-----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, C6uVLF45DbGl/TdLfOV8TvgwSk0lnqpJzmAlKSH+JvjI43rclZiBa67GDiVZyR6d +1cTBufTJH1p12tvdByRnw== 0000950123-96-002180.txt : 19960513 0000950123-96-002180.hdr.sgml : 19960513 ACCESSION NUMBER: 0000950123-96-002180 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960510 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRAN CORP CENTRAL INDEX KEY: 0000718487 STANDARD INDUSTRIAL CLASSIFICATION: GLASS PRODUCTS, MADE OF PURCHASED GLASS [3231] IRS NUMBER: 042729372 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12489 FILM NUMBER: 96559926 BUSINESS ADDRESS: STREET 1: 50 HALL ROAD CITY: STURBRIDGE STATE: MA ZIP: 01566 BUSINESS PHONE: 5083472261 10-Q 1 FORM 10-Q FOR QUARTERLY PERIOD ENDED 3/31/96 1 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 March 31, 1996 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 April 30, 1996, was 5,354,052. 1 2 PART I - FINANCIAL INFORMATION SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended March 31, --------------------------- 1996 1995 ------------ ----------- Net Sales $ 13,472,523 $ 7,965,079 Cost of Sales 8,716,304 5,071,503 ------------ ----------- Gross Profit 4,756,219 2,893,576 Selling & Administrative Expenses 2,819,116 2,037,649 Research & Development Costs 909,279 753,445 ------------ ----------- Income from Operations 1,027,824 102,482 Other Income (Expense): Interest Income 67,912 84,623 Interest Expense (186,198) (101,813) Other 33,778 56,146 ------------ ----------- (84,508) 38,956 ------------ ----------- Income before Income Taxes 943,316 141,438 Income Tax Expense 259,411 58,524 ------------ ----------- Net Income $ 683,905 $ 82,914 ============ =========== Weighted Average Number of Shares of Common Stock Outstanding 5,749,951 5,228,710 ============ =========== Net Income per Share of Common Stock $ .12 $ .02 ============ ===========
See accompanying notes to these consolidated condensed financial statements. 2 3 SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED BALANCE SHEETS
March 31, 1996 December 31, 1995 -------------- ----------------- (unaudited) ASSETS Current Assets: Cash and Cash Equivalents $ 1,037,046 $ 1,624,515 Current Portion of Marketable Securities 1,228,320 4,088,316 Accounts Receivable, Trade, net 8,746,521 7,798,517 Inventories 7,700,736 7,414,718 Current Deferred Income Taxes, net 588,000 588,000 Prepaid Expenses and Other Current Assets 659,931 513,356 ------------ ------------ Total Current Assets 19,960,554 22,027,422 Property, Plant and Equipment, net 11,779,190 10,290,048 Other Assets: Long-term Marketable Securities 2,065,599 1,132,682 License Agreements, net 954,195 1,004,417 Deferred Income Taxes, net 1,852,000 1,652,000 Goodwill, net 4,082,611 4,156,392 Other 110,509 101,751 ------------ ------------ Total Other Assets 9,064,914 8,047,242 ------------ ------------ Total Assets $ 40,804,658 $ 40,364,712 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable $ 2,729,774 $ 2,762,265 Income Taxes Payable 565,987 224,576 Accrued Liabilities 2,546,018 3,082,431 ------------ ------------ Total Current Liabilities 5,841,779 6,069,272 Long-term Debt 10,000,000 10,000,000 Stockholders' Equity: Common Stock, voting, $.10 par value; authorized 20,000,000 shares; outstanding 5,354,052 shares and 5,353,686 shares in 1996 and 1995, respectively 535,405 535,369 Common Stock, non-voting, $.10 par value; authorized 250,000 shares; no shares outstanding -- -- Paid-in Capital 26,444,953 26,442,794 Net Unrealized Loss on Marketable Securities (40,925) (22,264) Retained Earnings (Deficit) (1,976,554) (2,660,459) ------------ ------------ Total Stockholders' Equity 24,962,879 24,295,440 ------------ ------------ Total Liabilities & Stockholders' Equity $ 40,804,658 $ 40,364,712 ============ ============
See accompanying notes to these consolidated condensed financial statements. 3 4 SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN CASH FLOWS (UNAUDITED)
Three Months Ended March 31, ---------------------------- 1996 1995 ---- ---- Cash Flows from Operating Activities: Net Income $ 683,905 $ 82,914 Reconciliation of Net Income to Net Cash Provided by Operating Activities Add Charges (Deduct Credits) Items Not Affecting Cash: Depreciation and Amortization 705,863 484,795 Other Non-Cash Charges (71,202) (17,517) Changes in Other Components of Working Capital (1,748,636) (115,548) ----------- ----------- Net Cash Provided by Operating Activities (430,070) 434,644 Cash Flows from Investing Activities: Deposit on Acquisition of Business -- (1,613,062) Acquisition of Property, Plant and Equipment (2,064,941) (420,643) Purchase of Marketable Securities (6,011,110) (352,943) Proceeds from Sale/Maturity of Marketable Securities 7,916,457 -- ----------- ----------- Cash Used in Investing Activities (159,594) (2,386,648) ----------- ----------- Cash Flows from Financing Activities: Borrowings of Long-term Debt -- 1,651,942 Proceeds from Exercise of Stock Options and Warrants 2,195 -- ----------- ----------- Cash Provided by Financing Activities 2,195 1,651,942 Decrease in Cash and Cash Equivalents (587,469) (300,062) Cash and Cash Equivalents at Beginning of Period 1,624,515 477,022 ----------- ----------- Cash and Cash Equivalents at End of Period $ 1,037,046 $ 176,960 =========== ===========
See accompanying notes to these consolidated condensed financial statements. 4 5 SPECTRAN CORPORATION AND SUBSIDIARY COMPANIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The financial information for the three months ended March 31, 1996, 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 period. The results of operations for the three months ended March 31, 1996, are not necessarily indicative of the results for the entire year. The consolidated results for the three months ended March 31, 1996, include the accounts of SpecTran Corporation (the Company) and all wholly owned subsidiaries: SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company and Applied Photonic Devices, Inc. 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, 1995, as contained in the Company's Form 10-K as filed with the United States Securities and Exchange Commission. 2. INVENTORIES Inventories consisted of:
March 31, 1996 December 31, 1995 -------------- ----------------- Raw Materials $3,342,814 $3,131,753 Work in Process 1,342,515 1,507,830 Finished Goods 3,015,407 2,775,135 ---------- ---------- $7,700,736 $7,414,718 ========== ==========
5 6 3. PROPERTY, PLANT & EQUIPMENT
March 31, 1996 December 31, 1995 -------------- ----------------- Property, plant and equipment consisted of: Land and Land Improvements $ 407,705 $ 407,705 Buildings and Improvements 3,747,097 3,729,114 Machinery and Equipment 17,650,882 17,229,195 Construction in Progress 3,266,057 1,640,786 ---------- ----------- 25,071,741 23,006,800 Less Accumulated Depreciation and Amortization 13,292,551 12,716,752 ----------- ----------- $11,779,190 $10,290,048 =========== ===========
4. INCOME PER SHARE OF COMMON STOCK Income per share of common stock is based on the weighted average of the number of shares outstanding during the periods, including common stock equivalents of stock purchase warrants and stock options for both primary and fully diluted earnings per share. Fully diluted income per share approximates primary income per share. 5. SUBSEQUENT EVENT On April 25, 1996, SpecTran Corporation and its subsidiaries (collectively, the "Company") entered into a Loan and Security Agreement with Fleet National Bank ("Fleet Bank") pursuant to which the Company can borrow up to $22,000,000, subject to certain limitations based on the Company's accounts receivable and inventory and the appraisal value of certain machinery, equipment and real property owned by the Company. The loan consists of a $12,000,000 revolving note which is payable April 1, 1999, a $5,000,000 term note which is payable in quarterly installments commencing January 1, 1997 and matures on April 1, 2001 and a $5,000,000 mortgage note which is payable in quarterly installments commencing July 1, 1997 and matures on April 1, 2006. Interest on each note is payable quarterly commencing July 1, 1996. The Company has the option from time to time to select the interest rate on the notes at either Fleet Bank's prime rate or the LIBOR rate plus 1.5%, provided that under certain circumstances, Fleet Bank may deem that the LIBOR rate is not available. The loans are secured by all of the Company's assets, including real property. At March 31, 1996, the Company had outstanding a $10 million loan under a revolving credit agreement with Fleet. This loan was repaid from the proceeds from the new $12 million revolving credit agreement, leaving $2 million of borrowing available under the agreement. 6 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three Months Ended March 31, 1996 Versus Three Months Ended March 31, 1995 Overview SpecTran's revenue increased 69.1% to $13,472,523 and the Company earned net income of $683,905, or $.12 per share in the first quarter of 1996 compared with revenues of $7,965,079 and net income of $82,914, or $.02 per share in the first quarter of 1995. The improved revenues and earnings in 1996 resulted from continued strong market demand for the Company's standard and specialty products and the results of Applied Photonic Devices, Inc., acquired in May 1995. Net Sales Consolidated net sales of $13,472,523 for the three months ended March 31, 1996, were $5,507,444 (69.1%) higher than for the comparable period of 1995. The increase was primarily due to strong market demand for the Company's standard multimode fiber products. Also contributing to the increase in the first quarter of 1996 were sales of Applied Photonic Devices, Inc., acquired by the Company in May 1995. Gross Profit SpecTran earned a consolidated gross profit of $4,756,219 during the 1996 first quarter which was $1,862,643 (64.4%) higher than the comparable period of 1995. The increase in gross profit was primarily due to the higher sales level in the 1996 first quarter. The gross margin, as a percentage of sales, decreased to 35.3% in 1996 from 36.3% in the first quarter of 1995. The decrease in the margin was principally due to the lower margin earned by the APD cabling operation which was acquired in May 1995. Royalties expense was 4.2% and 5.1% of SpecTran's sales during the first quarter of 1996 and 1995, respectively, with a higher level of sales in the 1996 first quarter not subject to royalties. Selling and Administration Consolidated selling and administrative expenses increased by $781,467 (38.4%) during the 1996 first quarter. The increase was primarily due to expenses incurred by Applied Photonic Devices, Inc. in the 1996 March quarter. As a percentage of sales these expenses decreased during 1996 to 20.9% from 25.6% in the first quarter of 1995. 7 8 Research and Development Consolidated spending for internal research and development increased by $155,834 (20.7%) during the 1996 first quarter. As a percentage of sales, consolidated research and development costs decreased to 6.7% in the first quarter of 1996 versus 9.5% in the comparable period of 1995. The Company's increased research and development spending is primarily in programs designed to improve manufacturing cost and product performance in both the multimode and single-mode product lines, to develop new special performance fiber products and to develop alternative process technologies. Other Income (Expense), net Net other expense in the first quarter of 1996 was $84,509 compared to net other income in the first quarter of 1995 of $38,956, a change of $123,465 (316.9%). Interest income decreased by $16,711 (19.7%) during the 1996 first quarter primarily as a result of a lower investment balance than in the comparable period of 1995. Interest expense increased during the first quarter of 1996 by $84,385 (82.9%) as a result of increased debt levels. Income Taxes A tax provision of 27.5% of pre-tax income was provided in the first quarter of 1996 compared to a tax provision of 41% of pre-tax income in the first quarter of 1995. The estimated effective tax rate for 1996 of 27.5% is lower than the statutory tax rate due to an anticipated reduction 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 asset will be realized through the utilization of operating loss and tax credit carryforwards. Net Income Net income for the 1996 first quarter was $683,905 which was a 5.1% return on sales. Net income for the same period in 1995 was $82,914, or 1.0% of sales, an increase of $600,991 (724.8%). Liquidity and Capital Resources At March 31, 1996, the Company had net working capital of $14,118,775, a current ratio of 3.4 to 1, and an aggregate of $1,037,046 in cash and cash equivalents. In addition, the Company had total marketable securities of $3,293,919 including $2,065,599 classified at long-term which could be converted into cash if needed. Capital expenditures in the first quarter of 1996 were $2,064,941, an increase of $1,644,298 (390.9%) compared to capital expenditures in the first quarter of 1995, for the purpose of increasing capacity and efficiency. The Company is considering additional significant increases in capital expenditures during the remainder of 1996 and is exploring debt financing necessary to support these expenditures (see "Subsequent Event"). 8 9 The Company expects but can not assure that existing working capital, borrowings, and expected positive cash flow should be sufficient to meet the Company's cash needs in 1996. 