SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party Other than the Registrant
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss. 240.14a-12
TRINSIC, INC.
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(Name of Registrant as Specified In Its Charter)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which filing fee is calculated and state how it was
determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a) (2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
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NOTICE OF SPECIAL MEETING
AND
PROXY STATEMENT
TRINSIC, INC.
601 South Harbour Island Boulevard, Suite 220
Tampa, Florida 33602
September 2, 2005
Dear Stockholder:
It is my pleasure to invite you to a Special Meeting of Stockholders of
Trinsic, Inc. ("Trinsic" or the "Company"). The meeting will be held on
September 23, 2005 at 1:00 p.m., Eastern time at our offices at 601 South
Harbour Island Boulevard, Suite 220, Tampa, Florida. Your board of directors and
management look forward to meeting with you at this time.
At the special meeting, you will be asked to approve items that will (1)
permit the conversion of Trinsic's approximately $24.1 million aggregate
liquidation preference of Series H Preferred Stock into common stock at a
conversion price that is potentially below the current market price of the
common stock and (2) authorize an amendment of Trinsic's certificate of
incorporation to effect a reverse stock split of the common stock in the ratio
of an integral number between and including three and twelve to one, as
determined at the discretion of the board of directors.
Trinsic issued the Series H Preferred Stock to The 1818 Fund III, L.P. (the
"Fund"), its largest shareholder, in exchange (the "Exchange") for approximately
$21.6 million of current indebtedness owing to the Fund and $2.5 million in
cash. If approved by stockholders, the Series H Preferred Stock will mandatorily
convert (the "Conversion") into common stock on the later of September 30, 2005
or the date of stockholder approval, at a conversion price of $0.39, per share,
subject to antidilution adjustments; provided, however, that if on or prior to
September 29, 2005, Trinsic shall not have entered into a definitive
agreement(s) to acquire no less than 150,000 "UNE-P" subscriber lines (tested as
of September 29, 2005), then the conversion price shall reduce to $0.20 per
share, subject to antidilution adjustments.
On July 29, 2005, Trinsic entered into a letter of intent to acquire from
another carrier certain local telephone service lines for which Trinsic
currently provides service under a wholesale, "private-label" arrangement with
that carrier. Trinsic currently provides local telephone service for
approximately 187,000 end user lines under the wholesale arrangement. Trinsic
expects normal attrition will likely result in a lesser number of lines in
service at the time of transfer, but that the number of these "UNE-P" lines at
September 29, 2005 will exceed 150,000. The letter
provides that Trinsic and the other carrier will use best efforts to
complete a definitive agreement by September 1, 2005. As of September 2, 2005, a
definitive agreement has not been reached. Trinisic is, and believes that the
other party is, continuing to negotiate in good faith to reach a definitive
agreement. However, Trinsic cannot assure you that a definitive agreement will
be reached.
Beginning January 1, 2006, if the Series H Preferred Stock has not
previously converted into common stock, the holders of shares of Series H
Preferred Stock, in preference to the holders of shares of common stock and of
any shares of other junior capital stock, shall be entitled to receive, when, as
and if declared, dividends at an annual rate of 12.50%. The Series H Preferred
Stock also has an aggregate preference upon liquidation equal to $24.1 million
plus accrued and unpaid dividends, if any, and votes as a single class on an as
if converted basis together with our common stock.
In connection with the Exchange, a special committee composed of
independent directors of Trinsic's board determined that the Exchange and
Conversion was fair to Trinsic and its common stockholders other than the Fund.
However, neither the special committee nor the board of directors has undertaken
to reexamine the fairness of the Exchange or the Conversion in connection with
this proxy solicitation and is not making any recommendation with respect
thereto. In connection with this proxy solicitation, the special committee
considered the terms of the Series H Preferred Stock relative to the common
stock into which it would convert including (i) its dividend and liquidation
preference, (ii) its right to participate, incremental to its dividend and
liquidation preference, on an as if converted basis with Trinsic's common stock
in all dividends and distributions upon liquidation (including upon a change of
control, merger, consolidation or sale of all or substantially all of Trinsic's
assets) and (iii) its right to vote, as a single class, together with Trinsic's
common stock on an as if converted basis (which has subsequently been limited by
a voting agreement as described in the proxy statement). AFTER CONSIDERING THE
TERMS OF THE SERIES H PREFERRED STOCK RELATIVE TO THE COMMON STOCK INTO WHICH IT
WOULD CONVERT, THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS HAS DETERMINED
THAT THE CONVERSION OF THE SERIES H PREFERRED STOCK IS IN THE BEST INTERESTS OF
STOCKHOLDERS OTHER THAN THE FUND AND RECOMMENDS THAT TRINSIC'S STOCKHOLDERS
OTHER THAN THE FUND VOTE IN FAVOR OF SUCH PROPOSAL. Neither the board of
directors nor any committee thereof is making any recommendation to the Fund
with respect to the Conversion.
Trinsic is proposing the several reverse stock split alternatives for the
dual purposes of (a) providing Trinsic with enough authorized and unissued
common stock to proceed (i) with the conversion of Series H Preferred Stock if
the conversion price becomes $.20 per share and (ii) in all cases with a rights
offering of common stock to holders at the conversion price of the Series H
Preferred Stock and (b) exceeding the $1.00 per share minimum bid price required
to maintain the listing of the common stock on the Nasdaq SmallCap Market. THE
BOARD OF DIRECTORS HAS DETERMINED THAT THE REVERSE STOCK SPLIT PROPOSAL IS IN
THE BEST INTERESTS OF STOCKHOLDERS AND RECOMMENDS THAT TRINSIC'S STOCKHOLDERS
VOTE IN FAVOR OF SUCH PROPOSAL.
Information about the special meeting and the business to be considered and
voted upon at the special meeting is included in the accompanying notice of
special meeting and proxy statement. Your vote is important regardless of the
number of shares you own. I urge you to complete, sign, date and return the
enclosed proxy card as soon as possible, even if you currently plan to attend
the meeting. Returning the proxy card will not prevent you from attending the
meeting and voting in person, but will ensure that your vote is counted if you
are unable to attend the meeting. I also urge you to review and consider
carefully the matters presented in the attached proxy statement. Thank you for
your interest and participation. I look forward to seeing you at the special
meeting.
Sincerely,
/s/ Horace J. Davis, III
---------------------------------------------
Horace J. Davis, III
Chief Executive Officer
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The proxy statement is dated September 2, 2005 and is expected to be
first mailed to stockholders on or about September 2, 2005.
-3-
TRINSIC, INC.
601 South Harbour Island Boulevard
Tampa, Florida 33602
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of Trinsic, Inc.:
Notice is hereby given that a Special Meeting of Stockholders of Trinsic,
Inc. will be held at our offices located at 601 South Harbour Island Boulevard,
Tampa, Florida on September 23, 2005, at 1:00 p.m. Eastern time, for the
following purposes:
I. To permit the conversion of Trinsic's approximately $24.1 million
aggregate liquidation preference of Series H Preferred Stock into
common stock at a conversion price (the "Conversion Price") equal to
$0.39, per share, subject to antidilution adjustments; provided,
however, that if on or prior to September 29, 2005, Trinsic shall not
have entered into a definitive agreement(s) to acquire no less than
150,000 "UNE-P" subscriber lines (tested as of September 29, 2005),
then the permitted conversion price shall reduce to $0.20 per share,
subject to antidilution adjustments; and
II. To approve an amendment of Trinsic's certificate of incorporation to
effect a reverse stock split of the common stock in the ratio of an
integral number between and including three and twelve to one, as
determined at the discretion of the board of directors, which reverse
stock split at any ratio may be abandoned at any time prior to
effectiveness at the discretion of the board of directors,
notwithstanding Trinsic stockholders authorization thereof.
Each of these proposals are more fully described in the proxy statement
that accompanies this notice, and each is subject to a condition that a minimum
number of votes described in this notice are cast with respect to such proposal.
Please read the proxy statement carefully when determining how to vote on these
proposals.
These proposals will be submitted for approval to the holders of Trinsic's
common stock and Series H Preferred Stock, all voting together as a single
class. For such purpose, each share of common stock is entitled to one vote and
each share of Series H Preferred Stock is entitled, as of the special meeting
date, to approximately 2564.1 votes per share which is the number of votes equal
to the Series H Preferred Stock liquidation preference per share divided by a
Conversion Price of $0.39 per share, each as of the record date for the special
meeting. The 1818 Fund III, L.P. (the "Fund"), Trinsic's largest stockholder and
the sole holder of Series H Preferred Stock, has agreed not to vote any of its
Series H Preferred Stock in connection with Proposal I, and not to cast
3,012,479 votes otherwise eligible to be cast in respect of its Series H
Preferred Stock in connection with Proposal II. As of the record date for the
special meeting, Trinsic had 55,905,602 shares of common stock issued and
outstanding and 24,084.769 shares of Series H Preferred Stock issued and
outstanding.
As of the record date for the special meeting, Trinsic's largest
stockholder, the Fund owned 25,500,440 shares of common stock and all of the
Series H Preferred Stock. After giving effect to the Fund's agreement to limit
its voting strength with respect to the Series H Preferred Stock, the Fund, as
of the record date, had an aggregate voting strength of approximately 45.6% of
the aggregate number of votes entitled to be cast at the special meeting on
Proposal 1 and approximately 73.5% of the aggregate number of votes entitled to
be case at the special meeting on Proposal II. In connection with the Exchange
described below, to the extent of the voting strength described in the preceding
sentence, the Fund committed to vote its shares of common stock and Series H
Preferred Stock in favor of the proposals set forth above.
Trinsic issued the Series H Preferred Stock to the Fund, its largest
shareholder, in exchange for approximately $21.6 million of current indebtedness
owing to the Fund and $2.5 million in cash. If approved by stockholders, the
Series H Preferred Stock will mandatorily convert into common stock on the later
of September 30, 2005 or the date of stockholder approval, at a conversion price
of $0.39, per share, subject to antidilution adjustments; provided, however,
that if on or prior to September 29, 2005, Trinsic shall not have entered into a
definitive agree-
ment(s) to acquire no less than 150,000 "UNE-P" subscriber lines (tested as of
September 29, 2005), then the conversion price shall reduce to $0.20 per share,
subject to antidilution adjustments.
On July 29, 2005, Trinsic entered into a letter of intent to acquire from
another carrier certain local telephone service lines for which Trinsic
currently provides service under a wholesale, "private-label" arrangement with
that carrier. Trinsic currently provides local telephone service for
approximately 187,000 end user lines under the wholesale arrangement. Trinsic
expects normal attrition will likely result in a lesser number of lines in
service at the time of transfer, but that the number of these "UNE-P" lines at
September 29, 2005 will exceed 150,000. The letter provides that Trinsic and the
other carrier will use best efforts to complete a definitive agreement by
September 1, 2005. As of September 2, 2005, a definitive agreement has not been
reached. Trinsic is, and believes that the other party is, continuing to
negotiate in good faith to reach a definitive agreement. However, Trinsic cannot
assure you that a definitive agreement will be reached.
