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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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SPECTRAN CORPORATION
(NAME OF SUBJECT COMPANY)
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SPECTRAN CORPORATION
(NAME OF PERSON FILING STATEMENT)
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COMMON STOCK, $.10 PAR VALUE
(TITLE OF CLASS OF SECURITIES)
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847598109
(CUSIP NUMBER OF CLASS OF SECURITIES)
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CHARLES B. HARRISON
CHIEF EXECUTIVE OFFICER
SPECTRAN CORPORATION
50 HALL ROAD
STURBRIDGE, MASSACHUSETTS 01566
(508) 347-2261
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE NOTICES
AND COMMUNICATIONS ON BEHALF OF THE PERSON FILING STATEMENT)
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COPIES TO:
IRA S. NORDLICHT, ESQ.
NORDLICHT & HAND
645 FIFTH AVENUE
NEW YORK, NEW YORK 10022
(212) 421-6500
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INTRODUCTION
This Solicitation/Recommendation Statement on Schedule 14D-9 (this
"Schedule 14D-9") relates to an offer by Seattle Acquisition Inc., a Delaware
corporation (the "Purchaser") and a wholly owned subsidiary of Lucent
Technologies Inc., a Delaware corporation ("Lucent"), to purchase all of the
Shares (as defined below) of SpecTran Corporation, a Delaware corporation (the
"Company").
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is SpecTran Corporation. The address of the
principal executive office of the Company is 50 Hall Road, Sturbridge,
Massachusetts 01566. The title of the class of equity securities to which this
Schedule 14D-9 relates is the common stock of the Company, par value $.10 per
share (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule 14D-9 relates to the tender offer (the "Offer") disclosed in
the Tender Offer Statement on Schedule 14D-1 dated July 21, 1999 (as amended or
supplemented, the "Schedule 14D-1") filed with the Securities and Exchange
Commission (the "Commission") by Lucent and the Purchaser, relating to an offer
by the Purchaser to purchase all outstanding Shares at a price of $9.00 per
Share, net to the seller in cash, without interest thereon (the "Offer Price"),
upon the terms and subject to the conditions set forth in the Offer to Purchase
dated July 21, 1999, a copy of which is filed as Exhibit (a)(1) hereto (the
"Offer to Purchase"), and the related Letter of Transmittal, a copy of which is
filed as Exhibit (a)(2) hereto. The principal executive offices of each of
Lucent and the Purchaser are located at 600 Mountain Avenue, Murray Hill, New
Jersey 07974.
The Offer is being made pursuant to an Agreement of Merger, dated as of
July 15, 1999 (the "Agreement of Merger"), among the Company, Lucent and the
Purchaser. A copy of the Agreement of Merger is filed as Exhibit (c)(1) hereto
and is hereby incorporated by reference. The Agreement of Merger provides that,
among other things, as soon as practicable after the purchase of Shares pursuant
to the Offer and the satisfaction of the other conditions set forth in the
Agreement of Merger and in accordance with the relevant provisions of the
General Corporation Law of the State of Delaware ("Delaware Law" or the "DGCL"),
the Purchaser will be merged with the Company (the "Merger"). Following
consummation of the Merger, the Company will continue as the surviving
corporation (the "Surviving Corporation") and will become a wholly owned
subsidiary of Lucent. At the effective time of the Merger (the "Effective
Time"), each Share issued and outstanding immediately prior to the Effective
Time (other than Shares (i) owned or held in treasury by the Company, (ii) owned
by the Purchaser or Lucent, (iii) remaining outstanding held by any subsidiary
of the Company or Lucent or (iv) owned by stockholders who shall have demanded
properly and perfected appraisal rights, if any, under Delaware Law) will be
canceled and converted automatically into the right to receive the Offer Price
(the "Merger Consideration"). The Agreement of Merger is summarized in Section
12 of the Offer to Purchase.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person
filing this Schedule 14D-9, are set forth in Item 1 above. Unless the context
otherwise requires, references to the Company in this Schedule 14D-9 are to the
Company and its subsidiaries, viewed as a single entity.
(b) Certain contracts, agreements, arrangements or understandings known to
the Company between the Company or its affiliates and (i) certain of the
Company's executive officers, directors or affiliates or (ii) certain of
Lucent's executive officers, directors or affiliates are described in the
Information Statement of the Company attached to this Schedule 14D-9 as Annex A
(the "Information Statement"). Other such contracts, arrangements and
understandings known to the Company are summarized in Item 4(b) below and are
incorporated herein by reference. The Information Statement is being furnished
to the Company's stockholders pursuant to Section 14(f) of the Securities
Exchange Act of 1934 (the "Exchange Act"), and Rule 14f-1 issued under the
Exchange Act in connection with the Purchaser's right (after consummation of
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the Offer) to designate persons to be appointed to the Board of Directors of the
Company other than at a meeting of the stockholders of the Company. The
Information Statement is hereby incorporated by reference herein.
The transactions discussed in this Schedule will result in an acceleration
of benefits to executive officers and directors and certain consultants and
employees under the Company's Incentive Stock Option Plans, Supplemental
Retirement Agreements and Retirement Plan for Outside Directors. In addition,
certain executive officers have certain benefits under employment agreements
although the executive officers have acknowledged that the consummation of the
Agreement of Merger will not constitute a Change in Control as defined in each
executive's employment agreement. For further information see in the attached
Information Statement the sections entitled "Employment Agreements and
Change-In-Control Arrangements," "Supplemental Retirement Benefits," "Incentive
Stock Option Plan" and "Retirement Plan for Outside Directors", and Section 6.5
of the Agreement of Merger requiring prior to completion of the Merger the
termination of, among other things, the Supplemental Retirement Agreement and
retirement plans including the Retirement Plan for Outside Directors, and the
payout of accrued benefits in accordance with procedures set forth therein.
The information contained under the caption "Purpose of the Offer; The
Merger Agreement" in Section 12 of the Offer to Purchase is incorporated herein
by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has unanimously approved the Offer
and the Merger and determined that the terms of the Offer and the Merger are
fair to, and in the best interests of, the stockholders of the Company and
unanimously recommends that stockholders of the Company accept the Offer and
tender their Shares to the Purchaser pursuant to the terms of the Offer. This
recommendation is based in part upon an opinion of Lazard Freres & Co. LLC
("Lazard"), the Company's investment banker, that as of the date of the
Agreement of Merger the $9.00 per Share in cash to be received by the Company's
stockholders in the Offer and the Merger is fair to such stockholders from a
financial point of view (the "Fairness Opinion"). The Fairness Opinion contains
a description of the factors considered, the assumptions made, and the scope of
the review undertaken by Lazard in rendering its opinion. The full text of the
opinion of Lazard is attached hereto as Annex B to this Schedule 14D-9 and is
incorporated herein by reference. STOCKHOLDERS ARE URGED TO READ SUCH OPINION OF
LAZARD IN ITS ENTIRETY.
As set forth in the Agreement of Merger, the Purchaser will purchase Shares
tendered prior to the close of the Offer if the conditions to the Offer have
been satisfied (or waived).
Under Delaware Law, the approval of the Board and the affirmative vote of
the holders of a majority of the outstanding Shares (unless at least 90% of the
outstanding Shares are held by the Purchaser) are required to approve the
Merger. Accordingly, if the minimum condition of and the other conditions to the
Offer are satisfied, the Purchaser will have sufficient voting power to cause
the approval of the Merger without the affirmative vote of any other
stockholder. Under Delaware Law, if the Purchaser acquires, pursuant to the
Offer or otherwise, at least 90% of the then outstanding Shares, the Purchaser
will be able to approve and adopt the Agreement of Merger and the Merger,
without a vote of the Company's stockholders. Lucent, the Purchaser and the
Company have agreed to use their reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, in the most expeditious manner practicable, the
Offer, the Merger and the other transactions contemplated by the Agreement of
Merger. If the Purchaser does not acquire at least 90% of the then outstanding
Shares pursuant to the Offer or otherwise and a vote of the Company's
stockholders is required under Delaware Law, a longer period of time will be
required to effect the Merger.
The initial expiration date for the Offer is 12:00 Midnight, New York City
time, on August 17, 1999, unless the Purchaser extends the period of time for
which the Offer is open. Lucent and Purchaser have agreed that if the minimum
condition of and the other conditions to the Offer are not satisfied on any
scheduled
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expiration date of the Offer then, provided that all such conditions are
reasonably capable of being satisfied, Purchaser shall extend the Offer from
time to time until such conditions are satisfied or waived, provided that
Purchaser shall not be required to extend the Offer beyond September 30, 1999.
A copy of the press release jointly prepared by Lucent and Issuer and
released by Lucent on July 15, 1999 announcing the Merger and the Offer is filed
as Exhibit (a)(3) hereto and is incorporated herein by reference in its
entirety.
(B) BACKGROUND OF THE OFFER; REASONS FOR THE RECOMMENDATION.
Background of the Relationship.
The Company has a long-standing relationship with Lucent both as a supplier
of optical fiber to Lucent and a licensee of technology from Lucent.
Supply Relationship with Lucent
The Company and Lucent have a three-year supply agreement (the "Supply
Agreement") terminating December 31, 1999, under which Lucent is required to
make certain annual minimum purchases of optical fiber. Lucent has satisfied its
minimum annual purchase obligations under the Supply Agreement through and
including 1999. In 1998, Lucent purchased quantities of optical fiber in excess
of the required annual minimum. In September 1998, the Company and Lucent began
discussions regarding quantities of optical fiber Lucent anticipated purchasing
from the Company in 1999. In the course of these discussions, the parties
discussed the possibility of entering into a new supply agreement to replace the
Supply Agreement. Those discussions continued through January 1999 when Lucent
stated that it would not enter a new supply agreement but would (and did) make
additional purchases under the terms of the Supply Agreement on an as needed
basis. On June 1, 1999, Lucent advised the Company that, due to excess
inventories, for the remainder of the year Lucent would decrease significantly
the amount of optical fiber it would purchase from the Company. During the
calendar years ended December 31, 1998 and 1997, the Company sold (the Company
recognizes revenue when a product is shipped) approximately $26 million and $6.6
million, respectively, of optical fiber to Lucent. During the six month period
ended June 30, 1999, the Company sold approximately $9.5 million of optical
fiber to Lucent.
Licensee Relationship with Lucent
The Company has been a licensee of Lucent's and its predecessor companies'
optical fiber patents since 1981. From mid 1997 until October 30, 1998, the
Company and Lucent discussed the possibility of entering into a further patent
license agreement. On October 30, 1998, the Company and Lucent established a new
worldwide, non-exclusive license exchanging rights under their optical fiber
patents issued prior to January 1, 1998, and additional patents related to
multimode fiber based on applications filed through October 1998. The Company is
licensed by Lucent to make optical fiber at its existing factories for worldwide
use and sale and export from the United States. The license contains some
product limitations including certain exclusions to make or sell select
specialty fibers for some applications. Lucent receives non-exclusive,
royalty-free worldwide rights. The Company agreed to pay Lucent a $4.0 million
license fee in installments and, beginning in 2000, a royalty on sales. On
January 31, 1999, the Company paid the first license fee installment of $750,000
and will be making a further $500,000 payment on July 31, 1999. An additional
$1,000,000 is due in 2000, $1,000,000 in 2001 and $750,000 in 2002. Lucent has
the right to terminate the agreement if the Company is acquired by an optical
fiber manufacturer.
For the six months ended June 30, 1999, the Company made no royalty
payments to Lucent. For the fiscal years ending December 31, 1998, 1997 and
1996, the Company made aggregate royalty payments to Lucent of approximately
$60,000, $890,000 and $760,000, respectively. All such royalty payments were in
respect of sales by SpecTran Communication Fiber Technologies, Inc., a
subsidiary of the Company.
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Background of the Offer
The Company has been in the process of substantially expanding its capacity
at its manufacturing facilities and completing the development of and
implementing a new optical fiber manufacturing process, which has required
significantly more funds and more time than anticipated. In addition, there were
operational and inventory issues at a subsidiary in part related to its
relocation and expansion. Sales growth and gross profit in 1998 were adversely
affected by highly competitive market conditions and pricing pressures caused by
an industry-wide oversupply situation.
The Company has financed its capital and operational needs through a
combination of cash flow from operations and borrowings under its loan
agreements. The Company violated certain covenants contained in both its
revolving credit agreement and senior secured notes as a result of its second
quarter 1998 results.
In the third quarter of 1998, the Company entered negotiations with its
lenders to revise those covenants and began exploring various financial and
strategic alternatives including seeking additional capital or entering into
strategic alliances in an attempt to reduce its debt. During the fourth quarter
of 1998 the Company received an unsolicited proposal from a company (Company A)
seeking to make a minority equity investment in the Company at an unattractive
price coupled with substantial governance and management controls. The Company
determined to explore retaining expert advice to assist the Company in
evaluating this proposal as well as to explore other financial and strategic
alternatives.
In late November 1998, Mr. Robert A. Schmitz, a director of the Company,
who was also serving as a financial advisor to the Company, contacted Lazard and
suggested that Lazard meet with the Board of Directors of the Company.
In December 1998, the Company signed an agreement with its lenders to amend
certain covenants contained in both the revolving credit agreement and the
senior secured notes. In connection with the signing of that agreement, all
violations of the original agreements were waived. The Company has continued to
finance its capital and operational needs through a combination of cash flow
from operations and borrowings and expects to continue to do so, assuming the
Company continues to meet its lenders revised covenants. While the Company has
been in compliance with all the revised covenants, there continues to be no
assurance that the Company would be able to remain in compliance with all the
revised covenants.
On January 7, 1999, representatives of Lazard made a presentation to the
Board of Directors of the Company. After representatives of Lazard were excused,
the directors present voted unanimously to engage Lazard to explore and advise
the Board of Directors concerning financial and strategic alternatives for the
Company and on January 25, 1999, the Company entered into an agreement with
Lazard to do so.
On February 1, 1999, because of the Company's significant business
relationships with Lucent, a representative of Lazard and Mr. Charles B.
Harrison, President, Chief Executive Officer and Chairman of the Board of
Directors of the Company, pursuant to a confidentiality agreement later signed,
met with Mr. Robert Mohalley, Strategy Vice President for Lucent's Network
Products Group, and Mr. Denys Gounot, Chief Operating Officer of Lucent's
Network Products Group, to inform them that Lazard had been engaged to explore
financial and strategic alternatives for the Company.
In early February, at the request of the Company, Lazard began contacting
prospective strategic and financial partners and, during the months of February
and March, contacted 34 parties (including Lucent) and supplied a number of them
with non-public information pursuant to confidentiality and non-disclosure
agreements. During February, management and representatives of Lazard met with
some of the 34 contacted parties who expressed potential interest in pursuing
various types of transactions. On February 17, 1999, Lazard and management
provided to the Board of Directors a status report of their efforts to explore
financial and strategic alternatives for the Company.
In late February and early March, twelve interested parties submitted
non-binding preliminary indications of interest for a variety of proposed
transactions. These interested parties were invited to conduct detailed due
diligence reviews, including meetings with Company management, review of
additional non-public information and tours of the Company's facilities.
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In early March 1999, although Lucent stated it did not expect to submit a
proposal, Lucent indicated interest in meeting with senior management and
visiting the Company's facilities.