9 10 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit 10.66 Loan and Security Agreement Among SpecTran Corporation, SpecTran Specialty Optics Company, Applied Photonic Devices, Inc., SpecTran Communication Fiber Technologies, Inc. and Fleet National Bank dated April 25, 1996. Exhibit 10.67 Mortgage By SpecTran Corporation in Favor of Fleet National Bank dated April 25, 1996. Exhibit 10.68 Pledge Agreement Among SpecTran Corporation, Fleet National Bank and Fleet Investment Advisors dated April 25, 1996. (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: May 10, 1996 BY: /s/ Glenn E. Moore --------------------------- Glenn E. Moore President and Chief Executive Officer Date: May 10, 1996 BY: /s/ Bruce A. Cannon --------------------------- Bruce A. Cannon Senior Vice President and Chief Financial Officer 10 11 EXHIBIT INDEX ------------- EXHIBIT NO. DESCRIPTION ----------- ----------- Exhibit 10.66 Loan and Security Agreement Among SpecTran Corporation, SpecTran Specialty Optics Company, Applied Photonic Devices, Inc., SpecTran Communication Fiber Technologies, Inc. and Fleet National Bank dated April 25, 1996. Exhibit 10.67 Mortgage By SpecTran Corporation in Favor of Fleet National Bank dated April 25, 1996. Exhibit 10.68 Pledge Agreement Among SpecTran Corporation, Fleet National Bank and Fleet Investment Advisors dated April 25, 1996. Exhibit 27 Financial Data Schedule EX-10.66 2 LOAN AND SECURITY AGREEMENT 1 LOAN AND SECURITY AGREEMENT THIS LOAN AND SECURITY AGREEMENT is dated as of April 25th, 1996 and is among SPECTRAN CORPORATION ("SpecTran"), SPECTRAN SPECIALTY OPTICS COMPANY ("Optics"), APPLIED PHOTONIC DEVICES, INC. ("Photonic"), SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC. ("Communication") and FLEET NATIONAL BANK (the "Lender"). Each of SpecTran, Optics, Photonic and Communication are sometimes referred to as a "Borrower" and collectively the "Borrowers". W I T N E S S E T H: BACKGROUND. The Borrowers have requested the Lender to lend up to the sum of (i) $12,000,000.00 on a revolving loan basis, (ii) $5,000,000.00 on a term loan basis, and (iii) $5,000,000.00 on a mortgage loan basis (collectively the "Loans") and the Lender is willing to do so upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises herein contained, and each intending to be legally bound hereby, the parties agree as follows: ARTICLE 1 DEFINITIONS As used herein: 1.01 "Accounts," "Chattel Paper," "Contracts," "Documents," "Equipment," "Fixtures," "General Intangibles," "Goods," "Instruments," 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. 1.02 "Affiliate" means, as to any Person, each other Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or under common control with, such Person. 1.03 "Agreement" means this Loan and Security Agreement, as the same may from time to time be amended or supplemented. 1.04 "Assets" means all assets on the consolidated balance sheets of the Borrowers prepared in accordance with GAAP. 1.05 "Borrowing Base" means, at any time, the amount computed on the Borrowing Base Certificate most recently delivered to, and accepted by, the Lender in accordance with this Agreement and equal to the lesser of: 2 (a) $12,000,000.00; or (b) The aggregate of (i) one hundred percent (100%) of cash on deposit with the Lender or the Lender's Affiliates; (ii) eighty percent (80%) of Eligible Accounts, and (iii) thirty-three percent (33%) of Eligible Inventory; provided, however, advances for Eligible Inventory may not exceed $2,000,000.00. 1.06 "Borrowing Base Certificate" means a fully completed certificate in the form of Exhibit 1.06 attached hereto, certified by the chief financial officer of SpecTran to be correct and delivered to, and accepted by, the Lender pursuant to this Agreement. 1.07 "Business Day" means a day other than a Saturday, a Sunday, or a day on which commercial banks in Worcester, Massachusetts are authorized to close. 1.08 "Capital Assets" means Assets that are required or permitted to be depreciated or amortized in accordance with GAAP. 1.09 "Capital Expenditures" means, for the applicable period, the aggregate amount of all expenditures for the acquisition, construction, improvement, replacement or purchase of Capital Assets, including but not limited to, expenditures funded under Capital Leases. 1.10 "Capital Leases" means capital leases, conditional sales contracts and other title retention agreements relating to the purchase or acquisition of Capital Assets. 1.11 "Closing" has the meaning given to such term in Section 3.01. 1.12 "Collateral" has the meaning given to such term in Section 4.01. 1.13 "Collateral Documents" means the Mortgage and the documents, whether deliverable at or after the Closing, required under Article 4 and/or referenced in Exhibit 3.01(m) attached hereto. 1.14 "Current Maturities of Long-Term Indebtedness" means the principal amount of long-term Indebtedness paid during the twelve (12) months ended the date of calculation, including, but not limited to, amounts required to be paid during such period under Capital Leases. 1.15 "EBITDA" means, for each fiscal quarterly period (i.e. March 31, June 30, September 30 and December 31), Operating Income plus Interest, taxes, depreciation and amortization determined in accordance with GAAP. 1.16 "EBITDA Cumulative" means, Operating Income plus Interest, taxes, depreciation and amortization determined on a rolling four (4) quarters basis in accordance with GAAP. 1.17 "Eligible Account" means, at any time, an Account that conforms and continues to 2 3 conform to the following conditions: (a) The Account arose from a bona fide outright sale of Goods by any Borrower or from services performed by any Borrower, and such Goods have been shipped to the appropriate account debtors or their designees (or the sale has otherwise been consummated), or the services have been performed for the appropriate account debtors; (b) The Account is based upon an enforceable order or contract, written or oral, for Goods shipped or held or for services performed, and the same were shipped, held, or performed in accordance with such order or contract; (c) The title of any Borrower to the Account and, except as to the account debtor, to any Goods is absolute and is not subject to any prior assignment, claim, lien, or security interest, except in favor of the Lender; (d) The amount shown on the books of any Borrower and on any invoice or statement delivered to the Lender is owing to any Borrower, less any partial payment that has been made thereon by anyone; (e) The Account shall be eligible only to the extent that it is not subject to any claim of reduction, counterclaim, setoff, recoupment, or any claim for credits, allowances, or adjustments by the account debtor because of returned, inferior, or damaged Goods or unsatisfactory services, or for any other reason; (f) The account debtor has not returned or refused to retain, or otherwise notified any Borrower of any dispute concerning, or claimed nonconformity of, any of the Goods or services from the sale of which the Account arose; (g) The Account is not outstanding more than ninety (90) days from the date of the invoice therefor, unless the Account is backed by a letter of credit acceptable to the Lender; (h) The Account does not arise out of a contract with, or order from, an account debtor that, by its terms, forbids or makes void or unenforceable the assignment by any Borrower to the Lender of the Account arising with respect thereto; (i) No Borrower has received any note, trade acceptance, draft, or other Instrument with respect to, or in payment of, the Account, nor any Chattel Paper with respect to the Goods giving rise to the Account; (j) No Borrower has received any notice of the death of the account debtor or a partner thereof; nor of the dissolution, termination of existence, insolvency, business failure, appointment of a receiver for any part of the property of, assignment for the benefit of creditors by, or the filing of a petition in bankruptcy or the commencement of any proceeding under any bankruptcy or insolvency laws by or against, the account debtor. Upon the receipt by any 3 4 Borrower of any such notice, it will promptly give the Lender written advice thereof; (k) The account debtor does not have a principal place of business outside of the United States, unless the Account is backed by a letter of credit or foreign credit insurance acceptable to the Lender; (l) The account debtor is not a Subsidiary or other Affiliate of any Borrower; and (m) The Lender has not deemed such account ineligible because of reasonable uncertainty about the creditworthiness of the account debtor or because the Lender otherwise reasonably considers the collateral value thereof to the Lender to be impaired or its ability to realize such value to be insecure. In the event of any dispute, under the foregoing criteria, about whether an Account is or has ceased to be an Eligible Account, the commercially reasonable decision of the Lender shall control. 1.18 "Eligible Inventory" means Inventory consisting of raw materials and finished goods, valued at the lower of cost or fair market value as determined in accordance with GAAP, which is owned and held by any Borrower at its place of business identified on Exhibit 5.01(a) attached hereto, and which is subject to a valid and first priority, fully perfected security interest in favor of the Lender, free of all security interests or liens of any other Person, and which the Lender determines to be acceptable for including in the Borrowing Base. The following Inventory will not, in any event, constitute Eligible Inventory: (a) Work-in-process Inventory; (b) Inventory which is obsolete, not in good condition, not of merchantable quality or saleable in the ordinary course of the Borrowers' businesses or which is subject to defects which would affect its market value; and (c) Inventory which has been consigned to Persons other than the Borrowers. 1.19 "Event of Default" has the meaning provided in Section 7.01. 1.20 "Financial Statements" means the audited, consolidated (i) cash flow statements of the Borrowers, (ii) income statements of the Borrowers, and (iii) balance sheets of the Borrowers as of December 31, 1994 and December 31, 1995 and notes thereto certified by KPMG Peat Marwick to present fairly the consolidated financial position and results of operations of the Borrowers at such dates and for such periods in accordance with GAAP. 1.21 "Fixed Charge Coverage Ratio" means the ratio of EBITDA Cumulative minus cash taxes and Capital Expenditures for the applicable four (4) quarters period to Interest for the applicable four (4) quarters period plus Current Maturities of Long-Term Indebtedness. For this definition 4 5 only, Capital Expenditures will be deemed to be $5,000,000.00 for the fiscal year ending December 31, 1996 and thereafter. 1.22 "GAAP" means generally accepted accounting principles applied consistently with such changes or modifications thereto as may be approved in writing by the Lender. 1.23 "Indebtedness" means, as to any Borrower: (a) Obligations for borrowed money; (b) Obligations representing the deferred purchase price of property or services (other than accounts payable arising in the ordinary course of any Borrower's business payable on terms customary in the trade); (c) Obligations, whether or not assumed, secured by liens or payable out of the proceeds of production from property now or hereinafter owned or acquired by any Borrower; (d) Obligations which are evidenced by notes, acceptances or other instruments; and (e) Obligations under Capital Leases. 1.24 "Intellectual Property" means trademarks, service marks, trade names, trade styles, logos, goodwill, trade secrets, patents, and licenses acquired under any statutory, common law or registration process in any state or nation at any time, or under any agreement executed with any person or entity at any time. The term "license" refers not only to rights granted by agreement from the owner of patents, trademarks, service marks and the like, but also to rights granted by a franchiser under a franchise or similar agreement. The foregoing enumeration is not intended as a limitation of the meaning of the word "license". 1.25 "Interest" means, for the applicable period, interest paid or payable, including but not limited to, interest paid or payable on Indebtedness determined in accordance with GAAP. 1.26 "Laws" means all ordinances, statutes, rules, regulations, orders, injunctions, writs, or decrees of any government or political subdivision or agency thereof, or of any court or similar entity established by any thereof. 1.27 "Leverage Ratio" means the ratio of Liabilities to Tangible Net Worth. 1.28 "Liabilities" means all liabilities that, in accordance with GAAP, should be classified as liabilities on a consolidated balance sheet of the Borrowers in accordance with GAAP. 1.29 "Mortgage" means that certain Mortgage covering SpecTran's real property in Sturbridge, Massachusetts for the benefit of the Lender, as from time to time supplemented or amended. 5 6 1.30 "Mortgage Note" means the Mortgage Note referred to in Section 2.06 hereof. 1.31 "Net Income" means, for the applicable period, net income determined in accordance with GAAP. 1.32 "Notes" means the Revolving Note, the Term Note and the Mortgage Note. 1.33 "Obligations" is intended to be used in its most comprehensive sense and means the obligations of the Borrowers: (a) To pay the principal of, and interest on, the Notes in accordance with the terms thereof and to satisfy all other liabilities to the Lender, whether hereunder or otherwise, whether now existing or hereafter incurred, matured or unmatured, direct or contingent, joint or several, including any extensions, modifications, renewals thereof and substitutions therefor; (b) To repay to the Lender all amounts advanced by the Lender hereunder or otherwise on behalf of any Borrower, including, but without limitation, advances for principal or interest payments to prior secured parties, mortgagees, or lienors, or for taxes, levies, insurance, rent, or repairs to, or maintenance or storage of, any of the Collateral; and (c) To reimburse the Lender, on demand, for all of the Lender's expenses and costs, including without limitation the reasonable fees and expenses of its counsel, in connection with the preparation, administration, amendment, modification, or enforcement of this Agreement and the documents required hereunder, including, without limitation, any proceeding brought, or threatened, to enforce payment of any of the obligations referred to in the foregoing paragraphs (a) and (b). 