects, it could have a material adverse impact on Comtech’s business, results of operations and financial condition. Neither CPI nor Comtech can assure you that CPI will perform in accordance with Comtech’s expectations.

 

Failure to achieve expected benefits of the merger and integrate CPI operations with Comtech’s could adversely affect the combined businesses and Comtech’s stock price.

 

Although Comtech expects to realize strategic, operational and financial benefits as a result of the CPI acquisition, Comtech cannot be certain whether, and to what extent, such benefits will be achieved in the future. In particular, the success of the CPI acquisition will depend on achieving efficiencies and cost savings, and no assurances can be given that Comtech will be able to do so. In addition, in order to obtain the benefits of the merger, Comtech must integrate CPI’s subsidiaries and operations, including CPI’s international subsidiaries and operations, and such integration may be complex and the failure to do so quickly and effectively may negatively affect earnings.

 

In addition, the market price of Comtech common stock may decline as a result of the merger if the integration of Comtech and CPI is unsuccessful, takes longer than expected or fails to achieve financial benefits to the extent anticipated by financial analysts or investors, or the effect of the merger on Comtech’s financial results is otherwise not consistent with the expectations of financial analysts or investors.

 

The CPI acquisition will significantly expand Comtech’s business, which could have an adverse effect on operating results.

 

The CPI acquisition will significantly expand the types of products that Comtech sells, the number of facilities Comtech operates and the associated corporate and administrative operations, including, for example, managing

foreign currency fluctuations and hedging international operations, thereby presenting Comtech with significant challenges including managing the substantial increase in the scale of Comtech’s operations resulting from the acquisition. Comtech foresees having to test, and possibly make changes to and refine, internal controls relating to CPI. Moreover, Comtech cannot be certain when the appropriate testing and refinement of controls and procedures will be completed. The diversion of Comtech management’s attention to these matters and away from other business concerns could have an adverse effect on Comtech’s business and operating results.

 

Comtech expects to incur significant non-recurring expenses related to the merger.

 

In connection with its plan to integrate the operations of CPI with its own operations after the merger, Comtech anticipates that certain non-recurring charges, such as change-in control related payments made to certain CPI executives, the acceleration of vesting of certain stock-based awards held by CPI employees, and professional fees for financial and legal advisors of both Comtech and CPI will be incurred. Comtech cannot identify the timing, nature and amount of all such charges as of the date of this proxy statement/prospectus. However, such charges could affect Comtech’s results of operations in the period in which such charges are recorded.

 

CPI’s and Comtech’s business relationships, including customer relationships, may be subject to disruption due to uncertainty associated with the merger.

 

Parties with which CPI and Comtech do business, including customers and suppliers, may experience uncertainty associated with the transaction, including with respect to current or future business relationships with CPI, Comtech or the combined business. As a result, CPI’s and Comtech’s business relationships may be subject to disruptions if customers, suppliers and others attempt to negotiate changes in existing business relationships or consider entering into business relationships with parties other than CPI, Comtech or the combined business. These disruptions could have an adverse effect on the businesses, financial condition, results of operations or prospects of the combined business. The adverse effect of such disruptions could be exacerbated by a delay in the completion of the merger or termination of the merger agreement.

 

The price of Comtech common stock and Comtech’s results of operations may be affected by factors different from those affecting the price of CPI common stock and CPI’s results of operations.

 

Holders of CPI common stock will be entitled to receive cash and Comtech common stock in the merger and will thus become holders of Comtech common stock. Comtech’s business is different in certain ways from that of CPI, and Comtech’s results of operations, as well as the price of Comtech common stock, may be affected by factors different from those affecting CPI’s results of operations and the price of CPI common stock. The price of Comtech common stock may fluctuate significantly following the merger, including as a result of factors over which Comtech has no control.

 

Directors and executive officers of CPI have interests in the transaction that are different from, or in addition to, the interests of CPI stockholders.

 

CPI’s executive officers and directors have financial interests in the merger that are different from, or in addition to, their interests as CPI stockholders. Except with respect to separate agreements that may be entered into with certain CPI executives, unvested stock options, restricted stock and restricted stock units held by CPI’s executive officers and directors will vest in connection with the merger and will be cancelled in exchange for cash payments. As disclosed in the tables in the section titled “Interests of Certain Persons in the Merger” beginning on page [l] of this proxy statement/prospectus and subject to the assumptions referenced in the text accompanying the tables, CPI’s executive officers and directors collectively may receive up to $44,040,795 as a result of the merger, which includes (i) an estimated payment of approximately $5,502,751 of merger consideration for shares of CPI common stock that they own, (ii) an estimated payment of approximately $29,785,105 of merger consideration for stock options, restricted stock and restricted stock units that they hold and (iii) if the executive officers of CPI are terminated without cause or resign for good reason in connection with the merger, aggregate severance payments and benefits of approximately $8,752,939.

CPI’s executive officers and directors will also receive indemnification and liability insurance benefits in connection with the merger and certain of CPI’s executive officers may enter into employment agreements with Comtech, although no agreements have been entered into and no terms, conditions or understandings have been finalized as of the date of this proxy statement/prospectus.

 

The merger agreement limits CPI’s ability to pursue alternatives to the merger.

 

The merger agreement contains provisions that make it more difficult for CPI to sell its business to a party other than Comtech. These provisions include a general prohibition on CPI soliciting any acquisition proposal or offer for a competing transaction. Further, there are only limited exceptions to CPI’s agreement that CPI’s board of directors or a committee thereof will not withdraw or modify in a manner adverse to Comtech the recommendation of the CPI board of directors in favor of the adoption of the merger agreement, and Comtech generally has a right to match any competing acquisition proposals that may be made. Although the CPI board of directors or a committee thereof may take these actions and, in certain circumstances, CPI may terminate the merger agreement if the CPI board of directors or a committee thereof determines in good faith that failure to do so would be reasonably likely to constitute a violation of its fiduciary duties to CPI’s stockholders under Delaware law, doing so in specified situations could entitle Comtech to a termination fee of $12 million or liquidated damages of $15 million. See “The Merger Agreement — Covenants and Agreements,” “The Merger Agreement — Termination of the Merger Agreement” and “The Voting and Standstill Agreement — No Solicitation” beginning on pages [l], [l] and [l], respectively, of this proxy statement/prospectus.

 

While CPI believes these provisions are reasonable and not preclusive of other offers, the provisions might discourage a third party that has an interest in acquiring all or a significant part of CPI from considering or proposing that acquisition, even if that party were prepared to pay consideration with a higher per-share value than the currently proposed merger consideration. Furthermore, the termination fee may result in a potential competing acquirer proposing to pay a lower per-share price to acquire CPI than it might otherwise have proposed to pay because of the added expense of the termination fee that may become payable in certain circumstances.

 

The merger may be dilutive to Comtech’s earnings per share, which may negatively affect the market price of Comtech common stock. Furthermore, the acquisition of CPI may ultimately not prove successful, and Comtech may not realize anticipated benefits from the acquisition.

 

Because the value of the aggregate merger consideration is determined in part by the future price per share of Comtech common stock, it is unclear whether the merger will be accretive or dilutive to Comtech’s earnings per share. In addition, any accretion or dilution may be affected by future events and conditions, including adverse changes in market conditions and additional transaction and integration related costs. Any lack of accretion to, or any dilution of, Comtech’s earnings per share could cause the price of Comtech’s common stock to decline. As a result of these and other factors, the acquisition of CPI may ultimately not prove successful, and Comtech may not realize anticipated benefits from the acquisition.

 

Comtech’s investments in recorded goodwill and other intangible assets as a result of the acquisition of CPI and prior acquisitions could be impaired as a result of future business conditions or if Comtech changes its reporting unit structure.

 

Comtech has goodwill and intangible assets of $199.4 million recorded on Comtech’s balance sheet as of April 30, 2010 and this amount is expected to significantly increase in connection with the proposed merger with CPI. For purposes of reviewing impairment and the recoverability of goodwill, each of Comtech’s three operating segments currently constitutes a reporting unit, and Comtech must make various assumptions regarding estimated future cash flows and other factors in determining the fair values of the reporting unit. The annual impairment test is based on several factors requiring judgment and is based on how Comtech’s President and Chief Executive Officer manages the business. If these estimates or their related assumptions change in the future, or if Comtech changes its future reporting structure, including any changes as a result of the proposed merger with CPI, Comtech may be required to record impairment charges in future periods. Comtech generally performs an annual impairment review in the first quarter of each fiscal year or when there are indicators of impairments, such as a significant adverse change that could impact Comtech’s future financial performance. Although Comtech performed its fiscal 2010

impairment testing on August 1, 2009 and Comtech determined that there was no impairment of its goodwill, changes in its future operating performance or business conditions, in general, could result in an impairment of goodwill in future periods, which could be material to Comtech’s results of operations. In addition, if Comtech is not successful in maintaining operating efficiencies associated with its acquisition of CPI, Comtech’s goodwill and intangible assets may become impaired. Any impairment charges that Comtech may take in the future, could be material to its results of operations and financial condition.

 

Failure to complete the merger could negatively impact the stock price and the future business and financial results of CPI.

 

If the merger is not completed, the ongoing businesses of CPI may be adversely affected and, without realizing any of the benefits of having completed the merger, CPI will be subject to a number of risks, including the following:

 

 

In addition, CPI could be subject to litigation related to any failure to complete the merger or related to any enforcement proceeding commenced against CPI to perform its respective obligations under the merger agreement. If the merger is not completed, these risks may materialize and may adversely affect CPI’s business, financial results and stock price.

 

CPI stockholders will have reduced ownership and voting interests after the merger and will exercise less influence over management of Comtech than currently exercised over management of CPI.

 

After the effective time of the merger, CPI stockholders will own in the aggregate a significantly smaller percentage of Comtech than their current 100% ownership of CPI. Following completion of the merger, CPI stockholders are expected to own approximately 12.4% of the outstanding shares of Comtech common stock based on the number of shares of CPI common stock and Comtech common stock outstanding on July 13, 2010 and the price of Comtech common stock on July 13, 2010. Consequently, CPI stockholders, as a general matter, will have less influence over the management and policies of Comtech than they currently exercise over the management and policies of CPI.

 

CPI stockholders will have substantively different rights with respect to their holdings following the merger.

 

Upon consummation of the merger, the CPI stockholders will become stockholders of Comtech. There are material differences between the rights of CPI stockholders under the CPI governing documents and the rights of Comtech stockholders under the Comtech governing documents. See “Comparison of Stockholder Rights” beginning on page [l] of this proxy statement/prospectus.

 

A lawsuit has been filed and other lawsuits may be filed against CPI and Comtech challenging the merger, and an adverse ruling in any such lawsuit may prevent the merger from being completed.

 

CPI, members of the CPI board of directors and Comtech have been named as defendants in a purported class action brought by a CPI stockholder challenging the merger, which may seek, among other things, to enjoin CPI,

Comtech and Merger Sub from completing the merger on the agreed terms. CPI and Comtech believe the action is without merit and intend to defend the case vigorously. See “The Merger — Litigation Relating to the Merger” beginning on page [l] of this proxy statement/prospectus for more information about the lawsuit related to the merger that has been filed.

 

One of the conditions to the closing of the merger is that no law, temporary restraining order, executive order, decree, ruling, judgment or injunction or other similar order shall be in effect that prohibits the completion of the merger. Accordingly, if a plaintiff is successful in obtaining an injunction prohibiting the completion of the merger, then such injunction may prevent the merger from becoming effective.

 

Comtech and CPI are, and following completion of the merger, Comtech and CPI will continue to be, subject to the risks described in Part I, Item IA, “Risk Factors” in Comtech’s Annual Report on Form 10-K for the year ended July 31, 2009 and CPI’s Annual Report on Form 10-K for the year ended October 2, 2009, and Part II, Item IA, “Risk Factors” in Comtech’s Quarterly Report on Form 10-Q for the quarter ended April 30, 2010, and CPI’s Quarterly Report on Form 10-Q for the quarter ended April 2, 2010, each of which is on file with the SEC and all of which are incorporated by reference into this proxy statement/prospectus. See “Where You Can Find More Information” beginning on page [l] of this proxy statement/prospectus.

 

Those risks include, but are not limited to, risks associated with a variety of U.S. federal, state and local, as well as foreign, environmental, zoning and other land use laws and regulations. Changes in environmental, zoning and other land use laws or regulations (or in their enforcement) affecting or limiting, for example, the use of certain chemicals, and/or certain of the manufacturing processes or disposal practices of Comtech or CPI, could restrict the ability of Comtech and CPI to operate their businesses as and where they are currently operating and/or could impose material additional costs of operating.

 

This proxy statement/prospectus and the documents incorporated by reference into this proxy statement/prospectus contain “forward looking statements” that are intended to be covered by the safe harbor provided by the Private Securities Litigation Reform Act of 1995. Representatives of Comtech and CPI may also make forward-looking statements. Forward-looking statements are statements that are not historical facts, and are identified by words such as “expect,” “believe,” “predict,” “anticipate,” “contemplate,” “will,” “may,” “might,” “continue,” “plan,” “estimate,” “objective,” “intend,” “project,” “budget,” “forecast,” “can,” “could,” “should,” “would,” “likely,” “potential” and similar expressions. These statements include, but are not limited to, statements about the expected costs and benefits of the merger, the adoption of the merger agreement by CPI stockholders, the satisfaction of the closing conditions to the merger, the timing of the completion of the merger and Comtech’s plans, objectives and expectations after the completion of the merger.

