<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
SCHEDULE 14D-9
Solicitation/Recommendation Statement
Pursuant to Section 14(d)(4) of the
Securities Exchange Act of 1934
APPLIED DIGITAL ACCESS, INC.
(Name of Subject Company)
APPLIED DIGITAL ACCESS, INC.
(Name of Person(s) Filing Statement)
Common Stock $0.001 par value
(Title of Class of Securities)
038181103
(CUSIP Number of Class of Securities)
Donald L. Strohmeyer
President and Chief Executive Officer
Applied Digital Access, Inc.
9855 Scranton Road
San Diego, California 92121
858-623-2200
(Name, address and telephone number of person
authorized to receive notice and communications
on behalf of person(s) filing statement)
Copy to:
Gregory M. Gallo, Esq.
Rebecca K. Schmitt, Esq.
Gray Cary Ware & Freidenrich LLP
4365 Executive Drive, Suite 1600
San Diego, CA 92121-2189
<PAGE>
Applied Digital Access, Inc., a Delaware corporation (the "Company") hereby
amends and supplements its Solicitation/Recommendation Statement on Schedule
14D-9 (as amended, the "Schedule 14D-9"), originally filed on September 14,
1999, relating to a tender offer by Dynatech Corporation, a Delaware corporation
("Parent"), through its indirect wholly owned subsidiary Dynatech Acquisition
Corporation, a Delaware corporation, as set forth in a Tender Offer Statement on
Schedule 14D-1, dated September 14, 1999, and amended as of October 6, 1999, to
purchase all of the issued and outstanding Shares at a price of $5.37 per Share,
net to the seller in cash, without interest thereon, upon the terms and subject
to the conditions set forth therein. Unless otherwise indicated, the
capitalized terms used herein shall have the meanings specified in the Schedule
14D-9.
Item 3. Identity and Background
Subsections (2) and (5) of Termination of the Merger under Item 3(b)(1) are
hereby amended and restated in their entirely to provide as follows:
(2) by either the Parent or the Company if, on or before December 6,
1999, the Purchaser shall not have purchased in the Offer such number of
Shares which represent in excess of 50% of the outstanding Shares on a
fully diluted basis, or the Merger shall not have been consummated on or
before March 5, 2000, provided, however, that the right to terminate the
Merger Agreement is not available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or resulted
in, the failure of the Offer or the Merger to have occurred on or before
the aforesaid date;
(5) unilaterally by the Purchaser and Parent on the one hand (treated as
a single party) or the Company on the other hand (i) if the other fails to
perform any material covenant in any material respect in the Merger
Agreement, and does not cure the failure in all material respects within 30
business days after the terminating party delivers written notice of the
alleged failure or (ii) if any condition to the obligations of that party
is not satisfied (other than by reason of a breach by that party of its
obligations hereunder), and it reasonably appears that the condition cannot
be satisfied prior to March 5, 2000;
Item 4. The Solicitation or Recommendation
Item 4 is hereby amended and restated in its entirely to provide as
follows:
(a) Recommendation of the Board of Directors
The Board of Directors of the Company (the "Board") has unanimously
determined that each of the Merger Agreement, the Offer and the Merger are
advisable and 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 Purchaser thereunder.
As set forth in the Merger Agreement, the Purchaser will purchase Shares
tendered prior to the close of the Offer if the conditions to the Offer have
been satisfied (or waived).
Stockholders considering not tendering their shares in order to wait for the
Merger should note that if the Minimum Condition is not satisfied or any of the
other conditions to the Offer are not satisfied, the Purchaser is not obligated
to purchase any Shares and, subject to certain limitations, can terminate the
Offer and the Merger Agreement and not proceed with the Merger.
Under Delaware Law, the approval of the Board and the affirmative vote of
the holders of a majority of the outstanding Shares are generally required to
approve the Merger. Accordingly, if Purchaser acquires a majority of the
outstanding Shares in the Merger, 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 Purchaser acquires, pursuant to the
Offer or otherwise, at least 90% of the then outstanding Shares, Purchaser will
be able to approve and adopt the Merger Agreement and the Merger without a vote
of the Company's stockholders. Parent, Purchaser, and the Company have agreed to
use their commercially reasonable best efforts to take, or to cause to be taken,
all actions and to do, or to cause to be done all things necessary, proper or
advisable under applicable laws to consummate the Offer, the Merger and the
other transactions contemplated by the Merger Agreement. If 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 Offer is scheduled to expire at 12:00 midnight, New York City time, on
Tuesday, October 12, 1999, unless the Offer is extended pursuant to the Merger
Agreement. A copy of the press release issued by the Parent and the Company
dated September 8, 1999 announcing the Merger and the Offer is filed as Exhibit
(6) to this Schedule 14D-9 and is incorporated herein by reference in its
entirety.
Background of the Offer; Reasons for the Recommendation
Background of the Offer.
On June 8, 1998, at a telecommunications industry trade show in Atlanta,
Georgia, representatives of both the Company and Dynatech informally met to
discuss the possibility of a business combination between the two companies. No
further discussions ensued at that time.
On January 14, 1999, Mr. Donald Strohmeyer, a retired telecommunications
industry executive, was retained by the Company as a consultant to perform a
comprehensive business analysis of the Company.
On February 7, 1999, at a meeting of the outside directors, Mr. Strohmeyer
presented his findings to the Board. At this meeting, Mr. Strohmeyer presented
his analysis of the Company's long-term prospects, including his analysis of
the concentration of customer base, employee retention and technology migration
and the Company's financial performance, and recommended that the Company seek
a combination with a larger company.
On February 20, 1999, at a meeting of the Board of Directors, the Board
appointed Mr. Strohmeyer the position of President and Chief Executive Officer
of the Company, effective February 22, 1999.
On March 12, 1999, at a meeting of the Board, the Board discussed various
potential strategic partners and discussed the viability of selling certain of
the Company's technology and related assets in a business combination.
In late March 1999, Mr. Samuel Tishler, Corporate Vice President--Corporate
Development of Dynatech, contacted Mr. Strohmeyer by telephone to request a
meeting to discuss a potential business combination with the Company.
In April 1999, another potential strategic partner contacted Mr. Strohmeyer
regarding an interest in a partnership or other business combination. Mr.
Strohmeyer and a representative of the potential strategic partner agreed to
meet at a later time.
On April 13, 1999, a meeting was held in San Diego, California between Mr.
Tishler and other representatives of Dynatech, and Messrs. Strohmeyer and James
Keefe, Chief Financial Officer of the Company. The parties signed a standard
confidentiality and nondisclosure agreement, and initial company information
was exchanged.
During the week of April 19, 1999, a meeting was held in San Diego between
the other potential strategic partner and the Company. The parties executed a
standard confidentiality and nondisclosure agreement, and exchanged company
information.
On May 12, 1999, at a regularly scheduled Board meeting, the Board discussed
possible strategic opportunities. The Board directed management to interview an
investment banking firm.
On May 13, 1999, the Company engaged Alliant Partners to represent the
Company in rendering financial advisory services in connection with the
possible sale or merger of the Company.
On May 14, 1999, Gray Cary Ware & Freidenrich ("Gray Cary"), the Company's
outside legal counsel, delivered a memorandum to the Board that described the
Board's fiduciary obligations in considering a proposal for a business
combination.
On May 24, 1999, at a special meeting of the Board, management discussed the
status of the Company's strategic opportunities. The Board discussed that
Alliant Partners or the Company had contacted more than 25 possible strategic
partners regarding a possible business combination and that Alliant Partners or
the Company had discussions with more than ten of these possible strategic
partners. Management then reviewed the status of the discussions with the
possible strategic partners.
On May 25, 1999, Mr. Tishler and Mr. John Peeler, President and Chief
Executive Officer of Dynatech's telecommunications test business met with
Messrs. Strohmeyer, Keefe and O'Conner and continued their due diligence
exchanges.
On June 21, 1999, members of the Board and management further discussed the
status of the Company's discussions with potential strategic partners.
On June 24, 1999, Dynatech conveyed a preliminary offer of $70 million to
management.
On June 28, 1999, at a special meeting of the Board, management reported on
the status of preliminary negotiations with Dynatech. Mr. Thomas Bentley of
Alliant Partners presented information regarding comparable companies,
comparable transactions, takeover multiples and the Company's historical stock
trading information. The Board engaged in a lengthy discussion regarding
possible alternative transactions and the fairness of a price tentatively
proposed by Dynatech. Based on the discussions, the Board directed management
to continue negotiations with Dynatech to increase the offer price.
On June 29, 1999, Mr. Strohmeyer communicated to Mr. Tishler and Mr.
Mayerick, President of the Systems and Software Group of Dynatech's
telecommunications test business, that the $70 million offer was too low and
would have to be raised if further discussions were to be held. Mr. Tishler, on
behalf of Dynatech, then proposed a revised preliminary offer of $80 million.
Representatives of Dynatech prepared an outline of proposed due diligence
procedures and issues and a request that due diligence would need to take place
at certain of the Company's facilities as well as the offices of Gray Cary, the
Company's outside legal counsel, commencing July 13, 1999.
In early July 1999, a second meeting was held in San Diego between
representatives of the Company and the other potential strategic partner.
During the last two weeks of July 1999, intensive operational due diligence
was conducted by representatives of Dynatech at the Company's offices and the
offices of Gray Cary.