During March and April, management and representatives of Lazard met with
those companies who had given preliminary indications of interest in pursuing
various types of transactions.
On March 18, 1999, Lazard and management provided to the Board of Directors
a status report on their efforts to explore financial and strategic alternatives
for the Company.
On March 24 and 25, 1999, representatives from Lucent conducted due
diligence on the Company and visited the Company's facilities.
In late April and early May, the Company received second non-binding
indication of interest letters from six interested parties describing various
alternative transactions, including a supply agreement with warrants to purchase
common stock, cash purchase of different subsidiaries of the Company, a minority
cash investment with a supply agreement and substantial governance rights, a
merger of optical fiber assets and two proposals to acquire the Company, one for
stock and one for cash.
On April 21, 1999, Lazard and management provided to the Board of Directors
a status report on their efforts to explore financial and strategic alternatives
for the Company.
In late April, Lucent informed Lazard that it was not going to submit a
proposal, but might be interested under the right circumstances in pursuing a
supply agreement.
On May 10, 1999, a representative from Lucent (Mr. Mohalley) sent the
Company a letter stating that upon further review Lucent might be interested in
pursuing a transaction. On May 11, 1999, during a telephone conversation, Mr.
Mohalley asked Mr. Harrison for at least an additional two weeks to conduct more
due diligence before submitting an indication of interest letter.
On May 11, 1999, the Board of Directors of the Company met to discuss the
indication of interest letters and Lucent's request for additional time. All of
the Company's directors were present, as were representatives of Lazard. At the
meeting the directors discussed the non-binding proposals contained in those
letters and determined that each of the proposals had drawbacks. The proposed
minority investment from Company A was for an inadequate per share price coupled
with significant management and governance controls. The Board rejected the two
proposals to purchase only the specialty subsidiary since it was viewed as
having substantial growth potential, the prices were inadequate and stockholder
value was not adequately enhanced. One letter referred to a merger but Lazard
and the Company were unable to obtain a firm proposal. Regarding an offer for a
supply agreement with warrants, the supply agreement was at below current market
prices for optical fiber and the offer did not provide the capital infusion that
the Company desired. The Board directed the Company's management and Lazard to
continue to pursue a possible transaction with Lucent and further refine and
clarify the other two proposals, one involving the sale of the Company for cash
(Company C) and the other involving the sale of the Company for stock (Company
B).
On May 17-18, 1999, representatives of Lucent, including Mr. Terrence
Bentley, Director Corporate Development of Lucent, and Mr. Richard Sullivan,
Network Products Group Director Business Development of Lucent, visited the
Company to conduct further due diligence. Subsequently, there were a number of
calls among representatives of Lucent, the Company and Lazard to review various
due diligence items.
On May 19, 1999, senior management of the Company and representatives of
Lazard visited Company B to conduct due diligence on Company B. Subsequently,
there were a number of calls among representatives of Company B, the Company and
Lazard to review various items related to due diligence both by the Company on
Company B and by Company B on the Company.
On May 20-21, 1999, representatives of Company C visited the Company to
conduct further due diligence. Subsequently, there were a number of calls among
representatives of Company C, the Company and Lazard to review various due
diligence items.
On May 28, 1999, at the Annual Meeting of the Company's stockholders, the
Company publicly announced its 1999 projected net sales of more than $90 million
and projected growth rates of sales and
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earnings through 2003, information which had been shared under confidentiality
agreement with each of the prospective strategic and financial partners.
At a June 4, 1999, meeting of the Board of Directors, senior management of
the Company and representatives of Lazard reported on the status of their
efforts to explore financial and strategic alternatives for the Company,
including reviewing the non-binding proposals submitted to the Company and
reporting that there was serious interest being expressed by Lucent, but that
certain persons at Lucent believed the Company to be worth approximately $6 per
share if the value of Lucent's purchases of optical fiber from the Company were
eliminated.
On June 14, 1999, senior executives from Lucent visited the Company to meet
with senior management of the Company and to tour the facilities.
On June 15, 1999, Company C informed Lazard that Company C was withdrawing
from the process until after the Company's results for the quarter ended
September 30, 1999 were available and subject to additional discussions and
diligence.
On June 15, 1999, Company B sent a letter reducing its proposed exchange
ratio. On the same day, Mr. Bentley indicated to Mr. Harrison that Lucent would
be willing to offer $8.00 per Share in cash subject to due diligence.
Concurrently, a representative of Lucent reviewed different valuations of the
Company's stock.
On June 16, 1999, a representative of Lazard contacted Mr. Bentley and
suggested that Lucent submit a proposal in writing to acquire the Company for
Lucent stock at a price higher than $8.00 per Share.
On June 17, 1999, a representative of Lucent informed a representative of
Lazard that Lucent had completed its purchases of optical fiber from the Company
for the year. Later that day, Lucent submitted a non-binding indication of
interest letter for the acquisition of the Company for $8.00 - $8.75 per Share.
At a June 18, 1999 telephonic meeting of the Board of Directors, a
representative of Lazard reported that the Company had received a non-binding
indication of interest letter from Lucent for $8.00 - $8.75 per Share and that
Lucent had stated that it had completed its purchases of optical fiber from the
Company for the year. A representative of Lazard added that it was unclear if
Lucent's proposal contemplated stock or cash consideration. He then reported
that Company C had determined to defer proceeding further until after the
Company's results in the quarter ended September 30, 1999 were available and
subject to additional discussions and diligence. A representative of Lazard also
reported that Company B had reduced its stock offer. A representative of Lazard
observed that Company B's stock was highly illiquid, had limited institutional
ownership and no equity research coverage and should the Company's stockholders
receive such stock, and wish to liquidate their position, they may be unable to
do so without realizing a significant discount. In addition, Lazard informed the
Board of Directors that Lazard was unable to evaluate Company B, including its
market price, with any reasonable degree of assurance. The Board discussed the
Lucent proposal, expressed concern about the price and the strong desire that
any offer be for stock consideration.
On June 21, 1999, Mr. Harrison met with Mr. Bentley, indicated that
Lucent's offer was insufficient and that the Company strongly preferred a stock
transaction. During this meeting, the Company's auditors by telephone informed
Mr. Harrison and Mr. Bentley that any business combination in which the Company
was involved would not be eligible to be accounted for on a pooling of interests
basis. At the end of the meeting, Mr. Bentley indicated that Lucent would be
willing to increase its previous non-binding indication of interest to $9.00 per
Share in cash but did not want to pursue a stock transaction.
On June 21, 1999, the Board of Directors met by conference telephone call
in the evening (one director was unavailable) and discussed Mr. Harrison's
report of his meeting with Lucent. The Board directed Mr. Harrison to discuss a
possible stock transaction again with Mr. Bentley.
On June 22, 1999, the Company and Lucent executed a revised non-disclosure
agreement.
On the morning of June 22, 1999, Mr. Harrison spoke with Mr. Bentley. Mr.
Harrison reported again that the Company's Board strongly preferred a stock
transaction. Mr. Bentley reiterated that Lucent would not agree to a stock
transaction but would be interested in pursuing a $9 per Share cash transaction.
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On June 22, 1999 at 5:00 p.m., the Board of Directors of the Company met
and was updated by Mr. Harrison. The Board repeated its preference for a stock
transaction. The Board directed Mr. Harrison to attempt again to ascertain
whether Lucent would be willing to acquire the Company for stock, but also
authorized Mr. Harrison to proceed with discussions regarding a cash transaction
for $9 per Share or higher. Later that evening, Mr. Harrison raised the matter
of a stock transaction again with Mr. Bentley.
On June 23, 1999, Mr. Bentley informed Mr. Harrison that Lucent was
strongly disinclined to do a stock transaction for a number of reasons,
including added costs to Lucent in time and expense. Mr. Bentley stated that he
would consider discussing with the CFO of Lucent an acquisition of the Company
at a per Share price of $8 in Lucent stock but advised Mr. Harrison that he did
not believe such a transaction would be approved and that the environment for
obtaining such approval from Lucent's senior management was very unfavorable.
Mr. Harrison stated he would discuss the matter with the Company's directors and
advise Mr. Bentley. Mr. Harrison polled the Board and the unanimous sense was to
proceed with negotiations for a $9 per Share cash transaction. Mr. Harrison so
informed Mr. Bentley that same day.
On June 25, 1999, Company C sent a letter to the Company confirming in
writing its June 15, 1999 conversation with a representative of Lazard.
On June 28 and June 29, 1999, representatives from Lucent visited the
Company to meet with senior management of the Company, to tour the facilities
and to continue due diligence. On June 30, 1999, the parties agreed to proceed
on a non-binding basis.
From July 1 to July 14, 1999, representatives of Lucent conducted further
due diligence. The representatives also negotiated the Agreement of Merger with
representatives of the Company. During negotiations, the Company requested and
Lucent agreed to eliminate several deal protection measures including an option
to acquire up to 19.9% of the Company's Shares under certain conditions,
agreements from directors and officers to tender their Shares and vote in favor
of the Merger and a reduction in the break-up fee in the event the transaction
was not completed for certain reasons from $2.5 million to $2.0 million.
On July 14, 1999, the Board of Directors of the Company held a meeting to
consider the Offer, the Merger and the Agreement of Merger. At the meeting, the
Board of Directors reviewed the Offer, the terms of the Agreement of Merger with
its legal counsel and representatives of Lazard. The Board of Directors of the
Company heard presentations by its legal counsel with respect to the terms of
the proposed offer, the Merger and the Agreement of Merger, and legal counsel
advised the Board of Directors that the negotiations for the Agreement of Merger
were substantially complete. The Board of Directors also heard a presentation by
representatives of Lazard with respect to the financial terms of the Offer and
the Merger and Lazard's valuation analysis. The Board of Directors, with the
participation of the representatives of Lazard, reviewed again the alternatives
for the Company.
At the conclusion of the presentation, representatives of Lazard delivered
Lazard's oral opinion that, as of the date of the Agreement of Merger, and based
upon the procedures followed, matters considered, assumptions made and
limitations of the review undertaken in connection with such opinion, the $9.00
in cash per Share to be paid to the stockholders of the Company pursuant to the
Offer and the Merger was fair to such stockholders from a financial point of
view. Lazard subsequently delivered a written opinion dated the date of the
Agreement of Merger to the same effect.
Based upon such discussion, presentations and opinion, the Board of
Directors of the Company has unanimously approved the Offer and the Merger and
determined that the terms of the Offer and the Merger are fair to, and in the
best interests of, the stockholders of the Company and unanimously recommends
that stockholders of the Company accept the Offer and tender their Shares to the
Purchaser pursuant to the terms of the Offer.
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Reasons for the Recommendation.
In reaching its determination described above, the Board of Directors of
the Company considered a number of factors, including, without limitation, the
following:
(i) the possible alternatives to the Offer and the Merger (including
the possibility of continuing to operate the Company as an independent
entity), the range of possible benefits to the Company's stockholders of
such alternatives and the timing and the likelihood of accomplishing any of
such alternatives;
(ii) the Company's prospects if it were to remain independent, its
growth potential, the risks inherent in remaining independent, the
Company's existing debt and the need for capital to achieve its longer term
business plan;
(iii) the competitive advantage in the industry of large optical fiber
manufacturers and the competitive advantage of large integrated optical
fiber, optical cable and systems manufacturers, including Lucent, with
substantial financial resources;
(iv) the dependence of the Company for its sales of multimode optical
fiber on relatively few customers, some of whom, including Lucent, are
licensors and competitors of the Company. In particular, the Board
considered whether, in light of Lucent's decreased demand for fiber, if the
acquisition did not occur, Lucent would increase its own capacity to
manufacture current or new optical fiber designs itself;
(v) in view of the extensive efforts of both the Company and Lazard to
find financial and strategic partners and potential acquirors, that it was
highly unlikely that any other party would propose to enter into a more
favorable transaction to the Company and its stockholders;
(vi) the presentation of Lazard at the July 14, 1999 meeting of the
Board of Directors and the opinion of Lazard to the effect that, as of such
date, the $9 in cash per Share to be paid to the stockholders of the
Company pursuant to the Offer and in the Merger was fair to such
stockholders from a financial point of view. A copy of the written opinion
of Lazard, which sets forth the procedures followed, matters considered,
assumptions made and limitations of the review undertaken by Lazard, is
attached hereto as Annex B. STOCKHOLDERS ARE URGED TO READ THE OPINION
CAREFULLY IN ITS ENTIRETY;
(vii) current financial market conditions, volatility and trading
information with respect to the Shares of the Company and the historical
prices for the Shares, including the fact that, although the proposed
purchase price of $9 per Shares is less than recent NASDAQ National Market
closing prices for the Share, representing a discount of approximately
21.7% over the July 14, 1999 market price of $11.50 per Share and discounts
of approximately 14.0% and 4.0% over the one and two months average closing
prices of $10.46 and $9.37 per Share, respectively, the $9 per Share
purchase price represents: a premium of approximately 10.2% over the three
month average closing price of $8.17 per Share; a premium of approximately
38.2% over the six month average closing price of $6.51 per Share; a
premium of approximately 40.2% over the average closing price since January
1, 1999; and a premium of approximately 56.6% over the one year average
closing price of $5.75.
(viii) the likelihood that the proposed acquisition would be
consummated, in light of the experience, reputation and the financial
strength of Lucent and the absence of any financing condition in the Offer;
(ix) the financial and other terms and conditions of the Offer, the
Merger and the Agreement of Merger, including, without limitation, the fact
that the terms of the Agreement of Merger will not prevent other third
parties from making certain bona fide proposals subsequent to execution of
the Agreement of Merger, will not prevent the Board of Directors from
determining, in the exercise of its fiduciary duties in accordance with the
Agreement of Merger, to provide information to and engage in negotiations
with such third parties and will permit the Company, subject to the
non-solicitation provisions and the payment of the termination fee of $2.0
million, to enter into a transaction with a third party that would be more
favorable to the Company's stockholders than the Offer and the Merger; and
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(x) the anticipated benefits of the Merger to the Company's employees
and the communities in which the Company operates.
The foregoing discussion of the information and factors considered and
given weight by the Board of Directors is not intended to be exhaustive. The
Board did not assign relative weights to the above factors or determine that any
factor was of particular importance relative to other factors. Rather, the Board
viewed its position and recommendations as being based on the totality of the
information presented to and considered by it during the process followed by the
Board. In addition, it is possible that different members of the Board assigned
different weights to the different factors.
The Board recognized that there can be no assurance as to the level of
growth or profits to be attained by Company, if it remained independent, or by
the Surviving Corporation in the future.
It is expected that, if the Shares are not purchased by Lucent in
accordance with the terms of the Offer or if the Merger is not consummated, the
Company's current management, under the general direction of the Board, will
continue to manage the Company as an ongoing business.
THE FULL TEXT OF THE WRITTEN FAIRNESS OPINION OF LAZARD IS FILED AS EXHIBIT
(a)(4) TO THIS SCHEDULE 14D-9 AND IS ALSO ATTACHED HERETO AS ANNEX B.