 

Forward-looking statements are not guarantees of performance. These statements are based upon the current beliefs and expectations of management of Comtech and CPI and are subject to numerous risks and uncertainties that could cause actual outcomes and results, including project completion dates, production rates, capital expenditures, costs and business plans, to be materially different from those projected or anticipated. In addition to the risks described under “Risk Factors” beginning on page [l] of this proxy statement/prospectus and those risks described in documents that are incorporated by reference into this proxy statement/prospectus, the following factors, among others, could cause such differences:

 

Merger-Related Factors

 

 

Other Factors

 

 

 

You are cautioned not to place undue reliance on the forward-looking statements made in this proxy statement/prospectus or documents incorporated into this proxy statement/prospectus or by representatives of Comtech or CPI. These statements speak only as of the date hereof, or, in the case of statements in any document incorporated by reference, as of the date of such document, or, in the case of statements made by representatives of Comtech or CPI, on the date those statements are made. All subsequent written and oral forward-looking statements concerning the merger, the combined company or any other matter addressed in this proxy statement/prospectus and attributable to Comtech, CPI or any person acting on behalf of either company are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Comtech and CPI expressly disclaim any obligation to update or publish revised forward-looking statements to reflect events or circumstances after the date of such statements or to reflect the occurrence of any unanticipated events.

 

Comtech designs, develops, produces and markets innovative products, systems and services for advanced communications solutions. Comtech believes many of its solutions play a vital role in providing or enhancing communication capabilities when terrestrial communications infrastructure is unavailable, inefficient or too expensive. Comtech conducts business through three complementary segments: telecommunications transmission, mobile data communications and RF microwave amplifiers. Comtech sells products to a diverse customer base in the global commercial and government communications markets. Comtech believes it is a leader in the market segments that it serves.

 

The principal trading market for Comtech’s common stock (NASDAQGS: CMTL) is the NASDAQ Global Select Market.

 

The principal executive offices of Comtech are located at 68 South Service Road, Suite 230 Melville, New York 11747; its telephone number is (631) 962-7000; and its web site is www.comtechtel.com.

 

Angels Acquisition Corp.

 

Angels Acquisition Corp., referred to in this proxy statement/prospectus as Merger Sub, is a Delaware corporation and a wholly owned subsidiary of Comtech. Merger Sub was formed solely for the purpose of consummating the merger. Merger Sub has not carried on any activities to date, except for activities incidental to its formation and activities undertaken in connection with the merger.

 

The principal executive offices of Merger Sub are located at 68 South Service Road, Suite 230 Melville, New York 11747, and its telephone number is (631) 962-7000.

 

CPI is a provider of microwave, radio frequency, power and control products for critical defense, communications, medical, scientific and other applications. CPI develops, manufactures and distributes products used to generate, amplify, transmit and receive high-power/high-frequency microwave and radio frequency signals and/or provide power and control for various applications.

 

Approximately half of CPI’s product sales for fiscal year 2009 were for United States and foreign government and military end use, particularly for radar, electronic warfare and communications applications. CPI’s products are critical elements of high-priority U.S. and foreign military programs and platforms, including numerous planes, ships and ground-based platforms. Defense applications of CPI’s products include transmitting and receiving radar signals for locating and tracking threats, weapons guidance and navigation, as well as transmitting decoy and jamming signals for electronic warfare and transmitting signals for satellite communications. The U.S. Government is CPI’s only customer that accounted for more than 10% of its sales in the last three fiscal years.

 

In addition, CPI has applied its key technologies to commercial end markets, including communications, medical, industrial and scientific applications, which provide it with a diversified base of sales. Approximately half of CPI’s product sales for fiscal year 2009 were for commercial applications.

 

CPI estimates that approximately 40% of its total sales for fiscal year 2009 were generated from recurring sales of replacements, spares and repairs, including upgraded replacements for existing products. CPI believes that this aspect of its business is inherently more stable and predictable, and that it is less susceptible to dramatic shifts in market conditions.

CPI is incorporated in Delaware. CPI’s principal executive offices are located at CPI International, Inc., 811 Hansen Way, Palo Alto, California 94303, and its telephone number is (650) 846-2900. CPI’s web site is www.cpii.com. Information on CPI’s web site is not incorporated into this proxy statement/prospectus.

 

The principal trading market for CPI’s common stock (NASDAQGS: CPII) is the NASDAQ Global Select Market.

 

For a further discussion of CPI’s business, we urge you to read CPI’s Form 10-K, incorporated by reference herein. See “Where You Can Find More Information” beginning on page [l] of this proxy statement/prospectus.

 

CPI is providing this proxy statement/prospectus to its stockholders in connection with the solicitation of proxies to be voted at the special meeting of stockholders that CPI has called for the purpose of holding a vote upon a proposal to adopt the merger agreement with Comtech and Merger Sub and at any adjournment or postponement thereof. This proxy statement/prospectus constitutes a prospectus for Comtech in connection with the issuance by Comtech of its common stock in connection with the merger. This proxy statement/prospectus is first being mailed to CPI stockholders on or about July [l], 2010 and provides CPI stockholders with the information they need to know to be able to vote or instruct their vote to be cast at the special meeting of CPI stockholders.

 

The special meeting will be held at The Waldorf Astoria, 301 Park Avenue, New York, New York on August 27, 2010 at 10:00 a.m., local time.

 

At the special meeting, CPI stockholders will be asked to vote solely on the following proposals:

 

 

The CPI board of directors has unanimously determined that the merger agreement and the transactions contemplated thereby, including the merger, are advisable and in the best interests of CPI and its stockholders and unanimously recommends that you vote “FOR” the adoption of the agreement and “FOR” the adjournment of the special meeting, if necessary, to solicit additional proxies if there are not sufficient votes to adopt the merger agreement at the time of the special meeting. See “The Merger — CPI’s Reasons for the Merger; Recommendation of the CPI Board of Directors” beginning on page [l] of this proxy statement/prospectus.

 

CPI stockholders should carefully read this proxy statement/prospectus in its entirety for more detailed information concerning the merger agreement and the merger. In addition, CPI stockholders are urged to read the merger agreement in its entirety because it is the legal document that governs the merger. A copy of the merger agreement is attached as Annex A to this proxy statement/prospectus.

 

The record date for the CPI special meeting is July 20, 2010. Only CPI stockholders of record at the close of business on July 20, 2010 will be entitled to receive notice of and to vote at the special meeting or any adjournment of the special meeting. Shares of CPI common stock held by CPI as treasury shares and by CPI’s subsidiaries will not be entitled to vote.

 

As of the close of business on the record date of July 20, 2010, there were [l] shares of CPI common stock outstanding and entitled to vote at the special meeting. Each holder of CPI common stock is entitled to one vote for each share of CPI common stock owned as of the record date.

 

A complete list of CPI stockholders entitled to vote at the CPI special meeting will be available for inspection at the principal place of business of CPI during regular business hours for a period of no less than 10 days before the special meeting, as well as at the place of the CPI special meeting during the meeting.

 

A quorum of stockholders is required for CPI stockholders to adopt the merger agreement at the special meeting, but not to approve any adjournment of the meeting. The presence at the special meeting, in person or by proxy, of the holders of a majority in voting power of the outstanding shares of CPI common stock entitled to vote on

the record date will constitute a quorum. Proxies received but marked as abstentions, if any, will be included in the calculation of the number of shares considered to be present at the meeting for quorum purposes. With respect to broker non-votes (as defined below), the adoption of the merger agreement is not considered a routine matter. Therefore, your broker will not be permitted to vote on the adoption of the merger agreement without instruction from you as the beneficial owner of the shares of CPI common stock. Broker non-votes will, however, be counted for purposes of determining whether a quorum is present at the special meeting.

 

To adopt the merger agreement, holders of a majority of the shares of CPI common stock outstanding and entitled to vote on the proposal must vote in favor of adoption of the merger agreement. Because approval is based on the affirmative vote of a majority of the outstanding shares of CPI common stock, a CPI stockholder’s failure to submit a proxy card or to vote in person at the special meeting or an abstention from voting, or the failure of a CPI stockholder who holds his or her shares in “street name” through a broker or other nominee to give voting instructions to such broker or other nominee, will have the same effect as a vote “AGAINST” adoption of the merger agreement.

 

If there are not sufficient votes to adopt the merger agreement at the time of the special meeting, a majority of the votes present in person or by proxy (whether or not a quorum is present) may adjourn the meeting to another time and place in order to solicit additional proxies. Abstentions and broker non-votes will have the same effect as a vote “AGAINST” the proposal to adjourn the special meeting. Shares not in attendance at the special meeting will have no effect on the outcome of any vote to adjourn the special meeting.

 

Pursuant to a voting and standstill agreement entered into concurrently with the merger agreement, the Cypress Group stockholders have agreed to vote 49.9% of the outstanding shares of CPI common stock in favor of the merger. However, if the CPI board of directors changes its recommendation with respect to the merger in connection with a superior acquisition proposal (as such term is described in “The Merger Agreement — Covenants and Agreements — No Solicitation of Transactions by CPI” beginning on page [l] of this proxy statement/prospectus), the Cypress Group stockholders will be obligated to vote only 25% of the outstanding shares of CPI common stock in favor of the merger and the remaining shares may be voted at the discretion of the Cypress Group stockholders. If the CPI board of directors changes its recommendation for any reason other than in connection with a superior acquisition proposal, the Cypress Group stockholders will still be obligated to vote 49.9% of the outstanding shares of CPI common stock in favor of the merger unless the five-day average closing price of Comtech common stock immediately prior to the change of recommendation is less than $24.00. In addition, the voting and standstill agreement includes restrictions on the ability of the Cypress Group stockholders to transfer their shares of CPI’s common stock before the merger and on their ability to transfer shares of Comtech common stock received in the merger following the closing of the merger. The voting and standstill agreement terminates upon the earliest of (i) the mutual agreement of the Cypress Group stockholders and Comtech, (ii) the termination of the merger agreement or (iii) the second anniversary of the merger.

 

Accordingly, the adoption of the merger agreement by CPI stockholders is substantially assured as long as the voting and standstill agreement remains in effect and the CPI board of directors does not change its recommendation (i) in response to a superior acquisition proposal or (ii) for any other reason following a decline in the five-day average closing price of Comtech’s common stock below $24.00. For a more complete description of the voting and standstill agreement, see “The Voting and Standstill Agreement” beginning on page [l] of this proxy statement/prospectus. The voting and standstill agreement is also attached to this proxy statement/prospectus as Annex B.

 

As of July 13, 2010, directors and executive officers of CPI as a group beneficially owned 2,707,857 shares of CPI common stock, and have the right to vote 398,103 shares of CPI common stock, entitling them to collectively cast approximately 2.4% of the votes entitled to be cast at the special meeting. This does not include 8,868,738 shares of CPI common stock beneficially held by the Cypress Group stockholders and certain of their

affiliates as of July 13, 2010 of which Mr. Hughes, one of CPI’s directors, may be deemed to have beneficial ownership by virtue of his position as a managing member of Cypress Associates II LLC. As noted above, those affiliates have agreed collectively to vote a portion of those shares (comprising 49.9% of the outstanding shares of CPI common stock) in favor of the merger, subject to certain exceptions. See “The Voting and Standstill Agreement” beginning on page [l] of this proxy statement/prospectus.

 

These 2,707,857 shares also include 13,500 shares that are subject to stock options that are or will be exercisable by the holder within 60 days of July 13, 2010, but which are not expected to be exercised prior to the closing.

 

Except as described above as to shares held by the Cypress Group stockholders, none of CPI’s directors or officers has entered into any agreement requiring them to vote for or against the merger proposal.

 

By Internet or Telephone

 

If you hold CPI shares directly in your name as a stockholder of record, you may vote electronically via the Internet at www.proxyvoting.com/cpii, or telephonically by calling (866) 540-5760. Votes submitted telephonically or via the Internet must be received by 11:59 p.m. (Eastern time) on August 26, 2010.

 

If you hold CPI shares in street name through a broker or other nominee, you may vote electronically via the Internet at www.proxyvoting.com/cpii. If you wish to vote by telephone you will need to request paper copies of the materials from your broker or other nominee in order to obtain a Voting Instruction Form which contains a specific telephone number for your broker or other nominee. Votes submitted telephonically or via the Internet must be received by 11:59 p.m. (Eastern time) on August 26, 2010.

 

In Person

 

If you hold CPI shares directly in your name as a stockholder of record, you may vote in person at the special meeting. Stockholders of record also may be represented by another person at the special meeting by executing a proper proxy designating that person.

 

If you hold CPI shares in street name through a broker or other nominee, you must obtain a legal proxy from that institution and present it to the inspector of elections with your ballot to be able to vote in person at the special meeting. To request a legal proxy please follow the instructions at www.proxyvoting.com/cpii.

