-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Sf9KS4QCp4VNa/2G+ilWSL8TLHhbu/stpCpdsU3C+B/NrMl9K5hvKahTIC0/eaqX cNZkCrFxBl5zgkaI12Lw9g== 0000718487-99-000003.txt : 19990331 0000718487-99-000003.hdr.sgml : 19990331 ACCESSION NUMBER: 0000718487-99-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRAN CORP CENTRAL INDEX KEY: 0000718487 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 042729372 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-12489 FILM NUMBER: 99578736 BUSINESS ADDRESS: STREET 1: 50 HALL ROAD CITY: STURBRIDGE STATE: MA ZIP: 01566 BUSINESS PHONE: 5083472261 10-K 1 SPECTRAN CORP. ANNUAL REPORT ON FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the fiscal year ended December 31, 1998 [ X ] OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OR THE SECURITIES ACT OF 1934 For the transition period from ...................to ......................... Commission file number 0-12489 SPECTRAN CORPORATION ......................................................................... (Exact name of the registrant as specified in its charter) Delaware 04-2729372 ..................................... ................................ State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization 50 Hall Road, Sturbridge, Massachusetts 01566 ...................................................... ....................... (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (508) 347-2261 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None Not Applicable ................................................................................ Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value ................................................................................ (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: X No: __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] 1 The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock, on February 26, 1999: $36.3 million. The number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 7,003,850 shares of common stock, $.10 par value, outstanding on February 26, 1999. DOCUMENTS INCORPORATED BY REFERENCE The information required for Part III hereof is incorporated by reference from the Registrant's Proxy Statement for its 1999 Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant's fiscal year. PART I Item 1. BUSINESS. SpecTran Corporation ("SpecTran," the "Company" or the "Registrant") operates through two wholly-owned subsidiaries, SpecTran Communication Fiber Technologies, Inc. ("SpecTran Communication") and SpecTran Specialty Optics Company ("SpecTran Specialty"), and through General Photonics, LLC ("General Photonics"), a joint venture with General Cable Corporation ("General Cable"). In December 1996, the Company sold certain of the assets of its wholly-owned subsidiary, Applied Photonic Devices, Inc. ("APD"), and then contributed the remaining assets of APD to General Photonics for a 50% equity interest. (See Note 14 to the Consolidated Financial Statements - "Acquisitions/Joint Venture"). SpecTran Communication develops, manufactures and markets multimode and single-mode optical fiber for data communications and telecommunications applications. SpecTran Specialty, acquired in February 1994, develops, manufactures and markets specialty multimode and single-mode fiber and value-added fiber optic products for industrial, military/aerospace, communication and medical applications. General Photonics develops, manufactures and markets communications-grade fiber optic cable primarily for the customer premises market in the United States, Canada and Mexico. Technology Fiber optic technology utilizing glass as a communications medium was developed in the 1970s and offers numerous technical advantages over traditional media such as copper. Optical fibers are hair-thin solid strands of high quality glass usually combined in cables for transmitting information in the form of light pulses. An optical fiber consists of a core of high purity glass, which transmits light with little signal loss. This core is typically encased within a covering layer of high purity glass or plastic polymer referred to as optical cladding, which reduces signal loss through the side walls of the fiber. The information to be transmitted is converted from electrical impulses into light waves by a laser or light emitting diode. At the point of reception, the light waves are commonly converted back into electrical impulses by a photo-detector. 2 Optical fiber's advantages include its high bandwidth, which permits reliable transmission of complex signals such as multiple high-quality audio and video channels and high-speed data formats such as Fiber Distributed Data Interface (FDDI), Asynchronous Transfer Mode (ATM), Gigabit Ethernet Synchronous Optical Network (SONET) and other communications protocols. Compared to traditional copper cable used in telephony, optical fiber has thousands of times the information carrying capacity, occupies less space and operates over greater distances with significantly less attenuation. This high capacity and reliability makes optical fiber systems well suited for interactive applications, allowing digitally encoded voice, data and video signals to be transmitted in large volumes at high speed. Furthermore, optical fiber is immune to electrical surges (including from lightning strikes) and electromagnetic interference which cause static or failure in copper wire transmission and wireless communication. Optical fiber has technical advantages over wireless communications media such as transmission quality and signal reliability. Optical fiber is also a safer choice in flammable environments because it does not conduct electricity. Additionally, communicating through optical fiber is more secure than copper and wireless communications because tapping into fiber optic cable without detection is more difficult. Optical fiber quality is measured by several performance characteristics and is reflected in the price of the fiber. These performance characteristics include bandwidth, attenuation (signal loss over distance), tensile strength, geometry and the dimensional and optical uniformity of the fiber. Optical fiber users and manufacturers have established specifications and standards for both multimode and single-mode fiber. Products The following table describes the Company's and General Photonics' principal product areas and the markets they serve:
- --------------------------------------- ------------------------------------- -------------------------------------- Products Applications Target Customers - --------------------------------------- ------------------------------------- -------------------------------------- - --------------------------------------- ------------------------------------- -------------------------------------- SpecTran Communication - --------------------------------------- ------------------------------------- -------------------------------------- Data Communication grade multimode Data Communications, including Integrated cablers (e.g., Lucent, fiber: 50, 62.5 and 100 micrometer FDDI and fast Ethernet; LANs; video Chromatic Technologies); independent core diameters CCTV; computer peripherals channel cablers (e.g., Optical Cable attachment Corporation, CommScope, General Photonics) - --------------------------------------- ------------------------------------- -------------------------------------- Telecommunication grade single-mode Telephony (principally in emerging Independent data communications fiber economies); high-speed domestic cablers; international short-distance data communication, telecommunications cablers including Fibre Channel and FDDI (e.g., India, China, Mexico) - --------------------------------------- ------------------------------------- --------------------------------------
3
- --------------------------------------- ------------------------------------- -------------------------------------- Products Applications Target Customers - --------------------------------------- ------------------------------------- -------------------------------------- SpecTran Specialty - --------------------------------------- ------------------------------------- -------------------------------------- Step & graded index multimode fiber & Factory LANs and PLC interconnects; Factory, transportation and medical cable: Polymer clad/glass core, high mobile video: avuibucs; high-speed OEMs; systems designers and numerical aperture, radiation ground-basedd transportation; integrators; geophysical exploration tolerant, power delivery an high geophysical exploration and companies; US government and temperature fiber; avionics cable monitoring; sensing; power military: utilities; telecom and high dielectric strength cable transmission, including laser supercomputer OEMs; systems tether cables surgery; blood gas monitoring; designers and integrators including laser supercomputer OEMs; radiation resistant links; high- monitoring; designers and integrators speed, short-distance telecom interconnects (e.g., telephone switching systems andPBXs); supercomputer links - --------------------------------------- ------------------------------------- -------------------------------------- - --------------------------------------- ------------------------------------- -------------------------------------- Specialty single-mode fiber and Metalized pigtails, couplers, Telecommunications; optoelectronic cable: photo-sensitive, rare-earth amplifiers, geophysical exploration manufacturers; well-logging delay line, fatique resistant fiber; and monitoring; gyroscopes; companies and system integrators; avionics cable; tether cables wave-length division multiplexers defense contracts - --------------------------------------- ------------------------------------- -------------------------------------- - --------------------------------------- ------------------------------------- -------------------------------------- Components and assemblies: crimp and Industrial automation; OEMs; systems designers and cleave connectors; pigtails; fiber environmental monitoring; customer integrators; facilities managers; optic arrays; specialty and hybrid premises networking; military spec utilities; optoelectronic devices interconnects; tool kits and high reliablitity assemblies; manufacturers; defense contractors high power laser delivery; sensing; illumination; spectroscopy - --------------------------------------- ------------------------------------- -------------------------------------- General Photonics - --------------------------------------- ------------------------------------- -------------------------------------- Indoor cable: tight buffered Building backbones; riser and Networking systems and LAN OEMs; distribution and breakout designs plenum installation systems designers and integrators; installers; facilities managers - --------------------------------------- ------------------------------------- -------------------------------------- - --------------------------------------- ------------------------------------- -------------------------------------- Outdoor cable: loose tube; Customer premises backbones, Networking systems and LAN OEMs; gel-filled; direct burial; aerial; including densely populated systems designers and integrators; armored; figure eight buildings and campuses; Fibre installers; facilities managers Channel; FDDI; bypass telecom - --------------------------------------- ------------------------------------- -------------------------------------- - --------------------------------------- ------------------------------------- -------------------------------------- Cable accessories: pulling devices; Customer premises systems and LAN Installers; system integrators; LAN breakout, splitter and restoration installation & repair OEMs; utilities kits; cable terminations - --------------------------------------- ------------------------------------- --------------------------------------
Types of products produced by SpecTran Communication and SpecTran Specialty accounted for approximately 72% and 28%, respectively, of 1998 consolidated revenue and 73% and 27%, respectively, of 1997 consolidated revenue. In 1996, types of products by SpecTran Communication, SpecTran Specialty and APD accounted for approximately 59%, 21% and 20%, respectively, of consolidated revenue. 4 Customers and Marketing The Company sells its communication multimode and single-mode optical fibers to various cable manufacturers, domestically and internationally, which assemble them into cables for resale in configurations of their own design. Specialty fiber products are sold directly to a large number of OEMs, by developing specialty applications for customers, and to product development groups, international distributors and manufacturers' representatives, installers, universities and governmental agencies, primarily for use in the industrial, medical, military, aerospace, transportation and telecommunications and data communications markets. Optical fiber cable and cable accessories, manufactured by General Photonics, are sold largely to distributors, systems integrators and installers primarily for use in the customer premises market in the United States, Canada and Mexico. The Company markets its multimode and single-mode data communications and telecommunications optical fiber products principally through a direct sales force in the United States and through a network of manufacturers' representatives internationally. Specialty fiber products are marketed domestically through a direct technical field sales force and internationally through a network of technical distributors and sales representatives. Optical fiber cable and cable components produced by General Photonics are marketed primarily through General Cable's direct sales force and sales representatives, whose principal customers are largely distributors and end users. Marketing, technical support and some direct sales and customer support are provided by General Photonics personnel. The Company advertises in trade publications, brochures and other material to its mailing list of potential customers worldwide and participates at trade shows, technical symposia and standards committees. As a result of its diversification efforts and broader product offering, the Company has increased its customer base over the last three years and plans to continue to expand this base within its targeted markets. International sales, primarily Asia and Europe, accounted for approximately 15%, 20% and 18% of total sales in 1998, 1997 and 1996, respectively. See Note 16 to the Consolidated Financial Statements - "Business Segements". For the year ended December 31, 1998, sales to each of Optical Cable Corporation and Lucent Technologies were equal to 10% or more of the Company's revenues. The loss of either Optical Cable Corporation or Lucent Technologies would have a material adverse affect on the Company. 5 Manufacturing and Quality Control The basic raw materials required for the manufacture of the Company's optical fiber products are high quality glass tubes and rods, various chemicals, gases and certain polymers. The Company believes that its sources of supply of these raw materials are adequate and that alternative sources are available. The Company typically manufactures optical fibers by introducing vapors and gases of varying chemical compositions into a special glass tube located in a clean, controlled environment. In the modified chemical vapor deposition ("MCVD") process, an inside vapor deposition process used by the Company, the glass tube, which forms all or a portion of the optical cladding, and the introduced vapors and gases are simultaneously heated, and oxide particles, formed through a reaction of chemical vapors with oxygen, are deposited on and adhere to the inside of the tube. As the particles attach to the tube wall, they are fused to create a layer of high purity glass. Succeeding layers of glass of the same or different compositions are deposited in this fashion to permit the transmission of light in accordance with the desired specifications. The Company believes that the MCVD process is well suited to the production of multimode fiber but that it is not presently the most cost-effective process for making single-mode fiber. As part of the acquisition of Ensign Bickford Optical Technologies the Company acquired the patent rights to a process known as hybrid vapor deposition ("HVD"). Since its acquisition, the HVD process has been refined and engineered for production and the Company expects it will be used in 1999 for the manufacture of single-mode fiber. In the MCVD process, once deposition is completed, the glass tube is then collapsed into a rod, or primary preform, consisting of a deposited core, in certain instances some deposited cladding and cladding provided by the glass tube itself. In most cases, additional cladding is added to this primary preform. The rod is then placed at the top of a fiber drawing tower, heated until it softens and drawn into a fiber of predetermined diameter. The HVD process does not use a glass starting tube but rather deposits glass soot on the end of a target rod to produce the central portion of the fiber. After this material has been fused into clear glass, additional soot is deposited to increase the cladding volume. The deposited material is also fused into clear glass and resulting rod or preform is subsequently drawn into fiber using the same basic technology as with MCVD fiber draw. 6 The majority of the Company's specialty products use a proprietary polymer clad glass core fiber drawn from manufactured or purchased silica rod. This fiber is either sold to third parties or cabled and/or combined with assemblies and sold. The Company owns certain hard polymer cladding, coating and fiber termination technology known as "crimp/cleave," which facilitates attachment of optical fibers to connectors and other components and has certain proprietary technology used for the cabling of optical fiber. The Company has developed proprietary technology related to the processing of a wide variety of polymeric compounds for the manufacture of optical fiber cable. General Photonics purchases fiber from the Company and protectively covers and bundles the fibers into cable. The Company believes that its quality control programs are essential to its success. The Company's quality control programs are designed to maintain strict tolerances during the manufacturing process and to assure performance standards of its products. The Company performs quality control testing on all of its products. The Company designs and builds much of the equipment it uses to manufacture and test its optical fiber products. SpecTran Communication's facility in Sturbridge, Massachusetts and SpecTran Specialty's facility in Avon, Connecticut are ISO 9001 certified. All of the Company's operations utilize internal testing procedures based on the internationally recognized "Fiber Optic Test Procedures" and have in place and continue to develop specialized proprietary testing systems and procedures to support the requirements of their respective customers. Environmental Matters The Company uses certain hazardous materials in its research and manufacturing operations. As a result, the Company is subject to federal, state and local governmental regulations. During 1998, the Company invested $500,000 for the purchase and installation of additional air pollution control equipment at SpecTran Communication's production facility in Sturbridge, Massachusetts. There is no material spending pertaining to environmental compliance planned for 1999. The Company believes that it has complied with all regulations and has all permits necessary to conduct its business. 7 Proprietary Rights The Company and its subsidiaries consider its proprietary know-how with respect to the development and manufacture of flexible glass fibers and value-added optical fiber products to be a valuable asset. This know-how includes formulation of new glass compositions, development of special fiber coatings, coating applications, fiber designs, preform fabrication, fiber drawing, optical fiber cabling methods, fiber cleaving, polishing and end finishing techniques, proprietary testing capabilities, development and implementation of manufacturing processes and quality control techniques, and design and construction of manufacturing and quality control equipment. Product and application knowledge are also considered to be valuable assets of the Company and its subsidiaries. Corning License. The Company has a limited, non-assignable, non-exclusive, royalty-bearing license from Corning to make, use and sell fiber under certain of Corning's United States patents with a filing date prior to January 1, 1996 in the field of optical fiber. The license contains certain annual quantity limitations. The Corning license is not applicable to sales made directly or indirectly to certain customers such as Corning, Lucent and the United States Government. The quantities that can be manufactured under the license increase annually through the year 2000. The license has a term equal to the life of the last to expire of the Corning or Company patents licensed under the agreement. Corning has the right to terminate the license in the event that more than 30% of the Company's voting stock is acquired, directly or indirectly, by another manufacturing company. The Company granted back to Corning a non-exclusive royalty-free license for any of its patents with a filing date prior to January 1, 1996 in the field of optical fiber. Lucent Licenses. The Company has a non-assignable, non-exclusive, unlimited, royalty-bearing license from Lucent under all patents covering optical fiber and optical fiber cable owned by Lucent or which Lucent and its affiliates had the right to license on or before August 15, 1986. The Company granted back to Lucent a non-exclusive, royalty-free license under patents the Company may obtain relating to optical fiber inventions made on or before August 15, 1986. The license extends for the life of the last to expire of the patents licensed under the agreement. In October 1998, the Company and Lucent established a new worldwide, non-exclusive license exchanging rights under their optical fiber patents issued prior to January 1, 1998 and additional patents related to multimode fiber based on applications filed through October 1998. SpecTran is licensed by Lucent to make optical fiber at its existing factories for worldwide use, sale and export from the United States. The license contains some product limitations including certain exclusions to make or sell select specialty fibers for some 8 applications. Lucent receives non-exclusive, royalty-free worldwide rights. SpecTran agreed to pay Lucent a $4.0 million license fee in installments and, beginning in 2000, a royalty on sales. Lucent has the right to terminate the agreement if the Company is acquired by an optical fiber manufacturer. Sales Subject to Corning and Lucent License Agreements. Approximately 22% of the Company's net sales during 1998, all of which were SpecTran Communication sales, were subject to license requiring aggregate royalty payments by the Company of approximately 5% of net sales of the Company's products manufactured under license during 1998. The Company believes that certain Corning patents, which may have been relevant to the Company's single-mode fiber, including patents covered by a non-exclusive license from Corning to the Company, have expired in many countries (including the United States). Therefore, the Company believes that manufacturing and sale of its single-mode fiber is not subject to the Corning license and has been marketing its single-mode fiber without payments of royalties to Corning and without regard to the annual quantity limitations of the Corning license since 1993. The Company presently does not expect to need the Corning license for the manufacture of its multimode fiber after 1999 because the Company believes that a Corning United States patent with relevancy to its multimode fiber will expire in 1999. Patents and Trademarks. The Company and its subsidiaries own 22 U.S. patents relating to products, processes and equipment in the fields of optical fibers, optical connectors, coatings and cleaving tools. The Company believes that its patents afford it certain competitive advantages. Under the terms of the Corning and Lucent license agreements, generally its optical fiber patents are required to be made available royalty-free to Lucent and Corning. The Company is using its trademark SPECTRAGUIDE(R) for its commercial grade optical fiber and for certain of its value added fiber products. It also uses the trademarks HCS(R) (Hard Clad Silica), Avioptics(TM), Flightguide(TM), PYROCOAT(TM), V-System(TM), V-Pin(TM) and GigaGuideTM. Research and Development Research and development activities and the Company's ability to develop and improve products employing both existing and new technology, are important to the Company. During the fiscal years ended December 31, 1998, 1997 and 1996, the Company spent $5.5 million, $3.3 million and $3.1 million, respectively, or 7.8%, 5.3% and 5.1%, respectively, of its net sales on research and development. The Company has continued to invest in programs to reduce manufacturing cost and improve product performance in both the single-mode and multimode product lines, to develop new optical fiber products and to develop alternative process technologies. The Company's personnel conduct substantially all of its research and development activities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." 9 Backlog As of January 31, 1999, the Company's backlog of orders was approximately $16.6 million (approximately 42% of which was SpecTran Communication backlog), as compared to a backlog of $35.2 million as of January 31, 1998. All of the January 31, 1999 backlog is expected to be delivered during 1999. Competition The Company produces and sells optical fibers and value added optical fiber components and assemblies for data communications, telecommunications and specialized applications. Optical fiber cable and cable components are also sold through General Photonics. While there may be less competition in the specialized markets, all of the markets served by the Company and General Photonics are very competitive. The Company's main competitors for its fibers for data communications and telecommunications are its licensors, Corning and Lucent, to whom the Company pays royalties and who have substantially greater resources and operating experience than the Company. The Company also competes with Alcatel, Plasma Optical Fibres, Yangzee Optical Fiber Corp., FiberCore and other fiber producers throughout the world. The Company's main competitors for its specialty fibers generally have been smaller operations, but some of those competitors are part of companies with substantially greater resources than the Company. General Photonics' main competitors for its optical fiber cable products are large companies with substantially greater resources and operating experience than the Company and General Photonics, some of which may also be customers of SpecTran Communication. The Company competes for sales based upon its ability to fill orders promptly at competitive prices, by developing specialty applications for customers, product performance, product features, unique proprietary products, flexibility, quality and service. The Company believes that optical fibers offer a number of advantages over and compete favorably with other means of transmitting information, such as copper wire, radio frequency (RF) wireless, satellite and other line of sight transmissions (e.g., microwaves). Many companies offering such other means of transmitting information have substantially greater resources and operating experience than the Company. The Company often competes with both mature existing technology and new technology, some of which have cost advantages over optical fiber for certain applications. 10 Competition may also result from technological innovation in the optical fiber industry. New optical fiber designs could provide an advantage to competitors of the Company. New single-mode dense wavelength division multiplexing fibers produced by Lucent and Corning may, particularly in the future, as, among other things, the cost of electronic connections decrease, provide a competitive advantage to those companies, although the Company has access to certain of Lucent's patents in this area through its 1998 license agreement with Lucent. The number of participants in the optical fiber industry is to some extent limited by patents covering the fundamental optical fiber technology, the need for substantial capital investment and the availability of highly specialized equipment and personnel with the requisite technical expertise. The Company believes that certain Corning patents, which may have been relevant to the Company's single-mode fiber, including patents covered by a non-exclusive license from Corning to the Company, have expired in many countries (including the United States). The Company further believes that a certain Corning United States patent, covered by this non-exclusive license, with relevance to the Company's multimode fiber, expires in 1999. In addition, the Company believes that a certain Lucent patent licensed to the Company relating to its multimode and single-mode fiber expired in 1997. The expiration of these patents may or may not reduce the patent barrier to entry by other companies. Employees As of December 31, 1998, the Company employed 531 persons, of whom 195 were employed in technology, 242 were employed in manufacturing operations and 94 provided marketing, administrative, management and other support services. These numbers do not include 49 employees of General Photonics. The Company's employees are not represented by a labor union. The Company believes its employee relations are good. Item 2. PROPERTIES. The Company's administrative offices and the offices and production facilities of SpecTran Communication are located in an approximately 98,000 square foot building. The building is situated on approximately 43 acres of land owned by SpecTran Communication in Sturbridge, Massachusetts. SpecTran Communication owns these buildings and land as well as a 5,000 square foot office building, used for offices, that is next to this manufacturing facility. SpecTran Specialty's offices and production facilities are located in an approximately 54,000 square foot building situated on approximately 14 acres of land located in Avon, Connecticut. This property is owned by the Company. 11 General Photonics has assumed APD's lease for offices and production facilities in a 50,000 square foot facility located in Dayville, Connecticut under a lease expiring February 6, 2001, which is subject to a three year renewal option, followed by a two year renewal option. Item 3. LEGAL PROCEEDINGS. On November 6, 1998, the Company announced that it would contest a complaint filed in the United States District Court in Boston, MA on October 2, 1998, purportedly as a class action suit. Titled Cruise v. Cannon, et al., the complaint alleges that the Company and three of its current or former officers and directors violated securities laws by misrepresenting the Company's financial condition and financial results during 1998. The suit purports to be a class action on behalf of all individuals who purchased the Company's stock on the open market from February 25, 1998 to July 17, 1998. The suit alleges, among other things, that there were public misrepresentations or failures to disclose material facts during that period which allegedly artificially inflated the price of the Company's common stock in the marketplace. The complaint seeks an undisclosed amount of compensatory damages and costs and expenses, including plaintiff's attorney's fees and such further relief as the Court may deem just and proper. The Company believes the action is totally without merit, believes that it has highly meritorious defenses and it intends to defend itself vigorously. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 12 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the NASDAQ National Market System under the symbol "SPTR." Set forth below is high and low sales price information for the Company's Common Stock for the periods indicated as reported on the NASDAQ National Market: Price Fiscal Year Fiscal Quarter Ended High Low 1997 March 31, 1997 25 12-5/8 June 30, 1997 21 11-1/4 September 30, 1997 20-3/4 13-3/4 December 31, 1997 15-1/4 8-5/8 1998 March 31, 1998 11-1/8 6-7/8 June 30, 1998 10-1/4 6-15/16 September 30, 1998 7-13/16 4-5/32 December 31, 1998 7-5/8 3-9/16 On March 26 1999, the closing price of Common Stock as reported on the NASDAQ National Market System was $4. The approximate number of shareholders of record of the Company's Common Stock as of January 31, 1999 was 755 which includes all shares held in nominee names by brokerage firms and financial institutions as one stockholder. It is estimated that shares held in street name are held for approximately 5,602 stockholders. The Company has not paid any cash dividends and does not intend to pay cash dividends in the foreseeable future. 13 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.