On July 21, 1999, at a regularly scheduled meeting of the Board, after an
update by management of the Company's business and prospects, management
updated the Board regarding its discussions with Dynatech. Mr. Bentley again
reviewed the offer and comparable transactions. After a lengthy discussion
regarding the benefits to the stockholders of the Company of a possible
transaction with Dynatech, the timing of a possible transaction, other
alternatives, including a possible transaction with a different entity and
remaining a stand-alone entity, the Board determined to reconvene on July 26,
1999 for further discussions. The Board determined that it was not in the best
interests of the Company's stockholders to enter into a non-solicitation
agreement that had been requested by Dynatech and that would prevent the
Company from pursuing alternatives.
On July 26, 1999, the Board reconvened its meeting and continued its
discussions regarding a possible acquisition by Dynatech. Management reviewed
the current status of its discussions with each potential strategic partner.
Mr. Bentley discussed the potential value to the stockholders of the Company
of a transaction with Dynatech and possible alternative transactions. After
lengthy discussions, the Board directed management to continue to move forward
with due diligence, and to continue to negotiate more favorable terms with
Dynatech while continuing to pursue alternatives.
During the week of August 2, 1999, Mr. Mayerick met with each of Messrs.
Strohmeyer and Terry Allen, General Manager--Software, Kevin Pope, Vice
President--Engineering, and Donald O'Connor specifically to discuss the
possible terms of employment if a transaction were to be consummated.
On August 5, 1999, a representative of the other potential strategic
partner called Mr. Strohmeyer and stated that the party had concluded that it
was not in a position to effect a business combination with the Company, but
it would consider a joint marketing and sales relationship with the Company.
On August 11, 1999, Mr. Strohmeyer and Mr. O'Connor received a proprietary
e-mail from a representative of the other potential strategic partner
proposing a process of joint marketing between the party and the Company.
Negotiations were begun to select accounts and develop joint strategies
between the two companies.
On August 11, 1999, Mr. Strohmeyer and Mr. Bentley called Mr. Tishler and
requested that Mr. Tishler deliver a letter summarizing the terms of
Dynatech's non-binding offer for consideration by the Company's Board.
On August 13, 1999, Gray Cary recirculated to each member of the Board a
copy of the memorandum regarding director's fiduciary obligations in
considering a proposal for a business combination. On that same day, Mr.
Tishler delivered a letter to Mr. Strohmeyer in which he confirmed a non-
binding price of $80 million for all of the outstanding stock of the Company,
which offer was subject to the Company having net cash assets of at least
$14.2 million at closing, the cancellation of all outstanding options of the
Company, the satisfactory completion of Dynatech's due diligence, approval of
Dynatech's Board, and the negotiation and execution of a definitive merger
agreement satisfactory to Dynatech.
During the weeks of August 10 and August 16, due diligence continued at the
offices of Gray Cary.
On August 16, 1999, the Board held a special meeting to discuss a letter
proposal from Dynatech. Gray Cary made a detailed presentation regarding the
Board's fiduciary obligations when considering the sale of the Company. Mr.
Bentley discussed the proposed terms and possible counterproposals. The Board
then discussed the benefits of a transaction with Dynatech, possible alternative
transactions and remaining a stand-alone company. The Board also discussed the
status of possible alternative transactions and the Company's business and
prospects. The Board directed management and Mr. Bentley to continue to
negotiate more favorable terms with Dynatech while continuing to pursue
alternatives. The Board then directed management to enter into arrangements
with Alliant Partners to obtain a fairness opinion.
On August 18, 1999, Mr. Bentley and Mr. Tishler met to further negotiate
the business terms of the potential acquisition.
On August 19, 1999 and August 26, 1999, the Board met to review the current
status of negotiations with Dynatech and possible alternative strategic
partners.
On August 26, 1999, Dynatech's legal counsel sent an initial draft of the
proposed Merger Agreement to Gray Cary.
On August 31, 1999, Gray Cary sent comments on the Merger Agreement to
legal counsel for Dynatech. The Company, Dynatech and their respective counsel
negotiated the Merger Agreement throughout the week of August 30, 1999.
On September 2, 1999, the Board met to review the status of the
negotiations and the Merger Agreement.
On September 4, 1999, each director received a copy of the Merger
Agreement, a summary of the Offer terms and a copy of the memorandum regarding
the Board's fiduciary obligations in considering a proposal for a business
combination.
On September 7, 1999, the Board held a special meeting. At the meeting, Gray
Cary made a detailed presentation regarding the Board's fiduciary duties when
considering the sale of the Company and then reported on the negotiations and
the terms and conditions of the Merger Agreement. A representative of Alliant
Partners then made a detailed presentation regarding the proposed transaction
and presented the opinion that, as of the date thereof, the consideration to be
received by the Company's stockholders in the Offer and the Merger, at $5.37
per share, was fair from a financial point of view. Following discussion of the
Offer and the Merger, the Board unanimously approved the Offer and the Merger
and unanimously resolved to recommend that the stockholders of the Company
accept the Offer and tender their shares in the Offer and that the stockholders
approve and adopt the Merger Agreement. During the remainder of the day, the
final terms of the Merger Agreement were negotiated to the mutual satisfaction
of the parties. After the end of business day on September 7, 1999, the Merger
Agreement was signed and delivered by the respective parties.
On September 8, 1999, prior to the opening of stock trading, Dynatech and
the Company issued a press release announcing the execution of the Merger
Agreement.
Reasons for the Recommendation. In reaching its determination described in
paragraph (a) above, the Board considered a number of factors, including, but
not limited to the following:
(i) the need to attract and retain employees in a highly competitive
marketplace competing against better funded and start-up companies;
(ii) historical information concerning the Company's business prospects,
financial performance and condition, operations, technology, management and
competitive position;
(iii) the business and strategic objectives of the Company as well as
the risks involved in achieving those objectives;
(iv) the Company's dependency on a few large customers without long-term
contractual commitments;
(v) the performance of the Company on a historical basis and the
prospects and risks of the Company going forward as an independent company;
(vi) the consideration to be received by the Company stockholders in the
Merger and a comparison of merger transactions deemed to be comparable to
the Merger;
(vii) the terms of the Merger Agreement, including the parties'
representations, warranties and covenants, and the conditions to their
respective obligations;
(viii) the potential for other third parties with sufficient resources
and complementary technology to acquire the Company;
(ix) a review of 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 and risks to the
Company's stockholders of such alternative and the timing and the
likelihood of actually accomplishing any of such alternatives;
(x) the presentation to the Board by Alliant Partners at the September
7, 1999 Board meeting;
(xi) the written opinion of Alliant Partners to the effect that, as of
September 7, 1999, the $5.37 in cash to be received by holders of Shares in
the Offer and the Merger is fair to such holders from a financial point of
view. The full text of this written opinion, which sets forth assumptions
made, matters considered and limitations on the review undertaken in
connection with the opinion, is attached as Annex B. Stockholders are urged
to, and should, read this opinion in its entirety;
(xii) the fact that pursuant to the Merger Agreement, the Company is not
prohibited from responding to any unsolicited Superior Proposal as defined
in the Merger Agreement to acquire the Company, and the Company may
terminate the Merger Agreement and accept any such Superior Proposal
subject to the Company's obligation to pay the Termination Fee and Expenses
as defined in the Merger Agreement;
(xiii) current financial market conditions and historical market prices,
volatility and trading information with respect to the Common Stock of the
Company;
(xiv) the relationship of the Offer price to historical market prices of
the Company's Common Stock and to the Company's book value and liquidation
value per share, and the fact that the Offer price of $5.37 represented a
premium of approximately 22% over the average of the last sale prices of
the Company's Common Stock over the last thirty trading days ending
September 3, 1999 (the last trading day before the announcement of the
Merger Agreement), which was $4.39 and a premium of approximately 67% over
the average of the last sale prices of the Company's Common Stock on the
trading days during the 12 month period ending September 3, 1999, which is
$3.22;
(xv) the likelihood that the proposed acquisition would be consummated,
including the experience, reputation and financial condition of Parent and
the risks to the Company if the acquisition were not consummated, including
(a) the Company's sales and operating results, (b) progress of certain
development projects and products, and (c) the Company's stock price; and
(xvi) the availability of appraisal rights in the Merger under
applicable law.
In view of the wide variety of factors considered in connection with its
evaluation of the Offer and the Merger, the Board did not find it practicable,
and did not quantify or otherwise attempt to assign relative weights to the
factors it considered.
The full text of the written fairness opinion of Alliant Partners is filed
as Exhibit (5) 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 Merger Agreement and is directed only to the fairness from
a financial point of view of the consideration to be received by the holders of
the Shares (other than Parent) 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 all the factors set forth above, the Board determined that each
of the Merger Agreement, the Offer and the Merger is advisable and fair to, and
in the best interests of, the stockholders of the Company, and resolved
unanimously to approve the Merger Agreement, the Offer and the Merger, and to
recommend that stockholders of the Company accept the Offer and tender their
Shares in the Offer.
Item 8. Additional Information to be Furnished
Attached hereto as Annex A is the Information Statement, previously
furnished to the Company's stockholders pursuant to Rule 14f-1 under the
Exchange Act, as amended to correct certain immaterial information.
On October 6, 1999, Parent announced that the Offeror has extended the
Offer Period. The Offer will now expire at 12:00 midnight, New York City time,
on Monday, November 1, 1999, unless the Offer is further extended. The Offeror
extended the Offer pursuant to Section 1.1 of the Merger Agreement, which
permits the Offeror to extend the Offer upon written consent of the Company.
A copy of the press release issued by Parent on October 6, 1999, is filed
as Exhibit 12 to the Schedule 14D-9 and incorporated by reference herein.