 

By Mail

 

If you hold CPI shares directly in your name as a stockholder of record, you will need to mark, sign and date your proxy card and return it using the pre-paid return envelope provided. CPI must receive your proxy card no later than close of business on August 26, 2010.

 

If you hold CPI shares in street name through a broker or other nominee, to vote by mail you must request paper copies of the proxy materials from your broker or other nominee. Once you receive your paper copies, you will need to mark, sign and date the Voting Instruction Form and return it in the pre-paid return envelope provided. Your Voting Instruction Form must be received no later than the close of business on August 26, 2010.

 

When a stockholder submits a proxy by telephone or through the Internet, his or her proxy is recorded immediately. CPI encourages its stockholders to submit their proxies using these methods whenever possible. If you submit a proxy by telephone or via the Internet, please do not return your proxy card by mail. If you attend the meeting, you may also submit your vote in person. Any votes that you previously submitted — whether via the Internet, by telephone or by mail — will be superseded by the vote that you cast at the meeting.

 

All shares represented by each properly executed and valid proxy received before the special meeting will be voted in accordance with the instructions given on the proxy. If a CPI stockholder executes a proxy card without giving instructions, the shares of CPI common stock represented by that proxy card will be voted “FOR” approval of the proposal to adopt the merger agreement.

Your vote is important. Accordingly, please submit your proxy by telephone, through the Internet or by mail, whether or not you plan to attend the meeting in person.

 

If your shares are held in an account at a broker or through another nominee, you must instruct the broker or other nominee on how to vote your shares. If you do not provide voting instructions to your broker, your shares will not be voted on any proposal on which your broker does not have discretionary authority to vote. This is referred to in this proxy statement/prospectus and in general as a broker non-vote. In these cases, the broker or other nominee can register your shares as being present at the special meeting for purposes of determining a quorum, but will not be able to vote your shares on those matters for which specific authorization is required. Brokers do not have discretionary authority to vote on the proposal to adopt the merger agreement. Therefore, a broker non-vote will have the same effect as a vote “AGAINST” adoption of the merger agreement. A broker non-vote will have the same effect as a vote “AGAINST” the proposal to adjourn the special meeting.

 

You may revoke your proxy and/or change your vote at any time before your shares are voted at the special meeting. If you are a stockholder of record, you can do this by:

 

 

If you hold your shares through a broker or other nominee, you must contact your broker or other nominee to change your vote or obtain a “legal proxy” to vote your shares if you wish to cast your vote in person at the meeting.

 

This proxy statement/prospectus is furnished in connection with the solicitation of proxies by the CPI board of directors to be voted at the CPI special meeting. CPI will bear all costs and expenses in connection with the solicitation of proxies, including the charges of brokerage houses and other custodians, nominees or fiduciaries for forwarding documents to security owners. Proxies may also be solicited by certain of CPI’s directors, officers and employees by telephone, electronic mail, letter, facsimile or in person, but no additional compensation will be paid to them.

 

Stockholders should not send stock certificates with their proxies. A letter of transmittal and instructions for the surrender of CPI common stock certificates will be mailed to CPI stockholders shortly after the completion of the merger, if approved.

 

Consistent with notices sent to stockholders of record sharing a single address, CPI is sending only one copy of this proxy statement/prospectus to that address unless CPI received contrary instructions from any stockholder at that address. This “householding” practice reduces the volume of duplicate information received at your household and helps CPI reduce costs. Stockholders may request to discontinue householding, or may request a separate copy of this proxy statement/prospectus by one of the following methods:

 

 

 

Under CPI’s amended and restated bylaws, the business to be conducted at the special meeting will be limited to the purposes stated in the notice to CPI stockholders provided with this proxy statement/prospectus.

 

Adjournments may be made for the purpose of, among other things, soliciting additional proxies. Whether or not a quorum is present, a majority of the votes present in person or by proxy may adjourn the meeting to another time and place. CPI is not required to notify stockholders of any adjournment of 30 days or less if the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken, unless after the adjournment a new record date is fixed for the adjourned meeting. At any adjourned meeting, CPI may transact any business that it might have transacted at the original meeting, provided that a quorum is present at such adjourned meeting. Proxies submitted by CPI stockholders for use at the special meeting will be used at any adjournment or postponement of the meeting. References to the CPI special meeting in this proxy statement/prospectus are to such special meeting as adjourned or postponed.

 

If you need assistance in completing your proxy card or have questions regarding the special meeting, please contact CPI International, Inc., 811 Hansen Way, Palo Alto, California 94303, Attention: Investor Relations.

 

On May 8, 2010, the CPI board of directors unanimously approved and adopted the merger agreement that provides for the acquisition by Comtech of CPI through a merger of Merger Sub with and into Comtech. After the merger, CPI will be the surviving entity and will be a wholly owned subsidiary of Comtech. At the effective time of the merger, each share of CPI common stock (other than shares owned by CPI, Comtech and Merger Sub) will be converted into the right to receive a combination of $9.00 in cash, without interest, and a fraction of a share of Comtech common stock equal to $8.10 divided by the average closing price of Comtech common stock over a specified period of time prior to the effective date of the merger, provided that the fraction shall not be greater than 0.2382 nor less than 0.2132. For information regarding the treatment of stock options and restricted stock, see “The Merger Agreement — Merger Consideration; Conversion or Cancellation of Shares in the Merger — Treatment of CPI Equity Awards” beginning on page [l] of this proxy statement/prospectus.

 

The following is a summary of the meetings, negotiations, material contacts and discussions between CPI and Comtech and certain of their representatives and affiliates that preceded the execution of the merger agreement.

 

Since CPI’s initial public offering in April 2006, the CPI board of directors and management have regularly focused on the company’s strategic plan and alternatives. As part of this process, the CPI board of directors and management have assessed strategic transactions in order to enhance the ability of CPI to maximize stockholder value. The acquisition of Malibu Research Associates, Inc. in 2007 resulted from this process.

 

Comtech and its board of directors continually review strategic alternatives which include evaluating mergers and strategic combinations with numerous companies of different sizes and a variety of business models.

 

In the period before January 2008, limited discussions took place between CPI, Comtech and representatives of Cypress Associates II LLC (the entity which controls the Cypress Group stockholders and which is referred to in this proxy statement/prospectus as Cypress) regarding the potential acquisition by Comtech of CPI. CPI did not formally engage a financial advisor in connection with these discussions, and these discussions, which ceased in January 2008, did not progress beyond a preliminary stage.

 

In January 2008, Comtech entered into a confidentiality agreement with Radyne Corporation. Comtech announced its agreement to acquire Radyne Corporation on May 12, 2008, and closed the transaction on August 1, 2008. During the period between August 2008 and January 2009, Comtech and its management team integrated the Radyne acquisition.

 

In January 2009, Comtech inquired with Cypress as to whether Cypress would be interested in considering the possible strategic and financial merits of a potential acquisition of CPI by Comtech.

 

On February 25, 2009, Comtech management made a presentation to Cypress at Cypress’ offices regarding a possible merger between Comtech and CPI.

 

On April 15, 2009, CPI and Comtech executed a nondisclosure agreement.

 

On April 16, 2009, management of CPI provided a briefing regarding CPI’s business to Comtech management by telephone.

 

On April 23, 2009, Mr. Jeffrey Hughes and Mr. Christopher Harned from Cypress received a presentation from Comtech management at Comtech’s head office in Long Island, New York regarding, in the view of Comtech management, the benefits to CPI of a combination with Comtech.

 

During May 2009 and June 2009, CPI provided Comtech with a variety of information and materials regarding CPI’s business.

 

On July 1, 2009, J.P. Morgan presented an analysis regarding the potential acquisition of CPI by Comtech to representatives of CPI.

On August 26, 2009, representatives of Cypress met with Comtech management at Comtech’s offices and received an updated presentation from Comtech regarding the benefits to CPI of a merger with Comtech.

 

On September 19, 2009, the Cypress Group stockholders executed a nondisclosure agreement with Comtech with respect to certain Comtech business and financial information to be provided to Cypress.

 

On September 29, 2009, J.P. Morgan made a presentation to representatives of Cypress and Mr. O. Joe Caldarelli, Chief Executive Officer of CPI and member of the CPI board of directors at Cypress’ offices in New York regarding an analysis of a potential transaction between Comtech and CPI as well as strategic alternatives.

 

On October 1, 2009, CPI provided a summary of CPI’s fiscal year 2010 and five-year financial projections to Cypress to provide to Comtech. Cypress provided these projections to Comtech on October 15, 2009.

 

On October 15, 2009, representatives of Cypress met with Comtech management at Cypress’ offices and received from Comtech management a presentation regarding the benefits to CPI’s stockholders of a merger with Comtech.

 

During the period described above, Cypress kept the CPI board of directors generally apprised as to their discussions with Comtech by providing updates at meetings of the board of directors.

 

As part of its strategic planning, CPI from time to time evaluates potential acquisitions. During the period described in this section, CPI submitted a bid to acquire another company in a related industry. That bid was not successful.

 

In addition, throughout 2009, Comtech management provided regular updates to the Comtech board of directors regarding the preliminary discussions with CPI, with the Comtech board of directors instructing Comtech management to pursue discussions in order to determine if a transaction would be beneficial to Comtech.

 

On January 13, 2010, J.P. Morgan made a presentation to Mr. Caldarelli and certain other executives of CPI regarding potential strategic alternatives for CPI.

 

On January 27, 2010, Mr. Hughes, a managing member of Cypress and Mr. Fred Kornberg, the Chairman of the Board, Chief Executive Officer and President of Comtech, had a telephone conversation regarding a potential acquisition of CPI by Comtech, including a discussion of a range of pricing and the composition of the consideration.

 

On February 2, 2010, Mr. Caldarelli provided updated CPI financial information to Mr. Harned and Mr. Hughes, which Cypress in turn provided to Comtech with the authorization of CPI.

 

On February 6, 2010, Mr. Caldarelli provided updated financial CPI information to Mr. Jerome Kapelus, Comtech’s Senior Vice President, Strategy and Business Development.

 

On February 16-17, 2010, certain members of Comtech’s management (including Mr. Kornberg, Mr. Michael Porcelain, Senior Vice President and Chief Financial Officer of Comtech, and Mr. Kapelus) visited CPI’s Canadian facilities for presentations regarding two of CPI’s operating divisions. During that visit, Mr. Kornberg inquired whether CPI management would be interested in continuing to work for CPI if CPI were to be acquired by Comtech in a merger transaction. Mr. Caldarelli confirmed that members of CPI management would generally be interested in continuing employment if such a transaction were to occur.

 

On February 23, 2010, the CPI board of directors held a regularly scheduled meeting. At that meeting, members of CPI management and Mr. Hughes updated the CPI board members on the status of their discussions with Comtech. Mr. Hughes indicated to the CPI board of directors that from the Cypress Group stockholders’ perspective, a transaction in which the stockholders of CPI could receive an interest in Comtech would be attractive to Cypress. Mr. Hughes also indicated that the Cypress Group stockholders would be interested in a potential transaction in which the consideration to be received would consist of a combination of approximately $9.00 in cash and 0.225 shares of Comtech common stock per share of CPI common stock. Cypress’ willingness to entertain a transaction at this valuation was based on Cypress’ background and experience and took into account Cypress’ discussions with Comtech, the relative historical market prices of Comtech and CPI, as well as the underlying business fundamentals of CPI, Comtech and their respective industries in general and Cypress’ understanding of the

sentiment of the equity research community with regard to CPI and CMTL’s stock market trading performance and potential. However, given the preliminary nature of the analysis conducted by CPI at that time, it was understood by Cypress and the CPI board of directors that this was just an initial valuation (as well as an initial judgment with regard to structure) and was subject to extensive review, discussion and approval by the CPI board of directors and its financial advisors.

 

On February 26, 2010, Mr. Porcelain called Mr. Joel Littman, Chief Financial Officer, Treasurer and Secretary of CPI, and discussed the due diligence which Comtech would need to complete in connection with a strategic transaction. Mr. Porcelain discussed potentially setting a target to sign a definitive agreement by mid-March 2010.

 

On February 26, 2010, the CPI board of directors held a special telephonic meeting to discuss the status of the discussions with Comtech. Also in attendance were representatives of J.P. Morgan, Irell & Manella LLP (which is referred to in this proxy statement/prospectus as Irell), CPI’s legal counsel, and Morris, Nichols, Arsht & Tunnell LLP (referred to in this proxy statement/prospectus as Morris Nichols), special Delaware counsel. Representatives of Irell and Morris Nichols reviewed with the directors certain legal matters regarding the discussions with Comtech, including the directors’ fiduciary obligations. Representatives of J.P. Morgan made a presentation to the board of directors regarding strategic alternatives. J.P. Morgan was subsequently engaged by CPI to act as its financial advisor in connection with a potential strategic transaction involving CPI.