Years Ended December 31 (in thousands, except per share data) --------------------------------------------------------------------- OPERATING RESULTS 1998 1997 1996 1995 1994 - ----------------- ---- ---- ---- ---- ---- Net Sales $ 70,856 $ 62,057 $ 61,571 $38,581 $26,926 Gross Profit 18,880 23,276 22,375 13,061 7,623 Income (Loss) Before Income Taxes and Equity in Joint Venture 1,746 7,111 5,537 777 (487) Net Income (Loss) 523 4,842 3,655 542 (487) Earnings per Common Share-Basic .07 .72 .68 .10 (.09) Earnings per Common Share-Diluted .07 .68 .61 .10 (.09) Weighted Average Shares Outstanding 7,003 6,724 5,374 5,298 5,203 Weighted Average Shares Outstanding Assuming Conversion 7,103 7,148 5,962 5,582 5,203 FINANCIAL POSITION Total Assets 105,419 92,105 62,456 40,365 31,362 Long-Term Debt 30,800 24,000 24,000 10,000 5,240 Stockholders' Equity 57,312 56,759 28,403 24,296 23,104
See also Note 16 to the Consolidated Financial Statements - "Business Segements". 14 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Overview Currently, SpecTran develops, manufactures, and markets high quality optical fiber, optical fiber cables and value-added optical fiber components and assemblies. Prior to 1993, the Company had a narrow customer base and was focused on the production of multimode fiber for the domestic market. In 1993 the Company began to implement a strategic plan to diversify its products, markets and customer base. As part of this plan, the Company reintroduced single-mode fiber in 1993 and began marketing it internationally. In 1994 the Company acquired Ensign-Bickford's specialty fiber operations (which later became SpecTran Specialty), allowing the Company to become a worldwide leader in fiber optic specialty applications. The Company entered the fiber optic cable market in May 1995 by acquiring APD in order to participate more extensively in the rapid growth of the data communications market, the principal end market of multimode fiber. In December 1996 the Company formed General Photonics, a joint venture with General Cable, to develop, manufacture and market fiber optic cable. Results of Operations The following table sets forth, for the periods indicated, certain financial data as a percentage of net sales: Years Ended December 31, 1998 1997 1996 ---- ---- ---- Net Sales 100.00% 100.0% 100.0% Cost of Sales 73.4% 62.5% 63.7% ----- ----- ----- Gross Profit 26.6% 37.5% 36.3% Selling and Administrative Expenses 19.5% 22.5% 22.1% Research and Development Cost 7.8% 5.3% 5.1% ---- ---- ---- Income (Loss) from Operations (0.6)% 9.7% 9.1% Other Income (Expense), net 3.1% 1.8% (.1)% ---- ---- ----- Income before Income Taxes and Equity in Joint Venture 2.5% 11.5% 9.0% Income (Loss) from Joint Venture (1.4)% (0.5)% --% ------ ------ --- Income before Income Taxes 1.1% 11.0% 9.0% Income Tax Expense .4% 3.2% 3.1% --- ---- ---- Net Income .7% 7.8% 5.9% === ==== ====
15 Net Sales Net sales increased $8.8 million, or 14.2% from $62.1 million in 1997 to $70.9 million in 1998. The increase was due to record annual revenues at both SpecTran Communication, resulting from higher sales volume made possible by the multimode expansion completed earlier in 1998, and at SpecTran Specialty. Sales growth continued to be adversely affected by lower unit selling prices for both multimode and single-mode fiber due to the highly competitive market conditions caused by an industry-wide oversupply situation. Gross Profit Gross profit decreased $4.4 million, or 18.9% from $23.3 million in 1997 to $18.9 million in 1998. As a percentage of net sales, the gross profit decreased to 26.6% for the year ended December 31, 1998, from 37.5% for the year ended December 31, 1997. The decrease in gross profit was primarily due to continued industry pricing pressures for standard communication fiber products and to operational problems and inventory write-downs at SpecTran Specialty. Selling & Administrative As a percentage of net sales, selling and administrative expenses decreased to 19.5% for the year ended December 31, 1998, from 22.5% for the year ended December 31, 1997. Selling and administrative expense decreased $85,000, or .6% from $14.0 million in 1997 to $13.8 million in 1998. The decrease is primarily due to lower Incentive Compensation in 1998. Research and Development Research and development costs increased $2.2 million, or 67.0% from $3.3 million in 1997 to $5.5 million in 1998. The Company in 1998 increased its investment in programs to improve manufacturing costs and product performance in both multimode and single-mode product lines, to develop new special performance fiber products and to develop alternative process technologies. 16 Other Income (Expense), net Other income (expense), net favorably increased $1.1 million, or 99.8% from net other income of $1.1 million in 1997 to net other income of $2.2 million in 1998. Interest income decreased $1.1 million, or 83.1% from $1.3 million in 1997 to $200,000 in 1998 due to a lower level of cash available for investment. Net interest expense increased $672,000, or 90.1% from $747,000 in 1997 to $1.4 million in 1998 primarily due to a higher level of borrowings under the Company's revolving credit agreement and to a lower level of capitalized interest associated with the Company's capacity expansion programs. Other net, increased favorably $2.9 million, or 561.2% from $510,000 in 1997 to $3.4 million in 1998 due to the Company's settlement of a multi-year supply contract with Corning. Income Taxes A tax provision of 32.0% of pre-tax income was provided for the year ended December 31, 1998, compared to a tax provision of 29.0% for the year ended December 31, 1997. The lower effective tax rate for 1997 was due to the Company benefiting from tax credit carryforwards and low state income taxes as a result of a high level of investment tax credits due to the capacity expansions. Income From Equity in Joint Venture The Company realized a loss of $974,000 and $287,000 for the years ended 1998 and 1997 respectively, from its investment in General Photonics. This joint venture was formed in December 1996 with General Cable. The loss in 1998 was primarily due to lower than anticipated revenues and gross profit due to continued soft demand in the cable premise market, combined with continued price declines for cable. Net Income Net income decreased $4.3 million, or 89.2% from $4.8 million in 1997 to $523,000 in 1998. The decrease in earnings is due to reduced gross profit from SpecTran Communication, primarily related to continued industry pricing pressures for standard communication fiber products, to operational issues and inventory write-downs at SpecTran Specialty and the loss from the Company's equity in General Photonics. 17 Year Ended December 31, 1997 Compared to Year Ended December 31, 1996 Net Sales Net sales increased $486,000, or .8%, from $61.6 million in 1996 to $62.1 million in 1997. Net sales in 1997 did not include those of General Photonics, whereas sales for 1996 included the sales of Applied Photonic Devices, Inc. (APD), certain assets of which were sold in December 1996 to form General Photonics, a joint venture with General Cable. On a comparative basis, including General Photonics sales in 1997 would have resulted in an 18.4% increase compared with 1996. Net sales increased at both SpecTran Communication and SpecTran Specialty in 1997 as compared to 1996 due to continued market demand. This was partially offset by industry pricing pressure for standard communication fiber products experienced during the second half of 1997. Gross Profit Gross profit increased $901,000, or 4.0%, from $22.4 million in 1996 to $23.3 million in 1997. As a percentage of net sales, the gross profit increased to 37.5% for the year ended December 31, 1997, from 36.3% for the year ended December 31, 1996. The increase in gross profit was primarily due to lower production costs for the Company's standard communication fiber products resulting from manufacturing process and yield improvements. This was partially offset by lower margins at SpecTran Specialty, primarily due to greater than planned costs incurred in connection with the consolidation and expansion into a new facility. As a percentage of net sales, royalties decreased from 3.7% in 1996 to 3.0% in 1997. This decrease in royalties as a percentage of net sales was primarily due to an increase in 1997 in the net sales not subject to royalties. Selling & Administrative Selling and administrative expenses increased $325,000, or 2.4%, from $13.6 million in 1996 to $14.0 million in 1997. This increase was primarily due to costs associated with the Company's one-time management reorganization and training costs slightly offset by a lower provision for incentive compensation in 1997. As a percentage of net sales, selling and administrative expenses slightly increased to 22.5% for the year ended December 31, 1997 from 22.2% for the year ended December 31, 1996. 18 Research & Development Research and development costs increased $157,000, or 5.0%, from $3.1 million in 1996 to $3.3 million in 1997. As a percentage of net sales, research and development costs increased from 5.1% for the year ended December 31, 1996 to 5.3% for the year ended December 31, 1997. The Company continues to invest in programs to improve manufacturing costs and product performance in both multimode and single-mode product lines, to develop new special performance fiber products and to develop alternative process technologies. The Company intends to approximately double its research and development spending in 1998. Other Income (Expense), net Other income (expense), net favorably increased by $1.2 million to net other income of $1.1 million in 1997 compared with net other expense of $65,000 in 1996. Interest income increased $1.1 million, or 487.2%, from $226,000 in 1996 to $1.3 million in 1997 due to a higher level of cash available for investment as a result of the Company's secondary public offering in February 1997. Interest expense, net of capitalized interest, increased $276,000, or 58.6%, from $471,000 in 1996 to $747,000 in 1997 due to the increase in debt related to the Company's capacity expansion. Income Taxes The effective tax rate declined from 34.0% in 1996 to 29.0% in 1997 primarily due to a lower provision for state income taxes in 1997 as a result of investment tax credits associated with capacity expansion. The effective tax rates for 1997 and 1996 were lower than the statutory combined federal and state tax rates due primarily to a reduction of $300,000 in 1997 and $400,000 in 1996 in the valuation allowance for deferred tax assets due to the Company's belief that it is more likely than not that the additional deferred tax assets will be realized through the utilization of operating loss and tax credit carryforwards. See Note 10 of "Notes to the Consolidated Financial Statements." Income From Equity in Joint Venture The Company realized a loss of $287,000, from its equity in General Photonics, the joint venture formed in December 1996 with General Cable. The loss in 1997, was primarily due to lower than anticipated revenues. In 1996, the results of Applied Photonic Devices, Inc., the predecessor to General Photonics, were included in the consolidated results. Net Income (Loss) Net income increased $1.2 million, or 32.5%, from $3.7 million in 1996 to $4.8 million for the year ended in 1997. The increase was primarily due to improved operating results at Communication Fiber and higher interest income. 19 Liquidity and Capital Resources As of December 31, 1998, the Company had approximately $1.7 million of cash. In addition, the Company has a $20.0 million revolving credit agreement with its principal bank maturing in April 2000. As of December 31, 1998, the Company had borrowed $10.0 million against the revolving credit agreement. The Company has a scheduled debt principal repayment of $3.2 million on December 21, 1999. The Company's net working capital position at December 31, 1998, was approximately $11.8 million with a current ratio of 1.8 to 1. During 1998 the Company used $10.0 million in cash provided from financing activities, primarily from net borrowings under its revolving credit agreement, $6.5 million of proceeds from the sale of marketable securities and positive cash flow from operations of $3.0 million, to fund its capacity expansion. The Company is continuing its capacity expansion, which will require approximately $1 million in capital expenditures during 1999, resulting in total expenditures for capacity expansion since 1996 of approximately $44 million for SpecTran Communication and approximately $12 million for SpecTran Specialty, including equipment purchases. When fully operational, expected in the second quarter of 1999, the expansion at SpecTran Communication will increase its capacity by more than 100% from 1996 levels. The expansion at SpecTran Specialty increased capacity by more than 50%. The Company intends to continue to finance its capital and operational needs for the remainder of the year through a combination of cash flow from operations and borrowings, assuming the Company continues to meet its lenders revised covenants. The Company had violated certain covenants contained in both the revolving credit agreement and the senior secured notes triggered by its second quarter 1998 results. In December 1998, the Company signed an agreement to amend these covenants under its loan agreements with its principal bank and the senior secured noteholders. With the signing of that agreement, the Company remedied all violations under the original agreements. While the Company is presently in compliance with all the revised covenants, there can be no assurance that the Company,will in the future, be able to remain in compliance with all the revised covenants. The Company is exploring various financing alternatives, including seeking additional capital or entering into strategic alliances in an attempt to reduce its debt. The Company believes that successful completion of one or more of these alternatives and/or renewal or extension of its revolving credit agreement is necessary to meet its longer term cash requirements. 20 The Year 2000 Issue The Year 2000 issue is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's information technology systems (which the Company relies on to monitor and manage its operations, accounting, sales and administrative functions), such as computers, servers, networks, and software ("IT Systems") and other systems that use embedded microchip technology ("Non-IT Systems") that are date sensitive may recognize a date using "00" as the year 1900 rather than the Year 2000. This could result in system failure or miscalculations causing disruption of operations. Similarly, the date-sensitive IT Systems and Non-IT Systems of third party suppliers or customers with whom the Company has material relationships could experience similar malfunctions which could, in turn, have a material adverse impact on the Company. The Company has completed an enterprise-wide assessment of all mission critical IT Systems and Non-IT Systems to evaluate the state of its preparedness for the Year 2000. The Company has established teams by business unit to address the Year 2000 issue. The Company has completed a significant portion of the Non-IT Systems remediation in connection with the recent capacity expansion at both facilities. A significant portion of production equipment was replaced or upgraded as part of this expansion. The Company has revised its estimate for Year 2000 spending down to $1.2 million from $1.5 million. This includes $222,000 for software which will be expensed in 1999. The plan calls for remediation to be complete on all systems critical to operate the business by July 1999, with the remediation of the remaining non-critical systems expected to be complete by the end of the third quarter. The Company estimates that it is 50% complete with its remediation efforts for the Year 2000. The costs of the project and the date the Company plans to complete Year 2000 modifications are based on management's best estimates. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. The Company presently believes that with modifications to existing software and conversions to new software, the Year 2000 issue can be mitigated. However, if such modifications and conversions are not made or are not completely timely, the Year 2000 issue could have a material adverse impact on the operations of the Company. The Company is developing contingency plans in case its remediation efforts are unsuccessful. The Company expects to complete the contingency plans in July 1999 in conjunction with the implementation and testing of the critical business systems. 21 The Company has initiated formal communications with a substantial majority of its significant customers and suppliers to determine their plans to address the Year 2000 issue. While the Company expects a successful resolution of all issues there can be no guarantee that the systems of other companies on which the Company relies will be completed in a timely manner or that these issues would not have a material adverse effect on the Company. Subsequent Events In March 1999, Dr. Raymond E. Jaeger, who was Chairman of the Board of Directors until December 31, 1998, resigned from his position as a director of the Company and its subsidiaries. Dr. Jaeger remains a consultant to the Company. Mr. Bruce A. Cannon, who had previously resigned from his executive positions, entered into an agreement with the Company during the first quarter of 1999, effective as of December 1, 1998, memorializing his resignation as an officer and a director of the Company and its subsidiaries. Mr. Cannon remains a consultant to the Company. Recent Accounting Pronouncements Effective January 1, 1998, the Company adopted: (1) Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income." The statement requires the corporation to report "comprehensive income" as defined therein. (2) Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an enterprise and Related Information." The Statement changes the criteria used to determine the segments for which the Company must report information. This item is discussed herein; please also see the Notes to Consolidated Financial Statements for more information; and (3) Statement of Financial Accounting Standards No. 132, "Employers' Disclosure about Pension and Other Postretirement Benefits." The Statement requires additional disclosures on changes in the benefit obligations and fair values of plan assets during the year. (4) Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or obtained for Internal Use". The statement of position provides guidance on accounting for the costs of computer software developed or obtained for internal use. The adoption of this statement did not have a material affect to the financial position or results of operations. (5) Statement of Position 98-5 "Reporting on the Costs of Start-up Activities". The adoption of this statement did not have a material affect to the financial position or results of operations. Please refer to the Notes to Consolidated Financial Statements for more information. Other This document contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, in Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking statements involve risks and uncertainties that may cause results to differ materially from expectations, including without limitation, the ability of the Company to market and develop its products, general economic conditions and competitive conditions in markets served by the Company. Forward-looking statements include, but are not limited to, global economic conditions, product demand, competitive products and pricing, manufacturing efficiencies, cost reductions, manufacturing capacity, facility expansions and new plant start-up costs, the rate of technology change, and other risks. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this filing will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the company or any person that the objectives and plans of the Company will be achieved. 22 Item 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS The Company's cash is invested in short-term dollar-denominated money market funds. The Company does not engage in trading of these investments and believes that they may present minimal market risk. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The response to this Item is submitted as a separate section of this Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 23 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information to be contained under the heading "Election of Directors" in the Company's proxy statement relating to the 1999 Annual Meeting of Shareholders (the "Proxy Statement") is hereby incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION. The information with respect to compensation of certain executive officers and all executive officers of the Company as a group to be contained under the heading "Compensation of Executive Officers and Directors" in the Proxy Statement is hereby incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information with respect to ownership of the Company's Common Stock by management and by certain other beneficial owners to be contained under the heading "Principal Stockholders and Other Information" in the Proxy Statement is hereby incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Information with respect to certain relationships and related transactions to be contained under the heading "Compensation and Incentive Stock Committee Interlocks and Insider Participation " in the Proxy Statement is hereby incorporated herein by reference. 24 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. & 2. Financial Statements and Financial Statement Schedules: The response to this portion of Item 14 is submitted as a separate section of this Form 10-K. 3. Exhibits: See Exhibit Index on Pages 27 through 32 of this Form 10-K. (b) Reports on Form 8-K filed during the final quarter of fiscal 1998: None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: SPECTRAN CORPORATION March 27, 1999 By: /s/ Charles B. Harrison ------------------------ Charles B. Harrison President, Chief Executive Officer and Chairman of the Board of Directors March 27, 1999 By: /s/ John T. Rogers ------------------- John T. Rogers Acting Chief Financial Officer Principal Accounting Officer 25 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date /s/ Charles B. Harrison President, Chief Executive Officer March 27, 1999 - ------------------------------ and Chairman of the Board of Charles B. Harrison Directors (principal executive officer) /s/ John T. Rogers Acting Chief Financial Officer March 27, 1999 - ------------------------------ (principal accounting officer) John T. Rogers /s/ John E. Chapman Senior Vice President - Technology March 27, 1999 - ------------------------------- John E. Chapman and Director /s/ Ira S. Nordlicht Director March 27, 1999 - ----------------------------------- Ira S. Nordlicht /s/ Paul D. Lazay Director March 27, 1999 - --------------------------------- Paul D. Lazay /s/ Richard M. Donofrio Director March 27, 1999 - ---------------------------------- Richard M. Donofrio /s/ Lily K. Lai Director March 27, 1999 - ------------------------------------- Lily K. Lai /s/ Robert A. Schmitz Director March 27, 1999 - ------------------------------------- Robert A. Schmitz
26 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 3.1 Certificate of Incorporation of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 3.2 By-Laws of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 4.5* Form of Stock Certificate for Voting Common Stock. 10.7* License Agreement dated August 15, 1981, between the Registrant and Western Electric Company, Incorporated. (Registrant has been granted confidential treatment of portions of this Exhibit.) 10.49 License Agreement dated as of the first day of January 1991 by and between the Registrant and Corning, Incorporated. (Registrant has been granted confidential treatment of portions of this Exhibit.) (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 10.61 Stock Purchase Agreement among APD Acquisition Corp. and Irving N. Dwyer, David P. DaVia, The Irving N. Dwyer and Annette M. Dwyer Charitable Remainder Trust and the DaVia Charitable Remainder Trust. (Incorporated by reference to the Registrant's Report on Form 8-K filed June 7, 1995.) 10.62 Directors Retirement Plan dated December 27, 1995. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996.) 10.63 Registrant's Employee Profit Sharing Plan as revised and adopted effective January 1, 1995. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996). 10.65 Lease between Fabrilock, Inc. and Applied Photonic Devices, Inc. dated February 6, 1996. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996). 10.69 Supplemental Retirement Agreement between SpecTran Corporation and Raymond E. Jaeger dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996.) 10.70 Supplemental Retirement Agreement between SpecTran Corporation and Bruce A. Cannon dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996.) 27 10.71 Supplemental Retirement Agreement between SpecTran Corporation and Crawford L. Cutts dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996. 10.73 Supplemental Retirement Agreement between SpecTran Corporation and John E. Chapman dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996.) 10.74 Lease between CRJ Realty Trust and SpecTran Communication Fiber Technologies, Inc. dated July 22, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996.) 10.75 Contractual Agreement Between Lucent Technologies Inc. and SpecTran Corporation dated October 3, 1996. (Registrant has been granted confidential treatment for portions of this Exhibit.) (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.79 Key Employee Incentive Plan effective as of January 1, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.80 Employment Agreement between SpecTran Corporation and Raymond E. Jaeger dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.81 Employment Agreement between SpecTran Corporation and Bruce A. Cannon dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.82 Employment Agreement between SpecTran Corporation and John E. Chapman dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.83 Employment Agreement between SpecTran Corporation and Crawford L. Cutts dated as of January 1, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 28 10.84 Employment Agreement between SpecTran Corporation and William B. Beck dated as of February 18, 1994. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.86 Note Purchase Agreement between SpecTran Corporation and Massachusetts Mutual Life Insurance Company dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.87 Note Purchase Agreement between SpecTran Corporation and CM Life Insurance Company dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.88 Note Purchase Agreement between SpecTran Corporation and The Mutual Life Insurance Company of New York dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.89 Note Purchase Agreement between SpecTran Corporation and Atwell & Co. dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.90 Security Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.91 Trademark Security Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.92 Patent Collateral Assignment among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.93 Pledge Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.94 Mortgage, Assignment of Rents and Security Agreement by SpecTran Communication Fiber Technologies, Inc. to Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.95 Open-End Mortgage, Assignment of Rents and Security Agreement by SpecTran Specialty Optics Company to Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 29 10.96 Guaranty Agreement dated as of December 1, 1996 by SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company and Applied Photonic Devices, Inc. in favor of Massachusetts Mutual Life Insurance Company, CM Life Insurance Company, The New York Mutual Life Insurance Company and Atwell & Co. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.97 Loan Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.98 Limited Liability Company Agreement of General Photonics, LLC between Applied Photonic Devices, Inc. and General Cable Industries, Inc. dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 10.99 Asset Purchase Agreement among Applied Photonic Devices, Inc., SpecTran Corporation, General Cable Corporation and General Cable Industries, Inc. dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 10.100 Investor's Representations, Contribution Agreement and Subscription Agreement among Applied Photonic Devices, Inc., SpecTran Corporation and General Photonics, LLC dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 10.101 Non-Competition Agreement among General Cable Industries, Inc., General Cable Corporation, Applied Photonic Devices, Inc., SpecTran Corporation and General Photonics, LLC dated December 23, 1996. (Registrant has been granted confidential treatment for portions of this Exhibit.) (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 10.102 Standstill Agreement among General Cable Industries, Inc., General Cable Corporation and SpecTran Corporation dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 10.104 Letter amendment to Employment Agreement between SpecTran Specialty Optics Company and William B. Beck dated April 18, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 30 10.105 Cross-Indemnity Agreement between SpecTran Corporation and Allen & Company Incorporated. (Incorporated by reference to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-19449) effective February 12, 1997.) 10.106 Common Stock Purchase Warrant issued to Allen & Company Incorporated. (Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1996.) 10.107 Settlement Agreement dated February 13, 1998, between Corning Incorporated and SpecTran Corporation. (Incorpated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998.) 10.108 Employment Agreement between SpecTran Corporation and Charles B. Harrison dated as of April 1, 1998. (Incorpated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal year ended May 15, 1998.) 10.109 Employment Agreement between SpecTran Corporation and William B. Beck dated as of June 20, 1998. (Incorpated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal year ended August 14, 1998.) 10.110 Employment Agreement between SpecTran Corporation and Raymond E. Jaeger dated as of April 13, 1998. (Incorpated by reference to the Registrant's Quarterly Report on Form 10-Q for the fiscal year ended August 14, 1998.) 10.111 Patent License Agreement between Lucent Technologies, Inc. and SpecTran Corporation dated October 30, 1998.(Incorpated by reference to the Registrant's Current Report on Form 8-K for the fiscal year ended February 11, 1998.)(Registrant has been granted confidential treatment for portions of this Exhibit.) 10.112 Agreement between SpecTran Corporation and Bruce A. Cannon dated as of December 1,1998. 10.113 Employment Termination Agreement and Release between SpecTran Corporation and William B. Beck dated as of October 7, 1998. 10.114 Employment Agreement between SpecTran Corporation and Martin Seifert dated as of August 25, 1998. 31 10.115 Registrant's 1991 Incentive Stock Option Plan, as amended 10.116 First Amendment to Loan Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank dated as of September 30, 1998. 10.117 First Amendment to Note Purchase Agreement by and among SpecTran Corporation, and each of the purchasers listed on the signature page thereto dated as of September 30, 1998. 10.118 First Amendment to Trademark Security Agreement among SpecTran Corporation, SpecTran Communication Fiber Technology Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc., and State Street Bank and Trust Company, as Trustee, dated as of September 30, 1998. 10.119 First Amendment to Patent Collateral Assignment among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and State Street Bank and Trust Company, as Trustee, dated as of September 30, 1998. 10.120 Modification Agreement between SpecTran Communication Fiber Technologies, Inc. to State Street Bank and Trust Company, as Trustee, dated as of September 30, 1998. 10.121 Modification Agreement between SpecTran Specialty Optics Company to State Street Banks and Trust Company, as Trustee, dated as of September 30, 1998. 10.122 General Photonics audited Financial Statements. (In compliance with Regulation SX13, General Photonics' Financial Statements for period ending December 31, 1998 will follow as an amendment. They are currently unavailable.) 21.0 Subsidiaries. - ------------------------------ * Incorporated by reference to Registrant's Registration Statement on Form S-1 (Reg. No. 2-83172) effective June 2, 1983 32 SpecTran Corporation Form 10-K Items 8, 14 (a) (1) and (2) Index to Consolidated Financial Statements and Schedule The following consolidated financial statements of the registrant required to be included in Item 8 and 14 (a) (1) are listed below: Page Independent Auditors' Report F-2 Financial Statements: Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3 Consolidated Statements of Operations for the Years Ended December 31, 1998, 1997 and 1996 F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996 F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1998, 1997 and 1996 F-6 Notes to Consolidated Financial Statements F-7 through F-32 The following financial statement schedule of the registrant is included pursuant to Item 14 (a) (2): Financial Statement Schedule Page I. Valuation and Qualifying Accounts F-32 Schedules other than those mentioned above are omitted because the conditions requiring their filing do not exist or because the required information is presented in the consolidated financial statements, including the notes thereto.
