-----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, M12dxcUkuSWHEKwo+aIZ6g41DnmLL2ytOGPkflkc0bneUOOXrGkwmcIf4f4yGsCT 8W0M6v/9BO3Xc0E7yQZ/SQ== 0000718487-98-000003.txt : 19980817 0000718487-98-000003.hdr.sgml : 19980817 ACCESSION NUMBER: 0000718487-98-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD 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-Q SEC ACT: SEC FILE NUMBER: 000-12489 FILM NUMBER: 98690166 BUSINESS ADDRESS: STREET 1: 50 HALL ROAD CITY: STURBRIDGE STATE: MA ZIP: 01566 BUSINESS PHONE: 5083472261 10-Q 1 QUARTERLY REPORT OF SPECTRAN CORPORATION UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission file number 0-12489 SPECTRAN CORPORATION (Exact name of registrant as specified in its charter) Delaware 04-2729372 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 50 Hall Road, Sturbridge, Massachusetts 01566 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (508) 347-2261 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 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 __. The number of shares of the registrant's Common Stock outstanding as of July 31, 1998, was 7,003,850. 1 PART I - FINANCIAL INFORMATION SPECTRAN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS Dollars in thousands except per share amounts (unaudited) Six Months Ended Three Months Ended June 30, June 30, 1998 1997 1998 1997 ---- ---- ---- ---- Net Sales $ 32,259 $ 32,109 $ 17,032 $ 15,881 Cost of Sales 24,595 19,405 14,479 9,719 ------------- ------------- ------------- ------------- Gross Profit 7,664 12,704 2,553 6,162 Selling and Administrative Expenses 6,652 7,888 3,518 3,906 Research and Development Costs 2,581 1,598 1,406 817 ------------- ------------- ------------- ------------- Income(Loss) from Operations (1,569) 3,218 (2,371) 1,439 Other Income (Expense): Interest Income 147 765 33 489 Interest Expense (476) (464) (352) (111) Other, Net 1,583 (11) 741 42 ------------- ------------- ------------- ------------- Other Income (Expense), net 1,254 290 422 420 ------------- ------------- ------------- ------------- Income (Loss) before Income Taxes (315) 3,508 (1,949) 1,859 Income Tax Expense (Benefit) (123) 1,193 (760) 626 ------------- ------------- ------------- ------------- Income (Loss) before Equity in Joint Venture (192) 2,315 (1,189) 1,233 Income (Loss) from Joint Venture, Net of Income Taxes (326) 137 (194) 97 ------------- ------------- ------------- ------------- Net Income (Loss) $ (518) $ 2,452 $ (1,383) $ 1,330 ============= ============= ============= ============= Net Income (Loss) per Common Share: Basic $ (.07) $ .37 $ (.20) $ .19 =========== ============== =========== ============== Diluted $ (.07) $ .35 $ (.20) $ .18 =========== ============== ============== ============== Weighted Average Number of Common Shares Outstanding: Basic 7,002 6,499 7,022 6,913 ========== =========== ============ ========= Diluted 7,002 6,988 7,022 7,360 ========== =========== ============ =========
See accompanying notes to these consolidated financial statements. 2 SPECTRAN CORPORATION CONSOLIDATED BALANCE SHEETS Dollars in thousands June 30, 1998 December 31, 1997 ------------- ----------------- (unaudited) ASSETS Current Assets: Cash and Cash Equivalents $ 2,797 $ 445 Current Portion of Marketable Securities -- 5,535 Trade Accounts Receivable, net 11,244 8,622 Income Taxes Receivable 815 -- Inventories 10,232 9,666 Deferred Income Taxes, net 1,189 1,189 Prepaid Expenses and Other Current Assets 2,635 1,943 ---------------- --------------- Total Current Assets 28,912 27,400 Investment in Joint Venture 3,887 4,213 Property, Plant and Equipment, net 65,456 55,409 Other Assets: Long-term Marketable Securities -- 996 License Agreements, net 502 603 Deferred Income Taxes, net 412 412 Goodwill, net 832 872 Other Long-term Assets 2,146 2,200 ---------------- --------------- Total Other Assets 3,892 5,083 ---------------- --------------- Total Assets $ 102,147 $ 92,105 ================ =============== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 6,089 $ 4,758 Income Taxes Payable -- 573 Accrued Liabilities 5,796 6,015 --------------- ---------------- Total Current Liabilities 11,885 11,346 Long-term Debt 34,000 24,000 Stockholders' Equity: Common Stock, voting, $.10 par value; authorized 20,000,000 shares; outstanding 7,002,350 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 50,243 50,223 Net Unrealized Gain (Loss) on Marketable Securities -- (1) Retained Earnings 5,319 5,837 --------------- ---------------- Total Stockholders' Equity 56,262 56,759 --------------- ---------------- Total Liabilities & Stockholders' Equity $ 102,147 $ 92,105 ================ ===============
See accompanying notes to these consolidated financial statements. 3 SPECTRAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Dollars in thousands (unaudited) Six Months Ended June 30, 1998 1997 ---- ---- Cash Flows from Operating Activities: Net Income (Loss) $ (518) $ 2,452 Reconciliation of Net Income to Net Cash Provided by (Used in) Operating Activities: Depreciation and Amortization 2,972 1,939 Other Non-Cash Charges 5,022 (562) Loss (Equity) in Unconsolidated Joint Venture 326 (137) Changes in Other Components of Working Capital (9,183) (3,482) Loss on Disposition of Equipment 204 2 --------------- -------------- Net Cash Provided by (Used in) Operating Activities (1,177) 212 Cash Flows from Investing Activities: Acquisition of Property, Plant and Equipment (13,024) (16,559) Purchase of Marketable Securities (9,652) (199,493) Proceeds from Sale/Maturity of Marketable Securities 16,184 190,888 --------------- -------------- Cash Used in Investing Activities (6,492) (25,164) Cash Flows from Financing Activities: Borrowings of Long-term Debt 10,000 -- Proceeds from Exercise of Stock Options and Warrants 21 240 Issuance of Common Stock, net -- 23,077 -------------- -------------- Cash Provided by Financing Activities 10,021 23,317 Increase (Decrease) in Cash and Cash Equivalents 2,352 (1,635) Cash and Cash Equivalents at Beginning of Period 445 3,565 --------------- -------------- Cash and Cash Equivalents at End of Period $ 2,797 $ 1,930 =============== ==============