STOCKHOLDERS ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS ENTIRETY. SUCH
OPINION WAS PRESENTED FOR THE INFORMATION OF THE BOARD IN CONNECTION WITH THEIR
CONSIDERATION OF THE AGREEMENT OF MERGER AND IS DIRECTED ONLY TO THE FAIRNESS
(FROM A FINANCIAL POINT OF VIEW) OF THE CONSIDERATION TO BE RECEIVED BY HOLDERS
OF SHARES (OTHER THAN LUCENT AND ITS AFFILIATES) PURSUANT TO THE OFFER AND THE
MERGER. SUCH OPINION DOES NOT CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER AS
TO WHETHER TO TENDER SHARES IN THE OFFER OR HOW TO VOTE WITH RESPECT TO THE
MERGER.
IN LIGHT OF THE FACTORS SET FORTH ABOVE, THE BOARD RESOLVED UNANIMOUSLY TO
APPROVE THE OFFER AND THE MERGER AND DETERMINED THAT THE TERMS OF THE OFFER AND
THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF THE
COMPANY AND RESOLVED UNANIMOUSLY TO RECOMMEND THAT STOCKHOLDERS OF THE COMPANY
ACCEPT THE OFFER AND TENDER THEIR SHARES TO THE PURCHASER.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
In connection with Lazard's services as investment banker to the Company,
the Company has paid Lazard a $250,000 retention fee and will pay Lazard a fee
equal to a customary percentage of the transaction value upon the consummation
of the Offer and the Merger.
The Company has agreed to reimburse Lazard for its reasonable out-of-pocket
expenses incurred in connection with rendering financial advisory services,
including fees and disbursements of its legal counsel. The Company also has
agreed to indemnify Lazard and its directors, officers, agents, employees and
controlling persons for certain costs, expenses and liabilities, including
certain liabilities under the federal securities laws.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on its
behalf with respect to the Offer, except that such solicitations or
recommendations may be made by directors, officers or employees of the Company,
for which services no additional compensation will be paid.
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ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) During the past 60 days, no transactions in Shares have been effected
by the Company or, to the Company's knowledge, by any of its executive officers,
directors, affiliates or subsidiaries, except as follows:
1. The Company has granted options to purchase Shares, and issued
Shares upon exercise of options held by, employees and consultants under
its stock plans.
2. In accordance with the Company's automatic payroll deduction
employee stock purchase plan, Charles B. Harrison purchased 241 Shares in
April 1999 for $3.875 per share, 238 Shares in May 1999 for $7.875 per
Share, 185 Shares in June 1999 at $10.125 per Share and 157 Shares in July
1999 at $11.9375 per Share.
3. The following executive officers of the Company were granted
options to purchase Shares on the dates and at the per Share exercise
prices set forth below:
NAME EXERCISE PRICE GRANT DATE OPTION SHARES
- ---- -------------- ------------ -------------
Charles Harrison.......................... $9.25 May 28, 1999 25,000
John Chapman.............................. $9.25 May 28, 1999 14,000
Martin Seifert............................ $9.25 May 28, 1999 14,000
- ---------------
(b) To the Company's knowledge, all of the Company's executive officers and
directors who own Shares currently intend to tender all of their Shares
(other than Shares, if any, held by such person that, if tendered, could
cause such person to incur liability under the provisions of Section 16(b)
of the Exchange Act) pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
Except as set forth above or in Item 3(b) or (c) or 4(a) above, no
negotiation is being undertaken or is underway by the Company in response to the
Offer which relates to or would result in: (i) an extraordinary transaction,
such as a merger or reorganization involving the Company or any subsidiary
thereof; (ii) a purchase, sale or transfer of a material amount of assets by the
Company or any subsidiary thereof; (iii) a tender offer for or other acquisition
of securities by or of the Company; or (iv) any material change in the present
capitalization or dividend policy of the Company.
(b) Except as described above or in Item 3(b) or (c) or 4(a) above, there
are no transactions, Board of Directors resolutions, agreements in principle or
signed contracts in response to the Offer that relate to or would result in one
or more of the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
LITIGATION. After the announcement of the Agreement of Merger by the
Company and Lucent on July 15, 1999, two putative class action lawsuits relating
to the Merger were filed in the Court of Chancery for the State of Delaware:
Chase v. Harrison et. al., C.A. No. 17312-NC and Airmont Associates et. al., v.
SpecTran Corporation et. al., C.A. No. 17314-NC.
The lawsuits were filed by plaintiffs claiming to be stockholders of the
Company, purportedly on behalf of all the Company's stockholders, against the
Company, members of the board of directors of the Company and Lucent. The
plaintiffs in both lawsuits allege, among other things, that the terms of the
proposed Merger were not the result of an auction process or active market
check, that the $9.00 per share price offered by Lucent is inadequate, and that
the Company's directors breached their fiduciary duties to the stockholders of
the Company in connection with the Agreement of Merger. Both lawsuits seek to
have the Merger enjoined or, if the Merger is completed, to have it rescinded
and to recover unspecified damages, fees and expenses. The Company and Lucent
intend to vigorously oppose these lawsuits.
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ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase dated July 21, 1999.
(a)(2) Letter of Transmittal.
(a)(3) Press Release jointly prepared by Lucent and the Company and issued
by Lucent on July 15, 1999.
(a)(4)(1) Opinion of Lazard Freres & Co. LLC dated July 15, 1999.
(a)(5) Letter to Stockholders, dated July 21, 1999, from Charles B.
Harrison, Chairman of the Board of Directors and President and Chief Executive
Officer of the Company.*
(c)(1) Agreement of Merger, dated as of July 15, 1999, among Lucent, the
Purchaser and the Company.
(c)(2)(2) The Company's Information Statement pursuant to Section 14(f) of
the Securities Exchange Act of 1934 and Rule 14f-1 thereunder.
(c)(3) Contractual Agreement between Lucent Technologies Inc. and SpecTran
Corporation, dated October 3, 1996. The Company has been granted confidential
treatment for portions of this Exhibit.
(c)(4) Patent License Agreement between Lucent Technologies and SpecTran
Corporation dated as of October 30, 1998. The Company has been granted
confidential treatment for portions of this Exhibit.
- ---------------
* Included in copies mailed to stockholders.
(1) Attached hereto as Annex B.
(2) Attached hereto as Annex A.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
accurate.
SPECTRAN CORPORATION
By: /s/ CHARLES B. HARRISON
------------------------------------
Charles B. Harrison
President, Chief Executive Officer
and
Chairman of the Board of Directors
Dated: July 21, 1999
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ANNEX A
SPECTRAN CORPORATION
SPECTRAN INDUSTRIAL PARK
50 HALL ROAD
STURBRIDGE, MASSACHUSETTS 01566
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED, AND RULE 14f-1 THEREUNDER
This Information Statement is being mailed on or about July 21, 1999, as a
part of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of SpecTran Corporation (the "Company") to the holders of
record of shares of Common Stock, par value $0.10 per share, of the Company (the
"Shares") at the close of business on or about July 21, 1999. You are receiving
this Information Statement in connection with the possible appointment following
consummation of the Offer (as defined below), of persons designated by the
Purchaser (as defined below) to a majority of the seats on the Board of
Directors of the Company.
On July 15, 1999, the Company, Lucent Technologies Inc., a Delaware
corporation ("Parent") and Seattle Acquisition Inc., a Delaware corporation and
wholly owned subsidiary of Parent (the "Purchaser"), entered into an Agreement
of Merger (the "Merger Agreement") in accordance with the terms and subject to
the conditions of which (i) Parent will cause the Purchaser to commence a tender
offer (the "Offer") for all outstanding Shares at a price of $9.00 per Share,
net to the seller in cash and without interest thereon and (ii) the Purchaser
will be merged with and into the Company (the "Merger"). As a result of the
Offer and the Merger, the Company will become a wholly owned subsidiary of
Parent.
The Merger Agreement requires the Company to cause the directors designated
by Parent to be elected to the Board of Directors under the circumstances
described therein. See "Board of Directors and Executive Officers of the
Company."
This Information Statement is required by Section 14(f) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action at this time. Capitalized terms used
herein and not otherwise defined herein shall have the meaning set forth in the
Schedule 14D-9.
Pursuant to the Merger Agreement, the Purchaser commenced the Offer on July
21, 1999. The Offer is scheduled to expire at 12:00 Midnight, New York City
time, on August 17, 1999, unless the Offer is extended.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
OF THE COMPANY
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of July 14, 1999, there were 7,040,930
Shares outstanding. The Company's Board of Directors currently consists of three
classes with seven (7) members. At each annual meeting of stockholders, all of
the directors in the class being voted upon are elected for three-year terms.
The officers of the Company serve at the discretion of the Board.
Pursuant to the Merger Agreement, upon the acceptance for payment of, and
payment for, Shares by Purchaser pursuant to the Offer, Purchaser will be
entitled to designate such number of directors on the Board of Directors of the
Company (the "Parent Designees"), as will give Purchaser, subject to compliance
with Section 14(f) of the Exchange Act, representation on the Company's Board of
Directors equal to the product of (i) the total number of directors on the
Company's Board of Directors and (ii) the percentage that the number of Shares
purchased by Purchaser in the Offer bears to the number of Shares outstanding,
and the Company will, at such time, cause the Parent Designees to be so elected
by its existing Board of Directors;
A-1
15
provided, however, that in the event that the Parent Designees are elected to
the Board of Directors of the Company, until the Effective Time such Board of
Directors will have at least two directors who are directors of the Company on
the date of the Merger Agreement and who are not officers of the Company or any
of its subsidiaries (the "Independent Directors") and; provided, further that,
in such event, if the number of Independent Directors will be reduced below two
for any reason whatsoever, the remaining Independent Director shall designate a
person to fill such vacancy who shall be deemed to be an Independent Director
for purposes of the Merger Agreement or, if no Independent Directors then
remain, the other directors of the Company will designate two persons to fill
such vacancies who shall not be officers or affiliates of the Company or any of
its subsidiaries, or officers or affiliates of Parent or any of its
subsidiaries, and such persons will be deemed to be Independent Directors for
purposes of the Merger Agreement.
Parent has informed the Company that it will choose the Parent Designees
from persons listed below. Parent has informed the Company that each of the
Parent Designees has consented to act as a director, if so designated.
Biographical information concerning each of the Parent Designees is presented
below. The following biographical information provided herein regarding Parent,
the Purchaser, and any Parent Designees has been furnished by Parent, and the
Company assumes no responsibility for the accuracy or completeness of such
information.
POSITION WITH PARENT;
PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME FIVE YEAR EMPLOYMENT HISTORY
- ---- ---------------------------------------------
William R. Spivey.................... Group President, Network Products Group
business unit of Parent since October 1997
and President of the Purchaser since June
1999. Previously Dr. Spivey was Vice
President, Systems and Components,
Microelectronics business unit of Parent.
Joined AT&T in 1994. Previously Dr. Spivey
was President of Tektronix Development
Company for Tektronix, Inc. based in Oregon.
He has also held senior management positions
for Honeywell, Inc. and General Electric in
various systems control, computer and
semiconductor units. Age: 53.
Carol E. Kirby....................... Corporate Counsel for the Network Products
Group of Parent since 1998 and Director and
Vice President of the Purchaser since June
1999. Corporate counsel for Parent and AT&T
Corp. since 1991. Age: 45.
Pamela F. Craven..................... Vice President -- Law of Parent since 1996
and Secretary of Parent since February 1999.
Director and Vice President of the Purchaser
since June 1999. Joined AT&T Corp. Law
Division in 1991. Age: 45.
Justin C. Choi....................... Corporate Counsel in the Mergers and
Acquisitions Law Group of Parent since 1997
and Director and Secretary of the Purchaser
since June 1999. Associate at Paul, Hastings,
Janofsky & Walker (law firm) (1990-1997).
Citizen of the Republic of Korea. Age: 33.
None of the Parent Designees (i) is currently a director of, or holds any
position with, the Company, (ii) has a familial relationship with any of the
directors or executive officers of the Company or (iii) to Parent's knowledge,
beneficially owns any securities (or rights to acquire any securities) of the
Company. The
A-2
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Company has been advised by Parent that, to Parent's knowledge, none of the
Parent Designees has been involved in any transaction with the Company or any of
its directors, executive officers or affiliates which is required to be
disclosed pursuant to the rules and regulations of the Commission, except as may
be disclosed herein or in the Schedule 14D-9.
Biographical information concerning each of the Company's current directors
and executive officers as of July 14, 1999 is as follows:
NAME AGE POSITION
- ---- --- --------
Charles B. Harrison................ 62 President, Chief Executive Officer
and Chairman of the Board of
Directors
George J. Roberts.................. 54 Senior Vice President, Chief
Financial Officer, Secretary and
Treasurer
John E. Chapman.................... 44 Senior Vice
President -- Technology, Director
and President, SpecTran
Communication Fiber Technologies,
Inc.
Ira S. Nordlicht................... 50 Assistant Secretary, Director
Dr. Paul D. Lazay.................. 60 Director
Richard M. Donofrio................ 61 Director
Dr. Lily K. Lai.................... 58 Director
Robert A. Schmitz.................. 58 Director
Martin F. Seifert.................. 40 Vice President, President of
SpecTran Specialty Optics Company
Mr. Harrison was appointed President and Chief Executive Officer of the
Company April 13, 1998 and is also Chief Executive Officer and a Director of
each of the Company's wholly-owned subsidiaries. Mr. Harrison became Chairman of
the Board of Directors of the Company on January 1, 1999. Previously, Mr.
Harrison served as an Engineering and Management Consultant to Rockwell
International on a number of programs. Among other consulting assignments for
Rockwell, he served in Moscow from December 1995 to July 1996 as Senior
Executive of CIS affairs. Mr. Harrison retired from Rockwell International as
Corporate Vice President Engineering in April 1995. In the two years preceding
his retirement, Mr. Harrison served as Corporate Vice President Engineering,
having primary responsibility for engineering and research activities across
Rockwell's Aerospace and Defense operations with a special focus on identifying
opportunities and establishing joint U.S./Russian defense conversion projects.
From 1991 to 1993, he served as Vice President of Advanced Technology and
Engineering for Defense Electronics responsible for research, product
development, and large systems engineering contracts in Rockwell's five defense
related divisions. During this time, he also had the senior executive
responsibility for Rockwell's Electro Optics Center. From 1984-1991, he served
as Chief Technology Officer and as Vice President of the Network for Southern
New England Telephone (SNET) directing the conversion to all electronic
switching and fiber optic backbone and local transmission systems. He also
served for two years as President of Sonecor Systems for SNET. From 1968-1984 he
held increasingly responsible positions with Collins Radio/Rockwell
International concluding as Vice President and General Manager Switching Systems
Division. Mr. Harrison received a B.S. degree in Electrical Engineering from
Oklahoma State University, and a M.S. degree in Engineering from Southern
Methodist University.
Mr. Roberts joined the Company as Senior Vice President, Chief Financial
Officer, Secretary and Treasurer as of April 1, 1999. From 1996 to that time he
served as Senior Vice President, Chief Financial Officer, Treasurer and Chief
Operation Officer for the Microelectronics & Computer Technology Corporation, a
unique consortium of 10 major U.S. corporations cooperating in the areas of
information technology to gain a sustainable competitive advantage over foreign
competition. For the preceding 30 years Mr. Roberts held a number of positions
at the General Electric Company, with his last position being Vice President,
Finance and Controller of Systems Support Services of GE Capital's Technology
Management Services Business. He has a B.S., Finance from Siena College and
completed Graduate Studies in Global Business Management at Insead Institute,
France.