F-1 Independent Auditors' Report The Board of Directors and Stockholders SpecTran Corporation: We have audited the consolidated financial statements of SpecTran Corporation as of December 31, 1998 and 1997, and the related statements of operations and comprehensive income, stockholders' equity and cash flows for each of the years in the three year period ended December 31, 1998. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SpecTran Corporation as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included in Schedule I is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinio, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. KPMG PEAT MARWICK LLP Boston, Massachusetts February 12, 1999 F-2 SpecTran Corporation Consolidated Balance Sheets Dollars in thousands ASSETS (NOTE 8 AND 15) 1998 1997 ---- ---- Current Assets: Cash and Cash Equivalents $ 1,690 $ 445 Current Portion of Marketable Securities (Note 2) -- 5,535 Trade Accounts Receivable, net of allowance for doubtful accounts of $523 and $389 in 1998 and 1997, respectively 12,568 8,622 Inventories (Note 3) 8,279 9,666 Income Taxes Receivable 644 -- Deferred Income Taxes, net (Note 11) 1,889 1,189 Prepaid Expenses and Other Current Assets 1,036 1,943 ---------- ---------- Total Current Assets 26,106 27,400 ---------- ---------- Investment in Joint Venture (Note 15) 3,239 4,213 Property, Plant and Equipment, net (Note 4) 68,495 55,409 Other Assets: Long-term Marketable Securities (Note 2) -- 996 License Agreements, net (Notes 5 & 13) 4,335 603 Deferred Income Taxes, net (Note 11) -- 412 Goodwill, net (Note 6) 793 872 Other Long-Term Assets (Note 14) 2,451 2,200 ---------- ---------- Total Other Assets 7,579 5,083 ---------- ---------- Total Assets $ 105,419 $ 92,105 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities (Note 15): Current Maturities of Long-term Debt (Note 8) $ 3,200 $ -- Current Portion of License Fees Payable (Note 13) 1,250 -- Accounts Payable 4,410 4,758 Income Taxes Payable -- 573 Accrued Defined Benefit Pension Liability (Note 14) 1,902 1,716 Deferred Income Taxes, net (Note 11) 478 -- Accrued Liabilities (Note 7) 3,317 4,299 ---------- ---------- Total Current Liabilities 14,557 11,346 ---------- ---------- Long-term portion of License Fee Payable (Notes 5 & 13) 2,750 -- Long-term Debt (Note 8) 30,800 24,000 ---------- ---------- Stockholders' Equity (Note 9 ): Common Stock, voting, $.10 par value; authorized 20,000,000 shares; outstanding 7,003,850 shares and 7,000,634 shares in 1998 and 1997, respectively 700 700 Common Stock, non-voting, $.10 par value; authorized 250,000 shares, no shares outstanding -- -- Paid-in Capital 50,252 50,223 Accumulated Other Comprehensive Income (Loss) -- (1) Retained Earnings 6,360 5,837 ---------- ---------- Total Stockholders' Equity 57,312 56,759 ---------- ---------- Total Liabilities and Stockholders' Equity $ 105,419 $ 92,105 ========== ==========
See accompanying notes to consolidated financial statements. F-3 SpecTran Corporation Consolidated Statements of Operations and Comprehensive Income Dollars in thousands except per share amounts Years Ended December 31, --------------------------------------------------------- 1998 1997 1996 ---- ---- ---- Net Sales (Note 12) $ 70,856 $ 62,057 $ 61,571 Cost of Sales 51,976 38,781 39,196 ---------- ---------- ---------- Gross Profit 18,880 23,276 22,375 Selling and Administrative Expenses 13,818 13,966 13,641 Research and Development Costs 5,493 3,289 3,132 ---------- ---------- ---------- Income (Loss) from Operations (431) 6,021 5,602 ---------- ---------- ---------- Other Income (Expense): Interest Income 224 1,327 226 Interest Expense (1,419) (747) (471) Other Net (Note 5) 3,372 510 180 ---------- ---------- ---------- Other Income (Expense), net 2,177 1,090 (65) ---------- ---------- ---------- Income before Income Taxes and Equity in Joint Venture 1,746 7,111 5,537 Loss from Joint Venture (Note 15) (974) (287) -- ---------- ---------- ---------- Income before Income Taxes 772 6,824 5,537 Income Tax Expense (Note 11) 249 1,982 1,882 ---------- ---------- ---------- Net Income 523 4,842 3,655 ---------- ---------- ---------- Other Comprehensive Income, Net of Tax: Unrealized Gains on Securities: Unrealized Holdings Gains Arising During the Period 1 11 4 Less Reclassification Adjustment For (Gains)/Losses Included In Net Income (12) (17) 13 ---- -------- ---------- Other Comprehensive Income (Loss) (11) (6) 17 ---- -------- ---------- Comprehensive Income $ 512 $ 4,836 3,672 ========== ========== ========= Net earnings per Common Share (Note 10): Basic $ .07 $ .72 $ .68 ========== ============ ========== Diluted $ .07 $ .68 $ .61 ========== ============= =========
See accompanying notes to consolidated financial statements. F-4 SpecTran Corporation Consolidated Statements of Cash Flows Dollars in thousands Years Ended December 31, 1998 1997 1996 Cash Flows from Operating Activities: Net income $ 523 $ 4,842 $ 3,655 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization 6,665 3,969 3,071 Loss (gain) on sale of marketable securities (18) (24) 19 Loss on disposition of equipment 178 61 -- Changes in valuation accounts 1,126 (532) (380) Investment in joint venture 974 (78) (354) Change in long-term deferred income taxes 1,221 402 1,118 Change in other long-term assets (4,349) (409) (344) Changes in assets and liabilities: Current deferred income taxes (700) (398) (83) Accounts receivable (4,079) (1,172) (2,136) Inventories 65 (1,709) (3,742) Prepaid expenses and other current assets 894 (639) (50) Income taxes payable/receivable (1,218) 273 (150) Accounts payable and accrued liabilities 2,855 1,021 3,606 --------- --------- --------- Net Cash Provided by Operating Activities 4,137 5,607 4,230 --------- --------- --------- Cash Flows from Investing Activities: Sale of Assets of Applied Photonic Devices -- -- 5,278 Acquisition of property, plant and equipment (19,471) (41,157) (11,100) Purchase of marketable securities (9,652) (254,437) (29,658) Proceeds from sale/maturity of marketable securities 16,202 263,368 19,439 --------- --------- --------- Net Cash Used in Investing Activities (12,921) (32,226) (16,041) --------- --------- --------- Cash Flows from Financing Activities: Borrowings of long-term debt 10,000 -- 28,000 Repayment of long-term debt -- -- (14,000) Issuance of common stock, net -- 23,082 -- Tax effect of disqualifying disposition of ISO shares -- 43 117 Proceeds from exercise of stock options and warrants 29 374 329 Deferred financing costs -- -- (695) --------- --------- --------- Net Cash Provided by Financing Activities 10,029 23,499 13,751 --------- --------- --------- Increase (Decrease) in Cash and Cash Equivalents 1,245 (3,120) 1,940 Cash and Cash Equivalents at Beginning of Year 445 3,565 1,625 --------- --------- --------- Cash and Cash Equivalents at End of Year $ 1,690 $ 445 $ 3,565 ========= ========= =========
See accompanying notes to consolidated financial statements. F-5 SpecTran Corporation Consolidated Statements of Stockholders' Equity For the Years Ended December 31, 1998, 1997 and 1996 Dollars in thousands
Accumulated Other Retained Total Common Stock Paid-in Comprehensive Earnings Stockholders' Shares Par Value Capital Income (Loss) (Deficit) Equity Balance at December 31, 1995 5,353,686 $535 $26,443 $(22) $(2,660) $24,296 Exercise of Stock Options (Note 9) 46,385 5 324 -- -- 329 Issuance of Shares in Connection with Acquisition (Note 15) -- -- 117 -- -- 117 Unrealized Gain on Marketable Securities -- -- -- 6 -- 6 Net Income -- -- -- -- 3,655 3,655 --------- ------ -------- ------ -------- ----- Balance at December 31, 1996 5,400,071 540 26,884 (16) 995 28,403 Exercise of Stock Options 100,563 10 364 -- -- 374 (Note 9) Issuance of Shares in Connection with Stock Offering (Note 9) 1,500,000 150 22,932 -- -- 23,082 Tax Effect of Disqualifying Disposition of ISO -- -- 43 -- -- 43 shares(Note 10) Unrealized Gain on Marketable Securities -- -- -- 15 -- 15 Net Income -- -- -- -- 4,842 4,842 --------- ------ -------- ------ -------- ----- Balance at December 31, 1997 7,000,634 700 50,223 (1) 5,837 56,759 Exercise of Stock Options (Note 9) 3,216 -- 29 -- -- 29 Unrealized Gain on Marketable Securities -- -- -- 1 -- 1 Net Income -- -- -- -- 523 523 --------- ------ -------- ------ -------- --- Balance at December 31, 1998 7,003,850 $700 $50,252 $ -- $6,360 $57,312 ========= ====== ======== ====== ======= =======
See accompanying notes to consolidated financia statements. F-6 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1998 and 1997 and 1996 1 - Nature of Business and Summary of Significant Accounting Policies Nature of Business SpecTran Corporation (the "Company") develops, manufactures and markets a wide range of fiber optic products. These include multimode and single-mode optical fiber and cable for use in data communications and telecommunications applications. The Company also develops special performance fibers, coatings, cables, cable assemblies and other value-added products for use in a variety of specialty markets. Principles of Consolidation and Basis of Accounting The consolidated financial statements include the accounts of the Company and all wholly owned subsidiaries: SpecTran Communication Fiber Technologies, Inc. ("SpecTran Communication"), SpecTran Specialty Optics Company ("SpecTran Specialty") and Applied Photonic Devices, Inc. ("APD") which holds the Company's investment in General Photonics, LLC, a 50-50 joint venture between the Company and General Cable Corporation ("General Cable"). In December 1996, the Company sold certain of the assets of APD to General Cable and then contributed the remaining non-cash assets of APD to General Photonics for a 50% equity interest (See Note 15). The investment in General Photonics is accounted for under the equity method of accounting pursuant to which the Company records its 50% interest in General Photonics' net operating results. Prior to the formation of General Photonics, APD's results of operations, including net sales and expenses, were consolidated with those of the Company. All significant intercompany balances and transactions have been eliminated. Management uses estimates and assumptions in preparing the financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities and the reported revenue and expenses. Actual results may vary from the estimates. Certain 1997 and 1996 balances have been reclassified to be consistent with the current year's presentation. Revenue Recognition Sales revenues are recognized upon shipment of goods. Customers generally have the right to return for replacement any goods which do not meet the customer's purchase order specifications. Sales revenues and cost of sales as reported in the consolidated statements of operations and comprehensive income are adjusted to reflect estimated returns and warranty costs. F-7 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 Marketable Securities Marketable securities are classified as available-for-sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity, net of estimated income taxes. Gains and losses on the sale of marketable securities are recognized at the time of sale on a specific identification basis. Inventories Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first-out method. Statements of Cash Flows For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Supplemental disclosure of cash flow information includes cash paid during the year for (in thousands): 1998 1997 1996 ---- ---- ---- Interest $2,590 $2,120 $ 780 Income Taxes 1,316 2,159 1,044 Property, Plant and Equipment Property, plant and equipment are carried at cost. Machinery and equipment assembled by the Company are valued at the cost of component parts purchased, plus the approximate labor and overhead costs to the Company. Significant renewals and betterments are capitalized. The cost of maintenance and repairs is charged to expense as incurred. Repairs and maintenance costs amounted to $1.8 million, $1.6 million and $1.5 million in 1998, 1997 and 1996, respectively. Depreciation is provided by the straight-line method. The principal annual rates of depreciation are: Buildings and building improvements..................4% Machinery and equipment.......................14% to 33-1/3% In 1997 the Company changed the rate of depreciation for all machinery and equipment put in service after January 1, 1997, from 5 to 7 years, to more accurately reflect the economic life of these assets. Depreciation expense of property, plant and equipment amounted to $6.2 million, $3.6 million and $2.5 million in 1998, 1997 and 1996, respectively. F-8 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 Cost in Excess of Net Assets Acquired and Other Intangibles The Company monitors its cost in excess of net assets acquired (goodwill) and its other intangibles to determine whether any impairment of these assets has occurred. In making such determination with respect to goodwill, the Company evaluates the performance, on an undiscounted basis, of the underlying businesses which gave rise to such amount. Amortization of goodwill is recorded on a straight-line basis over the estimated useful life of 15 years. With respect to other intangibles, which include the cost of license agreements and patents, the Company bases its determination of impairment on the performance, on an undiscounted basis, of the related products. License Agreements and Other Assets The total cost of the license agreements obtained in 1991 and 1998 are being amortized and charged to expense based on a ten year life. Amortization expense amounted to $267,000 in 1998 and $201,000 for 1997 and 1996. Deferred financing costs are amortized and charged to expense over the lives of the related debt. Patents are being amortized over a ten year life. Income Taxes The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. F-9 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 Financial Instruments Financial instruments of the Company consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable, accrued expenses, bank loan and senior secured notes. The carrying amounts of these financial instruments approximate their fair value. Stock-Based Compensation Statement of Financial Accounting Standards Number 123, "Accounting for Stock-Based Compensation," encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion Number 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. Comprehensive Income In 1998, the Company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income." This statement establishes rules for the reporting of comprehensive income and its components. The Company's comprehensive income consists of net earnings and unrealized gains or losses on marketable securities and is presented in the Consolidated Financial Statements. The adoption of SFAS 130 had no impact on net earnings or on total shareholders' equity. Prior year financial statements have been reclassified to conform to the SFAS 130 requirements. F-10 2 - Marketable Securities The Company had no marketable securities available for sale at December 31, 1998. A summary of marketable securities available for sale for the year ended December 31, 1997 is as follows (in thousands): Quoted Purchase Amortized Unrealized Unrealized Market Price Cost Gains Losses Value 1997 Money Market $ 88 $ 88 $ -- $ -- $ 88 U.S. Government and Agency Obligations -- -- -- -- -- Corporate Debt Securities 4,451 4,446 -- 2 4,444 Commercial Paper 1,998 1,998 1 -- 1,999 ---------- -------- ----- ------- ---------- Total $ 6,537 $ 6,532 $ 1 $ 2 $ 6,531 ========== ======== ===== ======= ==========
The amortized cost and estimated market value of debt securities are shown below (in thousands): 1997 Amortized Quoted Cost Market Value Expected Maturities: Within one year $3,448 $3,448 One to five years 1,167 1,156 Proceeds from sales of marketable securities, prior to maturity, during 1998 and 1997 were $6.5 million and $4.8 million, respectively. Gains of $18,000 for 1998 and $24,000 for 1997 were recognized on these sales. 3 - Inventories Inventories consisted of (in thousands): December 31, ------------------------------------------- 1998 1997 ---- ---- Raw Materials $ 3,096 $ 4,036 Work in Process 1,277 1,010 Finished Goods 3,906 4,620 ---------- ---------- $ 8,279 $ 9,666 ========== ==========
F-11 4 - Property, Plant and Equipment Property, plant and equipment consisted of (in thousands): December 31, ----------------------------------------- 1998 1997 ---- ---- Land and Land Improvements $ 978 $ 978 Buildings and Improvements 24,909 10,453 Machinery and Equipment 48,983 33,567 Construction in Progress 16,220 27,694 ---------- ---------- 91,090 72,692 Less: Accumulated Depreciation 22,595 17,283 ---------- ---------- Property, Plant and Equipment, net $ 68,495 $ 55,409 ========== ==========
The Company is continuing its capacity expansion, which will require approximately $1 million in capital expenditures during 1999, resulting in total expenditures for capacity expansion since 1996 of approximately $44 million for SpecTran Communication and approximately $12 million for SpecTran Specialty, including equipment purchases. When fully operational, expected in the second quarter of 1999, the expansion at SpecTran Communication will increase its capacity by more than 100% from 1996 levels. The expansion at SpecTran Specialty increased capacity by more than 50%. In 1998 and 1997 the Company recorded approximately $1.4 million in capitalized interest in each year related to the expansions. 5 - License Agreements The Company has a limited, non-assignable non-exclusive royalty-bearing license from Corning to make, use and sell optical fiber under certain of Corning's United States patents with filing date prior to January 1, 1996 in the field of optical fiber. The license contains annual quantity limitations. The Corning license is not applicable to sales made directly or indirectly to certain customers such as Corning, Lucent and the United States government. The quantities that can be manufactured under the license increase annually through the year 2000. The license has a term equal to the life of the last to expire of the Corning or Company patents licensed under the agreement. Corning has the right to terminate the license in the event that more than 30% of the Company's voting stock is acquired, directly or indirectly, by another manufacturing company. The Company granted to Corning a non-exclusive royalty-free license for any of its patents with a filing date prior to January 1, 1996 in the field of optical fiber. The Company has a non-assignable, non-exclusive, unlimited, royalty-bearing license from Lucent under all patents covering optical fiber and optical fiber cable owned by Lucent or which Lucent and its affiliates had the right to license on or before August 15, 1986. The Company granted back to Lucent a non-exclusive, royalty-free license under patents the Company may obtain relating to optical fiber inventions made on before August 15, 1986. The license extends for the life of the last to expire of the patents licensed under the agreement. In October 1998, the Company and Lucent Technologies Inc. established a new worldwide, non-exclusive license exchanging rights under their optical fiber patents issued prior to January 1, 1998, and additional patents related to multimode fiber based on applications filed through October 1998. SpecTran is licensed by Lucent to make optical fiber at its existing factories for worldwide use, sale and export from the United States. The license contains some product limitations including certain exclusions to make or sell select specialty fibers for some applications. Lucent receives non-exclusive, royalty-free worldwide rights. SpecTran agreed to pay Lucent a $4.0 million license fee in installments and, beginning in 2000, a royalty on sales. Lucent has the right to terminate the agreement if the Company is acquired by an optical fiber manufacturer. Approximately 22% of the Company's net sales during 1998, all of which were SpecTran Communication sales, were subject to license requiring aggregate royalty payments by the Company of approximately 5% of net sales of the Company's products manufactured under license during 1998. The Company believes that certain Corning patents, which may have been relevant to the Company's single-mode fiber, including patents covered by a non-exclusive license from Corning to the Company, have expired in many countries (including the United States). Therefore, the Company believes that manufacturing and sale of its single-mode fiber is not subject to the Corning license and has been marketing its single-mode fiber without payments of royalties to Corning and without regard to the annual quantity limitations of the Corning license since 1993. The Company presently does not expect to need the Corning license for the manufacture of its multimode fiber after 1999 because the Company believes that a Corning United States patent with relevancy to its multimode fiber will expire in 1999. Total royalties expensed during the years ended December 31, 1998, 1997 and 1996 were $.7 million, $1.9 million and $2.3 million, repectively. F-12 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 6 - Goodwill Goodwill consisted of (in thousands): December 31, ----------------------------------- 1998 1997 ---- ---- Goodwill $ 1,181 $ 1,181 Less Accumulated Amortization (388) (309) -------- -------- $ 793 $ 872 ======== ========
7 - Accrued Liabilities Accrued liabilities consisted of (in thousands): December 31, -------------------------------------------- 1998 1997 ---- ---- Salaries and Wages $ 534 $ 612 Royalties 507 885 Health Insurance 682 486 Incentive Compensation 614 1,492 Interest Expense 254 50 Other 726 774 ------- ------- $ 3,317 $ 4,299 ======= =======
F-13 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 8 - Long-Term Debt Long-term debt consisted of (in thousands): December 31, ------------------------------------ 1998 1997 ---- ---- Revolving credit loan facility at the lower of prime or LIBOR plus 1.5% $ 10,000 $ -- Series A Senior Secured Notes at 9.24% interest 16,000 16,000 Series B Senior Secured Notes at 9.39% interest 8,000 8,000 ---------- ---------- 34,000 24,000 Less Current Maturities 3,200 -- ---------- ---------- $ 30,800 $ 24,000 ========== ==========
In December 1996, the Company sold to a limited number of selected institutional investors an aggregate principal amount of $24.0 million of senior secured notes (the "Notes"), consisting of $16.0 million of 9.24% interest Series A Senior Secured Notes due December 26, 2003 (the "Series A Notes") and $8.0 million of 9.39% interest Series B Senior Secured Notes due December 26, 2004 (the "Series B Notes"). Interest on the Notes is payable semi-annually, with five equal annual principal repayments required beginning December 26, 1999 for Series A Notes and December 26, 2000 for Series B Notes. The Notes constitute senior secured debt of the Company secured by a first priority security interest in substantially all of the assets of the Company and all current and hereinafter created or acquired subsidiaries, a pledge by the Company of the issued and outstanding stock of its subsidiaries and mortgages on real estate owned by the Company's subsidiaries. The Company's obligations are also guaranteed by the Company's subsidiaries and rank on an equal basis with all other senior secured indebtedness of the Company. The Notes also provide for certain financial and non-financial covenants usual for this type of transaction. During 1996 Company used approximately $14.0 million from the sale of the Notes to repay all outstanding indebtedness and restructured its existing $22.0 million of total borrowing capacity with its principal bank, composed of a $14.5 million revolving credit agreement and $7.5 million in equipment and real estate term loans, into a $20.0 million revolving credit agreement, maturing December 1999, with the same security interest in the Company's assets as the Notes. During 1996, the Company has the option to select from time to time the interest rate on the revolving credit agreement at either the LIBOR rate plus 1.5% or Fleet Bank's prime rate provided that, under certain circumstances, Fleet Bank may deem that the LIBOR rate is not available. F-14 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 At both June 30, 1998 and September 30, 1998, the Company was in violation of certain covenants. In December 1998 the Company signed an agreement to amend the financial covenants under its loan agreements with its principal bank and the senior secured noteholder. With the signing of this agreement SpecTran remedied all violations under the original agreements and also extended the maturing date of the revolving credit agreement to April 2000. As of December 31, 1998 the Company had borrowed $10.0 million against the revolving credit agreements. 9 - Stockholders' Equity (a) Warrants As part of an agreement entered into in September 1990 with Allen & Company, Incorporated ("Allen"), warrants to purchase 350,000, 30,000 and 20,000 shares of SpecTran voting common stock at an exercise price of $2.00 through August 14, 1999, were issued to Allen, Richard A.M.C. Johnson, who retired as a director of the Company in 1996, and Patrick E. Brake, a former director of the Company, respectively. In conjunction with the Company's public offering in February 1997, Allen exercised warrants to purchase 200,000 shares and sold them in the offering. At December 31, 1998 Allen owned none of the Company's outstanding stock; if the remainder of the Allen warrant were exercised, Allen would own approximately 2.1% of the Company's outstanding stock. In June 1992 the Johnson warrant was exercised and in January 1993 the Brake warrant was exercised. (b) Stock Options Pursuant to the Company's Incentive Stock Option Plan adopted in November, 1981, as amended, incentive and nonqualified options may be granted to purchase up to an aggregate of 455,000 shares of the Company's voting Common Stock, $.10 par value, at prices not less than 100% of the fair market value of the shares at the time the options are granted. As of December 31, 1998, all options were exercisable in full three years from the date of grant in cumulative annual installments of 33 1/3% commencing one year after the date of grant, and expire ten years after grant. Under its provisions, no options were to be issued under the Incentive Stock Option Plan adopted in November 1981 ("Old Plan") after the plan reached its tenth anniversary. During the year ended December 31, 1991, a new Incentive Stock Option Plan ("New Plan") was adopted. The terms of the New Plan are identical to those of the Old Plan except that (1) the number of shares eligible for issuance, upon adoption of the plan, was 160,490, (2) provision is made for the non-discretionary grant of nonqualified options to directors who are not full-time employees of the Company or any subsidiary ("outside directors") and (3) provision is made for all outstanding options to vest upon the occurrence of a change in control (as defined in the New Plan). Subsequent to December 31, 1998, the New Plan was amended to permit the committee discretion in establishing the vesting schedule options. At the Company's Annual meeting in 1992, 1994, 1996 and 1998 the holders of Common Stock approved an amendment to the New Plan increasing the number of shares of Common Stock reserved for issuance by 210,000, 255,000, 250,000 and 325,000, respectively. F-15 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 Activity in the plans for the years ended December 31, 1998, 1997 and 1996 is summarized below (dollars in thousands except per share amounts): Shares Shares Available Options Under Option for Option Outstanding Price ---------- ----------- ------------ Balance at December 31, 1995 138,209 543,488 $1.375- $22.250 Increase in Shares Reserved 250,000 -- -- -- Options Granted (165,500) 165,500 $5.500- $21.750 Options Exercised -- (46,385) $1.37 - $15.250 Options Forfeited 11,900 (11,900) $3.375- $15.250 ------ ------- ------ ------- Balance at December 31, 1996 234,609 650,703 $1.375- $22.250 Options Granted (123,450) 123,450 $10.875- $14.187 Options Exercised -- (100,563) $1.188- $8.875 Options Forfeited 3,668 (3,668) $5.500- $21.125 ----- ------ ------ ------- Balance at December 31, 1997 114,827 669,922 $3.375- $22.250 Increase in Shares Reserved 325,000 -- -- -- Options Granted (388,533) 388,533 $4.125- $9.625 Options Exercised -- (3,216) $5.500- $6.000 Options Forfeited 110,302 (112,919) $3.375- $22.250 ------- -------- ------ ------- Balance at December 31, 1998 161,596 942,320 $3.375- $22.250 ======= ======= ====== =======
F-16 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 The following table summarizes information about fixed stock options outstanding at December 31, 1998:
OUTSTANDING OPTIONS OPTIONS EXERCISABLE ----------------------------------------- -------------------------- Number Weighted Average Number of Range of Outstanding at Remaining Weighted-Average Exercisable Weighted-Average Exercise Prices 12/31/98 Contractual Life Exercise Price At 12/31/98 Exercise Price 3.375-5.063 60,937 8.190 4.278 20,937 4.362 5.064-7.595 223,999 7.530 6.055 146,398 5.658 7.596-11.394 362,384 7.853 8.324 117,183 8.654 11.395-17.093 180,250 6.143 13.993 113,744 14.096 17.094-22.250 114,750 7.478 20.899 60,749 21.166
As of December 31, 1998, options for 459,011 shares were vested and exercisable at an aggregate exercise amount of $4.8 million ($10.48 per share). The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plan. Accordingly, no compensation cost has been recognized for its fixed stock options plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under the plan consistent with the provisions of FASB Statement 123, the Company's net income and earnings per share for the years ended December 31, 1998, 1997 and 1996 would have been reduced to the pro forma amounts indicated as follows: 1998 1997 1996 ---- ---- ---- Net income (in thousands): As reported $523 $4,842 $3,655 Pro forma $158 $4,594 $3,640 Net income per share: As reported $.07 $.68 $.61 Pro forma $.02 $.64 $.56
The fair value of options granted under the Company's fixed stock option plan during 1998, 1997 and 1996 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: no dividend yield, expected volatility 67% for 1998, 63% for 1997 and 64% for 1996, risk free interest rate of 7%, and expected life of five years. F-17 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 (c) Secondary Stock Offering On February 18, 1997, the Company completed a secondary public offering of 1,500,000 shares of common stock at a price of $19.00 per share. Of the 1,500,000 shares, 1,300,000 were sold by the Company and 200,000 by Allen and Company, Incorporated, a selling stockholder. 10 - Computation of Earnings per Common Share Effective December 31, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 "Earnings per Share" (SFAS 128) which has changed the method of computing and presenting earnings per common share. All prior periods presented have been restated in accordance with SFAS 128. This restatement had an immaterial impact on the prior periods' earnings per common share amounts calculated under previous standard. Under SFAS 128, a primary earnings per common share has been replaced with basic earnings per common share. The basic earnings per share computation is based on the earnings applicable to common stock divided by the weighted average number of shares of common stock outstanding in 1998, 1997 and 1996. F-18 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 Fully diluted earnings per common share has been replaced with diluted earnings per common share. The diluted earnings per common share computation includes the common stock equivalency of options granted to employees under the stock incentive plan. Excluded from the diluted earnings per common share calculation are options granted to employees that are anti-dilutive based on the average stock price for the year. (dollars and shares in thousands:) 1998 1997 1996 ---- ---- ---- Earnings per common share-basic Earnings applicable to common stock $ 523 $ 4,842 $ 3,655 ====== ======== ========= Weighted average shares outstanding 7,003 6,724 5,374 ====== ======== ========= Earnings per common share-basic $ .07 $ .72 $ .68 ====== ========= ========= Earnings per common share-diluted Earnings applicable to common share $ 523 $ 4,842 $ 3,655 ====== ======== ========= Weighted average shares outstanding 7,003 6,724 5,374 Plus shares issuable on: Exercise of dilutive options 100 424 588 ====== ======== ========= Weighted average shares outstanding assuming conversion 7,103 7,148 5,962 ====== ======== ========= Earnings per common share-diluted $ .07 $ .68 $ .61 ======= ========= =========
F-19 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 11 - Income Taxes Income tax expense attributable to income (loss) from operations differs from the computed expected tax expense (benefit) determined by applying the federal income tax rate of 34 percent as follows (in thousands): 1998 1997 1996 ---- ----- ---- Computed expected tax expense at 34% $ 262 $ 2,320 $ 1,883 State income taxes, net of federal effect and change in valuation allowance 189 14 298 Goodwill amortization -- -- 74 Decrease in valuation allowance for deferred income taxes (230) (300) (400) Other 28 (52) 27 --------- ---------- --------- $ 249 $ 1,982 $ 1,882 ========= ========= =========
Total income tax expense (benefit) for the years ended December 31, 1998, 1997 and 1996 was allocated as follows (in thousands): 1998 1997 1996 ---- ----- ---- Income tax expense attributable to: Income from operations $ 249 $ 1,982 $ 1,882 Stockholders' equity, for compensation expense for tax purposes from the disqualifying disposition of stock options 0 (43) (117) ----------- --------- --------- $ 249 $ 1,939 $ 1,765 ======= ========= =========
Income tax expense (benefit) attributable to income from continuing operations consists of (in thousands): Current Deferred Total Year ended December 31, 1998: Federal $ (149) $ 87 $ (62) State 208 103 311 -------- -------- -------- $ 59 $ 190 $ 249 ======== ======== ======== Year ended December 31, 1997: Federal $ 1,577 $ 165 $ 1,742 State 401 (161) 240 -------- -------- -------- $ 1,978 $ 4 $ 1,982 ======== ======== ======== Year ended December 31, 1996: Federal $ 687 $ 668 $ 1,355 State 560 (33) 527 -------- -------- -------- $ 1,247 $ 635 $ 1,882 ======== ======== ========
F-20 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 The significant components of deferred income tax expense (benefit) attributable to income from operations for the years ended December 31, 1998, 1997 and 1996 are as follows (in thousands): 1998 1997 1996 ---- ---- ---- Deferred tax expense (exclusive of the effects of other components listed below) $ 420 $ 304 $ 1,035 Decrease in valuation allowance for deferred income taxes (230) (300) (400) -------- --------- -------- Deferred income tax expense attributable to income from operations $ 190 $ 4 $ 635 ======== ======== ========
The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands): 1998 1997 ---- ---- Deferred tax assets: Accounts receivable $ 228 $ 169 Inventories 1,248 694 Accrued liability - compensation related expense 152 168 Accrued liability - pension 498 338 Other nondeductible reserves and accruals 9 9 Investment in Joint Venture 373 215 Net operating loss carryforward benefit 323 230 Credit carryforwards benefit 1,200 716 --------- --------- Total gross deferred tax assets 4,031 2,539 Less valuation allowance (100) (330) --------- --------- Net deferred tax assets 3,931 2,209 Deferred tax liabilities (2,520) (608) --------- --------- Net deferred tax assets $ 1,411 $ 1,601 ========= =========