See accompanying notes to these consolidated financial statements. 4 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION The financial information for the three months and six months ended June 30, 1998, is unaudited but reflects all adjustments (consisting solely of normal recurring adjustments) which the Company considers necessary for a fair statement of results for the interim periods. The results of operations for the three months and six months ended June 30, 1998, are not necessarily indicative of the results for the entire year. The consolidated results for the three months and six months ended June 30, 1998, include the accounts of SpecTran Corporation (the Company) and its 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"), a former subsidiary of Wassall plc. 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. 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. These financial statements supplement, and should be read in conjunction with, the Company's audited financial statements for the year ended December 31, 1997, as contained in the Company's Form 10-K as filed with the United States Securities and Exchange Commission. 2. INVENTORIES Inventories consisted of (in thousands): June 30, 1998 December 31, 1997 ------------- ----------------- Raw Materials $ 3,401 $ 4,036 Work in Process 1,079 1,010 Finished Goods 5,752 4,620 --------------- --------------- $ 10,232 $ 9,666 =============== ===============
5 3. PROPERTY, PLANT & EQUIPMENT Property, plant and equipment consisted of (in thousands): June 30, 1998 December 31, 1997 ------------- ----------------- Land and Land Improvements $ 978 $ 978 Buildings and Improvements 24,479 10,453 Machinery and Equipment 40,008 33,567 Construction in Progress 19,345 27,694 ---------------- --------------- 84,810 72,692 Less Accumulated Depreciation and Amortization 19,354 17,283 ---------------- --------------- $ 65,456 $ 55,409 ================ ===============
4. LONG-TERM DEBT Long-term debt consisted of (in thousands): June 30, 1998 December 31, 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 --------- --------- Total $ 34,000 $ 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 consisting of $16.0 million of 9.24% interest Series A Senior Secured Notes due December 26, 2003, and $8.0 million of 9.39% interest Series B Senior Secured Notes due December 26, 2004. The Company also has a $20.0 million revolving credit agreement with its principal bank, maturing in December 1999. As of June 30, 1998, the Company had borrowed $10.0 million against the revolving agreement. Due to the loss incurred in this year's second quarter, the Company was in violation as of June 30, 1998, of certain covenants contained in both the revolving credit agreement and the senior secured notes. Subsequent to the end of the quarter, the Company obtained waivers of the violations as of June 30, 1998 from the bank regarding the revolving credit agreement and the note holders regarding the senior secured notes. The Company is currently in discussions with its lenders to obtain modifications of certain covenants contained in the loan agreements to accommodate this decline in earnings. 5. CORNING SETTLEMENT On March 13, 1998, the Company announced the settlement of Corning's obligation to purchase multimode fiber from the Company under a multiyear supply contract the companies entered into on January 1, 1996. Corning has terminated its purchase of multimode fiber from the Company in exchange for a series of cash payments to the Company totaling $4.1 million. For the three months and six months ended June 30, 1998, the Company recognized income on the settlement of approximately $900,000 and $1.8 million, respectively. 6 6. 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 prior periods' earnings per common share amounts calculated under previous standard. Under SFAS 128, 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 at June 30, 1998 and June 30, 1997. Fully diluted earnings per common share has been replaced with diluted earnings per common share. The diluted earnings per common share computation for the three months and six months ended June 30, 1997, 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. For the three months and six months ended June 30, 1998, diluted earnings per common share excludes the common share equivalency of options granted to employees under the stock incentive plan since the effects would be anti-dilutive. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three and Six Months Ended June 30, 1998 Compared to Three and Six Months Ended June 30, 1997 Overview of Results for the June, 1998 Quarter SpecTran incurred a net loss for the June, 1998 quarter of $1.4 million, or $.20 per diluted share. Reduced earnings at all three operating units contributed to the net loss. The lower earnings at the Communication Fiber Technologies subsidiary was caused by an industry-wide oversupply situation resulting in a highly competitive market environment and price weakness. Overall demand is still strong and while the overall volume of standard communication fiber sold during this year's second quarter was up slightly compared with the same quarter last year, declining selling prices, particularly for single-mode fiber, caused a reduction in gross profit margins. Lower earnings at the Specialty Optics subsidiary resulted from operational issues rather than the lack of market demand. Charles B. Harrison, SpecTran's President and Chief Executive Officer, has assumed operational control of this subsidiary until a new general manager can be recruited