Beginning January 1, 2006, if the Series H Preferred Stock has not
previously converted into common stock, the holders of shares of Series H
Preferred Stock, in preference to the holders of shares of common stock and of
any shares of other junior capital stock, shall be entitled to receive, when, as
and if declared, dividends at an annual rate of 12.50%. The Series H Preferred
Stock also has an aggregate preference upon liquidation equal to $24.1 million
plus accrued and unpaid dividends, if any, and votes as a single class on an as
if converted basis together with our common stock.
In connection with the Exchange, a special committee composed of
independent directors of Trinsic's board determined that the Exchange and
Conversion was fair to Trinsic and its common stockholders other than the Fund.
However, neither the special committee nor the board of directors has undertaken
to reexamine the fairness of the Exchange or the Conversion in connection with
this proxy solicitation and is not making any recommendation with respect
thereto. In connection with this proxy solicitation, the special committee
considered the terms of the Series H Preferred Stock relative to the common
stock into which it would convert including (i) its dividend and liquidation
preference, (ii) its right to participate, incremental to its dividend and
liquidation preference, on an as if converted basis with Trinsic's common stock
in all dividends and distributions upon liquidation (including upon a change of
control, merger, consolidation or sale of all or substantially all of Trinsic's
assets) and (iii) its right to vote, as a single class, together with Trinsic's
common stock on an as if converted basis (which has subsequently been limited by
a voting agreement as described in this proxy statement). AFTER CONSIDERING THE
TERMS OF THE SERIES H PREFERRED STOCK RELATIVE TO THE COMMON STOCK INTO WHICH IT
WOULD CONVERT, THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS HAS DETERMINED
THAT THE CONVERSION OF THE SERIES H PREFERRED STOCK IS IN THE BEST INTERESTS OF
STOCKHOLDERS OTHER THAN THE FUND AND RECOMMENDS THAT TRINSIC'S STOCKHOLDERS
OTHER THAN THE FUND VOTE IN FAVOR OF SUCH PROPOSAL. Neither the board of
directors nor any committee thereof is making any recommendation to the Fund
with respect to the Conversion.
Trinsic is proposing the several reverse stock split alternatives for the
dual purposes of (a) providing Trinsic with enough authorized and unissued
common stock to proceed (i) with the conversion of Series H Preferred Stock if
the conversion price becomes $.20 per share and (ii) in all cases with a ratable
rights offering of common stock to holders at a price not to exceed the
conversion price of the Series H Preferred Stock and (b) exceeding the $1.00 per
share minimum bid price required to maintain the listing of the common stock on
the Nasdaq SmallCap Market. THE BOARD OF DIRECTORS DETERMINED THAT THE REVERSE
STOCK SPLIT PROPOSAL IS IN THE BEST INTERESTS OF STOCKHOLDERS AND RECOMMENDS
THAT TRINSIC'S STOCKHOLDERS VOTE IN FAVOR OF SUCH PROPOSAL.
THE BOARD OF DIRECTORS RESERVES THE RIGHT TO ABANDON ANY OR ALL OF THE
REVERSE STOCK SPLIT ALTERNATIVES OR THE CONVERSION AT ANY TIME PRIOR TO THEIR
EFFECTIVENESS NOTWITHSTANDING AUTHORIZATION THEREOF BY TRINSIC'S STOCKHOLDERS.
The board of directors has fixed the close of business on August 26, 2005
as the record date for the determination of stockholders entitled to notice of
and to vote at the special meeting and at any adjournment or postponement
thereof.
-2-
Accompanying this notice of special meeting and the proxy statement is a
proxy. Whether or not you expect to attend the special meeting, please complete,
sign and date the enclosed proxy and return it promptly. If you plan to attend
the special meeting and wish to vote your shares personally, you may do so at
any time before the proxy is voted.
All stockholders are cordially invited to attend the meeting.
By Order of the Board of Directors
/s/ Horace J. Davis, III
-----------------------------------------------
Horace J. Davis, III
Chief Executive Officer
Tampa, Florida
September 2, 2005
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PROXY STATEMENT
TABLE OF CONTENTS
Page
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS, THE EXCHANGE
OFFER AND THE RELATED PROPOSED TRANSACTIONS.................................1
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING................................8
PROPOSAL 1: CONVERSION OF SERIES H PREFERRED STOCK...........................11
PROPOSAL 2: REVERSE SPLIT....................................................15
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................20
DESCRIPTION OF OUR COMMON STOCK...............................................22
OTHER BUSINESS................................................................22
Annexes:
Annex A Form of Certificate of Amendment of the Amended and Restated
Certificate of Incorporation of Trinsic, Inc. implementing the
reserve stock split proposal
Proxy
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TRINSIC, INC.
601 South Harbour Island Boulevard, Suite 220
Tampa, Florida 33602
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PROXY STATEMENT
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This proxy statement is being furnished to the stockholders (collectively,
"Stockholders") of Trinsic, Inc., a Delaware corporation, ("Trinsic" or the
"Company") in connection with the solicitation of proxies by Trinsic's board of
directors from the holders ("Common Stockholders") of outstanding shares of its
common stock, par value $.01 per Share (the "Common Stock") for use at the
special meeting of Stockholders of Trinsic to be held on September 23, 2005, and
any adjournments or postponements thereof.
All Stockholders who find it convenient to do so are cordially invited to
attend the meeting in person. In any event, please complete, sign, date and
return the proxy in the enclosed envelope.
QUESTIONS AND ANSWERS ABOUT THE PROXY MATERIALS, THE EXCHANGE OFFER
AND THE RELATED PROPOSED TRANSACTIONS
Why am I receiving this proxy statement?
You have received this proxy statement and the enclosed proxy from Trinsic
because you hold shares of Common Stock or Series H Preferred Stock. The board
of directors of Trinsic is soliciting your proxy to vote on the Conversion (as
defined below) and reverse stock split alternatives to be considered at the
special meeting, as applicable. As a Stockholder, you are invited to attend the
special meeting and are entitled to and requested to vote on the proposals
described in this proxy statement.
What information is contained in this proxy statement?
The information included in this proxy statement relates to the proposals
to be voted on at the special meeting, the board of directors' recommendations
regarding the proposals, procedures for voting at the special meeting and other
information required by federal securities laws.
What are the proposed Conversion and reverse stock split?
The proposals to be voted on at the special meeting include:
I. To permit the conversion (the "Conversion") of Trinsic's approximately
$24.1 million aggregate liquidation preference of Series H Preferred
Stock into common stock at a conversion price equal to $0.39, per
share, subject to antidilution adjustments; provided, however, that if
on or prior to September 29, 2005, Trinsic shall not have entered into
a definitive agreement(s) to acquire no less than 150,000 "UNE-P"
subscriber lines (tested as of September 29, 2005), then the permitted
conversion price shall reduce to $0.20 per share, subject to
antidilution adjustments; and
II. To approve an amendment of Trinsic's certificate of incorporation to
effect a reverse stock split of the common stock in the ratio of an
integral number between and including three and twelve to one, as
determined at the discretion of the board of directors, which reverse
stock split at any ratio may be abandoned at any time prior to
effectiveness at the discretion of the board of directors,
notwithstanding Stockholders' authorization thereof.
What are the specifics of the Conversion?
If the Conversion Price (as defined below) is approved by Stockholders,
upon the later to occur of (a) September 30, 2005 or (b) the date on which
Stockholder approval is obtained (such date, the "Conversion Date") all
outstanding shares of Series H Preferred Stock shall automatically convert,
without any action by the holders thereof, into such number of fully paid and
non-assessable shares of Common Stock as is equal, subject to rounding, to the
product of the number of shares of Series H Preferred Stock being so converted
multiplied by the quotient of (x) the accreted value (as of any date, with
respect to each share of Series Preferred Stock, $1,000 (subject to adjustment)
plus the amount of dividends which have accrued, compounded and been added
thereto such date (the "Accreted Value")) plus all dividends accrued since the
previous compounding date divided by (y) the Conversion Price (as defined below)
in effect on the Conversion Date.
"Conversion Price" shall mean $0.39, per share, subject to antidilution
adjustments; provided, however, that if Trinsic shall not have entered into a
definitive agreement(s) on or prior to September 29, 2005 (in each case, subject
to no material closing conditions other than routine regulatory approvals) to
acquire at least 150,000 "UNE-P" subscriber lines from one or more
telecommunications carriers, then the Conversion Price shall be reduced,
effective as of July 15, 2005, to $0.20 per share, subject to antidilution
adjustments. The antidilution adjustments include, among other things, an
adjustment for the issuance of Common Stock or equivalents below the Conversion
Price. If the Rights Offering (as defined under "Proposal I - Conversion of
Series H Preferred Stock") is consummated after the Conversion occurs at a price
below the Conversion Price, an antidilution adjustment will apply in the form of
a par value right to purchase the number of shares of Common Stock equal to the
difference between (i) the number of shares of Common Stock that the Series H
Preferred Stock would have converted into if the Conversion Price equaled the
Rights Offering price minus (ii) the number of shares of Common Stock the Series
H Preferred Stock was initially converted into (the "Rights Offering Adjustment
Right").
On a percentage basis, approval of the Conversion Price will result in the
Series H Preferred Stock converting into either approximately 51.6% (at a $0.39
conversion price) or approximately 67.5% (at a $0.20 conversion price) of the
post conversion Fully Diluted Outstanding Common Stock, assuming in each case
that the Rights Offering Adjustment Right will not apply. "Fully Diluted
Outstanding Common Stock" means our fully diluted outstanding Common Stock
(excluding out of the money options and warrants to acquire common stock, but
including stock awarded but not yet issued under Trinsic's 2004 Stock Incentive
Plan).
Why did Trinsic issue the Series H Preferred Stock?
Trinsic issued the Series H Preferred Stock to The 1818 Fund III, L.P. (the
"Fund"), its largest shareholder, in exchange (the "Exchange") for approximately
$21.6 million of current indebtedness owing to the Fund and $2.5 million in
cash. Trinsic entered into the Exchange because (i) Trinsic did not foresee
other viable alternatives to refinance or repay the indebtedness owing to the
Fund prior to its maturity in March 2006, (ii) Trinsic believes that the
Exchange improves the likelihood that it will be able to continue as a going
concern, (iii) the Exchange substantially increased Trinsic's net worth, forming
a basis for Trinsic's appeal to the Nasdaq SmallCap Market not to delist
Trinsic's Common Stock for failure to maintain quantitative listing
requirements, (iv) Trinsic could afford all Common Stockholders other than the
Fund with the ability to avoid dilution in connection with the Exchange by
conducting a rights offering to its Common Stockholders (with respect to which
the Fund has waived its participation) at the same price as the Conversion Price
and in proportion to the amount of Common Stock issued to the Fund upon
Conversion relative to the Fund's ownership of Common Stock at the time of the
Exchange, and (v) a special committee composed of independent directors of
Trinsic's board, after consulting with and obtaining a fairness opinion from its
financial advisor, Morgan Keegan & Company, Inc., determined that the Exchange
was fair to Trinsic and its common stockholders other than the Fund.