F-21 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 The valuation allowance for deferred tax assets as of December 31, 1998 and 1997 was $100,000 and $330,000, respectively. Based on the Company's level of net income and projected future earnings, the Company believes that it is more likely than not that a portion of the deferred tax asset will be realized in the future. During 1998, the portion of the deferred tax asset which is expected to be realized increased from 1997; therefore, the Company reduced its valuation allowance by $230,000. The remaining valuation allowance relates primarily to the risk that a portion of the tax credit carryforwards and state operating loss carryforwards will not be used before they expire. At December 31, 1998, the Company had the following income tax credit available to offset future income taxes (in thousands): Amount Expires Alternative Minimum Tax Credit $1,037 Indefinite 12 - Major Customers The approximate net product sales by the Company to customers accounting for 10% or more of total net annual sales are as follows (in thousands): 1998 1997 1996 ---- ---- ---- Customer Amount % Amount % Amount % -------- ------ - ------ - ------ - A 25,959 37 6,601 11 B 6,932 10 8,906 14 C $9,522 15 $7,902 13 Substantially all of the Company's business is to customers in the telecommunications and data communications industries. International sales, primarily in Asia and Europe, accounted for 15%, 20% and 18% of total sales in 1998, 1997 and 1996, respectively. In 1998 due to the Company's settlement of a multi-year suppply contract with Corning, the Company recognized other income of $3.5 million in 1998 and $.5 million in 1997. F-22 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 13 - Commitments In October 1998, the Company entered into a new license agreement with Lucent Technologies Inc. where by the Company is obligated to pay Lucent $4.0 million in four installments: $1,250,000 in 1999, $1,000,000 in 2000, $1,000,000 in 2001 and $750,000 in 2002. All of the Company's leases are on a month to month basis. The Company has no lease commitments for 1999 and 2000. Total rent expense for the years ended December 31, 1998, 1997 and 1996 was $58,000, $301,000 and $634,000, respectively. 14 - Employee Benefit Plans a) Defined Benefit Pension Plan Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 132 (SFAS 132), "Employers' Disclosures about Pensions and Other Post-retirement Benefits," which requires additional disclosures on changes in the benefit obligation and fair value of plan assets during the year. All prior periods presented have been restated in accordance with SFAS 132. The Company sponsors a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and an average of the employee's highest ten consecutive years of earnings. The Company's funding policy has been to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. F-23 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1998 and 1997. Actuarial present value of benefit obligations (in thousands): 1998 1997 ---- ---- Change in benefit obligation Benefit obligation at beginning of year $ 2,229 $ 1,740 Service cost 375 285 Interest cost 167 130 Actuarial gain 360 74 Benefits paid (3) -- --------- --------- Benefit obligation at end of year $ 3,128 $ 2,229 --------- --------- Change in plan assets Fair value of assets at beginning of year $ 1,848 $ 1,195 Actuarial return on plan assets 493 302 Employer contribution 252 350 Fair value of plan assets at end of year $ 2,593 $ 1,847 ---------- ---------- Funded status $ (535) $ (382) Unrecognized net actuarial loss 148 137 Unrecognized prior service cost (23) (25) ---------- ---------- Accrued pension cost $ (410) $ (270) ========== ==========
Net pension cost for 1998, 1997 and 1996 included the following components: 1998 1997 1996 ---- ---- ---- Service cost - benefits earned during period $ 375 $ 285 $ 289 Interest cost on projected benefit obligation 167 130 103 Actual return on assets (166) (302) (129) Net amortization and deferral 17 213 65 --------- --------- --------- Net pension cost $ 393 $ 326 $ 328 ========= ========= =========
Assumptions used in the accounting as of December 31 were as follows: 1998 1997 ---- ---- Discount rate 7.0% 7.5% Rates of increase in compensation levels 5.0% 5.0% Expected long-term rate of return on assets 8.5% 8.5%
F-24 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 b) Supplemental Retirement Agreements The Company entered into supplemental retirement agreements with five executive officers in 1996. These agreements provide benefits based on years of service and average eligible pay for executives. The following table sets forth the funded status of the agreements and amounts recognized in the Company's consolidated balance sheets at December 31, 1998 and 1997. Actuarial present value of benefit obligations (in thousands): 1998 1997 ---- ---- Change in benefit obligation Benefit obligation at beginning of year $ 1,526 $ 1,325 Service cost 113 111 Interest cost 107 90 -------- --------- Benefit obligation at end of year $ 1,746 $ 1,526 -------- -------- Funded status $ (1,746) $ (1,526) Unrecognized net actuarial loss (76) (76) Unrecognized prior service cost 892 994 --------- ---------- Accrued pension cost $ (930) $ (608) ========= ==========
Net pension cost for 1998, 1997 and 1996 included the following components: 1998 1997 1996 ---- ---- ---- Service cost - benefits earned during period $ 113 $ 111 $ 116 Interest cost on projected benefit obligation 107 90 84 Net amortization and deferral 102 102 2 ------- ------- ------- Net pension cost $ 322 $ 303 $ 202 ======= ======= =======
Assumptions used in the accounting as of December 31 were as follows: 1998 1997 ---- ---- Discount rate 7.0% 7.0% Rates of increase in compensation levels 5.0% 5.0% Expected long-term rate of return on assets 8.5% 8.5% COLA increase 3.5% 3.5%
F-25 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 c) Defined Contribution Pension Plan The Company sponsors a defined contribution pension plan covering substantially all of its employees. Employer contributions to the plan are discretionary and amounted to $300,000 and $361,000 in 1997 and 1996, respectively. No contribution was provided for during 1998. d) Directors Retirement Plan In December 1995 the Company adopted a Directors Retirement Plan which provides for retirement benefits for all outside directors with five full calendar years of service as of the later of age 70 or the date of actual retirement as a director. There was no expense in 1998, 1997 or 1996 to provide for past service costs. During 1998, the plan was funded with $51,000. e) Bonus Plans The Company sponsors an Employee Profit Sharing Plan covering all employees. This plans provide for the payment of bonuses if certain performance objectives are obtained. Bonuses of $554,000, $1.367 million and $1.448 million, respectively, were charged to operations in 1998, 1997 and 1996. 15 - Acquisitions/Joint Venture a) Applied Photonic Devices, Inc. On May 23, 1995 the Company purchased all the outstanding capital stock of Applied Photonic Devices, Inc. ("APD") for cash and common stock worth approximately $3.9 million. The Company also retired approximately $600,000 of APD bank debt. The purchase method of accounting was used and the results of operations of APD are included in the consolidated financial statements from May 23, 1995. Goodwill of $3.3 million resulted from the purchase and was being amortized over 15 years. Amortization expense amounted to $217,000 in 1996. In December 1996, the Company announced the formation of General Photonics, a 50-50 joint venture between the Company and General Cable. General Cable purchased certain assets of the Company's optical fiber cable subsidiary, APD, for approximately $5.8 million and then contributed them to General Photonics for a 50% equity interest. APD contributed its remaining assets to General Photonics in exchange for its 50% equity interest. The net assets, including goodwill, of General Photonics totaled $10.2 million at December 31, 1996. The Company accounts for its interest in the joint venture under the equity method and no gain or loss was recognized as a result of this transaction. b) General Phontonics, LLC. The following is summarized financial information for the Company's joint venture. 1998 1997 ---- ---- Current Assets $ 4,600 $ 7,006 Other Assets 4,480 3,908 Current Liablities 1,853 1,640 Total Revenues $ 9,507 $12,583 Net Income $(2,047) $ ( 708)
F-26 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 The following pro forma statement of operations for the year ended December 31, 1996 presents the results of operations as if the Company had entered into the joint venture as of January 1, 1996 (in thousands): Statement of Operations (unaudited) 1996 ---- Sales $51,413 Net Income $ 3,716 ------- Net income per Share of Common Stock $ .63 =======
16 - Business Segments Effective January 1, 1998, the Company adopted Statement of Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an Enterprise and Related Information" which has changed the method of reporting information about its businesses. Based upon the criteria described in SFAS 131, the Company now reports three business segments, Optical Fiber, Specialty Products and Cable. All prior periods presented have been restated in accordance with SFAS 131. The Company conducts its operations through two business segments - Optical Fiber and Specialty Products. A third segment, Cabling, was sold in December 1996 in conjuction with the formation of General Photonics. SpecTran retains a 50% equity interest in General Photonics and SpecTran's share of General Photonics financial results for 1997 and 1998 is reported on the equity method. Optical Fiber develops, manufactures and markets specialty multimode and single-mode fiber for data communications and telecommunications applications. Specialty Products develops, manufactures and markets specialty multimode and single-mode fiber and value-added fiber optic products for industrial, transportation, communication, medical applications and geophysical. F-27 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 Cabling developed, manufactured and marketed communications-grade fiber optic cable primarily for the customer premises market. Summarized Financial information by business segment is as follows (in thousands): REVENUES 1998 1997 1996 ---- ---- ---- Optical Fiber 50,801 44,871 34,274 Specialty Products 20,055 17,186 13,879 Cable -- -- 13,418 --------- --------- ------ 70,856 62,057 61,571 ====== ====== ====== INCOME (LOSS) FROM OPERATIONS 1998 1997 1996 ---- ---- ---- Optical Fiber 6,276 10,357 7,684 ----- ------ ----- Specialty Products (1,553) 234 1,752 ------ ------- ----- Corporate (5,154) (4,570) (3,834) ------ -------- ------ (431) 6,021 5,602 ====== ====== ===== F-28 ASSETS 1998 1997 1996 ---- ---- ---- Optical Fiber 72,447 51,645 23,379 Specialty Products 19,953 22,867 10,760 Cable (APD) -- -- 5,277 Cable (Investment in JV) 3,458 4,420 -- Corporate 9,561 13,173 23,039 -------- -------- ---------- 105,419 92,105 62,455 ======== ======== ==========
DEPRECIATION 1998 1997 1996 ---- ---- ---- Optical Fiber 3,817 1,650 1,359 Specialty Products 1,630 1,209 914 Cable -- -- 142 Corporate 760 716 124 ----------- ---------- --------- 6,207 3,575 2,539 ========== ========= =========
CAPITAL EXPENDITURES 1998 1997 1996 ---- ---- ---- Optical Fiber 17,423 29,394 6,461 Specialty Products 868 11,379 2,725 Cable -- -- 761 Corporate 1,180 384 1,153 ------------ ------------ ---------- 19,471 41,157 11,100 =========== =========== ==========
The following table presents revenues by country based on the location of the use of the product or services (in thousands): 1998 1997 1996 ---- ---- ---- United States $ 60,321 $ 49,337 $ 50,481 Taiwan 12 1,352 1,737 Switzerland 1,221 1,272 2,406 Netherlands 1,372 180 130 Malaysia -- 1,488 111 Japan 1,138 642 225 Israel 1,675 100 142 India 415 998 577 Germany 845 770 1,112 China 954 2,825 2,030 Total Other 2,903 3,093 2,620 Total $ 70,856 $ 62,057 $ 61,571
F-29 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 17 - Quarterly Financial Information (unaudited) In thousands of dollars except per share data Quarters First Second Third Fourth - --------------------------- ------------------ ------------------ ------------------ ----------------- 1998 Net Sales (See A) $15,112 $16,358 $19,288 $20,098 Gross Profit 5,111 2,553 5,414 5,801 Net Income 864 (1,393) 504 536 Earnings per Common Share-Basic .12 .20 .07 .08 Earnings per Common Share-Diluted .12 (.20) .07 .08 1997 Net Sales $16,228 $15,881 $15,638 $14,310 Gross Profit 6,542 6,162 5,777 4,795 Net Income 1,122 1,330 1,151 1,239 Earnings per Common Share-Basic .18 .19 .17 .18 Earnings per Common Share-Diluted .17 .18 .16 .17
A) Due to a change in accounting treatment of certain fiber sales, sales and cost of sales for the first three quarters of 1998 were reduced by $115,000, $674,000 and $775,000 respectively. This change had no effect on previously reported net income or earnings per share. F-30 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 18 - Contingencies On November 6, 1998, the Company announced that it would contest a complaint filed in the United States District Court in Boston, MA on October 2, 1998, purportedly as a class action suit. Titled Cruise v. Cannon, et al., the complaint alleges that the Company and three of its current or former officers and directors violated securities laws by misrepresenting the Company's financial condition and financial results during 1998. The suit purports to be a class action on behalf of all individuals who purchased the Company's stock on the open market from February 25, 1998 to July 17, 1998. The suit alleges, among other things, that there were public misrepresentations or failures to disclose material facts during that period which allegedly artificially inflated the price of the Company's common stock in the marketplace. The complaint seeks an undisclosed amount of compensatory damages and costs and expenses, including plaintiff's attorney's fees and such further relief as the Court may deem just and proper. The Company believes the action is totally without merit, believes that it has highly meritorious defenses and it intends to defend itself vigorously. 19 - Related Parties The Company paid approximately $158,000, in 1998 for legal fees to a firm having a member who is also a director of the Company. The Company paid approximately $38,000, in 1998 for consulting fees to a firm having a member who is also a director of the Company. F-31 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1998, 1997 and 1996 Schedule I - Valuation and Qualifying Accounts For the Years Ended December 31, 1998, 1997 and 1996 Dollars in Thousands Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance at Additions Balance Beginning Charged to at End Description of Period Expenses Deductions of Period For the Year Ended December 31, 1998: Allowance - Net Deferred Tax Asset $ 330 $ -- $ 230 $ 100 ============== =========== ============ ============= Allowance for Doubtful Accounts $ 389 $ 624 $ 490 $ 523 ============== =========== ============ ============= Allowance for Obsolete Inventory $ 976 $ 1,322 $ -- $ 2,298 ============== =========== ============ ============= For the Year Ended December 31, 1997: Allowance - Net Deferred Tax Asset $ 630 $ -- $ 300 $ 330 ============== =========== ============ ============= Allowance for Doubtful Accounts $ 218 $ 171 $ -- $ 389 ============== =========== ============ ============= Allowance for Obsolete Inventory $ 273 $ 703 $ -- $ 976 ============== =========== ============ ============= For the Year Ended December 31, 1996: Allowance - Net Deferred Tax Asset $ 1,030 $ -- $ 400 $ 630 ============== =========== ============= ============= Allowance for Doubtful Accounts $ 265 $ -- $ 47 $ 218 ============== =========== ============ ============= Allowance for Obsolete Inventory $ 467 $ -- $ 194 $ 273 ============== =========== ============ =============
F-32 EX-10.112 2 EMPLOYMENT AGREEMENT Exhibit 10.112 AGREEMENT AGREEMENT, executed as of December 1, 1998 between SpecTran Corporation, a Delaware corporation (hereinafter referred to as the "Corporation"), and Bruce A. Cannon (hereinafter referred to as "Executive"). W I T N E S S E T H: WHEREAS, Executive and the Corporation are parties to an Employment Contract dated as of December 14, 1992 (the "1992 Employment Contract"); WHEREAS, the Executive has resigned from his positions with the Corporation and its subsidiaries effective December 1, 1998; and WHEREAS, the Corporation recognizes the effort and skill Executive has contributed to the operation of the Corporation during his long tenure with the Corporation and both the Executive and the Corporation wish to provide for an orderly transition and enter into this Agreement. NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto agree with each other as follows: 1. Termination of 1992 Employment Contract. This Agreement supercedes and replaces the 1992 Employment Contract, which shall be deemed terminated as of the date first written above. 2. Resignation as Director. Upon the execution of this Agreement, Executive hereby resigns as a Director of the Corporation and each of its subsidiaries on whose Boards he is serving. 3. Employment. The Corporation agrees to and does hereby employ Executive, and Executive agrees to and does hereby accept employment by the Corporation, subject to the direction of its President and Chief Executive Officer, Chief Financial Officer and/or Board of Directors, for the period commencing on the date of this Agreement and ending at midnight on December 1, 2000 (the "Termination Date," and collectively the "Base Term"). The Base Term shall not be renewable except by written amendment signed by both parties to this Agreement. The Base Term and any amendments or extensions shall be referred to hereinafter as the "Employment Period." 4. Scope of Duties. Executive agrees that he shall provide advice and assistance to the Board of Directors, Chief Executive Officer and/or Chief Financial Officer of the Corporation and shall perform such projects as reasonably requested and mutually agreed. Executive agrees that he will be available to act in the capacity of a consultant to the Corporation and that in the event that Executive is so called upon he will devote such time and effort to the performance of his duties as a consultant to the Corporation as Executive and Corporation shall mutually consider appropriate. 5. Employment Period - Annual Compensation/Stock Options. (a) As of the date of this Agreement, for the services and duties for which Executive agrees to be available to perform during the Employment Period, the Corporation agrees to pay Executive annual compensation at the rate of Eighty Six Thousand Five Hundred Eighty Nine Dollars and no cents ($86,589.00) per year (this annual amount to be referred to as "Annual Executive Compensation"). Annual Executive Compensation shall be payable in equal semi-monthly installments. The Corporation shall reimburse Executive for all expenses reasonably and necessarily incurred in connection with his employment by the Corporation, including traveling expenses while absent, on the Corporation's business, from his business headquarters. (b) Any options to purchase the Company's common stock that have previously been granted to Executive pursuant to the Company's 1991 Incentive Stock Option Plan (the "Plan") and have not yet vested will continue to vest in their normal course pursuant to the Plan through December 1, 1999. Any options to purchase the Company's common stock granted to Executive which do not vest by December 1, 1999 shall expire as of such date. In addition, all vested options to purchase the Company's common stock granted to Executive which are not exercised on or before March 31, 2001 at 5:00 p.m. (EST) will expire at 5:00 p.m. (EST) on March 31, 2001. 6. Secrets. Executive agrees that any trade secrets or any other proprietary information (whether in written, verbal or any other form) relating to the existing or contemplated business and/or field of interest of the Corporation or any of its affiliates (for the purpose of this Agreement, an affiliate of the Corporation shall be deemed to be any corporation or other legal entity which controls the Corporation, which is controlled by the Corporation, one which is under common control with the Corporation), or of any corporation or other legal entity in which the Corporation or any of its affiliates has an ownership interest of more than twenty-five percent (25%), and any proprietary information (whether in written, verbal or any other form) of any of the Corporation's customers, suppliers, licensor or licensees, including, but not limited to, information relating to inventions, disclosures, processes, systems, methods, formulae, patents, patent applications, machinery, materials, notes, drawings, research activities and plans, costs of production, contract forms, prices, volume of sales, promotional methods, list of names or classes or customers, which he has heretofore acquired during his employment by the Corporation or any of its affiliates or which he may hereafter acquire during his employment with the Corporation or any of its affiliates, in both cases whether during or outside business hours, whether or not on the Corporation's premises, as the result of any disclosures to him, or in any other way, shall be regarded as held by him in a fiduciary capacity solely for the benefit of the Corporation, its successors or assigns, and shall not at any time, either during the term of this Agreement or thereafter, be disclosed, divulged, furnished, or made accessible by him to anyone, or be otherwise used by him, except in the regular course of business of the Corporation or its affiliates. Upon termination of his employment, Executive shall return or deliver to the Corporation all tangible forms of such information in his possession or control, and shall retain no copies thereof. Information shall, for purposes of this Agreement, be considered to be secret if not known by the trade generally, even though such information may have been disclosed to one or more third parties pursuant to any business discussion or agreement, including distribution agreements, joint research agreements or other agreements entered into by the Corporation or any of its affiliates. 7. Patents. Executive agrees to and does hereby sell, assign, transfer and set over to the Corporation, its successors, assigns, or affiliates, as the case may be, all his right, title, and interest in and to any inventions, improvements, processes, patents or applications for patents which he develops or conceives individually or in conjunction with others during his employment by the Corporation, or, having possibly conceived same prior to his employment, may complete while in the employ of the Corporation or any of its affiliates, in both cases whether during or outside business hours, whether or not on the Company's premises, which inventions, improvements, processes, patents or applications for patents are (i) in connection with any matters within the scope of the existing or contemplated business of the Corporation or any of its affiliates, or (ii) aided by the use of time, materials, facilities or information paid for or provided by the Corporation, all of the foregoing to be held and enjoyed by the Corporation, its successors, assigns or affiliates, as the case may be, to the full extent of the term for which any Letters Patent may be granted and as fully as the same would have been held by Executive, had this Agreement, sale or assignment not been made. Executive will make, execute and deliver any and all instruments and documents necessary to obtain patents for such inventions, improvements and processes in any and all countries. Executive hereby irrevocably appoints the Corporation to be his attorney in fact in the name of and on behalf of Executive to execute all such instruments and do all such things and generally to use the Executive's name for the purposes of assuring to the Corporation (or its nominee) the full benefit of its rights under the provisions of Articles 6 and 7. 8. Disability and Death. In the event Executive becomes either partially or totally disabled during the term of this Agreement then the Corporation shall continue, during the term of this Agreement, to pay Executive at the rate of his Annual Executive Compensation as set forth in Article 5(a) and continue the benefits provided for him in Article 9 hereof. In the event of Executive's death, the payments of Annual Executive Compensation provided herein will be made to the wife of Executive, or if no wife shall survive Executive, to his Estate. 9. Employee Benefits. (a) For the term of this Agreement, Executive may participate in any pension plan, life insurance, hospitalization or surgical program, or insurance program presently in effect or hereafter adopted by the Corporation, to the extent, if any, that he may be eligible to do so under the provisions of such plan or program. The Corporation may terminate, modify, or amend any such plan or program, in the manner and to the extent permitted therein, and the rights of Executive under any such plan or program shall be subject to any such right of termination, modification, or amendment. To the extent any payments under any such plan or program are made to Executive because he is disabled, such amounts shall be credited against amount due to Executive under Article 8. Executive is not entitled to any automobile allowance. (b) For the sake of clarification, and notwithstanding any other provision of this Agreement, it is understood and agreed that all benefits provided to Executive under this Agreement shall be provided to the extent that they exceed any employee benefit provided to Executive other than specifically through this Agreement, such as the programs, plans, etc. referred to in Article 9(a) above. The benefits provided under this Agreement shall be supplemental to benefits provided otherwise to Executive by the Corporation, and shall not be provided to the extent that they are duplicative. 10. Covenant Not to Solicit Employees. During the term of this Agreement, Executive agrees that he will not (a) solicit any past, present or future customers of the Corporation in any way relating to any business in which the Corporation was engaged during the term of his employment, or which the Corporation planned during the term of his employment, to enter, or (b) induce or actively attempt to influence any other employee or consultant of the Corporation to terminate his or her employment or consultancy with the Corporation. In the event that Executive violates any provision of this Article 10, then in addition to any other remedies available to the Corporation, the Corporation shall have the right immediately to terminate any payments or benefits provided or to be provided to Executive under this Agreement. 11. Assignment. This Agreement may be assigned by the Corporation as part of the sale of substantially all of its business; provided, however, that the purchaser shall expressly assume all obligations of the Corporation under this Agreement. Further, this Agreement may be assigned by the Corporation to an affiliate, provided that any such affiliate shall expressly assume all obligations of the Corporation under this Agreement, and provided further that the Corporation shall then fully guarantee the performance of the Agreement by such affiliate. Executive agrees that if this Agreement is so assigned, all the terms and conditions of this Agreement shall remain between such assignee and himself with the same force and effect as if said Agreement had been made with such assignee in the first instance. 12. Termination. (a) Survival. The provisions of Articles 6, 7, 10, 12, 13 and 14 shall survive the termination of this Agreement. (b) Termination by Executive. If at any time during the period of December 1, 1998 through November 30, 1999, Executive elects to terminate his employment with the Corporation or takes other employment, then the Corporation's obligations to Executive under this Agreement shall be limited to the Annual Executive Compensation and benefits earned up to the date of Executive's departure. If Executive elects to terminate his employment with the Corporation or takes other employment during the period beginning December 1, 1999 through the end of the Base Term, the Corporation will continue to pay Annual Executive Compensation to Executive for the remainder of the Base Term, but Executive will forfeit all of his rights to other benefits provided for in this Agreement (c) Termination Without Cause. (i) In the event the Corporation terminates this Agreement without Cause, the Corporation shall continue to fulfill its obligations under this Agreement until the end of the Employment Period. (ii) If Executive takes other employment before the end of the Employment Period, the Corporation's obligations to Executive under this Agreement will be treated the same as under Section 12(b) hereof. (iii) Notwithstanding anything to the contrary in this Agreement, the Corporation, in its sole and absolute discretion, may accelerate the payment of any amounts payable under Article 12(c) hereof to Executive, provided, however, that accelerating such payments does not affect Executive's eligibility to continue his insurance benefits on the same basis (both with respect to coverage and contributions) as the Corporation's active employees until such time as he would have received the last amount payable under Article 12(c) hereof had payment thereof not been accelerated pursuant to this Article 12(c)(iii). (iv) "Cause" shall mean [A] breach of Executive's obligations under Article 6, 7 or 10 of this Agreement, [B] stealing from the Corporation or [C] Executive's conviction of a felony. (d) Executive agrees not to apply for or receive unemployment insurance benefits while receiving any benefits under this contract. 13. Notices. All notices required or permitted to be given hereunder shall be mailed by registered mail or delivered by hand to the party to whom such notice is required or permitted to be given hereunder. If mailed, any such notice shall be deemed to have been given when mailed as evidenced by the postmark at point of mailing. If delivered by hand, any such notice shall be deemed to have been given when received by the party to whom notice is given, as evidenced by written and dated receipt of the receiving party. Any notice to the Corporation or to any assignee of the Corporation shall be addressed as follows: SpecTran Corporation 50 Hall Road Sturbridge, MA 01566 Attn: President and Chief Executive Officer With a copy to: Brian M. Hand, Esq. Nordlicht & Hand 645 Fifth Avenue 11th Floor New York, New York 10022 Any notice to Executive shall be addressed to the address appearing on the records of the Corporation at the time such notice is given. Either party may change the address to which notice to it is to be addressed, by notice as provided herein. 14. Applicable Law. This Agreement shall be interpreted and enforced in accordance with the laws of Massachusetts. 15. Effective Date. This Agreement shall become effective as of the date first mentioned in this Agreement. THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK IN WITNESS WHEREOF, the parties hereto have executed the above Agreement as of the day and year first above written. SPECTRAN CORPORATION By: s/s Charles B. Harrison ----------------------- Charles B. Harrison President and CEO s/s Bruce A. Cannon ----------------------- Bruce A. Cannon EX-10.113 3 TERMINATION AGREEMENT Exhibit 10.113 EMPLOYMENT TERMINATION AGREEMENT AND RELEASE SpecTran Corporation, (collectively the "Company"), and William B. Beck ("Beck") hereby agree as follows: 1. Beck's employment with the Company as Vice President, Marketing and Sales is terminated effective July 27, 1998. 2. The Company shall continue to pay Beck his current compensation (at the monthly rate of $12,250.00) through February 18, 1999 at the Company's regular pay periods, subject to withholdings required by law. Instead of continuing to pay Beck's monthly car allowance of $825 through February 18, 1999, the Company will pay Beck a lump sum of $5,480. 3. The Company shall continue to provide Beck with the benefits outlined in his Employment Agreement dated June 20, 1998 until such coverage is obtained by him elsewhere, or until February 18, 1999, whichever is sooner. The release in paragraph 8 shall not affect such rights. Following that date, the Company will respect Beck's rights, if any, to continued medical and dental coverage at his own expense under the Consolidated Omnibus Budget Reconciliation Act (COBRA). This agreement and release shall not affect any right Beck otherwise has under the terms of the Company's 401(k), pension and stock option plans. 4. Instead of providing the assistance of an outplacement firm, the Company will pay to Beck the sum of $5,000. 5. The execution of this agreement shall not be construed as an admission of a violation of any statute or law or breach of any duty or obligation by either the Company or Beck. 6. This agreement, except for paragraph 12, is confidential and shall not be made public by either the Company or Beck except as required by law or if necessary in order to enforce this Agreement. However, Beck may disclose the contents of this Agreement with his spouse and tax advisors and unemployment authorities. 7. The Company agrees not to contest any claim for unemployment compensation benefits which Beck may file. With regard to such claim, the Company will state that the reason for termination was related to work performance and not attributed to misconduct or known violation of uniformly enforced rule or policy. 8. Beck acknowledges that the payments provided for in paragraphs 2, 3 and 4 of this agreement are greater than any to which he may have otherwise been entitled under any existing Company separation, benefit or compensation policy. In consideration of the foregoing, Beck hereby releases and forever discharges the Company, its present and former officers, employees, agents, partners, subsidiaries, successors and assigns from any and all liabilities, causes of action, debts, claims and demands both in law and in equity known or unknown, fixed or contingent, which he may have or claim to have based upon or in any way related to employment or termination of employment with the Company and hereby covenants not to file a lawsuit or charge to assert such claims. This includes but is not limited to claims arising under federal, state or local laws prohibiting employment discrimination, including specifically the Age Discrimination in Employment Act of 1967, as amended (ADEA), or claims growing out of any legal restrictions on the Company's right to terminate its employees. The foregoing does not constitute a release of any claim Beck may have for unemployment compensation benefits. Neither the Company (including its directors, officers or employees) nor Beck will make any disparaging remarks regarding the other, whether written or oral. 9. The invalidity or unenforceability of any particular provision of this Agreement shall not affect the other provisions hereof, and this agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. 