and is restructuring its management and systems. William B. Beck, the former general manager and President of SpecTran Specialty Optics Company, has left the Company to pursue other interests. Manufacturing and engineering personnel from the Company's Communication Fiber Technologies subsidiary have been assigned to address specific operational issues. General Photonics, the Company's cabling joint venture with General Cable, is experiencing lower than expected sales due to soft domestic customer premises cable market and pricing, not unlike our competitors. Stringent cost control measures have recently been implemented which are expected to lead to improved results at General Photonics for the second half. Due to the loss incurred during this year's second quarter, the Company is in violation of certain covenants with its debt holders. Subsequent to the end of the quarter, the Company obtained waivers of the violations as of June 30, 1998. The Company is currently in discussions with its lenders to obtain modifications of certain covenants contained in the loan agreements to accommodate this decline in earnings. 8 Results of Operations The following table sets forth, for the periods indicated, certain financial data as a percentage of net sales: SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30, 1998 1997 1998 1997 ---- ---- ---- ---- Net Sales 100.0% 100.0% 100.0% 100.0% Cost of Sales 76.2% 60.4% 85.0% 61.2% ----- ----- ----- ----- Gross Profit 23.8% 39.6% 15.0% 38.8% Selling and Administrative Expenses 20.7% 24.6% 20.6% 24.6% Research and Development Cost 8.0% 5.0% 8.3% 5.1% ---- ---- ---- ---- Income (Loss) from Operations (4.9)% 10.0% (13.9)% 9.1% Other Income (Expense), net 3.9% .9% 2.5% 2.6% ---- --- ---- ---- Income (Loss) before Income Taxes (1.0%) 10.9% (11.4)% 11.7% Income Tax Expense (Benefit) (.4)% 3.7% (4.5)% 3.9% ----- ---- ------ ---- Income (Loss) before Equity in Joint Venture (.6)% 7.2% (6.9)% 7.8% Income (Loss) from Joint Venture, net (1.0)% .4% (1.1)% .6% ------ --- ------ --- Net Income (1.6)% 7.6% (8.0)% 8.4% ====== ==== ====== ====
Net Sales - --------- Net sales of $17.0 million and $32.3 million for the three months and six months ended June 30, 1998, were $1.2 million, or 7.2% and $150,000, or .5%, higher than the comparable periods of 1997. The increases were primarily due to increased revenues at SpecTran Specialty. Sales growth was adversely effected 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. In addition, the volume of single-mode fiber sales for the three months and six months ended June 30, 1998, were substantially lower than in the comparable periods in 1997, in large part due to continued unsettled economic conditions and competitive market conditions in Asia. Gross Profit - ------------ Gross profit of $2.6 million and $7.7 million for the three months and six months ended June 30, 1998, was $3.6 million, or 58.6% and $5.0 million, or 39.7% lower than for the comparable periods in 1997. As a percentage of net sales the gross profit decreased to 15.0% and 23.8% for the three months and six months ended June 30, 1998, from 38.8% and 39.6% for the three months and six months ended June 30, 1997. The decrease in gross profit for both periods was primarily due to operational and inventory issues at SpecTran Specialty and continued industry pricing pressures for standard communication fiber products. As a percentage of net sales, royalty expense increased from 2.5% and 2.8% for the three months and six months ended June 30, 1997, to 3.1% and 3.6% for the three months ended June 30, 1998, primarily due to an increase in the percentage of net sales subject to royalty. Selling and Administration - -------------------------- Selling and administrative expenses decreased $388,000, or 9.9%, and $1.2 million, or 15.7%, for the three months and six months ended June 30, 1998. Included in the three months and six months ended June 30, 1997, were $400,000 and $1.1 million, respectively, of costs associated with the Company's one-time management reorganization and training costs. As a percentage of net sales, selling and administrative expenses decreased to 20.6% and 20.7% for the three months and six months ended June 30, 1998, from 24.6% for both the three months and six months ended June 30, 1997. Research and Development - ------------------------ Research and development costs increased $589,000, or 7.2%, and $983,000, or 61.5 % for the three months and six months ended June 30, 1998. Assuming the Company obtains modifications from its debtholders, the Company plans to continue to increase its investment in programs to improve manufacturing cost and product performance in both multimode and single-mode product lines, to develop new special performance fiber products and to develop alternative process technologies. As a percentage of net sales, research and development costs increased form 5.1% and 5.0% for the three months and six months ended June 30, 1997, to 8.3% and 8.0% for the three months and six months ended June 30, 1998. 