<PAGE>
Item 9. Material to be Filed as Exhibits
The following Exhibits are filed herewith:
11 The Company's Information Statement, as amended, pursuant to Section
14(f) of the Exchange Act and Rule 14f-1 thereunder(1)
12 Press Release issued by Parent on October 6, 1999(2)
- --------------------
(1) Attached hereto as Annex A.
(2) Incorporated by reference to an exhibit to Parent's and Purchaser's
Amendment No. 2 to Schedule 14D-1 dated October 6, 1999.
<PAGE>
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.
APPLIED DIGITAL ACCESS, INC.
Date: October 8, 1999 By: /s/ Donald L. Strohmeyer
------------------------
Donald L. Strohmeyer, Chief Executive Officer
<PAGE>
ANNEX A
APPLIED DIGITAL ACCESS, INC.
9855 SCRANTON ROAD
SAN DIEGO, CALIFORNIA 92121
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 September 14, 1999 as
a part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Applied Digital Access, Inc. (the "Company") to the
holders of record of shares of Common Stock, par value $0.001 per share, of the
Company (the "Shares") at the close of business on or about September 14, 1999.
You are receiving this Information Statement in connection with the possible
appointment of persons designated by the Purchaser (as defined below) to a
majority of the seats on the Board of Directors of the Company (the "Board").
On September 7, 1999, the Company, Dynatech Corporation, a Delaware
corporation ("Dynatech" or "Parent") and Dynatech Acquisition Corporation, a
Delaware corporation and an indirect wholly owned subsidiary of Parent (the
"Purchaser"), entered into an Agreement and Plan 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 $5.37 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 an indirect wholly owned subsidiary of Parent.
The Merger Agreement requires the Company to use its best efforts either to
increase the size of the Board or to secure the resignation of such number of
its incumbent directors, or both, as is necessary to enable certain directors
designated by Parent to be elected or appointed to the Board 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
Tuesday, September 14, 1999. The Offer is scheduled to expire at 12:00
Midnight, New York City time, on October 12, 1999, unless the Offer is extended
pursuant to the Merger Agreement.
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of September 14, 1999, there were
13,251,830 Shares outstanding. The Company's Board of Directors currently
consists of seven (7) authorized members. At each annual meeting of the
Company's stockholders, directors are elected to serve until the next annual
meeting. The officers of the Company serve at the discretion of the Board.
RIGHT TO DESIGNATE DIRECTORS
The Merger Agreement provides that promptly after (i) the purchase of and
payment for any Shares by Purchaser or any of its affiliates which represent at
least a majority of the then outstanding Shares and (ii) compliance with
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder,
whichever occurs later, Dynatech shall be entitled to designate such number of
directors, rounded up to the next whole number, as will give Dynatech
representation on the Board equal to the product of the total number of
directors
A-1
<PAGE>
on the Board (giving effect to any increase in the number of directors pursuant
to the Merger Agreement) multiplied by the percentage that such aggregate
number of Shares so purchased or otherwise beneficially owned by Purchaser
(including Shares tendered for payment) bears to the total number of
outstanding Shares. The Company shall, upon request by Dynatech, increase the
size of the Board, or secure the resignations of such number of directors, or
both, as is necessary to enable Dynatech's designees to be elected or appointed
to the Board and will cause Dynatech's designees to be so elected or appointed,
provided, however, that pursuant to the Merger Agreement, prior to the
effective time of the Merger, the Board shall have two independent directors
(as defined in Section 1.3(c) of the Merger Agreement).
IN THE EVENT THAT DYNATECH AND ITS SUBSIDIARIES DO NOT ACQUIRE ANY SHARES
PURSUANT TO THE OFFER, OR TERMINATE THE OFFER, OR IF THE MERGER AGREEMENT IS
TERMINATED PURSUANT TO ITS TERMS PRIOR TO THE ELECTION OR APPOINTMENT OF
DYNATECH'S DESIGNEES, PURCHASER AND DYNATECH WILL NOT HAVE ANY RIGHT, UNDER THE
MERGER AGREEMENT TO HAVE DYNATECH'S DESIGNEES ELECTED OR APPOINTED TO THE
COMPANY'S BOARD OF DIRECTORS.
The information contained in this Information Statement concerning Dynatech
and Dynatech's designees has been furnished to the Company by Dynatech, and the
Company assumes no responsibility for the accuracy or completeness of such
information.
THE DYNATECH DESIGNEES
Dynatech's designees to the Company's Board of Directors, and certain
information about each, are described below. Dynatech has advised the Company
that all such persons have consented to act as directors of the Company if so
designated. Dynatech has informed the Company that, except as disclosed below,
none of the designees (i) is currently a director of, or holds any position
with, the Company; (ii) has any familial relationship with any of the directors
or executive officers of the Company; or (iii) to the best knowledge of
Dynatech and the Purchaser, beneficially owns any securities (or rights to
acquire any securities) of the Company. The Company has been advised by
Dynatech and Purchaser that, to the best of Dynatech's and Purchaser's
knowledge, none of the designees has been involved in any transaction with the
Company or any of its directors, executive officers or affiliates which are
required to be disclosed pursuant to the rules and regulations of the
Commission, except as may be disclosed in the Schedule 14D-9.
<TABLE>
<CAPTION>
PRESENT OCCUPATION OR EMPLOYMENT;
NAME, CITIZENSHIP AND MATERIAL POSITIONS HELD DURING THE PAST FIVE
CURRENT BUSINESS ADDRESS YEARS AGE
------------------------ -------------------------------------------- ---
<C> <S> <C>
Allan M. Kline Allan M. Kline presently serves as Corporate 54
Vice President, Chief Financial Officer and
Treasurer and, since May 21, 1998, a Director
of Dynatech. Mr. Kline joined Dynatech in June
1996. From 1995 to 1996 he served as Senior
Vice President, Chief Financial Officer of
CrossComm Corporation, a manufacturer of
networking products. From 1994 to 1995, he was
President of TAR Acquisition Corp., a private
investment company. From 1989 to 1994, Mr.
Kline was also a Director of CrossComm
Corporation. From 1990 to 1994, Mr. Kline was
Senior Vice President, Chief Financial Officer
of Cabot Safety Corporation, a subsidiary of
Cabot Corporation. Prior to that, he served at
Leggett & Platt, Incorporated and was a partner
with Arthur Young & Company.
John R. Peeler John R. Peeler presently serves as Corporate 44
Vice President--Communications Test Business
and President and Chief Executive Officer of
all Dynatech's communication test businesses
and, since May 21, 1998, a Director of
Dynatech. Mr. Peeler has been employed by
Dynatech since 1980. Mr. Peeler beneficially
owns 50 shares of the Company. Mr. Peeler has
not effected any transactions in any equity
security of the Company during the past 60
days.
</TABLE>
A-2
<PAGE>
<TABLE>
<CAPTION>
NAME, CITIZENSHIP AND PRESENT OCCUPATION OR EMPLOYMENT;
CURRENT BUSINESS MATERIAL POSITIONS HELD DURING THE PAST FIVE
ADDRESS YEARS AGE
--------------------- -------------------------------------------- ---
<C> <S> <C>
Mark V.B. Tremallo Mark V.B. Tremallo presently serves as Corporate 42
Vice President--General Counsel and Secretary of
Dynatech. Mr. Tremallo joined Parent in May
1997. From 1995 to 1997 he served as Vice
President, General Counsel and Secretary of
Aearo Corporation (formerly Cabot Safety
Corporation), a manufacturer of industrial
safety products. From 1990 to 1995 he was
General Counsel of Cabot Safety Corporation, a
subsidiary of Cabot Corporation.
Robert W. Woodbury, Jr. Robert W. Woodbury, Jr. presently serves as 42
Corporate Vice President and Corporate
Controller of Dynatech. Mr. Woodbury joined
Dynatech in January 1996. From 1992 to January
1996, he served as Vice President and Controller
for Kollmorgen Corporation, a manufacturer of
motion control devices. From 1990 to 1992, he
was Chief Financial Officer of Kidde Fenwal,
Inc., a manufacturer of fire suppression
equipment.
</TABLE>
CURRENT BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
Biographical information concerning each of the Company's current directors
and executive officers as of September 14, 1999 is as follows:
DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR
NAME POSITION WITH THE COMPANY AGE SINCE
---- ------------------------------ --- --------
<C> <S> <C> <C>
Gary D. Cuccio.............. Director 53 1999
John F. Malone.............. Director 51 1998
Kenneth E. Olson............ Director 63 1996
Christopher B. Paisley...... Director 47 1996
Peter P. Savage............. Chairman of the Board 57 1990
Paul L. Singer.............. Director 64 1999
Donald L. Strohmeyer........ Director and President and CEO 63 1999
</TABLE>
Mr. Cuccio has served as a director of the Company since March 1999. Since
July 1998, Mr. Cuccio has been the President of Airtouch Paging, the paging
operations business unit of Airtouch Communications, Inc. ("ATI"), a wireless
communications company. Prior to joining Airtouch Paging, Mr. Cuccio served as
Chief Operating Officer of Omnipoint Communications, Inc., a wireless personal
communications services company from September 1996 to July 1998. Prior to
that, Mr. Cuccio served as Vice President of International Operations for
Europe and Asia for ATI from May 1995 to September 1996 and as Chief Operations
Officer for Belgacom Mobile, a wireless communications subsidiary of ATI from
April 1994 to May 1995. Prior to that Mr. Cuccio held various senior management
positions in sales, marketing, and operations for Pacific Bell, a
telecommunications company that merged with Southwestern Bell Communications,
Inc. in 1998. Mr. Cuccio also serves as a director of Airtouch Paging--Canada,
a subsidiary of ATI and two privately held telecommunications companies.