What are the consequences of the exchange and issuance of the Series H Preferred
Stock?
As a consequence of the Exchange, the Fund, which previously had effective
voting control, now has absolute voting control (except with respect to Proposal
I or similar proposals). Through its control of the voting power of Trinsic's
capital stock, the Fund can absolutely determine the election of Trinsic's board
members. The Fund also has the absolute ability to control fundamental corporate
transactions requiring equity holder approval, including, but not limited to,
the approval of merger transactions involving us and the sale of all or
substantially all of our
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assets. The Fund also has the absolute ability to control more routine matters
submitted for stockholder approval, such as Proposal II contained in this proxy
statement.
The Fund is not restricted from investing in, and may invest in, and engage
in, other businesses involving or related to the operation of telecommunications
services. The Fund may also engage in other businesses that compete or may in
the future compete with Trinsic.
The Fund's control over our management and affairs could create conflicts
of interest if it is faced with decisions that could have different implications
for it, Trinsic and the holders of Trinsic's Common Stock. Further, the Fund
could effectively cause us to enter into contracts with another entity in which
the Fund owns an interest or to decline a transaction into which it (or another
entity in which it owns an interest) ultimately enters.
Current or future agreements between Trinsic and either the Fund or its
affiliates may not be the result of arm's-length negotiations. Consequently,
such agreements may be less favorable to Trinsic than agreements that it could
otherwise have entered into with unaffiliated third parties.
How would the Conversion and reverse stock split affect the holders of Trinsic's
capital stock?
If the Conversion and reverse stock split are completed, following the
Conversion and reverse stock split:
o The Series H Preferred Stock would convert into either approximately
51.6% (at a $0.39 conversion price) or approximately 67.5% (at a $0.20
conversion price) of the post conversion Fully Diluted Outstanding
Common Stock, assuming in each case that the Rights Offering
Adjustment Right will not apply. As a result of the Conversion, the
non-Fund holders of Common Stock will suffer substantial dilution.
o Trinsic's Common Stock will remain outstanding. However, each share of
Common Stock will be converted into a fraction with an integral
denominator between three and twelve of a share of Common Stock, as a
result of the reverse stock split. After the reverse stock split, the
reduction in number of shares outstanding will likely proportionately
lower the Common Stock trading volume. A lower trading volume may
limit the ability of Stockholders to sell their shares without also
reducing the Common Stock trading price. A lower trading volume may
also make the Common Stock price more volatile generally.
What is the result if the Conversion is not approved?
If Trinsic shall commence a voluntary case under bankruptcy laws or if
Trinsic shall liquidate, dissolve or wind up, or, at the option of the holders
of Series H Preferred Stock, if Trinsic shall experience a change of control,
merge, consolidate or sell all or substantially all of its assets, no
distribution shall be made to the holders of Common Stock unless the holders of
shares of the Series H Preferred Stock shall have received in cash a liquidation
preference in an aggregate amount equal to $24.1 million plus accrued and unpaid
dividends. If an event occurs that triggers the payment of a liquidation
preference to holders of Series H Preferred Stock and any further distribution
is available to holders of Common Stock, then the holders of Series H Preferred
Stock shall be entitled to participate on an as if converted basis in any such
further distribution.
Beginning January 1, 2006, the holders of shares of the Series H Preferred
Stock, in preference to the holders of shares of Common Stock of Trinsic, shall
be entitled to receive, when, as and if declared by the board of directors,
dividends at an annual rate per share of Series H Preferred Stock equal to
12.50% of the accreted value with respect to such share per annum. In addition,
in the event that Trinsic shall declare a dividend or make any other
distribution to holders of Common Stock, then the holder of each share of Series
H Preferred shall be entitled to receive a portion of such dividend or
distribution on an as if converted basis.
-3-
What are the conditions to the Conversion and the reverse stock split?
The Conversion is conditioned upon a majority of the number of shares of
Common Stock outstanding as of the record date being cast on such proposal at
the special meeting. The reverse stock split is conditioned upon a majority of
the number of votes as of the record date represented by the Common Stock and
the Series H Preferred Stock which the Fund may vote on such proposal being cast
on such proposal at the special meeting.
In addition, in the event that the Conversion is approved and the reverse
stock split proposal is not approved, Trinsic would not have enough authorized
Common Stock to convert the Series H Preferred Stock at $0.20 per share.
Why is Trinsic proposing the Conversion and the reverse stock split?
Trinsic is proposing the approval of the Conversion because, in connection
with the issuance of the Series H Preferred Stock, Trinsic agreed to obtain
Stockholder approval of the Conversion unless its counsel determined that it
could opine that no such approval was required under the rules of the Nasdaq
SmallCap Market or applicable law. Trinsic has not formally asked its counsel if
such an opinion could be given, but on the basis of discussions with such
counsel believes that at this time Stockholder approval of the Conversion would
be required under the rules of the Nasdaq SmallCap Market because of the
possibility that the Conversion Price could be below the current market price of
the Common Stock.
Trinsic is proposing the several reverse stock split alternatives for the
dual purposes of (a) providing Trinsic with enough authorized and unissued
Common Stock to proceed (i) with the conversion of Series H Preferred Stock if
the conversion price becomes $.20 per share and (ii) in all cases with a rights
offering of Common Stock to holders at the conversion price of the Series H
Preferred Stock and (b) exceeding the $1.00 per share minimum bid price required
to maintain the listing of the Common Stock on the Nasdaq SmallCap Market.
Did Trinsic consider any negative factors that could or do arise from the
Conversion and the reverse stock split?
In connection with the Conversion, Trinsic's special committee considered:
o the substantial dilutive effect of the Conversion to Common
Stockholders. On a percentage basis, approval of the Conversion Price
will result in the Series H Preferred Stock converting into either
approximately 51.6% (at a $0.39 conversion price) or approximately
67.5% (at a $0.20 conversion price) of the post conversion Fully
Diluted Outstanding Common Stock, assuming in each case that the
Rights Offering Adjustment Right will not apply;
o the substantial dilutive effect of the Series H Preferred Stock
dividend if the Conversion is not approved; and
o that Trinsic may not realize all of the benefits it expects to realize
from the Conversion.
In connection with the reverse stock split proposal, Trinsic's board of
directors considered:
o that the post reverse split Common Stock might not reflect or maintain
the value implied by the final reverse stock split ratio, and
o that Trinsic may not realize all of the benefits it expects to realize
from the reverse stock split.
Did Trinsic's board of directors make a determination that the Conversion and
the reverse stock split proposal are in the best interests of the Common
Stockholders?
In connection with the Exchange, a special committee composed of
independent directors of Trinsic's board determined that the Exchange and
Conversion was fair to Trinsic and its Common Stockholders other than the Fund.
However, neither the special committee nor the board of directors has undertaken
to reexamine the fairness of
-4-
the Exchange or the Conversion in connection with this proxy solicitation and is
not making any recommendation with respect thereto. In connection with this
proxy solicitation, the special committee considered the terms of the Series H
Preferred Stock relative to the Common Stock into which it would convert
including (i) its dividend and liquidation preference, (ii) its right to
participate, incremental to its dividend and liquidation preference, on an as if
converted basis with Trinsic's Common Stock in all dividends and distributions
upon liquidation (including upon a change of control, merger, consolidation or
sale of all or substantially all of Trinsic's assets) and (iii) its right to
vote, as a single class, together with Trinsic's Common Stock on an as if
converted basis (which has subsequently been limited by a voting agreement as
described in this proxy statement). AFTER CONSIDERING THE TERMS OF THE SERIES H
PREFERRED STOCK RELATIVE TO THE COMMON STOCK INTO WHICH IT WOULD CONVERT, THE
SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS HAS DETERMINED THAT THE CONVERSION
OF THE SERIES H PREFERRED STOCK IS IN THE BEST INTERESTS OF STOCKHOLDERS OTHER
THAN THE FUND AND RECOMMENDS THAT TRINSIC'S STOCKHOLDERS OTHER THAN THE FUND
VOTE IN FAVOR OF SUCH PROPOSAL. Neither the board of directors nor any committee
thereof is making any recommendation to the Fund with respect to the Conversion.
THE BOARD OF DIRECTORS DETERMINED THAT THE REVERSE STOCK SPLIT PROPOSAL IS
IN THE BEST INTERESTS OF STOCKHOLDERS AND RECOMMENDS THAT TRINSIC'S STOCKHOLDERS
VOTE IN FAVOR OF SUCH PROPOSAL.
What conflicts of interest might Trinsic's directors and officers have in the
Conversion and the reverse stock split?
When considering the recommendation of Trinsic's board of directors, you
should be aware that some Trinsic directors and officers have interests in the
Conversion and the reverse stock split that may be different from, or in
addition to, yours. These interests include:
o Messrs. Lawrence C. Tucker and Andrew C. Cowen, directors of Trinsic,
are affiliates of the Fund, which owns all of the outstanding Series H
Preferred Stock and approximately 44.1% of the Fully Diluted
Outstanding Common Stock.
o Mr. Tucker has been a general partner of Brown Brothers Harriman &
Co., a private investment banking firm that manages the Fund ("Brown
Brothers"), since 1979. Brown Brothers has a limited partnership
interest in the Fund and has an interest in certain profits of the
Fund in its capacity as the general partner of the Fund.
o Mr. Cowen is a Senior Vice-President of Brown Brothers and has been
employed by Brown Brothers since 1992. Mr. Cowen has a profit sharing
arrangement with the Fund. Mr. Cowen has been seconded to CMS, Inc.
("CMS") as its chief executive officer. CMS is a medical software
company that is controlled by another fund managed by Brown Brothers.
Trinsic has no present or immediately foreseeable business
relationship with CMS.
Other than as described above and payments made to directors and officers in
their capacities as such, no payments or benefits will be paid to Trinsic's
current directors or officers as a result of the Conversion and reverse stock
split.
Has Trinsic been advised that any of its Stockholders intend to vote in favor of
the Conversion and the reverse stock split?
After giving effect to the Fund's agreement to limit its voting strength
with respect to the Series H Preferred Stock, the Fund, as of the record date,
had an aggregate voting strength of approximately 45.6% of the aggregate number
of votes entitled to be cast at the special meeting on Proposal 1 and
approximately 73.5% of the aggregate number of votes entitled to be case at the
special meeting on Proposal II. In connection with the Exchange, to the extent
of the voting strength described in the preceding sentence, the Fund committed
itself to vote in favor of the Conversion and the reverse stock split.
-5-
Will I have appraisal rights as a result of the Conversion?
Stockholders will not have appraisal rights as a result of the Conversion
or the reverse stock split.
Are any regulatory approvals required in connection with the Conversion or the
reverse stock split?
Trinsic is not aware of any federal or state regulatory approvals that must
be obtained in connection with the Conversion or the reverse stock split.
