Network Equipment notes to be convertible into cash only after merger

By Angela McDaniels

Tacoma, Wash., Aug. 3 - Network Equipment Technologies, Inc. notified the holders of its 7.25% convertible subordinated debentures due 2014 and 3.75% convertible senior notes due 2014 of an upcoming merger.

On June 18, the company agreed to be acquired by Sonus Networks, Inc. On the date that the merger becomes effective, each outstanding share of Network Equipment common stock will be converted into the right to receive $1.35 in cash, according to an 8-K filing with the Securities and Exchange Commission.

Once the merger becomes effective, the convertibles will only be convertible into an amount in cash equal to what the noteholders would have received had they converted prior to the merger.

The conversion ratio for the 7.25% convertibles is 31.746 shares per $1,000 principal amount, which is equivalent to a conversion price of $31.50 per share. As a result, each $1,000 principal amount will be convertible into $42.86 in cash after the merger is completed.

The conversion ratio for the 3.75% convertibles is 73.3689 shares per $1,000 principal amount, which is equivalent to a conversion price of $13.63 per share. As a result, each $1,000 principal amount will be convertible into $99.05 in cash after the merger is completed.

Network Equipment's common stock closed at $1.34 (Nasdaq: NKW) on Friday.

Put option

In addition, the merger will count as a fundamental change under the indenture governing the 3.75% convertibles and will give the holders the right to put back their convertibles at par plus accrued interest.

Network Equipment shareholders will vote on the merger at a meeting on Aug. 23. If they vote in favor of the merger, it is expected to close soon thereafter.

Network Equipment develops and sells networking equipment optimized for real-time communications and is based in Fremont, Calif.

Sonus Networks provides infrastructure and subscriber solutions and is based in Westford, Mass.

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