Mr. Malone has served as a director of the Company since September 1998. Mr.
Malone has been President and Chief Executive Officer of Eastern Management
Group, a management consulting firm, since April 1979. Prior to founding
Eastern Management Group, Mr. Malone held various sales and marketing positions
with AT&T. Mr. Malone is also a director of a privately held company.
A-3
<PAGE>
Mr. Olson has served as a director of the Company since December 1996. Mr.
Olson served as Chairman of the Board of Proxima Corporation, a manufacturer of
multimedia projection products, from July 1983 through June 1998 and as its
President and Chief Executive Officer from March 1997 through June 1998 and
from April 1995 through February 1996 and as Chief Executive Officer from
December 1990 through April 1995. Mr. Olson also currently serves as a director
of a privately held pharmaceutical company.
Mr. Paisley has served as a director of the Company since March 1996. Since
August 1996, Mr. Paisley has been the Senior Vice President, Finance and Chief
Financial Officer of 3Com Corporation, a global data networking company. Prior
to becoming Senior Vice President, Finance of 3Com Corporation, from September
1985 through July 1996 Mr. Paisley was Vice President, Finance and Chief
Financial Officer of 3Com Corporation.
Mr. Savage has served as Chairman of the Board of the Company since February
1999, and prior to that served as its President, Chief Executive Officer and as
a director since November 1990. Prior to joining the Company, Mr. Savage served
as President and Chief Operating Officer of Xylogics, Inc., a manufacturer of
storage and communications controllers, from February 1989 through May 1990,
and as Vice President, Engineering of Xylogics from September 1987 through
January 1989. Prior to that, Mr. Savage served as President and Chief Operating
Officer of Alliance Telecommunications Corp. Commterm Division, a manufacturer
of voice messaging systems, from August 1986 through March 1987 and as Vice
President, Engineering from February 1985 through July 1986. Mr. Savage
previously held a number of technical and management positions with the
telecommunications companies, Infinet, Plantronics and Bell Telephone
Laboratories.
Mr. Singer has served as a director of the Company since July 1999. Since
May 1991, Mr. Singer has served as the President of Paul L. Singer, Inc.,
Management Consulting Services International ("PLSI"), a telecommunications
strategies and operations management company. From 1993 to 1997 Mr. Singer
provided operations consultation support for companies such as Guyana Telephone
Company, Vitelco and Cincinnati Bell Telephone. Prior to founding PLSI, Mr.
Singer held various management positions with BellSouth Telecommunications,
Inc. Mr. Singer currently serves as President of P.L. Singer, Inc., a strategic
marketing and operations management company and he provided consulting services
to the Company prior to joining the Board.
Mr. Strohmeyer has served as the President and Chief Executive Officer and
as a director of the Company since February 1999. Mr. Strohmeyer spent his
career with BellSouth Telecommunications, Inc. ("BST") where he held the
positions of Vice President, Network Operations from January 1997 through March
1998, Vice President Network Operations, South from October 1994 to January
1997, and Vice President, Network Operations, North from October 1990 to
October 1994. Prior to that, Mr. Strohmeyer held various senior management
positions in marketing and network operations for BST.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
NAME POSITION HELD WITH THE COMPANY AGE
---- --------------------------------------- ---
<C> <S> <C>
Donald L. Strohmeyer........ President, Chief Executive Officer and 63
Director
Peter P. Savage............. Chairman of the Board 57
Paul R. Hartmann............ Vice President, Systems Engineering 56
James L. Keefe.............. Vice President, Finance and 39
Administration,
Chief Financial Officer and Secretary
Wayne M. Lettiere........... Vice President, Operations 59
Donald J. O'Connor.......... Vice President, Network Systems 44
Kevin T. Pope............... Vice President, Development Engineering 41
</TABLE>
Messrs. Strohmeyer's and Savage's business experience is discussed above.
A-4
<PAGE>
Mr. Hartmann has served as Vice President, Systems Engineering of the
Company since July 1988. Prior to joining the Company, Mr. Hartmann served as
Director of Advanced Technology and as Director of Transmission Systems
Technology for the Rockwell Communications Systems Division of Rockwell
International, a manufacturer of telecommunications transmissions equipment,
from September 1984 through July 1988.
Mr. Keefe has served as Vice President, Finance and Administration, Chief
Financial Officer and Secretary of the Company since May 1996 and previously
served as Controller of the Company from December 1993 to May 1996 and as
Accounting Manager of the Company from March 1992 to December 1993. Prior to
joining the Company, Mr. Keefe served as Accounting Manager of U.S. Fiberline
Communications, Inc., a privately-held telecommunications service provider,
from January 1990 to October 1991 and as Accounting Manager for Scientific
Computer Systems, Inc., a computer manufacturer, from February 1987 through
December 1989. Prior to that, Mr. Keefe held financial accounting positions
with Honeywell, Inc. and Coopers & Lybrand, L.L.P. Mr. Keefe has tendered his
resignation as Vice President, Finance and Administration, Chief Financial
Officer and Secretary of the Company effective September 15, 1999. Mr. Keefe
will serve as a consultant of the Company through the consummation of the
Merger.
Mr. Lettiere has served as Vice President, Operations of the Company since
July 1991. Prior to joining the Company, Mr. Lettiere served as Vice President,
Operations of Digital Communication Associates (and its successor
corporations), a manufacturer of telecommunications products, from April 1984
through July 1991.
Mr. O'Connor has served as Vice President, Customer Support since May 1995.
Prior to joining the Company, Mr. O'Connor was with NYNEX Corporation for 14
years where he served as Managing Director, Service Delivery from February 1995
through May 1995, as Director of Operations, Business Customer Service Center
from June 1994 through February 1995, as Director of Operations, Inter-exchange
Carrier Services from March 1992 through June 1994 and as Director of
Operations, Digital Center from August 1990 to March 1992.
Mr. Pope has served as Vice President, Development Engineering since April
1995. Mr. Pope joined the Company in June 1988. Mr. Pope served as Senior
Director of Development Engineering from December 1994 through March 1995, as
Director of Hardware Development from July 1993 through December 1994 and as
Manager of Circuit Design from April 1990 through July 1993. Prior to joining
the Company, Mr. Pope served as Senior Project Engineer for ASEA HAFO Inc., an
integrated circuit design company, from February 1986 through June 1988 and
prior to that was a member of the Technical Staff for Bell Laboratories.
MEETINGS OF THE BOARD AND COMMITTEES
During the fiscal year ended December 31, 1998, the Board held eight (8)
meetings. Each director serving on the Board in fiscal year 1998 attended at
least 75% the meetings of the Board and the Committees on which he served.
The Company does not have a standing Nominating Committee, but does have an
Audit Committee and a Compensation Committee.
The Audit Committee's function is to review with the Company's independent
accountants and management the annual financial statements and independent
accountants' opinion, review the scope and results of the examination of the
Company's financial statements by the independent accountants, approve all
professional services performed by the independent accountants and related
fees, recommend the retention of the independent accountants to the Board and
periodically review the Company's accounting policies and internal accounting
and financial controls. The members of the Audit Committee are Christopher B.
Paisley and John F. Malone. During the fiscal year ended December 31, 1998, the
Audit Committee held one (1) meeting.
The Compensation Committee's function is to review and approve salary and
bonus levels and stock option grants for executive officers and key employees.
The members of the Compensation Committee are
A-5
<PAGE>
Kenneth E. Olson and Christopher B. Paisley. During the fiscal year ended
December 31, 1998, the Compensation Committee held four (4) meetings. For
additional information concerning the Compensation Committee, see "Report of
the Compensation Committee of the Board of Directors on Executive
Compensation."
DIRECTOR COMPENSATION
In May 1999, the Board modified its outside directors compensation policy to
provide that directors who are not employees of the Company receive annual
compensation totaling $15,000 and a nonqualified stock option for shares of the
Company's Common Stock for serving on the Company's Board of Directors. In
addition, members of the Audit and Compensation Committees receive payments of
$500 for each committee meeting they attend which is not held in conjunction
with a meeting of the Board of Directors. Also, the Company reimburses non-
employee directors for reasonable travel expenses incurred in attending Board
of Directors' meetings. Non-employee directors are eligible to participate in
the automatic option grant program whereby, upon election each director
receives a non-qualified stock option for shares of the Company's Common Stock
and on each of the first three anniversaries of such election date, the
director receives additional stock options, provided his Board membership has
not terminated prior to each such date. Directors who are employees of the
Company receive no additional compensation for serving on the Board of
Directors.