What are the principal trading markets of the Trinsic capital stock?
The Common Stock is currently traded on the Nasdaq SmallCap Market under
the symbol "TRINC." However, the Common Stock does not currently meet the
following criteria necessary for continued listing: the closing bid price per
share of the Common Stock is less than $1.00. On June 9, 2005 Trinsic appealed a
potential delisting of the Common Stock for failure to maintain either a market
value of listed securities in excess of $35 million or net worth in excess of
$2.5 million. On July 26, 2005, Trinsic was notified by the Nasdaq Stock Market
that the Listing Qualifications Panel has determined to continue listing its
Common Stock on a conditional basis. The conditions include a requirement that
Trinsic report stockholders' equity in excess of $2.5 million in its Form 10-Q
for the third quarter. Trinsic cannot assure you that, when it files its Form
10-Q for the third quarter some time in early November, it will meet the minimum
stockholders' equity requirement or any other conditions imposed by the Listing
Qualification Panel. However, if it fails to satisfy such conditions, or if it
fails to satisfy Nasdaq Stock Market listing requirements in the future, Trinsic
expects that its Common Stock will be delisted. In that regard, on August 26,
2005, The Nasdaq Stock Market has notified Trinsic that it is in violation of
certain voting rights rules and rules that require submission of a Listing of
Additional Shares Notification Form before any stock issuances, in each case
relating to the issuance of the Series H Preferred Stock. The Nasdaq Listing
Qualifications Panel will consider these new deficiencies in rendering a
determination regarding Trinsic's continued listing on the Nasdaq SmallCap
Market. Trinsic has filed the Listing of Addtional Shares Notification Form,
Trinsic and the Fund have entered into a voting agreement that provides for,
among other things, the limited voting of Series H Preferred Stock described in
this proxy statement and Trinsic has committed to amend the voting rights of the
Series H Preferred Stock to comply with applicable rules prior to November 15,
2005 and prior to pursuing any further proxy solicitations (other than for the
purpose of proposals substantially identical to Proposal I and proposals to
amend the Series H Preferred Stock to comply with applicable rules), all in an
attempt to resolve the matters raised by The Nasdaq Stock Market in its letter.
However, no assurance can be given that any such violations will in fact be
resolvable or that such violations will not ultimate result in the delisting of
the company's common stock from the Nasdaq SmallCap Market. In the event its
Common Stock is delisted, Trinsic's Common Stock will only be traded over the
counter on the Nasdaq Bulletin Board and the liquidity and price of its Common
Stock may be negatively affected. In addition, if the Common Stock is delisted,
the Fund will no longer be subject to any of the voting restrictions described
in this notice.
What are the material federal income tax considerations of the Conversion and
the reverse stock split?
Trinsic believes that the conversion of the Series H Preferred Stock will
constitute a recapitalization for federal income tax purposes, and that a holder
of shares of Series H Preferred Stock who receives shares of Common Stock in
exchange for shares of the Series H Preferred Stock in connection with the
Conversion will not recognize gain or loss upon such exchange.
The federal income tax consequences of the Series H Preferred Stock
conversion are discussed more fully beginning on page 13 under "Material Federal
Income Tax Considerations Related to the Conversion."
The reverse stock split, other than cash paid for fractional shares, will
generally be tax-free to Common Stockholders for United States federal income
tax purposes. However, tax matters are very complicated and the tax consequences
of the reverse stock split to you will depend on your own personal
circumstances. You should consult your tax advisors for a full understanding of
all of the tax consequences of the reverse stock split to you.
-6-
What is the anticipated accounting treatment of the transaction?
The Series H Preferred Stock is currently classified as Stockholders'
equity, and accordingly the Conversion will not affect total Stockholders'
equity on our balance sheet.
What will be the sources and uses of funds in the transaction?
No funds will be required for the Conversion and the reverse stock split
other than cash payments for fractional shares as a consequence of a reverse
stock split and transaction costs, which will be paid from working capital.
-7-
QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
Where and when is the special meeting being held?
The special meeting will be held at our offices located at 601 South
Harbour Island Boulevard, Suite 220, Tampa, Florida, on September 23, 2005, at
1:00 p.m., Eastern time.
What is the purpose of the special meeting?
The special meeting is being held to consider and vote upon:
I. To permit the conversion of Trinsic's approximately $24.1 million
aggregate liquidation preference of Series H Preferred Stock into
Common Stock at a conversion price equal to $0.39, per share, subject
to antidilution adjustments; provided, however, that if on or prior to
September 29, 2005, Trinsic shall not have entered into a definitive
agreement(s) to acquire no less than 150,000 "UNE-P" subscriber lines
(tested as of September 29, 2005), then the permitted conversion price
shall reduce to $0.20 per share, subject to antidilution adjustments;
and
II. To approve an amendment of Trinsic's certificate of incorporation to
effect a reverse stock split of the Common Stock in the ratio of an
integral number between and including three and twelve to one, as
determined at the discretion of the board of directors, which reverse
stock split at any ratio may be abandoned at any time prior to
effectiveness at the discretion of the board of directors,
notwithstanding Trinsic stockholders authorization thereof.
The board of directors knows of no other business that will be presented
for consideration at the special meeting. However, if any matters are properly
presented at the special meeting or any adjournment or postponement of the
special meeting (including any motion to adjourn the special meeting to permit
the Company to solicit additional votes in favor of the Conversion and the
reverse stock split) the proxy holders will be granted discretionary authority
with respect to any such matter.
Who is entitled to vote at the special meeting?
These proposals will be submitted for approval to the record holders of
Trinsic's Common Stock and Series H Preferred Stock as of August 26, 2005, the
record date established by the board of directors for determining Stockholders
entitled to vote at the special meeting, all voting together as a single class.
As of the record date, there were 55,790,600 shares of Common Stock and
24,084.769 shares of Series H Preferred Stock issued, outstanding and entitled
to be voted at the special meeting.
How many votes do I have?
Each share of Common Stock is entitled to one vote, and each share of
Series H Preferred Stock is entitled to 2,564.1 votes, as of the record date for
the special meeting. However, the Fund has agreed not to vote any of its Series
H Preferred Stock in connection with Proposal I, and not to cast 3,012,479 votes
otherwise eligible to be cast in respect of its Series H Preferred Stock in
connection with Proposal II.
How do I vote by proxy?
If you complete and properly sign the accompanying proxy card and return it
to Trinsic, and if it is received in time and not revoked, it will be voted at
the special meeting in accordance with the instructions indicated in such proxy.
If you are a registered stockholder and attend the meeting, you may deliver your
completed proxy card at that time or vote in person. If your shares of Trinsic
stock are held in "street name" and you wish to vote at the meeting, you must
obtain a proxy card from the broker, bank or other nominee that holds your
shares. If no instructions are indicated on a proxy card returned to Trinsic,
the shares represented by that proxy will be voted "FOR" approval of the
Conversion and the reverse stock split and in the discretion of the proxy holder
as to any other matter
-8-
that may properly come before the special meeting or any adjournment or
postponement thereof. No proxy voted against the Conversion or the reverse stock
split will be voted in favor of any adjournment or postponement of the meeting.
Can I vote in person at the special meeting?
If you plan to attend the special meeting and vote in person, you will
receive a ballot when you arrive. If your shares are held in the name of a
broker, bank or other nominee, you must follow instructions received from that
broker, bank or nominee with this proxy statement in order to vote at the
special meeting or to change your vote.
Can I revoke my vote after I return my proxy card?
Yes. If you are a registered holder, you may revoke your proxy at any time
prior to its exercise at the special meeting by:
o filing with corporate secretary of Trinsic, at or before the taking of
the vote at the special meeting, a written notice of revocation
bearing a later date than the proxy being revoked,
o duly executing a later-dated proxy relating to the same shares and
delivering it to corporate secretary of Trinsic before the taking of
the vote at the special meeting, or
o attending and voting in person at the special meeting.
All written notices of revocation or other communications with respect to
revocation of proxies should be sent to Trinsic, Inc., 601 South Harbour Island
Boulevard, Tampa, Florida 33602, Attention: corporate secretary, or hand
delivered to the corporate secretary of Trinsic, Inc. at or before the taking of
the vote at the special meeting.
If your shares are held in the name of a broker, bank or other nominee, you
must follow instructions received from such broker, bank or nominee with this
proxy statement in order to revoke your vote or to vote at the special meeting.
What constitutes a quorum?
The presence, in person or by proxy, of holders of a majority of the
combined voting power of the outstanding shares of Common Stock and Series H
Preferred Stock will constitute a quorum to conduct business at the special
meeting. Proxies received but marked as abstentions or "broker non-votes" (which
occur when shares held by brokers or nominees for beneficial owners are voted on
some matters but not on others) will be included in the calculation of the
number of shares present and entitled to vote at the special meeting for
purposes of determining whether a quorum exists, but will not constitute a vote
"for" or "against" any matter and thus will be disregarded in the calculation of
"votes cast."
What are the recommendations of the board of directors?
Conversion
The special committee of the board of directors recommends that
Stockholders vote FOR the proposal to approve the Conversion.
Authorization of Reverse Stock Split
The board of directors recommends that Stockholders vote FOR the proposal
to authorize the board of directors to adopt, in its discretion, one of the
reverse stock split alternatives being proposed.
The board of directors reserves the right to abandon any or all of the
reverse stock splits being proposed prior to their effectiveness notwithstanding
authorization thereof by Stockholders.
-9-
What vote is required to approve the Conversion and the reverse stock split?
The affirmative vote of a majority of the voting power of the outstanding
shares of the Common Stock and the Series H Preferred Stock cast at the special
meeting is required to approve the Conversion. The affirmative vote of a
majority of the voting power of the outstanding shares of the Common Stock and
the Series H Preferred Stock is required to approve the reverse stock split. The
failure to vote, a vote to abstain and any "broker non-votes" will have no
direct effect on the approval of the Conversion so long as a quorum is present
at the special meeting. However, the failure to vote, a vote to abstain and any
"broker non-votes" will effectively be counted as a vote against the reverse
stock split.
The Fund has agreed not to vote any of its Series H Preferred Stock in
connection with Proposal I, and not to cast 3,012,479 votes otherwise eligible
to be cast in respect of its Series H Preferred Stock in connection with
Proposal II.
The Conversion is conditioned upon a majority of the number of shares of
Common Stock outstanding as of the record date being cast on such proposal at
the special meeting. The reverse stock split is conditioned upon a majority of
the number of votes as of the record date represented by the Common Stock and
the Series H Preferred Stock which the Fund may vote on such proposal being cast
on such proposal at the special meeting.
What does it mean if I get more than one proxy card?
You should vote on each proxy card you receive. You will receive separate
proxy cards for all shares you hold in different ways, such as jointly with
another person or in trust, or in different brokerage accounts. If you hold
shares in a stock brokerage account, you will receive a proxy card or
information about other methods of voting from each broker and you must send
your vote to your broker according to the broker's instructions.
Who will count the votes?