9 Other Income (Expense), net - --------------------------- Other income (expense), net favorably increased by $2,000 or .5%, and $964,000 or 332.4%, for the three months and six months ended June 30, 1998, compared with the same periods in 1997. Interest income decreased for the three months and six months ended June 30, 1998, by $456,000 and $618,000, respectively due to a lower level of cash available for investment. Net interest expense increased for the three months and six months ended June 30, 1998 by $241,000 and $12,000, respectively. The increase for the three months primarily relates 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 for the three months and six months ended June 30, 1998, by $699,000 and $1.6 million, respectively, primarily due to the Company's settlement of a multi-year contract with Corning. Income Taxes - ------------ The Company realized a tax benefit for the three months and six months ended June 30, 1998, as compared to a tax provision of 33.7% and 34.0% for the three months and six months ended June 30, 1997. The tax benefit was due to the loss incurred by the Company for the 1998 periods. Income from Equity in Joint Venture - ----------------------------------- The Company realized losses of $194,000 and $326,000, net of tax, for the three months and six months ended June 30, 1998, from its investment in General Photonics, the joint venture formed in December, 1996 with General Cable. The loss was due to lower than anticipated revenues and gross profit. Net Income - ---------- The net loss for the three months and six months ended June 30, 1998, was $1.4 million and $518,000 as compared to net income for the three months and six months ended June 30, 1997, of $1.3 million and $2.5 million. The loss for the three months ended June 30, 1998, was due to the operational and inventory issues at SpecTran Specialty, the loss from its equity in General Photonics and a lower level of earnings at SpecTran Communication due to competitive market conditions. Liquidity and Capital Resources - ------------------------------- The Company's principal sources of cash are cash flow from operations, established bank credit facilities and existing cash balances. Although the Company did not generate positive cash flow from operations during the first half of 1998, it does expect to generate positive cash flow for the entire year. As of June 30, 1998, the Company had approximately $2.8 million of cash and cash equivalents. In addition, the Company has a $20.0 millino revolving credit agreement with its principal bank, $10.0 million of which has been drawn down. The Company at June 30, 1998, had working capital of approximately $17.0 million and a current ratio of 2.4 to 1. The results for the three months and six months ended June 30, 1998, have put the Company in violation of certain covenants with its debtholders. The Company has obtained waivers of the violations as of June 30, 1998, and has initiated discussions with its debtholders to obtain modifications of certain covenants in its loan agreements to accommodate the temporary decline in earnings. There can be no assurance that the modifications in the loan agreements will be obtained, or that the Company will be able to borrow additional amounts under its revolving credit agreement. The Company is continuing its capacity expansion which will require approximately $10.0 million in capital expenditures through the remainder of 1998, which will result in total expenditures for capacity expansion of approximately $44.0 million at SpecTran Communication and $12.0 million at SpecTran Specialty. When fully operational, the expansion at SpecTran Communication will increase capacity there by 100%. The expansion at SpecTran Specialty, which was completed in 1997, increased capacity by 50%. The Company intends to continue to finance this expansion through a combination of cash flow from operations and borrowings, assuming it obtains the appropriate modifications with its debtholders. 10 Other Matters - ------------- Charles B. Harrison, a Company Director since July 1997, was appointed President and Chief Executive Officer of the Company, effective April 13, 1998, succeeding Dr. Raymond E. Jaeger. Dr. Jaeger remains the Company's Chairman of the Board. Pursuant to Rule 14a-4 adopted under the Securities Exchange Act of 1934, unless a stockholder who desires to introduce a proposal at the Company's annual meeting of stockholders notifies the Company at least 45 days prior to the month and day of the mailing of the prior year's proxy statement (i.e., by March 16, 1999), the proxyholders designated by management will be allowed to use their discretionary voting authority when the proposal is raised at the annual meeting, without any discussion of the matter in the proxy statement. Management is aware of the potential software logic anomalies associated with the year 2000 date change. The Company has evaluated the potential issues that need to be addressed in its operations and has developed a plan for their remediation. Parts of this plan have already been implemented. Based on currently known information, costs of addressing the issue are not expected to have a material effect upon the Company's financial position, results of operations, or cash flows in future periods. As part of the process, the Company plans on communicating with certain service providers, suppliers, and customers to obtain information regarding their plans to address Year 2000 issues, to the extent that they have such issues. There can be no assurance that third parties' systems, upon which the Company may rely will become Year 2000 compliant in a timely manner. Subsequent Events - ----------------- In July 1998, the Company announced that William B. Beck, the former general manager and President of SpecTran Specialty, had left the company to pursue other interests. In August 1998, the Company announced the election of Robert A. Schmitz to the Board of Directors. As discussed above, subsequent to the end of the quarter, the Company obtained from its debtholders waivers as of June 30, 1998 of violations of certain covenants due to the loss incurred in this year's second quarter. The Company is currently in discussions with its lenders to obtain modifications of certain covenants contained in the loan agreements to accommodate this decline in earnings. The Company presently anticipates revenue growth in 1998 over the previous year, but perhaps not the double digit growth previously announced. Recent Accounting Pronouncements - -------------------------------- Effective June 15, 1998, the provisions of Statements of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities," will apply to the Company. The Company anticipates that application of these statements will have no effect on the presentation of its financial information. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use, and is effective for fiscal years beginning December 31, 1998, with earlier application encouraged. The adoption of SOP 98-1 is not expected to have a material effect on the Company's financial statements. Forward Looking Statements - -------------------------- This report contains forward looking statements which are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. These uncertainties include, but are not limited to, general economic conditions and competitive conditions in markets served by the Company. 11 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) 10.109 Employment agreement between SpecTran Corporation and William B. Beck dated as of June 20, 1998. 10.110 Employment agreement between SpecTran Corporation and Dr. Raymond E. Jaeger dated as of April 13, 1998. (b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter which this report was filed. SIGNATURES Pursuant to the requirements 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. SPECTRAN CORPORATION (Registrant) Date: August 14, 1998 BY: /s/ Charles B. Harrison ------------------------ Charles B. Harrison President and Chief Executive Officer Date: August 14, 1998 BY: /s/ Bruce A. Cannon -------------------- Bruce A. Cannon Senior Vice President, Chief Financial Officer and Chief Accounting Officer 12 EX-10.109 2 EMPLOYMENT AGREEMENT EXHIBIT 10.109 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, executed as of June 20, 1998 between SpecTran Corporation, a Delaware corporation (hereinafter referred to as the "Corporation"), and William B. Beck (hereinafter referred to as "Executive"). W I T N E S S E T H: WHEREAS, SpecTran Specialty Optics Company ("SSOC"), a subsidiary of the Corporation, presently employs Executive; and WHEREAS, the Corporation wishes to employ and Executive wishes to be so employed by the Corporation; NOW, THEREFORE, in consideration of the covenants and agreements herein contained, the parties hereto agree with each other as follows: Introduction. This Agreement replaces the Employment Agreement between SSOC and Executive dated February 18, 1994 as amended by a letter agreement between SSOC and Executive dated April 18, 1996, which Employment Agreement, as amended, provided for February 19 to February 18 successive one year employment terms unless notice is otherwise provided. 1. Employment. The Corporation agrees to and does hereby employ Executive and Executive agrees to and does hereby accept employment by the Corporation as Vice President Marketing and Sales of the Corporation, or in any other capacity as determined by its Board of Directors, subject to the supervision and direction of the President and Chief Executive Officer of the Corporation, commencing on the date hereof and ending on midnight February 18, 1999 (the "Base Term"). The Base Term shall be automatically extended for successive one-year periods unless either party provides notice to the other to the contrary at least five (5) business days prior to the end of the Base Term or any extension thereof, subject to prior termination in accordance with the provisions of Article 12 hereof. The Base Term and any extensions thereof shall be referred to in this Agreement as the "Employment Period". 2. Scope of Duties. Executive agrees that he will devote his full time and effort during the Employment Period to the performance of the duties of his office. Executive shall make his business headquarters at Sturbridge, Massachusetts and shall relocate should the Corporation change its headquarters. Executive shall undertake such travel as the Corporation may request. 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 Twelve Thousand Two Hundred Fifty Dollars and No Cents ($12,250.00) per month, (this amount to be referred to as "Executive Compensation"). Executive shall be considered for an increase in Executive Compensation effective June 1, 1999. 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 its business headquarters. The Board of Directors of the Corporation may increase Executive's Executive Compensation at such time or times and in such amount or amounts as it may in its sole discretion determine. (b) Other Compensation. i. Profit Sharing Plan. Executive will participate in the Corporation's Profit Sharing Plan. Executive understands that the targets set for the Profit Sharing Plan areestablished annually by the Corporation's Board of Directors and often vary fromyear to year. 1 ii. Incentive Plan. Executive will participate in the Key Employee Incentive Plan established by the Corporation or related transition or successor plans. For the second half of 1998, while nominally Executive's participation in this Plan will permit Executive to earn a bonus or up to thirty percent (30%) of Executive's 1998 second half base salary (Executive Compensation), the present expectation is that Executive will not earn a bonus of more than fifteen percent (15%) of Executive's 1998 second half base salary (Executive Compensation). iii. Stock Options. Executive will be eligible for consideration for grants of stock options on an annual basis; whether Executive receives a grant and the number of options granted is at the discretion of the Board of Directors. iv. Automobile Allowance. Executive will receive a car allowance of $825 per month. 4. Vacation. Executive shall be entitled to a vacation each year equal to one (1) month. 