10. Beck understands that various state and federal laws prohibit employment discrimination based on age, sex, race, color, national origin, handicap or veteran status. These laws are enforced through the Equal Employment Opportunity Commission (EEOC), Department of Labor and state human rights agencies. Beck acknowledges that he has been advised and represented by counsel with regard to this Agreement and has had the opportunity to review this Agreement since if was first presented to him on July 27, 1998. 11. Beck has carefully read and fully understands all of the provisions of this Termination Agreement and Release which sets forth the entire understanding between him and the Company. This agreement may not be changed orally but only by an agreement in writing signed by the party against whom enforcement of any waiver, change, modification, extension or discharge is sought. Beck acknowledges that he has not relied upon any representation or statement, written or oral, not set forth in this document. 12. The Company agrees that from the date hereof Beck is no longer bound by the non-compete obligations contained in his Employment Agreement and that the Company will not exercise the option provided under Section 10 of his Employment Agreement regarding his activities during the one-year period following the termination of Beck's employment with the Company. 13. Beck may revoke his agreement to the terms hereof at any time during the seven (7) day period required by law immediately following the date of his signature below ("revocation period") by delivering written notice of his revocation to the Company. This agreement shall become effective upon the expiration of the revocation period. SPECTRAN CORPORATION By: /s/ Charles Harrison /s/ William B. Beck -------------------- ------------------- Charles Harrison William B. Beck President and Chief Executive Officer Dated: October 7, 1998 Dated: September 30, 1998 EX-10.114 4 EMPLOYMENT AGREEMENT Exhibit 10.114 Mseifert.FIN EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, executed as of August 25, 1998, between SpecTran Specialty Optics Company, a Delaware corporation (hereinafter referred to as the "Corporation") and Martin Seifert (hereinafter referred to as "Executive"). W I T N E S S E T H: WHEREAS, Executive desires to be employed by the Corporation and the Corporation desires to enter into this employment agreement with Executive; NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto agree with each other as follows: 1. Employment. (a) The Corporation agrees to and does hereby employ Executive, and Executive agrees to and does hereby accept employment by the Corporation, as President of the Corporation or in any other executive capacity as determined by and subject to the supervision and direction of the Chief Executive Officer and/or the Board of Directors of the Corporation. It is also understood that Executive may also serve simultaneously in an executive capacity in an Affiliate1 of the Corporation. The term of Executive's employment hereunder will be for the one year period commencing on August 25, 1998, and ending at midnight on the 24th day of August, 1999 (the "Base Term"). The Base Term shall be automatically renewed on a daily basis so that on each date during which Executive is employed under this Agreement the remaining term shall be a period of one year terminating at midnight of the first anniversary of the day immediately preceding such date, unless at any time the outside (i.e., non-employee) members of the Corporation's Board of Directors terminate the automatic daily renewal feature of this Agreement as provided in Article 1(b) below. The Base Term and all renewals thereof shall be deemed the "Employment Period" and shall hereinafter be referred to as such. - -------- 1 For the purpose of this Agreement, an "Affiliate" of the Corporation shall be deemed to be any corporation or other legal entity which controls the Corporation, which is controlled by the Corporation, or which is under common control with the Corporation. (b) At any time during the Employment Period the outside (i.e., non-employee) members of the Corporation's Board of Directors may by resolution terminate the automatic daily renewal of this Agreement and set a termination date which shall be midnight of the first anniversary of the date immediately preceding the day on which such resolution was adopted (the "Termination Date"). Written notice ("Notice of Nonrenewal") of the outside Directors' resolution setting a Termination Date shall be executed by each outside Director and delivered to Executive within two business days of the adoption of such resolution. A Notice of Nonrenewal may be rescinded at any time by resolution of the outside members of the Corporation's Board of Directors executed and delivered in the same fashion. (c) If, following delivery to Executive of the Notice of Nonrenewal, neither the Corporation nor Executive terminates Executive's employment under Article 12 below, this Agreement shall continue in full force and effect for the one-year period set forth in the Notice of Nonrenewal, and shall terminate on the Termination Date. 2. Scope of Duties/Headquarters/Other Directorships. (a) Executive agrees that as President of the Corporation, he will devote his full time and effort during the Employment Period to the performance of the duties of such office. (b) Executive shall make his business headquarters at Avon, Connecticut, but will also be required to render services at Sturbridge, Massachusetts. Executive shall relocate should the Corporation change its headquarters. Executive shall undertake such travel as the Corporation may request. (c) It is understood and agreed that Executive will advise the Corporation of his intentions to act as a director of other corporations and may hold such directorships and shall be permitted to devote such time thereto as may reasonably be necessary to discharge the ordinary duties attendant upon any such directorships. Executive agrees that he will, upon request of the Board of Directors of the Corporation, resign from any such directorship notwithstanding that the Corporation may have theretofore approved his accepting or retaining such directorship. 3. Employment Period - Compensation. (a) Executive Compensation. For the services and duties to be rendered and performed by Executive during the Employment Period, the Corporation agrees to pay Executive compensation at the rate of not less than Twelve Thousand One Hundred dollars and no cents ($12,100.00) per month, for a total of One Hundred Forty Five Thousand Two Hundred dollars and no cents ($145,200.00) per year, which amount may be increased by action of the Compensation and Incentive Stock Option Committee (or a successor thereof) of the Board of Directors of the Corporation and/or resolution of the Board of Directors of the Corporation at such time or times and in such amount or amounts as it or they may in its and their sole discretion determine (this annual amount to be referred to as "Base Annual Executive Compensation"). Base Annual Executive Compensation shall be payable in equal semi-monthly installments. The Corporation shall reimburse Executive for all expenses reasonably and necessarily incurred in connection with his employment by the Corporation, including traveling expenses while absent, on the Corporation's business, from his business headquarters. The Corporation will pay to Executive Thirty Three Thousand Three Hundred Thirty Three dollars and Thirty Four cents ($33,333.34) for expenses relating to Executive's relocation to the Avon, Connecticut area and Executive will be reimbursed, based upon receipts, for reasonable temporary lodging in the Avon, Connecticut area for a period of up to six weeks. Executive will receive a monthly automobile allowance of Eight Hundred Twenty Five Dollars and no cents ($825.00). (b) Bonus. Executive will be eligible to participate in the Corporation's key employee incentive plan which, based upon the achievement of certain specified objectives, will entitle Executive, while in the position of President, to a target bonus equal to thirty percent (30%) of the Base Annual Executive Compensation with additional opportunities to earn up to a maximum of seventy five percent (75%) of Executive Base Annual Executive Compensation. However, for 1998 only, Executive understands that the target bonus will be fifteen percent (15%) of the Base Annual Executive Compensation and will be granted only if the Corporation achieves the financial results incorporated in the Corporation's 1998 plan. Executive will also be eligible to participate in the Corporation's all employee profit sharing plan, which entitles Executive to earn up to ten percent (10%) of Base Annual Executive Compensation as additional compensation. Notwithstanding anything herein to the contrary, Executive understands and agrees that the plans and payments referred to in this Section 3(b) are subject to amendment or termination at the discretion of the Board of Directors of the Corporation. (c) Stock Options. At the first meeting of the Compensation and Incentive Stock Option Committee of the Corporation's parent company, SpecTran Corporation ("SpecTran"), held on or after Executive's first day as a full time employee of the Corporation, Executive will be granted incentive stock options to purchase an aggregate of Twenty Thousand (20,000) shares of SpecTran's common stock at a per share exercise price equal to the closing price of such common stock on the date of grant, as reported on the NASDAQ National Market (the "Closing Price"), subject to the terms of SpecTran's 1991 Incentive Stock Option Plan. 4. Vacation. Executive will earn vacation at a rate of three (3) weeks per year in the first year of the Employment Period and four (4) weeks per year thereafter. Said vacation may be taken all at once or weekly at the sole discretion of Executive. 5. Secrets. Executive agrees that any trade secrets or any other proprietary information (whether in written, verbal or any other form) relating to the existing or contemplated business and/or field of interest of the Corporation or any of its Affiliates, or of any corporation or other legal entity in which the Corporation or any of its Affiliates has an ownership interest of more than twenty-five percent (25%), and any proprietary information (whether in written, verbal or any other form) of any of the Corporation's customers, suppliers, licensor or licensees, including, but not limited to, information relating to inventions, disclosures, processes, systems, methods, formulae, patents, patent applications, machinery, materials, notes, drawings, research activities and plans, costs of production, contract forms, prices, volume of sales, promotional methods, lists of names or classes of customers, which he has heretofore acquired during his employment by the Corporation or any of its Affiliates or which he may hereafter acquire during his employment with the Corporation or any of its Affiliates, in both cases whether during or outside business hours, whether or not on the Corporation's premises, as the result of any disclosures to him, or in any other way, shall be regarded as held by him in a fiduciary capacity solely for the benefit of the Corporation, its successors or assigns, and shall not at any time, either during the term of this Agreement or thereafter, be disclosed, divulged, furnished, or made accessible by him to anyone, or be otherwise used by him, except in the regular course of business of the Corporation or its Affiliates. Upon termination of his employment, Executive shall return or deliver to the Corporation all tangible forms of such information in his possession or control, and shall retain no copies thereof. Information shall, for purposes of this Agreement, be considered to be secret if not known by the trade generally, even though such information may have been disclosed to one or more third parties pursuant to any business discussion or agreement, including distribution agreements, joint research agreements or other agreements entered into by the Corporation or any of its Affiliates. 6. Patents. Executive agrees to and does hereby sell, assign, transfer and set over to the Corporation, its successors, assigns, or Affiliates, as the case may be, all his right, title, and interest in and to any inventions, improvements, processes, patents or applications for patents which he develops or conceives individually or in conjunction with others during his employment by the Corporation, or, having possibly conceived same prior to his employment, may complete while in the employ of the Corporation or any of its Affiliates, in both cases whether during or outside business hours, whether or not on the Corporation's premises, which inventions, improvements, processes, patents or applications for patents are (i) in connection with any matters within the scope of the existing or contemplated business of the Corporation or any of its Affiliates, or (ii) aided by the use of time, materials, facilities or information paid for or provided by the Corporation, all of the foregoing to be held and enjoyed by the Corporation, its successors, assigns or Affiliates, as the case may be, to the full extent of the term for which any Letters Patent may be granted and as fully as the same would have been held by Executive, had this Agreement, sale or assignment not been made. Executive will make, execute and deliver any and all instruments and documents necessary to obtain patents for such inventions, improvements and processes in any and all countries. Executive hereby irrevocably appoints the Corporation to be his attorney in fact in the name of and on behalf of Executive to execute all such instruments and do all such things and generally to use the Executive's name for the purposes of assuring to the Corporation (or its nominee) the full benefit of its rights under the provisions of Articles 5 and 6. 7. Disability. (a) In the event Executive becomes partially disabled, or becomes totally disabled (as determined in accordance with Article 7(c) below) and such total disability has continued for less than six (6) full consecutive calendar months, then the Corporation shall continue during the Employment Period to pay Executive at the rate of his Base Annual Executive Compensation as set forth in Article 3 and continue the benefits provided for him in Articles 8 and 9 hereof. The Corporation shall retain the right, notwithstanding Executive's partial disability, to deliver a Notice of Nonrenewal during such time as such partial disability continues, unless Executive has already received a Notice of Nonrenewal, in which event such prior Notice of Nonrenewal shall remain effective notwithstanding Executive's partial disability. In any event, the Corporation's obligations in the event of Executive's partial disability shall terminate upon the end of the Employment Period. (b) In the event Executive becomes totally disabled (as determined in accordance with Article 7(c) below), and such total disability has continued for six (6) full consecutive calendar months or more, then for so long thereafter during the Employment Period as such total disability shall continue or for a period of one (1) year, whichever is longer, Executive shall be paid at seventy-five percent (75%) of the rate of his Base Annual Executive Compensation as set forth in Article 3 hereof. For purposes of determining the balance of the Employment Period under this Article 7(b), Executive shall be deemed to have received a Notice of Nonrenewal effective on the last day of said six-month period, unless he has already received a Notice of Nonrenewal, in which event such prior Notice of Nonrenewal shall be controlling. (c) For purposes of this Agreement, determination of whether Executive is or is not totally disabled shall be made as follows: (i) Executive's inability, physical or mental, for whatever reason, to be able to perform his duties to the Corporation shall be total disability; and (ii) If any difference shall arise between the Corporation and Executive as to whether he is totally disabled, such difference shall be resolved as follows: Executive shall be examined by a physician appointed by the Corporation and a physician appointed by Executive. If said two physicians shall disagree concerning whether Executive is totally disabled, that question shall be submitted to a third physician, who shall be selected by such two physicians. The medical opinion of such third physician, after examination of Executive and consultation with such other two physicians, shall decide the question. (d) Should Executive become totally disabled then he may by action of the Board of Directors be removed from his position and employment with the Corporation. 8. Death. In the event of the death of Executive during the Employment Period, the Corporation shall continue to pay Executive's Base Annual Executive Compensation for a period of one (1) year from the date of death. The salary payment will be made to the wife of Executive or if no wife shall survive Executive, to his estate. 9. Employee Benefits. (a) Executive may participate in any life insurance, hospitalization or surgical program, or insurance program presently in effect or hereafter adopted by the Corporation, to the extent, if any, that he may be eligible to do so under the provisions of such plan or program. The Corporation may terminate, modify, or amend any such plan or program, in the manner and to the extent permitted therein, and the rights of Executive under any such plan or program shall be subject to any such right of termination, modification, or amendment. To the extent any payments under any such plan or program are made to Executive because he is disabled, such amounts shall be credited against amount due to Executive under Article 7. (b) The Corporation shall provide Executive with term life insurance for which Executive may designate one or more beneficiaries, with a death benefit equal to the Base Annual Executive Compensation. To the extent that such life insurance is not provided in the Corporation's existing employee benefits package, the Corporation will endeavor to take out supplemental coverage, provided that Executive shall cooperate in obtaining such coverage, that Executive is not uninsurable and that the premium is not unreasonably high. (c) For the sake of clarification, and notwithstanding any other provision of this Agreement, it is understood and agreed that all benefits provided to Executive under this Agreement shall be provided to the extent that they exceed any employee benefit provided to Executive other than specifically through this Agreement, such as the programs, plans, etc. referred to in Article 9(a) above. The benefits provided under this Agreement shall be supplemental to benefits provided otherwise to Executive by the Corporation, and shall not be provided to the extent that they are duplicative. 10. Covenant Not to Solicit Employees. During the one-year period immediately following termination of Executive's employment with the Corporation (the "One-Year Period"), Executive agrees that, if such agreement is requested by the Corporation, he will not (a) solicit any past, present or future customers of the Corporation or any of its Affiliates in any way relating to any business in which the Corporation or any of its Affiliates was engaged during the term of his employment, or which the Corporation or any of its Affiliates planned, during the term of his employment, to enter, or (b) induce or actively attempt to influence any other employee or consultant of the Corporation or any of its Affiliates to terminate his or her employment or consultancy with the Corporation or any of its Affiliates. During the One-Year Period, provided that the Corporation has requested the non-competition agreement referred to above with respect to said period, Executive shall be paid, in the same manner as paid while Executive was an employee, compensation equal to seventy-five percent (75%) of Executive's Base Annual Executive Compensation and employee benefits he received during the last year of employment with the Corporation, and, in addition, the Corporation shall have the right to call upon Executive's services as a consultant. In the event that Executive violates any provision of this Article 10, then in addition to any other remedies available to the Corporation, the Corporation shall have the right immediately to terminate any payments or benefits provided or to be provided to Executive under this Agreement. 11. Assignment. This Agreement may be assigned by the Corporation as part of the sale of substantially all of its business; provided, however, that the purchaser shall expressly assume all obligations of the Corporation under this Agreement. Further, this Agreement may be assigned by the Corporation to an Affiliate, provided that any such Affiliate shall expressly assume all obligations of the Corporation under this Agreement, and provided further that the Corporation shall then fully guarantee the performance of the Agreement by such Affiliate. Executive agrees that if this Agreement is so assigned, all the terms and conditions of this Agreement shall remain between such assignee and himself with the same force and effect as if said Agreement had been made with such assignee in the first instance. 12. Termination. (a) Survival. The provisions of Articles 5, 6, 10, 12 and 14 shall survive the termination of this Agreement. (b) Termination by Executive. Subject to the provisions of Article 12(c)(iii) regarding a Change in Control, if at any time during the Employment Period (whether or not Executive has received a Notice of Nonrenewal), Executive elects to terminate his employment with the Corporation, then the Corporation's obligations to Executive under this Agreement shall be limited to the Base Annual Executive Compensation and benefits earned up to the date of Executive's departure. (c) Termination Without Cause. (i) Subject to the provisions of Article 12(c)(ii) below, and provided there has been no Change in Control (as defined in Article 12(c)(v) below), in the event the Corporation dismisses Executive without Cause from employment in a senior executive capacity with the Corporation, the Corporation shall continue to fulfill its obligations under this Agreement until the later of: (A) the date six months following Executive's dismissal, or (B) the end of the Employment Period. For purposes of determining the end of the Employment Period under this Article, Executive shall be deemed to have received a Notice of Nonrenewal effective on the date of his dismissal without Cause, unless he has already received a Notice of Nonrenewal, in which event such prior Notice of Nonrenewal shall be controlling. (ii) Provided there has been no Change in Control (as defined in Article 12(c)(v) below), if Executive takes other full-time employment during the six-month period following his dismissal without Cause, then the Corporation's obligation to Executive shall be limited to payment of Executive's Base Annual Executive Compensation for the balance of said six-month period. Provided there has been no Change in Control (as defined in Article 12(c)(v) below), if Executive takes other full-time employment after the end of the six-month period following his dismissal without Cause but before the end of the Employment Period, the Corporation's obligations to Executive under this Agreement shall cease upon Executive's taking such other full-time employment. (iii)In the event that a Change in Control occurs during the Employment Period and either [A] Executive is dismissed without Cause from employment in a senior executive capacity up to and including twelve (12) months from such Change in Control or [B] Executive voluntarily leaves the employ of the Corporation up to and including twelve (12) months from such Change in Control, then in either case the Corporation shall continue to fulfill its obligations under this Agreement for a period of twelve (12) months from such dismissal without Cause or voluntary departure, as the case may be; provided, however, that if Executive takes other full-time employment during said twelve-month period, the Corporation's obligation to Executive for the balance of said twelve-month period shall be limited to payment of Executive's Base Annual Executive Compensation. (iv) Notwithstanding anything to the contrary in this Agreement, the Corporation, in its sole and absolute discretion, may accelerate the payment of any amounts payable under Article 12(c) hereof to Executive, provided, however, that accelerating such payments does not affect Executive's eligibility to continue his insurance benefits on the same basis (both with respect to coverage and contributions) as the Corporation's active employees until such time as he would have received the last amount payable under Article 12(c) hereof had payment thereof not been accelerated pursuant to this Article 12(c)(iv). (v) "Change in Control" shall mean [A] the date of public announcement that a person has become, without the approval of the SpecTran's Board of Directors, the beneficial owner of 20% or more of the voting power of all securities of the SpecTran then outstanding; [B] the date of the commencement of a tender offer or tender exchange by any person, without the approval of the SpecTran's Board of Directors, if upon the consummation thereof such person would be the beneficial owner of 20% or more of the voting power of all securities of the SpecTran then outstanding; or [C] the date on which individuals who constituted the Board of Directors of the SpecTran on the date this Agreement was adopted cease for any reason to constitute a majority thereof, provided that any person becoming a Director subsequent to such date whose election or nomination was approved by at least three quarters of such incumbent Board of Directors shall be considered as though such person were an incumbent director. (vi) "Cause" shall mean [A] breach of Executive's obligations under Article 5 or 10 of this Agreement, [B] stealing from the Corporation or any of its Affiliates or [C] Executive's conviction of a felony. (d) Executive agrees not to apply for or receive unemployment insurance benefits while receiving any benefits under this contract. 13. Notices. All notices required or permitted to be given hereunder shall be mailed by certified mail or delivered by hand to the party to whom such notice is required or permitted to be given hereunder. If mailed, any such notice shall be deemed to have been given when mailed as evidenced by the postmark at point of mailing. If delivered by hand, any such notice shall be deemed to have been given when received by the party to whom notice is given, as evidenced by written and dated receipt of the receiving party. Any notice to the Corporation or to any assignee of the Corporation shall be addressed as follows: SpecTran Specialty Optics Company 55 Darling Drive P.O. Box 1260 Avon, CT 06001-1260 Attn: Chief Executive Officer With an additional copy to: Ira S. Nordlicht, Esq. Nordlicht & Hand 645 Fifth Avenue New York, New York 10022 Any notice to Executive shall be addressed to the address appearing on the records of the Corporation at the time such notice is given. Either party may change the address to which notice to it is to be addressed, by notice as provided herein. 14. Applicable Law. This Agreement shall be interpreted and enforced in accordance with the laws of the Commonwealth of Massachusetts without giving effect to the principles of conflicts of law. 15. Effective Date. This Agreement shall become effective as of the date first mentioned in this Agreement. IN WITNESS WHEREOF, the parties hereto have executed the above Agreement as of the day and year first above written. SPECTRAN SPECIALTY OPTICS COMPANY By S/S Charles B. Harrison --------------------------- NOTARY Name: Charles B. Harrison Title: CEO ___________________ S/S Martin Seifert ------------------ NOTARY Martin Seifert EX-10.119 5 STOCK OPTION PLAN Exhibit 10.115 9903.23-1 ac/msoffice/worddocs/spectran/reincentive7fin.323 RESTATED AND AMENDED 1991 INCENTIVE STOCK OPTION PLAN (Amended effective March 18, 1999) 1. Purpose of the Plan. The purpose of the Plan is to authorize the grant to directors and key employees of SpecTran Corporation (the "Corporation") or any present or future subsidiary thereof as hereinafter defined (any "subsidiary") of options to purchase shares of Common Stock of the Corporation and thus benefit the Corporation by giving such persons a greater personal interest in the success of the enterprise and an added incentive to continue and advance in their employment. 2. Administration. Except as provided in paragraph 4.2 hereof, the Plan shall be administered by a committee (the "Committee") to be appointed from time to time by the Corporation's Board of Directors and to consist of not less than three of the then members of the Board, none of whom shall be an officer or other employee of the Corporation. The Corporation shall effect the grant of options under the Plan, in accordance with determinations made by the Committee, except as provided in paragraph 4.2 hereof, pursuant to the provisions of the Plan, by execution of instruments in writing in form approved by the Committee. The Committee shall select one of its members as its Chairman and shall hold its meetings at such times and places as it shall deem advisable. A majority of its members shall constitute a quorum and all determinations of the Committee shall be made by a majority of its members. Any decision or determination reduced to writing and signed by a majority of the members shall be fully as effective as if made by a majority vote at a meeting duly called and held. The Committee may appoint a Secretary, shall keep minutes of its meetings and shall have full power to make and amend such rules and regulations for the conduct of its business and for the administration of the Plan as it shall deem appropriate. The interpretation and construction by the Committee of any provision of the Plan and of the options granted thereunder shall, unless otherwise determined by the Board of Directors, be final and conclusive on all persons having any interest thereunder. 3. Shares Subject to Plan. Subject to adjustment under the provisions of paragraph 12 hereof, the number of shares of the Corporation's Common Stock of the par value of $10 per share which may be issued and sold under the Plan will not exceed 1,200,490 shares, of which no more than 89,000 shares may be issued pursuant to paragraph 4.2 hereof. Such shares may be either authorized and unissued shares or shares issued and thereafter acquired by the Corporation, and such shares will not be offered to the Corporation's stockholders prior to their issuance under the Plan. If options granted under the Plan shall terminate or expire without being wholly exercised, new options may be granted under the Plan covering the number of shares to which such termination, expiration or surrender relates. The Corporation shall not, upon the exercise of any option, be required to issue or deliver any shares of stock prior to (a) the admission of such shares to listing on any stock exchange on which the Corporation's Common Stock is then listed and (b) the completion of such registration or other qualification of such shares under any state or federal law, rule or regulation as the Corporation shall determine to be necessary or advisable. 4. Eligibility. 4.1 Eligible Grantees. Options may be granted only to key employees of the Corporation or any subsidiary who, in the judgment of the Committee, are responsible for the management of the enterprise. In addition, non-qualified options may be granted to members of the Board who are not full-time employees of the Corporation or any subsidiary ("outside directors") only as provided in paragraph 4.2 hereof. The terms "parent" and "subsidiary" as used in the Plan shall mean any corporation which is defined as a "parent corporation" or as a "subsidiary corporation" in the United States Internal Revenue Code of 1986, as amended (the "Code"). The term "key employees" as used in the Plan shall mean officers and other employees of the Corporation or any subsidiary (including officers who are also directors of the Corporation). Subject to the foregoing and to paragraph 4.2 hereof, the Committee shall have full and final authority to determine the persons who are to be granted options under the Plan and the number of shares subject to each option; provided, however, that anything contained herein to the contrary notwithstanding, no employee of the Corporation or any subsidiary shall be granted an option under this Plan, if such employee at the time the option is proposed to be granted owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Corporation or of any parent or subsidiary unless the option price is at least 110% of the fair market value of the stock subject to the option and the option is not exercisable more than 5 years from the date it is granted. 4.2 Non-Discretionary Option Grants to Outside Directors. (a) Any other provision of this Plan to the contrary notwithstanding, outside directors shall not be eligible to receive options under the Plan except pursuant to this paragraph 4.2. Options shall be granted pursuant to this paragraph only to persons who are serving as outside directors on the grant date. (b) Each outside director shall receive an initial grant of a non-qualified option to purchase 5,000 shares of stock without any action by the Committee upon the earlier of the effective date of this Plan, or on the last business day in December in the year in which the outside director was elected a director by the stockholders for the first time. Subject to subparagraph (d) below, each initial grant of an option to purchase 5,000 shares shall be exercisable after the expiration of one year from the date of grant. No outside director shall receive more than one grant pursuant to this subparagraph. (c) In addition to the initial grant, on the last business day of December in each year, each outside director shall without any action of the Committee be granted a non-qualified option to purchase 1,000 shares. Subject to subparagraph (d) below, each option to purchase 1,000 shares shall become exercisable in accordance with subparagraph (a) of paragraph 7 below. (d) The grants referred to in this paragraph 4.2 shall be subject to adjustment in accordance with paragraph 12 hereof. The purchase price per share of the stock under each option granted pursuant to this paragraph 4.2 shall be equal to the fair market value of the stock on the date the option is granted. All options granted pursuant to this paragraph 4.2 shall expire on the tenth anniversary of the grant date. All options granted to an outside director shall, subject to the provisions of paragraph 10, become exercisable when such director ceases to serve as a director for any reason, as long as such director has then served as a director of the Company for two consecutive years, including, for this purpose, time served as a director before the adoption of this Plan. 5. Types of Option: Incentive and Non-Qualified. An option granted by the Committee under this Plan shall, as determined by the Committee, be either an incentive stock option which conforms to the provisions of Section 422 of the Code (an "incentive stock option") or an option which is not an incentive stock option (a "non-qualified option"). To the extent that the aggregate fair market value (determined at the time the option is granted) of the stock with respect to which incentive stock options that are granted after December 31, 1986 under the Plan (and all other stock option plans of the Corporation and any subsidiary or parent) are exercisable for the first time by an optionee during any calendar year exceeds $100,000, such options shall be treated as options which are not incentive stock options. The foregoing limitation shall be applied by taking into account the order in which they were granted. 