All votes will be tabulated by employees of Corporate Communications, Inc.,
one or more of whom will serve also as inspectors of election.
How will the costs of soliciting proxies be paid and in what manner will proxies
be solicited?
Trinsic will pay all of the costs associated with soliciting the proxies,
including the cost of preparing, assembling and mailing the notice of special
meeting, proxy statement and proxy. In addition to soliciting proxies by mail,
Trinsic's officers, directors and other regular employees, without additional
compensation, may solicit proxies personally or by telephone or facsimile. It is
anticipated that banks, brokers, fiduciaries, other custodians and nominees will
forward proxy soliciting materials to their principals. Trinsic will reimburse
such persons' out-of-pocket expenses.
-10-
PROPOSAL 1:
CONVERSION OF SERIES H PREFERRED STOCK
General
Approval of the Conversion will automatically, subject to a majority of the
number of shares of Common Stock outstanding as of the record date being cast on
such proposal at the special meeting, (i) if the Conversion Price of $0.39
applies, cause each share of Series H Preferred Stock to convert on September
30, 2005 into approximately 2,564.1 shares of Common Stock, reduced by the
finally determined reverse stock split ratio, or approximately 51.6% of the
Fully Diluted Outstanding Common Stock in aggregate, in each case determined as
of the record date for the special meeting, assuming that the Rights Offering
Adjustment Right will not apply, or (ii) if the Conversion Price of $0.20
applies, cause each share of Series H Preferred Stock to convert on September
30, 2005 into 5,000 shares of Common Stock, reduced by the finally determined
reverse stock split ratio, or approximately 67.5% of the Fully Diluted
Outstanding Common Stock in aggregate, in each case determined as of the record
date for the special meeting, assuming that the Rights Offering Adjustment Right
will not apply. After the Conversion occurs, former holders of Series H
Preferred Stock may be entitled to acquire additional shares of Common Stock for
par value pursuant to the Rights Offering Adjustment Right.
Purpose and Background of the Exchange and the Conversion Proposal
Trinsic issued the Series H Preferred Stock to the Fund in exchange for
approximately $21.6 million of current indebtedness owing to the Fund and $2.5
million in cash. Trinsic entered into the Exchange because (i) Trinsic did not
foresee other viable alternatives to refinance or repay the indebtedness owing
to the Fund prior to its maturity in March 2006, (ii) Trinsic believed that the
Exchange would improve its ability to continue as a going concern, with respect
to which its auditors had expressed substantial doubt in connection with
Trinsic's 2004 audit, (iii) the Exchange substantially increased Trinsic's net
worth, forming a basis for Trinsic's appeal to the Nasdaq SmallCap Market not to
delist Trinsic's Common Stock for failure to maintain quantitative listing
requirements, (iv) Trinsic could afford all Common Stockholders (other than the
Fund) with the ability to avoid dilution in connection with the Exchange by
conducting the Rights Offering described below, and (v) a special committee
composed of independent directors of Trinsic's board, after consulting with and
obtaining a fairness opinion from its financial advisor, Morgan Keegan &
Company, Inc., determined that the Exchange was fair to Trinsic and its Common
Stockholders other than the Fund.
Trinsic has announced an intention to proceed with a Common Stock rights
offering (the "Rights Offering") pursuant to which Common Stockholders of record
as of a record date to be determined, on or about the Rights Offering launch
date, will be issued, for each share of Common Stock owned as of the record
date, non-transferable rights entitling the holder to purchase one share of
Common Stock per right. The price of exercising each right will not exceed the
Conversion Price. The number of rights issued to Common Stockholders per share
of Common Stock will be in approximately the same proportion as the number of
shares of Common Stock issued in respect of the Series H Preferred Stock
relative to the number of shares of Common Stock otherwise held by the Series H
Preferred Stockholders. For example, in the event that the Conversion Price is
$0.39 per share, Common Stockholders will receive approximately 2.4 rights per
share of Common Stock held as of the record date, each exercisable for no more
than $0.39, and in the event that the Conversion Price is $0.20 per share,
Common Stockholders will receive approximately 4.7 rights per share of Common
Stock held as of the record date, each exercisable for no more than $0.20. The
Fund has agreed not to exercise rights it receives in the Rights Offering. In
the event that Trinsic proceeds with the reverse stock split, the number of
rights issued per post reverse stock split share will not change, but the
aggregate number of rights issued will be proportionately reduced by the final
reverse stock split ratio. Trinsic reserves the right to change the terms and
conditions of the rights offering from those described above at any time prior
to the Rights Offering launch date. The final terms and conditions of the rights
offering, including the final share purchase price will be set forth in a
prospectus which will be distributed to Common Stockholders at least 15 days
before the purchase rights expire. Trinsic expects to file a registration
statement with respect to the Rights Offering in the near future. This
description of the anticipated Rights Offering does not constitute an offer of
any securities for sale.
-11-
Trinsic is proposing the approval of the Conversion because, in connection
with the issuance of the Series H Preferred Stock, Trinsic agreed to obtain
Stockholder approval of the Conversion unless its counsel determined that it
could opine that no such approval was required under the rules of the Nasdaq
SmallCap Market or applicable law. Trinsic has not formally asked its counsel if
such an opinion could be given, but on the basis of discussions with such
counsel believes that at this time Stockholder approval of the Conversion would
be required under the rules of the Nasdaq SmallCap Market because of the
possibility that the Conversion Price could be below the current market price of
the Common Stock.
Interests of Certain Persons in Approval of the Conversion Proposal
Messrs. Lawrence C. Tucker and Andrew C. Cowen, directors of Trinsic, are
affiliates of the Fund, which owns all of the outstanding Series H Preferred
Stock and approximately 44.1% of the Fully Diluted Outstanding Common Stock.
Mr. Tucker has been a general partner of Brown Brothers, a private
investment banking firm that manages the Fund, since 1979. Brown Brothers has a
limited partnership interest in the Fund and has an interest in certain profits
of the Fund in its capacity as the general partner of the Fund.
Mr. Cowen is a Senior Vice-President of Brown Brothers and has been
employed by Brown Brothers since 1992. Mr. Cowen has a profit sharing
arrangement with the Fund. Mr. Cowen has been seconded to CMS as its chief
executive officer. CMS is a medical software company that is controlled by
another fund managed by Brown Brothers. Trinsic has no present or immediately
foreseeable business relationship with CMS.
Conditions of the Conversion
The Conversion is conditioned upon a majority of the number of shares of
Common Stock outstanding as of the record date being cast on such proposal at
the special meeting. In addition, in the event that the Conversion Price is
reduced to $0.20 per share, Trinsic would not have enough authorized Common
Stock to consummate the Conversion unless the reverse stock split proposal is
approved and implemented. Accordingly, the Conversion may, under certain
circumstances, be effectively conditioned upon approval of the reverse stock
split proposal.
Risks of the Conversion
In connection with the Conversion, Trinsic's special committee considered
o the substantial dilutive effect of the Conversion to Common
Stockholders. On a percentage basis, approval of the Conversion Price
will result in the Series H Preferred Stock converting into either
approximately 51.6% (at a $0.39 conversion price) or approximately
67.5% (at a $0.20 conversion price) of the post conversion Fully
Diluted Outstanding Common Stock, assuming in each case that the
Rights Offering Adjustment Right will not apply;
o the substantial dilutive effect of the Series H Preferred Stock
dividend if the Conversion is not approved; and
o that Trinsic may not realize all of the benefits it expects to realize
from the Conversion.
Consequences of the Approval of the Conversion Proposal
Issuance of Common Stock
If the Conversion of the Series H Preferred Stock is approved, (i) if the
Conversion Price of $0.39 applies, each share of Series H Preferred Stock will
automatically convert on September 30, 2005 into approximately 2,564.1 shares of
Common Stock, reduced by the finally determined reverse stock split ratio, or
approximately 51.6% of the Fully Diluted Outstanding Common Stock in aggregate,
in each case determined as of the record date for the special meeting, or (ii)
if the Conversion Price of $0.20 applies, each share of Series H Preferred Stock
will automatically
-12-
convert on September 30, 2005 into 5000 shares of Common Stock, reduced by the
finally determined reverse stock split ratio, or approximately 67.5% of the
Fully Diluted Outstanding Common Stock in aggregate, in each case determined as
of the record date for the special meeting, assuming that the Rights Offering
Adjustment Right will not apply. As described below under "-- Elimination of
Series H Preferred Stock -- Antidilution," after the Conversion occurs, former
holders of Series H Preferred Stock may be entitled to acquire additional shares
of Common Stock for par value pursuant to the Rights Offering Adjustment Right.
Elimination of Series H Preferred Stock
Upon conversion of the Series H Preferred Stock into shares of Common
Stock, Trinsic would no longer have any shares of Series H Preferred Stock
outstanding. The elimination of the outstanding Series H Preferred Stock would
have several important implications to Common Stockholders and holders of Series
H Preferred Stock. Specifically, the Series H Preferred Stock has the following
rights and preferences relative to holders of Common Stock:
Ranking. The Series H Preferred Stock ranks senior to Common Stock in
right of payment of dividends and distributions upon liquidation or winding
up of Trinsic including certain deemed liquidation events such as a change
of control of Trinsic, a merger or consolidation of Trinsic or a sale of
all or substantially all of Trinsic's assets. This means that no dividends
or distributions in respect of Common Stock may be made until all accrued
and unpaid dividends and, if applicable, the liquidation preference of the
Series H Preferred Stock is paid in full to the holders thereof. Upon
conversion of the Series H Preferred Stock, the Common Stock into which it
is converted will rank and share equally with all other Common Stock in
right of payment of dividends and distributions upon liquidation or winding
up of Trinsic, and will have no special rights with respect to any deemed
liquidation events.
Dividends. Beginning in January 1, 2006, the holders of shares of
Series H Preferred Stock, in preference to Common Stockholders and holders
of any shares of other junior stock of Trinsic, shall be entitled to
receive, when, as and if declared by the Board of Directors, dividends at
an annual rate per share of Series H Preferred Stock equal to 12.50% of the
Series H Preferred Stock liquidation preference. The Series H Preferred
Stock will also share ratably, on an as if converted basis, in any
dividends paid with respect to Common Stock. Upon conversion of the Series
H Preferred Stock, the Common Stock into which it is converted will have no
preferential dividend right and will share ratably and equally with all
other Common Stock in any and all dividends.
Liquidation Preference. In the event of any liquidation, dissolution
or winding up of Trinsic, holders of shares of Series H Preferred Stock are
entitled to receive, out of legally available assets, a liquidation
preference of $1,000 per share, plus an amount equal to any accrued and
unpaid dividends up to the payment date, before any payment or distribution
will be made to the holders of Common Stock or any other capital stock that
ranks junior to the Series H Preferred Stock. The Series H Preferred Stock
will also share ratably, on an as if converted basis, in any liquidation
distribution with respect to Common Stock. Upon conversion of the Series H
Preferred Stock, the Common Stock into which it is converted will have no
preferential liquidation distribution right and will share ratably and
equally with all other Common Stock in any liquidation distribution.