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 and/or any of its Affiliates (defined below), 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, licensors 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 EBOC, EBOT, any of their respective Affiliates (as defined below) 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 EBOC's EBOT's or 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 EBOC, EBOT or the Corporation or any of their Affiliates. For the purposes of this Agreement, "Affiliates" shall mean any corporation, partnership, joint venture, other entity of any type or individual that directly or indirectly, through one or more intermediaries, controls or is controlled, or is under common control with, EBOC, EBOT or the Corporation, as the case may be. 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 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. 2 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 Annual Executive Compensation as set forth in Article 3 and continue the benefits provided for him in Articles 8 and 9 hereof. 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 Annual Executive Compensation as set forth in Article 3 hereof. (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 amd 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 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 all benefit plans to the extent, if any, that he may be eligible to do so under the provisions of such plan or program. Those benefit plans may include medical and insurance, life and accidental death/dismemberment insurance, short- and long-term disability, tuition reimbursement, 401(k) plan, stock purchase plan, vacation and pension plans. 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 amounts due to Executive under Article 7. (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. For example, if a disability benefit is available under a program referred to in Article 9(a) above and it provides the same or greater benefit than provided in Article 7 hereof, then no benefit will be paid out under Article 7 hereof. If a disability benefit available under Article 9(a) above is less than that provided in Article 7 hereof, then supplemental payments would be available under Article 7 hereof to the extent that the total of the payments would equal the aggregated benefits provided by Article 7. 3 10. Covenant Not to Compete. During the Employment Period, Executive agrees not to compete with the Corporation (the Corporation for purposes of this Article 10 means the Corporation and its Affiliates) either directly, or by stock interest exceeding five percent (5%), or otherwise in any way in any business in which it is then engaged anywhere in the world. During the one-year period immediately following termination of Executive's employment with the Corporation, Executive agrees that he will not (a) engage, directly or indirectly, or by stock interest exceeding five percent (5%), or otherwise in any way, in 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, (b) 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 (c) 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. During this one-year period, provided that the Corporation has requested within fifteen (15) business days after Executive's last day of employment the non-competition agreement referred to above with respect to said period, Executive shall receive Annual Executive Compensation and employee benefits paid or maintained in the same fashion and in amounts not less than those he received during the last year of employment with the Corporation, and 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 or of Article 5, then in addition to any other remedies available to the Corporation (which can include obtaining injunctive relief as the parties acknowledge that irreparable damage not compensable by money can result), 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) For Cause. The Corporation may terminate Executive's employment and this Agreement for Cause by delivering written notice to Executive, setting forth the reason for termination. For the purpose of this Agreement, "Cause" shall mean (i) the arrest of the Executive on charges of having committed any felony, (ii) stealing from the Corporation, (iii) a willful breach by Executive of a material provision of this Agreement and (iv) if Executive engages in gross misconduct, such as fraud, dishonesty, gross negligence or insubordination. If this Agreement is terminated for Cause, the Corporation's obligation to Executive hereunder shall be limited to the Executive Compensation and benefits earned up to the date notice of termination is delivered to Executive. (b) Termination Without Cause.If the Corporation dismisses Executive without Cause, 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. (c) Termination By Executive. If Executive elects to terminate his employment with the Corporation, the Corporation's obligations to Executive under this Agreement shall be limited to the Executive Compensation and benefits earned up to the date of Executive's departure. Nonetheless, the Corporation may notify Executive that it wishes Executive not to compete and to be available as a consultant in accordance with and for the compensation set out in Article 10. 4 13. Survival. The provisions of Articles 5, 6, 10, 12 and -------- 15 shall survive the termination of this Agreement. 14. 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, Massachusetts 01566 Attn: Charles B. Harrison President and Chief Executive Officer 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. 15. Applicable Law. This Agreement shall be interpreted and enforced in accordance with the laws of Massachusetts governing contracts made in and to be performed solely in such State. 16. 