1.34 "Operating Income" means, for the applicable period, Net Income less the sum of (i) extraordinary and nonrecurring gains and (ii) gains from the sale of Capital Assets plus the sum of (x) extraordinary and nonrecurring losses and (y) losses from the sale of Capital Assets. 1.35 "Person" means any individual, corporation, partnership, association, joint-stock company, trust, unincorporated organization, joint venture, court, or government or political subdivision or agency thereof. 1.36 "Permitted Liens" means: (a) Liens for taxes, assessments, statutory obligations or similar charges, incurred in the ordinary course of business, that are not yet due and payable or if overdue being contested in good faith by appropriate and lawful proceedings, so long as levy and execution thereon have been stayed and continue to be stayed and they do not, in the aggregate, materially detract from the value of the property of any Borrower or materially impair the operation of any Borrower's business; 6 7 (b) Pledges or deposits made in the ordinary course of business to secure payment of worker's compensation, or to participate in any fund in connection with worker's compensation, unemployment insurance, old-age pensions, or other social security programs; (c) Liens of mechanics, materialmen, warehousemen, carriers, or other like liens, securing obligations incurred in the ordinary course of business that are not yet due and payable; (d) Encumbrances consented to by the Lender in writing including zoning restrictions, easements, or other restrictions on the use of real property, none of which materially impairs the use of such property by any Borrower in the operation of its business, and none of which is violated in any material respect by existing or proposed structures or land use; (e) Purchase money security interests granted to secure the purchase price of assets, the purchase of which does not violate the terms of this Agreement; and (f) Liens consented to by the Lender in writing. 1.37 "Records" means correspondence, memoranda, tapes, discs, papers, books and other documents, or transcribed information of any type, whether expressed in ordinary or machine readable language. 1.38 "Revolving Note" means the Revolving Note referred to in Section 2.04 hereof. 1.39 "Stockholders' Equity" means the aggregate of the following accounts on the consolidated balance sheet of the Borrowers prepared in accordance with GAAP (i) the par or stated value of all outstanding capital stock, (ii) capital surplus, and (iii) retained earnings. 1.40 "Subsidiary" means any Affiliate (i) that is directly, or indirectly through one or more intermediaries, controlled by any Borrower or (ii) of which not less than 50% of the voting capital stock of which is owned, directly or through one or more intermediaries, by any Borrower. 1.41 "Tangible Net Worth" means Stockholders' Equity, less the sum of (i) any surplus resulting from any write up of Assets, (ii) goodwill, including any amounts however designated on the consolidated balance sheet of the Borrowers representing the excess of the purchase price paid for assets or stock acquired over the value assigned thereto on the books of any Borrower, (iii) patents, trademarks, trade names, copyrights and licenses, (iv) any amount at which shares of capital stock of any Borrower appears as an asset on the consolidated balance sheet of the Borrowers, (v) loans and advances to Affiliates, stockholders, directors, officers or employees, (vi) deferred expenses, and (vii) any other amount in respect of an intangible (except for the tax intangible related to FASB 109) that should be classified as an asset on a consolidated balance sheet of the Borrowers in accordance with GAAP. 1.42 "Term Note" means the Term Note referred to in Section 2.05 hereof. 7 8 1.43 Accounting. Accounting terms used and not otherwise defined in this Agreement have the meanings determined by, and all calculations with respect to accounting or financial matters unless otherwise provided herein shall be computed in accordance with, GAAP. ARTICLE 2 THE LOAN 2.01 General Terms. Subject to the terms hereof, the Lender will lend the Borrowers the principal sum of (i) $12,000,000.00 on a revolving loan basis, (ii) $5,000,000.00 on a term loan basis, and (iii) $5,000,000.00 on a mortgage loan basis. 2.02 The Notes. At the Closing, the Borrowers will execute and deliver to the Lender the Revolving Note, the Term Note and the Mortgage Note. 2.03 Disbursement. The Lender will credit the proceeds of (i) the Revolving Note to the Lender to pay the existing Indebtedness to the Lender in full and thereafter, from time to time and subject to the terms hereof, to the Borrowers' deposit account identified in Exhibit 2.03 attached hereto, (ii) the Term Note as set forth in Exhibit 2.05 attached hereto, and (iii) the Mortgage Note as set forth in Exhibit 2.06 attached hereto. 2.04 Revolving Note. Subject to the terms hereof, the Lender will lend the Borrowers, from time to time until March 31, 1999 (the "Termination Date") or the occurrence of an Event of Default, whichever occurs first, such sums in integral multiples of $50,000.00 as SpecTran may request by reasonable same day notice to the Lender, received by the Lender not later than 12:00 p.m. of such day, but which shall not exceed, in the aggregate principal amount at any one time outstanding, the Borrowing Base. The Termination Date may be extended by the Lender, as determined in its sole and absolute discretion, by written notice to any Borrower. The Borrowers may borrow, repay without penalty or premium (except for repayments of principal subject to LIBOR interest rates prior to the expiration of the Index Period as more fully set forth in the Notes) and reborrow hereunder, from the date of this Agreement until the Termination Date or the occurrence of an Event of Default, whichever occurs first. It is the intention of the parties that the outstanding principal amount of the Revolving Note will not exceed the then existing Borrowing Base, and if, at any time, an excess shall for any reason exist, the full amount of such excess, together with accrued and unpaid interest thereon, shall be immediately due and payable in full. 2.05 Term Note. 8 9 Subject to the terms hereof, the Lender agrees to lend to the Borrowers on a term loan basis the amount of $5,000,000.00, the payment terms to be in accordance with the provisions of the Term Note. Advances under the Term Note will only be made in accordance with and subject to the conditions contained in Exhibit 2.05 attached hereto. The outstanding principal balance of the Term Note is to be paid in equal monthly installments of $83,334.00. The Term Note is to be due and payable in any event on April 1, 2001. In addition, the Borrowers will be required to prepay the Term Note to the extent of the Borrowers' "Excess Cash Flow" as defined in the Term Note. The outstanding principal balance of the Term Note shall at no time exceed seventy-five percent (75%) of the auction value of the Borrowers' Equipment, and if, at any time, an excess for any reason shall exist, the full amount of such excess, together with accrued and unpaid interest thereon, shall be immediately due and payable in full. 2.06 Mortgage Note. Subject to the terms hereof, the Lender agrees to lend to the Borrowers on a mortgage loan basis the amount of $5,000,000.00, the payment terms to be in accordance with the provisions of the Mortgage Note. The Mortgage Note is to be amortized over twenty (20) years and due and payable in any event on April 1, 2006. Advances under the Mortgage Note will only be made in accordance with and subject to the conditions contained in Exhibit 2.06 attached hereto. The outstanding principal balance of the Mortgage Note shall at no time exceed seventy-five percent (75%) of the fair market value of the real estate encumbered by the Mortgage and, if, at any time, an excess for any reason shall exist, the full amount of such excess, together with accrued and unpaid interest thereon, shall be immediately due and payable in full. 2.07 Interest Rate and Payments of Interest. Interest on the principal balances of the Loans from time to time outstanding shall accrue at the rates and be payable as set forth in the Notes. 2.08 Payment to the Lender. The Borrowers have designated the deposit account identified in Exhibit 2.03 attached hereto as the account for all payments under the Notes and hereunder. Notwithstanding such designation, the Lender may charge against any deposit account of any Borrower all or any part of any amount due under the Notes and hereunder. 2.09 The Facility Fee. From and after the date hereof until the Termination Date, the Borrower shall pay an aggregate Facility Fee of one half of one percent (0.50%) per annum on the average daily undisbursed amount of the loan evidenced by the Revolving Note. The Facility Fee shall be payable quarterly in arrears on the first Business Day of each April, July, October and January. 2.10 The Commitment Fee. 9 10 At the Closing, the Borrowers shall pay an aggregate commitment fee to the Lender in the amount of $60,000.00. ARTICLE 3 CONDITIONS PRECEDENT The obligation of the Lender to make the Loans is subject to the following conditions precedent: 3.01 Documents Required for the Closing. The Borrowers shall have delivered to the Lender, prior to the initial disbursement of the Loans (the "Closing"), the following: (a) The Revolving Note, the Term Note, and the Mortgage Note each duly executed by the Borrowers; (b) The Mortgage, which shall have been duly executed by all proper parties and recorded at the appropriate recording office, with all recording fees therefor paid; (c) The Financial Statements; (d) The financing statements and other instruments required by Article 4; (e) A copy, certified as of the date of the Closing, of votes of the boards of directors of each Borrower and shareholders (except for SpecTran) of each Borrower, authorizing the execution, delivery, and performance of this Agreement, the Notes, the Collateral Documents, and each other document to be delivered pursuant hereto; (f) A copy, certified as of the date of the Closing, of the bylaws of each Borrower; (g) A certificate (dated the date of the Closing) of the corporate clerk and/or secretary of each Borrower as to the incumbency and signatures of the officers of each Borrower signing this Agreement, the Notes, the Collateral Documents, and each other document to be delivered pursuant hereto; (h) A copy, certified as of the most recent date practicable by the secretary of the state of incorporation, of the charter of each Borrower, and all amendments thereto, together with a certificate (dated the date of the Closing) of the corporate clerk and/or secretary of each Borrower to the effect that such charter has not been further amended since the date of the aforesaid certification of the secretary of the state of incorporation; (i) A certificate of good standing dated as of the most recent date practicable, issued by the secretary of the state of incorporation as to the legal existence, charter, and good legal standing of each Borrower; 10 11 (j) Certificates, as of the most recent dates practicable, of the secretary of each state in which each Borrower is qualified as a foreign corporation and, if applicable, of the department of revenue or taxation of each of such states, as to the good tax standing of each Borrower; (k) A written opinion of the law firm of Hackmyer & Nordlicht, legal counsel for the Borrowers, dated the date of the Closing and addressed to the Lender, in form and content satisfactory to the Lender and its counsel; (l) A duly executed Borrowing Base Certificate; and (m) Each of the agreements and documents referred to in that certain Closing Agenda, a copy of which is attached hereto as Exhibit 3.01(m). 3.02 Documents Required for Subsequent Disbursements. At the time of, and as a condition to, any disbursement of any part of the Loans to be made by the Lender subsequent to the Closing, the Lender may require the Borrowers to deliver to the Lender a certificate, dated the date on which any such disbursement is to be made, signed by the chief financial officer of SpecTran and to the effect that: (i) As of the date thereof, no Event of Default has occurred and is continuing, and no event has occurred and is continuing that, but for the giving of notice or passage of time or both, would be an Event of Default; (ii) No material adverse change has occurred in the business prospects, financial condition, or results of operations of any Borrower since the date of the Financial Statements; and (iii) Each of the representations and warranties contained herein is true and correct in all respects as if made on and as of the date of such disbursement. 3.03 Certain Events. At the time of, and as a condition to, the Closing and each disbursement of any part of the Loans to be made by the Lender at or subsequent to the Closing: (a) No Event of Default shall have occurred and be continuing, and no event shall have occurred and be continuing that, with the giving of notice or passage of time or both, would be an Event of Default; (b) No material adverse change shall have occurred in the financial condition, or results of operations of any Borrower since the dates of the Financial Statements; and (c) All of the Collateral Documents shall have remained in full force and effect. 