Antidilution. The Conversion Price of the Series H Preferred Stock is
subject to adjustment for, among other things, stock splits, stock
dividends, reclassifications, combinations, subdivisions, below market
issuances, below Conversion Price issuances and other customary events. If
the Rights Offering is consummated after the Conversion occurs at a price
below the Conversion Price, an antidilution adjustment will apply in the
form of a par value right to purchase the number of shares of Common Stock
equal to the difference between (i) the number of shares of Common Stock
that the Series H Preferred Stock would have converted into if the
Conversion Price equaled the Rights Offering price minus (ii) the number of
shares of Common Stock the Series H Preferred Stock was initially converted
into. Upon conversion of the Series H Preferred Stock, only the Rights
Offering Adjustment Right will continue to apply.
As described above, the holders of Series H Preferred Stock participate on
an as if converted basis with holders of Common Stock in any dividends on Common
Stock and any liquidation distributions in respect of Common Stock. The holders
of Series H Preferred Stock also vote together with the holders of Common Stock
as a single class, on an as if converted basis (together with the Common Stock
dividend right and the Common Stock liqui-
-13-
dation distribution right described in the preceding sentence, the "Common
Equivalent Rights"). The Fund has agreed not to vote any of its Series H
Preferred Stock in connection with Proposal I or any similar proposal, and not
to vote an amount of its Series H Preferred Stock equivalent to 3,012,479 shares
of Common Stock in connection with Proposal II or any other proposal generally
submitted for approval to holders of Common Stock. The approval of the
Conversion will effectively eliminate each of the rights and privileges of the
Series H Preferred Stock described above (other than the Common Equivalent
Rights and the Rights Offering Adjustment Right) and will effectively eliminate
the Fund's agreement not to exercise certain voting strength by converting the
Series H Preferred Stock into Common Stock.
Consequences of the Failure to Approve the Conversion Proposal
If the Conversion is not approved, the holders of Series H Preferred Stock
will continue to enjoy their preferential rights described above under
"Consequences of the Approval of the Conversion Proposal." Such preferential
rights will be in addition to the Common Equivalent Rights.
Resale of Common Stock Received Upon Conversion of Series H Preferred Stock
The Common Stock received upon conversion of Series H Preferred Stock will
not be registered under the Securities Act, and will accordingly be subject to
restrictions on resale. However, the Common Stock received by the Fund upon
conversion of Series H Preferred Stock will be generally entitled to the benefit
of the Fund's registration rights agreement with Trinsic.
Under the registration rights agreement, Trinsic agreed that, upon the
request of the Fund, it would file on one occasion a shelf registration
statement under the Securities Act registering the resale of all shares of
Common Stock owned by the Fund. The registration rights agreement also gives the
Fund registration rights with respect to other registrations of Trinsic's Common
Stock. Because the Fund has not yet exercised its rights under the registration
rights agreement, the Fund will, following the Conversion, continue to have the
right to request that a shelf registration statement be filed by Trinsic.
Material Federal Income Tax Considerations Related to the Conversion
There are no material tax consequences of the Exchange Offer to Common
Stockholders. Trinsic has not undertaken to determine what, if any, tax
consequences to the holders of Series H Preferred Stock may result from the
Conversion.
Internal Revenue Service Circular 230 Notice
You should be aware that: (A) the discussion with respect to U.S. federal
tax matters in this rights offering was not intended or written to be used, and
cannot be used, by any investor for the purpose of avoiding penalties that may
be imposed on the investor under the Code; (B) such discussion was written to
support the promotion or marketing (within the meaning of Internal Revenue
Service Circular 230) of the transactions or matters addressed herein; and (C)
investors should seek advice based on their particular circumstances from an
independent tax advisor. This notice is given solely for purposes of ensuring
compliance with Internal Revenue Service Circular 230. This notice is not
intended to imply, and does not imply, that any particular person, in fact,
supported the promotion or marketing of any transaction or matter, and it does
not itself constitute evidence that any particular person did so.
Accounting Matters
The Series H Preferred Stock is currently classified as Stockholders'
equity, and accordingly the Conversion will not affect total Stockholders'
equity on our balance sheet.
-14-
No Appraisal Rights
No appraisal rights are available to Trinsic's Stockholders under the
Delaware General Corporation Law, or "DGCL," with respect to the Conversion, and
Trinsic will not independently provide Stockholders with any such rights.
Vote Required
The Conversion is a transaction which may require Stockholder approval
pursuant to the rules of the Nasdaq SmallCap Market because the Conversion Price
may be below the current market price of Trinsic's Common Stock. As discussed
elsewhere in this proxy statement, the Common Stock may be delisted from the
Nasdaq SmallCap Market. If the Common Stock is delisted from the Nasdaq SmallCap
Market and Trinsic is advised by its counsel that it can opine that no approval
of the Conversion is required by any other applicable law, rule or regulation,
Trinsic reserves the right to abandon seeking the approval of the Conversion by
Stockholders.
Subject to the condition described above, the affirmative vote of a
majority of the voting power of the outstanding shares of Common Stock cast at
the special meeting is required to approve the Conversion. The failure to vote,
a vote to abstain and any "broker non-votes" will have no direct effect on the
approval of the Conversion so long as a quorum is present at the special meeting
and the condition described above is satisfied. The Fund has agreed not to vote
any of its Series H Preferred Stock in connection with Proposal I.
Board Recommendation
In connection with the Exchange, a special committee composed of
independent directors of Trinsic's board determined that the Exchange and
Conversion was fair to Trinsic and its Common Stockholders other than the Fund.
However, neither the special committee nor the board of directors has undertaken
to reexamine the fairness of the Exchange or the Conversion in connection with
this proxy solicitation and is not making any recommendation with respect
thereto. In connection with this proxy solicitation, the special committee
considered the terms of the Series H Preferred Stock relative to the Common
Stock into which it would convert including (i) its dividend and liquidation
preference, (ii) its right to participate, incremental to its dividend and
liquidation preference, on an as if converted basis with Trinsic's Common Stock
in all dividends and distributions upon liquidation (including upon a change of
control, merger, consolidation or sale of all or substantially all of Trinsic's
assets) and (iii) its right to vote, as a single class, together with Trinsic's
Common Stock on an as if converted basis. AFTER CONSIDERING THE TERMS OF THE
SERIES H PREFERRED STOCK RELATIVE TO THE COMMON STOCK INTO WHICH IT WOULD
CONVERT, THE SPECIAL COMMITTEE OF THE BOARD OF DIRECTORS HAS DETERMINED THAT THE
CONVERSION OF THE SERIES H PREFERRED STOCK IS IN THE BEST INTERESTS OF
STOCKHOLDERS OTHER THAN THE FUND AND RECOMMENDS THAT TRINSIC'S STOCKHOLDERS
OTHER THAN THE FUND VOTE IN FAVOR OF SUCH PROPOSAL. Neither the board of
directors nor any committee thereof is making any recommendation to the Fund
with respect to the Conversion.
PROPOSAL 2:
REVERSE SPLIT
General
Our board of directors has unanimously adopted a resolution approving,
declaring advisable and recommending to the Stockholders for their approval, a
proposal authorizing the board of directors to amend Trinsic's certificate of
incorporation to effect a reverse stock split of the outstanding shares of
Common Stock in the ratio of an integral number between and including three and
twelve to one, with the actual implemented ratio to be determined by the board
of directors in its discretion. If approved by our Stockholders, subject to a
majority of the number of votes as of the record date represented by the Common
Stock and the Series H Preferred Stock which the Fund may vote on such proposal
being cast on such proposal at the special meeting, the reverse stock split
would become effective on a date selected by our board of directors prior to our
next annual meeting of Stockholders, which is ex-
-15-
pected to be on or before September 30, 2005. Our board of directors may effect
only one reverse stock split. In determining the reverse stock split ratio, our
board of directors will consider numerous factors including the amount of Common
Stock issuable in connection with the Conversion, the amount of Common Stock
potentially issuable in connection with the Rights Offering, historical and
projected performance of our Common Stock, the requirements for continued
listing on the Nasdaq SmallCap Market, prevailing market conditions and general
economic trends, and will place emphasis on the expected closing price of our
Common Stock in the period following the effectiveness of the reverse stock
split. The purpose of selecting a range is to give our board of directors the
flexibility to provide for a post reverse stock split market price that may
allow us to maximize Trinsic's ability to support future growth. Even if the
Stockholders approve the reverse stock split, the board of directors reserves
the right not to effect the reverse stock split if the board of directors does
not deem it to be in the best interests of Trinsic and its Stockholders to
effect the reverse stock split.
The preceding description, which summarizes the amendment to Trinsic's
certificate of incorporation to effect the reverse stock split is qualified in
its entirety by reference to the form of certificate of amendment attached as
Annex A.
Reasons for the Reverse Stock Split
Trinsic is proposing the reverse stock split at this time because (i) it
believes the reverse stock split will facilitate the Conversion and the Rights
Offering by ensuring that enough Common Stock is available to consummate the
Conversion and the Rights Offering if the rights are fully exercised, and (ii)
the reverse stock split will increase the bid price per share of Common Stock,
which is currently below the $1.00 minimum amount required to maintain listing
on the Nasdaq SmallCap Market, to an amount substantially in excess of the
minimum amount required to maintain listing of the Common Stock on the Nasdaq
SmallCap Market.
Conditions to the Reverse Stock Split
The reverse stock split is conditioned upon a majority of the number of
votes as of the record date represented by the Common Stock and the Series H
Preferred Stock which the Fund may vote on such proposal being cast on such
proposal at the special meeting. However, the board of directors reserves the
right not to effect the reverse stock split if the board of directors does not
deem it to be in the best interests of Trinsic and its Stockholders to effect
the reverse stock split
Risks Associated with the Reverse Stock Split
We cannot predict whether the reverse stock split will increase the market
price for our Common Stock. There can be no assurance that:
o the market price per share of our Common Stock after the reverse stock
split will rise in proportion to the reduction in the number of shares
of our Common Stock outstanding before the reverse stock split; or
o the market price per share of our Common Stock after the reverse stock
split will either exceed or remain in excess of the $1.00 minimum bid
price required to maintain listing on the Nasdaq SmallCap Market.
The market price of our Common Stock will also be based on our performance
and other factors, some of which are unrelated to the number of shares
outstanding. If the reverse stock split is effected and the market price of our
Common Stock declines, the percentage decline as an absolute number and as a
percentage of our overall market capitalization may be greater than would occur
in the absence of a reverse stock split. Furthermore, the liquidity of our
Common Stock could be adversely affected by the reduced number of shares that
would be outstanding after the reverse stock split.