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 CORPORATION By s/s/ Charles B. Harrison Charles B. Harrison, President and Chief Executive Officer s/s/ William B. Beck William B. Beck 5 EX-10.110 3 RESTATED EMPLOYMENT AGREEMENT EXHIBIT 10.110 RESTATED EMPLOYMENT AGREEMENT RESTATED EMPLOYMENT AGREEMENT, executed as of April 13, 1998 between SpecTran Corporation, a Delaware corporation (hereinafter referred to as the "Corporation"), and Dr. Raymond E. Jaeger (hereinafter referred to as "Executive"). W I T N E S S E T H: WHEREAS, Executive is presently employed by the Corporation pursuant to an Employment Agreement dated December 14, 1992 (the "1992 Employment Agreement"); and WHEREAS, the Corporation recognizes the effort, attention and skill Executive has given the organization, operation and planning of the Corporation and 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. Termination of the 1992 Employment Agreement. This Agreement supersedes and replaces the 1992 Employment Agreement which shall be deemed terminated as of the date first written above. 2. 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 and Board of Directors, for the period commencing on April 13, 1998 and ending at midnight on June 12, 2001 (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." 3. Scope of Duties/ Headquarters/ Other Directorships. (a) Executive agrees that as an employee of the Corporation he will devote his time and effort during the Employment Period to the performance of the duties of such employment. During the first six months of this Agreement Executive will work with the Chief Executive Officer to develop a review and analysis of the Company's strategic plan for presentation to the Board of Directors, with particular emphasis on the implications for the Company of the market change that appears to have begun during the third quarter of 1997. While the goal is the presentation of a mutually agreed report, if there is no mutual agreement, then the views of the Executive and the Chief Executive Officer will be presented to the Board of Directors. During the remainder of this Agreement, Executive shall provide advice and assistance to the Board of Directors and the Chief Executive Officer and perform such projects as reasonably requested and mutually agreed. It is anticipated that Executive will perform an active role in providing advice and counsel with respect to the Corporation's patent and technology position and licensing arrangements, including those with Corning Incorporated and Lucent Technologies, as well as consulting support for partnering and alliances with other firms for strategic purposes. In addition, Executive will continue to serve as the Corporation's representative to the International Wire and Cable Symposium Committee, with duties including attendance at three two-day organizing sessions for the technical Symposium, evaluation of contributed papers, attendance at the Symposium, planning and operational development of strategic direction for the Symposium, and serving as Chair of the Educational Subcommittee, among other things. Executive will continue to serve as Chairman of the Board of Directors of the Corporation during the first twelve months of this Agreement and may continue to do so thereafter, subject to election by the stockholders and determination of the Board of Directors. (b) Executive shall make his business headquarters at Sturbridge, Massachusetts. Executive shall undertake such travel as the Corporation may request. 1 (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 devote such time thereto as may be reasonably 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. 4. Employment Period - Annual Compensation. (a) Annual Executive Compensation. For the services and duties to be rendered and performed by Executive during the Employment Period, the Corporation agrees to pay Executive annual compensation at the rate of Two Hundred Fifty Thousand Dollars and no cents ($250,000.00) 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 travelling expenses while absent, on the Corporation's business, from his business headquarters. (b) Bonus for Calendar Year 1998. For calendar year 1998 only, Executive will continue to be eligible to participate in the all employee profit sharing plan ("EPSP") and for a target bonus of twenty-five percent (25%) of the Base Annual Executive Compensation under the Corporation's Key Employee Incentive Plan ("KEIP"), it being expressly understood that determination of whether or not any such bonus will be paid and the amount of any such bonus shall be at the sole discretion of the Board of Directors. After Calendar Year 1998, Executive will not be entitled to participate in either the EPSP or the KEIP. (c) Stock Option Grant in 1998. Subject to the stockholders of the Corporation approving an increase in the number of shares authorized for issuance under the Corporation's 1991 Incentive Stock Option Plan (the "Plan") at the Corporation's 1998 annual meeting of stockholders, Executive shall be granted incentive stock options to purchase 50,000 shares of the Corporation's common stock under the Plan1. 5. Vacation. Executive shall be entitled to a vacation each year equal to one (1) month. Said vacation may be taken all at once or weekly at the sole discretion of Executive. - -------- 1 The Corporation presently has an insufficient number of shares reserved for issuance as incentive stock options to make this second grant of incentive stock options to purchase 50,000 shares of common stock. The Corporation will be seeking stockholder approval to reserve additional shares for issuance as incentive stock options at its next Annual Meeting of Stockholders, presently scheduled on or about May 31, 1998. While the Corporation does not anticipate that the stockholders will reject such a resolution, should they do so, Executive will have the option of receiving these options as non-qualified options promptly after the Annual Meeting, or awaiting the next meeting of stockholders at which the stockholders approve such additional reservation. 2 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, licensors 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 5 and 6. 