11 12 3.04 Legal Matters. At the time of the Closing and each subsequent disbursement, all legal matters incidental thereto shall be reasonably satisfactory to Mirick, O'Connell, DeMallie & Lougee, legal counsel to the Lender. ARTICLE 4 COLLATERAL SECURITY 4.01 Composition of the Collateral. The property in which a security interest is granted pursuant to the provisions of Sections 4.02 and 4.03 is herein collectively called the "Collateral". The Collateral, together with all other property of any Borrower of any kind held by the Lender, shall stand as one general, continuing collateral security for all Obligations and may be retained by the Lender until all Obligations have been satisfied in full. 4.02 Rights in Property Held by the Lender. As security for the prompt satisfaction of all Obligations, each Borrower hereby assigns, transfers, and sets over to the Lender all of its right, title, and interest in and to, and grants the Lender a lien on and a security interest in, all amounts that may be owing, from time to time, by the Lender to any Borrower in any capacity, including, but without limitation, any balance or share belonging to any Borrower, or any deposit or other account with the Lender, which lien and security interest shall be independent of, and in addition to, any of the Lender's right of set-off. 4.03 Rights in Property Held Either by any Borrower or by the Lender. As further security for the prompt satisfaction of all of the Obligations, each Borrower hereby assigns to the Lender all of its right, title and interest in and to, and grants the Lender a lien upon and a continuing security interest in, all of the following, wherever located, whether now owned or hereafter acquired, together with all replacements therefor and proceeds (including, but without limitation, insurance proceeds) and products thereof: (a) All Inventory; (b) All Accounts, Contracts, accounts receivable, contract rights, and Chattel Paper, regardless of whether or not they constitute proceeds of other Collateral; (c) All General Intangibles, regardless of whether or not they constitute proceeds of other Collateral, including, without limitation, all rights (which the Lender may exercise or not as it in its sole discretion may determine) to acquire or obtain Goods and/or services with respect to the manufacture, processing, storage, sale, shipment, delivery or 12 13 installation of any Inventory or other Collateral; (d) All rights to payment of any insurance proceeds or awards for damages in connection with any condemnations or takings of any interest in and to any real or personal property, wherever located, or any conveyance in lieu thereof; (e) All products of and accessions to any of the Collateral; (f) All liens, guaranties, securities, rights, remedies and privileges pertaining to any of the Collateral, including the right of stoppage in transit; (g) All obligations owing to any Borrower of every kind and nature, and all choses in action; (h) All tax refunds of every kind and nature to which any Borrower is now or hereafter may become entitled no matter however arising, including, without limitation, loss carry back refunds; (i) All Intellectual Property, goodwill, trade secrets, computer programs, customer lists, trade names, trademarks and patents; (j) All Chattel Paper, Documents and Instruments (whether negotiable or non-negotiable, regardless of their being attached to Chattel Paper); (k) All Equipment, including without limitation machinery, furniture, motor vehicles, Fixtures and all other goods used in the conduct of the business of any Borrower; (l) All proceeds of Collateral of every kind and nature and in whatever form, including, without limitation, both cash and non-cash proceeds resulting or arising from the rendering of services by any Borrower or the sale or other disposition by any Borrower of the Inventory or other Collateral; (m) All books and Records relating to the conduct of any Borrower's business including, without in any way limiting the generality of the foregoing, those relating to its Accounts; and (n) All deposit accounts maintained by any Borrower with any bank, trust company, investment firm or fund, or any similar institution or organization. 4.04 Priority of Liens. The foregoing liens shall be first priority liens. 4.05 Financing Statements. 13 14 (a) Each Borrower will: (i) Execute such financing statements (including amendments thereto and continuation statements thereof) in form satisfactory to the Lender as the Lender, from time to time, may specify; (ii) Pay, or reimburse the Lender for paying, all costs and taxes of filing or recording the same in such public offices as the Lender may designate; and (iii) Take such other steps as the Lender, from time to time, may direct, including the noting of the Lender's lien on the Collateral and on any certificates of title therefor, all to perfect to the satisfaction of the Lender the Lender's interest in the Collateral. (b) In addition to the foregoing, and not in limitation thereof: (i) A carbon, photographic, or other reproduction of this Agreement shall be sufficient as a financing statement and may be filed in any appropriate office in lieu thereof; and (ii) To the extent lawful, each Borrower hereby appoints the Lender as its attorney-in-fact (without requiring the Lender to act as such) to execute any financing statement in the name of any Borrower, and to perform all other acts that the Lender deems appropriate to perfect and continue its security interest in, and to protect and preserve, the Collateral. 4.06 Mortgagees', Landlords', and Warehousemen's Waivers. Each Borrower will, within twenty (20) days after any request of the Lender, use its best efforts to obtain from any mortgagee of real estate owned by any Borrower, any landlord of premises leased by any Borrower, and any warehouseman or other bailee on whose premises any of the Collateral may be located to execute and deliver to the Lender instruments, in form and substance satisfactory to the Lender, by which such mortgagee, landlord or warehouseman or other bailee waives its rights, if any, in and to all Goods comprising a part of the Collateral. ARTICLE 5 REPRESENTATIONS AND WARRANTIES 5.01 Original. To induce the Lender to enter into this Agreement, each Borrower represents and warrants to the Lender as follows: (a) Each Borrower is a corporation duly organized, validly existing, and in good standing under the Laws of the state of its incorporation; no Borrower has any Subsidiaries, except as set forth in Exhibit 5.01(a) attached hereto; each Borrower has the lawful power to own 14 15 its properties and to engage in the business it conducts, and is duly qualified and in good standing as a foreign corporation in the jurisdictions wherein the nature of the business transacted by it or property owned by it makes such qualification necessary; the states in which each Borrower is qualified to do business are set forth in Exhibit 5.01(a) attached hereto; the identity of each shareholder of each Borrower (except for SpecTran) and the number of shares owned by each is set forth in Exhibit 5.01(a); the addresses of all places of business of each Borrower are as set forth in Exhibit 5.01(a); (b) No Borrower is directly or indirectly controlled by, or acting on behalf of, any Person which is an "Investment Company", within the meaning of the Investment Company Act of 1940, as amended; (c) No Borrower is in default with respect to any of its existing Liabilities, and the making and performance of this Agreement, the Notes, and the Collateral Documents will not (immediately or with the passage of time, the giving of notice, or both): (i) Violate the charter or by-laws of any Borrower, or violate any Laws or result in a default under any contract, agreement, or instrument to which any Borrower is a party or by which any Borrower or its property is bound; or (ii) Result in the creation or imposition of any security interest in, or lien or encumbrance upon, any of the Assets of any Borrower, except in favor of the Lender; (d) Each Borrower to the extent applicable to it, has the power and authority to enter into and perform this Agreement, the Notes and the Collateral Documents, and to incur the obligations herein and therein provided for, and has taken all actions necessary to authorize the execution, delivery, and performance of this Agreement, the Notes, and the Collateral Documents; (e) This Agreement, the Notes, and the Collateral Documents are, or when delivered will be, valid, binding, and enforceable in accordance with their respective terms, except to the extent enforceability is subject to the exercise of judicial discretion in accordance with general equitable principles and to applicable bankruptcy, insolvency, reorganization, moratorium or other laws for the relief of debtors heretofore or hereafter enacted; (f) Except as disclosed on Exhibit 5.01(f) attached hereto, there is no pending order, notice, claim (other than claims arising in the ordinary course of business for amounts not exceeding $25,000.00 individually or $100,000.00 in the aggregate), litigation, proceeding, or investigation against or affecting any Borrower, whether or not covered by insurance; (g) Each Borrower has good and marketable title to all of its Assets, none of which is subject to any security interest, encumbrance or lien, or claim of any third Person, except for liens in favor of the Lender and Permitted Liens; (h) The Financial Statements, including any schedules and notes pertaining thereto, 15 16 have been prepared in accordance with GAAP, and fully and fairly present the financial condition of the Borrowers at the dates thereof and the results of operations for the periods covered thereby, and there have been no material adverse changes in the financial condition or business of any Borrower from December 31, 1995 to the date hereof; (i) As of the date hereof, no Borrower has Indebtedness of any nature, except as disclosed on Exhibit 5.01(i) attached hereto; (j) Each Borrower has filed all federal, state, and local tax returns and other reports required by any applicable Laws to have been filed prior to the date hereof, has paid or caused to be paid all taxes, assessments, and other governmental charges that are due and payable prior to the date hereof, and has made adequate provision for the payment of such taxes, assessments, or other charges accruing but not yet payable; no Borrower has knowledge of any deficiency or additional assessment in a materially important amount in connection with any taxes, assessments, or charges not provided for on its books; (k) Except to the extent that the failure to comply would not materially interfere with the conduct of the business of any Borrower, each Borrower has complied with all applicable Laws with respect to (i) any restrictions, specifications, or other requirements pertaining to products that it manufactures or sells or to the services it performs; (ii) the conduct of its business; and (iii) the use, maintenance, and operation of the real and personal properties owned or leased by it in the conduct of its business; (l) No representation or warranty by or with respect to any Borrower contained herein or in any certificate or other document furnished by any Borrower pursuant hereto contains any untrue statement of a material fact or omits to state a material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made; (m) Each consent, approval or authorization of, or filing, registration or qualification with, any Person required to be obtained or effected by any Borrower in connection with the execution and delivery of this Agreement, the Notes, and the Collateral Documents or the undertaking or performance of any obligation hereunder or thereunder has been duly obtained or effected; (n) To the best of each Borrower's knowledge, the Borrowers and all other parties to all material leases, contracts, and other commitments to which any Borrower is a party have all complied in all material respects with the provisions of such leases, contracts, and other commitments and no party is in default under any thereof and no event has occurred which, but for the giving of notice or the passage of time, or both, would constitute a default; (o) No Borrower has made any agreement or taken any action which may cause anyone to become entitled to a commission or finder's fee as a result of or in connection with the making of the Loans; 16 17 (p) Each Borrower's federal tax returns for all years of operation, including the year ended December 31, 1994, have been filed with the Internal Revenue Service and have not been challenged; (q) Any Employee Pension Benefit Plans, as defined in the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), of any Borrower meet, as of the date hereof, the minimum funding standards of 29 U.S.C.A. 1082 (Section 302 of ERISA), and no Reportable Event or Prohibited Transaction, as defined in ERISA, has occurred with respect to any Employee Benefit Plans, as defined in ERISA, of any Borrower; (r) SpecTran has filed all registration statements, forms and other reports with the Securities and Exchange Commission required by any applicable Laws to have been filed prior to the date hereof; and (s) The liens and security interests created pursuant to Sections 4.02 and 4.03 are in all cases first priority liens, except for Permitted Liens. 