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Mr. Chapman, appointed in October 1995 President of SpecTran Communication
Fiber Technologies, Inc., a wholly-owned subsidiary of the Company, is also
Senior Vice President -- Technology, SpecTran Corporation. Mr. Chapman joined
the Company in July 1983 as a Project Leader working on the development of
automated test equipment. In July 1985 he assumed the position of Director of
Equipment Technology and in October 1986 became Director of Quality Assurance
and Management Information Systems. Mr. Chapman was appointed Director of
Manufacturing and then Vice President of Manufacturing and Engineering in
December 1987, and in May 1990 was appointed Senior Vice President of
Manufacturing and Technology. Mr. Chapman was appointed Chief Operating Officer,
Executive Vice President and Director of the Company in January 1994. After the
reorganization of the Company in 1995, Mr. Chapman was appointed to the
positions he holds presently. Mr. Chapman is also a Director of the Company's
wholly-owned subsidiaries, SpecTran Specialty Optics Company and SpecTran
Communication Fiber Technologies, Inc. Prior to joining the Company he was
employed by Valtec Corporation, an optical fiber manufacturer and cabler, from
March 1979 in various engineering positions related to the design of optical
fiber and the development of special optical measurement equipment. Mr. Chapman
holds a B.S. degree in Physics from the University of Lowell and a M.S. degree
in Electrical Engineering from Northeastern University.
Mr. Nordlicht is a partner in the law firm of Nordlicht & Hand, which
provides legal services to the Company. See "Compensation Committee Interlocks
and Insider Participation." Prior to entering the private practice of law, Mr.
Nordlicht served as Counsel and Foreign Policy Advisor to the Chairman, U.S.
Senate Foreign Relations Committee, counsel to the U.S. Senate Foreign Relations
Subcommittee on Foreign Economic Policy and Senior Trial Attorney for the
Federal Trade Commission. From 1980-1982 he served as a Secretary of Energy
appointee to the National Petroleum Council. Mr. Nordlicht is also a Director of
the Company's wholly owned subsidiaries, SpecTran Specialty Optics Company and
SpecTran Communication Fiber Technologies, Inc. He holds a B.A. in Economics
from Harpur College (State University of New York at Binghamton) and a J.D. from
New York University School of Law. In June 1997, Mr. Nordlicht was named Legal
Advocate of the Year by the U.S. Small Business Administration for his work in
helping to create the Angel Capital Electronic Network, a means of financing
small businesses using the Internet. Mr. Nordlicht is also a Director of The
Fund for Peace, a non-profit foreign policy association.
Dr. Lazay is currently an advisor to and investor in technology based
companies. Prior to September 1997 he was the CEO and Director of Advanced
Telecommunications Modules, Ltd. of Cambridge, UK and Santa Clara, CA. From
April 1995 to December 1996 he was General Manager and Vice President of Cisco
Systems, responsible for its ATM Switching Division in Chelmsford, MA. Dr. Lazay
was a consultant to technology companies from October 1993 to April 1995. Prior
to this he served as President, Chief Executive Officer and Director to Telco
Systems, Inc., a designer of high speed digital fiber optic transmission
terminals and multiplexing equipment until October 1993. Prior to joining Telco
Systems in May 1986 as Vice President of Engineering, Dr. Lazay spent four years
with ITT's Electro-Optical Products Division, first as Director of Fiber Optic
Development and then as Vice President, Director of Engineering. From 1969 until
1982 he worked for Bell Telephone Laboratories, assuming a number of
increasingly responsible positions at its Material Research Laboratory. Dr.
Lazay is also a Director of the Company's wholly-owned subsidiaries SpecTran
Specialty Optics Company and SpecTran Communication Fiber Technologies, Inc. He
holds a B.S. degree from Trinity College and a Ph.D. degree in Physics from the
Massachusetts Institute of Technology.
Mr. Donofrio is a retired Senior Vice President of Southern New England
Telecommunications Corporation (SNET) based in New Haven, Connecticut. During
his 32 year career with SNET, as part of the Bell System, he served in
increasingly responsible operating and executive positions at SNET and AT&T
Corp. until his retirement in May 1993. At SNET, Mr. Donofrio served as Vice
President of Revenue Requirements and Regulatory, as well as Vice President of
Human Resources. During more recent years, he held a number of Senior and Group
Vice President positions, and served as President of SNET Diversified Group. He
also served a term as President of LIGHTNET, an SNET and CSX Corp. joint venture
which constructed and operated an extensive fiber optics telecom network in the
eastern half of the U.S. While at AT&T Corporate headquarters in New York, he
was a Division head in the Marketing Plans Dept. and in the Federal Relations
Dept. His other affiliations include: Past President of United Way of New Haven,
Board of Directors of the University of New Haven, Griffin Health Services Corp.
and National Engineering
A-4
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Consortium. Mr. Donofrio is also a Director of the Company's wholly-owned
subsidiaries, SpecTran Specialty Optics Company and SpecTran Communication Fiber
Technologies, Inc. Mr. Donofrio holds a B.S. degree in Economics from Norwich
University, and attended the M.B.A. program at the University of Hartford.
Dr. Lai is President and Chief Executive Officer of First American
Development Corporation, a management consulting and international business
development company, and a Board member of several companies and universities.
Previously, Dr. Lai headed the Corporate Planning and Development Department at
Pitney Bowes, Inc. from 1989 to 1993. She was the Chief Financial and Planning
Officer and the Vice President of Asia/Pacific Operations at U.S. West
International from 1987 to 1989. Dr. Lai worked for AT&T from 1971 to 1987 in
various management positions including Director of Corporate Strategy and
Development (1983-1986), responsible for AT&T's global business development
activities, and Director of International Public Affairs and Public Relations
(1986-1987), responsible for managing AT&T's relationships with all
international constituents (governments, partners, trade associations, presses,
advertising agencies, employees, etc.). Dr. Lai is also a Director of the
Company's wholly-owned subsidiaries, SpecTran Specialty Optics Company and
SpecTran Communication Fiber Technologies, Inc. Dr. Lai is an MIT Sloan Fellow
and holds a Ph.D. and an M.A. in Economics from the University of
Wisconsin-Madison, as well as a B.S. and a M.S. in Agricultural Economics from
the National Taiwan University and the University of Kentucky, respectively.
Mr. Schmitz has operated his own private investment firm since early 1998.
Prior to that time, he was managing director of Trust Company of the West, one
of the nation's largest investment counseling firms, serving five years as a
senior partner of TCW Capital, the firm's private equity group. In this
capacity, Mr. Schmitz was directly responsible for several new investments, led
two successful build-ups of existing portfolio companies and orchestrated
several restructurings and turnarounds. He also provided administrative
oversight for an investment portfolio of 22 companies. Mr. Schmitz served on the
Board of Directors of eleven companies at TCW Capital. Mr. Schmitz has also been
an advisor to a specialized investment firm that co-invests with Soros Fund
Management and as such helped the firm's founder identify and evaluate
investment opportunities in public and private companies. From 1983 to 1989, Mr.
Schmitz was chairman and chief executive officer of Richard D. Irwin, Inc. a
wholly-owned textbook publishing subsidiary of Dow Jones & Co. He also served as
a vice president of Dow Jones and a member of its management committee. At
McKinsey & Company from 1970 to 1982, Mr. Schmitz directed strategy,
organization and diversification assignments for CEOs of large companies in the
U.S. and overseas, and managed the firm's worldwide financial strategy practice.
He was elected a principal of the firm in 1976. Mr. Schmitz is also a Director
of the Company's wholly-owned subsidiary, SpecTran Specialty Optics Company. Mr.
Schmitz graduated from the University of Michigan in 1963 with a B.A. in
Economics and earned a M.S. in Business from the Sloan School of Management at
the Massachusetts Institute of Technology in 1965.
Mr. Seifert joined the Company and SpecTran Specialty Optics Company in his
current positions as of August 25, 1998. Most recently, Mr. Seifert served as
Chief Operating Officer of Schweitzer Engineering Labs, a privately owned
company that designs and makes relays, controls, software and communications
equipment for the electric power industry. Prior to joining Schweitzer in 1997,
he served with Rockwell International as Manager of Rockwell Automation's Power
Quality & Automation business and Global Marketing Manager of Rockwell's
Allen-Bradley Drives Division. Earlier in his business career, he was Manager of
Drives and Power Systems for Bucyrus-Erie Co., a mining equipment producer. He
graduated from the University of British Columbia in 1982 and speaks several
languages, including his native German.
BOARD MEETINGS AND COMMITTEES
There are three standing committees of the Board of Directors: the Audit
and Finance Committee, the Compensation and Incentive Stock Option Committee,
and the Nominating Committee.(1) The Audit and
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(1) On May 29, 1998, the Finance Committee, composed of Dr. Raymond E. Jaeger
and Dr. Lily K. Lai, and Messrs. Bruce A. Cannon and Richard M. Donofrio,
and the Audit Committee, composed of all of the Company's outside Directors
(Drs. Lazay and Lai, and Messrs. Nordlicht and Donofrio), were consolidated
into the Audit and Finance Committee, composed solely of the outside
directors. Mr. Harrison had served
A-5
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Finance Committee, composed of all of the Company's current outside Directors,
Dr. Lazay, Chair of the Committee, Dr. Lai and Messrs. Nordlicht, Donofrio, and
Schmitz, confers with KPMG LLP, the Company's external auditors, regarding the
scope and results of their audits and any recommendations they may have with
respect to internal accounting controls and other matters related to accounting
and auditing, and advises the Board of Directors with regard to financial
matters referred to it from time to time by the Directors. The Company's outside
Directors, with Mr. Donofrio serving as Chair of the Committee, also comprise
the Compensation and Incentive Stock Option Committee which administers the
Company's Incentive Stock Option Plan, reviews and recommends executive
compensation and administers the Company's executive compensation plans.(2) The
Nominating Committee, the members of which are Drs. Lazay and Lai and Mr.
Donofrio(3), recommends persons for nomination by the Board of Directors for
Directorships. The Nominating Committee will consider candidates proposed by
security holders. Generally, candidates must be highly qualified and be both
willing and affirmatively desirous of serving on the Board. They should
represent the interests of all security holders and not those of a special
interest group. A security holder wishing to nominate a candidate should forward
the candidate's name and a detailed background of the candidate's qualifications
to the Secretary of the Company during the Company's last fiscal quarter.
During the year ended December 31, 1998, the Board of Directors met
thirteen times, the Audit Committee met once, the Finance Committee did not
meet, the Audit and Finance Committee met three times, the Nominating Committee
did not meet, and the Compensation and Incentive Stock Option Committee met
eight times. During 1998 each Director attended at least seventy-five percent of
the aggregate of (1) the total number of meetings of the Board of Directors and
(2) the total number of meetings held by all committees of the Board on which he
or she served.
COMPENSATION OF DIRECTORS
Each Director who is not an employee of the Company receives an annual
retainer of $6,000, payable quarterly, a fee of $300 for each Board meeting
attended and a fee of $400 for each committee meeting attended (except that no
fee is paid for those meetings of the Incentive Stock Option Committee or
Compensation and Incentive Stock Option Committee ("CISOC") relating solely to
the issuance of stock options) in addition to being reimbursed for reasonable
out-of-pocket travel expenses in connection with attendance at those meetings.
Each outside member of the Board of Directors on May 21, 1991 was automatically
granted a nonqualified option to purchase 5,000 shares at a per share purchase
price equal to the fair market value of the stock on that day. Thereafter, every
person who becomes an outside member of the Board of Directors, without any
action of the CISOC, receives an initial grant of a nonqualified option to
purchase, at the fair market value of the stock on the date the option is
granted, 5,000 shares on the last business day in December in the year in which
the outside Director was elected a Director by the stockholders for the first
time. Each such nonqualified option to purchase 5,000 shares becomes exercisable
one year after the date of grant, and continues in effect for ten years. In
addition, on the last business day of December in each year, each outside
Director then in office is to be granted, without any action by the CISOC, a
nonqualified option to purchase 1,000 shares at the fair market value of the
stock on that day. Such nonqualified options to purchase 1,000 shares become
exercisable in three equal annual installments beginning one year after the date
of grant and continue in effect for ten years from the date of the grant. All
options granted to an outside Director become exercisable (a) upon the
occurrence of a Change in Control of the Company (as defined in the Company's
Incentive Stock Option Plan) or (b) when such Director ceases to
- --------------------------------------------------------------------------------
on the Audit Committee until his appointment as President and Chief
Executive Officer of the Company on April 13, 1998. Mr. Schmitz became a
member of the Audit and Finance Committee in July 1998 after his appointment
as a Director of the Company.
(2) Mr. Harrison served on the Compensation and Incentive Stock Option
Committees until his appointment as President and Chief Executive Officer of
the Company on April 13, 1998. Mr. Schmitz became a member of the
Compensation and Incentive Stock Option Committee in July 1998 after his
appointment as a Director of the Company.
(3) Mr. Nordlicht served on the Nominating Committee until July 23, 1998.
A-6
20
serve as a Director for any reason, except termination for cause, as long as
such Director has then served as a Director of the Company for two consecutive
years, including, for this purpose, time served as a Director before the
adoption of this Plan.
RETIREMENT PLAN FOR OUTSIDE DIRECTORS
To attract and retain experienced and knowledgeable individuals to serve as
outside Directors of the Company and its affiliates, the Company implemented in
December 1995 a Retirement Plan For Outside Directors (the "Retirement Plan")
under which outside (non-management) Directors, after the completion of five
full calendar years of service as an outside Director, will be entitled to an
annual amount equal to the lesser of $1,000 for each year of service as an
outside Director or $10,000. The benefit is payable for ten years in monthly
installments, commencing upon the later of an outside Director's 65th birthday
or retirement from the Board. While any benefits are paid under the Retirement
Plan the former outside Director will be available to consult for the Company.
The benefit will be accelerated and discounted for present value if the outside
Director leaves the Board within 12 months of a Change in Control (as defined in
the Retirement Plan), or if the Company is acquired through merger or
consolidation or the sale of assets and the acquiring party does not agree to
assume the Corporation's obligations under the Retirement Plan. The benefit is
subject to forfeiture if the outside Director is removed for Cause (as defined
in the Retirement Plan) or, as described in the Retirement Plan, competes with
the Company. The Retirement Plan is not intended to be a Qualified Plan under
the Internal Revenue Code of 1986 as amended.
A-7
21
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
Set forth below is the remuneration for all services in all capacities to
the Company for the fiscal year ended December 31, 1998 of (a) all individuals
serving as the Company's Chief Executive Officer or acting in a similar capacity
during the fiscal year ended December 31, 1998, regardless of compensation
level, and the two other most highly compensated executive officers of the
Company and its Subsidiaries who were serving as executive officers as of
December 31, 1998 and whose total annual salary and bonus exceeded $100,000, and
(b) one additional individual who, although no longer serving as an executive
officer of the Company or its Subsidiaries as of December 31, 1998, received an
annual salary and bonus in excess of $100,000 for the year and for whom
disclosure would have been provided had he been serving as an executive officer
as of December 31, 1998.