3 8. Disability. (a) In the event Executive becomes partially disabled, or becomes totally disabled (as determined in accordance with Article 8(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 Annual Executive Compensation as set forth in Article 4 and continue the benefits provided for him in Articles 9 and 10 hereof. 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 8(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 Annual Executive Compensation as set forth in Article 4 hereof. (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. 9. Death. In the event of the death of Executive during the Employment Period, the Corporation shall continue to pay Executive's 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. 4 10. Employee Benefits. (a) Executive may participate in any pension plan, profit-sharing 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, provided that Executive's participation in the Corporation's all employee profit sharing plan and Key Employee Incentive Plan will terminate after calendar year 1998. Executive will be covered under the Corporation's medical and dental insurance programs, or provided with identical or substantially similar coverage, until age 65. 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. (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 10(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. 11. Covenant Not to Solicit Employees. During the one-year period immediately following termination of Executive's employment with the Corporation, 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 11, 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. 12. 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. 5 13. Termination. (a) Survival. The provisions of Articles 6 (Secrets), 7 (Patents), 11 (Covenant Not to Solicit Employees), 13 (Termination) and 15 (Applicable Law) shall survive the termination of this Agreement. Further, to the extent that this Agreement expires at the end of its term prior to Executive reaching the age of 65, then Article 10 shall survive to the extent the Corporation remains obligated to provide Executive with the coverage described in the second sentence of Article 10(a) until Executive reaches age 65. (b) Termination by Executive. Subject to the provisions of Article 13(c)(iii) regarding a Change in Control, if at any time during the Employment Period, Executive elects to terminate his employment with the Corporation, 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. (c) Termination Without Cause. (i) Subject to the provisions of Article 13(c)(ii) below, and provided there has been no Change in Control (as defined in Article 13(c)(v) below), in the event the Corporation dismisses Executive without Cause from employment, the Corporation shall continue to fulfill its obligations under this Agreement through the end of the Employment Period and until Executive reaches age 65 with regard to the coverage described in the second sentence of Article 10(a). (ii) In the event Executive takes other employment after being dismissed without Cause, and provided there has been no Change in Control (as defined in Article 13(c)(v) below), the Corporation's obligations to him under this Agreement including those under the second sentence of Article 10(a) shall cease upon the later of: (A) Executive's taking other employment, or (B) six months following his dismissal; provided, however that the Corporation's obligations under this Article 13(c)(ii) shall in no event continue beyond the end of the Employment Period. Moreover, if Executive takes other employment during the six-month period following his dismissal without Cause, then the Corporation's obligation to Executive for the balance of said six-month period shall be limited to payment of Executive's Annual Executive Compensation. (iii) In the event that a Change in Control occurs during the Employment Period and either [A] Executive is dismissed without Cause from employment 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 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 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 13(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 13(c) hereof had payment thereof not been accelerated pursuant to this Article 13(c)(iv). 6 (v) "Change in Control" shall mean [A] the date of public announcement that a person has become, without the approval of the Corporation's Board of Directors, the beneficial owner of 20% or more of the voting power of all securities of the Corporation then outstanding; [B] the date of the commencement of a tender offer or tender exchange by any person, without the approval of the Corporation'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 Corporation then outstanding; or [C] the date on which individuals who constituted the Board of Directors of the Corporation 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 6, 7 or 11 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. 14. 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: Chief Executive Officer with a copy to: Ira S. Nordlicht, Esq. Nordlicht & Hand Olympic Tower 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. 15. Applicable Law. This Agreement shall be interpreted and enforced in accordance with the laws of Massachusetts without giving effect to the principles of conflicts of law. 16. 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 written above. SPECTRAN CORPORATION By: /s/ Charles B. Harrison Charles B. Harrison President and Chief Executive Officer /s/ R. E. Jaeger Dr. Raymond E. Jaeger 7 EX-27 4 FDS --
5 (Replace this text with the legend) 0000718487 SpecTran Corporation 1,000 U.S. DOLLARS 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 1 2,797 0 11,939 695 10,232 28,912 84,810 19,354 102,147 11,815 0 0 0 700 0 102,147 32,259 32,259 24,595 9,233 0 0 476 (641) (123) 0 0 0 0 (518) (.07) (.07)
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