6. Price. Except as provided in paragraph 4.2, the purchase price under each option will be determined by the Committee but will not be less than 100% of the fair market value of the stock at the time of the grant of the option, as determined by the Committee in accordance with the applicable Code provisions and regulations. In no event shall the purchase price be less than the par value of the stock. 7. Period of Option and Rights to Exercise. (a) Except as provided in paragraphs 4.2, 10 and 11 hereof, the option will be exercisable pursuant to a schedule that the Committee, in its discretion, may establish. (a) Each option granted pursuant to this Plan will vest and be exercisable in any manner that the Committee, in its discretion, may establish, provided that if no vesting period or other restriction on vesting is specified in the resolution passed granting any option under this Plan, such option shall vest as set forth in Section 7(b). (b) If no vesting schedule is established by the Committee pursuant to Section 7(a), then the following will apply. The optionee must remain in the continuous employ of the Corporation and/or its subsidiaries for one year from the date his option is granted before he can exercise any part thereof. Thereafter, subject to the provisions of this Section and Sections 10 and 11 below, the option will be exercisable 33-1/3% after one year from grant, 66-2/3% after two years from grant, and 100% after three years from grant. (c) The right to exercise an option granted to any employee will expire upon the expiration of ten years from the date the option was granted. (d) The right to purchase the shares, including shares purchased on the exercise of options granted pursuant to paragraph 4.2 hereof, included in each installment is cumulative, i.e., once such right has become exercisable it may be exercised in whole at any time or in part from time to time until the expiration of the option. (e) All options shall be exercisable in full upon the occurrence of a Change in Control of the Company. For purposes of this paragraph, a "Change in Control" shall be deemed to have occurred if (a) any "person" or "group" (as such terms are used in Section 13 (d)(3) and 14 (d)(2) of the Securities Exchange Act of 1934, as amended) other than the Company is or becomes the beneficial owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; or (b) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Company's stockholders, of each new director was approved by a vote of at least 75 % of the directors of the Company then still in office who were directors of the Company at the beginning of the period. (f) The shares to be purchased upon each exercise of any option, including shares purchased on the exercise of options granted pursuant to paragraph 4.2 hereof, shall be paid for in full at the time of such exercise, such payment to be made in cash, in Common Stock of the Corporation owned by the optionee and having a fair market value on the date of exercise equal to the aggregate purchase price of the shares of Common Stock to be purchased upon such exercise, or in a combination of Common Stock owned by the optionee and cash. When payment is made in whole or in part with shares of Common Stock owned by the optionee, such shares as are surrendered by the optionee shall be exchanged share for share for an equal number of shares being issued upon the exercise of the option, but the aggregate fair market value of such surrendered shares shall be credited against the aggregate purchase price of all of the shares with respect to which the option is then being exercised. Except for options granted pursuant to paragraphs 4.2 and 7(a) hereof, and except as provided in paragraphs 10 and 11 below, no option may be exercised unless the optionee is then in the employ of the Corporation or any subsidiary and shall have been continuously employed by one or more of the Corporation and its subsidiaries since the grant of his option. Absence on leave approved by an officer of the Corporation or of any subsidiary authorized to give such approval shall not be considered an interruption of employment for any purpose of the Plan. (g) Subsequent to exercise of an option, in the event the optionee makes a "disqualifying disposition" (i.e., a disposition of shares received upon exercise of the option held less than two years from the date on which the option was granted, or less than one year from the date the shares were transferred to the optionee), the optionee shall so notify the Company, and shall pay the Company the amount equal to the withholding tax obligation of the Company with respect to said "disqualifying disposition". 8. Non-Transferability of Option. No option granted under the Plan shall be transferable by the grantee otherwise than by will or by the laws of descent and distribution, and such option shall be exercisable, during the grantee's lifetime, only by the grantee. 9. Registration Under the Securities Act of 1933. The Corporation contemplates having an effective Registration Statement under the United States Securities Act of 1933 at such time as options granted under the Plan are exercised. 10. Termination of Employment. If an optionee shall cease to be employed by or serve as a director of the Corporation or any subsidiary for any reason (other than death), he may, but only within the period of three months next succeeding such cessation of employment or service as a director in no event after the expiration of ten years from the date the option was granted exercise his option if and to the extent that he was entitled to exercise it at the time of such cessation of employment or service as a director unless he was terminated for cause by the Corporation or any subsidiary. Any optionee whose employment with or service as a director of the Corporation or any subsidiary is terminated for cause shall lose the right to exercise any option granted under this Plan as of the date of notice of his termination. 11. Death of an Optionee. In the event of the death of an optionee, including an outside director, while in the employ of or serving as an outside director of the Corporation or any subsidiary or within the period of three months after cessation of such employment, the option theretofore granted to him shall be exercisable within, but only within, the period of one year next succeeding his death, and in no event after the expiration of ten years from the date of grant, and then only if and to the extent that the optionee would have been entitled to exercise if he had lived during said one-year period. 12. Adjustment in Shares Subject to Plan. The options granted under the Plan shall contain such provisions as the Committee may determine with respect to adjustments to be made in the number and kind of shares covered by such options and in the option price in the event of a reorganization, recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, rights offering or any other change in the corporate structure or shares of the Corporation; and in the event of any such change, the aggregate number and kind of shares available under the Plan and the maximum number of shares as to which options may be granted to any individual shall be appropriately adjusted. 13. Period, Expiration and Termination of the Plan. Options may be granted under the Plan at any time prior to the tenth anniversary of the effective date of the Plan, on which anniversary the Plan will expire except as to options then outstanding thereunder, which options shall remain in effect until they have been exercised or have expired. The Plan (or, in accordance with paragraph 14, only paragraph 4.2) may be abandoned or terminated at any time by the Corporation's Board of Directors except with respect to any options then outstanding under the Plan. 14. Amendment of the Plan. The Corporation's Board of Directors from time to time may make such changes in and additions to the Plan as it may deem proper and in the best interests of the Corporation or any subsidiary, without action on the part of the stockholders of the Corporation, provided, however, that (subject to the provisions of paragraph 12 hereof) no such change or addition by the Board of Directors shall (a) impair without the consent of the optionee any option theretofore granted under the Plan or deprive any optionee of any shares of stock of the Corporation which he may have acquired through or as a result of the Plan, (b) increase the total number of shares which may be purchased under the Plan, (c) change the minimum purchase price, (d) extend the period during which any option may be granted or exercised, (e) withdraw the administration of the Plan from a Committee of Directors of the Corporation none of whose members is an officer or other employee of the Corporation or any subsidiary, or (f) change the provisions of the Plan relating to eligibility, provided, however, that the Board may terminate paragraph 4.2 without stockholder approval and, provided further, that Section 4.2 shall not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, or the rules thereunder. 15. Substitution or Assumption of Options. Notwithstanding any other provision of the Plan to the contrary, by action of the Board of Directors, the Corporation or any of its subsidiaries may as an incident to or by reason of any corporate merger, consolidation, acquisition of property or stock, separation, reorganization or liquidation, substitute new options on stock of the Corporation for options granted by another employer to its employees on stock of such employer or may assume options granted by another employer to its employees, at such purchase prices and under such conditions as may be permitted by Section 425 (a) of the Code, and the Committee is hereby expressly authorized to take such action as may be required to effectuate any such issuance or assumption. Shares of the Corporation subject to any option so issued or assumed shall be charged against the total number of shares available for issuance under the Plan. 16. Withholding and Reporting. The Corporation's obligation to deliver shares of stock or make any payment upon the exercise of any option shall be subject to applicable federal, state and local tax withholding and reporting requirements. 17. Effective Date of the Plan. The Plan shall become effective if and when the Corporation's Board of Directors declares the Plan operative and fixes an effective date therefor, provided that no option granted under the Plan may be exercised unless and until the Plan has been approved by the holders of a majority of the shares of Common Stock of the Corporation outstanding and entitled to vote at a stockholders' meeting. Approved by the stockholders of SpecTran Corporation on May 24, 1991, and adopted and declared effective by the Board of Directors of the Corporation on May 21, 1991. Amended by the stockholders of SpecTran Corporation on May 15, 1992, May 27, 1994, May 31, 1996 and May 29, 1998. Amended by the Board of Directors on January 25, 1999 and March 18, 1999. EX-10.116 6 AMENDMENT TO LOAN AGREEMENT Exhibit 10.116 FIRST AMENDMENT TO LOAN AGREEMENT THIS FIRST AMENDMENT TO LOAN AGREEMENT (the "First Amendment") is by and among FLEET NATIONAL BANK, a national bank having offices at One Federal Street, Boston, Massachusetts, (the "Lender") and SPECTRAN CORPORATION, a Delaware corporation with a principal place of business at 50 Hall Road, Sturbridge, Massachusetts ("SpecTran"), SPECTRAN SPECIALTY OPTICS COMPANY, a Delaware corporation with a principal place of business at 55 Darling Drive, Avon, Connecticut ("Optics"), APPLIED PHOTONIC DEVICES, INC., a Delaware corporation with a principal place of business at 50 Hall Road, Sturbridge, Massachusetts ("Photonic") and SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC., a Delaware corporation with a principal place of business at 50 Hall Road, Sturbridge, Massachusetts ("Communication") (SpecTran, Optics, Photonic and Communication are sometimes collectively referred to herein as the "Borrowers"). WHEREAS, the Lender and the Borrowers are parties to that certain Loan Agreement dated as of December 1, 1996 (the "Agreement"); and WHEREAS, the Lender and the Borrowers desire to amend the Agreement. NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Lender and the Borrowers hereby amend the Agreement as set forth hereinafter: A. AMENDMENTS TO AGREEMENT 1. Amend Section 1.3 of the Agreement by adding the following sentence to the end thereof: The Borrowing Base will be reduced, dollar for dollar, to the extent the outstanding balance of the Revolving Note is paid down with the proceeds of "an Asset Disposition, the incurrence of Debt owing to any Person other than the Bank or a holder of the Notes, or the issuance of equity interests" as described in Section 10.8 of the Note Purchase Agreement. 2. Restate Section 1.4 of the Agreement as follows: 1.4 "Business Day" means any day on which commercial banks settle payments in (a) London if the payment obligation is calculated by reference to any LIBOR (as that term is defined in the Note) rate or (b) New York if the payment obligation is calculated by reference to the Prime Rate, subject to adjustment in accordance with Modified Following Business Day Convention. For purposes hereof "Modified Following Business Day Convention" means the convention for adjusting any relevant date if it would otherwise fall on a day that is not a Business Day to the date that will be the first following day that is a Business Day. 3. Amend Section 1.6 of the Agreement by deleting ", prior to January 1, 2000," from the first line. 4. Restate Section 1.13 of the Agreement as follows: 1.13 "Consolidated EBITDA Cumulative" means, Consolidated Operating Income minus income (based on the equity method of accounting in accordance with GAAP) derived from unconsolidated Subsidiaries or other Persons plus Consolidated Interest and consolidated taxes, depreciation and amortization computed on a rolling twelve (12) month basis in accordance with GAAP. 5. Amend Section 1.15 of the Agreement by changing the upper case "O" at the beginning of the word "Obligations" in subsections a, b, c, d, and e to a lower case "o". 6. Restate Section 1.25 of the Agreement as follows: 1.25 "Control Percentage" means prior to January 1, 2000, 30% and on and after January 1, 2000, 50%. 7. Restate Section 1.42 of the Agreement as follows: 1.42 "Revolving Note" means the Revolving Note substantially in the form of Exhibit 1.42 attached to this Agreement, as amended by the First Amendment to Revolving Note dated as of September 30, 1998 and as it may be further amended, modified and/or restated from time to time. 8. Add a new Section 1.48 to the Agreement as follows: 1.48 "Accounts" and "Inventory" shall have the same respective meanings as are given to those terms in the Uniform Commercial Code as presently adopted and in effect in the Commonwealth of Massachusetts. 9. Add a new Section 1.49 to the Agreement as follows: 1.49 "Consolidated EBITDA" means Consolidated Operating Income minus income (based on the equity method of accounting in accordance with GAAP) derived from unconsolidated Subsidiaries or other Persons plus Consolidated Interest and consolidated taxes, depreciation and amortization computed for a particular fiscal quarterly period (i.e. for the fiscal quarterly periods ending March 31, June 30, September 30 and December 31). 10. Add a new Section 1.50 to the Agreement as follows: 1.50 "Consolidated Fixed Charge Coverage Ratio" means the ratio of Consolidated EBITDA Cumulative minus the sum of (i) cash taxes and (ii) Consolidated Capital Expenditures (excluding all Consolidated Capital Expenditures set forth in Exhibit 1.50 attached hereto) to Consolidated Interest plus scheduled principal repayments all computed on a rolling twelve (12) month basis. 11. Amend Section 2.3 of the Agreement by deleting "December 31, 1999" from the second line and inserting April 1, 2000. 12. Restate Section 2.7 of the Agreement as follows: 2.7 The Commitment Fee and the Modification Fee. At the Closing, the Borrowers paid a commitment fee to the Lender in the amount of $50,000.00. Simultaneously with the execution of the First Amendment to Loan Agreement, the Lender shall charge the deposit account of the Borrowers identified in Exhibit 2.2 a modification fee in the amount of $150,000.00. 13. Add a new Section 2.8 to the Agreement as follows: 2.8 Payment Due Dates. The due dates of all payments required under this Agreement or under the Revolving Note are subject to adjustment in accordance with the Modified Following Business Day Convention. 14. Restate Section 6.1(b)(iv) of the Agreement as follows: (iv) Contemporaneously with the year-end financial report required by the foregoing paragraph (iii), a copy of the management letter issued to SpecTran by KPMG Peat Marwick or another certified public accountant selected by SpecTran and reasonably acceptable to the Lender (the Borrowers must require their certified public accountant to issue a management letter with the year-end fiscal report); 15. Restate Section 6.1(b)(v) of the Agreement as follows: (v) Contemporaneously with each quarterly and year-end financial report required by the foregoing paragraphs (ii) and (iii) and on each occasion that the Borrowers request an advance under the Loan that will result in the outstanding balance of the Revolving Note to be greater that $12,500,000.00, a certificate of the chief financial officer of SpecTran substantially in the form of Exhibit 6.1(b)(v) attached hereto stating that he has individually reviewed the provisions of this Agreement and that a review of the activities of the Borrowers during such quarterly period, year or period through the end of the most recently reported month, as the case may be, has been made by him or under his supervision, with a view to determining whether the Borrowers have fulfilled all of their obligations under this Agreement, and that, to the best of his knowledge, the Borrowers have observed and performed each undertaking contained in this Agreement and are not in default in the observance or performance of any of the provisions hereof or, if the Borrowers shall be so in default, specifying all such defaults and events of which he may have knowledge; 16. Amend Section 6.1(b)(vi) of the Agreement by deleting the "and" at the end thereof. 17. Add a new Section 6.1(b)(viii) to the Agreement as follows: (viii) As soon as available, but in any event within forty-five (45) days after the close of each quarter of each fiscal year (i.e. March 31, June 30, September 30 and December 31), in such form and detail as shall be satisfactory to the Lender, an aging as of the end of such quarter of all Accounts of the Borrowers certified by the chief financial officer of SpecTran to be complete and correct; and 18. Add a new Section 6.1(b)(ix) to the Agreement as follows: (ix) As soon as available, but in any event within forty-five (45) days after the close of each quarter of each fiscal year (i.e. March 31, June 30, September 30 and December 31), in such form and detail as shall be satisfactory to the Lender, a listing as of the end of such quarter of all Inventory of the Borrowers certified by the chief financial officer of SpecTran to be complete and correct; 19. Delete Section 6.1(f)(i) of the Agreement and replace with the following: (i) a Consolidated Fixed Charge Coverage Ratio of at least 1.25: 1.00 to be measured monthly and computed on a rolling twelve (12) month basis; 20. Restate Section 6.1(f)(ii) of the Agreement as follows: (ii) a Consolidated Tangible Net Worth of at least (i) $43,950,000.00 for the period from September 30, 1998 through December 30, 1998 and (ii) $48,000,000.00 at December 31, 1998; thereafter Consolidated Tangible Net Worth must increase (x) as of December 31 of each fiscal year by an amount equal to seventy-five percent (75%) of that fiscal year's Consolidated Net Income (to be added only if a positive number and no reduction for a negative number) and (y) after any Offering by an amount equal to the net proceeds of any such Offering; Consolidated Tangible Net Worth to be measured monthly; 21. Add a new Section 6.1(f)(iii) to the Agreement as follows: (iii) a Consolidated EBITDA of at least (i) $3,000,000.00 for the quarterly period ended September 30, 1998, (ii) $3,500,000.00 for the quarterly period ending December 31, 1998 and (iii) $2,700,000.00 for the quarterly period ending March 31, 1999, to be measured as of each of the above dates; 22. Add a new Section 6.1(f)(iv) to the Agreement as follows: (iv) a Consolidated EBITDA Cumulative of at least (i) $12,000,000.00 for the twelve (12) month periods ending June 30, 1999, July 31, 1999, and August 31, 1999 (ii) $13,000,000.00 for the twelve (12) month periods ending September 30, 1999, October 31, 1999, and November 30, 1999 and (iii) $14,500,000.00 for the twelve (12) month period ending December 31, 1999 and thereafter, to be measured monthly on a rolling twelve (12) month basis; and 23. Add a new Section 6.1(f)(v) to the Agreement as follows: (v) a Consolidated Net Income of at least $1.00 for each fiscal year to be measured as of December 31 of each fiscal year. 24. Amend Section 6.1(q) of the Agreement by deleting the "and" at the end thereof. 25. Amend Section 6.1(r) of the Agreement by deleting the period at the end thereof and adding "; and". 26. Add a new Section 6.1(s) to the Agreement as follows: (s) The Borrowers will satisfy each of the conditions set forth on Schedule A (a copy of which is attached hereto) on or before January 15, 1999, such satisfaction to be determined by the Lender in its sole discretion. 27. Restate Section 6.2(p)(i) of the Agreement as follows: (i) the Consolidated Leverage Ratio to exceed 1.15:1.00 through September 30, 1999 and 1.00:1.00 thereafter, to be measured monthly; 28. Restate Section 6.2(p)(ii) of the Agreement as follows: (ii) the ratio of Consolidated Indebtedness to Consolidated EBITDA Cumulative to exceed (i) 3.75:1.00 from September 30, 1998 through June 29, 1999, (ii) 3.00:1.00 from June 30, 1999 through December 30, 1999 and (iii) 2.75:1.00 at December 31, 1999 and thereafter, to be measured on a rolling twelve (12) month basis; 29. Amend Section 6.2(o) of the Agreement by deleting the "and" at the end thereof. 30. Add a new Section 6.2(q) to the Agreement as follows: (q) SpecTran will not declare or pay any dividends, or make any other payment or distribution on account of its capital stock; 31. Add a new Section 6.2(r) to the Agreement as follows: (r) No Borrower will make any prepayment of any Consolidated Indebtedness (other than scheduled, mandatory prepayments under the Note Purchase Agreements, as amended), except the Obligations or enter into or modify any agreement as a result of which the terms of payment of any of the Consolidated Indebtedness are waived or modified; 32. Add a new Section 6.2(s) to the Agreement as follows: (s) No Borrower will make any payment with respect to Consolidated Indebtedness, except the Obligations, after the occurrence of an Event of Default; 33. Add a new Section 6.2(t) to the Agreement as follows: (t) SpecTran will not enter into any amendments of the Note Purchase Agreements without the prior written consent of the Lender. 34. Restate Section 8.3 of the Agreement as follows: 8.3 Lien, Set-off. The Borrowers and any guarantor hereby grant to the Lender, a lien, security interest and right of setoff as security for the Obligations, upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of the Lender or any entity under the control of Fleet Financial Group, Inc., or in transit to any of them. At any time, without demand or notice, the Lender may set off the same or any part thereof and apply the same to any of the Obligations even though unmatured and regardless of the adequacy of any other collateral securing the Obligations. ANY AND ALL RIGHTS TO REQUIRE THE LENDER TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWERS OR ANY GUARANTOR, ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED. 35. Restate Section 10.8(b) of the Agreement as follows: (b) Fleet National Bank Attention: John F. Lynch, V.P. One Federal Street Boston, MA 02110-2010 36. Restate Section 10.10 of the Agreement as follows: 10.10 Participations. The Lender shall have the unrestricted right at any time and from time to time, and without the consent of or notice to the Borrowers (the Lender will endeavor to deliver notice to the Borrowers after any such participation), to grant to one or more banks or other financial institutions (each a "Participant") a participating interest in the Lender's obligation to lend hereunder and the Loan held by the Lender hereunder. In the event of any such grant by the Lender of a participating interest to a Participant, whether or not upon notice to the Borrowers, the Lender shall remain responsible for the performance of its obligations hereunder and the Borrowers shall continue to deal solely and directly with the Lender in connection with the Lender's rights and obligations hereunder. The Lender may furnish any information concerning the Borrowers in its possession from time to time to prospective assignees and Participants, provided that the Lender shall require any such prospective assignee or Participant to agree in writing to maintain the confidentiality of such information. 37. Add a new Section 10.17 to the Agreement as follows: 10.17 Pledge to the Federal Reserve. The Lender may at any time pledge all or any portion of its rights under the Agreement, the Revolving Note and the Collateral Documents to any of the twelve (12) Federal Reserve Banks organized under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall release the Lender from its obligations under such documents. 38. Add a new Section 10.18 to the Agreement as follows: 10.18 Usury Laws. All agreements among the Borrowers and the Lender are hereby expressly limited so that in no contingency or event whatsoever, whether by reason of acceleration of maturity of the Obligations or otherwise, shall the amount paid or agreed to be paid to the Lender for the use or the forbearance of the Obligations exceed the maximum permissible under applicable law. As used herein, the term "applicable law" shall mean the law in effect as of the date hereof provided, however that in the event there is a change in the law which results in a higher permissible rate of interest, then the Obligations shall be governed by such new law as of its effective date. In this regard, it is expressly agreed that it is the intent of the Borrowers and the Lender in the execution, delivery and acceptance of the Revolving Note to contract in strict compliance with the laws of the Commonwealth of Massachusetts from time to time in effect. If, under or from any circumstances whatsoever, fulfillment of any provision hereof or of any of the loan documents at the time performance of such provision shall be due, shall involve transcending the limit of such validity prescribed by applicable law, then the obligation to be fulfilled shall automatically by reduced to the limits of such validity , and if under or from circumstances whatsoever the Lender should ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of principal balance of the Revolving Note and not to the payment of interest. This provision shall control every other provision of all agreements among the Borrowers and the Lender. 39. Add a new Section 10.19 to the Agreement as follows: 10.19 Payments. All payments shall be in lawful money of the United States in immediately available funds. 40. Add a new Section 10.20 to the Agreement as follows: 10.20 Sale to Third Party. The Lender shall have the unrestricted right at any time or from time to time, and without the Borrowers' consent, to assign all or any portion of its rights and obligations hereunder to one or more banks or other financial institutions (each, an "Assignee"), and the Borrowers agree that they shall execute, or cause to be executed, such documents, including without limitation, amendments to the Agreement and to any other documents, instruments and agreements executed in connection herewith as the Lender shall deem necessary to effect the foregoing. In addition, at the request of the Lender and any such Assignee, the Borrowers shall issue one or more new promissory notes, as applicable, to any such Assignee and, if the Lender has retained any of its rights and obligations hereunder following such assignment to the Lender, which new promissory notes shall be issued in replacement of, but not in discharge of, the liability evidenced by the promissory note held by the Lender prior to such assignment and shall reflect the amount of the respective commitments and loans held by such Assignee and the Lender after giving effect to such assignment. Upon the execution and delivery of appropriate assignment documentation, amendments and any other documentation required by the Lender in connection with such assignment, and the payment by Assignee of the purchase price agreed to by the Lender, and such Assignee, such Assignee shall be a party to this Agreement and shall have all of the rights and obligations of the Lender hereunder (and under any and all other guaranties, documents, instruments and agreements executed in connection herewith) to the extent that such rights and obligations have been assigned by the Lender pursuant to the assignment documentation between the Lender and such Assignee, and the Lender shall be released from its obligations hereunder and thereunder to a corresponding extent. 41. Add a new Section 10.21 to the Agreement as follows: 10.21 Application of Proceeds All proceeds received by the Lender hereunder, including without limitation, insurance proceeds, condemnation proceeds and proceeds received pursuant to the Lender's exercise of its rights hereunder may be applied to the Obligations in such order as determined by the Lender. 42. Add a new Section 10.22 to the Agreement as follows: 10.22 Replacement Documents. Upon receipt of an affidavit of any officer of the Lender as to the loss, theft, destruction or mutilation of the Agreement or any other document which is not a public record, and, in the case of any such loss, theft, destruction or mutilation, upon cancellation of this Agreement or other document, the Borrowers will issue, in lieu thereof, a replacement agreement or other document of like tenor. B. REPRESENTATIONS AND WARRANTIES The Borrowers represent and warrant to the Lender that: 1. The Borrowers are duly organized, validly existing and in good standing in their respective jurisdictions of incorporation. 2. The Borrowers have the power to enter into this First Amendment and to perform their obligations hereunder. 3. This First Amendment has been duly authorized by all necessary action on the part of the Borrowers, and this First Amendment constitutes the legal, valid and binding obligation of each of the Borrowers enforceable against each Borrower in accordance with its terms, except as such enforceability may be limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally, and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 4. Neither the execution or delivery by the Borrowers of this First Amendment nor the performance by the Borrowers of their obligations will: (i) require the taking of any action or the giving of any consent or approval by, or the making or any registration or filing with, any Person other than such actions, consents, approvals, registrations and filings as have heretofore been taken, given or made (as the case may be); (ii) violate any provision of any organizational documents of the Borrowers, or any provision of any law, rule, regulation, order or decree of any governmental authority applicable to the Borrowers; or (iii) violate or constitute a default under any material agreement to which any Borrower is a party or by which the Borrowers' properties or assets are or may be bound, or will result in the creation or imposition of any lien on the properties or assets of the Borrowers. 5. (i) Neither this First Amendment nor any certificate furnished in connection herewith nor any other document or statement furnished to the Lender in connection with the amendments contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading; and (ii) There is no fact known to the Borrowers that has had or, so far as the Borrowers can now reasonably foresee, could reasonably be expected to have, a material adverse effect on the Borrowers that has not been publicly disclosed. 6. Immediately after the effectiveness hereof and after giving effect hereto, there exists no Event of Default and the Borrowers have performed all of their obligations to be performed to date under the Agreement. C. SCOPE AND EFFECT OF FIRST AMENDMENT 1. The terms of this First Amendment shall not operate as or constitute a waiver by the Lender, other otherwise prejudice any of the Lender's rights, remedies or powers under, the Agreement, or under applicable law. Except as expressly provided herein, (i) no terms or provisions of the Agreement are modified or changed by this First Amendment, and (ii) the terms and provisions of the Agreement continue in full force and effect. 2. The Borrowers hereby acknowledge, confirm, reaffirm and ratify all of their obligations and duties under the Agreement and all agreements related thereto. This First Amendment does not constitute an agreement or obligation by the Lender to give its consent to any future amendment of the Agreement or to any future transaction that would, absent consent of the Lender, constitute an Event of Default under the Agreement. This First Amendment shall not extinguish, terminate or impair any of the obligations of the Borrowers under the Agreement or any of the financing instruments. In addition, this First Amendment shall not release or impair the priority of any security interests or liens held by the Lender on any assets of the Borrowers. This First Amendment may not be contradicted by evidence of any actual or alleged prior, contemporaneous or subsequent understandings or agreements of the parties, written or oral, express or implied, other than a writing which expressly amends or supersedes this First Amendment or the Agreement. Upon the effectiveness of this First Amendment, each reference to the Agreement shall mean and be a reference to the Agreement as amended hereby. D. MISCELLANEOUS 1. All capitalized terms used herein and not defined herein shall have the meanings ascribed in the Agreement. 2. The Lender acknowledges and agrees that the payments due Lucent Technologies Inc. in connection with that certain Patent License Agreement effective as of October 1, 1998 will not be characterized as Consolidated Indebtedness for purposes of the Agreement. WITNESS, the execution hereof as an instrument under seal as of this 30th day of September, 1998. SPECTRAN CORPORATION ____________________________ By:_____________________________ Witness Its Duly Authorized Officer SPECTRAN SPECIALTY OPTICS COMPANY ____________________________ By:_____________________________ Witness Its Duly Authorized Officer APPLIED PHOTONIC DEVICES, INC. ____________________________ By:_____________________________ Witness Its Duly Authorized Officer SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC. ____________________________ By:_____________________________ Witness Its Duly Authorized Officer FLEET NATIONAL BANK ____________________________ By:____________________________ Witness Its Duly Authorized Officer EX-10.117 7 AMENDMENT TO NOTE AGREEMENT Exhibit 10.117 FIRST AMENDMENT FIRST AMENDMENT (this "Amendment") dated as of September 30, 1998, by and among SpecTran Corporation, a Delaware corporation (the "Company"), and EACH OF THE INSTITUTIONS IDENTIFIED AS A HOLDER OF NOTES ON THE SIGNATURE PAGES HEREOF (collectively, the "Noteholders"). 