A-6
<PAGE>
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following table sets forth information for the fiscal years ended
December 31, 1998, 1997 and 1996 concerning the compensation of the Chief
Executive Officer of the Company and the four most highly compensated executive
officers of the Company as of December 31, 1998, whose total salary and bonus
for the year ended December 31, 1998, exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
---------------------------------- ------------
SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS (1) COMPENSATION(2) OPTIONS COMPENSATION
------------------ ---- -------- --------- --------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Peter P. Savage(3)...... 1998 $200,000 -- -- 139,000(4) $5,640(5)
President and 1997 $200,000 $50,000 -- -- $4,138(5)
Chief Executive 1996 $175,000 $17,500 -- -- $5,477(5)
Officer
Paul R. Hartmann........ 1998 $140,500 -- -- 74,000(6) --
Vice President, 1997 $140,500 $27,234 -- -- --
Systems Engineering 1996 $134,500 $19,504 -- -- --
Wayne M. Lettiere....... 1998 $126,000 -- -- 52,000(7) --
Vice President, 1997 $126,000 $25,746 -- -- --
Operations 1996 $120,000 $18,211 -- -- --
Steven F.X. Murphy(8)... 1998 $212,592 -- $35,812(9) 85,000(10) --
Vice President, 1997 $113,077 $37,494 $27,182(9) -- --
Sales and Marketing 1996 -- -- -- -- --
Donald J. O'Connor...... 1998 $133,000 -- -- 94,000(12) --
Vice President, 1997 $133,000 $34,678 -- -- --
Customer Support 1996 $125,000 $17,500 $23,062(11) -- --
</TABLE>
- --------
(1) Amounts paid pursuant to a Management Team Incentive Compensation Plan
approved by the Company's Compensation Committee. See "Report of the
Compensation Committee of the Board of Directors on Executive
Compensation."
(2) "Other Annual Compensation" includes only amounts totaling more than the
lesser of $50,000 and 10% of the reported salary and bonus for the years
covered.
(3) On February 22, 1999, Mr. Savage was appointed to the position of Chairman
of the Board of the Company, and resigned from the positions of President
and Chief Executive Officer.
(4) Represents an option grant for 35,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then cancelled and
regranted in November 1998; an option grant for 30,000 shares originally
granted in November 1995 which was canceled and regranted in November
1998; an option grant for 50,000 shares originally granted in February
1997 which was canceled and regranted in November 1998; and an option
grant for 24,000 shares originally granted in January 1998 which was
canceled and regranted in November 1998. See "Report of the Compensation
Committee of the Board of Directors on Executive Compensation--Report on
1998 Cancellation and Regrant of Options" and "Ten Year Option
Repricings."
(5) Amounts paid in connection with reimbursement of premiums on life
insurance and disability insurance policies for Mr. Savage in accordance
with his employment agreement.
A-7
<PAGE>
(6) Represents an option grant for 20,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then canceled and
regranted in November 1998; an option grant for 20,000 shares originally
granted in November 1995 which was canceled and regranted in November
1998; an option grant for 20,000 shares originally granted in February
1997 which was canceled and regranted in November 1998; and an option
grant for 14,000 shares originally granted in January 1998 which was
canceled and regranted in November 1998. See "Report of the Compensation
Committee of the Board of Directors on Executive Compensation--Report on
1998 Cancellation and Regrant of Options" and "Ten Year Option
Repricings."
(7) Represents an option grant for 15,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then cancelled and
regranted in November 1998; an option grant for 15,000 shares originally
granted in November 1995 which was canceled and regranted in November
1998; an option grant for 10,000 shares originally granted in February
1997 which was canceled and regranted in November 1998; and an option
grant for 12,000 shares originally granted in January 1998 which was
canceled and regranted in November 1998. See "Report of the Compensation
Committee of the Board of Directors on Executive Compensation--Report on
1998 Cancellation and Regrant of Options" and "Ten Year Option
Repricings."
(8) Mr. Murphy became an employee of the Company in March 1997. On January 25,
1999, Mr. Murphy resigned from his position of Vice President, Sales and
Marketing with the Company.
(9) Amounts paid in connection with the reimbursement of relocation expenses
and related tax liability pursuant to Mr. Murphy's employment arrangement.
(10) Represents an option grant for 75,000 shares originally granted in April
1997 which was canceled and regranted in November 1998; and an option
grant for 10,000 shares originally granted in January 1998 which was
canceled and regranted in November 1998. See "Report of the Compensation
Committee of the Board of Directors on Executive Compensation--Report on
1998 Cancellation and Regrant of Options" and "Ten Year Option
Repricings."
(11) Amounts paid in connection with the reimbursement of relocation expenses
and related tax liability pursuant to Mr. O'Connor's employment
arrangement.
(12) Represents an option grant for 50,000 shares originally granted in June
1995 which was canceled and regranted in November 1998; an option grant
for 25,000 shares originally granted in February 1997 which was canceled
and regranted in November 1998; and an option grant for 19,000 shares
originally granted in January 1998 which was canceled and regranted in
November 1998. See "Report of the Compensation Committee of the Board of
Directors on Executive Compensation--Report on 1998 Cancellation and
Regrant of Options" and "Ten Year Option Repricings."
A-8
<PAGE>
STOCK OPTION INFORMATION
The following table provides the specified information concerning grants of
options to purchase the Company's Common Stock made during the fiscal year
ended December 31, 1998, to the persons named in the Summary Compensation
Table.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
% OF TOTAL RATES OF STOCK
NUMBER OF OPTIONS PRICE
SECURITIES GRANTEDTO APPRECIATION FOR
UNDERLYING EMPLOYEES EXERCISE OPTION TERM (1)
OPTIONS IN FISCAL PRICE PER EXPIRATION -----------------
NAME GRANTED (2) YEAR (3) SHARE (4) DATE 5% 10%
---- --------------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Peter P. Savage(5)...... 139,000 (7)(8) 4.6% $2.75 11/06/08 $240,395 $609,208
Paul R. Hartmann........ 74,000 (7)(9) 2.5% $2.75 11/06/08 $127,980 $324,327
Wayne M. Lettiere....... 52,000 (7)(10) 1.7% $2.75 11/06/08 $ 89,932 $227,905
Steven F. X. Murphy(6).. 85,000 (7)(11) 2.8% $2.75 11/06/08 $147,004 $372,537
Donald J. O'Connor...... 94,000 (7)(12) 3.1% $2.75 11/06/08 $162,569 $411,982
</TABLE>
- --------
(1) Potential gains are net of exercise price, but before taxes associated
with exercise. These amounts represent certain assumed rates of
appreciation only, in accordance with the SEC's rules. Actual gains, if
any, on stock option exercises are dependent on the future performance of
the Common Stock, overall market conditions and the option holders'
continued employment through the vesting period. The amounts reflected in
this table may not necessarily be achieved.
(2) Options granted in fiscal 1998 under the Company's 1994 Stock Option/Stock
Issuance Plan (the "1994 Option Plan") generally vest and become
exercisable over a four year period at the rate of 1/48 per month for each
full month of the optionee's continuous employment with the Company. Under
the 1994 Option Plan, the Board retains discretion to modify the terms,
including the price, of outstanding options. The shares subject to each
option will immediately vest in the event the Company is acquired by a
merger or asset sale unless the option is assumed by the successor entity.
See "--Severance and Change of Control Arrangements."
(3) Based upon options granted to purchase an aggregate of 2,990,941 shares of
Common Stock of which approximately 2,304,133 represent regranted options
subject to the Company's Option Cancellation/Regrant Program in October
and November 1998. See "Report of the Compensation Committee of the Board
of Directors on Executive Compensation--Report on 1998 Cancellation and
Regrant of Options" and "Ten Year Option Repricings."
(4) All options listed were granted at market value on the date of grant,
based on the closing selling price of the Company's Common Stock on such
date.
(5) On February 22, 1999, Mr. Savage was appointed to the position of Chairman
of the Board of the Company and resigned from the positions of President
and Chief Executive Officer.
(6) On January 25, 1999, Mr. Murphy resigned from his position of Vice
President, Sales and Marketing with the Company.
(7) In September 1998 and November 1998, as a result of a broad decline in the
fair market value of the Company's Common Stock, the Compensation
Committee determined that it was in the best interests of the Company to
offer to all current employees who were option holders, including
executive officers, whom the Committee considered separately, the
opportunity to have outstanding options with an exercise price above the
then current market price cancelled in exchange for new options with an
exercise price equal to the then current fair market value. For details
concerning the cancellation and regrant of options,
A-9
<PAGE>
see "Report of the Compensation Committee of the Board of Directors on
Executive Compensation--Report on 1998 Cancellation and Regrant of Options"
and "Ten Year Option Repricings."
(8) Includes an option grant for 35,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then canceled and
regranted in November 1998; an option grant for 30,000 shares originally
granted in November 1995 which was canceled and regranted in November
1998; an option grant for 50,000 shares originally granted in February
1997 which was canceled and regranted in November 1998; and an option
grant for 24,000 shares originally granted in January 1998 which was
canceled and regranted in November 1998.
(9) Includes an option grant for 20,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then canceled and
regranted in November 1998; an option grant for 20,000 shares originally
granted in November 1995 which was canceled and regranted in November
1998; an option grant for 20,000 shares originally granted in February
1997 which was canceled and regranted in November 1998; and an option
grant for 14,000 shares originally granted in January 1998 which was
canceled and regranted in November 1998.
(10) Includes an option grant for 15,000 shares originally granted in August
1994 which was canceled and regranted in June 1995 and then canceled and
regranted in November 1998; an option grant for 15,000 shares originally
granted in November 1995 which was canceled and regranted in November
1998; an option grant for 10,000 shares originally granted in February
1997 which was canceled and regranted in November 1998; and an option
grant for 12,000 shares originally granted in January 1998 which was
canceled and regranted in November 1998.
(11) Includes an option grant for 75,000 shares originally granted in April
1997 which was canceled and regranted in November 1998, and an option
grant for 10,000 shares originally granted in January 1998 which was
canceled and regranted in November 1998.