 

During the period described in this section, CPI did not formally solicit offers from potential acquirers other than Comtech. CPI’s financial advisors advised CPI that the universe of potential strategic buyers was limited and that, based on informal historical discussions between CPI’s financial advisors and such entities, the potential strategic buyers other than Comtech were unlikely to make an attractive offer for CPI. In addition, CPI chose not to solicit offers from potential financial buyers such as private equity funds because CPI was advised that financial buyers were unlikely to make an offer for CPI that would be as attractive as an offer from Comtech. Based on this advice, CPI did not solicit formal offers from other parties because the CPI board of directors felt that the probability that such solicitations would result in a more attractive offer was low and that soliciting other offers might jeopardize a potential transaction with Comtech. However, because no formal solicitation process was conducted prior to executing the merger agreement, CPI insisted on having the right to terminate the merger agreement (subject to payment of a reasonable termination fee) in order to ensure that other potential acquirers could submit offers for CPI after the merger agreement was announced.

 

On March 1, 2010, the CPI board of directors held a special telephonic meeting to discuss the status of the discussions with Comtech. Also in attendance were representatives of Irell and Morris Nichols. The CPI board of directors discussed the appropriate procedures to be followed in connection with Comtech’s expression of interest. After receiving input from legal counsel, the CPI board of directors voted to establish two committees consisting of members of the CPI board of directors to evaluate Comtech’s expression of interest. The first was the transaction committee, to which the CPI board of directors appointed Mr. Caldarelli, Mr. Hughes and Mr. Michael Finley. The role of the transaction committee was to engage in negotiations and discussions with respect to Comtech’s expression of interest and alternatives thereto. The transaction committee was established in order to authorize certain directors to participate in the day-to-day tasks associated with the negotiation of a strategic transaction. Mr. Caldarelli was appointed because he was the chief executive officer of CPI; Mr. Hughes was appointed because he was a representative of the Cypress Group stockholders; and Mr. Finley was appointed because he was the chairman of the special committee. The second committee established was a special committee consisting of three non-management directors who were determined to be independent from the Cypress Group stockholders, Mr. Finley, Mr. William Rutledge and Mr. Michael Targoff. The special committee was formed for the purpose of reviewing, evaluating and, as appropriate, negotiating or participating in negotiations with respect to Comtech’s expression of interest and alternatives thereto. The CPI board of directors established the special committee in order to create a committee of directors independent from CPI management and Cypress with the authority to review and approve any transaction. In selecting the board members for the special committee, the CPI board of directors discussed and considered the fact that Mr. Targoff and Mr. Finley had an investment in certain of the Cypress funds, that Mr. Finley was employed by Cypress between 1994 - 2008, and was serving on the board of directors of Affinia Group Holdings Inc., an affiliate of Cypress and that, prior to Cypress’ affiliation with CPI, Mr. Rutledge served as president and chief executive officer of CPI during 1999. The CPI board of directors unanimously determined that none of these activities would affect the independence of the members of the special committee. The CPI board of

directors determined that no transaction could proceed unless the special committee approved the transaction. The special committee was also given the power to retain its own legal and financial advisors. The special committee engaged Morris Nichols as its legal counsel.

 

During March 2010, members of CPI management made available to members of Comtech management and to Comtech’s legal, financial and other advisors due diligence materials relating to CPI, and members of Comtech management conducted site visits at certain CPI facilities. During this period, members of CPI management and its legal and financial advisors also conducted due diligence and reviewed materials related to Comtech.

 

Also beginning in March 2010 and continuing through the execution of the merger agreement, members of Comtech management provided the Comtech board of directors with detailed briefings as to the status, proposed terms and outstanding issues of the potential transaction with CPI. The Comtech board of directors also had discussions on several occasions with Comtech’s legal counsel, Skadden, Arps, Slate, Meagher & Flom LLP (referred to in this proxy statement/prospectus as Skadden) and Proskauer Rose LLP (referred to in this proxy statement/prospectus as Proskauer), as well as Comtech’s financial advisor, Citigroup Global Markets Inc. (referred to in this proxy/prospectus as Citigroup). In addition, throughout this period, the Comtech board of directors received and reviewed several financial due-diligence reports in connection with the potential transaction from its accounting advisers, KPMG LLP and PricewaterhouseCoopers LLP.

 

On March 3, 2010, a telephonic meeting of CPI’s special committee was held, with representatives of Morris Nichols in attendance. The special committee discussed the committee’s role and authority and the potential hiring of a financial advisor for the special committee.

 

On March 4, 2010, representatives of Skadden contacted representatives of Irell and described the broad outlines of Comtech’s views as to the potential structure of a transaction between Comtech and CPI. Following this discussion, on March 10, 2010, Comtech sent to CPI a proposed term sheet for a potential merger transaction as well as a term sheet relating to the employment of CPI senior executives following the potential transaction. The merger term sheet did not indicate a proposed price to be paid by Comtech in connection with a potential merger, although it did outline that the proposed acquisition consideration would be a mix of cash and stock, with an unspecified fixed conversion ratio. The term sheet also proposed that the Cypress Group stockholders enter into a voting agreement requiring the Cypress Group stockholders to vote their shares in favor of the transaction. In addition, the term sheet contained provisions (described as the “force-the-vote” provisions) which would have prohibited CPI from terminating the proposed merger agreement in the event that CPI received a superior acquisition proposal after the merger agreement was signed and would have required CPI to hold a stockholders meeting to seek approval of the Comtech transaction notwithstanding the superior proposal. The employment term sheet was included because Comtech had indicated that the continued commitment of senior executives was an important factor in Comtech’s interest in pursuing a transaction.

 

On March 11, 2010, a telephonic meeting of CPI’s special committee was held, with representatives of Morris Nichols in attendance. The special committee discussed the engagement of a financial advisor to advise the special committee as well as the term sheet that had been sent to CPI by Comtech. The special committee subsequently engaged Moelis to act as its financial advisor. The special committee determined that the term sheet raised a number of issues that needed to be addressed including the impact that the “force-the-vote” provisions would have on the ability of CPI to accept a superior proposal, whether a floating conversion ratio with a “collar” mechanism should apply in connection with the determination of the conversion ratio for the stock portion of the consideration, the tax impact of the transaction on CPI stockholders and the impact of a provision that would have allowed Comtech to terminate the proposed merger agreement if over five percent (5%) of the stockholders elected to exercise their appraisal rights. The special committee also determined that members of CPI’s management should be instructed not to engage in discussions on the terms of their subsequent employment arrangements with Comtech until a later time.

 

On March 12, 2010, certain members of CPI management, along with representatives of J.P. Morgan, Moelis and Cypress, attended a meeting at Comtech’s headquarters where Comtech executives made a presentation regarding Comtech’s business. Mr. Finley and Mr. Rutledge, members of the special committee of the CPI board of directors, attended the meeting by telephone. As part of this meeting CPI representatives asked due diligence questions regarding Comtech’s business and prospects.

On March 14, 2010, CPI’s transaction committee (Mr. Caldarelli, Mr. Finley and Mr. Hughes), Mr. Harned of Cypress and representatives of Irell and Morris Nichols discussed the issues related to the proposed term sheet and formulated proposed responses.

 

On March 15, 2010, Mr. Harned and representatives of J.P. Morgan, at the request of CPI’s transaction committee, discussed the proposed term sheet with Mr. Kapelus of Comtech.

 

On March 17 and 19, 2010, representatives of Irell, Morris Nichols and Skadden, along with representatives of J.P. Morgan, Moelis and Cypress discussed issues related to the proposed term sheet.

 

On March 22, 2010, representatives of J.P. Morgan and representatives of Citigroup spoke regarding the status of the proposed transaction. The representatives agreed that the most important next step was for Comtech to make a more formal proposal (including price) to CPI.

 

On March 24, 2010, a telephonic meeting of CPI’s special committee was held, with representatives of Morris Nichols in attendance. The special committee discussed the status and terms of Comtech’s proposal and Moelis’ analysis of the proposal to date.

 

Following the discussions between representatives of CPI and Comtech regarding the initial term sheet, on March 25, 2010, representatives of Citigroup and Skadden sent a revised term sheet regarding the potential transaction to J.P. Morgan and Irell. The revised term sheet contained similar terms to the term sheet sent on March 10, 2010, except that, among other things, it provided that Comtech would be willing to consider a tax-free reorganization structure and a floating conversion ratio with a collar mechanism for the stock portion of the consideration (rather than a fixed conversion ratio). The revised term sheet also removed the “appraisal out” and slightly modified (but did not remove) the “force-the-vote” provisions.

 

On March 27 and 28, 2010, representatives of J.P. Morgan and Citigroup discussed the status of the proposed transaction and the best method for advancing dialogue.

 

On March 30, 2010, the members of CPI’s special committee held a telephonic meeting, with representatives of Morris Nichols in attendance, to discuss Comtech’s proposed term sheet and develop a proposed response. In particular, the members of the special committee expressed their objections to the “force-the-vote” provisions proposed by Comtech in its term sheet. The special committee also expressed the view that the CPI board of directors would need to have the right to change its recommendation regarding the transaction in certain circumstances.

 

On March 31, 2010, the members of CPI’s transaction committee (Mr. Caldarelli, Mr. Finley and Mr. Hughes) and Mr. Harned of Cypress had a teleconference, with representatives of J.P. Morgan, Irell and Moelis in attendance, in which they discussed the special committee’s proposed response and expressed their agreement with the proposed response. The next day a revised version of the term sheet was sent to Skadden reflecting this response.

 

On April 8, 2010, Comtech sent a letter to the CPI board of directors setting forth Comtech’s non-binding proposal to acquire all of the outstanding common stock of CPI in a merger transaction in which the stockholders of CPI would receive consideration consisting of between $8.00 to $9.00 in cash per share plus 0.225 shares of Comtech common stock for each share of CPI common stock. Comtech included a further revised term sheet with the letter setting forth the principal proposed legal terms of the proposed transaction. The letter also indicated that Comtech would be reluctant to continue negotiations regarding a potential merger without the continuing commitment of key CPI executives.

 

On April 9, 2010, the members of CPI’s transaction committee (Mr. Caldarelli, Mr. Finley and Mr. Hughes), together with representatives of J.P. Morgan, held a teleconference in which they discussed the letter from Comtech. Later that day, CPI’s entire board of directors met via telephone, with representatives of J.P. Morgan, Moelis, Irell and Morris Nichols in attendance, as well as Mr. Harned of Cypress. The CPI board of directors discussed the terms of Comtech’s letter and revised term sheet and directed J.P. Morgan to communicate to Citigroup that the members of the board were disappointed with the economic and legal terms of Comtech’s proposal. J.P. Morgan communicated this message to Citigroup later that evening.

That same day, a telephonic meeting of CPI’s special committee was held, with representatives of Morris Nichols and Moelis in attendance. The special committee discussed the terms of Comtech’s proposal and approved the communications strategy for discussions with Comtech as agreed upon at the earlier board meeting. J.P. Morgan communicated to Citigroup later that evening the response approved by the CPI board of directors and the special committee.

 

On April 10, 2010, Mr. Kornberg called Mr. Caldarelli to discuss whether the parties should continue their discussions in light of the concerns communicated by J.P. Morgan to Citigroup. Mr. Caldarelli indicated that the CPI board of directors was prepared to continue discussions.

 

On April 13, 2010, a telephonic meeting of the CPI board of directors was held. Representatives of J.P. Morgan, Moelis, Irell and Morris Nichols were also in attendance. J.P. Morgan made a presentation to the CPI board of directors regarding J.P. Morgan’s preliminary views as to the value of CPI as well as CPI’s potential strategic alternatives including the prospects of remaining an independent company or seeking acquisition proposals from other potential strategic acquirers.

 

Later that day, CPI’s special committee held a telephonic meeting, with representatives of Morris Nichols and Moelis in attendance. The special committee discussed J.P. Morgan’s presentation along with Moelis and Morris Nichols. Members of the special committee expressed their views as to the terms and price currently offered by Comtech.

 

On April 14, 2010, the CPI board of directors held a telephonic meeting, with representatives of J.P. Morgan, Moelis, Irell and Morris Nichols in attendance. At the board meeting, Mr. Targoff summarized for the other board members of CPI the special committee’s preliminary views on certain elements of the Comtech proposal. The CPI board of directors discussed the impact of changes in Comtech’s stock price on the deal value and discussed potential pricing arrangements that would employ a “collar” mechanism to address the effect that changes in the value of the Comtech common stock between signing and closing would have on the number of shares of Comtech common stock issued in respect of each share of CPI common stock. The CPI board of directors asked questions of legal counsel regarding certain legal implications of the proposal, including the “force-the-vote” provision proposed by Comtech. The CPI board of directors directed J.P. Morgan to communicate to Citigroup that: (i) based on the board’s view of the relative historical market prices of Comtech and CPI, as well as the underlying business fundamentals of CPI, Comtech and their respective industries in general, the board wanted Comtech’s proposal to reflect a minimum value of $17.10 per share at the time of signing; (ii) the board would not be prepared to agree to the “force-the-vote” provision requested by Comtech; and (iii) the board would not agree to breakup fees that were in excess of market levels.