1. Preliminary Statement 0.1 The Company entered into those separate Note Purchase Agreements, dated as of December 1, 1996 (as in effect immediately prior to the Effective Date, collectively, the "Existing Note Purchase Agreement" and as amended hereby, the "Note Purchase Agreement"), with, respectively, the purchasers of the Notes signatory thereto, pursuant to which the Company issued and sold to such purchasers $16,000,000 in principal amount of the Company's 9.24% Senior Notes due December 26, 2003 and $8,000,000 in principal amount of the Company's 9.39% Senior Notes due December 26, 2004 (collectively the "Notes"). 0.2 The Company and the Noteholders agree to amend the Existing Note Purchase Agreement as more particularly set forth in this Amendment. 1. Defined Terms The terms used herein have the meanings specified in the Existing Note Purchase Agreement unless otherwise defined herein. 2. Amendments to Terms of Existing Note Purchase Agreement 0.1 The terms of the Existing Note Purchase Agreement are hereby amended as set forth on Attachment A hereto. 3.2 The provisions of Section 9.8 of the Existing Note Purchase Agreement are waived with respect to the amendment to the Bank Agreement attached hereto as Attachment D, provided that such amendment becomes effective as of the Effective Date. 3. Warranties and Representations of the Company The Company represents and warrants to the holders of the Notes as of the Effective Date: (a) the Company is duly organized, validly existing and in good standing in its jurisdiction of incorporation; (b) the Company has the power to enter into this Amendment and to perform its obligations hereunder; (c) this Amendment has been duly authorized by all necessary action on the part of the Company , and this Amendment constitutes a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by SPECTRAN CORPORATION FIRST AMENDMENT (i) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally, and (ii) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law); (d) neither the execution or delivery by the Company of this Amendment nor the performance by the Company of its obligations hereunder or under the Financing Documents: (i) will adversely affect the enforceability against the Company of the Financing Documents; (ii) will require the taking of any action or the giving of any consent or approval by, or the making or any registration or filing with, any Governmental Authority or other person other than such actions, consents, approvals, registrations and filings as have heretofore been taken, given or made (as the case may be); (iii) will violate any provision of any organizational document of the Company, or any provision of any law, rule, regulation, order or decree of any Governmental Authority applicable to the Company; or (iv) will violate or constitute a default under any material agreement to which the Company is a party or by which any of its Properties or assets is or may be bound, or will result in the creation or imposition of any Lien on the Properties or assets of the Company; (e) (i) neither this Amendment nor any certificate furnished in connection herewith nor any other document or statement furnished to the holders of the Notes in connection with the amendments contemplated hereby contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein and therein not misleading; (ii) there is no fact known to the Company that has had or, so far as the Company can now reasonably foresee, could reasonably be expected to have, a Material Adverse Effect that has not been publicly disclosed; and (f) immediately after the effectiveness hereof and after giving effect hereto, there exists no Default or Event of Default. 4. Scope and Effect of Amendment The terms of this Amendment shall not operate as or constitute a waiver by any holder of Notes of, or otherwise prejudice any holder of Notes' rights, remedies or powers under, the Existing Note Purchase Agreement, any other Financing Document or under applicable law. Except as expressly provided herein, (a) no terms or provisions of the Existing Note Purchase Agreement are modified or changed by this Amendment, and (b) the terms and provisions of the Existing Note Purchase Agreement continue in full force and effect. The Company hereby acknowledges, confirms, reaffirms and ratifies all of its obligations and duties under the Financing Documents and all agreements related thereto. This Amendment does not constitute an agreement or obligation of any holder of Notes to give its consent to any future amendment of any Financing Document or to any future transaction that would, absent consent of the holders of the Notes, constitute a Default or Event of Default under the Note Purchase Agreement. This Amendment may not be contradicted by evidence of any actual or alleged prior, contemporaneous or subsequent understandings or agreements of the parties, written or oral, express or implied, other than a writing which expressly amends or supersedes this Amendment or Financing Documents. Upon the effectiveness of this Amendment, each reference in any Financing Document to any Note Purchase Agreement shall mean and be a reference to the Note Purchase Agreement as amended hereby. 5. Miscellaneous 0.1 Governing Law This Amendment is governed by the internal laws of the Commonwealth of Massachusetts and shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of such State. 5.1 Successors and Assigns This Amendment shall bind and inure to the benefit of the respective successors and assigns of the Company and the holders of the Notes. 5.2 Expenses The Company will pay, or cause to be paid, the reasonable out-of-pocket costs and expenses of each holder of Notes in connection with entering into this Amendment and the consummation of all transactions contemplated hereby. The obligations of the Company under this Section 6.3 shall survive payment of any Note issued under the Note Purchase Agreement. 5.3 Effectiveness This Amendment may be executed in one or more counterparts and shall be effective, as of the date hereof (the "Effective Date"), when (a) at least one counterpart shall have been executed by the Company and holders of Notes constituting the Required Holders, and (b) the Company shall have complied with each of the conditions precedent set forth on Attachment B hereto to the reasonable satisfaction of the Required Holders. [Remainder of page intentionally blank. Next page is signature page.] SPECTRAN CORPORATION FIRST AMENDMENT IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by a duly authorized officer or agent thereof, as the case may be, as of the date first above written. Very truly yours, SPECTRAN CORPORATION By: --------------------------- Name: Title: Holder of Notes: MASSACHUSETTS MUTUAL LIFE INSURANCE COMPANY By: ---------------------------------- Name: Title: CM LIFE INSURANCE COMPANY By: ----------------------------------- Name: Title: J ROMEO & CO. By: ---------------------------------- Name: Title: PACIFIC LIFE INSURANCE COMPANY By: ----------------------------------- Name: Title: By: ----------------------------------- Name: Title: Attachment A-7 SPECTRAN CORPORATION FIRST AMENDMENT ATTACHMENT A AMENDMENT 1. A new Section 8.10 is hereby added to the Existing Note Purchase Agreement as set forth below: 8.10 Offer to Pay upon Receipt of Proceeds (a) Offer. If the Company is required to make an offer to prepay the Notes in accordance with Section 10.8 such offer will be in writing and will (i) refer to this Section 8.10 and Section 10.8, (ii) include the information required in the notices delivered pursuant to Section 10.8 in connection with the transactions giving rise to the offer to prepay, (iii) specify the prepayment date (the "Proceeds Prepayment Date"), which shall not be less than 5 Business Days after, nor more than 10 Business Days after, the date of such offer, and which shall on or before the repayment of Debt giving rise to the requirement to make an offer under this Section 8.10, (iv) specify the last date upon which the offer can be accepted or rejected, and state the consequences of failing to provide an acceptance or rejection, as provided in Section 8.10(b), (v) specify the amount of such offer (as determined in accordance with Section 10.8, the "Proceeds Payment Amount"), the minimum ratable share of such Proceeds Payment Amount payable in respect of each Note (such minimum ratable share to be determined on the basis of the aggregate principal amount of all Notes outstanding immediately prior to the making of such offer) and the principal amount of each Note offered to be prepaid on such Proceeds Prepayment Date, (vi) specify the amount of interest that would be due on each Note offered to be prepaid, accrued to such Proceeds Prepayment Date, and (vii) be executed by a Senior Financial Officer of the Company. (b) Acceptance, Rejection. To accept or reject such offered payment, a holder of Notes shall cause a notice of such acceptance or rejection to be delivered to the Company at no later than 5 p.m. on the second preceding Business Day prior to the Proceeds Prepayment Date. A failure to respond to any such offer of payment as provided in this Section 8.5(b) shall be deemed to constitute an acceptance of such offer. (c) Payment. The Company shall pay to each holder which shall have accepted such offer a principal amount equal to such holder's ratable share of the Proceeds Payment Amount (such ratable share to be determined on the basis only of the aggregate principal amount of the Notes outstanding immediately prior to the making of such offer which shall have accepted such offer) at 100% of such principal amount and interest thereon accrued to such Proceeds Prepayment Date, shall become due and payable on such Proceeds Prepayment Date. The Company shall, promptly after making such payment, notify in writing all holders of Notes of the payment amount, and the name of each holder, of any Notes prepaid under this Section 8.10. (d) Effect on Required Payments. The amount of each payment of the principal of the Notes made pursuant to this Section 8.5 shall be applied against and reduce each of the then remaining principal payments due pursuant to Section 8.1 by a percentage equal to the aggregate principal amount of the Notes so paid divided by the aggregate principal amount of the Notes outstanding immediately prior to such payment. (e) Payment of Make-Whole Amounts. If a prepayment of the principal of the Notes is made under this Section 8.10 from the proceeds of Asset Dispositions, then, notwithstanding anything to the contrary in this Section 8.10, no Make-Whole Amount will be due in connection therewith and no calculation of any Make-Whole Amounts shall be required. 2. Section 10.4 of the Existing Note Purchase Agreement is amended to read in full as follows: 10.4 Maintenance of Consolidated Net Worth. On and after April 1, 2000, the Company will not, at any time, permit Consolidated Net Worth to be less than the sum of (a) Consolidated Net Worth as of December 31, 1999, plus (b) an aggregate amount equal to 50% of its Consolidated Net Income (but, in each case, only if a positive number) for each completed fiscal year beginning with the fiscal year ended December 31, 2000 plus (c) the net proceeds of all sales of equity securities (or convertible securities upon conversion) by and of the Company and the Subsidiaries (other than sales to the Company or a Subsidiary) received by the Company and the Subsidiaries after December 31, 1999. 3. Section 10.5 of the Existing Note Purchase Agreement is amended to read in full as follows: 10.5 Limitation on Debt. (a) Funded Debt. On and after April 1, 2000, the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create, incur, assume, guarantee, or otherwise become directly or indirectly liable with respect to, any Funded Debt, except (i)the Notes and Debt incurred under the Bank Agreement, (ii) Funded Debt outstanding on the Closing Date and identified on Schedule 5.15, and renewals and extensions thereof, provided that the amount of any such Funded Debt outstanding is not increased in connection with such renewal or extension, and (iii) other Funded Debt, so long as on the date the Company or such Subsidiary becomes liable with respect to any such Funded Debt and immediately after giving effect thereto and the concurrent retirement of any other Funded Debt, (A) no Default or Event of Default exists, and (B) Consolidated Funded Debt does not exceed 325% of Consolidated Cash Flow determined in respect of the period of 12 consecutive months then most recently ended. (b) Net Debt. On and after April 1, 2000, the Company will not at any time permit Consolidated Net Debt to exceed 55% of Consolidated Total Adjusted Capitalization. (c) Subsidiaries. For the purposes of this Section 10.5, any Person becoming a Subsidiary after the date hereof shall be deemed, at the time it becomes a Subsidiary, to have incurred all of its then outstanding Debt, and any Person extending, renewing or refunding any Debt shall be deemed to have incurred such Debt at the time of such extension, renewal or refunding. 4. Section 10.6 of the Existing Note Purchase Agreement is amended to read in full as follows: 10.6 Fixed Charge Coverage. On and after April 1, 2000, the Company will not, at any time, permit Consolidated Earnings Available for Fixed Charges to be less than 300% of Consolidated Fixed Charges, in each case determined in respect of the period of 12 consecutive months then most recently ended. 5. Section 10.7 of the Existing Note Purchase Agreement is amended to read in full as follows: 10.7 Sale of Assets. On and after April 1, 2000, and except as permitted under Section 10.2, the Company will not, and will not permit any of its Subsidiaries to, make any Asset Disposition unless: (a) such Asset Disposition is the JV Transfer; or (b) (i) in the good faith opinion of the Company, the Asset Disposition is in exchange for consideration having a Fair Market Value at least equal to that of the property exchanged and is in the best interest of the Company or such Subsidiary; (ii) immediately after giving effect to the Asset Disposition, no Default or Event of Default would exist; and (iii) (A) the Disposition Value of all property that was the subject of any Asset Disposition (other than the JV Transfer) occurring in the then current fiscal year of the Company would not exceed 10% of Consolidated Assets as of the end of the then most recently ended fiscal year of the Company, and (B) the Disposition Value of all property that was the subject of any Asset Disposition (other than the JV Transfer) occurring on or after the Closing Date would not exceed 25% of Consolidated Assets as of the end of the then most recently ended fiscal quarter of the Company. If, and solely to the extent that, the Net Proceeds Amount for any Asset Disposition is applied to a Debt Prepayment Application or a Property Reinvestment Application within 365 days after such Asset Disposition, then such Asset Disposition, only for the purpose of determining compliance with Section 10.7(b)(iii) as of any date, shall to the extent of such application be deemed not to be an Asset Disposition. 6. A new Section 10.8 is hereby added to the Existing Note Purchase Agreement as set forth below: 10.8 Application of Proceeds of Certain Transactions (a) Notice. The Company shall notify the holders of the Notes of the receipt of moneys or property by the Company or any Subsidiary as a result of an Asset Disposition, the incurrence of Debt owing to any Person other than the Bank or a holder of Notes, or the issuance of equity interests in the Company or any Subsidiary, within two Business Days after such receipt. Such notice shall (i) set forth the amount of the gross proceeds of such transaction, and the net proceeds (net of transaction costs and together with any investment earnings thereon, the AProceeds@), which, in the case of property received, shall be the Fair Market Value of such property, (ii) set forth in detail the use of the proceeds, which shall be one or more of (A) investment in long-term assets to be used in the business of the Company and the Subsidiaries, and (B) the repayment of Debt of the Company and the Subsidiaries, and (C) investment in Short-Term Investments pending the acquisition of such long-term assets or the repayment of such Debt, and (iii) be certified as true and correct by an authorized officer of the Company. If, after the delivery of such notice, the Company becomes aware that such notice no longer sets forth the gross proceeds, Proceeds or use of the proceeds of such transaction accurately in any material respect, then the Company shall, within three Business Days of becoming so aware, deliver a revised notice to the holders of the Notes. (b) Use of Proceeds. If the Company applies Proceeds for the repayment of Debt other than the Notes or the payment during the period beginning on April 1, 2000 and ending on April 30, 2000, inclusive, of Debt outstanding under the Bank Agreement, then the Company shall make an offer of prepayment of the Notes in accordance with Section 8.10 in respect of such application in an amount not less than (i) the amount of such Proceeds so applied multiplied by (ii) the principal amount of the Notes outstanding on the date of such application divided by the principal amount of such Debt outstanding immediately prior to such application. Payments made to the holders of the Notes pursuant to this Section 10.8(b) shall be in immediately available funds by wire transfer, regardless of the form or nature of the Proceeds. (c) Security Interest. At all times when Proceeds are being held in the form of Short-Term Investments, (i) such Proceeds shall be deposited by the Company with the Security Trustee (immediately upon receipt by the Company), as security for the payment of the Secured Obligations (as defined in the Trust Indenture), (ii) the Security Trustee shall maintain a deposit account and investment account solely for the Proceeds of Asset Dispositions and a separate deposit account and investment account for Proceeds derived from other types of transactions; (iii) the Company shall take such action (at its expense) and execute and deliver such documents and agreements as reasonably requested by the Security Trustee, the Required Holders or the Bank to perfect the Security Trustee's security interest in such Proceeds, (iv) the Security Trustee shall invest such Proceeds as directed by the Company in Short-Term Investments, so long as the Security Trustee retains a perfected security interest in such investments, and (v) the Company will notify the holders of the Notes and the Bank not less than five Business Days prior to delivering any direction to the Security Trustee to disburse such Proceeds for the purpose of purchasing such long-term assets or paying Debt of the Company or the Subsidiaries. (d) Subject to Security Documents. This Section 10.8 is subject to the Security Documents, and to the extent that this Section 10.8 shall conflict therewith, the terms of the Security Documents shall control. (e) Debt Prepayment Applications. Debt Prepayment Applications shall be, for purposes of determining compliance with this Section 10.8, deemed to be payments of the Notes under Section 8.10. 7. A new Section 10.9 is hereby added to the Existing Note Purchase Agreement as set forth below: 10.9 Incorporation of Bank Covenants From September 30, 1998 to March 31, 2000, inclusive, the Company and the Subsidiaries will comply with Section 6 (exclusive of Section 6.2(r), Section 6.2(s) and Section 6.2(t) thereof) of the form of the Bank Agreement (including, in determining such compliance, all defined terms and all cross-referenced sections set forth therein) attached to that certain First Amendment to the Note Purchase Agreement, dated as of September 30, 1998, as Attachment D (as amended by the First Amendment to the Bank Agreement included in such Attachment D), and such Section 6 shall be deemed to have been incorporated herein by reference. For the avoidance of doubt, it is understood that (i) amendments by the parties to the Bank Agreement of the Bank Agreement made after the effectiveness of the First Amendment shall have no effect on the form of the Bank Agreement as so incorporated hereby, and (ii) if a Default or an Event of Default exists on March 31, 2000 under any of such incorporated Sections, such Default or Event of Default will continue after March 31, 2000 if and for so long thereafter as the Company or any Subsidiary is obligated in any respect under the Bank Agreement. 8. A new Section 10.10 is hereby added to the Existing Note Purchase Agreement as set forth below: 10.10 Other Covenants The Company shall not, nor shall it permit any Subsidiary to, (a) enter into any amendment of any term of payment of any Debt (other than the Notes) of the Company or any Subsidiary, or (b) pay any Debt (other than the Notes in accordance with the provisions hereof) during the continuation of an Event of Default. 9. A new Section 10.11 is hereby added to the Existing Note Purchase Agreement as set forth below: 10.11 Further Assurances Regarding Collateral, Etc. The Company shall satisfy at the Company's expense, on or prior to January 15, 1999, each of the conditions set forth on Attachment C to that certain First Amendment to the Note Purchase Agreement, dated as of September 30, 1998, in the reasonable opinion of the Required Holders, which reasonable opinion shall be evidenced solely by a written affirmation of such satisfaction delivered by the Required Holders on or prior to January 15, 1999. 10. The following defined terms are hereby added to Schedule B to the Existing Note Purchase Agreement in the appropriately alphabetical locations: Proceeds B is defined in Section 10.9. Proceeds Payment Amount B is defined in Section 8.10. Proceeds Prepayment Date B is defined in Section 8.10. Short-Term Investments B means investments that maximize total return within the confines of a short to average overall maturity framework. AShort-Term Investments will be US Governments, domestic corporates, asset-backed paper (AAA rated), Govt Agency mortgage-backed paper including short term CMO's and Govt Agency backed short-term floating rate paper. Positions required for liquidity needs will be held in high grade short-term or money market balances. The horizon on these investments will be approximately a for immediate liquidity needs (if necessary), approximately a to be used for intermediate term purposes, and the remaining approximately a for long term expansion purposes. The Company will have full authority and discretion on all investment changes. Attachment B-1 SPECTRAN CORPORATION FIRST AMENDMENT ATTACHMENT B CONDITIONS PRECEDENT 1. The Company shall pay all legal fees and expenses of the Noteholders' counsel incurred in connection herewith 2. The Company shall pay an amendment fee in the aggregate amount of $150,000 to the Noteholders, to be allocated among the Noteholders in proportion to the aggregate principal value of their Notes, in immediately available federal funds. 3. The Company shall have entered into an amendment to the Bank Agreement in form attached hereto as Attachment D. The Company shall have provided to the holders of the Notes a copy of the Bank Agreement and all related documentation, as in effect on the Effective Date (including such amendment), certified as true and correct by an authorized officer of the Company. 4. The Company shall provide the Noteholders' with evidence reasonably satisfactory to the Noteholders' of the consent of the Bank to this Amendment. Attachment C-2 SPECTRAN CORPORATION FIRST AMENDMENT ATTACHMENT C CONDITIONS SUBSEQUENT The Company will provide to counsel for the Noteholders and the Bank the following: 1. Recent Federal and State Tax Lien Searches against the Company. 2. Composite Certificate of Secretary of SpecTran with attached: 2.1 Certificate of Incorporation with all amendments (certified to by the Delaware Secretary of State) 2.2 By-Laws 2.3 Votes 3. Certificate of Legal Existence and Good Standing for SpecTran issued by the Delaware Secretary of State 4. Certificate of Qualification To Do Business in Massachusetts for SpecTran issued by the Massachusetts Secretary of State 5. Opinion of Counsel to the Company and the Subsidiaries, reasonably satisfactory to the Required Holders, opining as to (i) due authorization , execution, and delivery of documents by the Company and the Subsidiaries, and the enforceability thereof, (ii) absence of government approvals or filings in connection therewith, other than with respect to security interests and liens, and (iii) proper form and recording of security interests, mortgages and the like in the Massachusetts, Connecticut and the U.S. Patent and Trademark Office. 6. Copies of Amendment executed with the Bank. 70 Amendments to the following to reflect changes to secured obligations: 7.1 Mortgage, Assignment of Rents and Security Agreement 7.2 Open-End Mortgage, Assignment of Rents and Security Agreement 7.3 Guaranty Agreement 7.4 UCC-1's 7.5 Trademark and Patent Filings 80 Landlord waivers and consents on all leased real estate. 90 Title Insurance Policies and/or Endorsements to existing Title Insurance Policies to reflect changes to secured obligations. 100 UCC Searches against the Company and each Subsidiary from: 10.1 Massachusetts Secretary of State 10.2 Sturbridge Town Clerk 10.3 Connecticut Secretary of State 10.4 Additional filing locations as may be reasonably specified by counsel to the Noteholders. 110 Confirmation of secured position of Bank and Noteholders 120 Covenant Compliance Certificate as of September 30, 1998 130 Duly authorized, executed and delivered documents amending the Security Documents to the extent deemed reasonably necessary by the Required Holders or the Security Trustee. 140 Payment of all legal fees and expenses of counsel to the Noteholders (promptly upon receipt of a bill therefor) ATTACHMENT D BANK AGREEMENT (WITH AMENDMENT) EX-10.118 8 AMENDMENT TO TRADEMARK SECURITY AGREEMENT Attachment A-1 SPECTRAN CORPORATION FIRST AMENDMENT TO TRUST INDENTURE Exhibit 10.118 FIRST AMENDMENT FIRST AMENDMENT (this "Amendment") dated as of September 30, 1998, by and among SPECTRAN CORPORATION (the "Company"), a Delaware corporation, SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC. ("SCFT"), a Delaware corporation, SPECTRAN SPECIALTY OPTICS COMPANY ("SSOC"), a Delaware corporation, and APPLIED PHOTONIC DEVICES, Inc. ("APD"), a Delaware corporation (SCFT, SSOC and APD, together with their respective successors and assigns, referred to individually, as a "Guarantor," and, collectively, as the "Guarantors;" the Company and the Guarantors being referred to herein as the "Obligors"), Fleet National Bank, a national banking association (the "Former Trustee") as security trustee under a certain Trust Indenture (as amended and as may be further amended from time to time, the "Trust Indenture"), dated as of December 1, 1996 among the Obligors, the Former Trustee and the other parties thereto, and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as successor to the Former Trustee and in its capacity as security trustee, together with its successors and assigns and any co-trustees that becomes such in accordance with the provisions of the Trust Indenture, the "Trustee"). 1. Preliminary Statement (a) The Obligors entered into a certain Trademark Security Agreement (the "Existing Trademark Security Agreement"), dated as of December 1, 1996, in favor of the Former Trustee to secure the obligations of the Obligors pursuant to the Lending Documents. The Existing Trademark Security Agreement, as amended by this Amendment, is referred to herein as the "Amended Trademark Security Agreement." (b) All acts and proceedings required by law and by the certificate or articles of incorporation and bylaws of each of the Obligors necessary to constitute this Amendment a valid and binding agreement for the uses and purposes set forth herein, in accordance with its terms, have been done and taken, and the execution and delivery hereof has been in all respects duly authorized. 2. Defined Terms The terms used herein have the meanings specified in the Existing Trademark Security Agreement unless otherwise defined herein. 3. Amendments to Terms of Existing Trademark Security Agreement The Existing Trademark Security Agreement is amended as follows: (a) in connection with the resignation of Fleet National Bank, as Trustee, as acknowledged by Fleet National Bank by its execution and delivery of this Amendment, and the appointment of State Street Bank and Trust Company as successor trustee as acknowledged by State Street Bank and Trust Company and each of the Obligors by their respective execution and delivery of this Amendment, all references to Fleet National Bank in its capacity as Trustee are hereby amended to be references to State Street Bank and Trust Company as Trustee; and (b) Exhibit 1 thereto is amended and restated in its entirety as set forth on Exhibit 1 hereto. SPECTRAN CORPORATION FIRST AMENDMENT TO TRADEMARK SECURITY AGREEMENT 15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF OBLIGORS Each of the representations, warranties and covenants made by the Obligors in respect of the Trademarks set forth in the Existing Trademark Security Agreement are incorporated herein by reference and are made as of the date hereof and immediately after the effectiveness hereof and after giving effect hereto, there exists no Default or Event of Default. 4. Scope and Effect of Amendment Except as expressly provided herein, no terms or provisions of the Existing Trademark Security Agreement are modified or changed by this Amendment, and the terms and provisions of the Existing Trademark Security Agreement continue in full force and effect. Each of the Obligors hereby acknowledges, confirms, reaffirms and ratifies all of its obligations and duties under the Lending Documents and all agreements related thereto. This Amendment does not constitute an agreement or obligation of any Beneficiary to give its consent to any future amendment of any Lending Document or to any future transaction that would, absent consent of the Beneficiaries, constitute a Default or Event of Default under any of the Lending Documents. This Amendment may not be contradicted by evidence of any actual or alleged prior, contemporaneous or subsequent understandings or agreements of the parties, written or oral, express or implied, other than a writing which expressly amends or supersedes this Amendment or the Lending Documents. Upon the effectiveness of this Amendment, each reference in any Lending Document to any Trademark Security Agreement shall mean and be a reference to the Trademark Security Agreement as amended hereby. 5. Miscellaneous (a) Successors and Assigns This Amendment shall bind and inure to the benefit of the respective successors and assigns of the Obligors, the Trustee and the Beneficiaries. (1) Expenses The Company will pay, or cause to be paid, the reasonable out-of-pocket costs and expenses of each Beneficiary and the Trustee in connection with entering into this Amendment and the consummation of all transactions contemplated hereby. The obligations of the Company under this Section 6(b) shall survive payment of any Secured Obligations. (2) Effectiveness This Amendment may be executed in one or more counterparts and shall be effective, as of the date hereof, when at least one counterpart shall have been executed by each of the parties hereto. [Remainder of page intentionally blank. Next page is signature page.] SPECTRAN CORPORATION FIRST AMENDMENT TO TRADEMARK SECURITY AGREEMENT IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by a duly authorized officer or agent thereof, as the case may be, as of the date first above written. Signed, sealed and delivered SPECTRAN CORPORATION in the presence of: By: ------------------------ Name: Title: SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC. By: ------------------------ Name: Title: SPECTRAN SPECIALTY OPTICS COMPANY By: ------------------------ Name: Title: APPLIED PHOTONIC DEVICES, INC. By: ----------------------- Name: Title: FLEET NATIONAL BANK, as Former Trustee By: ----------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, as Trustee By: ------------------------- Name: Title: STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of SPECTRAN CORPORATION, a Delaware corporation, and acknowledged that such corporation executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC., a Delaware corporation, and acknowledged that such corporation executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of SPECTRAN SPECIALTY OPTICS COMPANY, a Delaware corporation, and acknowledged that such corporation executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of APPLIED PHOTONIC DEVICES, INC., a Delaware corporation, and acknowledged that such corporation executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of FLEET NATIONAL BANK, a national banking association, and acknowledged that such national banking association executed the same as security trustee thereunder. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, and acknowledged that such Massachusetts trust company executed the same as security trustee thereunder. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] Exhibit 1 - 2 SPECTRAN CORPORATION FIRST AMENDMENT TO TRADEMARK SECURITY AGREEMENT EXHIBIT 1 TRADEMARK ASSIGNMENT WHEREAS, [NAME OF OBLIGOR], a [________] corporation, (the "Obligor") owns and has used in its business certain trademarks which are registered or for which a registration has been applied for, as listed in Schedule A hereto; and WHEREAS, an "Event of Default" has occurred under the terms of the Trust Indenture, dated as of December 1, 1996, as amended, among the Obligor, certain of its affiliates, and State Street Bank and Trust Company, in its capacity as security trustee (the "Trustee") and the Trademark Security Agreement, dated as of December 1, 1996, as amended, among the Obligor, certain of its affiliates and the Trustee (collectively, the "Security Documents"); and WHEREAS, the Trustee, pursuant to its rights as a secured party under the Security Documents, and pursuant to and in exercise of its rights as a secured party under the Massachusetts Uniform Commercial Code, has chosen to exercise its rights upon default; NOW THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the Obligor does hereby absolutely sell, assign, transfer and convey unto the Trustee all of the Obligor's right, title and interest in and to: (i) the trademarks, together with the goodwill of the business symbolized by the trademarks, the registrations and applications thereof as set forth on Schedule A attached hereto; (ii) all trade names, trade styles, service marks, prints and labels on which said trademarks, trade names, trade styles and service marks have appeared or appear, designs and general intangibles of like nature; and (iii) all proceeds of the foregoing (including, without limitation, license royalties and proceeds of infringement suits). IN WITNESS WHEREOF, [NAME OF OBLIGOR] has caused this Trademark Assignment to be duly executed by its duly authorized officer as of ____________ ___, 199__. [NAME OF OBLIGOR] By:____________________________ Name: Title: STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the ___________________________________ of _________________________, a _______________ corporation, and acknowledged that such corporation executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] Schedule A-1 SPECTRAN CORPORATION FIRST AMENDMENT TO TRADEMARK SECURITY AGREEMENT Schedule A TRADEMARKS AND TRADEMARK APPLICATIONS AND REGISTRATIONS EX-10.119 9 AMENDMENT TO PATENT COLLATERAL ASSIGNMENT Exhibit 10.119 FIRST AMENDMENT FIRST AMENDMENT (this "Amendment") dated as of September 30, 1998, by and among SPECTRAN CORPORATION (the "Company"), a Delaware corporation, SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC. ("SCFT"), a Delaware corporation, SPECTRAN SPECIALTY OPTICS COMPANY ("SSOC"), a Delaware corporation, and APPLIED PHOTONIC DEVICES, Inc. ("APD"), a Delaware corporation (SCFT, SSOC and APD, together with their respective successors and assigns, referred to individually, as a "Guarantor," and, collectively, as the "Guarantors;" the Company and the Guarantors being referred to herein as the "Obligors"), Fleet National Bank, a national banking association (the "Former Trustee") as security trustee under a certain Trust Indenture (as amended and as may be further amended from time to time, the "Trust Indenture", dated as of December 1, 1996 among the Obligors, the Former Trustee and the other parties thereto, and STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, as successor to the Former Trustee and in its capacity as security trustee, together with its successors and assigns and any co-trustees that becomes such in accordance with the provisions of the Trust Indenture, the "Trustee"). 