(12) Includes an option grant for 50,000 shares originally granted in June 1995
which was canceled and regranted in November 1998; an option grant for
25,000 shares originally granted in February 1997 which was canceled and
regranted in November 1998; and an option grant for 19,000 shares
originally granted in January 1998 which was canceled and regranted in
November 1998.
A-10
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR END OPTION VALUES
The following table provides the specified information concerning
unexercised options held as of December 31, 1998, by the persons named in the
Summary Compensation Table.
AGGREGATED OPTION EXERCISES
AND FISCAL YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SECURITIES UNDERLYING IN-THE-MONEY
SHARES UNEXERCISED OPTIONS OPTIONS AT
ACQUIRED AT 12/31/98 12/31/98(1)
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
---- -------- -------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Peter P. Savage (3)..... -- -- 248,428 139,000 $598,935 --
Paul R. Hartmann........ 3,407 -- 47,142 74,000 $103,948 --
Wayne M. Lettiere....... 10,000 $60,800 26,857 52,000 $ 59,220 --
Steven F.X. Murphy (4).. -- -- -- 85,000
Donald J. O'Connor...... -- -- -- 94,000
</TABLE>
- --------
(1) Based on a fair market value of $2.63, the closing price of the Common
Stock on December 31, 1998, as reported by the Nasdaq National Market. Does
not include options that had an exercise price greater than $2.63.
(2) Under the 1994 Option Plan, stock options generally vest and become
exercisable over a period of four years.
(3) On February 22, 1999, Mr. Savage was appointed to the position of Chairman
of the Board of the Company and resigned from the positions of President
and Chief Executive Officer.
(4) On January 25, 1999, Mr. Murphy resigned from his position of Vice
President, Sales and Marketing with the Company.
SEVERANCE AND CHANGE OF CONTROL ARRANGEMENTS
In November 1998, the Company entered into certain retention agreements
("agreements") with its chief executive officer and executive officers
("Executives") relating to a change in control of the Company. Under the
agreements, the termination of an Executive's employment without cause of for
"good reason", as defined in the agreement, within twelve months following a
change in control of the Company would be deemed a covered termination. A
covered termination provides for the continuation of an Executive's base salary
for a period of eighteen months for the chief executive officer and twelve
months for the executive officers. The Executive will be deemed a consultant of
the Company during these periods ("Consulting Periods"). The Executive's then
outstanding stock options will continue vesting and employee benefits will
continue to be provided by the Company during the Consulting Period.
In February 1999, the Company entered into an employment arrangement with
Donald L. Strohmeyer, the Company's President and Chief Executive Officer. If
Mr. Strohmeyer is terminated without cause, the Company has agreed to pay him
his monthly base salary for a period of twelve months after his termination. In
addition, during such twelve month period, Mr. Strohmeyer will continue to vest
in any outstanding stock options still subject to vesting. The arrangement does
not have an expiration date and is operative during Mr. Strohmeyer's employment
by the Company.
In November 1990, the Company entered into an employment arrangement with
Peter P. Savage, the Company's Chairman of the Board. If Mr. Savage is
terminated without cause, the Company has agreed to pay him his monthly base
salary for a period of six months after his termination or until he commences
employment with another company. In addition, he will be entitled to his pro
rata share of any guaranteed bonus or profit sharing plan in which he
participated (for the portion of the year that he was employed by the Company).
During the severance term, Mr. Savage would continue to be treated as a Company
employee for
A-11
<PAGE>
purposes of all Company-provided employee benefits (other than for purposes of
stock option vesting and vacation eligibility). The arrangement does not have
an expiration date and is operative during Mr. Savage's employment by the
Company.
In January 1999, the Company entered into a severance arrangement with
Steven F.X. Murphy, the Company's former Vice President, Sales and Marketing.
Under the severance arrangement, Mr. Murphy will receive his base salary for a
period of six months ending in June 1999.
In June 1988, the Company entered into an employment arrangement with Paul
R. Hartmann, the Company's Vice President, Systems Engineering. If Mr. Hartmann
is terminated without cause, the Company has agreed to pay him his monthly base
salary for a period of six months after the termination or until he commences
employment with another company. The arrangement does not have an expiration
date and is operative during Mr. Hartmann's employment by the Company.
In May 1995, the Company entered into an employment arrangement with Donald
J. O'Connor, the Company's Vice President, Customer Support. If Mr. O'Connor is
terminated involuntarily, the Company has agreed to pay him a severance payment
equal to three months of his monthly base salary upon such termination. The
arrangement does not have an expiration date and is operative during Mr.
O'Connor's employment by the Company.
Pursuant to the 1994 Option Plan, in the event the Company is acquired,
whether by merger or asset sale, each outstanding option which is not to be
assumed by the successor corporation or replaced with a comparable option to
purchase the capital stock of the successor corporation will automatically
accelerate vesting in full, and all unvested shares will automatically vest,
except to the extent such accelerated vesting is precluded by the terms of the
agreements evidencing those unvested shares.
The 1994 Option Plan also provides for the automatic acceleration of vesting
with respect to outstanding options or shares upon the following change in
control events: (i) the acquisition of more than 50% of the Company's voting
stock by hostile tender offer or (ii) a change in the composition of the Board
of Directors effected through one or more contested Board elections, except
that the Compensation Committee may at the time of a discretionary option grant
or stock issuance, provide that no such acceleration shall occur.
As a result of the Company entering into the Merger Agreement, all stock
options outstanding under the 1994 Option Plan at the consummation of the
Merger, whether or not then exercisable, shall be canceled by the Company in
exchange for the right to receive the Option Consideration. See "The Merger
Agreement--Stock Options."
A-12
<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of July 31, 1999,
with respect to the beneficial ownership of the Company's Common Stock by (i)
all persons known by the Company to be the beneficial owners of more than 5% of
the outstanding Common Stock of the Company, (ii) each director and director-
nominee of the Company, (iii) each executive officer of the Company named in
the Summary Compensation Table and (iv) all executive officers and directors of
the Company as a group.
<TABLE>
<CAPTION>
Shares Owned (1)
--------------------
Percentage
Number of of Class
Name and Address of Beneficial Owners Shares (2)
- ------------------------------------- --------- ----------
<S> <C> <C>
Kopp Investment Advisors, Inc. (3)....................... 2,106,940 16.0%
7701 France Avenue South, Suite 500
Edina, MN 55435
State of Wisconsin Investment Board (4).................. 2,063,535 15.7%
P.O. Box 7842
Madison, WI 53707
Merrill Lynch & Co., Inc. (5)............................ 920,500 7.0%
World Financial Center, North Tower
250 Vesey Street
New York, NY 10381
Gary D. Cuccio........................................... 5,000 *
John F. Malone (6)....................................... 36,250 *
Kenneth E. Olson (7)..................................... 50,312 *
Christopher B. Paisley (8)............................... 46,125 *
Peter P. Savage (9)...................................... 413,703 3.1%
Paul L. Singer (10)...................................... 13,750 *
Donald L. Strohmeyer (11)................................ 10,000 *
Paul R. Hartmann (12).................................... 139,289 1.1%
Wayne M. Lettiere (13)................................... 117,360 *
Steven F.X. Murphy....................................... 3,494 *
Donald J. O'Connor....................................... 53,697 *
Executive Officers and Directors as a group (13 persons)
(14).................................................... 1,035,123 7.5%
</TABLE>
- --------
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock shown as beneficially owned by them, subject to community
property laws, where applicable.
(2) Calculated on the basis of 13,147,507 shares of Common Stock outstanding,
except that shares of Common Stock underlying options exercisable within
60 days of July 31, 1999 are deemed to be outstanding for purposes of
calculating the beneficial ownership of securities of the holders of such
options.
(3) Based on an amendment to Schedule 13G filed with the Securities and
Exchange Commission ("SEC") on January 28, 1999 by Kopp Investment
Advisors, Inc. ("KIA"), Kopp Holding Company ("KHC") and LeRoy C. Kopp
("Kopp"). KIA is wholly owned by KHC which is wholly owned by Kopp.
Includes 300,000 shares as to which Kopp has sole voting and dispositive
power. Also includes 1,696,940 shares as to which KIA has shared
dispositive power and 110,000 shares as to which it has sole dispositive
power. Of these shares, KIA has sole voting power with respect to 357,500
shares.
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<PAGE>
(4) Based on an amendment to Schedule 13G filed with the SEC on April 7, 1999,
by State of Wisconsin Investment Board ("SWIB"). SWIB has the sole power
to vote and dispose of all 2,063,535 shares.
(5) Based on a Schedule 13G filed with the SEC on February 3, 1999, by Merrill
Lynch & Co., Inc. ("ML&Co."). ML&Co. is a holding company that has shared
power to vote and dispose of 920,500 shares held by its subsidiaries,
Merrill Lynch Asset Management, L.P. and Fund Asset Management, L.P.
ML & Co. disclaims beneficial ownership of such shares.
(6) Includes 31,250 shares subject to stock options exercisable within sixty
days of July 31, 1999.
(7) Includes 40,312 shares subject to stock options exercisable within sixty
days of July 31, 1999.
(8) Includes 46,125 shares subject to stock options exercisable within sixty
days of July 31, 1999.
(9) Includes 315,925 shares subject to stock options exercisable within sixty
days of July 31, 1999.
(10) Includes 3,750 shares subject to stock options exercisable within sixty
days of July 31, 1999.
(11) Includes 10,000 shares subject to stock options exercisable within sixty
days of July 31, 1999.
(12) Includes 83,804 shares subject to stock options exercisable within sixty
days of July 31, 1999.