 

On April 15, 2010, representatives of J.P. Morgan spoke with Citigroup and communicated the position of the CPI board of directors with respect to the Comtech proposal.

 

On April 16, 2010, Mr. Caldarelli called Mr. Kornberg and discussed the status of the parties’ discussions. In addition, on April 16, 2010 Comtech sent a letter to the CPI board of directors containing a modified nonbinding proposal to acquire CPI. Under this proposal, each share of CPI common stock would be converted into $9.00 in cash and 0.225 shares of Comtech common stock. This proposal was contingent upon CPI agreeing to include a “force-the-vote” provision in the final agreement and agreeing to a breakup fee proposed by Comtech. Since CPI management, as directed by CPI’s special committee, had not engaged in discussions regarding the terms of their continued employment with Comtech, the letter also requested that CPI management engage in immediate discussions with Comtech regarding their future roles at Comtech.

 

On April 19, 2010, the CPI board of directors held a telephonic meeting. The CPI board of directors discussed Comtech’s April 16 letter and the fact that Comtech had not accepted CPI’s positions. The CPI board of directors instructed J.P. Morgan to reiterate the positions it had communicated on April 15, 2010. In addition, the CPI board of directors concluded that it would be desirable to receive a draft merger agreement rather than continue to exchange term sheets. The CPI board of directors also concluded, based on the lack of agreement on key terms, that CPI management should continue to not engage in discussions with Comtech regarding their potential future employment by Comtech.

On April 20, 2010, representatives of J.P. Morgan spoke with Citigroup and Comtech and communicated the positions of the CPI board of directors. Comtech indicated that it was not in a position to commit to a minimum value of $17.10 per share at signing, but that a collar structure might provide a solution to the gap between the parties on price.

 

Following these discussions, on April 22, 2010, Skadden sent to Irell initial drafts of a merger agreement and voting and standstill agreement as well as draft employment letters for certain of CPI’s executive officers.

 

On April 24, 2010, representatives of J.P. Morgan spoke to representatives of Citigroup regarding process-related matters and potential methods for facilitating resolution of open issues.

 

On April 25, 2010, a telephonic meeting of the CPI board of directors was held. The CPI board of directors discussed the terms of the draft merger agreement and directed J.P. Morgan to communicate again the board’s positions regarding the price which the board would expect to apply at execution, as well as the “force-the-vote” provisions in the draft merger agreement, the provisions restricting the board of directors’ ability to change its recommendation under certain circumstances and the provisions limiting Comtech’s obligations to pursue certain regulatory approvals. The CPI board of directors instructed its legal advisors to prepare proposed changes to the draft merger agreement.

 

On April 26, 2010, representatives of J.P. Morgan called Citigroup and informed Citigroup that the legal advisors to CPI would be sending comments on the proposed merger agreement but that CPI did not want to engage in detailed negotiations on the contract until the price issues and the principal contractual issues (i.e., “force-the-vote”; ability of the CPI board of directors to change its recommendation; and regulatory approval conditions) were resolved. Later that day, the legal advisors to CPI sent to Skadden comments on the proposed merger agreement.

 

On April 27, 2010, representatives of J.P. Morgan spoke with representatives of Citigroup regarding the proposed merger agreement.

 

In addition, on April 27, 2010, CPI held a telephonic board meeting in which J.P. Morgan summarized its recent communications with Citigroup and Comtech. J.P. Morgan also made a presentation to the CPI board of directors regarding potential collar structures. After discussion of the status of the negotiations between the parties, the CPI board of directors concluded that it was not willing to concede on its key negotiating points (i.e., price; “force-the-vote”; ability of the CPI board of directors to change its recommendation; and regulatory approval conditions).

 

The special committee of the CPI board of directors also met telephonically that day, with representatives of Morris Nichols in attendance. The special committee approved the payment by CPI of attorneys’ fees in connection with the review of possible employment agreements between Comtech and members of CPI’s management as well as the voting and standstill agreement being negotiated between the Cypress funds and Comtech.

 

On April 28, 2010, Mr. Porcelain inquired whether CPI executives were in a position to begin discussions with Comtech regarding the proposed employment contracts between Comtech and the executives. On April 29, 2010, Mr. Littman informed Mr. Porcelain that, while the executives had begun analyzing the proposal, they had not yet been authorized by the CPI board of directors to begin discussions with Comtech on the topic.

 

The special committee of the CPI board of directors also met telephonically that day, with representatives of Morris Nichols and Moelis in attendance. The special committee received and discussed a presentation from Moelis as to the value of CPI. At the special committee’s request, Moelis commented generally on potential strategic alternatives and negotiating strategy. The special committee also discussed the status of discussions with Comtech and the special committee’s views relating to a collar structure. After the meeting, the special committee communicated those views to CPI’s transaction committee and J.P. Morgan.

 

On April 29, 2010, representatives of Skadden, Comtech, Cypress and Golenbock, Eiseman, Assor, Bell & Peskoe, counsel for the Cypress Group stockholders, discussed the proposed voting and standstill agreement to be entered into between the Cypress Group stockholders and Comtech.

 

On April 29, 2010, the CPI board of directors held a telephonic meeting. Mr. Hughes reported to the CPI board of directors the discussions with Comtech that representatives of Cypress had regarding the provisions of the voting

and standstill agreement. The board discussed whether management should be permitted to commence discussions with Comtech regarding the proposed terms of their employment by Comtech. After discussion and advice of counsel, the CPI board of directors concluded that, in light of its position on certain key negotiating points (e.g., price, “force-the-vote”, ability of the CPI board of directors to change its recommendation, and regulatory approval conditions), permitting executives to commence discussions on those agreements would be in the best interest of CPI and therefore authorized the executives to commence discussions with Comtech on those matters.

 

Later on April 29, 2010, Skadden contacted Irell suggesting that CPI management begin discussions with Comtech on their proposed employment arrangements and that in-person meetings be set up to advance the negotiations on the merger agreement.

 

On April 30, 2010, Mr. Kornberg placed phone calls to each of the directors of CPI separately and he was able to speak with all of the CPI directors except Mr. Finley (for whom he left a message but did not speak to directly at that time). Mr. Kornberg placed these calls in order to demonstrate his and Comtech’s willingness and interest in pursuing a mutually agreeable transaction with CPI. In addition, Mr. Kornberg wanted to let the CPI directors know that in order to facilitate the negotiation and avoid any delay in the finalization of the merger agreement, Comtech would no longer require CPI management to enter into employment agreements with Comtech at the time of signing the merger agreement and that Comtech would be sending an offer letter containing modified terms on key points. Shortly after these discussions, Comtech sent a letter to the CPI board of directors containing what Comtech described as Comtech’s final proposal to the board. In that letter, Comtech indicated that it was willing to provide CPI stockholders with consideration equal to $17.10 per share at the time of signing, consisting of $9.00 in cash and $8.10 worth of Comtech common stock, subject to a collar mechanism. Under Comtech’s proposed collar mechanism, the amount of stock received by CPI stockholders when the merger closed would depend on the Comtech common stock price during a specified period prior to the closing. If the Comtech common stock price during the specified period fell within a predetermined range, the conversion ratio for Comtech common stock would float such that CPI stockholders would receive $8.10 worth of Comtech common stock for each share of CPI common stock. If the Comtech common stock price prior to the closing was outside the predetermined range, the amount of Comtech common stock payable with respect to each CPI share would be a fixed ratio, which would vary depending on whether the stock price was less than or greater than the range. The range and the fixed ratios would be determined based on the price of the Comtech common stock at signing.

 

In its April 30, 2010 letter, Comtech also indicated that: (i) Comtech was willing to remove the “force-the-vote” provision from the merger agreement; (ii) Comtech was willing to agree to a termination fee of $12 million if the merger agreement were terminated due to a superior proposal; and (iii) consistent with Mr. Kornberg’s conversations with the CPI directors, while Comtech continued to expect that members of CPI management would play meaningful roles in a combined company (and Comtech separately indicated to the members of CPI management Comtech’s continued desire to enter arrangements for ongoing employment with each executive), Comtech did not want the logistical difficulties of negotiating employment agreements to delay arriving at a definitive merger agreement, and therefore Comtech’s proposal was no longer contingent on CPI management entering into employment arrangements with Comtech.

 

On May 2, 2010, the CPI board of directors held a telephonic board meeting, with representatives of J.P. Morgan, Moelis, Irell and Morris Nichols in attendance. The CPI board of directors discussed the collar structure that had been proposed by Comtech as well as potential alternatives to the proposed collar structure. After discussion, the CPI board of directors directed J.P. Morgan to submit a counterproposal to Comtech. In addition, at the meeting, legal advisors to CPI summarized the open legal issues on the merger agreement for the CPI board of directors. The board authorized Mr. Caldarelli to provide guidance to CPI’s financial advisors and legal advisors in connection with the negotiations over the next few days, subject to the right of CPI’s special committee and board of directors to approve any transaction presented. In light of this role, Mr. Caldarelli suspended his discussions and negotiations regarding his potential employment with Comtech following the merger.

 

On May 3, 2010, J.P. Morgan communicated CPI’s counterproposal on pricing to Citigroup. Under the CPI counterproposal, (i) Comtech would provide consideration to the CPI stockholders with a value at the date of signing equal to $17.10 per share, consisting of $9.00 in cash and $8.10 in Comtech common stock; (ii) if the price of Comtech common stock at the time of the closing was greater than or equal to the price at the time of signing but equal to or less than $36.00 per share, the value of the Comtech common stock to be provided at closing would

remain at $8.10 per share; (iii) if the price of Comtech common stock at the time of the closing was less than the price at the time of signing, the number of shares of Comtech common stock to be received for each share of CPI common stock would be equal to $8.10 divided by the price of the Comtech common stock at the time of signing; and (iv) if the price of Comtech common stock at the time of the closing was greater than $36.00 per share, Comtech would provide 0.225 shares of Comtech common stock per share of CPI common stock.

 

Between May 3 and May 6, 2010, numerous discussions took place between Mr. Caldarelli and J.P. Morgan on behalf of CPI and Citigroup, Mr. Porcelain and Mr. Kapelus on behalf of Comtech with respect to the price to be paid in the proposed transaction. Comtech did not accept CPI’s most recent pricing proposal, but indicated that Comtech might be open to minor adjustments to Comtech’s proposed collar mechanism provided that the collar was centered and symmetrical around a $36.00 per share Comtech common stock price.

 

Between May 3 and May 7, 2010, CPI’s and Cypress’ legal representatives had conference calls with Skadden and exchanged drafts regarding open issues on the merger agreement and the voting and standstill agreement. During this period, Comtech representatives informed CPI representatives that Comtech was not willing to structure the transaction as a tax-free reorganization due to Comtech’s preference for a reverse merger structure whereby Merger Sub would be merged with and into CPI, with CPI as the surviving entity.

 

On May 6, 2010, a telephonic meeting of the Comtech board of directors was convened and attended by certain members of Comtech’s senior management as well as representatives of Skadden, Proskauer and Citigroup. Comtech’s senior management updated the Comtech board of directors on discussions with CPI. Representatives of Citigroup discussed the proposed collar mechanism and the negotiations regarding the proposed transaction. Comtech’s management discussed with the Comtech board of directors the rationale for the transaction. Also at the meeting, the representatives of Skadden provided an overview of the proposed merger, including the material transaction terms set forth in the draft merger agreement and voting and standstill agreement previously provided to the Comtech board of directors, and reviewed certain legal matters relating to the board of directors’ consideration of the proposed merger. Following discussions regarding the merits of the proposed merger with CPI, the Comtech board of directors agreed that management should continue its discussions with CPI with a view to management presenting a possible transaction for approval to the Comtech board of directors as early as the next day.

 

On May 6, 2010, a telephonic meeting of the special committee of the CPI board of directors was held, with representatives of Moelis, Morris Nichols and Irell in attendance. At the request of the special committee, Mr. Caldarelli was also invited to attend a portion of the meeting to report on the progress of the negotiations. Mr. Caldarelli and CPI’s legal representatives updated the members of the special committee regarding the status of the negotiations of the merger agreement, described the open legal points and answered the directors’ questions regarding the terms and provisions of the proposed agreement.

 

Later on May 6, 2010 a conference call took place in which Mr. Caldarelli updated certain members of the CPI board of directors on the status of the deal discussions, including Comtech’s rejection of CPI’s revised pricing proposal. Representatives of J.P. Morgan and Irell were also on the call. Because of where the Comtech common stock price was at that time (around $32.00 per share) the collar structure in the form proposed by Comtech at that time was viewed as unattractive as the Comtech common stock price would have to increase by 25% (to around $40.00 per share) before the CPI stockholders could benefit from the increase in the Comtech common stock price. It was suggested that Mr. Caldarelli explore with Comtech the possibility of reverting to Comtech’s original proposal of $9.00 in cash plus 0.225 shares of Comtech common stock. This would not meet the goal of having a value of $17.10 per share at the time of signing but would provide potentially greater upside to the CPI stockholders.

 

Following the call with certain members of the CPI board of directors, Mr. Caldarelli held discussions with Mr. Kornberg, Mr. Porcelain and Mr. Kapelus of Comtech to explore structures that would provide greater potential upside to CPI stockholders in the event that the price of Comtech’s common stock increased.