6. Preliminary Statement (a) The Obligors entered into a certain Patent Collateral Assignment (the "Existing"), dated as of December 1, 1996, in favor of the Former Trustee to secure the obligations of the Obligors pursuant to the Lending Documents. The Existing Patent Collateral Assignment, as amended by this Amendment, is referred to herein as the "Amended Patent Collateral Assignment." (b) All acts and proceedings required by law and by the certificate or articles of incorporation and bylaws of each of the Obligors necessary to constitute this Amendment a valid and binding agreement for the uses and purposes set forth herein, in accordance with its terms, have been done and taken, and the execution and delivery hereof has been in all respects duly authorized. 7. Defined Terms The terms used herein have the meanings specified in the Existing Patent Collateral Assignment unless otherwise defined herein. 8. Amendments to Terms of Existing Patent Collateral Assignment The Existing Patent Collateral Assignment is amended as follows: (a) in connection with the resignation of Fleet National Bank, as Trustee, as acknowledged by Fleet National Bank by its execution and delivery of this Amendment, and the appointment of State Street Bank and Trust Company as successor trustee as acknowledged by State Street Bank and Trust Company and each of the Obligors by their respective execution and delivery of this Amendment, all references to Fleet National Bank in its capacity as Trustee are hereby amended to be references to State Street Bank and Trust Company as Trustee; and (b) Schedule A thereto is amended and restated in its entirety as set forth on Schedule A hereto. SPECTRAN CORPORATION FIRST AMENDMENT TO PATENT COLLATERAL ASSIGNMENT 16. REPRESENTATIONS, WARRANTIES AND COVENANTS OF OBLIGORS Each of the representations, warranties and covenants made by the Obligors in respect of the Trademarks set forth in the Existing Patent Collateral Assignment are incorporated herein by reference and are made as of the date hereof and immediately after the effectiveness hereof and after giving effect hereto, there exists no Default or Event of Default. 9. Scope and Effect of Amendment Except as expressly provided herein, no terms or provisions of the Existing Patent Collateral Assignment are modified or changed by this Amendment, and the terms and provisions of the Existing Patent Collateral Assignment continue in full force and effect. Each of the Obligors hereby acknowledges, confirms, reaffirms and ratifies all of its obligations and duties under the Lending Documents and all agreements related thereto. This Amendment does not constitute an agreement or obligation of any Beneficiary to give its consent to any future amendment of any Lending Document or to any future transaction that would, absent consent of the Beneficiaries, constitute a Default or Event of Default under any of the Lending Documents. This Amendment may not be contradicted by evidence of any actual or alleged prior, contemporaneous or subsequent understandings or agreements of the parties, written or oral, express or implied, other than a writing which expressly amends or supersedes this Amendment or the Lending Documents. Upon the effectiveness of this Amendment, each reference in any Lending Document to any Patent Collateral Assignment shall mean and be a reference to the Patent Collateral Assignment as amended hereby. 10. Miscellaneous (a) Successors and Assigns This Amendment shall bind and inure to the benefit of the respective successors and assigns of the Obligors, the Trustee and the Beneficiaries. (1) Expenses The Company will pay, or cause to be paid, the reasonable out-of-pocket costs and expenses of each Beneficiary and the Trustee in connection with entering into this Amendment and the consummation of all transactions contemplated hereby. The obligations of the Company under this Section 6(b) shall survive payment of any Secured Obligations. (2) Effectiveness This Amendment may be executed in one or more counterparts and shall be effective, as of the date hereof, when at least one counterpart shall have been executed by each of the parties hereto. [Remainder of page intentionally blank. Next page is signature page.] SPECTRAN CORPORATION FIRST AMENDMENT TO PATENT COLLATERAL ASSIGNMENT IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed on their behalf by a duly authorized officer or agent thereof, as the case may be, as of the date first above written. Signed, sealed and delivered SPECTRAN CORPORATION in the presence of: By: ------------------------- Name: Title: SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC. By:------------------------- Name: Title: SPECTRAN SPECIALTY OPTICS COMPANY By: ------------------------ Name: Title: APPLIED PHOTONIC DEVICES, INC. By: ----------------------- Name: Title: FLEET NATIONAL BANK, as Former Trustee By: ----------------------- Name: Title: STATE STREET BANK AND TRUST COMPANY, as Trustee By: ----------------------- Name: Title: STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of SPECTRAN CORPORATION, a Delaware corporation, and acknowledged that such corporation executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC., a Delaware corporation, and acknowledged that such corporation executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of SPECTRAN SPECIALTY OPTICS COMPANY, a Delaware corporation, and acknowledged that such corporation executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of APPLIED PHOTONIC DEVICES, INC., a Delaware corporation, and acknowledged that such corporation executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of FLEET NATIONAL BANK, a national banking association, and acknowledged that such national banking association executed the same as security trustee thereunder. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] STATE OF _______________ ) ) ss. COUNTY OF _____________ ) On _______________, before me, the undersigned, a notary public in and for said County and State, duly commissioned and sworn, personally appeared _____________________________, personally known to me or proved to me to be on the basis of satisfactory evidence to be the person who executed the within instrument as the _________________________ of STATE STREET BANK AND TRUST COMPANY, a Massachusetts trust company, and acknowledged that such Massachusetts trust company executed the same as security trustee thereunder. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year in this certificate first above written. Notary Public in and for the County of ____________________, State of ______________________ My Commission Expires: __________________ [SEAL] Schedule A-1 SPECTRAN CORPORATION FIRST AMENDMENT TO PATENT COLLATERAL ASSIGNMENT Schedule A To be provided. Exhibit 1-1 SPECTRAN CORPORATION FIRST AMENDMENT TO PATENT COLLATERAL ASSIGNMENT EX-10.120 10 TRUSTEE MODIFICATION SPECTRAN CFT Exhibit 10.120 MODIFICATION AGREEMENT THIS MODIFICATION AGREEMENT (this "Agreement"), is made as of September 30, 1998, between SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC., a Delaware corporation, having a place of business and a mailing address at 50 Hall Road, Sturbridge, Massachusetts 01566 ("Mortgagor") and STATE STREET BANK AND TRUST COMPANY (successor to Fleet National Bank, as Trustee), a Massachusetts trust company having a place of business and a mailing address at 2 International Place Boston, Massachusetts 02110, not individually but solely as security trustee under that certain Trust Indenture, dated as of December 1, 1996, among the Mortgagor, Fleet National Bank and the other parties signatory thereto, as amended by that certain First Amendment dated as of September 30, 1998, among Mortgagor, State Street Bank and Trust Company (in its capacity as successor trustee to Fleet National Bank, as Trustee and together with any successor or co-security trustee that becomes such in accordance with the provisions of the Trust Indenture, the "Trustee") and the other parties signatory thereto (said Trust Indenture, as so amended and as may hereafter be amended, restated or otherwise modified from time to time, the "Trust Indenture"). R E C I T A L S WHEREAS, Mortgagor is party to that certain Loan Agreement dated as of December 1, 1996 (as amended to but excluding the date hereof, the "Existing Loan Agreement"), among Mortgagor, SpecTran Corporation (the "Parent"), a Delaware corporation, SpecTran Specialty Optics Company, a Delaware corporation, and Applied Photonic Devices, Inc, a Delaware corporation (collectively, the ABorrowers@), and Fleet National Bank (the "Lender"), a national banking association, pursuant to which Lender has extended credit to Borrowers pursuant to a revolving line of credit facility (the "Facility"), as evidenced by a certain Revolving Note dated as of December 1, 1996, in the face amount of $20,000,000 (as amended to but excluding the date hereof, the "Existing Revolving Note"); WHEREAS, Borrowers and Lender have agreed to enter into that certain First Amendment to Loan Agreement dated as of September 30, 1998, a copy of which is attached hereto as Schedule 1-a and made a part hereof (the "Loan Agreement Amendment"; the Existing Loan Agreement as amended by the Loan Agreement Amendment and as further amended from time to time, the "Amended Loan Agreement"), and that certain First Amendment to Revolving Note dated as of September 30, 1998, a copy of which is attached hereto as Schedule 2-a and made a part hereof (the "Revolving Note Amendment"; the Existing Revolving Note as amended by the Revolving Note Amendment and as further amended from time to time, the "Amended Revolving Note"), pursuant to which, among other things, Borrowers and Lender have agreed to extend the maturity of the Existing Revolving Note from December 31, 1999, to April 1, 2000, and to make certain other amendments to the Existing Loan Agreement and the Existing Revolving Note, as more particularly set forth in the Loan Agreement Amendment and the Revolving Note Amendment, respectively; WHEREAS, the Parent issued certain 9.24% Series A Senior Secured Notes due December 26, 2003, in the aggregate principal amount of $16,000,000, and certain 9.39% Series B Senior Secured Notes due December 26, 2004, in the aggregate principal amount of $8,000,000 (collectively, the "Existing Term Notes") pursuant to those certain Note Purchase Agreements each dated as of December 1, 1996 (as amended to but excluding the date hereof, collectively, the "Existing Note Agreement"), which Existing Term Notes were guarantied by Mortgagor pursuant to a certain Guaranty Agreement dated as of December 1, 1996 (as amended from time to time, the "Guaranty Agreement"); WHEREAS, all capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to such terms in the Trust Indenture; WHEREAS, as required by the Existing Loan Agreement and the Existing Note Agreement, Mortgagor's obligations from time to time evidenced by or arising in connection with the Existing Revolving Note, the Guaranty Agreement, the Trust Indenture or the other Lending Documents are secured by that certain Mortgage, Assignment of Rents and Security Agreement dated as of December 1, 1996, and recorded in the Registry of Deeds of Worcester County, Massachusetts, in Book 18503, at page 183 (the "Existing Mortgage" and as amended by this Agreement, the "Amended Mortgage"), encumbering, among other things, certain real property located in Sturbridge, Worcester County, Massachusetts, and more particularly described in Exhibit A attached thereto; and WHEREAS, as a condition of, and as an inducement to, Lender agreeing to enter into the Loan Agreement Amendment and the Revolving Note Amendment, Mortgagor has agreed to amend the Existing Mortgage to reflect the modifications made to the Existing Loan Agreement by the Loan Agreement Amendment and those made to the Existing Revolving Note by the Revolving Note Amendment, including the extension of the maturity of the Revolving Note to April 1, 2000; A G R E E M E N T S NOW, THEREFORE, in consideration of the foregoing RECITALS and for other good and valuable consideration received to the mutual satisfaction of the parties hereto, the undersigned hereby agree as follows: Modifications to the Existing Mortgage. The Existing Mortgage is hereby modified as follows: (a) The first paragraph following W I T N E S S E T H is hereby amended and restated in its entirety as follows: WHEREAS, Grantor, SpecTran Corporation, a Delaware corporation having an address at 50 Hall Road, Sturbridge, Massachusetts 01566 (the "Parent"), SpecTran Specialty Optics Company ("SSOC"), a Delaware corporation having an address at 150 Fisher Drive, Avon, Connecticut 06001, and Applied Photonic Devices, Inc. ("APD"), a Delaware corporation having an address at 300 Lake Road, Dayville, Connecticut 06241, and Fleet National Bank, a national banking association ("Lender") have entered into a certain Loan Agreement dated as of December 1, 1996, a copy of which is attached hereto as Schedule 1 and made a part hereof and the terms of which are incorporated herein, as amended by a First Amendment to Loan Agreement dated as of September 30, 1998, a copy of which is attached hereto as Schedule 1-a and made a part hereof and the terms of which are incorporated herein (the Loan Agreement as presently constituted and as amended by the First Amendment to Loan Agreement and as the same may hereafter be amended from time to time, the ALoan Agreement@) which Loan Agreement provides for the extension of credit to Grantor, the Parent, SSOC and APD in the nature of a revolving line of credit facility (the "Facility") as evidenced by a certain Revolving Note dated as of December 1, 1996, in face amount of $20,000,000, a copy of which is attached hereto as Schedule 2 and made a part hereof and the terms of which are incorporated herein, as amended by a First Amendment to Revolving Note dated as of September 30, 1998, a copy of which is attached hereto as Schedule 2-a and made a part hereof and the terms of which are incorporated herein (the Revolving Note as presently constituted and as amended by the First Amendment to Revolving Note and as the same may hereafter be amended, extended, renewed or consolidated from time to time, together with any and all promissory notes that may have been or may be exchanged or given in substitution therefor from time to time, being collectively referred to herein as the "Revolving Credit Notes"), which Revolving Credit Notes bear interest and are payable as set forth therein and in the Loan Agreement, and mature on April 1, 2000, all as more particularly provided therein and in the Loan Agreement; (b) The Loan Agreement Amendment, attached hereto as Schedule 1-a is hereby attached to the Existing Mortgage as Schedule 1-a and made a part thereof, and the terms thereof are hereby incorporated in the Existing Mortgage. (c) The Revolving Note Amendment attached hereto as Schedule 2-a is hereby attached to the Existing Mortgage as Schedule 2-a and made a part thereof, and the terms thereof are hereby incorporated in the Existing Mortgage. Continued Force and Effect; References to Existing Mortgage. (a) All of the terms and conditions of the Amended Loan Agreement, the Amended Revolving Note, the Guaranty, the Amended Mortgage and the other Lending Documents to which Mortgagor is a party and the indebtedness evidenced thereby and/or the collateral security provided thereby are hereby ratified and confirmed in all respects and shall remain and in full force and effect. Nothing contained in this Agreement shall (i) be deemed to cancel, extinguish, release, discharge or constitute payment or satisfaction of the Amended Note or the Guaranty or the indebtedness evidenced thereby or to otherwise affect the obligations represented thereby, all of which obligations are hereby continued and remain in full force and effect; (ii) constitute a new or additional indebtedness or constitute a readvance of any loan; or (iii) be deemed to impair in any manner the validity, enforceability or priority of the Amended Mortgage or the lien thereof. (b) From and after the date hereof, unless the context shall clearly require otherwise, all references in any of the Lending Documents to the Existing Mortgage or the security provided thereby (regardless of the term or terms used to make any such reference) shall be deemed and construed to refer, respectively, to the Amended Mortgage and the security provided thereby. The Lending Documents are hereby modified to incorporate therein the aforesaid definitions, interpretations and other terms and provisions. (c) In the event of any conflict between the terms of this Agreement and the terms of the Existing Mortgage, the terms of this Agreement shall control. No Defenses, Counterclaims or Rights of Offset. Mortgagor hereby acknowledges, admits, and agrees that, as of the date hereof, there exists no rights of offset, defense, counterclaim, claim, or objection in favor of Mortgagor with respect to the Amended Loan Agreement, the Amended Revolving Note, the Guaranty, the Amended Mortgage and the other Lending Documents to which Mortgagor is a party, or alternatively, that any and all such right of offset, defense, counterclaim, claim, or objection which Mortgagor may have or claim, of any nature whatsoever, whether known or unknown, is hereby expressly and irrevocably waived and released. Miscellaneous. (a) The Recitals set forth at the beginning of this Agreement are incorporated in and made a part of this Agreement by this reference. (b) This Agreement may be executed in one or more identical counterparts, each of which shall be deemed to be an original, and all of which, taken together, shall be deemed to be one and the same Agreement. This Agreement shall bind and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors and assigns. This Agreement and the obligations of such parties hereunder are and at all times shall be deemed to be for the exclusive benefit of such parties and their respective successors and assigns, and nothing set forth herein shall be deemed to be for the benefit of any other person. Nothing set forth in this paragraph shall be deemed or construed to create, recognize or allow any assignment or transfer rights not otherwise provided for in the Lending Documents. [Remainder of page intentionally left blank.] IN WITNESS WHEREOF, the parties have caused this Agreement to be executed to be effective as of the day and year first above written. Signed and Acknowledged SPECTRAN COMMUNICATION FIBER in the Presence of: TECHNOLOGIES, INC. _______________________________ By________________________________ Name: Name: Its: - ------------------------------- Name: STATE OF NEW YORK ) ) ss. COUNTY OF ) On this ____ day of ___________, 1999, before me personally appeared ___________________________________, to me personally known, who, being by me duly sworn, did say that he/she is the _____________________________ of SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC., a Delaware corporation, that the seal affixed to the foregoing instrument is the corporate seal of said corporation, that he/she signed the foregoing instrument on behalf of said corporation by authority of its board of directors, and acknowledged said instrument to be his/her free act and deed and the free act and deed of said corporation. ------------------------------------ Notary Public My Commission Expires: [SEAL] Signed and Acknowledged STATE STREET BANK AND TRUST in the Presence of: COMPANY , as Trustee _______________________________ By________________________________ Name: Name: Its: - ------------------------------- Name: STATE OF MASSACHUSETTS ) )ss. COUNTY OF ) On this ____ day of ___________, 1999, before me personally appeared ___________________________________, to me personally known, who, being by me duly sworn, did say that he/she is the _____________________________ of State Street Bank and Trust Company, a a Massachusetts trust company, as Trustee, that [the seal affixed to the foregoing instrument is the seal of said trust company][said trust company has no seal], that he/she signed the foregoing instrument on behalf of said trust company, as Trustee, and acknowledged said instrument to be his/her free act and deed and the free act and deed of said trust company, as Trustee. ------------------------------------ Notary Public My Commission Expires: Exhibit A-0 EXHIBIT A [Legal Description] Schedule 1-a-0 SCHEDULE 1-a [Loan Agreement Amendment] Schedule 2-a-0 SCHEDULE 2-a [Revolving Note Amendment] EX-10.121 11 TRUSTEE MODIFICATION SPECTRAN SOC Exhibit 10.121 MODIFICATION AGREEMENT THIS MODIFICATION AGREEMENT (this "Agreement"), is made as of September 30, 1998, between SPECTRAN SPECIALITY OPTICS COMPANY, a Delaware corporation, having a place of business and a mailing address at 150 Fisher Drive, Avon, Connecticut 06001 ("Mortgagor") and STATE STREET BANK AND TRUST COMPANY (successor to Fleet National Bank, as Trustee), a Massachusetts trust company having a place of business and a mailing address at 2 International Place Boston, Massachusetts 02110, not individually but solely as security trustee under that certain Trust Indenture, dated as of December 1, 1996, among the Mortgagor, Fleet National Bank and the other parties signatory thereto, as amended by that certain First Amendment dated as of September 30, 1998, among Mortgagor, State Street Bank and Trust Company (in its capacity as successor trustee to Fleet National Bank, as Trustee and together with any successor or co-security trustee that becomes such in accordance with the provisions of the Trust Indenture, the "Trustee") and the other parties signatory thereto (said Trust Indenture, as so amended and as may hereafter be amended, restated or otherwise modified from time to time, the "Trust Indenture"). R E C I T A L S WHEREAS, Mortgagor is party to that certain Loan Agreement dated as of December 1, 1996 (as amended to but excluding the date hereof, the "Existing Loan Agreement"), among Mortgagor, SpecTran Corporation (the "Parent"), a Delaware corporation, SpecTran Communication Fiber Technologies, a Delaware corporation, and Applied Photonic Devices, Inc, a Delaware corporation (collectively, the "Borrowers"), and Fleet National Bank (the "Lender"), a national banking association, pursuant to which Lender has extended credit to Borrowers pursuant to a revolving line of credit facility (the "Facility"), as evidenced by a certain Revolving Note dated as of December 1, 1996, in the face amount of $20,000,000 (as amended to but excluding the date hereof, the "Existing Revolving Note"); WHEREAS, Borrowers and Lender have agreed to enter into that certain First Amendment to Loan Agreement dated as of September 30, 1998, a copy of which is attached hereto as Schedule 1-a and made a part hereof (the "Loan Agreement Amendment"; the Existing Loan Agreement as amended by the Loan Agreement Amendment and as further amended from time to time, the "Amended Loan Agreement"), and that certain First Amendment to Revolving Note dated as of September 30, 1998, a copy of which is attached hereto as Schedule 2-a and made a part hereof (the "Revolving Note Amendment"; the Existing Revolving Note as amended by the Revolving Note Amendment and as further amended from time to time, the "Amended Revolving Note"), pursuant to which, among other things, Borrowers and Lender have agreed to extend the maturity of the Existing Revolving Note from December 31, 1999, to April 1, 2000, and to make certain other amendments to the Existing Loan Agreement and the Existing Revolving Note, as more particularly set forth in the Loan Agreement Amendment and the Revolving Note Amendment, respectively; WHEREAS, the Parent issued certain 9.24% Series A Senior Secured Notes due December 26, 2003, in the aggregate principal amount of $16,000,000, and certain 9.39% Series B Senior Secured Notes due December 26, 2004, in the aggregate principal amount of $8,000,000 (collectively, the "Existing Term Notes") pursuant to those certain Note Purchase Agreements each dated as of December 1, 1996 (as amended to but excluding the date hereof, collectively, the "Existing Note Agreement"), which Existing Term Notes were guarantied by Mortgagor pursuant to a certain Guaranty Agreement dated as of December 1, 1996 (as amended from time to time, the "Guaranty Agreement"); WHEREAS, all capitalized terms used herein but not otherwise defined herein shall have the meanings ascribed to such terms in the Trust Indenture; WHEREAS, as required by the Existing Loan Agreement and the Existing Note Agreement, Mortgagor's obligations from time to time evidenced by or arising in connection with the Existing Revolving Note, the Guaranty Agreement, the Trust Indenture or the other Lending Documents are secured by that certain Open-End Mortgage, Assignment of Rents and Security Agreement dated as of December 1, 1996, and recorded in the Town Clerk of Avon, Connecticut Land Records, in Book 327, at page 378 (the "Existing Mortgage" and as amended by this Agreement, the "Amended Mortgage"), encumbering, among other things, certain real property located in Avon, Connecticut, and more particularly described in Exhibit A attached thereto; and WHEREAS, as a condition of, and as an inducement to, Lender agreeing to enter into the Loan Agreement Amendment and the Revolving Note Amendment, Mortgagor has agreed to amend the Existing Mortgage to reflect the modifications made to the Existing Loan Agreement by the Loan Agreement Amendment and those made to the Existing Revolving Note by the Revolving Note Amendment, including the extension of the maturity of the Revolving Note to April 1, 2000; A G R E E M E N T S NOW, THEREFORE, in consideration of the foregoing RECITALS and for other good and valuable consideration received to the mutual satisfaction of the parties hereto, the undersigned hereby agree as follows: 1. Modifications to the Existing Mortgage. The Existing Mortgage is hereby modified as follows: (a) The first paragraph following "W I T N E S S E T H" is hereby amended and restated in its entirety as follows: AWHEREAS, Grantor, SpecTran Corporation, a Delaware corporation having an address at 50 Hall Road, Sturbridge, Massachusetts 01566 (the "Parent"), SpecTran Communication Fiber Technologies, Inc. ("SCFT"), a Delaware corporation having an address at 50 Hall Road, Sturbridge, Massachusetts 01566, and Applied Photonic Devices, Inc. ("APD"), a Delaware corporation having an address at 300 Lake Road, Dayville, Connecticut 06241, and Fleet National Bank, a national banking association ("Lender") have entered into a certain Loan Agreement dated as of December 1, 1996, a copy of which is attached hereto as Schedule 1 and made a part hereof and the terms of which are incorporated herein, as amended by a First Amendment to Loan Agreement dated as of September 30, 1998, a copy of which is attached hereto as Schedule 1-a and made a part hereof and the terms of which are incorporated herein (the Loan Agreement as presently constituted and as amended by the First Amendment to Loan Agreement and as the same may hereafter be amended from time to time, the "Loan Agreement") which Loan Agreement provides for the extension of credit to Grantor, the Parent, SCFT and APD in the nature of a revolving line of credit facility (the "Facility") as evidenced by a certain Revolving Note dated as of December 1, 1996, in face amount of $20,000,000, a copy of which is attached hereto as Schedule 2 and made a part hereof and the terms of which are incorporated herein, as amended by a First Amendment to Revolving Note dated as of September 30, 1998, a copy of which is attached hereto as Schedule 2-a and made a part hereof and the terms of which are incorporated herein (the Revolving Note as presently constituted and as amended by the First Amendment to Revolving Note and as the same may hereafter be amended, extended, renewed or consolidated from time to time, together with any and all promissory notes that may have been or may be exchanged or given in substitution therefor from time to time, being collectively referred to herein as the "Revolving Credit Notes"), which Revolving Credit Notes bear interest and are payable as set forth therein and in the Loan Agreement, and mature on April 1, 2000, all as more particularly provided therein and in the Loan Agreement; (b) The Loan Agreement Amendment, attached hereto as Schedule 1-a is hereby attached to the Existing Mortgage as Schedule 1-a and made a part thereof, and the terms thereof are hereby incorporated in the Existing Mortgage. (c) The Revolving Note Amendment attached hereto as Schedule 2-a is hereby attached to the Existing Mortgage as Schedule 2-a and made a part thereof, and the terms thereof are hereby incorporated in the Existing Mortgage. 2. Continued Force and Effect; References to Existing Mortgage. (a) All of the terms and conditions of the Amended Loan Agreement, the Amended Revolving Note, the Guaranty, the Amended Mortgage and the other Lending Documents to which Mortgagor is a party and the indebtedness evidenced thereby and/or the collateral security provided thereby are hereby ratified and confirmed in all respects and shall remain and in full force and effect. Nothing contained in this Agreement shall (i) be deemed to cancel, extinguish, release, discharge or constitute payment or satisfaction of the Amended Note or the Guaranty or the indebtedness evidenced thereby or to otherwise affect the obligations represented thereby, all of which obligations are hereby continued and remain in full force and effect; (ii) constitute a new or additional indebtedness or constitute a readvance of any loan; or (iii) be deemed to impair in any manner the validity, enforceability or priority of the Amended Mortgage or the lien thereof. (b) From and after the date hereof, unless the context shall clearly require otherwise, all references in any of the Lending Documents to the Existing Mortgage or the security provided thereby (regardless of the term or terms used to make any such reference) shall be deemed and construed to refer, respectively, to the Amended Mortgage and the security provided thereby. The Lending Documents are hereby modified to incorporate therein the aforesaid definitions, interpretations and other terms and provisions. (c) In the event of any conflict between the terms of this Agreement and the terms of the Existing Mortgage, the terms of this Agreement shall control. 3. No Defenses, Counterclaims or Rights of Offset. Mortgagor hereby acknowledges, admits, and agrees that, as of the date hereof, there exists no rights of offset, defense, counterclaim, claim, or objection in favor of Mortgagor with respect to the Amended Loan Agreement, the Amended Revolving Note, the Guaranty, the Amended Mortgage and the other Lending Documents to which Mortgagor is a party, or alternatively, that any and all such right of offset, defense, counterclaim, claim, or objection which Mortgagor may have or claim, of any nature whatsoever, whether known or unknown, is hereby expressly and irrevocably waived and released. 4. Miscellaneous. (a) The Recitals set forth at the beginning of this Agreement are incorporated in and made a part of this Agreement by this reference. (b) This Agreement may be executed in one or more identical counterparts, each of which shall be deemed to be an original, and all of which, taken together, shall be deemed to be one and the same Agreement. (3) This Agreement shall bind and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors and assigns. This Agreement and the obligations of such parties hereunder are and at all times shall be deemed to be for the exclusive benefit of such parties and their respective successors and assigns, and nothing set forth herein shall be deemed to be for the benefit of any other person. Nothing set forth in this paragraph shall be deemed or construed to create, recognize or allow any assignment or transfer rights not otherwise provided for in the Lending Documents. [Remainder of page intentionally left blank.] IN WITNESS WHEREOF, the parties have caused this Agreement to be executed to be effective as of the day and year first above written. Signed and Acknowledged SPECTRAN SPECIALTY OPTICS COMPANY in the Presence of: _______________________________ By________________________________ Name: Name: Its: - ------------------------------- Name: STATE OF NEW YORK ) ) ss. COUNTY OF ) Personally Appeared ____________________________ of SPECTRAN SPECIALTY OPTICS COMPANY, a Delaware corporation, as aforesaid, Signer of the foregoing Instrument, and acknowledged the same to be his/her free act and deed as such ______________________ and the free act and deed of said corporation, before me. ------------------------------------ Notary Public My Commission Expires: [SEAL] Signed and Acknowledged STATE STREET BANK AND TRUST in the Presence of: COMPANY , as Trustee _______________________________ By________________________________ Name: Name: Its: - ------------------------------- Name: COMMONWEALTH OF MASSACHUSETTS ) )ss. COUNTY OF ) Personally appeared _____________________________________ of State Street Bank and Trust Company, a Massachusetts trust company, as Trustee, as aforesaid, Signer of the foregoing instrument, and acknowledged the same to be his/her free act and deed as such _________________________________ and free act and deed of said trust company, before me. ------------------------------------ Notary Public My Commission Expires: Exhibit A-1 EXHIBIT A [Legal Description] Schedule 1-a-0 SCHEDULE 1-a [Loan Agreement Amendment] Schedule 2-a-1 SCHEDULE 2-a [Revolving Note Amendment] EX-21.0 12 SUBSIDIARIES SPECTRAN CORPORATION EXHIBIT 21.0 SUBSIDIARIES Name of Subsidiary Jurisdiction of Incorporation SpecTran Communication Fiber Technologies, Inc. Delaware SpecTran Specialty Optics Company Delaware Applied Photonic Devices, Inc. Delaware EX-27 13 FDS --
5 (Replace this text with the legend) 0000718487 SPECTRAN CORPORATION 1,000 U.S. DOLLARS YEAR DEC-31-1998 JAN-01-1998 DEC-31-1998 1 1,690 0 13,091 523 8,279 26,106 91,090 22,595 105,419 14,557 0 0 0 700 0 105,419 70,856 70,856 51,976 19,311 0 0 1,419 772 249 523 0 0 0 523 .07 .07
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