LONG TERM
COMPENSATION
AWARDS(4)
------------
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL OTHER
NAME AND ----------------------- OTHER ANNUAL OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($)(1) BONUS($) COMPENSATION($) (#) ($)
- ------------------ ---- ------------ -------- --------------- ------------ ------------
Charles B. Harrison......... 1998 173,418 0 30,000(9) 100,000 0
Chairman of the Board 1997 N/A N/A N/A N/A N/A
Chief Executive Officer 1996 N/A N/A N/A N/A N/A
and President(5)
Raymond E. Jaeger,.......... 1998 241,785 0 (3) 74,247 0(2)
Chairman of the Board 1997 212,792 92,860(6) (3) 16,000 9,034(2)
Chief Executive Officer 1996 198,967 123,388 (3) 16,000 6,000(2)
and President,
Consultant(5)
Bruce A. Cannon............. 1998 141,452 0 (3) 17,242 0(2)
Chief Financial Officer 1997 134,743 38,457(6) (3) 10,000 5,801(2)
SpecTran Corporation(7) 1996 122,122 59,102 (3) 8,000 5,394(2)
John E. Chapman............. 1998 192,567 8,652 (3) 31,650 0(2)
President, SpecTran 1997 182,786 77,080(6) (3) 14,000 8,051(2)
Communication Fiber 1996 166,112 100,932 (3) 10,000 6,000(2)
Technologies, Inc.
John Rogers................. 1998 145,168 0 (3) 0 0
Acting Chief Financial 1997 N/A N/A N/A N/A N/A
Officer SpecTran 1996 N/A N/A N/A N/A N/A
Corporation(8)
- ---------------
(1) Included amounts deferred at officer's election pursuant to section 401(k)
of the Internal Revenue Code accrued during 1998, 1997 and 1996,
respectively, as follows: Mr. Harrison, $10,000, $0 and $0; Dr. Jaeger,
$10,000, $9,360 and $9,360; Mr. Cannon, $9,660, $9,500 and $9,500; and Mr.
Chapman, $9,480, $9,480, and $9,480.
(2) Company contributions to 401(k) and the defined contribution plan.
(3) The aggregate amount of perquisites and other person benefits did not exceed
the lesser of either $50,000 or 10% of the total of annual salary and bonus
reported for the named executive officer, and the named executive officer
had no additional "other annual compensation".
(4) As of December 31, 1998, none of the individuals named in the Summary
Compensation Table were awarded any shares of restricted stock of the
Company.
(5) Dr. Jaeger served as Chief Executive Officer and President until April 1998,
when Mr. Harrison assumed those positions. At that time Dr. Jaeger became a
consultant to the Company. Dr. Jaeger served as Chairman of the Board during
1998; Mr. Harrison became Chairman effective January 1, 1999. In March 1999,
Dr. Jaeger resigned as a director of the Company and its subsidiaries, while
remaining a consultant to the Company.
A-8
22
(6) As per agreement with the Compensation and Incentive Stock Option Committee,
half of the bonus earned under the Key Employee Incentive Plan otherwise
payable in cash was instead paid in the form of a grant of incentive stock
options made in 1998.
(7) Mr. Cannon who had previously resigned from his executive positions, entered
into an agreement with the Company during the first quarter of 1999,
effective as of December 1, 1998, memorializing his resignation as an
officer and a director of the Company and its subsidiaries. Mr. Cannon
remains a consultant to the Company.
(8) Mr. Rogers served as Acting Chief Financial Officer of the Company from
November 1, 1998 through March 31, 1999 and had previously during 1998
provided financial consulting services to the Company. Mr. Rogers is an
employee of Primary, The One For Solutions ("Primary"), a consultant to the
Company. His services were provided pursuant to an agreement between the
Company and Primary. All payments attributed to Mr. Rogers in the Summary
Compensation Table were paid to Primary.
(9) Includes $30,000 in relocation expenses reimbursed by the Company.
INCENTIVE STOCK OPTION PLAN
Under the Company's 1991 Incentive Stock Option Plan, as amended (the
"Plan"), options to purchase up to 1,545,490 shares of Common Stock may be
granted to key employees of the Company who are deemed to be significant
contributors to the Company's operations or to directors who are not full-time
employees of the Company or any subsidiary ("outside directors"). Of these
shares, no more than 129,000 may be issued as nonqualified options. The
Compensation and Incentive Stock Option Committee (the "CISOC") of the Board of
Directors, which, except as described below with respect to grants to outside
directors, administers the Plan, is composed of Mr. Donofrio, Chair of the
Committee, Mr. Nordlicht, Dr. Lazay, Dr. Lai, and Mr. Schmitz. The award of an
option, when made by the CISOC, is made based in each case on an evaluation of
an employee's past or potential contribution to the Company. Approximately 67
employees of the Company and its subsidiaries are currently eligible to
participate in the Plan.
The stock options granted to key employees by the CISOC under the Plan may
be either incentive stock options conforming to the provisions of Section 422 of
the Internal Revenue Code, or nonqualified options. However, to the extent that
the aggregate fair market value (determined at the time an option is granted) of
stock with respect to which incentive stock options are exercisable for the
first time by an employee during any calendar year exceeds $100,000, such
options shall be treated as non-qualified options. The stock options to be
granted to outside directors must be nonqualified options.
With respect to options granted to key employees, the purchase price for
shares under each option (incentive or nonqualified) is determined by the CISOC,
but will not be less than 100% of the fair market value of the stock on the date
of the grant. Such options become exercisable in the manner determined by the
CISOC, or, if no schedule for exercise is established, in three equal annual
installments, beginning one year after the date of grant and continue in effect
for ten years. If an employee, at the time the option is granted, owns more than
10% of the Company's voting stock, the option price for incentive stock options
will be not less than 110% of the fair market value of the Common Stock on the
date of grant, and the option will continue in effect for not more than five
years.
Exercisable options may be exercised at any time an optionee is
continuously employed by the Company and for three months after termination of
employment (unless employment is terminated for cause involving personal
misconduct in the judgement of the CISOC). No options may be granted under the
Plan after ten years from the effective date of the Plan. With respect to all
options which may granted under the Plan, upon exercise of an option, the
exercise price must be paid in full either in cash or in shares of Common Stock
of the Company. Options are nontransferable, except by will or by the laws of
descent and distribution.
Each outside member of the Board of Directors on May 21, 1991 was
automatically granted a nonqualified option to purchase 5,000 shares at a per
share purchase price equal to the fair market value of the stock on that day.
Each person who subsequently becomes an outside member of the Board of
Directors, without any action of the CISOC, shall receive an initial grant of a
nonqualified option at the fair market value
A-9
23
of the stock on the date the option is granted to purchase 5,000 shares on the
last business day in the year in which the outside director was elected a
director by the stockholders for the first time. Each such nonqualified option
for 5,000 shares becomes exercisable one year after the date of grant, and
continues in effect for ten years. In addition, on the last business day of
December in each year, each outside director then in office is to be granted,
without any action by the CISOC, a nonqualified option to purchase 1,000 shares.
Such nonqualified options to purchase 1,000 shares become exercisable in three
equal annual installments, beginning one year after the date of grant and
continue in effect for ten years. All options granted to an outside director
become exercisable when such director ceases to serve as a director for any
reason, except termination for cause, as long as such director has then served
as a director of the Company for two consecutive years, including, for this
purpose, time served as a director before the adoption of the Plan.
The Plan replaced the Company's prior incentive stock option plan (the "Old
Plan") under which options could no longer be granted after November 11, 1991.
As of July 14, 1999, options to purchase 7,636 shares remained outstanding under
the Old Plan at an average per share price of $3.38, and options to purchase
1,066,183 shares were outstanding under the Plan at an average per share price
of $9.56. As of July 14, 1999, 374,097 shares remained available for grant under
the Plan. As of July 14, 1999, the market value of a share underlying an option
granted under the Plan was $11.50, and the aggregate market value of all shares
reserved for the Plan was $16,563,220 on that date. The number of options to be
granted in 1999 and the value of such options are indeterminable at this time.
The Plan may be amended from time to time by the Board of Directors,
subject to the approval of the stockholders for certain types of amendments.
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information regarding stock options granted
during the fiscal year ended December 31, 1998 with respect to (a) all
individuals serving as the Company's Chief Executive Officer or acting in a
similar capacity during the fiscal year ended December 31, 1998, regardless of
compensation level, and the two other most highly compensated executive officers
of the Company and its Subsidiaries who were serving as executive officers as of
December 31, 1998 and whose total annual salary and bonus exceeded $100,000, and
(b) one additional individual who, although no longer serving as an executive
officer of the Company or its Subsidiaries as of December 31, 1998, received an
annual salary and bonus in excess of
A-10
24
$100,000 for the year and for whom disclosure would have been provided had he
been serving as an executive officer as of December 31, 1998. The Company has
never granted any stock appreciation rights.
INDIVIDUAL GRANTS
POTENTIAL
REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL
NUMBER OF OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM**
OPTIONS IN FISCAL EXERCISE EXPIRATION ---------------------
NAME GRANTED(#)* YEAR PRICE($/SH) DATE 5%($) 10%($)
- ---- ----------- ---------- ----------- ---------- --------- ---------
Charles B. Harrison............. 50,000 12.86% 7.25 4-13-08 199,850 492,250
25,000 6.43% 6.0465 10-13-08 5,163 86,463
25,000 6.43% 20.00 10-13-08 (343,675) (262,375)
Raymond E. Jaeger(1)............ 50,000 12.86% 8.125 6-1-08 223,950 551,650
24,247 6.24% 8.125 3-13-08 108,602 267,517
Bruce A. Cannon(2).............. 8,000 2.06% 8.125 6-1-08 35,832 88,264
9,242 2.40% 8.125 3-13-08 41,395 101,967
John E. Chapman................. 14,000 3.60% 8.125 6-1-08 62,706 154,462
17,650 4.54% 8.125 3-13-08 79,054 194,732
John Rogers(3).................. 0 0% N/A N/A N/A N/A
- ---------------
(1) Dr. Jaeger served as Chief Executive Officer and President until April 1998,
when Mr. Harrison assumed those positions. At that time Dr. Jaeger became a
consultant to the Company. Dr. Jaeger served as Chairman of the Board during
1998; Mr. Harrison became Chairman effective January 1, 1999. In March 1999,
Dr. Jaeger resigned as a director of the Company and its subsidiaries, while
remaining a consultant to the Company.
(2) Mr. Cannon who had previously resigned from his executive positions, entered
into an agreement with the Company during the first quarter of 1999,
effective as of December 1, 1998, memorializing his resignation as an
officer and a director of the Company and its subsidiaries. Mr. Cannon
remains a consultant to the Company.
(3) Mr. Rogers served as Acting Chief Financial Officer of the Company from
November 1, 1998 through March 31, 1999 and had previously during 1998
provided financial consulting services to the Company. Mr. Rogers is an
employee of Primary, The One For Solutions ("Primary"), a consultant to the
Company. His services were provided pursuant to an agreement between the
Company and Primary. All payments attributed to Mr. Rogers in the Summary
Compensation Table were paid to Primary.
* Except for the 25,000 options granted to Mr. Harrison at 150% of fair market
value and the 25,000 options granted to Mr. Harrison at an exercise price of
$20.00 per share, shown above, all options set forth were granted under the
Company's Stock Option Plan at 100% of the fair market value of the shares
at the time the options were granted are intended to be, and with few
exceptions, will be, incentive stock options. All options are exercisable in
full three years from the date of grant in cumulative annual installments of
33 1/3% commencing one year after the date of grant, and expire ten years
after the date of grant.
** The dollar gains under these columns result from calculations assuming 5%
and 10% growth rates as set by the Securities and Exchange Commission and
are not intended to forecast future price appreciation of the Common Stock
of the Company. The gains reflect a future value based upon growth at these
prescribed rates. The Company did not use an alternative formula for a grant
date valuation, an approach which would state gains at present, and
therefore lower, value. The Company is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown
or volatile factors.
A-11
25
Options have value to the listed executives and to all option recipients
only if the stock price advances beyond the grant date price shown in the table
during the effective option period.
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table shows information regarding stock options exercised
during the fiscal year ended December 31, 1998 with respect to (a) all
individuals serving as the Company's Chief Executive Officer or acting in a
similar capacity during the fiscal year ended December 31, 1998, regardless of
compensation level, and the two other most highly compensated executive officers
of the Company and its Subsidiaries who were serving as executive officers as of
December 31, 1998 and whose total annual salary and bonus exceeded $100,000, and
(b) one additional individual who, although no longer serving as an executive
officer of the Company or its Subsidiaries as of December 31, 1998, received an
annual salary and bonus in excess of $100,000 for the year and for whom
disclosure would have been provided had he been serving as an executive officer
as of December 31, 1998.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT FY-END( ) AT FY-END($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ----------- ----------- ------------- ----------- -------------
Charles B. Harrison......... 0 0 333 100,667 0 0
Raymond E. Jaeger(1)........ 0 0 76,000 90,247 0 0
Bruce A. Cannon(2).......... 0 0 53,667 26,575 0 0
John E. Chapman............. 0 0 81,333 44,317 0 0
John Rogers(3).............. 0 0 0 0 0 0
- ---------------
(1) Dr. Jaeger served as Chief Executive Officer and President until April 1998,
when Mr. Harrison assumed those positions. At that time Dr. Jaeger became a
consultant to the Company. Dr. Jaeger served as Chairman of the Board during
1998; Mr. Harrison became Chairman effective January 1, 1999. In March 1999,
Dr. Jaeger resigned as a director of the Company and its subsidiaries, while
remaining a consultant to the Company.
(2) Mr. Cannon who had previously resigned from his executive positions, entered
into an agreement with the Company during the first quarter of 1999,
effective as of December 1, 1998, memorializing his resignation as an
officer and a director of the Company and its subsidiaries. Mr. Cannon
remains a consultant to the Company.
(3) Mr. Rogers served as Acting Chief Financial Officer of the Company from
November 1, 1998 through March 31, 1999 and had previously during 1998
provided financial consulting services to the Company. Mr. Rogers is an
employee of Primary, The One For Solutions ("Primary"), a consultant to the
Company. His services were provided pursuant to an agreement between the
Company and Primary. All payments attributed to Mr. Rogers in the Summary
Compensation Table were paid to Primary.
PENSION PLAN TABLE
The Company has in effect a career average defined benefit plan (the
"Defined Benefit Plan") for employees of the Company and its subsidiaries.