 

On May 7, 2010 Mr. Porcelain and Mr. Kapelus told Mr. Caldarelli that the Comtech board was not willing to revert to the original proposal of $9.00 per share plus 0.225 shares of Comtech common stock and that the only price proposal on the table was the April 30, 2010 collar proposal. Mr. Kornberg also made a call to Mr. Caldarelli in which he expressed a similar message. Mr. Caldarelli inquired whether Comtech was open to adjustments to the collar formula. Mr. Kornberg indicated that Comtech might be open to a modest, symmetrical (e.g., centered around $36.00) adjustment to the collar formula.

Also on May 7, 2010, the CPI board of directors held a telephonic board meeting, with representatives of J.P. Morgan, Moelis, Irell and Morris Nichols in attendance. At the meeting, Mr. Caldarelli updated the members of the CPI board of directors regarding the open issues with respect to price, and indicated that Comtech had expressed a willingness to entertain modest modifications to its original collar proposal. J.P. Morgan made a presentation to the CPI board of directors regarding the impact of Comtech’s original collar proposal under various Comtech common stock price scenarios. A potential counterproposal was discussed which would narrow the range of the collar, and J.P. Morgan discussed the impact of that counterproposal under various Comtech common stock price ranges. Under the counterproposal, the value of the stock portion of the consideration would be $8.10 per share as long as Comtech’s stock price was between $34.00 and $38.00 prior to the closing of the merger. If the Comtech common stock price prior to the closing were $34.00 or lower, the stock portion of the consideration would be based on 0.2382 shares of Comtech common stock. If the Comtech common stock price prior to the closing were $38.00 or higher, the stock portion of the consideration would be based on 0.2132 shares of Comtech common stock. After discussion, the CPI board of directors decided that even though the counterproposal could present a lower value at signing than Comtech’s April 30 collar proposal, the counterproposal could be to the likely benefit of CPI’s stockholders because it permitted greater participation in the upside in the Comtech common stock, and the CPI board of directors authorized Mr. Caldarelli and J.P. Morgan to make the proposal to Comtech. In addition, the board agreed that CPI should propose to Comtech that the shares of CPI common stock held by the Cypress Group stockholders would be partially freed up from the voting agreement in the event of a change in recommendation by the CPI board of directors if the Comtech common stock price was less than $24.00 per share at the time of the change in recommendation. In addition, Mr. Caldarelli and CPI’s legal counsel summarized the status of the other open points on the draft merger agreement.

 

Following that meeting J.P. Morgan communicated the revised collar proposal to Citigroup and Comtech. Comtech later notified CPI that the proposal was acceptable, subject to approval by the Comtech board of directors.

 

In the evening of May 7, 2010, CPI’s special committee held a telephonic meeting, with representatives of Moelis and Morris Nichols in attendance. Mr. Caldarelli was invited to attend a portion of the meeting to provide an update as to the status of negotiations on the merger agreement. In addition, representatives of Irell were in attendance for a portion of the meeting. CPI’s legal advisors updated the committee members regarding the status of negotiations on the merger agreement, and reviewed certain of the provisions of the draft merger agreement. Mr. Caldarelli and the representatives of Irell left the meeting and the members of the special committee discussed the proposed transaction. Moelis delivered to the special committee its oral opinion, dated May 7, 2010, subsequently confirmed in writing, that, as of that date and based on and subject to the various factors, assumptions, limitations and qualifications set forth in such written opinion, the per share merger consideration to be received by CPI’s stockholders, pursuant to the terms and subject to the conditions set forth in the merger agreement, was fair, from a financial point of view, to CPI’s stockholders (other than the Cypress Group and its affiliates). Following such opinion, the members of the special committee unanimously adopted resolutions recommending that the entire CPI board of directors adopt and approve the proposed transaction.

 

Following the meeting of the CPI special committee, later on May 7, 2010, the CPI board of directors held a telephonic meeting. Representatives of J.P. Morgan, Moelis, Morris Nichols and Irell were in attendance. Mr. Frederick Alexander of Morris Nichols informed the CPI board of directors that the special committee had unanimously approved the proposed transaction and had recommended that the entire CPI board of directors adopt and approve the transaction. The CPI board of directors then discussed the proposed transaction, including the pricing and the progress of the negotiations. J.P. Morgan presented to the CPI board of directors its financial analysis of the proposed transaction and described how the proposed collar mechanism would work. J.P. Morgan delivered its oral opinion dated May 7, 2010, subsequently confirmed in writing, that, as of that date and based on and subject to the various factors, assumptions and limitations set forth in such written opinion, the per share merger consideration to be received by holders of CPI common stock (other than the Cypress Group and its affiliates) in the proposed merger was fair, from a financial point of view, to such holders. The CPI board of directors engaged in further discussion and then unanimously approved the proposed merger.

 

Late in the evening on May 7, 2010, the Comtech board of directors convened a telephonic meeting to review and consider the proposed merger. Present at the meeting were members of Comtech’s senior management and representatives of Skadden, Proskauer and Citigroup. At the meeting, Comtech’s senior management briefed the

board of directors on negotiations that had occurred since their last update and reviewed the merits of the transaction and recommended in favor of a transaction on the terms presented. Representatives of Citigroup reviewed with the Comtech board of directors certain financial aspects of the proposed merger, and a representative of Skadden discussed with the board of directors certain material terms of the merger agreement and the voting and standstill agreement and certain legal matters relating to the Comtech board of directors’ consideration of the proposed merger. Following consideration of the terms of the proposed merger and discussion among the directors, senior management and Comtech’s legal and financial advisors, early in the morning of May 8, 2010, the Comtech board of directors unanimously approved the proposed merger and authorized management to enter into the merger agreement and the voting and standstill agreement.

 

On May 8, 2010, the CPI board of directors approved the final version of the merger agreement, CPI and Comtech executed and delivered the merger agreement and Comtech and the Cypress Group stockholders executed and delivered the voting and standstill agreement. On May 10, 2010, prior to the commencement of trading on the NASDAQ Global Select Market, CPI and Comtech issued a joint press release announcing the signing of the merger agreement and the voting and standstill agreement.

 

The CPI board of directors carefully evaluated the merger agreement and the merger. The CPI board of directors unanimously determined that the merger agreement and the merger are advisable and in the best interests of, CPI and its stockholders, and unanimously recommended that the stockholders of CPI vote “FOR” the adoption of the merger agreement.

 

In the course of reaching its recommendation, the CPI board of directors consulted with CPI’s senior management, its financial advisors and outside legal counsel and considered a number of substantive factors, both positive and negative, and potential benefits and detriments of the merger to CPI and its stockholders. The CPI board of directors believed that, taken as a whole, the following factors supported its decision to approve the proposed merger:

 

 

 

 

 

 

The CPI board of directors also considered certain potentially negative factors in its deliberations concerning the merger, including the following:

 

 

 

 

 

The CPI board of directors concluded that the potential benefits that it expected CPI stockholders would receive as a result of the merger outweighed the potentially negative factors associated with the proposed merger. Accordingly, the CPI board of directors unanimously determined that the merger agreement and the merger are advisable to, and in the best interests of, CPI and its stockholders.

 

In addition, the CPI board of directors was aware of and considered the interests that CPI’s directors and executive officers may have with respect to the merger that differ from, or are in addition to, their interests as stockholders of CPI generally, as described in “Interests of Certain Persons in the Merger” beginning on page [l] of this proxy statement/prospectus.

 

The foregoing discussion of the information and factors considered by the CPI board of directors is not exhaustive. In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the CPI board of directors did not consider it practicable to, and did not attempt to, quantify or otherwise assign relative or specific weight or values to any of these factors. Rather, the CPI board of directors viewed its position and recommendation as being based on an overall analysis and on the totality of the information presented to and factors considered by it. In addition, in considering the factors described above, individual directors may have given different weights to different factors. After considering this information, the CPI board of directors unanimously approved and declared the advisability of the merger agreement and the merger, and recommended that CPI stockholders adopt the merger agreement.

 

This explanation of CPI’s reasons for the merger and other information presented in this section is forward-looking in nature and, therefore, should be read in light of the “Cautionary Statement Regarding Forward-Looking Statements” beginning on page [l] of this proxy statement/prospectus.

 

Comtech’s board of directors has unanimously approved and adopted the merger agreement. In evaluating the merger, Comtech’s board of directors considered, among other things, the following key strategic benefits:

 

 

 

In view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the Comtech board of directors did not find it useful, and did not attempt, to quantify, rank or otherwise assign any relative or specific weights to the factors that it considered in reaching its determination to approve the merger and the merger agreement. In addition, individual members of the Comtech board of directors may have given differing weights to different factors. The Comtech board of directors conducted an overall analysis of the factors described above, including through discussions with, and inquiry of, Comtech’s management and outside legal and financial advisors regarding certain of the matters described above.

 

CPI retained J.P. Morgan as its financial advisor for the purpose of advising CPI in connection with the transactions contemplated by the merger agreement and to evaluate whether the consideration in the merger was fair, from a financial point of view, to the holders of common stock of CPI (other than The Cypress Group and its affiliates). At the meeting of the board of directors of CPI on May 7, 2010, J.P. Morgan rendered its oral opinion, subsequently confirmed in writing to the board of directors of CPI, that, as of such date and on the basis of and subject to the various factors, assumptions and limitations set forth in such written opinion, the per share merger consideration to be received by holders of CPI common stock (other than The Cypress Group and its affiliates) in the proposed merger was fair, from a financial point of view, to such holders. The J.P. Morgan written opinion, dated May 7, 2010, is sometimes referred to herein as the J.P. Morgan opinion.

 

The full text of the written opinion of J.P. Morgan, dated May 7, 2010, which sets forth, among other things, the assumptions made, procedures followed, matters considered and any limitations on the review undertaken in rendering its opinion, is attached as Annex D. The summary of J.P. Morgan’s opinion set forth in this document is qualified in its entirety by reference to the full text of the opinion. Stockholders should read this opinion carefully and in its entirety. J.P. Morgan’s opinion is directed to the board of directors of CPI, addresses only the fairness, from a financial point of view, of the consideration to be received by the holders of common stock of CPI (other than The Cypress Group and its affiliates) in the proposed merger, and does not address any other aspect of the merger. The issuance of the J.P. Morgan opinion was approved by a fairness opinion committee of J.P. Morgan. J.P. Morgan provided its advisory services and opinion for the information and assistance of the board of directors of CPI in connection with its consideration of the proposed merger. The opinion of J.P. Morgan does not constitute a recommendation as to how any stockholder should vote with respect to the proposed merger. In addition, the J.P. Morgan opinion does not in any manner address the prices at which CPI’s or Comtech’s common stock will trade following the date of the opinion.

 

In arriving at its opinion, J.P. Morgan, among other things:

 

 

 

J.P. Morgan also held discussions with certain members of the management of CPI and Comtech with respect to certain aspects of the merger, the past and current business operations of CPI and Comtech, the financial condition and future prospects and operations of CPI and Comtech, the effects of the merger on the financial condition and future prospects of CPI and Comtech, and certain other matters J.P. Morgan believed necessary or appropriate to its inquiry.

 

In giving its opinion, J.P. Morgan relied upon and assumed the accuracy and completeness of all information that was publicly available or was furnished to or discussed with J.P. Morgan by CPI and Comtech or otherwise reviewed by or for J.P. Morgan, and J.P. Morgan did not independently verify (nor did it assume responsibility or liability for independently verifying) any such information or its accuracy or completeness. J.P. Morgan did not conduct and was not provided with any valuation or appraisal of any assets or liabilities, nor did J.P. Morgan evaluate the solvency of CPI and Comtech under any state or federal laws relating to bankruptcy, insolvency or similar matters. In relying on financial analyses and forecasts provided to J.P. Morgan or derived therefrom, including the Synergies, J.P. Morgan assumed that they were reasonably prepared based on assumptions reflecting the best then-available estimates and judgments by management as to the expected future results of operations and financial condition of CPI and Comtech to which such analyses or forecasts relate. J.P. Morgan expressed no view as to such analyses or forecasts (including the Synergies) or the assumptions on which they were based. J.P. Morgan also assumed that the merger and the other transactions contemplated by the merger agreement would have the tax consequences described in discussions with, and materials furnished to J.P. Morgan by, representatives of CPI, and would be consummated as described in the merger agreement, and that the definitive merger agreement would not differ in any material respects from the draft thereof furnished by CPI and reviewed by J.P. Morgan. J.P. Morgan also assumed that the representations and warranties made by CPI, Comtech and Merger Sub in the merger agreement and the related agreements were and would be true and correct in all respects material to its analysis. J.P. Morgan is not a legal, regulatory or tax expert and relied on the assessments made by CPI’s advisors with respect to such issues. J.P. Morgan further assumed that all material governmental, regulatory or other consents, authorizations and approvals necessary for the consummation of the merger will be obtained without any adverse effect on CPI and Comtech or on the contemplated benefits of the merger.