5.02 Survival. All of the representations and warranties set forth in Section 5.01 shall survive until all Obligations are satisfied in full and there remain no outstanding commitments hereunder. ARTICLE 6 COVENANTS OF THE BORROWERS 6.01 Affirmative Covenants. Each Borrower does hereby covenant and agree with the Lender that, so long as any of the Obligations remain unsatisfied or any commitments hereunder remain outstanding, it will comply at all times with the following affirmative covenants: (a) The Borrowers will use the proceeds of the Loans only for the purposes set forth in Exhibit 6.01(a), and will furnish the Lender such evidence as it may reasonably require with respect to such use; (b) SpecTran will furnish the Lender: (1) As soon as available, but in any event within thirty (30) days after the close of each calendar month in each fiscal year: (i) consolidated and consolidating statements of cash flows of the Borrower for such month, (ii) consolidated and consolidating income statements of the Borrowers for such month, and (iii) consolidated and consolidating balance sheets of the Borrowers as of the end of such month-all such statements to be in reasonable detail, including all supporting schedules and comments, subject to normal year-end audit adjustments and certified 17 18 by the chief financial officer of SpecTran to have been prepared in accordance with GAAP and to present fairly the financial position and results of operations of the Borrowers; (2) As soon as available, but in any event within forty-five (45) days after the close of each of the initial three quarterly accounting periods in each fiscal year (i.e. March 31, June 30 and September 30) a copy of SpecTran's Form 10-Q, and management's: (i) consolidated and consolidating statements of cash flows of the Borrowers for such quarter, (ii) consolidated and consolidating income statements of the Borrowers for such quarter, and (iii) consolidated and consolidating balance sheets of the Borrowers as of the end of such quarter-all such statements to be in reasonable detail, including all supporting schedules and comments, subject to normal year-end audit adjustments and certified by the chief financial officer of SpecTran to have been prepared in accordance with GAAP and to present fairly the financial position and results of operations of the Borrowers; (3) As soon as available, but in any event within ninety (90) days after the close of each fiscal year, a copy of SpecTran's Form 10-K and Annual Report (including the audited consolidated financial statements prepared by KPMG Peat Marwick or another independent certified public accountant selected by SpecTran and reasonably acceptable to the Lender) and management's: (i) consolidated and consolidating statements of cash flows for the Borrowers for such fiscal year, (ii) consolidated and consolidating income statements of the Borrowers for such fiscal year, and (iii) consolidated and consolidating balance sheets of the Borrowers as of the end of such fiscal year-all such statements to be in reasonable detail, including all supporting schedules and comments; the consolidated statements and balance sheets included in the Form 10-K and Annual Report to be audited by KPMG Peat Marwick or another independent certified public accountant selected by SpecTran and reasonably acceptable to the Lender, and certified by such accountants to have been prepared in accordance with GAAP and to present fairly the financial position and results of operations of the Borrower; in addition, SpecTran will obtain from such independent certified public accountants and deliver to the Lender, within ninety (90) days after the close of each fiscal year, their written statement that in making the examination necessary to their certification they have obtained no knowledge of any Event of Default by the Borrowers, or disclosing all Events of Default of which they have obtained knowledge (it being understood and agreed by the Lender that in making their examination, such accountants shall not be required to go beyond the bounds of generally accepted auditing procedures for the purpose of certifying financial statements); the Lender shall have the right, from time to time to discuss the affairs of any Borrower directly with such independent certified public accountants after notice to SpecTran and opportunity of SpecTran to be represented at any such discussions; (4) Contemporaneously with the year-end financial report required by the foregoing paragraph (3), 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; (5) Contemporaneously with each quarterly and year-end financial report required by the foregoing paragraphs (2) and (3) a certificate of the chief financial officer of SpecTran 18 19 substantially in the form of Exhibit 6.01(b)(5) 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 year or quarterly period, 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; (6) As soon as available but in no event later than thirty (30) days prior to the commencement of the next fiscal year, management prepared financial projections, including (i) consolidated and consolidating statements of cash flow, (ii) consolidated and consolidating income statements, and (iii) consolidated and consolidating balance sheets; (7) Promptly after the sending or making available or filing of the same, copies of all reports, proxy statements, and financial statements that any Borrower sends or makes available to its stockholders and all registration statements and reports that any Borrower files with the Securities and Exchange Commission or any successor Person; and (8) Within twenty (20) days after the end of each calendar month (and at any additional time in the discretion of the Lender) a Borrowing Base Certificate as of the end of such month (or as of a date not more than three (3) days prior to the date of any such additional Borrowing Base Certificate). Each Borrowing Base Certificate will include without limitation, in such form and detail as shall be satisfactory to the Lender (i) an aging, as of the end of such month of the then Eligible Accounts and all other Accounts of the Borrowers, (ii) a listing of Eligible Inventory, showing the amount, size, grade, manufacturer, and cost of each item or group thereof and (iii) a statement reflecting all amounts on deposit by any Borrower with the Lender and the Lender's Affiliates. Each Borrowing Base Certificate shall be effective only as accepted by the Lender (and with such revisions, if any, as the Lender may require as a condition to such acceptance), such acceptance to be presumed after receipt of such Borrowing Base Certificate unless the Lender otherwise notifies the Borrowers, whether thereafter, theretofore, or contemporaneously therewith; (c) Each Borrower will maintain its Inventory, Equipment, real estate, and other properties in good condition and repair (normal wear and tear excepted), and will pay and discharge or cause to be paid and discharged, when due, the cost of repairs to, or maintenance of, the same to the extent it is commercially reasonable for such repairs to be made or maintenance to be performed, and will pay or cause to be paid in a timely manner all rental or mortgage payments due on such real estate. Each Borrower hereby agrees that, in the event it fails to pay or cause to be paid any such payment, it will promptly notify the Lender thereof, and the Lender may, in its discretion, do so and on demand be reimbursed therefor by the Borrowers; (d) Each Borrower will maintain public liability insurance and fire and extended coverage insurance on all assets that are of a character usually insured by corporations engaged 19 20 in the same or similar businesses, all in form and amount sufficient to indemnify each Borrower for 100% of the appraised value of any such asset lost or damaged subject to any deductible customary in the industry. Each Borrower will cause all such insurance policies to be payable to the Lender. Such policies shall contain a provision whereby they cannot be cancelled except after thirty (30) days' written notice to the Lender. Each Borrower will furnish to the Lender such evidence of insurance as the Lender may reasonably require. Each Borrower hereby agrees that, in the event it fails to pay or cause to be paid the premium on any such insurance when due, the Lender, in its discretion, may do so and be reimbursed by the Borrowers therefor. Each Borrower hereby assigns to the Lender any returned or unearned premiums that may be due any Borrower upon cancellation by the insurer of any such policy for any reason whatsoever and direct any such insurer to pay the Lender any amounts so due. The Lender is hereby appointed the attorney-in-fact of each Borrower (without requiring the Lender to act as such) to endorse any check which may be payable to any Borrower, to collect any premiums or the proceeds of such insurance (other than proceeds of public liability insurance) and any amount so collected may be applied by the Lender toward satisfaction of any of the Obligations whether due or not yet due; (e) Each Borrower will pay when due, all taxes, assessments, and charges or levies imposed upon it or on any of its property or which it is required to withhold and pay except where contested in good faith by appropriate proceedings with adequate reserves therefor having been set aside on its books; provided, however, that each Borrower shall pay or cause to be paid all such taxes, assessments, charges or levies forthwith whenever foreclosure on any lien that may have attached (or security therefor) appears imminent; (f) The Borrowers will maintain on a consolidated basis: (i) a Fixed Charge Coverage Ratio of at least 1.25:1.00 to be measured quarterly (i.e. March 31, June 30, September 30, December 31), commencing with the fiscal quarter ending December 31, 1996; (ii) Tangible Net Worth of at least $18,500,000.00 as of the Closing; thereafter Tangible Net Worth must increase as of December 31 of each fiscal year by an amount equal to seventy-five percent (75%) of that fiscal year's Net Income; Tangible Net Worth to be measured quarterly; (iii) EBITDA of at least (i) $1,200,000.00 for the fiscal quarter ending March 31, 1996, (ii) $2,000,000.00 for the fiscal quarter ending June 30, 1996, (iii) $2,500,000.00 for the fiscal quarter ending September 30, 1996 and (iv) $3,000,000.00 for each fiscal quarter thereafter to be measured quarterly (i.e. March 31, June 30, September 30, December 31); (g) Each Borrower will, when requested to do so, make available for inspection by duly authorized representatives of the Lender any of its books and Records and will furnish the Lender any information regarding its business affairs and financial condition within a reasonable time after written request therefor, provided that any confidential information disclosed to the 20 21 Lender shall not be disclosed by the Lender to any unauthorized Person and further provided that SpecTran may require the Lender to provide a certificate of an officer of the Lender stating that the confidential information will not be disclosed to any unauthorized Person; (h) Each Borrower will (i) carry on and conduct its business in substantially the same manner and in substantially the same fields of expertise as presently conducted, and (ii) do all things necessary to remain duly incorporated, validly existing and in good standing in its state of incorporation and maintain all requisite authority to conduct its business in each jurisdiction in which its business is conducted and where the failure to maintain authority would have a materially adverse effect on any of the Borrowers and comply in all material respects with all present and future Laws applicable to it in the operation of its business and all material agreements to which it is subject; (i) Each Borrower will collect its Accounts and sell its Inventory only in the ordinary course of business; (j) Each Borrower will keep accurate and complete Records of its Accounts, Inventory, and Equipment consistent with sound business practices; (k) Each Borrower will give immediate notice to the Lender of any litigation or proceeding in which it is a party; (l) Within ten (10) days after the filing thereof, each Borrower will furnish the Lender with copies of federal income tax returns filed by any Borrower; (m) Each Borrower will pay when due (or within applicable grace periods) all of its Liabilities, except when the amount thereof is being contested in good faith by appropriate proceedings and with adequate reserves therefor being set aside on its books and as otherwise disclosed in Exhibit 6.01(m) attached hereto. If default be made by any Borrower in the payment of any of its Liabilities, the Lender shall have the right, in its discretion, to pay such amount for the account of any Borrower and be reimbursed by the Borrowers therefor, except for Liabilities being contested in good faith by appropriate and lawful proceedings, so long as levy and execution thereon have been stayed and continue to be stayed and they do not, in the aggregate, materially detract from the value of the property of the Borrowers or materially impair the use thereof in the operation of their businesses and for which adequate reserves have been established; (n) Each Borrower will notify the Lender immediately if it becomes aware of the occurrence of any Event of Default or of any fact, condition, or event that only with the giving of notice or passage of time or both, could become an Event of Default or if it becomes aware of any material adverse change in the business prospects, financial condition (including, without limitation, proceedings in bankruptcy, insolvency, reorganization, or the appointment of a receiver or trustee), or results of operations of any Borrower, or of the failure of any Borrower to observe any undertakings hereunder or under the Collateral Documents; 21 22 (o) Each Borrower will notify the Lender thirty (30) days in advance of any change in the location of any of its places of business or of the establishment of any new, or the discontinuance of any existing, place of business; (p) Each Borrower will (i) fund any of its Employee Pension Benefit Plans in accordance with no less than the minimum funding standards of 29 U.S.C.A. 1082 (Section 302 of ERISA); (ii) furnish the Lender, promptly after the filing of the same, with copies of any reports or other statements filed with the United States Department of Labor or the Internal Revenue Service with respect to any such Plan; and (iii) promptly advise the Lender of the occurrence of any Reportable Event or Prohibited Transaction with respect to any Employee Benefit Plan; (q) SpecTran will file all registration statements, forms and other reports with the Securities and Exchange Commission required by any applicable Law to be filed; and (r) The Borrowers will each maintain all of their principal depository accounts with the Lender and the Lender's Affiliates and the Lender and the Lender's Affiliates will continue to manage the Borrowers' cash; notwithstanding the foregoing, the Borrowers may maintain depository accounts with other financial institutions for convenience only provided the aggregate amount of all such accounts does not exceed $250,000.00. 