(13) Includes 52,687 shares subject to stock options exercisable within sixty
days of July 31, 1999.
(14) Includes 683,975 shares subject to stock options exercisable within sixty
days of July 31, 1999.
A-14
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF
DIRECTORS ON EXECUTIVE COMPENSATION
In fiscal 1998, the Compensation Committee of the Board of Directors was
comprised of Kenneth E. Olson and Christopher B. Paisley. The Compensation
Committee was responsible for setting and administering the policies governing
annual compensation of the executive officers of the Company. These policies
are based upon the philosophy that the Company's long term success in its
marketplace is best achieved through (i) recruitment and retention of the best
people in the industry and (ii) providing compensation that focuses executive
officer efforts on maximizing both short and long term financial performance of
the Company. The Compensation Committee applied this philosophy in determining
compensation for the Company's executive officers in four areas: salary, annual
incentive programs, long term incentive compensation and benefits.
Each executive officer's aggregate compensation is designed to provide a
cumulative level of compensation roughly equivalent to the median paid by
comparably sized companies in similar industries and geographic locations. In
determining executive officers' compensation, the Compensation Committee
considers information contained in surveys such as the American Electronics
Association ("AEA") Executive Compensation Survey, the Radford Executive
Compensation survey, and various surveys published by venture capital firms. In
recent years, these surveys have experienced year to year increases of
approximately 5% each year.
In 1998, there were no compensation adjustments for the executive officers.
SALARY
The Company attempts to offer salaries to its executive officers which are
generally targeted near the median for similar positions in comparably sized
companies in the Company's industry and geographic location. The Company's
Chief Executive Officer evaluates the performance of all other executive
officers, and recommends salary adjustments which are subject to review by the
Compensation Committee. In addition to considering the results of performance
evaluations and information concerning competitive salaries, the Compensation
Committee and the Chief Executive Officer place weight on the financial
condition of the Company and the competitive employment situation in the
Company's industry and geographic area in considering salary adjustments.
The Company's Chief Executive Officer did not recommend any salary
adjustments for the Company's other executive officers in fiscal 1998.
ANNUAL INCENTIVE COMPENSATION
The Company seeks to provide additional incentives to executives who make
contributions of outstanding value to the Company. For this reason, the
Compensation Committee awards incentive compensation which can comprise a
substantial portion of the total compensation of executive officers when earned
and paid. Incentive compensation may be paid to executives pursuant to three
plans: the Management Team Incentive Compensation Plan, the Sales Management
Incentive Compensation Plan and the Gain Sharing Plan. The Compensation
Committee attempts to structure these plans so that if the maximum amount
available under these plans is earned by an executive officer, his total cash
compensation for the year will be slightly above the median paid to executive
officers in similar positions at comparably sized companies in similar
industries and geographic locations.
Management Team Incentive Compensation Plan. Potential compensation paid
under this plan is set as a significant percent of each officer's base salary.
The total incentive compensation which could be awarded under this plan if all
performance targets and individual objectives were achieved comprised up to 40%
of base salary for executive officers, (other than the Chief Executive
Officer). If performance targets were exceeded, up to 50% of base salary could
be awarded to such officers under this plan. The incentive compensation under
this plan is based on the financial performance of the Company and each
business unit, quantitative departmental goals and the executive officer's
personal performance. Each executive officer (other than those who participate
in the Sales Management Incentive Compensation Plan, as described below) earns
incentive compensation
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<PAGE>
based upon some or all of these areas of performance. The Company and business
unit targets are based upon attaining certain bookings, revenue and operating
profit goals set by the Board of Directors in consultation with the Chief
Executive Officer. Departmental performance is measured by appropriate metrics,
such as on-time completion of key projects, level of quality, and inventory
levels. Compensation for personal performance under this plan is awarded by the
Compensation Committee based upon its objective and subjective evaluation of
the performance of each officer.
Company and business unit performance bonuses are weighted so that
proportionately higher awards are received when the Company's performance
exceeds targets and proportionately smaller or no awards are made when the
Company does not meet targets. No incentive compensation is paid for Company or
business unit performance unless minimum Company and business unit financial
goals are achieved during the fiscal year.
In 1998, no compensation was earned by officers under the Management Team
Incentive Compensation Plan.
The Compensation Committee reviews and adjusts the Management Team Incentive
Compensation Plan annually.
Sales Management Incentive Compensation Plan. One executive officer of the
Company participated in the Company's Sales Management Incentive Compensation
Plan in 1998. Participation in this plan is in lieu of participation in the
Management Team Incentive Compensation Plan. The total incentive compensation
which could be awarded under this plan if all performance targets were achieved
comprised up to 67% of base salary for the executive officer. If performance
targets were exceeded, up to 100% of base salary could be awarded to the
officer under this plan. Incentive compensation is paid under this plan as a
percentage of bookings and revenue, to the extent that bookings and revenue
exceed 80% of the target goals set by the Board of Directors. In addition, the
executive officer could earn up to 17% of base salary based upon personal
performance. In 1998, compensation earned by the officer who participated in
the Sales Management Incentive Compensation Plan was 25% of the officer's base
salary.
Gain Sharing Plan. Under this plan, eligible employees (including the
Company's executive officers) may receive quarterly payments based on the
Company's financial results exceeding certain levels. Officers are only
eligible to participate after all other employees have received an annual
allocation of $3,000 per person. No amounts were earned under the Gain Sharing
Plan in 1998.
LONG TERM INCENTIVE COMPENSATION
The Compensation Committee believes that long term incentive compensation
through employee equity ownership provides significant additional motivation to
executive officers to maximize value for the Company's stockholders, and
therefore, the Compensation Committee makes periodic grants of stock options
under the Company's option plans. Such options are granted at the prevailing
market price, and will only have value if the Company's stock price increases
over the exercise price. Therefore, the Compensation Committee believes that
stock options serve to align the interest of executive officers closely with
other stockholders because of the direct benefit executive officers receive
through improved stock performance. In addition, stock options vest over time
to provide financial incentive for the executive officers to remain with the
Company.
In fiscal 1998, the Compensation Committee granted additional options to
executive officers, after consideration of recommendations from the Chief
Executive Officer. Option grants were based upon relative position and
responsibilities of each executive officer, historical and expected
contributions of each executive officer to the Company, and previous option
grants to such executive officers. Options were granted with a goal to provide
equity compensation for the Company's executive officers that is competitive
with equity compensation provided to executive officers with similar positions
in comparably sized companies in similar industries and geographic locations.
All options granted in fiscal 1998 to executive officers in their capacities as
such were granted under the 1994 Option Plan. Generally, option grants under
the 1994 Option Plan vest and become exercisable over four years. Option grants
for fiscal 1998 are set forth in the tables entitled "Option
A-16
<PAGE>
Grants In Last Fiscal Year" in the section entitled "Executive Compensation
And Other Matters" and "Ten Year Option Repricings."
OTHER BENEFITS
The Company's executive officers participate in benefits programs available
generally to all employees.
CHIEF EXECUTIVE OFFICER COMPENSATION
The compensation of the Chief Executive Officer is based upon the same
criteria outlined above for the other executive officers of the Company. While
the CEO makes recommendations about the compensation levels, goals and
performance of the other executive officers, he does not participate in
discussions regarding his compensation or performance.
The Compensation Committee did not adjust Mr. Savage's salary in 1998. Mr.
Savage's compensation under the Management Team Incentive Compensation Plan
was based upon the Company achieving financial performance goals. In 1998, Mr.
Savage could have received 50% of his base salary under the Management Team
Incentive Compensation Plan if the Company had met all of its performance
targets and up to 70% if those targets were exceeded by 10% or more. No
incentive compensation was earned by Mr. Savage in 1998. Mr. Savage received
additional option grants under the 1994 Option Plan to purchase 139,000 shares
which included an option grant for 35,000 shares granted in June 1995 which
was canceled and regranted in November 1998; an option grant for 30,000 shares
originally granted in November 1995 which was canceled and regranted in
November 1998; an option grant for 50,000 shares originally granted in
February 1997 which was canceled and regranted in November 1998; and an option
grant for 24,000 shares originally granted in January 1998 which was canceled
and regranted in November 1998. See "Report of the Compensation Committee of
the Board of Directors on Executive Compensation--Report on 1998 Cancellation
and Regrant of Options" and "Ten Year Option Repricings". In addition to
participating in benefit plans available to all employees, pursuant to his
employment agreement with the Company, Mr. Savage also receives reimbursement
of certain life and disability insurance premiums.
REPORT ON 1998 CANCELLATION AND REGRANT OF OPTIONS
In September and November of 1998, the Compensation Committee considered,
separately, the options held by the Company's employees and executive officers
and the fact that a broad decline in the price of the Common Stock of the
Company had resulted in a substantial number of stock options granted having
exercise prices well above the recent historical trading prices for the
Company's Common Stock. The Committee was advised by management that
management believed that key employee turnover was likely to increase in part
because the Company's total compensation package for long-term employees,
which included substantial options with exercise prices well above the current
trading price, was less attractive than compensation offered by other
companies in the same industry and geographic location. This is because
options granted to new hires at other companies would likely be granted at
current trading prices, providing more opportunity for appreciation than the
Company's options.