Generally, after completing five years of participation in the Defined Benefit
Plan or upon normal retirement at age 65, whichever is earlier, a participant is
entitled to a pension under the Defined Benefit Plan based on the average annual
compensation received during the ten consecutive highest paid years in which he
was a plan participant, or such shorter period as he was employed by the
Company. The following table shows, as of December 31, 1998, estimated annual
benefits payable upon
A-12
26
retirement under the Company's Defined Benefit Plan (including amounts
attributable to any defined benefit supplementary or excess pension award plan)
in specified compensation and years of service classifications:
YEARS OF SERVICE
REMUNERATION 15 20 25 30 35
- ------------ ------ ------ ------ ------ ------
125,000............................... 20,517 27,356 34,195 34,195 34,195
150,000............................... 25,767 34,356 42,945 42,945 42,945
175,000............................... 27,867 37,156 46,445 46,445 46,445
200,000............................... 27,867 37,156 46,445 46,445 46,445
225,000............................... 27,867 37,156 46,445 46,445 46,445
250,000............................... 27,867 37,156 46,445 46,445 46,445
275,000............................... 27,867 37,156 46,445 46,445 46,445
300,000............................... 27,867 37,156 46,445 46,445 46,445
400,000............................... 27,867 37,156 46,445 46,445 46,445
450,000............................... 27,867 37,156 46,445 46,445 46,445
500,000............................... 27,867 37,156 46,445 46,445 46,445
A participant's eligible compensation for purposes of the Defined Benefit
Plan generally includes all of his annual cash compensation including amounts
deferred by the participant pursuant to the Company's 401(k) plan. The only
difference between the covered compensation covered by the Defined Benefit Plan
and the annual compensation reported in the Summary Compensation Table is the
timing of bonus payments.
The benefits listed in the table have been computed on a straight life
annuity basis and are not subject to any deduction for social security or other
offset amounts. As of December 31, 1998, Mr. Harrison, Dr. Jaeger and Messrs.
Cannon and Chapman had 1, 17, 15 and 14 years of credited service respectively.
In addition to the Company's Defined Benefit Plan, the Company has a
defined contribution plan under which annual contributions may be authorized by
the Compensation and Incentive Stock Option Committee of the Board for all
employees with at least one year of service (the "Defined Contribution Plan").
Contributions of 3% of annualized salary were authorized for 1996, including
$4,500 for Dr. Jaeger, $4,046 for Mr. Cannon and $4,500 for Mr. Chapman.
Contributions of 2% of annualized salary were authorized for 1997, including
$6,694 for Dr. Jaeger, $3,867 for Mr. Cannon and $5,681 for Mr. Chapman. No
Contributions were authorized for any executive officers for 1998.
Mr. Rogers who served as Acting Chief Financial Officer from November 1,
1998 through March 31, 1999, is an employee of Primary, The One For Solutions, a
consultant to the Company, and is not eligible for participation in the Defined
Benefit Plan or the Defined Contribution Plan.
SUPPLEMENTAL RETIREMENT BENEFITS
The Company has agreements with Dr. Jaeger, Mr. Cannon and Mr. Chapman,
which provide retirement benefits designed to be supplemental to other
retirement benefits payable to them. These payments are intended to compensate
these executives for restrictions imposed on highly compensated executives by
the Internal Revenue Code, the result of which is that the percentage of
spendable retirement income these executives are eligible to receive under the
Company's retirement programs relative to their current levels of compensation
is less then that of employees at lower salary levels. The amount of the
supplemental retirement benefit is calculated by multiplying the Executive's
average annual compensation (including 401(k) payments and bonus payments up to
a certain limitation) over a three year period when his compensation is highest
by a percentage based on the number of years the executive is employed by the
Company (the "Annual Percentage Amount"). The product is reduced by the amount
of other retirement benefits payable to the executive, resulting in the annual
supplemental retirement benefit payable to the executive. Under the agreements
with Messrs. Cannon and Chapman, the Annual Percentage Amount is 40% if the
executive works for the Company for 15-19 years; 60% if the executive works for
the Company for 20 to 24 years and 65% if the
A-13
27
executive works for the Company for 25 years or more. Under the agreement with
Dr. Jaeger, the Annual Percentage Amount is 60% if Dr. Jaeger works for the
Company for 15 years with the Annual Percentage Amount increasing two percent
for each additional year he works for the Company up to a maximum of 70% for 20
or more years of service. In April 1999, in connection with the appointment of
Mr. Harrison as President and CEO of the Company, Dr. Jaeger's Supplemental
Retirement Agreement was amended to provide that a bonus paid in stock options
as opposed to cash, will be considered as if paid in cash for the purpose of
determining the amount of bonus payments he received in calculating his
supplemental retirement benefit. No benefit is payable under any of the
agreements if the executive works for the Company for less than 15 years, except
as described below. Under each of the agreements, the supplemental retirement
benefits are payable over 15 years in equal monthly installments after the
executive's retirement, which will normally occur upon his 65th birthday.
However, the executives, upon commencement of the agreements, have been given
the option to prospectively elect to have benefits commence upon their 60th
birthday if they elect early retirement. The supplemental retirement benefit is
subject to forfeiture if the executive is terminated for cause or competes with
the Company.
The Company has obtained corporate owned variable universal life insurance
policies on each of the executives which are being used to fund the supplemental
retirement benefits.
The following table shows for each executive the percentage of average
annual compensation, assuming bonus payments up to the limitation, that would be
paid under all retirement programs (including the Supplemental Retirement
Agreement) and under the Supplemental Retirement Agreements alone:
AT AGE 60 AT AGE 65
------------------------------------- -------------------------------------
YEARS TOTAL SUPPLEMENTAL YEARS TOTAL SUPPLEMENTAL
OF RETIREMENT RETIREMENT OF RETIREMENT RETIREMENT
SERVICE % % SERVICE % %
------- ---------- ------------ ------- ---------- ------------
Dr. Jaeger(1)............. 17 64.0% 39.0% 20 70.0% 51.7%
Mr. Cannon(2)............. 17 40.0% 9.4% 17 40.0% 9.4%
Mr. Chapman............... 32 65.0% 46.0% 37 65.0% 39.9%
- ---------------
(1) Dr. Jaeger has entered into a Restated Employment Agreement with the Company
which provides, among other things, for him to render services through June
12, 2001 at which date Dr. Jaeger would have a total of twenty years of
service with the Company. That agreement is described more fully below in
the section entitled "Employment Agreements and Change-in-Control
Arrangements."
(2) Mr. Cannon has entered an agreement with the Company dated as of December 1,
1998 which provides, among other things, for him to render consulting
services through December 1, 2000 at which date Mr. Cannon would have a
total of seventeen full years of service with the Company. That agreement is
described more fully below in the section entitled "Employment Agreements
and Change-in-Control Arrangements."
Under each of the Supplemental Retirement Agreements, if the executive
leaves the Company in the 12 month period after a Change in Control, or an
entity which acquires the Company, through merger, consolidation or the purchase
of assets either does not retain the executive or does not agree to assume the
Company's obligations under these agreements, the executives who have at least
six years of service to the Company will be entitled to a supplemental
retirement benefit, with the Annual Percentage Amount to be 4% for six years of
service and increasing in increments of 4% for each additional year of service
up to 15 years, at which point the normal method of calculating the Annual
Percentage Amount is applied. In such circumstances, the payment of the
supplemental retirement benefit is accelerated and paid in a lump sum, subject
to a discount for the then present value of the benefit. Moreover, if the
supplemental retirement benefit paid under these circumstances is considered to
be a "Parachute Payment" and when combined with all other payments to be made to
the executive by the Company considered to be a Parachute Payment would result
in an Excess Parachute Payment under the Internal Revenue Code, the amount of
the supplemental retirement benefit will be reduced so that the total of all
Parachute Payments to the executive do not constitute an Excess Parachute
Payment; provided, however, that if the total Parachute Payments received by the
executive from the Company exceed 120% of the amount of all Parachute Payments
not including any amount that would be
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28
considered an Excess Parachute Payment, the supplemental retirement will not be
reduced. Under IRS regulations, an Excess Parachute Payment results in the
Company being prohibited from taking a deduction for all Parachute Payments and
an excise tax of 20% of the payment is imposed upon the recipient of the
Parachute Payment.
EMPLOYMENT AGREEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company has employment agreements with Mr. Harrison and Mr. Chapman.
Mr. Harrison, effective April 13, 1998, became President and Chief Executive
Officer of the Company and Chief Executive Officer of each of its wholly-owned
subsidiaries. He also became a Director of General Photonics, LLC, and,
effective January 1, 1999, Chairman of the Board of Directors of the Company.
Mr. Chapman is President of SpecTran Communication Fiber Technologies, Inc., a
wholly-owned subsidiary of the Company, and Senior Vice President-Technology of
the Company. Dr. Jaeger served as President and Chief Executive Officer of the
Company and Chief Executive Officer of each of its wholly owned subsidiaries
until April 13, 1998 when he became a consultant to the Company. He remained
Chairman of the Board of Directors of the Company through December 31, 1998. Dr.
Jaeger resigned from the Board of Directors of the Company and each of its
wholly owned subsidiaries and from the Board of General Photonics, LLC in March
1999. The Company's employment agreement with Dr. Jaeger was superceded on April
13, 1998 by a Restated Employment Agreement. Mr. Cannon was Senior Vice
President, Chief Financial Officer, Secretary and Treasurer of the Company and
Secretary and Treasurer of each of the Company's wholly owned subsidiaries until
he resigned from all of his positions with the Company during the last quarter
of 1998. The Company's employment agreement with Mr. Cannon was superceded by
another agreement entered into during the first quarter of 1999 effective as of
December 1, 1998 memorializing his resignation as an officer and director of the
Company and its subsidiaries.
The employment agreement with Mr. Harrison has a base term of one year from
April 13, 1998 to April 12, 1999. The base term for this agreement is
automatically renewed on a daily basis so that there is always a remaining term
of one year, unless the outside members of the Board of Directors terminate the
automatic renewal feature and set a termination date, which must be one year
from the Board's resolution to terminate. The Company has agreed to use its best
efforts to nominate Mr. Harrison for election to the Board of Directors. While
Mr. Harrison's employment agreement provides for an annual salary currently
equal to $250,000, with future increases as determined by the Board of
Directors, during the second half of 1998, Mr. Harrison voluntarily reduced his
salary by 10%, to $225,000 as part of the Company's cost control initiatives. In
accordance with Mr. Harrison's employment agreement, (a) at the first meeting of
the Compensation and Incentive Stock Option Committee after his first day as a
full time employee of the Corporation, he was granted stock options to purchase
fifty thousand shares of Common Stock of the Company at an exercise price equal
to market price on date of grant and, (b) six months later, he was granted
options to purchase up to an additional fifty thousand shares of Common Stock,
twenty five thousand of which to be at a per share exercise price equal to 150%
of the closing price on date of grant, with the second twenty five thousand at a
per share exercise price of $20.00. Mr. Harrison's employment agreement also
provides that at the Company's request, for a one year period following the
termination of his employment, Mr. Harrison, will not solicit any past, present
or future customers of the Company in any way relating to any business in which
the Company was engaged during the term of his employment or planned during the
term of his employment to enter, or induce or actively attempt to influence any
other employee or consultant to the Company to terminate his or her employment
or consulting with the Company. During such one year period, Mr. Harrison will
receive compensation at 75% of the level received during the last year of
employment with the Company and benefits paid or maintained in the same fashion
and in amounts not less than those received during his last year of employment
and will provide consulting services at the Company's request. Additional
provisions of Mr. Harrison's employment agreement are described below.
The employment agreement with Mr. Chapman has a base term of one year from
June 1, 1992 to May 31, 1993. The base term for this agreement is automatically
renewed on a daily basis so that there is always a remaining term of one year,
unless the outside members of the Board of Directors terminate the automatic
renewal feature and set a termination date, which must be one year from the
Board's resolution to
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29
terminate. Mr. Chapman's employment agreement provides for an annual salary
currently equal to $196,464, with future increases as determined by the Board of
Directors. The employment agreement with Mr. Chapman provides that for one year
following the termination of employment, he will not solicit any customers of
the Company or induce any employee to leave the Company. Additional provisions
of Mr. Chapman's employment agreement are described below.
Under their employment agreements, Messrs. Harrison and Chapman are
eligible for annual bonuses to be awarded by the Board of Directors in its
discretion and are entitled to participate in any pension, profit-sharing,
insurance or other benefit plan of the Company if eligible under such plan or
program. They have agreed to transfer to the Company any interest in any
inventions developed while employed by the Company. Each of them also agreed not
to disclose any trade secrets of the Company. Each of their employment
agreements further provide that if the executive suffers a partial disability,
or a total disability that has continued for less than six months, that
executive continues to receive salary and benefits until the end of the
employment period. If his total disability continues for six months or more,
then he will be paid at the rate of 75% of his salary for so long during the
employment period as the total disability lasts, or one year, whichever is
longer. If the executive dies, one year's salary will be paid to his spouse or
estate. The employment agreements also provide that if the Company dismisses
either of them without cause, the Company will pay such executive his salary and
maintain his benefits for six months or the balance of the employment period,
whichever is longer and, if said executive takes other employment during the
six-month period, the Company's obligation to him is limited to salary alone for
the remainder of the six months. If either of them takes other employment later
than six months from dismissal by the Company but before the end of the
employment period, the Company's obligations to that executive then cease.
The employment agreements with Messrs. Harrison and Chapman further provide
that if there is a Change in Control and either (i) the executive is dismissed
without cause up to and including twelve months from such Change in Control, or
(ii) the executive voluntarily leaves the employ of the Company up to and
including twelve months from such Change in Control, then in either case the
Company will pay the executive his salary and maintain his benefits for twelve
months from his dismissal or voluntary departure. If, however, the executive
takes other employment during that twelve month period, the Company's obligation
to him is limited to salary alone. A "Change in Control" is defined as [A] the
date of public announcement that a person has become, without the approval of
the Company's Board of Directors, the beneficial owner of 20% or more of the
voting power of all securities of the Company then outstanding; [B] the date of
the commencement of a tender offer or tender exchange by any person, without the
approval of the Company's Board of Directors, if upon the consummation thereof
such person would be the beneficial owner of 20% or more of the voting power of
all securities of the Company then outstanding; or [C] the date on which
individuals who constituted the Board of Directors of the Company on the date
the employment agreement was adopted cease for any reason to constitute a
majority thereof, provided that any person becoming a Director subsequent to
such date whose election or nomination was approved by at least three quarters
of such incumbent Board of Directors shall be considered as though such person
were an incumbent Director. Messrs. Harrison and Chapman have acknowledged that
the consummation of the Merger Agreement will not constitute a Change in
Control, as defined above.