Determination of Ratio
-16-
The ratio of the reverse stock split will be an integral number between and
including three and twelve to one, as determined by our board of directors, in
its sole discretion. In determining the reverse stock split ratio, our board of
directors will consider numerous factors including the amount of Common Stock
issuable in connection with the Conversion, the amount of Common Stock
potentially issuable in connection with the Rights Offering, the historical and
projected performance of our Common Stock, the requirements for continued
listing on the Nasdaq SmallCap Market, prevailing market conditions and general
economic trends, and will place emphasis on the expected closing price of our
Common Stock in the period following the effectiveness of the reverse stock
split. Our board of directors will also consider the impact of the reverse stock
split ratio on investor interest and our ability to attract and retain
employees. The purpose of asking for authorization to implement reverse stock
split with a ratio determined by our board of directors is to give our board of
directors the flexibility to meet business needs as they arise, to take
advantage of favorable opportunities and to respond to a changing corporate
environment.
Effect of the Reverse Stock Split
The principal effect of the reverse stock split will be to decrease the
number of outstanding shares of Common Stock. After the reverse stock split, the
reduction in number of shares outstanding will likely proportionately lower the
Common Stock trading volume. A lower trading volume may limit the ability of
Stockholders to sell their shares without also reducing the Common Stock trading
price. A lower trading volume may also make the Common Stock price more volatile
generally.
A description of the Conversion and the Rights Offering, which would be
facilitated by the reverse stock split, is described above under Proposal 1.
Procedure for Effecting Reverse Stock Split and Exchange of Stock Certificates
If the certificate of amendment is approved by our Stockholders, and if our
board of directors still believes that a reverse stock split is in the best
interests of Trinsic and its Stockholders, our board of directors will determine
the ratio of the reverse stock split to be implemented.
The form of certificate of amendment is attached as Annex A to this proxy
statement and would be tailored to the specific reverse stock split ratio to be
effected. Our board of directors may delay effecting the reverse stock split
without resoliciting Stockholder approval. The reverse stock split will become
effective on the split effective date. Beginning on the split effective date,
each certificate representing old shares will be deemed for all corporate
purposes to evidence ownership of new shares.
As soon as practicable after the split effective date, Stockholders will be
notified that the reverse stock split has been effected. We expect that our
transfer agent, American Stock Transfer & Trust Company, will act as exchange
agent for purposes of implementing the exchange of stock certificates. Holders
of old shares will be asked to surrender to the exchange agent certificates
representing old shares in exchange for certificates representing new shares in
accordance with the procedures to be set forth in a letter of transmittal to be
sent by us. No new certificates will be issued to a Stockholder until such
Stockholder has surrendered such Stockholder's outstanding certificate(s)
together with the properly completed and executed letter of transmittal to the
exchange agent. Any old shares submitted for transfer, whether pursuant to a
sale or other disposition, or otherwise, will automatically be exchanged for new
shares. STOCKHOLDERS SHOULD NOT DESTROY ANY STOCK CERTIFICATE(S) AND SHOULD NOT
SUBMIT ANY CERTIFICATE(S) UNTIL REQUESTED TO DO SO.
The reverse stock split amendment to our certificate of incorporation, if
implemented, may be filed with the Secretary of State of the State of Delaware
and become operative shortly before consummation of the Rights Offer.
Fractional Shares
No fractional shares will be issued in connection with the reverse stock
split. Stockholders of record who otherwise would be entitled to receive
fractional shares because they hold a number of old shares not evenly divisible
by the number of new shares for which each old share is to be exchanged, will be
entitled, upon surrender to the exchange agent of certificates representing such
shares, to a cash payment in lieu thereof at a price equal to the frac-
-17-
tion to which the Stockholder would otherwise be entitled multiplied by the
closing price of the Common Stock, as reported in The Wall Street Journal, on
the trading day after the date of the split effective date. The ownership of a
fractional interest will not give the holder thereof any voting, dividend, or
other rights except to receive payment therefor as described herein.
Stockholders should be aware that, under the escheat laws of the various
jurisdictions where Stockholders reside, where Trinsic is domiciled, and where
the funds will be deposited, sums due for fractional interests that are not
timely claimed after the split effective date may be required to be paid to the
designated agent for each such jurisdiction, unless correspondence has been
received by Trinsic or the exchange agent concerning ownership of such funds
within the time permitted in such jurisdiction. Thereafter, Stockholders
otherwise entitled to receive such funds will have to seek to obtain them
directly from the state to which they were paid.
Accounting Matters
The reverse stock split will not affect total Stockholders' equity on our
balance sheet. However, because the par value of our Common Stock will remain
unchanged on the split effective date, the components that make up total
Stockholders' equity will change by offsetting amounts. Depending on the size of
the reverse stock split our board of directors decides to implement, the stated
capital component will be reduced to an amount between one-third (1/3) and
one-twelfth (1/12) of its present amount, and the additional paid-in capital
component will be increased with the amount by which the stated capital is
reduced. The per share net income or loss and net book value of our Common Stock
will be increased because there will be fewer shares of our Common Stock
outstanding. Prior periods' per share amounts will be restated to reflect the
reverse stock split.
No Appraisal Rights
Under the DGCL, our Stockholders are not entitled to appraisal rights with
respect to the reverse stock split, and we will not independently provide
Stockholders with any such right.
Material Federal Income Tax Consequences
The following is a summary of certain material United States federal income
tax consequences of the reverse stock split and does not purport to be a
complete discussion of all of the possible United States federal income tax
consequences of the reverse stock split and is included for general information
only. Further, it does not address any state, local or foreign income or other
tax consequences. Also, it does not address the tax consequences to holders that
are subject to special tax rules, such as banks and financial institutions,
insurance companies, regulated investment companies, personal holding companies,
foreign entities, nonresident alien individuals, certain former citizens or
long-term residents of the United States; broker-dealers, traders who mark to
market and tax-exempt entities stockholders who hold shares as part of a
straddle, hedge or conversion transaction, stockholders who acquired their
shares pursuant to the exercise of employee stock options or otherwise as
compensation, stockholders who are subject to the federal alternative minimum
tax, and stockholders not holding their shares as a capital asset. The
discussion is based on the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Regulations promulgated thereunder and judicial decisions
and administrative rulings currently in effect, all of which are subject to
differing interpretations and to change, possibly on a retroactive basis. The
tax treatment of a Stockholder may vary depending upon the particular facts and
circumstances of such Stockholder.
In addition, if a partnership holds our shares, the tax treatment of a
partner generally will depend on the status of the partner and upon the
activities of the partnership. Accordingly, partnerships which hold our shares
and partners in such partnerships should consult their tax advisors.
We believe that, other than the cash payments for fractional shares
discussed below, no gain or loss should be recognized by a Stockholder upon such
Stockholder's exchange of old shares for new shares pursuant to the reverse
stock split. The aggregate tax basis of the new shares received in the reverse
stock split will be the same as the Stockholder's aggregate tax basis in the old
shares exchanged therefor. In general, Stockholders who receive cash upon
redemption of their fractional share interests in the new shares as a result of
the reverse stock split will recognize gain or loss based on their adjusted
basis in the fractional share interests redeemed. The Stockholder's holding
-18-
period for the new shares will include the period during which the Stockholder
held the old shares surrendered in the reverse stock split.
No rulings from the Internal Revenue Service or opinions of counsel have
been or are expected to be requested with respect to any of the matters
discussed herein and, as a result, there can be no assurance that the Internal
Revenue Service will not disagree with or challenge any of the conclusions
described above. Our view regarding the tax consequence of the reverse stock
split is not binding on the Internal Revenue Service or the courts. Accordingly,
each Stockholder should consult with such Stockholder's own tax advisor with
respect to all of the potential tax consequences to such Stockholder of the
reverse stock split.
Internal Revenue Service Circular 230 Notice
You should be aware that: (A) the discussion with respect to U.S. federal
tax matters in this rights offering was not intended or written to be used, and
cannot be used, by any investor for the purpose of avoiding penalties that may
be imposed on the investor under the Code; (B) such discussion was written to
support the promotion or marketing (within the meaning of Internal Revenue
Service Circular 230) of the transactions or matters addressed herein; and (C)
investors should seek advice based on their particular circumstances from an
independent tax advisor. This notice is given solely for purposes of ensuring
compliance with Internal Revenue Service Circular 230. This notice is not
intended to imply, and does not imply, that any particular person, in fact,
supported the promotion or marketing of any transaction or matter, and it does
not itself constitute evidence that any particular person did so.
Vote Required
Subject to the condition described above, the affirmative vote of a
majority of the voting power of the outstanding shares of the Common Stock and
Series H Preferred Stock, voting together as a single class, is required to
approve the authorization of the board of directors to implement reverse stock
split with a ratio of an integral number between and including three and twelve
to one, in its discretion, by amending our certificate of incorporation. The
failure to vote, a vote to abstain and any "broker non-votes" will effectively
be counted as a vote against the authorization of the board of directors to
implement a reverse stock split. The Fund has agreed not to vote an amount of
its Series H Preferred Stock equivalent to 3,012,479 shares of Common Stock in
connection with the reverse stock split proposal.
Because the Conversion may require more stock than is currently authorized,
the failure to vote, a vote to abstain and any "broker non-votes" may will
effectively be counted as a vote against the Conversion.
Board Recommendation
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE REVERSE STOCK SPLIT PROPOSAL
IS IN THE BEST INTERESTS OF STOCKHOLDERS AND RECOMMENDS THAT TRINSIC'S
STOCKHOLDERS VOTE IN FAVOR OF SUCH PROPOSAL.
-19-
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth, as of August 3, 2005, certain information
with respect to the beneficial ownership of the Common Stock and Series H
Preferred Stock by (i) each person known by Trinsic to own beneficially more
than 5% of the outstanding shares of Common Stock, (ii) each director of Trinsic
from the date of the beginning of our last fiscal year, (iii) each named
executive officer as of that date and (iv) all directors and executive officers
as a group. Each share of Series H Preferred Stock will become convertible into
either 2,564.1 shares or 5,000.0 shares of Common Stock if the Conversion
proposal is approved as described under "Proposal 1: Conversion of Series H
Preferred Stock." Each share of Series H Preferred Stock has a voting strength
of 2,564.1 votes as of the record date for the special meeting, but is subject
to voting limitations described elsewhere in this notice.
Shares Beneficially Owned and Percentage of Total (1)
Number of Shares
Percent of of Series H Percent of
Shares of Preferred Stock Shares of
Number of Shares Common Stock Beneficially Series H
of Common Stock Beneficially Owned Preferred
Name and Address of Beneficial Owner Beneficially Owned Stock
Owned Beneficially
Owned
------------------------------------- ----------------- ------------- ---------------- --------------
Brown Brothers Harriman & Co.(2) 26,993,946 46.6 24,084.769 100.00
Richland Ventures III, L.P.(3) 6,597,169 11.7 -- --
Lawrence C. Tucker(2) 27,013,827 46.6 24,084.769 100.00
Andrew C. Cowen(4) 19,661 * -- --
Richard F. LaRoche, Jr.(5)(11) 66,441 * -- --
W. Andrew Krusen, Jr.(6)(11) 55,810 * -- --
Roy Neel (11) 50,000 * -- --
Raymond L. Golden (11) 50,000 * -- --
Horace J. Davis III(7) (11) 488,472 * -- --
Frank M. Grillo(8)(11) 425,611 * -- --
Ronnie R. Bailey (9)(10) 96,721 * -- --
Michael Slauson (10)(11) 155,472 * -- --
All directors and officers as a 28,649,953 47.9 24,084.769 100.00
group
* Less than 1%.