6.02 Negative Covenants. Each Borrower does hereby covenant and agree with the Lender that, so long as any of the Obligations remain unsatisfied or any commitments hereunder remain outstanding, it will comply at all times with the following negative covenants, unless the Lender shall otherwise have agreed in writing: (a) No Borrower will change its name, enter into any merger, consolidation, reorganization or recapitalization, or reclassify its capital stock; (b) No Borrower will sell, transfer, lease, or otherwise dispose of all or (except in the ordinary course of business) any part of its Assets valued on a consolidated basis in excess of an aggregate amount of $500,000.00 during the term of this Agreement; (c) No Borrower will sell, lease, transfer, assign, or otherwise dispose of any of the Collateral, except for the sale of Inventory in the ordinary course of business; (d) No Borrower will move the Collateral, except for the sale of Inventory in the ordinary course of business and as disclosed in Exhibit 6.02(d) attached hereto; (e) No Borrower will sell or otherwise dispose of, or for any reason cease operating, any of its divisions, franchises, or lines of business; 22 23 (f) No Borrower will mortgage, pledge, grant, or permit to exist a security interest in, or a lien upon, any of its Assets of any kind, now owned or hereafter acquired, except for liens in favor of the Lender and Permitted Liens; (g) No Borrower will become liable, directly or indirectly, as guarantor or otherwise for any obligation of any other Person, except (i) for the endorsement of commercial paper for deposit or collection in the ordinary course of business, (ii) on a consolidated basis up to $250,000.00 in the aggregate during the term of this Agreement and (iii) the obligations of any Borrower to the extent otherwise permitted hereunder; (h) No Borrower will incur, create, assume, or permit to exist any Liabilities except: (i) the Loans; (ii) existing Indebtedness listed on Exhibit 5.01(i) to the extent shown on such Exhibit 5.01(i) to be permitted to exist after the Closing; and (iii) trade indebtedness incurred in the ordinary course of business (provided, however, that no Borrower may acquire Inventory other than for cash or on open account except as expressly approved in writing and in advance by the Lender); (i) No Borrower will make any assignment or transfer of Accounts, or, other than in the ordinary course of business, of Inventory; (j) No Borrower will form any subsidiary (except for Subsidiaries which are capitalized with less than $100.00), make any investment in (including any assignment of Inventory or other property), or make any loan in the nature of an investment to, any Person, except for investments up to $500,000.00 in the aggregate during the term of this Agreement and investments in or loans to any Borrower; (k) No Borrower will make any loan or advance to any Person, except for (i) business travel and similar temporary advances in the ordinary course of business, (ii) on a consolidated basis up to $100,000.00 during the term of this Agreement and (iii) loans or advances to any Borrower; (l) No Borrower will purchase or otherwise invest in or hold securities, nonoperating real estate, or other nonoperating Assets, except for investments meeting the parameters set forth in Exhibit 6.02 (l) attached hereto; (m) No Borrower will enter into any sale-leaseback transaction; (n) No Borrower will acquire or agree to acquire any stock in, or all or substantially all of the assets of, any Person; (o) No Borrower will pay or commit to pay on a consolidated basis for any one fiscal year (commencing with the current fiscal year), lease obligations (including without limitation Capital Leases and operating leases) in excess of $500,000.00; 23 24 (p) No Borrower will furnish the Lender any certificate or other document that will contain any untrue statement of material fact or that will omit to state a material fact necessary to make it not misleading in light of the circumstances under which it was furnished; (q) No Borrower will directly or indirectly apply any part of the proceeds of the Loans to the purchasing or carrying of any "margin stock" within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, or any regulations, interpretations, or rulings thereunder; and (r) The Borrowers will not permit on a consolidated basis: (1) its Leverage Ratio to exceed 1.25:1.0 to be measured quarterly (i.e. March 31, June 30, September 30, December 31); and (2) Capital Expenditures to exceed $10,000,000.00 for the fiscal year ending December 31, 1996, $14,050,000.00 for the fiscal year ending December 31, 1997 and $5,000,000.00 for each fiscal year thereafter to be measured annually; with respect to Capital Expenditures for the fiscal year ending December 31, 1996, the Borrowers will not permit on a consolidated basis such Capital Expenditures to exceed $2,400,000.00 in the aggregate for the fiscal quarter ending March 31, 1996, $3,614,000.00 in the aggregate for the six (6) month fiscal period ending June 30, 1996 and $7,066,000.00 for the nine (9) month fiscal period ending September 30, 1996 to be measured quarterly. ARTICLE 7 DEFAULT 7.01 Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default hereunder: (a) Any Borrower shall fail to pay when due any of its Obligations to the Lender; (b) Any Borrower shall fail to observe or perform any of the obligations set forth in Section 6.01(b), Section 6.01(d), Section 6.01(k), Section 6.01(l) and Section 6.01(o) of this Agreement and such failure shall continue for ten (10) days after (i) notice of such failure from the Lender; or (ii) the Lender is notified of such failure or should have been so notified pursuant to the provisions of Section 6.01(n), whichever is earlier; (c) Any Borrower shall fail to observe or perform any one of the obligations set forth in Section 6.01(c), Section 6.01(e) and Section 6.01(h)(ii) of this Agreement and such failure shall continue for thirty (30) days after (i) notice of such failure from the Lender; or (ii) the Lender is notified of such failure or should have been so notified pursuant to the provisions of 24 25 Section 6.01(n), whichever is earlier, provided, it shall not be an Event of Default hereunder if any of the Borrowers has commenced taking action to cure the default within the time period set forth in this Section 7.01(c) which could not reasonably be completed within such time period and continues to diligently attempt to cure such default; at no time will the cure period exceed sixty (60) days; (d) Any Borrower shall fail to observe or perform any other obligation to be observed or performed by it hereunder; (e) Any Borrower shall fail to pay any Indebtedness due any third Persons (except as disclosed in Exhibit 6.01(m) attached hereto), or any Borrower shall suffer to exist any other event of Default beyond any applicable cure period under any Agreement binding any Borrower, except for a failure to pay or an event of default which is being contested in good faith by appropriate and lawful proceedings, so long as levy and execution thereon have been stayed and continue to be stayed and such failure to pay or event of default does not materially detract from the value of the property of any Borrower or materially impair the use thereof in the operation of any of their businesses, provided further that such failure to pay or event of default shall continue for ten (10) days after (i) notice of such failure or event of default from the Lender; or (ii) the Lender is notified of such failure or event of default or should have been so notified pursuant to the provisions of Section 6.01(n), whichever is earlier; (f) Any financial statement, representation, warranty, or certificate made or furnished by or with respect to any Borrower to the Lender in connection with this Agreement, or as inducement to the Lender to enter into this Agreement, or in any separate statement or document to be delivered to the Lender hereunder, shall be materially false, incorrect, or incomplete when made; (g) Any Borrower shall admit its inability to pay its debts as they mature or shall make an assignment for the benefit of itself or any of its creditors; (h) Proceedings in bankruptcy, or for reorganization of any Borrower for the readjustment of any of its debts under the Bankruptcy Code, as amended, or any part thereof, or under any other Laws, whether state or federal, for the relief of debtors, now or hereafter existing, shall be commenced against or by any Borrower and, except with respect to any such proceedings instituted by any Borrower, shall not be discharged within sixty (60) days of their commencement; (i) A receiver or trustee shall be appointed for any Borrower or for any substantial part of its Assets, or any proceedings shall be instituted for the dissolution or the full or partial liquidation of any Borrower, and except with respect to any such appointments requested or instituted by any Borrower, such receiver or trustee shall not be discharged within sixty (60) days of his appointment, and except with respect to any such proceedings instituted by any Borrower, such proceedings shall not be discharged within sixty (60) days of their commencement, or any Borrower shall discontinue business or materially change the nature of its business; 25 26 (j) Any Borrower shall suffer final judgments for payment of money and shall not discharge the same within a period of sixty (60) days unless, pending further proceedings, execution has not been commenced or, if commenced, has been effectively stayed; (k) A judgment creditor of any Borrower shall obtain possession of any of the Collateral by any means, including (without implied limitation) levy, distraint, replevin, or self-help; or (l) The occurrence of an Event of Default under the Mortgage. 7.02 Acceleration. At its option, and at any time, whether immediately or otherwise, the Lender may, upon the occurrence of any Event of Default, declare all Obligations immediately due payable without further action of any kind, including without notice, demand or presentment. Notwithstanding the foregoing, if at any time after the Obligations have been declared due and payable and before any judgment with respect thereto has been entered, every Event of Default has been made good or cured, then the Lender may, by written instrument delivered to SpecTran, rescind and annul such declaration and its consequences; but no such rescission shall extend to or effect any subsequent default or Event of Default or impair any rights of the Lender. ARTICLE 8 THE LENDER'S RIGHTS AND REMEDIES 8.01 The Lender's Rights Upon Default Upon the occurrence of an Event of Default and at any time thereafter, the Lender, without presentment, demand, notice, protest or advertisement of any kind, will have all of the rights under all Laws, including without limitation all of the rights hereinafter set forth. 8.02 Account Debtors Upon the occurrence of an Event of Default and at any time thereafter, the Lender may notify account debtors, at the Borrowers' expense, that the Collateral has been assigned to the Lender and that payments shall be made directly to the Lender. Upon request of the Lender, each Borrower will notify such account debtors that their accounts must be paid to the Lender. Upon the occurrence of an Event of Default and at all times thereafter, each Borrower will hold all checks, drafts, cash and other remittances in trust for the Lender and deliver them in kind to the Lender. The Lender shall have full power to collect, compromise, endorse, sell or otherwise deal with the Collateral or proceeds thereof in its own name or in the name of any Borrower. 8.03 Possession and Foreclosure of Collateral Upon the occurrence of an Event of Default and at any time thereafter, to the extent that 26 27 any Borrower could legally do so, the Lender may enter onto, occupy and use any premises owned by any Borrower or in which any Borrower has any interest. The Lender may take possession of all Collateral. In the Lender's sole discretion, the Lender may operate and use any Equipment, complete work in process and sell Inventory without being liable to any Borrower on account of any losses, damage or depreciation that may occur as a result thereof (so long as the Lender acts in good faith). The Lender may lease or license the Collateral to any Person for such purposes. In any event, the Lender may sell, lease, assign and deliver the whole or any part of the Collateral, at public or private sale, for cash, upon credit or for future delivery, at such prices and upon such terms as the Lender deems advisable. The Lender may sell or lease Collateral alone or in conjunction with other property, real or personal, and allocate the sale proceeds or leases among the items of Collateral sold without the necessity of the Collateral being present at any such sale, or in view of prospective purchasers thereof. If notice of sale is legally required, each Borrower agrees that ten (10) days written notice shall be deemed reasonable. Upon such sale, the Lender may become the purchaser of the whole or any part of the Collateral sold, discharged from all claims and free from any right of redemption. In case of any such sale by the Lender of all or any of the Collateral on credit, or for future delivery, such Collateral so sold may be retained by the Lender until the selling price is paid by the purchaser. The Lender shall incur no liability in case of the failure of the purchaser to take possession and pay for the Collateral so sold. In case of any such failure, the said Collateral may be resold. Any Collateral remaining unsold after being offered at public auction may be abandoned or disposed of for no consideration in such manner as the Lender deems appropriate. In any event, at any time and from time to time the Lender may abandon the Collateral or any part thereof. Each Borrower agrees immediately upon demand to take possession of any and all abandoned Collateral and to remove it from any location in the possession of or under the control of the Lender. 