During 1998 Dr. Jaeger had two different employment agreements with the
Company: an Employment Agreement that had been in effect since 1992 (the
"Employment Agreement") covering the period January 1, 1998 through April 12,
1998; and a Restated Employment Agreement (the "Restated Employment Agreement")
covering the remainder of 1998, entered in conjunction with the appointment of
Mr. Harrison as President and CEO of the Company. The Employment Agreement
provided for an annual salary then equal to $217,000 with Dr. Jaeger being
eligible for annual bonuses to be awarded by the Board of Directors in its
discretion and being entitled to participate in any pension, profit-sharing,
insurance or other benefit plan of the Company if he were eligible under such
plan or program. Dr. Jaeger agreed to transfer to the Company any interest in
any inventions he developed while employed by the Company and agreed not to
disclose any trade secrets of the Company and not to solicit any customers of
the Company or induce any employee to leave the Company for one year following
termination of his employment. The Employment Agreement also had the same
provisions for death, disability, partial disability, dismissal without cause
and Change in Control as the
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30
employment agreements (described above) with Messrs. Harrison and Chapman. Under
the Restated Employment Agreement, which supercedes the Employment Agreement and
extends from April 13, 1998 until June 12, 2001, Dr. Jaeger shall provide advice
and assistance to the Board of Directors and the Chief Executive Officer and
perform such projects as reasonably requested and mutually agreed, with it being
anticipated that he will take an active role in providing advice and counsel
with respect to the Company's patent and technology position and licensing
arrangements, including those with Corning Incorporated and Lucent Technologies
Inc., as well as consulting support for partnering and alliances with other
firms for strategic purposes. In addition, Dr. Jaeger will continue to serve as
the Company's representative to the International Wire and Cable Symposium
Committee, among other things. The Restated Employment Agreement provides that
Dr. Jaeger will have the same benefits as provided in the Employment Agreement
except that (a) he will be paid a fixed annual salary of $250,000 and (b) for
the 1998 calendar year only, Dr. Jaeger was eligible to participate in the
Company's Employee Profit Sharing Plan and was eligible for a target bonus of
25% of his base salary under the Company's Key Employee Incentive Plan, to be
awarded at the discretion of the Board of Directors based upon his performance
during 1998. Thereafter, Dr. Jaeger is not eligible to participate in the all
employee Profit Sharing Plan or the Key Employee Incentive Plan. In accordance
with the Restated Employment Agreement, Dr. Jaeger was also granted options to
purchase 50,000 shares of the Company's Common Stock under the Company's
Incentive Stock Option Plan. As in the Employment Agreement, the Restated
Employment Agreement provides that Dr. Jaeger agreed to transfer to the Company
any interest in any inventions he developed while employed by the Company and
agreed not to disclose any trade secrets of the Company and not to solicit any
customers of the Company or induce any employee to leave the Company for one
year following termination of his employment. The Restated Employment Agreement
contains the same provisions for death, disability, partial disability,
dismissal without cause and Change in Control as the employment agreements
described above with Messrs. Harrison and Chapman and also provides that Dr.
Jaeger will be covered under the Company's medical and dental insurance
programs, or provided with identical or substantially similar coverage, until
age 65.
During 1998 Mr. Cannon had two different employment agreements with the
Company: an Employment Agreement that had been in effect since 1992 (the "Cannon
Employment Agreement") covering the period January 1, 1998 through November 30,
1998; and an Agreement (the "Cannon Agreement") covering the remainder of 1998.
The Cannon Employment Agreement provided for an annual salary then equal to
$144,300 with Mr. Cannon being eligible for annual bonuses to be awarded by the
Board of Directors in its discretion and being entitled to participate in any
pension, profit-sharing, insurance or other benefit plan of the Company if he
were eligible under such plan or program. Mr. Cannon agreed to transfer to the
Company any interest in any inventions he developed while employed by the
Company and agreed not to disclose any trade secrets of the Company and not to
solicit any customers of the Company or induce any employee to leave the Company
for one year following termination of his employment. The Cannon Employment
Agreement also had the same provisions for death, disability, partial
disability, dismissal without cause and Change in Control as the employment
agreements (described above) with Messrs. Harrison and Chapman. Under the Cannon
Agreement, which supercedes the Cannon Employment Agreement and which extends
from December 1, 1998 to December 1, 2000, Mr. Cannon memorialized the terms of
his resignation as an officer and director of the Company and its subsidiaries
and agreed to provide advice and assistance to the Board of Directors, Chief
Executive Officer and/or Chief Financial Officer of the Corporation, to perform
such projects as reasonably requested and mutually agreed and to remain
available to act as a consultant to the Company. Mr. Cannon shall be paid annual
compensation at the rate of $86,589 during the term of the Cannon Agreement. Any
options previously granted to Mr. Cannon that have not yet vested will continue
to vest in their normal course, but any options not vested by December 1, 1999
shall expire as of such date. In addition, all options not exercised on or
before March 31, 2001 at 5:00 p.m. shall expire at such time. Mr. Cannon is not
entitled to any automobile allowance pursuant to the agreement, but the Cannon
Agreement otherwise provides for the same benefits contained in the Cannon
Employment Agreement. If Mr. Cannon elects to terminate the Cannon Agreement or
takes other employment on or before November 30, 1999, then Mr. Cannon shall
only be entitled to annual compensation and benefits earned up to the date of
his departure. If Mr. Cannon terminates the Cannon Agreement or takes other
employment on or after December 1, 1999, the Company will continue to pay Mr.
Cannon annual compensation but no benefits through the end of the term. If the
Company
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terminates the Cannon Agreement without cause, as defined therein, the Company
shall continue to provide Mr. Cannon with full compensation and benefits for the
remainder of the term. The Company may accelerate the payments under the Cannon
Agreement, in its discretion, but such acceleration does not affect Mr. Cannon's
eligibility to receive benefits for the remainder of the term. The Cannon
Agreement also provides that Mr. Cannon not solicit any customers of the Company
or induce any employees to leave the Company. In the event Mr. Cannon becomes
either partially or totally disabled during the term of the Cannon Agreement the
Company shall continue, during the term of the Cannon Agreement, to pay Mr.
Cannon his annual compensation and benefits. If Mr. Cannon dies, the payments of
annual compensation will be made to his spouse or estate. Unlike the Cannon
Employment Agreement, the Cannon Agreement does not contain a provision relating
to a termination of his employment in connection with a Change in Control of the
Company.
INDEPENDENT CONTRACTOR AGREEMENT
The Company was party to an Independent Contractor Agreement with Primary,
The One For Solutions ("Primary"), which, among other things, provided for John
Rogers, an employee of Primary to provide financial consulting services to the
Company and, beginning November 1, 1998, to serve as Acting Chief Financial
Officer of the Company. Mr. Rogers held that position from November 1, 1998
through March 31, 1999, at which time the Independent Contractor Agreement
expired. Under the Independent Contractor Agreement, for weeks in which Primary
provided services of less than 40 man hours, the Company paid Primary at the
rate of $200 per hour for each man hour worked. In weeks in which Primary
provided services in excess of 40 man hours but less than 55 man hours, Primary
was paid a fixed fee of $8,000 for the week. In weeks in which Primary provided
services in excess of 55 man hours, the Company paid Primary $8,000 plus $200
per hour for each hour worked during the week in excess of 55 man hours. In
addition, the Company reimbursed Primary for its reasonable expenses incurred in
connection with service performed for the Company. The Company and Primary each
agreed to treat the other party's proprietary information that was disclosed to
it as confidential. In addition, the Company and Primary each agreed that during
the term of the Agreement and for a period of two years thereafter, it would not
solicit, divert, take away, or attempt to solicit, divert or take away, any of
the other party's clients, customers, employees or independent contractors.
Primary will continue to provide transitional consulting services to the Company
on substantially similar terms as provided in the agreement through all or part
of April 1999 and may provide additional services as requested by the Company
and mutually agreed.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation and Incentive Stock Option Committee is currently composed
of the Company's outside (i.e., non-employee) Directors, Mr. Donofrio, Chair of
the Committee, Dr. Lazay, Mr. Nordlicht, Dr. Lai and Mr. Schmitz (Mr. Harrison
served on the Compensation and Incentive Stock Option Committee until his
appointment as President and Chief Executive Officer of the Company on April 13,
1998). None of the outside Directors is currently, or has ever been, an officer
or employee of the Company, or has had any relationship, or has been a party to
any transaction, with the Company as to which disclosure is required, except as
set forth in prior proxy statements or below.
Mr. Nordlicht is a member of the law firm of Nordlicht & Hand, which has
provided and continues to provide legal services to the Company. During 1998,
the Company paid Nordlicht & Hand legal fees for services rendered and
disbursements advanced in the amount of $164,960. Mr. Schmitz's Company, Quest
Capital was paid $40,132.58 by the Company for financial consulting services.
COMPENSATION AND INCENTIVE STOCK OPTION COMMITTEE REPORT ON EXECUTIVE
COMPENSATION
The Compensation and Incentive Stock Option Committee (the "Compensation
Committee") has been delegated responsibility for all matters relating to the
compensation of senior executives of the Company, such as the Chief Executive
Officer, Chief Financial Officer, Senior Vice Presidents and the Presidents of
the Company's operating subsidiaries, including establishing and administering
the Company's policies and plans governing annual and long-term compensation.
The Compensation Committee and its members also become involved in hiring,
retention and performance reviews of this senior executive group. It reports to
the Board of
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Directors, which periodically reviews and approves or ratifies committee actions
where necessary or appropriate. The Committee is composed of the Company's
outside Directors, currently, Mr. Donofrio, Chair of the Committee, Dr. Lazay,
Mr. Nordlicht, Dr. Lai and Mr. Schmitz. Mr. Harrison served on the Compensation
and Incentive Stock Option Committee until his appointment as President and
Chief Executive Officer of the Company on April 13, 1998.
COMPENSATION PHILOSOPHY
The fundamental objective of the Company's executive compensation policy is
to increase shareholder value and to align executives' and shareholders'
interests both in the near and longer terms. Executives are compensated with
cash and stock options. The Company's goal is to pay competitive base salaries
coupled with performance based incentive compensation. Incentive compensation is
a function of three factors: the first and most heavily weighted is growth in
earnings before interest, taxes, depreciation and amortization (EBITDA),
essentially a cash flow calculation, less the Company's cost of capital; the
second and next most significant factor is the achievement of individual goals
and projects (or the achievement of a certain percentage of those goals and
projects if they are more than a year's duration) specifically identified at the
beginning of a year; the third factor is a discretionary element designed to
reward exceptional performance not recognized elsewhere, such as seizing an
unanticipated opportunity which provides substantial benefit to the Company not
foreseen at the beginning of the year. While maintaining primary focus on the
overall, consolidated results of the Company, the Committee believes that there
should be an element of reward for exceptional performance at the operating
subsidiary level under certain circumstances. The underlying philosophy is that
these elements will produce a stronger more economically successful company in
the near and longer-term which in turn will be reflected in the Company's stock
price. The Company has and will continue to grant stock options (at market price
or higher on date of grant); executives benefit only if the stock price rises.
COMPONENTS OF COMPENSATION, PROGRAMS AND PRACTICES
Overview. Executive compensation is composed of three elements: base
salary; incentive cash awards and stock options. The Company attempts to
structure its base salary so that it is competitive, meaning that base salaries
approximate the fiftieth percentile (50%) of the base salaries (not total
compensation) of comparable companies. Incentive cash awards and stock options
are used so that executives' total compensation is below the fiftieth percentile
for comparable companies if they have achieved less-than-desired-results, at or
about the fiftieth percentile for expected performance, and above the fiftieth
percentile for superior, excellent or outstanding performance.
Base Salaries. The Company generally attempts to establish annual base
salaries for executives, including the Chief Executive Officer, competitive with
base salaries for executives of similarly situated companies within the
industry. The objective is to pay to an executive who is fully competent and
meets normal expectations for performance in his or her position a base salary
at the fiftieth percentile level of the range of base salaries paid to
executives holding comparable positions at similarly situated companies. Base
salaries at approximately the fiftieth percentile level, in conjunction with the
balance of the compensation package, permits the Company to attract and retain
top quality people while meeting the Company's affordability requirements. In
determining executive compensation, the Company reviewed and analyzed reports
and surveys of executive compensation at comparably sized high technology
companies, including those in the electronics industry.
Incentive Cash Compensation. The Company has developed programs under
which key executives can earn bonus cash compensation, dependent upon
performance, that places them at less than, equal to or greater than the
fiftieth percentile level of compensation paid to similar executives in similar
companies. Key executives participate in two plans: the Employee Profit Sharing
Plan ("EPSP") in which all employees participate and the Key Employee Incentive
Plan ("Key Employee Plan"). Officers and selected director-level employees of
the Company and each of its subsidiaries participate in the Key Employee Plan
(although any employee may be eligible for an award under the discretionary
portion of the Key Employee Plan, as described below).
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The Employee Profit Sharing Plan ("EPSP"). All employees, including key
personnel, participate in the EPSP, which awards performance for operating
subsidiary employees based upon the results of their operating subsidiary and
for parent company employees based upon consolidated results. The Committee and
the Board believe that it is advisable for key personnel and all other employees
to share certain identical incentives. Employees of an operating subsidiary or
the parent company can earn a bonus equal to one percent (1%) of their salary if
the operating subsidiary that employs that person (or the consolidated corporate
results for parent company employees) produces at least an eight percent (8%)
return on net revenues ("ROR"). A nine percent (9%) ROR will result in a bonus
equal to two percent (2%) of salary. If the relevant entity produces an ROR
greater than nine percent (9%) then half of each additional percent is added to
the two percent (2%), up to a maximum bonus equal to ten percent (10%) of
salary. To achieve the maximum bonus, a subsidiary or the parent company, as
applicable, would need to generate approximate a twenty five percent (25%) ROR.
No bonuses will be paid to employees of an entity if it earns less than an eight
percent (8%) ROR. Bonuses can be paid out under the EPSP to employees of an
operating subsidiary which individually earns at least an eight percent (8%)
ROR, even if the Company's consolidated results or the results of other
subsidiaries produce an ROR of less than eight percent (8%) or a loss; the
underlying philosophical concept is to provide an award for employees for those
results that they can influence and control directly.
Key Employee Incentive Plan ("Key Employee Plan"). Under the Key Employee
Plan, a bonus pool is created by a specified percentage of the excess of the
Company's consolidated earnings before interest, taxes, depreciation and
amortization (EBITDA), essentially a cash flow calculation, over a cost of
capital charge. Participants are high level employees of the Company (currently
the Company's officers, Presidents and Vice Presidents of the operating
subsidiaries, and specified director-level employees of the Company or its
subsidiaries, totaling 15 individuals in 1998), with the exception of the
discretionary portion of the bonus pool (described below) which may be paid out
to any employee as determined by the Compensation Committee. The bonus pool will
be distributed among participants as follows. Seventy percent (70%) is
essentially dependent upon how much EBITDA exceeds the cost of capital. An
additional seventeen and one half percent (17.5%) is based upon the achievement
of individual goals and projects (or the achievement of a certain percentage of
those goals and projects if they are more than a year's duration) specifically
identified at the beginning of the year. The remaining twelve and one half
percent (12.5%) constitutes a pool to be used for discretionary bonuses, to be
awarded or not to any employee, whether a participant in the remainder of the
Key Employee Plan or not, if the Compensation Committee determines that such
employee made an exceptional contribution to the Company's performance not
recognized elsewhere. To determine how much each participant may be paid from
the bonus pool, he or she is assigned a target bonus percentage which will be
used in determining how much of the bonus pool is allocated to that individual,
which percentage will be adjusted downwards (including to zero) if specified
levels of EBITDA return on operating assets (for the operating subsidiary or the
Company, or a blend of the two, as appropriate for the individual) are not
achieved. While the intent of the Key Employee Plan is to permit participants to
earn total compensation potentially in excess of the fiftieth percentile when
compared to comparable employees in comparable companies as a result of
excellent performance, the Key Employee Plan establishes a maximum amount that
can be paid to any participant under the non-discretionary portions of the Key
Employee Plan to attempt to avoid excessive awards. The Key Employee Plan also
can result in total compensation at or less than the fiftieth percentile if
performance is not excellent. No payments will be made under the Key Employee
Plan unless the Company is profitable after the payments. There is no obligation
to pay out either the discretionary portion of the bonus pool or any remaining
balance if the total of all bonuses distributed is less than the total bonus
pool; disposition of such amounts will be determined by the Compensation
Committee.