________________________
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the aggregate number of
shares beneficially owned by the individual stockholders and groups of
stockholders described above and the percentage ownership of such
individuals and groups, shares of Common Stock subject to convertible
securities currently convertible or convertible or convertible within 60
days and shares of Common Stock subject to options or warrants that are
currently exercisable or exercisable within 60 days of the date of this
report are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of the
other stockholders or groups of stockholders.
(2) This information is derived from a Schedule 13D dated November 20, 2000, as
amended July 12, 2001, August 3, 2001, August 26, 2004, December 3, 2004
and July 18, 2005, filed jointly by Brown Brothers Harriman & Co., The 1818
Fund III, L.P., T. Michael Long and Lawrence C. Tucker. Each of these
parties is shown to have shared voting and dispositive power with respect
to all of the shares shown, except that Mr. Tucker's common shares include
19,881 shares deemed beneficially owned by him by virtue of certain stock
options currently exercisable or which become exercisable within 60 days.
The number of shares shown includes 2,083,333 shares deemed beneficially
owned by virtue of certain stock purchase warrants currently exercisable or
which become exercisable within 60 days. The number of common shares shown
does not include share which may become issuable upon conversion of the
Series H Preferred Stock if the
-20-
Conversion proposal is approved as described under "Proposal 1: Conversion
of Series H Preferred Stock." The address of Brown Brothers Harriman & Co.,
The 1818 Fund III, L.P., T. Michael Long and Lawrence C. Tucker is 140
Broadway, New York, New York 10005.
(3) This information is derived from a Schedule 13G, dated December 9, 2004,
filed jointly by Richland Ventures III, L.P., Richland Partners III, Jack
Tyrell, W. Patrick Ortale, III and James C. Hoffman. Richland Ventures III,
L.P. and its general partner, Richland Partners III, report sole voting and
dispositive power with respect to the shares. The others report shared
voting and dispositive power with respect to the shares. According to a
Form 3 filed December 9, 2004, Richland Partners III, Jack Tyrell, W.
Patrick Ortale, III and James C. Hoffman disclaim beneficial ownership of
the shares except to the extent of their partnership interests. Of the
shares of Common Stock shown, 174,595 shares are deemed to be beneficially
owned by virtue of warrants exercisable into shares of our Common Stock.
The address of Richland Ventures III, L.P. is 1201 16th Avenue South,
Nashville, TN 37212.
(4) Common Stock includes 19,661 shares deemed beneficially owed by Mr. Cowen
by virtue of certain stock options that are currently exercisable or which
become exercisable within 60 days. The address of Brown Brothers Harriman &
Co., The 1818 Fund III, L.P. and Andrew Cowen is 140 Broadway, New York,
New York 10005.
(5) Common Stock includes 11,441 shares deemed beneficially owned by Mr.
LaRoche by virtue of certain stock options that are currently exercisable
or which become exercisable within 60 days.
(6) Common Stock includes 5,610 shares deemed beneficially owned by Mr. Krusen
by virtue of certain stock options that are currently exercisable or which
become exercisable within 60 days.
(7) Common Stock includes 83,472 shares deemed beneficially owned by Mr. Davis
by virtue of certain stock options that are currently exercisable or which
become exercisable within 60 days.
(8) Common Stock includes 25,611 shares deemed beneficially owned by Mr. Grillo
by virtue of certain stock options that are currently exercisable or which
become exercisable within 60 days.
(9) Common Stock includes 6,721 shares deemed beneficially owned by Mr. Bailey
by virtue of certain stock options that are currently exercisable or which
become exercisable within 60 days.
(10) Common Stock includes 60,472 shares deemed beneficially owned by Mr.
Slauson by virtue of certain stock options that are currently exercisable
or which become exercisable within 60 days.
(11) The shareholder's address is c/o Trinsic, Inc., 601 South Harbour Island
Boulevard, Suite 220, Tampa, Florida 33602.
-21-
DESCRIPTION OF OUR COMMON STOCK
We are authorized to issue 150,000,000 shares of Common Stock, of which
55,905,602 shares were outstanding as of the record date. All shares of Common
Stock have equal rights to participate in the distribution of assets in the
event of a liquidation of Trinsic. Each holder of Common Stock is entitled to
one vote for each share held on all matters submitted to a vote of the
Stockholders. Common Stock carries no conversion, preemptive or subscription
rights and is not subject to redemption. All outstanding shares of Common Stock
are fully paid and nonassessable. Although Common Stockholders are entitled to
receive any dividends declared thereon by the board of directors out of legally
available funds, we have never paid a cash dividend on our Common Stock. As a
result, we do not anticipate paying any dividends in the foreseeable future.
If the reverse stock split is approved at the special meeting and adopted
by our board of directors, the number of outstanding shares of Common Stock
outstanding will be reduced, but the number of authorized shares of Common Stock
under our certificate of incorporation will not change.
OTHER BUSINESS
No other matters are to be presented for action at the special meeting
other than as set forth in this proxy statement. If other matters should
properly come before the special meeting, however, the persons named in the
accompanying proxy will vote all proxies in accordance with their best judgment.
By Order of the Board of Directors
/s/ Horace J. Davis, III
----------------------------------------------
Horace J. Davis, III
Chief Executive Officer
Tampa, Florida
September 2, 2005
-22-
Annex A
CERTIFICATE OF AMENDMENT
OF THE AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
TRINSIC, INC.
--------------------------------------------------------------------------------
TRINSIC, INC., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware (the "DGCL"), hereby
certifies as follows:
FIRST: The name of the Corporation is TRINSIC, INC. (the "Corporation").
SECOND: Article IV of the Corporation's current Restated Certificate of
Incorporation, as amended, is hereby amended to include the following text as
Subsection D to Article IV:
"D. Upon this Certificate of Amendment to the Amended and Restated
Certificate of Incorporation of the corporation becoming effective in accordance
with the General Corporation Law of the State of Delaware (the "Effective
Time"), each [integral number between and including 3 and 12 to be determined by
the Board of Directors] shares of Common Stock, par value $.01 per share, of the
corporation ("Old Common Stock") issued and outstanding immediately prior to the
Effective Time shall be automatically reclassified as and converted into one (1)
share of Common Stock, par value $.01 per share, of the corporation ("New Common
Stock")
Notwithstanding the immediately preceding sentence, no fractional shares of
New Common Stock shall be issued in connection with the foregoing
reclassification of shares of Old Common Stock. In lieu thereof, upon surrender
after the Effective Time of a certificate formerly representing shares of Old
Common Stock, the corporation shall pay to the holder of the certificate an
amount in cash at a price equal to the fraction to which the stockholder would
otherwise be entitled multiplied by the closing price of the Common Stock, as
reported in the Wall Street Journal, on the first trading date after the date on
which the Effective Time occurs.
Each stock certificate that, immediately prior to the Effective Time,
represented shares of Old Common Stock shall, from and after the Effective Time,
automatically and without the necessity of presenting the same for exchange,
represent that number of whole shares of New Common Stock into which the shares
of Old Common Stock represented by such certificate shall have been reclassified
(as well as the right to receive cash in lieu of any fractional shares of New
Common Stock), provided, however, that each holder of record of a certificate
that represented shares of Old Common Stock shall receive, upon surrender of
such certificate, a new certificate representing the number of whole shares of
New Common Stock into which the shares of Old Common Stock represented by such
certificate shall have been reclassified, as well as any cash in lieu of
fractional shares New Common Stock to which such holder may be entitled pursuant
to the immediately preceding paragraph."
THIRD: This Certificate of Amendment of the Corporation's Amended and
Restated Certificate of Incorporation has been duly adopted by the Board of
Directors and Stockholders of the Corporation in accordance with the provisions
of Section 242 of the DGCL.
IN WITNESS WHEREOF, TRINSIC, INC., has caused this certificate to be duly
executed in its corporate name on this day of , 2005.
TRINSIC, INC.
By:
--------------------------------------
Name:
Title:
[FRONT OF PROXY CARD FOR COMMON STOCK]
PROXY
TRINSIC, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON SEPTEMBER 23, 2005
The undersigned, a stockholder Trinsic, Inc. ("Trinsic"), hereby appoints
Messrs. Horace J. Davis, John K. Lines and Lawrence C. Tucker, jointly and
severally, as attorney and proxy of the undersigned, each with full powers of
substitution, for and on behalf of the undersigned, to represent the undersigned
at the Special Meeting of Stockholders of Trinsic to be held at Trinsic's
offices located at 601 South Harbour Island Boulevard, Tampa, Florida at 1:00
p.m. Eastern time, on September 23, 2005, and any adjournments or postponements
thereof (the "Special Meeting"), and to vote at the Special Meeting all the
shares of capital stock of Trinsic that the undersigned is entitled to vote at
the Special Meeting, with the same effect as if the undersigned were personally
present at the Special Meeting, all as described in the company's Proxy
Statement dated September 2, 2005 relating to the Special Meeting, and the
undersigned hereby authorizes and instructs the above named proxies to vote as
specified on the reverse side:
The shares represented by this Proxy will be voted in the manner directed
herein only if this Proxy is properly executed and timely returned. If the
undersigned does not specify a choice, the shares will be voted FOR the
proposals listed on the reverse side, and in the discretion of the proxies for
other matters which may properly come before the Special Meeting.
[REVERSE OF PROXY CARD FOR COMMON STOCK]
A. The board of directors solicits your voting in connection with the
following proposals:
I. / / FOR / / AGAINST / / ABSTAIN
Approval of the Conversion.
II. / / FOR / / AGAINST / / ABSTAIN
Approval of an amendment of Trinsic's certificate of incorporation to
effect a reverse stock split of the Common Stock in the ratio of an integral
number between and including three and twelve to one, as determined at the
discretion of the board of directors.
B. OTHER MATTERS: Unless a line is stricken through this sentence, the proxies
herein named may in their discretion vote the shares represented by this Proxy
upon such other matters as may properly come before the Special Meeting.
The undersigned acknowledges receipt of the Trinsic's Notice of Special
Meeting and Proxy Statement dated September 2, 2005 relating to the Special
Meeting. The undersigned does hereby revoke any proxy previously given with
respect to the shares represented by this Proxy.
, 2005
Signature
Signature if held jointly
NOTE: Your signature should appear as your name appears hereon. As to shares
held in joint names, each joint owner should sign. If the signer is a
corporation, please sign full corporate name by a duly authorized officer. If a
partnership, please sign in partnership name by an authorized person. If signing
as attorney, executor, administrator, trustee, guardian, or in other
representative capacity, please give full title as such.
Please mark, sign and date this proxy card and
promptly return it using the enclosed envelope.