 

The J.P. Morgan opinion is necessarily based on economic, market, regulatory and other conditions as in effect on, and the information made available to J.P. Morgan as of, the date of the J.P. Morgan opinion. Subsequent developments may affect the J.P. Morgan opinion, and J.P. Morgan does not have any obligation to update, revise or reaffirm the J.P. Morgan opinion. The J.P. Morgan opinion is limited to the fairness, from a financial point of view, of the consideration to be received by the holders of CPI’s common stock (other than The Cypress Group and its affiliates) in the proposed merger, and J.P. Morgan has expressed no opinion as to the fairness of the merger to any person or entity, or as to the fairness of any consideration to be received by the holders of any other class of securities, creditors or other constituencies of CPI or as to the underlying decision by CPI to engage in the merger. Furthermore, J.P. Morgan has expressed no opinion with respect to the amount or nature of any compensation to any officers, directors, or employees of any party to the merger, or any class of such persons relative to the consideration to be received by the holders of CPI’s common stock (other than The Cypress Group and its affiliates) in the merger

or with respect to the fairness of any such compensation. J.P. Morgan has also expressed no opinion as to the price at which shares of CPI’s and Comtech’s common stock will trade at any future time.

 

In accordance with customary investment banking practice, J.P. Morgan employed generally accepted valuation methods in reaching its opinion. The following is a summary of the material financial analyses undertaken by J.P. Morgan in connection with rendering the J.P. Morgan opinion delivered to the CPI board of directors on May 7, 2010 and contained in the presentation delivered to the CPI board of directors on May 7, 2010 in connection with the rendering of such opinion. Some of the summaries of the financial analyses include information presented in tabular format. The tables are not intended to stand alone, and in order to more fully understand the financial analyses used by J.P. Morgan, the tables must be read together with the full text of each summary. Considering the data set forth below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of J.P. Morgan’s financial analyses. For purposes of the “CPI Financial Analyses” summarized below, the “per-share merger consideration” refers to the $16.40 implied per share value of the per-share merger consideration based on the $9.00 per-share cash, without interest, portion of the per-share merger consideration and the implied per-share value of the Comtech common stock portion of the per-share merger consideration of $7.40 on May 7, 2010.

 

Estimates

 

In performing its analysis of CPI, J.P. Morgan relied upon estimates provided by the management of CPI prepared in connection with the proposed merger for the period from October 1, 2009 through September 30, 2014, plus an extrapolation of such estimates for the period from October 1, 2014 through September 30, 2019 reviewed and approved by the management of CPI, which are referred to in this document as the “CPI Management Estimates”. In performing its analysis as it applies to Comtech, J.P. Morgan relied upon estimates provided by the management of Comtech prepared in connection with the proposed merger for the period from August 1, 2009 through July 31, 2015 which were reviewed and approved by the management of CPI, plus an extrapolation of such estimates for the period from August 1, 2015 through July 31, 2019, reviewed and approved by the management of CPI.

 

The forecasts furnished to J.P. Morgan for CPI and Comtech were prepared by the management of CPI and Comtech, respectively, in connection with the proposed merger. Neither CPI nor Comtech publicly discloses internal management forecasts of the type provided to J.P. Morgan in connection with J.P. Morgan’s analysis of the merger, and such forecasts were prepared in connection with the proposed merger and were not prepared with a view toward public disclosure. These forecasts were based on numerous variables and assumptions that are inherently uncertain and may be beyond the control of management, including, without limitation, factors related to general economic and competitive conditions and prevailing interest rates. Accordingly, actual results could vary significantly from those set forth in such forecasts.

 

CPI Financial Analyses

 

Historical Share Price Exchange Ratio Analysis; 52-Week Trading Range; 3-Month Volume-Weighted Average Price; 6-Month Volume-Weighted Average Price; Analyst Targets

 

J.P. Morgan reviewed the per share daily closing market price of CPI’s common stock and Comtech’s common stock over the three-year period ending on May 7, 2010, calculated the implied historical exchange ratios during such period by dividing the daily closing price per share of CPI’s common stock by Comtech’s common stock and identified the median of those implied historical exchange ratios for the one-month, two-month, three-month, six-month, one-year, two-year and three-year periods ending May 7, 2010 and the high and low of those implied exchange ratios for the three-year period ending May 7, 2010. The price implied by the offer was $16.40 per share of CPI’s common stock (based on market data as of May 7, 2010), and the exchange ratio implied by such offer price, assuming 100% Comtech common stock consideration and no cash consideration, was 0.528x based on the closing share price of Comtech’s common stock of $31.06 on May 7, 2010. The results of the implied exchange ratio

analysis, assuming 100% Comtech common stock consideration and no cash consideration, (rounded to the nearest thousandth) are set forth in the table below:

 

 

J.P. Morgan reviewed the 52-week trading range of CPI’s stock price. Specifically, the reference range was $7.80 to $14.55 for the 52-week trading range ending May 7, 2010, as compared to the per share merger consideration of $16.40 (based on market data as of May 7, 2010). J.P. Morgan also reviewed the 3-months and 6-months volume-weighted average price (referred to in this section as VWAP) of CPI’s stock price. Specifically, the reference VWAPs were $13.02 for the 3-months trading range ending May 7, 2010 and $12.41 for the 6-months trading range ending May 7, 2010. Finally, J.P. Morgan reviewed Wall Street equity research analyst price targets for CPI’s stock price based on which the reference range was $15.00 to $16.00.

 

J.P. Morgan noted that all of the foregoing analyses are not valuation methodologies and that such analyses were presented merely for reference purposes.

 

Selected Publicly Traded Companies

 

Using publicly available information, J.P. Morgan compared selected financial performance of CPI with publicly available information of selected publicly traded companies engaged in businesses which J.P. Morgan deemed relevant to CPI’s business. The companies were as follows:

 

 

These companies were selected, among other reasons, because they share similar business characteristics to CPI based on operational and financial metrics as well as business sector participation.

 

In all instances, multiples were based on closing stock prices on May 7, 2010. For each of the following analyses performed by J.P. Morgan, financial data for selected companies were based on the selected companies’ filings with the Securities and Exchange Commission and publicly available Wall Street research analysts’ estimates.

For each of the selected companies, J.P. Morgan calculated (i) the company’s firm value divided by its estimated earnings before interest, taxes, depreciation and amortization (referred to in this proxy statement/prospectus as EBITDA), for calendar years 2010 and 2011, which are referred to as Firm Value/2010E EBITDA Multiple and Firm Value/2011E EBITDA Multiple, respectively, and (ii) the per share closing price of such company’s price of common stock divided by the estimated earnings per share (referred to in this proxy statement/prospectus as EPS) for calendar years 2010 and 2011, which are referred to as Price/2010E Earnings Multiple and Price/2011E Earnings Multiple, respectively. For the purpose of this analysis, Firm Value of a particular company was calculated as market value of such company’s outstanding common stock (as of May 7, 2010) plus the value of such company’s indebtedness and minority interests, in-the-money options and warrants, net of option proceeds, and preferred stock, minus such company’s cash, cash equivalents and marketable securities.

 

The analysis indicated the following low, high, mean and median Firm Value and stock price multiples:

 

 

Based on the results of this analysis and on other factors J.P. Morgan considered appropriate, J.P. Morgan applied (i) a Firm Value/2010E EBITDA ratio range of 6.0x to 8.0x and a Firm Value/2011E EBITDA ratio range of 5.5x to 7.5x and (ii) a Price/2010E Earnings Multiple range of 11.0x to 15.0x and a Price/2011E Earnings Multiple range of 10.0x to 14.0x to CPI’s management projections of CPI’s 2010 and 2011 EBITDA and EPS, respectively, and derived the following implied per share equity value ranges for CPI’s common stock, as compared to the value of the per share merger consideration (rounded to the nearest $0.25):

 

 

 

 

No company used in this analysis is identical or directly comparable to CPI. Accordingly, an evaluation of the results of this analysis necessarily involves complex considerations and judgments concerning differences in financial, operating, and business sector characteristics, and other factors that could affect the public trading or other values of the companies to which CPI is compared.

Precedent Transaction Multiples Analysis

 

Using publicly available information, J.P. Morgan examined the following selected transactions involving companies or businesses which J.P. Morgan judged to be analogous or similar to CPI’s business.

 

 

For each of the selected transactions, to the extent information was publicly available, J.P. Morgan calculated the target’s firm value implied by the transaction divided by its EBITDA for the last twelve month period, which is referred to in proxy statement/prospectus as LTM, prior to announcement of the transaction. The analysis indicated the following:

 

 

Based on the results of this analysis and other factors that J.P. Morgan considered appropriate, J.P. Morgan applied the range of 7.5x to 9.5x LTM EBITDA multiples to CPI’s LTM EBITDA and derived an implied per share equity value range for CPI’s common stock of $13.00 to $18.25.

 

No company, business or transaction used in this analysis is identical or directly comparable to CPI or the merger. Accordingly, an evaluation of the results of this analysis necessarily involves complex considerations and judgments concerning differences in financial and operating characteristics and other factors that could affect the acquisition or other values of the companies, business segments or transactions to which CPI and the merger were compared.

 

Discounted Cash Flow Analysis

 

J.P. Morgan conducted a discounted cash flow analysis for CPI for the purpose of determining an implied fully diluted equity value per share for CPI’s common stock on a stand-alone basis (i.e., without Synergies). A discounted cash flow analysis is a method of evaluating an asset using estimates of the future unlevered free cash flows generated by assets and taking into consideration the time value of money with respect to those future cash flows by calculating their “present value.” “Present value” refers to the current value of one or more future unlevered free cash flows from the asset, which J.P. Morgan refers to as that asset’s cash flows, and is obtained by discounting those cash flows back to the present using a discount rate that takes into account macro-economic assumptions and estimates of risk, the opportunity cost of capital, capitalized returns and other appropriate factors. “Terminal value” refers to the capitalized value of all cash flows from an asset for periods beyond the final forecast period.

 

J.P. Morgan calculated the value of the standalone, unlevered free cash flows that CPI is expected to generate from July 1, 2010 through September 30, 2014 based upon CPI Management Estimates and the value of the unlevered free cash flows that CPI is expected to generate from October 1, 2014 through September 30, 2019 based upon extrapolations reviewed and approved by CPI’s management, calculated assuming that the projected unlevered free cash flows for both periods occur at the middle of each annual period, and then discounted such cash flows to present value as of June 30, 2010 using a range of discount rates from 11.0% to 12.0%. This range of discount rates was chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of CPI which included, among other considerations, an analysis of the cost of equity and cost of debt of CPI using publicly available information and J.P. Morgan’s judgment. J.P. Morgan also calculated a range of Terminal Values for CPI,

as of September 30, 2019, by applying a perpetual revenue growth rate ranging from 2.0% to 3.0%, which were discounted to present value as of June 30, 2010 using a range of discount rates from 11.0% to 12.0%.

 

The implied per share equity value range of CPI’s common stock that J.P. Morgan derived from such analyses, as compared to the implied price per share in the proposed merger is set forth below (rounded to the nearest $0.25):

 

 

 

 

Comtech Financial Analyses

 

52-Week Trading Range; 3-Month Volume-Weighted Average Price; 6-Month Volume-Weighted Average Price; Analyst Targets

 

J.P. Morgan reviewed the 52-week trading range of Comtech’s stock price. Specifically, the reference range was $26.65 to $38.17 for the 52-week trading range ending May 7, 2010, as compared to the price per share of $31.06 as of May 7, 2010. J.P. Morgan also reviewed the 3-months and 6-months VWAP of Comtech’s stock price. Specifically, the reference VWAPs were $31.54 for the 3-months trading range ending May 7, 2010 and $32.73 for the 6-months trading range ending May 7, 2010. Finally, J.P. Morgan reviewed Wall Street equity research analyst price targets for Comtech’s stock price based on which the reference range was $38.00 to $48.00.

 

J.P. Morgan noted that all of the foregoing analyses are not valuation methodologies and that such analyses were presented merely for reference purposes.

 

Selected Publicly Traded Companies

 

J.P. Morgan compared the financial performance of Comtech with publicly available information on the same set of selected publicly traded companies J.P. Morgan considered in the context of the Selected Publicly Traded Companies analysis relating to CPI which is described above. J.P. Morgan’s determination of the appropriateness of this set of publicly traded companies in the context of comparison with Comtech was based on the same reasoning as was applied in the determination of its use in the context of comparison with CPI.

 

Based on the results of its analysis and on other factors J.P. Morgan considered appropriate, J.P. Morgan applied (i) a Firm Value/2010E EBITDA ratio range of 6.5x to 8.5x and a Firm Value/2011E EBITDA ratio range of 6.0x to 8.0x and (ii) a Price/2010E Earnings Multiple range of 15.0x to 20.0x and a Price/2011E Earnings Multiple range of 13.0x to 18.0x to Comtech’s management projections of Comtech’s 2010 and 2011 EBITDA and EPS, respectively, which were reviewed and approved by the management of CPI, and derived the following implied per share equity value range for Comtech’s common stock, as compared to the value of Comtech’s common stock on May 7, 2010 (rounded to the nearest $0.25):

 

 

No company used in this analysis is identical or directly comparable to Comtech. Accordingly, an evaluation of the results of this analysis necessarily involves complex considerations and judgments concerning differences in financial, operating, and business sector characteristics, and other factors that could affect the public trading or other values of the companies to which Comtech is compared.