8.04 Use of Intellectual Property Sixty (60) days after the occurrence of an Event of Default and at any time thereafter, the Lender may use all or any part of any Borrower's Intellectual Property which any Borrower now has or may hereafter acquire to the extent lawfully permitted. The Lender may license such Intellectual Property to third Persons, seek registration of such Intellectual Property in any state or nation or prosecute pending applications for patent, trademark, or service marks in any Borrower's name in any state or nation, to the extent lawfully permitted. 8.05 Notification of Default to Third Parties Upon the occurrence of an Event of Default and at any time thereafter, the Lender may notify any Borrower's suppliers, account debtors and other third parties of the default and of any and all decisions made and actions taken by the Lender with respect to this Agreement, the Obligations or the Collateral, without liability of any kind. The Lender will provide written notice of such action to SpecTran. Failure to provide such notice will not impair the Lender's rights under this Section. 27 28 8.06 Assembly of Collateral Upon the occurrence of an Event of Default and at any time thereafter, the Lender may require any Borrower to assemble the Collateral in a single location at a place to be designated by the Lender and make the Collateral at all times secure and available to the Lender. 8.07 Right of Set-Off. Upon the occurrence of an Event of Default and at any time thereafter, the Lender may, and is hereby authorized by each Borrower, to the fullest extent permitted by applicable Laws, without advance notice to any Borrower (any such notice being expressly waived by the Borrowers), set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and any other indebtedness at any time owing by the Lender to, or for the credit or the account of, any Borrower against any or all of the Obligations of the Borrowers, now or hereafter existing, whether or not such Obligations have matured and irrespective of whether the Lender has exercised any other rights that it has or may have with respect to such Obligations, including without limitation any acceleration rights. The Lender agrees promptly to notify the applicable Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender hereunder are in addition to the other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have. 8.08 Exercise of Other Remedies Upon the occurrence of any Event of Default and at any time thereafter, the Lender may exercise the remedies of a secured party afforded by the Uniform Commercial Code and other applicable Laws or by the terms of any agreement between any Borrower and the Lender. 8.09 Cumulative Rights and Remedies All rights and remedies of the Lender, whether provided for herein or in other agreements, instruments or documents or conferred by law, are cumulative and may be exercised alone or simultaneously. ARTICLE 9 ATTORNEY-IN-FACT 9.01 Attorney-In-Fact Effective upon the occurrence of an Event of Default, and at all times thereafter, each Borrower hereby irrevocably appoints the Lender, or its designee, as each Borrower's true and lawful attorney-in-fact, with full power as follows: (i) to endorse the name of any Borrower on any assignments, notes, checks, drafts, money orders, or other instruments of payment for Collateral; (ii) to sign or endorse the name of any Borrower on any negotiable instrument, 28 29 invoice, freight or express bill, bill of lading, storage or warehouse receipts, drafts, assignments, verifications and notices in connection with Accounts; (iii) to obtain, adjust, settle and cancel, in any Borrower's name, insurance policies as required herein and to sign any Borrower's name on settlement checks or drafts; (iv) in any Borrower's name, to do any act which this Agreement requires any Borrower to do, and, (v) to give notice to the United States Post Office to effect changes of address so that mail addressed to any Borrower may be delivered directly to the Lender. In exercising this power-of-attorney, the Lender shall not be liable to the extent that it acts in good faith. ARTICLE 10 MISCELLANEOUS 10.01 Connecticut Waiver. TO THE EXTENT ANY COLLATERAL AND/OR REAL ESTATE IS LOCATED IN CONNECTICUT, THE BORROWERS ACKNOWLEDGE THAT THIS AGREEMENT AND EACH TRANSACTION RELATED TO IT IS A "COMMERCIAL TRANSACTION" WITHIN THE MEETING OF CHAPTER 903A OF THE CONNECTICUT GENERAL STATUES, AS AMENDED. THE BORROWERS HEREBY WAIVE ANY RIGHT WHICH THEY MIGHT HAVE TO NOTICE IN A HEARING OR A PRIOR COURT ORDER, UNDER SAID CHAPTER 903A OR AS OTHERWISE PROVIDED UNDER ANY APPLICABLE FEDERAL OR STATE LAW, IN THE EVENT THE LENDER SEEKS ANY PREJUDGMENT REMEDY AT ANY TIME PRIOR TO FINAL JUDGMENT IN ANY LITIGATION INSTITUTED IN CONNECTION WITH THIS AGREEMENT WHETHER BY WAY OF ATTACHMENT, FOREIGN ATTACHMENT, GARNISHMENT OR REPLEVIN. 10.02 Appraisals/Audit. The Lender may perform, at the Borrowers' expense, periodic appraisals of any Borrower's Equipment and real estate and the cost of each appraisal will be borne by the Borrowers. The Lender agrees that appraisals will not be required more frequently than annually unless required by applicable Laws or after the occurrence of an Event of Default. The Lender may perform, at the Borrowers' expense, periodic audits of any Borrower at any time and the cost of each audit will be borne by the Borrowers. 10.03 Joint and Several. All Obligations of the Borrowers hereunder are the joint and several obligations of each of SpecTran, Optics, Photonic and Communications. 10.04 Construction. The provisions of this Agreement shall be in addition to those of any guaranty, pledge or security agreement, note, or other evidence of liability now or hereafter held by the Lender, all 29 30 of which shall be construed as complementary to each other. Nothing herein contained shall prevent the Lender from enforcing any or all other guaranty, pledge or security agreements, notes, or other evidences of liability in accordance with their respective terms. 10.05 Further Assurance. From time to time, each Borrower will execute and deliver to the Lender such additional documents and will provide such additional information as the Lender may reasonably require to carry out the terms of this Agreement and be informed of the status and affairs of each Borrower. 10.06 Enforcement and Waiver by the Lender. The Lender shall have the right at all times to enforce the provisions of this Agreement and the Collateral Documents in strict accordance with the terms hereof and thereof, notwithstanding any conduct or custom on the part of the Lender in refraining from so doing at any time or times. The failure of the Lender at any time or times to enforce its rights under such provisions, strictly in accordance with the same, shall not be construed as having created a custom in any way or manner contrary to specific provisions of this Agreement or as having in any way or manner modified or waived the same. All rights and remedies of the Lender are cumulative and concurrent and the exercise of one right or remedy shall not be deemed a waiver or release of any other right or remedy. 10.07 Expenses of the Lender. The Borrowers will, on demand, reimburse the Lender for all expenses, including the reasonable fees and expenses of legal counsel for the Lender, incurred by the Lender in connection with the preparation, administration, amendment, modification, or enforcement of this Agreement and the Collateral Documents and the collection or attempted collection of any of the Obligations. 10.08 Notices. Any notices, requests or consents required or permitted by this Agreement shall be in writing and shall be deemed delivered if delivered in person or if sent by certified mail, postage prepaid, return receipt requested, facsimile or telegraph, as follows, unless such address is changed by written notice hereunder: (a) If to the Borrowers: SpecTran Corporation Attention: Bruce Cannon, C.F.O. 50 Hall Road Sturbridge, MA 01566 30 31 (b) If to the Lender: Fleet National Bank Attention: John F. Lynch, V.P. 370 Main Street Worcester, MA 01608 10.09 Waiver and Release by the Borrowers. To the maximum extent permitted by applicable Laws, each Borrower: (a) Waives (i) protest of all commercial paper at any time held by the Lender on which any Borrower is in any way liable; (ii) except as the same may herein be specifically granted, notice of acceleration and of intention to accelerate; and (iii) notice and opportunity to be heard before exercise by the Lender of the remedies of self-help, set-off, or of other summary procedures permitted by any applicable Laws or by any agreement with any Borrower, and, except where required hereby or by any applicable Laws, notice of any other action taken by the Lender (the Lender agrees to provide notice to SpecTran of acceleration of the Obligations and such notice will reference a Section or Sections of this Agreement under which a default has occurred, failure to send such notice will not impair the Lender's rights hereunder); and (b) Releases the Lender and its officers, attorneys, agents, and employees from all claims for loss or damage caused by any act or omission on the part of any of them except willful misconduct. 10.10 Participation. Notwithstanding any other provision of this Agreement, each Borrower understands that the Lender may at any time enter into participation agreements with one or more participating banks whereby the Lender will allocate certain percentages of its commitment to them. Each Borrower acknowledges that, for the convenience of all parties, this Agreement is being entered into with the Lender only and that its obligations under this Agreement are undertaken for the benefit of, and as an inducement to, any such participating bank as well as the Lender, and each Borrower hereby grants to each such participating bank, to the extent of its participation in the Loans, the right to set off deposit accounts maintained by any Borrower with such bank subject to the terms of this Agreement. The Lender agrees to provide SpecTran with five (5) days prior written notice of any such participation. The Lender will also provide five (5) days prior written notice of any pledge or assignment of any of the Notes, except in connection with an acquisition of the Lender. 10.11 Applicable Law. This Agreement is entered into and performable in the Commonwealth of Massachusetts 31 32 and shall be subject to and construed and enforced in accordance with the laws of the Commonwealth of Massachusetts. 10.12 Consent to Jurisdiction. EACH OF THE BORROWERS, TO THE EXTENT THAT THE BORROWERS MAY LAWFULLY DO SO, HEREBY CONSENTS TO THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS AND THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS, AS WELL AS TO THE JURISDICTION OF ALL COURTS FROM WHICH AN APPEAL MAY BE TAKEN FROM THE AFORESAID COURTS, FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF ANY OF THE BORROWERS' OBLIGATIONS UNDER OR WITH RESPECT TO THIS AGREEMENT, AND EXPRESSLY WAIVES ANY AND ALL OBJECTIONS ANY OF THE BORROWERS MAY HAVE AS TO VENUE IN ANY OF SUCH COURTS. 10.13 Binding Effect, Assignment, and Entire Agreement. This Agreement shall inure to the benefit of, and shall be binding upon, the respective successors and permitted assigns of the parties hereto. No Borrower has the right to assign any of its rights or obligations hereunder without the prior written consent of the Lender. This Agreement, including the Exhibits hereto, all of which are hereby incorporated herein by reference, and the documents executed and delivered pursuant hereto, constitute the entire agreement between the parties and may be amended only by a writing signed on behalf of each party. 10.14 Severability. If any provision of this Agreement shall be held invalid under any applicable Laws, such invalidity shall not affect any other provision of this Agreement that can be given effect without the invalid provision, and, to this end, the provisions hereof are severable. 10.15 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute but one and the same instrument. 10.16 Waiver of Jury Trial THE LENDER AND THE BORROWERS AGREE THAT THEY (INCLUDING ANY ASSIGNEE OR SUCCESSOR) SHALL NOT SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION PROCEDURE BASED UPON, OR ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY 32 33 COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP AMONG ANY OF THEM. THEY SHALL NOT SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED BY THE LENDER AND THE BORROWERS AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. THEY HAVE NOT AGREED WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES. IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as a sealed instrument as of the day and year first above written. BORROWERS: SPECTRAN CORPORATION /s/ Brian M. Hand By: /s/ Glenn E. Moore - --------------------- --------------------------- Witness Its Duly Authorized Officer SPECTRAN SPECIALTY OPTICS COMPANY /s/ Brian M. Hand By: /s/ Glenn E. Moore - --------------------- --------------------------- Witness Its Duly Authorized Officer APPLIED PHOTONIC DEVICES, INC. /s/ Brian M. Hand By: /s/ Glenn E. Moore - --------------------- --------------------------- Witness Its Duly Authorized Officer SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC. /s/ Brian M. Hand By: /s/ Glenn E. Moore - --------------------- --------------------------- Witness Its Duly Authorized Officer 33 34 LENDER: FLEET NATIONAL BANK /s/ By: /s/ John Lynch - --------------------- --------------------------- Witness Its Duly Authorized Officer 34 35 Exhibit 1.06 SPECTRAN CORPORATION BORROWING BASE CERTIFICATE MONTH ENDED _______ A. CASH: CASH ON DEPOSIT AT FLEET $_________ CASH INVESTED AT FLEET INVEST.SERV $_________ (1) TOTAL CASH $_________ B. ACCOUNTS RECEIVABLE GROSS ACCOUNTS $_________ LESS: OVER 90 DAYS FROM INVOICE $_________ (NOT BACKED BY L.C.) FOREIGN ACCOUNTS $_________ (NOT BACKED BY L.C.) TOTAL INELIGIBLE $_________ ELIGIBLE ACCOUNTS $_________ ADVANCE RATE .80 (2)LOAN VALUE $_________ C. INVENTORY GROSS INVENTORY $_________ LESS: OBSOLETE $_________ STALE $_________ TOTAL ELIGIBLE $_________ ELIGIBLE INVENTORY $_________ ADVANCE RATE .33