Stock Options. Stock option grants are designed to create continued and
long-term incentives for executives and employees to attempt to increase equity
values consistent with the expectations and interests of public shareholders.
All stock option awards are granted under the Company's Incentive Stock Option
Plan. The exercise price of all options so granted is the market price or higher
on the date of grant, with options generally vesting annually in equal amounts
over three years. The amount of grants attempt to place recipients in
approximately the fiftieth percentile (50%) percentile when compared to
comparable employees in comparable companies for long-term compensation.
Recipients benefit only if the stock price rises after the date of grant and
after the options vest.
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Chief Executive Officer Compensation. Dr. Raymond E. Jaeger served as
Chief Executive Officer until April 13, 1998 when Mr. Charles B. Harrison
assumed that position.
As described above, Dr. Jaeger had two different employment agreements with
the Company during 1998. Under the Restated Employment Agreement Dr. Jaeger was
eligible to participate in the Company's Employee Profit Sharing Plan and was
eligible for a target bonus of 25% of his base salary under the Company's Key
Employee Incentive Plan, to be awarded at the discretion of the Board of
Directors based upon his performance during 1998. Thereafter, Dr. Jaeger is not
eligible to participate in either of these two plans.
Mr. Harrison became Chief Executive Officer on April 13, 1998 and served in
that capacity through year-end (and currently) in accordance with an employment
agreement described above. While Mr. Harrison's employment agreement provides
for an annual salary currently equal to $250,000, with future increases as
determined by the Board of Directors, during the second half of 1998, Mr.
Harrison voluntarily reduced his salary by 10%, to $225,000 as part of the
Company's cost control initiatives.
In determining Chief Executive Officer compensation for 1998, the
Compensation and Incentive Stock Option Committee determined that the Company's
performance was below expectations and awarded no bonus or other incentive
compensation to either Dr. Jaeger or Mr. Harrison.
Section 162(m) of the Internal Revenue Code, enacted in 1993, generally
disallows a tax deduction to public companies for compensation over $1,000,000
paid to its chief executive officer and its four other most highly compensated
executives. It is unlikely, at this point in the Company's history, that the
Company will pay executive compensation that might not be deductible under that
Section. Nevertheless, the Company continues to review this matter and whenever
it is advisable will take whatever steps it deems necessary in this regard.
Richard M. Donofrio, Chair
Paul D. Lazay
Ira S. Nordlicht
Lily K. Lai
Robert A. Schmitz
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STOCKHOLDER RETURN
In the graph set forth below, the yearly change for the last five fiscal
years in the Company's cumulative total stockholder return on its Common Stock
is compared with the cumulative total return as shown in the Russell 2000 index,
and in an index of peer issuers selected by the Company(1).
COMPARATIVE FIVE-YEAR TOTAL RETURNS(2)
SPECTRAN CORP., RUSSELL 2000, PEER GROUP
(PERFORMANCE RESULTS THROUGH 12/31/98)
COMPARATIVE FIVE-YEAR RETURNS GRAPH
SPTR RUSSELL PEER GROUP
---- ------- ----------
'1993' 100.00 100.00 100.00
'1994' 41.49 98.18 130.95
'1995' 46.81 126.10 137.59
'1996' 185.11 146.90 147.28
'1997' 81.92 179.75 125.22
'1998' 35.11 175.17 119.57
Assumes $100 invested at the close of trading on the last trading day
preceding the first day of the fifth preceding fiscal year in the Company's
Common Stock, RUSSELL 2000, and Peer Group.
- ---------------
(1) The peer group selected by the Company includes the following companies
engaged in the sale of optical fiber or related products: ADC
Telecommunications, Corning Incorporated, FiberCore, Inc., Galileo
Electro-Optics, Hitachi, Ltd., OptelCom, Optical Cable Company and Ortel
Corporation.
(2) Cumulative total return assumes reinvestment of dividends.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock on July 14, 1999 with respect to (a)
each person or group known to the Company to be the beneficial owner of more
than 5% of the outstanding shares of Common Stock, (b) each Director of the
Company, (c) each executive officer of the Company named in the following
section entitled "Compensation
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of Executive Officers and Directors" and (d) all such named executive officers
and Directors of the Company as a group. Except as set forth below, all of such
shares are held of record and beneficially.
BENEFICIAL PERCENT OF
NAME AND ADDRESS OWNERSHIP COMMON STOCK(1)
- ---------------- ----------- ---------------
Wellington Management Company, LLP...................... 685,000 (2) 9.73%
75 State Street
Boston, Massachusetts 02109
Wellington Trust Company, N.A........................... 465,000 (3) 6.60%
75 State Street
Boston, Massachusetts 02109
EQSF Advisers, Inc. and Martin J. Whitman............... 490,600(4) 6.97%
767 Third Avenue
New York, New York 10017-2023
Dimensional Fund Advisors Inc........................... 402,500 (5) 5.72%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
Dana H. and Doris B. Dalton............................. 368,100 (6) 5.23%
11800 Sunrise Valley Drive, 6th Floor
Reston, Virginia 20191
Raymond E. Jaeger....................................... 217,931 (7) 3.10%
25 Old Village Road
Sturbridge, Massachusetts 01566
Charles B. Harrison..................................... 57,821 (8) *
SpecTran Industrial Park
50 Hall Road
Sturbridge, Massachusetts 01566
Ira S. Nordlicht........................................ 17,332 (9) *
645 Fifth Avenue
New York, New York 10022
Paul D. Lazay........................................... 11,000 (10) *
1704 Oak Creek Drive
Palo Alto, California 94304
Bruce A. Cannon......................................... 68,414 (11) *
125 Adam Street
Holliston, Massachusetts 01746
Richard M. Donofrio..................................... 9,500 (12) *
93 Ansonia Road
Woodbridge, Connecticut 06525
John E. Chapman......................................... 114,883 (13) 1.63%
SpecTran Industrial Park
50 Hall Road
Sturbridge, Massachusetts 01566
Lily K. Lai............................................. 7,000 (14) *
50 Stonebridge Road
Summit, New Jersey 07901
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BENEFICIAL PERCENT OF
NAME AND ADDRESS OWNERSHIP COMMON STOCK(1)
- ---------------- ----------- ---------------
Robert A. Schmitz....................................... 0 (15) 0
Quest Capital
One Dock Street
Stamford, Connecticut 06902
John Rogers............................................. 0 0
SpecTran Industrial Park
50 Hall Road
Sturbridge, Massachusetts 01566
All Directors and executive officers as a group......... 528,217 (16) 7.50%
(ten persons)
- ---------------
* Less than 1%
(1) Percentage of beneficial ownership is based on the 7,040,930 of shares of
Common Stock outstanding on July 14, 1999. Shares of Common Stock subject
to stock options and warrants that are exercisable within 60 days of July
14, 1999 are deemed outstanding for computing the percentage of the person
or group holding such options or warrants, but are not deemed outstanding
for computing the percentage of any other person or group.
(2) This information is based upon information reported by Wellington
Management Company, LLP ("WMC") on a Schedule 13G dated December 31, 1998
and filed with the U.S. Securities and Exchange Commission as of February
10, 1999. WMC states that in its capacity as an investment adviser, it may
be deemed to have beneficial ownership of 685,000 shares of Common Stock
which are owned of record by its clients, including Wellington Trust
Company, NA.
(3) This information is based upon information reported by Wellington Trust
Company, NA ("WTC") on a Schedule 13G dated December 31, 1998 and filed
with the U.S. Securities and Exchange Commission as of February 11, 1999.
WTC states that in its capacity as an investment adviser, it may be deemed
to have beneficial ownership of 465,000 shares of Common Stock which are
owned of record by its clients, including Wellington Management Company,
LLP.
(4) This information is based upon information reported by EQSF Advisers, Inc.
("EQSF") and Martin J. Whitman (the Schedule is considered a joint filing
of both EQSF and Mr. Whitman) on a Schedule 13G dated February 12, 1999 and
filed with the U.S. Securities and Exchange Commission as of February 16,
1999 and amended on April 12, 1999. EQSF states that it beneficially owns
490,600 shares of Common Stock. Martin J. Whitman, the Chief Executive
Officer and controlling person of EQSF, disclaims beneficial ownership of
all such shares. Third Avenue Small-Cap Fund has the right to receive
dividends from and the proceeds from the sale of these 490,600 shares.
(5) This information is based upon information reported by Dimensional Fund
Advisors Inc. ("Dimensional") on a Schedule 13G dated February 12, 1999 and
filed with the U.S. Securities and Exchange Commission as of February 11,
1999. Dimensional states that in its role as investment advisor and
investment manager it possesses both voting and investment power over
402,500 shares of Common Stock, but disclaims beneficial ownership of such
securities.
(6) This information is based upon information reported by Dana H. and Doris B.
Dalton on a Schedule 13G dated March 25, 1999 and filed with the U.S.
Securities and Exchange Commission as of March 29, 1999.
(7) Includes 111,416 shares subject to options exercisable within 60 days. Does
not include 54,831 shares subject to options not exercisable within 60
days.
(8) Includes 47,000 shares subject to options exercisable within 60 days. Does
not include 109,000 shares subject to options not exercisable within 60
days.
(9) Includes 11,000 shares subject to options exercisable within 60 days. Does
not include 2,000 shares subject to options not exercisable within 60 days.
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38
(10) Includes 11,000 shares subject to options exercisable within 60 days. Does
not include 2,000 shares subject to options not exercisable within 60 days.
(11) Includes 65,414 shares subject to options exercisable within 60 days. Does
not include 14,828 shares subject to options not exercisable within 60
days.
(12) Includes 9,000 shares subject to options exercisable within 60 days. Does
not include 2,000 shares subject to options not exercisable within 60 days.
(13) Includes 114,883 shares subject to options exercisable within 60 days. Does
not include 25,767 shares subject to options not exercisable within 60
days.
(14) Includes 7,000 shares subject to options exercisable within 60 days. Does
not include 2,000 shares subject to options not exercisable within 60 days.
(15) Does not include 1,000 shares subject to options not exercisable within 60
days.
(16) Includes 401,713 shares subject to options exercisable within 60 days. Does
not include 188,426 shares subject to options not exercisable within 60
days.
CERTAIN TRANSACTIONS
The matters set forth elsewhere in this Information Statement and in Item 3
of the Schedule 14D-9 are hereby incorporated by reference.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file reports of ownership on Form 3 and changes in
ownership on Form 4 or Form 5 with the Securities and Exchange Commission (the
"SEC"). Such officers, directors and ten percent stockholders are also required
by SEC rules to furnish the Company with copies of all Section 16(a) reports
they file.
Based solely on its review of the copies of such forms received by it to
date, or written representations from certain reporting persons that Forms 5
have been filed for such persons as required, the Company believes that, during
the year ended December 31, 1998, all reporting persons complied with Section
16(a) filing requirements applicable to them.
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39
ANNEX B
LAZARD FRERES LH
July 15, 1999
The Board of Directors
SpecTran Corporation
50 Hall Road
Sturbridge, Massachusetts 01566
Dear Members of the Board:
We understand that SpecTran Corporation (the "Company"), Lucent
Technologies Inc. (the "Acquiror") and its wholly-owned subsidiary, Seattle
Acquisition Inc. (the "Merger Subsidiary"), have entered into an Agreement of
Merger dated as of July 15, 1999 (the "Agreement"), pursuant to which the
Acquiror will commence an offer (the "Offer") to purchase all of the issued and
outstanding shares of the Company's common stock, $0.10 par value (the
"Shares"), at a price of $9.00 per Share net to the seller in cash. The
Agreement also provides that, following consummation of the Offer, Merger
Subsidiary will be merged with and into the Company in a transaction (the
"Merger") in which each remaining Share issued and outstanding prior to the
effective time of the Merger (other than shares to be cancelled, Shares owned by
any subsidiaries of either the Company or the Acquiror (other than the Merger
Subsidiary) and dissenting shares, as provided in the Agreement) will be
converted into the right to receive $9.00 in cash.
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of Shares (other than Merger Subsidiary and its
affiliates) of the $9.00 per Share in cash to be received by such holders in the
Offer and the Merger. In connection with this opinion, we have:
(i) Reviewed the financial terms and conditions of the Agreement;
(ii) Analyzed certain historical business and financial information
relating to the Company;
(iii) Reviewed various financial forecasts and other data provided to
us by the Company;
(iv) Held discussions with members of the senior management of the
Company with respect to the business and prospects of the Company
and its strategic objectives;
(v) Reviewed public information with respect to certain other
companies in lines of businesses we believe to be generally
comparable to the Company;
(vi) Reviewed the financial terms of certain business combinations
involving companies in lines of businesses we believe to be
generally comparable to that of the Company, and in other
industries generally;
(vii) Reviewed the historical stock prices and trading volumes of the
Company's Shares; and
(viii) Conducted such other financial studies, analyses and
investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the foregoing
information, and have not assumed any responsibility for any independent
verification of such information or any independent valuation or appraisal of
any of the assets or liabilities of the Company or the Acquiror, or concerning
the solvency or fair value of either of the foregoing entities. With respect to
financial forecasts, we have assumed that they have been reasonably prepared on
bases reflecting the best currently available estimates and judgments of
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40
management of the Company as to the future financial performance of the Company.
We assume no responsibility for and express no view as to such forecasts or the
assumptions on which they are based.
Further, our opinion is necessarily based on accounting standards,
economic, monetary, market and other conditions as in effect on, and the
information made available to us as of, the date hereof.
In rendering our opinion, we have assumed that the Offer and the Merger
will be consummated on the terms described in the Agreement, without any waiver
of any material terms or conditions by the Company and that obtaining the
necessary regulatory approvals for the Offer and the Merger will not have an
adverse effect on the Company.
Our opinion does not address the relative merits of the transaction
contemplated by the Agreement as compared to any alternative business
transaction that might be available to the Company.
Lazard Freres & Co. LLC is acting as investment banker to the Board of
Directors of the Company in connection with the Offer and Merger and will
receive a fee for our services a substantial portion of which is contingent upon
the closing of the Offer and the Merger.
Our engagement and the opinion expressed herein are for the benefit of the
Company's Board of Directors and our opinion is rendered to the Company's Board
of Directors in connection with its consideration of the transaction. This
opinion is not intended to and does not constitute a recommendation to any
holder of Shares as to whether such holder should tender such Shares in the
Offer or vote for the Merger. It is understood that this letter may not be
disclosed or otherwise referred to without our prior consent, except as may
otherwise be required by law or by a court of competent jurisdiction.
Based on and subject to the foregoing, we are of the opinion that as of the
date hereof the $9.00 per Share in cash to be received by the holders of Shares
(other than Merger Subsidiary and its affiliates) in the Offer and the Merger is
fair to such holders from a financial point of view.
Very truly yours,
LAZARD FRERES & CO. LLC
By James L. Kempner
------------------------------------
James L. Kempner
Managing Director
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