Discounted Cash Flow

 

J.P. Morgan calculated the value of the standalone, unlevered free cash flows that Comtech is expected to generate from July 1, 2010 through July 31, 2015 based on the estimates provided by Comtech’s management, which were reviewed and approved by the management of CPI, and the value of the unlevered free cash flows that Comtech is expected to generate for August 1, 2015 through July 31, 2019 based upon extrapolations, which were reviewed and approved by the management of CPI, calculated assuming that the projected unlevered free cash flows for both periods occur at the middle of each annual period, and then discounted such cash flows to present value as of June 30, 2010 using a range of discount rates from 10.5% to 11.5%. This range of discount rates was chosen by J.P. Morgan based upon an analysis of the weighted average cost of capital of Comtech, which included, among other considerations, an analysis of the cost of equity and cost of debt of Comtech using publicly available information and J.P. Morgan’s judgment. J.P. Morgan also calculated a range of Terminal Values for Comtech, as of July 31, 2019, by applying a perpetual revenue growth rate ranging from 2.0% to 3.0%, which were discounted to present value as of June 30, 2010 using a range of discount rates from 11.0% to 12.0%.

 

The implied per share equity value range of Comtech’s common stock that J.P. Morgan derived from such analyses, as compared to the per share price of Comtech’s common stock on May 7, 2010 is set forth below (rounded to the nearest $0.25):

 

 

Value Creation Analysis

 

Based on discounted cash flow equity value:  J.P. Morgan conducted a value creation analysis that compared the implied fully diluted equity value of CPI’s common stock derived from the midpoint of the discounted cash flow analysis on a stand-alone basis using the CPI Management Estimates to the implied fully diluted equity value of CPI’s common stock pro forma for the merger together with the cash portion of the transaction consideration pursuant to the merger agreement. The pro forma implied fully diluted equity value was based on CPI’s pro forma ownership (based on a 14%/86% CPI/Comtech ownership split, calculated assuming Comtech’s fully diluted shares and net debt (based on Comtech’s share price of $31.06 as of May 7, 2010) and including the shares to be issued to CPI pursuant to the merger agreement) of: (1) (a) the midpoint of Comtech’s stand-alone discounted cash flow implied equity value based on the forecast provided by the management of Comtech, which was reviewed and approved by the management of CPI, plus (b) the midpoint of CPI’s stand-alone discounted cash flow implied equity value based on the CPI Management Estimates, plus (c) the present value of the Synergies (calculated assuming $10 million of annual synergies with a 36% tax rate discounted at 11.0% and growing at 2.5% per year in perpetuity), less (d) cash consideration received by CPI stockholders pursuant to the merger agreement, less (e) estimated transaction expenses, divided by (2) Comtech’s fully diluted shares outstanding (based on Comtech’s share price of $31.06 as of May 7, 2010) pro forma to include the additional shares to be issued as consideration pursuant to the merger agreement.

 

Based on current publicly traded equity values:  J.P. Morgan conducted a value creation analysis that compared the publicly traded fully diluted equity value of CPI’s common stock to the implied fully diluted equity value of CPI’s common stock pro forma for the merger together with the cash portion of the transaction consideration pursuant to the merger agreement. The pro forma implied fully diluted equity value was based on CPI’s pro forma ownership (based on a 14%/86% CPI/ Comtech ownership split, calculated assuming Comtech’s fully diluted shares and net debt (based on Comtech’s share price of $31.06 as of May 7, 2010) and including the shares to be issued to CPI pursuant to the merger agreement) of: (1) (a) Comtech’s publicly traded fully diluted equity value as of May 7, 2010 plus (b) CPI’s publicly traded fully diluted equity value as of May 7, 2010, plus (c) the present value of the Synergies (calculated assuming $10 million of annual synergies with a 36% tax rate discounted at 11.0% and growing at 2.5% per year in perpetuity), less (d) cash consideration received by CPI stockholders pursuant to the merger agreement, less (e) estimated transaction expenses, divided by (2) Comtech’s fully diluted shares outstanding (based on Comtech’s share price of $31.06 as of May 7, 2010 ) pro forma to include the additional shares to be issued as consideration pursuant to the merger agreement.

The value creation analyses yielded the following pro forma implied accretion to CPI’s fully diluted equity value:

 

 

The foregoing summary of the material financial analyses does not purport to be a complete description of the analyses or data presented or considered by J.P. Morgan. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. J.P. Morgan believes that the foregoing summary and its analyses must be considered as a whole and that selecting portions of the foregoing summary and these analyses, without considering all of its analyses as a whole, could create an incomplete view of the processes underlying the analyses and its opinion. As a result, the ranges of valuations resulting from any particular analysis or combination of analyses described above were merely utilized to create points of reference for analytical purposes and should not be taken to be the view of J.P. Morgan with respect to the actual value of CPI. In arriving at its opinion, J.P. Morgan reviewed various financial and operational metrics for both CPI and Comtech, including forecasts with respect to CPI and Comtech, which were made available to J.P. Morgan by or on behalf of CPI and Comtech. In arriving at its opinion, J.P. Morgan did not attribute any particular weight to any analyses or factors considered by it and did not form an opinion as to whether any individual analysis or factor (positive or negative), considered in isolation, supported or failed to support its opinion. Rather, J.P. Morgan considered the totality of the factors and analyses performed in determining its opinion. Analyses based upon forecasts of future results are inherently uncertain, as they are subject to numerous factors or events beyond the control of the parties and their advisors. Accordingly, forecasts and analyses used or made by J.P. Morgan are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by those analyses. Moreover, J.P. Morgan’s analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold. The consideration and other terms of the merger were determined through arm’s-length negotiations between CPI and Comtech.

 

As a part of its investment banking business, J.P. Morgan and its affiliates are continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, investments for passive and control purposes, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements, and valuations for estate, corporate and other purposes. J.P. Morgan was selected on the basis of such experience and its familiarity with CPI, Comtech and other companies in the industries in which they operate to advise CPI in connection with a potential transaction such as the merger and to potentially deliver a fairness opinion to the board of directors of CPI addressing the fairness from a financial point of view of the consideration in such a transaction to the holders of common stock of CPI (other than The Cypress Group and its affiliates) as of the date of such opinion.

 

For services rendered in connection with the merger (including the delivery of its opinion), CPI has agreed to pay J.P. Morgan a fee estimated to be approximately $5.0 million, $3.6 million of which will become payable only if the proposed merger is consummated. Finally, CPI has agreed to reimburse J.P. Morgan for certain expenses incurred in connection with its services, including the fees and disbursements of counsel, and will indemnify J.P. Morgan against certain liabilities, including liabilities arising under the federal securities laws.

 

During the two years preceding the date of the J.P. Morgan opinion, neither J.P. Morgan nor any of its affiliates has had any other significant financial advisory or other significant commercial or investment banking relationships with CPI. J.P. Morgan and its affiliates have performed in the past, and continue to perform, certain commercial or investment banking services for Comtech and its affiliates, all for customary compensation or other financial benefits including, during the last two years, acting as a bookrunner in May 2009 for Comtech’s $200,000,000 aggregate principal amount of 3.0% Convertible Senior Notes due 2029. J.P. Morgan has received approximately $1.26 million in fees from Comtech and its affiliates for investment banking services performed in the past two years. In the ordinary course of its businesses, J.P. Morgan and its affiliates may actively trade the debt and equity securities of CPI and Comtech for their own accounts or for the accounts of customers and, accordingly, they may at any time hold long or short positions in such securities.

 

Although J.P. Morgan made presentations to the CPI board of directors at meetings during April and May 2010 where representatives of Moelis were present, each of J.P. Morgan and Moelis conducted its analysis independently in connection with formulating its fairness opinion.

 

Pursuant to a letter agreement dated April 7, 2010, CPI engaged Moelis to act as financial advisor to the special committee of CPI’s board of directors in connection with the merger or combination of CPI with a third party, or a third party’s acquisition of all or substantially all of CPI’s assets, properties or business. Subsequently, the special committee asked Moelis to provide it with an opinion as to the fairness, from a financial point of view, to CPI’s stockholders (other than The Cypress Group and its affiliates, Comtech, Merger Sub or any other wholly owned subsidiary of Comtech to the extent any such entities own shares of CPI common stock, collectively referred to herein as the excluded holders) of the per share merger consideration to be received by such stockholders pursuant to the terms and subject to the conditions set forth in the merger agreement.

 

On May 7, 2010, at a meeting of the special committee held to evaluate the merger agreement and the transactions contemplated thereby, Moelis delivered to the special committee its oral opinion, subsequently confirmed by delivery of a written opinion dated May 7, 2010, that, based upon and subject to the various factors, assumptions, limitations and qualifications set forth in the opinion, as of the date of the opinion, the per share merger consideration to be received by CPI’s stockholders, pursuant to the terms and subject to the conditions set forth in the merger agreement, is fair, from a financial point of view, to CPI’s stockholders, other than the excluded holders.

 

The full text of Moelis’ opinion is attached as Annex E to this proxy statement/prospectus and is incorporated herein by reference. This summary is qualified in its entirety by reference to the full text of the opinion. The full text of the opinion describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken by Moelis in connection with such opinion.

 

Stockholders are encouraged to read the opinion carefully in its entirety. Moelis’ opinion is directed to the special committee of CPI’s board of directors and addresses only the fairness from a financial point of view of the merger consideration to be received by CPI stockholders (other than the excluded holders). The special committee has not asked Moelis to address, and its opinion does not address, the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of CPI, other than the holders of CPI common stock.

 

Moelis’ opinion does not address CPI’s underlying business decision to effect the transactions contemplated by the merger agreement or the relative merits of the merger as compared to any alternative business strategies or transactions that might be available to CPI, and it does not constitute a recommendation to any CPI stockholder as to how such stockholder should vote with respect to the merger or any other matter. At the direction of the special committee, Moelis was not asked to, nor did it, offer any opinion as to the material terms of the merger agreement or the form of the merger. Moelis expressed no opinion as to what the value of Comtech’s common stock will be when it is issued pursuant to the merger agreement or the prices at which Comtech’s common stock will trade in the future.

 

In addition, Moelis did not express any opinion as to the fairness of the amount or nature of any compensation to be received by any of CPI’s officers, directors or employees, or any class of such persons, relative to the merger consideration.

 

Moelis’ opinion is necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Moelis as of, the date of Moelis’ opinion. Moelis has also assumed, with the consent of the special committee, that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger will be obtained without the imposition of any material delay, limitation, restriction, divestiture or condition that would have an adverse effect on CPI or Comtech or on the expected benefits of the merger.

 

Moelis has also assumed, with the consent of the special committee, that the final executed form of the merger agreement does not differ in any material respect from the draft that Moelis examined, and that Comtech and CPI

will comply with all the material terms of the merger agreement without amendment thereto and all conditions to the consummation of the merger will be satisfied without waiver by any party of the conditions or obligations thereto. Moelis has not been authorized to solicit, and has not solicited, indications of interest in a possible transaction with CPI from any party. The opinion was approved by a Moelis fairness opinion committee.

 

In arriving at the conclusions reached in its opinion, Moelis has, among other things:

 

 

In connection with its review, Moelis did not assume any responsibility for independent verification of any of the information supplied to, discussed with, or reviewed by it for the purpose of its opinion and, with the consent of the special committee, relied on such information being complete and accurate in all material respects. In addition, at the direction of the special committee, Moelis has not made any independent evaluation or appraisal of any of the assets or liabilities (contingent, derivative, off-balance-sheet or otherwise) of CPI or Comtech, nor has Moelis been furnished with any such evaluation or appraisal. With respect to the forecasted financial information referred to above, Moelis assumed, with the consent of the special committee, that such information was reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of CPI or Comtech as to the future performance of their respective companies and that such future financial results will be achieved at the times and in the amounts projected by management. Moelis was not requested to, and did not, express any opinion regarding any legal, tax, accounting or financial reporting matters, including the tax effect of the merger on CPI or its stockholders.

 

Financial Analyses

 

The following is a summary of the material financial analyses presented by Moelis to the special committee at its meeting held on May 7, 2010 in connection with the delivery of the oral opinion of Moelis at such meeting and its subsequent written opinion, dated May 7, 2010.

 

The summary set forth below does not purport to be a complete description of the analyses performed and factors considered by Moelis in arriving at its opinion. The preparation of a fairness opinion is a complex process involving various determinations and subjective judgments as to the most appropriate and relevant methods of

financial analysis and the application of those methods to the particular circumstances. Therefore, such a process is not readily susceptible to partial analysis or summary description. With respect to the comparable public companies analysis and the precedent transactions analysis summarized below, no company, business or transaction used in such analyses as a comparison is either identical or directly comparable to CPI or the merger, nor is an evaluation of such analyses entirely mathematical. These analyses necessarily involve complex considerations and judgments concerning financial and operating characteristics and other factors.