The Committee believed that the Company's success in the future would
depend in large part on its ability to retain a number of its highly skilled
technical, managerial and marketing personnel and the loss of key employees
could have significant adverse impact on the Company's business. The Committee
also believed that unless an adjustment was made in option prices, existing
employees holding options would perceive a substantial inequity in comparison
to new employees granted stock options with exercise prices set at the
current, lower fair market value of the Company's Common Stock and that
employee morale would suffer as a consequence. The Committee concluded that it
was important and cost-effective to provide equity incentives to employees and
executive officers of the Company to improve the Company's performance and the
value of the Company for its stockholders. The Committee considered granting
new options selectively to current key employees at fair market value, but
recognized that the size of the option grants required to offset the decline
in market price would result in significant additional dilution to
stockholders. The Committee recognized that
A-17
<PAGE>
canceling existing options with exercise prices higher than fair market value
and regranting options at fair market value would provide additional incentives
to employees because of the increased potential for appreciation. The Committee
also recognized that the new options could require holding periods before they
became exercisable, providing optionees participating in the
cancellation/regrant program with an added incentive to remain with the
Company. Considering these factors, the Committee determined that it was in the
best interests of the Company and its stockholders to restore the incentives
for employees and executive officers to remain as employees of the Company and
to exert their maximum efforts on behalf of the Company by canceling and
regranting stock options under the Option Plan for those options with exercise
prices above recent trading prices.
In September 1998, the Compensation Committee approved the cancellation and
regrant of all outstanding options granted to non-officer employees at exercise
prices exceeding the fair market value of common stock as of October 23, 1998,
the effective date of the program. The exercise price of each regranted option
is $2.75, which is the closing market price of the Company's common stock on
October 23, 1998. Each optionee holding such an option had the opportunity to
(i) elect to retain the old option or (ii) accept a new option with an exercise
price equal to the fair market value of the Company's common stock on the
effective date and cancel the old option. Each regranted option covered the
same number of shares subject to the old option at the time of cancellation and
maintained the same vesting period as the previously canceled option. The
regranted options cannot be exercised for a period of six months following the
effective date. Any employee voluntarily leaving the Company during the six
month period will lose the affected options, including previously vested
portions of those options. All replacement options will terminate no later than
ten (10) years from the date of grant. Options to purchase a total of 1,706,275
shares of the Company's Common Stock at exercise prices ranging from $2.80 per
share to $9.88 per share have been canceled in exchange for regranted options
for an equal number of shares at an exercise price of $2.75 per share, the
closing price of the Company's Common Stock on the effective date of the
program.
In November 1998, the Compensation Committee of the Company's Board of
Directors approved the cancellation and regrant of all outstanding options
granted to executive officers at exercise prices exceeding the fair market
value of common stock as of November 6, 1998, the effective date of the
program. The exercise price of each regranted option is $2.75, which was the
closing market price of the Company's common stock on November 6, 1998. Each
executive officer holding such an option had the opportunity to (i) elect to
retain the old option or (ii) accept two new options with exercise prices equal
to the fair market value of the Company's common stock on the effective date
and cancel the old option. Each regranted option covered one-half of the number
of shares subject to the old option at the time of cancellation. One of the
regranted options maintained the same vesting period as the previously canceled
option. The other regranted option vests in equal monthly installments over a
48 month period beginning on the grant date. The regranted options are subject
to the condition that the options cannot be exercised for a period of six
months following the effective date. Any executive officer voluntarily leaving
the Company during the six month period will lose the affected options,
including previously vested portions of those options. All replacement options
will terminate no later than ten (10) years from the date of grant. Options to
purchase a total of 1,706,275 shares of the Company's Common Stock at exercise
prices ranging from $4.75 per share to $15.25 per share have been canceled in
exchange for regranted options for an equal number of shares at an exercise
price of $2.75 per share, the closing price of the Company's Common Stock on
the effective date of the program.
The Compensation Committee believes the regranted options strike an
appropriate balance between the interests of the option holders and those of
the stockholders. The lower exercise prices in effect under the regranted
options make those options valuable to the executive officers and employees
critical to the Company's financial performance. However, those individuals
will enjoy the benefits of the regranted options only if they remain in the
Company's employ and contribute to the Company's and investor's financial
success.
COMPENSATION COMMITTEE
Kenneth E. Olson
Christopher B. Paisley
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<PAGE>
TEN YEAR OPTION REPRICINGS
The table below sets forth (i) information with respect to each of the
Company's named executive officers concerning his participation in the option
cancellation/regrant program which was effected November 6, 1998 and (ii)
information with respect to all former or current executive officers of the
Company concerning their participation in other option repricing programs
implemented by the Company during the last ten fiscal years. Options referenced
in the table below that were repriced on November 6, 1998 represent two new
option agreements. Each such option agreement is for one-half of the number of
shares subject to the old option at the time of cancellation. One of the
regranted options maintained the same vesting period as the previously canceled
option, and the other regranted option vests in equal monthly installments over
a 48-month period beginning on the date of repricing.
<TABLE>
<CAPTION>
LENGTH OF
ORIGINAL
NUMBER OF MARKET OPTION
SECURITIES PRICE OF EXERCISE TERM
UNDERLYING STOCK AT PRICE AT NEW REMAINING
DATE OF OPTIONS TIME OF TIME OF EXERCISE AT DATE OF
NAME REPRICING REPRICED REPRICING REPRICING PRICE REPRICING
- ---- --------- ---------- --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Peter P. Savage(1)....... 11/06/98 24,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
President and Chief 11/06/98 50,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Executive Officer 11/06/98 30,000(5) $ 2.75 $11.75 $ 2.75 85 Months
11/06/98 35,000(6) $ 2.75 $12.50 $ 2.75 80 Months
6/29/95(2) 35,000(7) $12.50 $18.75 $12.50 110 Months
Paul R. Hartmann......... 11/06/98 14,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, Systems 11/06/98 20,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Engineering 11/06/98 20,000(5) $ 2.75 $11.75 $ 2.75 85 Months
11/06/98 20,000(6) $ 2.75 $12.50 $ 2.75 110 Months
6/29/95(2) 20,000(7) $12.50 $18.75 $12.50 110 Months
Wayne M. Lettiere........ 11/06/98 12,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, 11/06/98 10,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Operations 11/06/98 15,000(5) $ 2.75 $11.75 $ 2.75 85 Months
11/06/98 15,000(6) $ 2.75 $12.50 $ 2.75 80 Months
6/29/95(2) 15,000(7) $12.50 $18.75 $12.50 110 Months
Steven F.X. Murphy(8).... 11/06/98 10,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, Sales 11/06/98 75,000(9) $ 2.75 $ 4.75 $ 2.75 101 Months
and Marketing
Donald J. O'Connor....... 11/06/98 19,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, Network 11/06/98 25,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Systems 11/06/98 50,000(10) $ 2.75 $12.50 $ 2.75 80 Months
James L. Keefe........... 11/06/98 13,500(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, Finance 11/06/98 20,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Administration, 11/06/98 25,000(11) $ 2.75 $15.25 $ 2.75 91 Months
Chief Financial Officer 11/06/98 6,000(5) $ 2.75 $11.75 $ 2.75 85 Months
and Secretary 11/06/98 5,000(6) $ 2.75 $12.50 $ 2.75 80 Months
6/29/95(2) 5,000(7) $12.50 $18.75 $12.50 110 Months
Kevin T. Pope............ 11/06/98 16,000(3) $ 2.75 $ 6.06 $ 2.75 110 Months
Vice President, Network 11/06/98 25,000(4) $ 2.75 $ 6.88 $ 2.75 100 Months
Development 11/06/98 35,000(5) $ 2.75 $11.75 $ 2.75 85 Months
Engineering 11/06/98 535(12) $ 2.75 $ 7.00 $ 2.75 19 Months
11/06/98 107(13) $ 2.75 $ 7.00 $ 2.75 10 Months
11/06/98 216(14) $ 2.75 $ 7.00 $ 2.75 5 Months
11/06/98 7,500(6) $ 2.75 $12.50 $ 2.75 80 Months
6/29/95(2) 7,500(7) $12.50 $18.75 $12.50 110 Months
Richard W. Carter(15).... 06/29/95 15,000(7) $12.50 $18.75 $12.50 110 Months
Chief Financial Officer
Howard J. Rutka(16)...... 06/29/95 13,000(7) $12.50 $18.75 $12.50 110 Months
Vice President, Sales
</TABLE>
- --------
(1) On February 20, 1999, Mr. Savage was appointed to the position of Chairman
of the Board of the Company, and resigned from the positions of President
and Chief Executive Officer.
A-19
<PAGE>
(2) Option was subsequently cancelled and regranted on November 6, 1998.
(3) Represents the regrant of a cancelled option originally granted in January
1998.
(4) Represents the regrant of a cancelled option originally granted in
February 1997.
(5) Represents the regrant of a cancelled option originally granted in
November 1995.
(6) Represents the regrant of a cancelled option originally granted in June
1995.
(7) Represents the regrant of a cancelled option originally granted in August
1994.
(8) On January 25, 1999, Mr. Murphy resigned from his position of Vice
President, Sales and Marketing with the Company.
(9) Represents the regrant of a cancelled option originally granted in April
1997.
(10) Represents the regrant of a cancelled option originally granted in June
1995.
(11) Represents the regrant of a cancelled option originally granted in May
1996.
(12) Represents the regrant of a cancelled option originally granted in May
1990.
(13) Represents the regrant of a cancelled option originally granted in
September 1989.
(14) Represents the regrant of a cancelled option originally granted in March
1989.
(15) Mr. Carter is no longer an employee of the Company.
(16) Mr. Rutka is no longer an employee of the Company.
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, the
Company believes that all reporting persons complied with Section 16(a) filing
requirements applicable to them.
A-20
