Nov. 23, 2015

Comtech Telecommunications Corp. and TeleCommunication Systems, Inc. jointly announced today the signing of a definitive merger agreement under which Comtech will purchase TCS in a cash transaction for $5.00 per TCS share, or approximately a $430.8 million enterprise value. The $5.00 price per share represents a premium of 13.9% as compared to the last closing trading price of TCS common stock, a premium of 28.6% as compared to the volume-weighted average trading price over the last ninety trading days and a premium of 35.1% as compared to the last closing trading price one day after TCS’s July 6, 2015 announcement that its Board had formed a special committee to explore strategic alternatives to enhance stockholder value.

During the twelve months ended September 30, 2015, TCS reported revenue of $364.1 million and Adjusted EBITDA of $40.4 million, and during the twelve months ended July 31, 2015, Comtech reported revenue of $307.3 million and Adjusted EBITDA of $51.8 million. Based on the trailing twelve months reported for the two companies, pro forma combined revenue would have been $671.4 million, with Adjusted EBITDA of $92.2 million (excluding synergies). The combined companies employ about 2,000 people.

Dr. Stanton Sloane, President and Chief Executive Officer of Comtech, said, “We are excited to have reached this agreement with TCS and believe this combination is beneficial to the stakeholders of both companies. TCS is a unique business and a leading provider of mission-critical C4ISR solutions and next generation emergency 911 services to leading cellular and VoIP providers. The acquisition is a significant step in our strategy of entering complementary markets and expanding our domestic and international commercial offerings. We welcome TCS’s senior management and talented workforce to the Comtech team and are excited about the future.”

Maurice B. Tosé, President and Chief Executive Officer of TCS, said, “The TCS Board of Directors and management believe this strategic combination with Comtech is compelling and provides significant benefits for our stockholders, customers and employees. Our customers will benefit from greater resources and more diverse product offerings, and our employees will benefit from being part of a larger more diversified company.”

Key Strategic Benefits for Comtech Include:

• Creates scale and more diversified earnings, reducing volatility associated with challenging international (including emerging markets) business conditions;
• Provides entry into commercial markets, including the public safety market which has a growing need for next generation emergency 911 systems;
• Enhances position with existing customers including establishing Comtech as a prime contractor on several U.S. government contracts, including becoming the prime contractor for sale of its over-the-horizon microwave systems (troposcatter) products; and
• Generates meaningful cost synergies.

Dr. Sloane and Mr. Tosé jointly stated, “We are excited about the benefit that this transaction will bring to our customers and expect benefits from enhanced resources for both companies. We anticipate honoring and bringing enhanced resources to all existing agreements with customers, VARs, distributors, OEMs and other partners.”

Acquisition Expected to be Cash Accretive and Provides for Meaningful Cost Synergies

The acquisition is expected to be cash accretive in the first year of the acquisition and to result in approximately $12.0 million of synergies in the second year after closing (with approximately $8.0 million achieved in the first year after closing). Synergies are expected to be achieved by reduction of duplicate public company costs, reduced spending on maintaining multiple information technology systems and obtaining increased operating efficiencies throughout the combined company.

In connection with the acquisition of TCS, Comtech expects to incur transaction related expenses including certain change-in-control payments, professional fees for financial and legal advisors and debt extinguishment costs. Comtech preliminarily estimates that these expenses will approximate $27.5 million, some of which are expected to be immediately expensed upon closing, some expensed during the first year following the closing and some capitalized in accordance with purchase accounting rules. Pursuant to accounting rules, the acquisition is expected to result in a material increase in annual amortization expense related to intangibles and possible other fair value adjustments.

Comtech will provide combined revenue, Adjusted EBITDA and diluted earnings per share guidance in a future announcement.

Transaction Details and Closing Conditions

Under the terms of the merger agreement, unanimously approved by both companies’ Board of Directors, Comtech will make a first step cash tender offer at $5.00 per TCS share. Once the first step cash tender is completed, it will be followed by a merger at the same price. All TCS debt of approximately $143.6 million is anticipated to be repaid upon the closing of the transaction.

The acquisition has a transaction equity value of approximately $339.7 million and an enterprise value of approximately $430.8 million. The purchase price of $430.8 million represents an implied transaction multiple of approximately 8.9x based on the last trailing twelve months of reported TCS Adjusted EBITDA plus approximately $8.0 million of first year identified synergies.

As of September 30, 2015, TCS had approximately $51.6 million of cash, cash equivalents and marketable securities and, as of July 31, 2015, Comtech had $151.0 million of cash and cash equivalents. Comtech will fund the acquisition by redeploying approximately $149.9 million of the $202.6 million of pro forma combined cash, cash equivalents and marketable securities, and has received a commitment for a credit facility funded in the amount of up to $400.0 million from a major financial institution for the remainder of the purchase price. The exact terms of the credit facility will be finalized at close. On a pro forma basis and including estimated transaction fees of $27.5 million, Comtech would have approximately $52.7 million of cash at closing.

On a pro forma basis, at the time of close, the combined company is expected to have total leverage of about 3.9x trailing twelve months combined pro forma Adjusted EBITDA. This is expected to decrease over time, based on cash flows generated from the combined businesses. Although the credit facility is expected to have restrictions, the credit facility permits and Comtech anticipates maintaining its annual targeted dividend rate of $1.20 per share. The credit facility provides that Comtech may conduct an equity offering for newly issued common shares to reduce total leverage prior to or after the close.

The transaction is subject to customary closing conditions, including the tender of at least a majority by vote of outstanding shares of TCS common stock and expiration of the applicable waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976, and the transaction is expected to close no later than March 2016.

Maurice B. Tosé, Chairman, CEO and President of TCS and Jon B. Kutler, Founder of Admiralty Partners, Inc. and a director of TCS, each a significant stockholder of TCS, have entered into support agreements pursuant to which they have agreed to tender their shares, subject to terms and conditions, to demonstrate their strong support of the proposed transaction.