35 36 (3) LOAN VALUE $_________ TOTAL LOAN VALUE (1+2+3) $_________ LOAN $_________ RATIO: TOTAL LOAN VALUE:LOAN $_________
SPECTRAN CORPORATION BY:_____________________________________ BRUCE CANNON, CHIEF FINANCIAL OFFICER 36 37 Exhibit 2.03 DEPOSIT ACCOUNT Account No. 00792489 37 38 Exhibit 2.05 DISBURSEMENT OF TERM NOTE No disbursements will be made under the Term Note until all conditions set forth in the Agreement have been satisfied. The Lender will disburse the proceeds of the Term Note to SpecTran's deposit account identified in Exhibit 2.03, subject to the Lender's prior receipt from SpecTran of evidence, satisfactory to the Lender, of the purchase price of the Equipment to be purchased with such proceeds, including without limitation copies of invoices (paid or to be paid). In no event will (i) any disbursement exceed one hundred percent (100%) of the purchase price of such Equipment and (ii) all disbursements, in the aggregate, exceed seventy-five percent (75%) of the auction value of all of the Borrowers' Equipment as set forth in the "Auction Value Appraisal" prepared by Appraisal & Liquidation Services, Inc. to be delivered to the Lender on or before May 1, 1996. Disbursements will not be made more frequently than monthly. No disbursements will be made after September 30, 1996 or after the occurrence of an Event of Default. 38 39 Exhibit 2.06 DISBURSEMENT OF MORTGAGE NOTE No disbursements will be made under the Mortgage Note until all conditions set forth in the Agreement have been satisfied, including without limitation, the Lender's receipt of (a) an environmental site assessment covering the real property subject to the Mortgage satisfactory to the Lender and (b) a zoning opinion satisfactory to the Lender and its counsel. The Lender will disburse the proceeds of the Mortgage Note to SpecTran's deposit account identified in Exhibit 2.03, subject to the Lender's prior receipt of (i) a completed and executed A1A form in the form attached hereto as Exhibit 2.06A setting forth in detail satisfactory to the Lender the expenditures giving rise to the request for such disbursement and (ii) paid invoices with respect to the expenditures listed on the related A1A form. In no event will (i) any disbursement exceed one hundred percent (100%) of the cost of improvements to the real property subject to the Mortgage and (ii) all disbursements, in the aggregate, exceed seventy five percent (75%) of the fair market value of the real property subject to the Mortgage as set forth in the "As Is, Fair Market Value Appraisal" conducted by L.J. Boudreau Associates to be delivered to the Lender on or before May 1, 1996. After completion of the improvements to the real property subject to the Mortgage and the issuance of an occupancy permit, the "As Completed, Fair Market Value Appraisal" prepared by L. J. Boudreau Associates may be used instead of the "As Is, Fair Market Value Appraisal". Disbursements will not be made more frequently than monthly. No disbursements will be made after March 31, 1997 or after the occurrence of an Event of Default. 39 40 Exhibit 3.01(m) Counsel for Bank: Counsel for Borrower: Paul J. D'Onfro, Esquire Brian M. Hand, Esquire Mirick, O'Connell, DeMallie Hackmyer & Nordlicht & Lougee 645 Fifth Avenue 1700 Bank of Boston Tower New York, NY 10022 Worcester, MA 01608-1477 (212) 421-6500 (508) 799-0541 ("H&N") ("MODL") FLEET NATIONAL BANK (the "Bank") $22,000,000.00 LOANS TO SPECTRAN CORPORATION ("SpecTran") and SPECTRAN SPECIALTY OPTICS COMPANY ("Optics") and APPLIED PHOTONIC DEVICES, INC. ("Photonic") and SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC. ("Communication") (SpecTran, Optics, Photonic and Communication are collectively referred to as the "Borrowers") CLOSING DOCUMENT AGENDA Responsible Party MODL 1. Loan and Security Agreement among the Borrowers and the Bank MODL 2. Borrowers' $12,000,000.00 Revolving Note MODL 3. Borrowers' $5,000,000.00 Term Note 40 41 MODL 4. Borrowers' $5,000,000.00 Mortgage Note H&N 5. Insurance binder from SpecTran naming the Bank as loss payee and mortgagee, including: a) Casualty; and b) General Liability MODL 6. UCC-1 Financing Statements against SpecTran to be filed with: a) Massachusetts Secretary of State b) Sturbridge, Massachusetts Town Clerk c) Worcester District Registry of Deeds H&N 7. UCC-11 pre-closing Searches for Spectran from: a) Massachusetts Secretary of State b) Sturbridge, Massachusetts Town Clerk H&N 8. Federal and State Tax Lien Searches for SpecTran MODL 9. Pledge Agreement between SpecTran and the Bank H&N 10. Composite Certificate of Secretary of Spectran with attached: a) Certificate of Incorporation with all amendments (certified to by the Delaware Secretary of State) b) By-Laws c) Votes H&N 11. Certificate of Legal Existence and Good Standing for SpecTran issued by the Delaware Secretary of State H&N 12. Certificate of Qualification To Do Business in Massachusetts for SpecTran issued by the Massachusetts Secretary of State H&N 13. Certificate of Good Tax Standing for SpecTran issued by the Massachusetts Department of Revenue H&N 14. Insurance binder from Optics naming the Bank as loss payee, including: a) Casualty; and b) General Liability MODL 15. UCC-1 Financing Statements against Optics from: a) Connecticut Secretary of State b) Avon, Connecticut Town Clerk-Land Records 41 42 H&N 16. UCC-11 pre-closing Searches for Optics from: a) Connecticut Secretary of State b) Avon, Connecticut Town Clerk-Land Records H&N 17. Federal and State Tax Lien Searches for Optics H&N 18. Copies of any leases for Optics MODL 19. Assignments of Leases with respect to Optics' interests and tenant MODL 20. Landlord's Consents and Waivers H&N 21. Composite Certificate of Secretary of Optics with attached: a) Certificate of Incorporation with all amendments (certified to by the Delaware Secretary of State) b) By-Laws c) Votes H&N 22. Certificate of Legal Existence and Good Standing for Optics issued by the Delaware Secretary of State H&N 23. Certificate of Qualification To Transact Business in Connecticut for Optics issued by the Connecticut Secretary of State H&N 24. Accountant's letter regarding filing of tax returns and payment of taxes H&N 25. Insurance binder from Photonic naming the Bank as loss payee and mortgagee, including: a) Casualty; and b) General Liability MODL 26. UCC-1 Financing Statements against Photonic to be filed with: a) Connecticut Secretary of State b) Brooklyn, Connecticut Town Clerk-Land Records c) Killingly, Connecticut Town Clerk-Land Records H&N 27. UCC-11 pre-closing Searches for Photonic from: a) Connecticut Secretary of State b) Brooklyn, Connecticut Town Clerk-Land Records c) Killingly, Connecticut Town Clerk-Land Records MODL 28. UCC-11 post-closing Searches for Photonic from: a) Connecticut Secretary of State 42 43 b) Brooklyn, Connecticut Town Clerk-Land Records c) Killingly, Connecticut Town Clerk-Land Records H&N 29. Federal and State Tax Lien Searches for Photonic interests as tenant H&N 30. Copies of any leases for Photonic MODL 31. Assignments of Leases with respect to Photonic interests as tenant MODL 32. Landlord's Consents and Waivers H&N 33. Composite Certificate of Secretary of Photonic with attached: a) Certificate of Incorporation with all amendments (certified to by the Connecticut Secretary of State) b) By-Laws c) Votes H&N 34. Certificate of Legal Existence and Good Standing for Photonic issued by the Connecticut Secretary of State H&N 35. Accountant's letter regarding filing of tax returns and payment of taxes H&N 36. Insurance binder from Communication naming the Bank as Loss Payee, including: a) Casualty; and b) General Liability MODL 37. UCC-1 Financing Statements against Communication to be filed with: a) Massachusetts Secretary of State b) Sturbridge, Massachusetts Town Clerk c) Worcester District Registry of Deeds H&N 38. UCC-11 pre-closing Searches for Communication from: a) Massachusetts Secretary of State b) Sturbridge, Massachusetts Town Clerk MODL 39. UCC-11 post-closing Searches for Communication from: a) Massachusetts Secretary of State b) Sturbridge, Massachusetts Town Clerk H&N 40. Federal and State Tax Lien Searches for Communication H&N 41. Copies of any leases for Communication 43 44 MODL 42. Assignments of Leases with respect to Communication interests as tenant MODL 43. Landlord's Consents and Waivers H&N 44. Composite Certificate of Secretary of Communication with attached: a) Certificate of Incorporation with all amendments (certified to by the Delaware Secretary of State) b) By-Laws c) Votes H&N 45. Certificate of Legal Existence and Good Standing for Communication issued by the Delaware Secretary of State H&N 46. Certificate of Qualification To Do Business in Massachusetts for Communication issued by the Massachusetts Secretary of State H&N 47. Certificate of Good Tax Standing for Communication issued by the Massachusetts Department of Revenue MODL 48. Mortgage securing $5,000,000.00 Mortgage Note covering real estate located at 50 hall Road, Sturbridge, Massachusetts ("Sturbridge Property") MODL 49. Assignment of Leases and Rents for Sturbridge Property H&N 50. Detailed Construction Budget in form and substance acceptable to the Bank MODL 51. Certificate of Municipal Liens for Sturbridge Property H&N 52. Survey for Sturbridge Property containing Flood Hazard Certification sufficient to delete survey exception in Title Insurance Policy Bank 53. Appraisal of Sturbridge Property Bank 54. 21E Site assessment for Sturbridge Property H&N 55. Title V Inspection and Certification H&N 56. Title V Certification re: adequate septic system to service addition H&N 57. Building Permit MODL 58. Title Report with copies of instrument shown as encumbrances on Title Report for Sturbridge Property 44 45 MODL 59. Title Insurance Affidavit for Sturbridge Property MODL 60. Lender's Title Insurance Policy deleting standard exceptions for: Taxes (except those not yet due and payable), Survey, Parties in Possession and Mechanics Liens H&N 61. Opinion of Counsel to Borrowers regarding due execution, authority, enforceability and perfection H&N 62. Opinion of Counsel to SpecTran regarding zoning MODL 63. Disbursement Authorizations H&N 64. Payment of $60,000.00 Commitment Fee 45 46 Exhibit 5.01(a) Subsidiaries, Jurisdictions, Shareholders and Addresses 1. Optics, Photonic and Communication are wholly owned subsidiaries of SpecTran. 2. The following companies are qualified to do business in the following states. Name State SpecTran Delaware, Massachusetts Optics Delaware, Connecticut Photonic Connecticut Communications Delaware, Massachusetts 3. SpecTran owns ten shares of common stock of each of Optics and Communication and 100 shares of common stock of Photonics. 4. The addresses of each place of business of the Borrowers are as follows: SpecTran Communication 50 Hall Road Sturbridge, MA Optics 18 Parkside Lane Avon, CT 150 Fisher Drive Avon, CT 18 Parkside Lane (the "Barn") Avon, CT Photonics 50 Tiffany Street Brooklyn, CT 300 Lake Road Dayville, CT 46 47 Exhibit 5.01(f) LITIGATION Applied Photonic Devices, Inc. was a named defendant in the case of Buchanan Sound & Communications, Inc. v. America Fibertek, Inc. and Applied Photonic Devices, Inc. filed in the Circuit Court for Kanawha County, West Virginia. The civil action number is 93-C-5844 an the original amount of the claim is $6,364.40 plus applicable interest. Applied Photonic Devices, Inc. has received no information or updates concerning this case since it was originally filed in 1993. The case was filed against a customer of APD, and also named APD, Inc. as a defendant because APD was a component supplier. 47 48 Exhibit 5.01(i) INDEBTEDNESS The Borrowers have no Indebtedness, other than Indebtedness to the Lender and under Capitalized Leases, including leases with Copelco Leasing Corporation and Liquid Carbonic Corp. 48 49 Exhibit 6.01(a) USES OF LOAN PROCEEDS The proceeds of the Loans will be used only for the following purposes: Revolving Note: Working capital and general corporate purposes; Term Note: Purchase of Machinery and Equipment; and Mortgage Note: Plant expansion at the Sturbridge, Massachusetts facility. 49 50 Exhibit 6.01(b)(5) FLEET NATIONAL BANK ("FLEET") Loan to SpecTran Corporation et al Certificate of Loan Covenant Compliance as of ________________
Section Covenant Limit Actual - ------- -------- ----- ------ 6.01 f(i) Fixed Charge Coverage Ratio 1.25:1.00 f(ii) Tangible Net Worth $18,5000,000 f(iii) Minimum Quarterly EBITDA Section 6.02 r(1) Leverage Ratio 1.25:1.0 r(2) Capital Expenditures
I, the undersigned officer of SpecTran hereby certify that I have read the Loan and Security Agreement among Fleet and SpecTran, et al dated April __, 1996, and to the best of my knowledge and belief, as of ________________________, SpecTran is in compliance with all the Covenants, Terms and Provisions contained in the Loan and Security Agreement and no Event of Default exists. SPECTRAN CORPORATION By: -------------------------- Its Treasurer Date 50 51 Exhibit 6.01(m) DISPUTED LIABILITIES None. 51 52 Exhibit 6.02(d) CONSIGNMENT INVENTORY SpecTran has placed optical fiber inventory on consignment with Optical Cable Corporation ("OCC") of Roanoke, Virginia. As of March 31, 1996 the consigned inventory was valued at $405,343. 52 53 Exhibit 6.02(l) The investment objectives will be to maximize total return within the confines of a short to average overall maturity framework. The fund will utilize 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 rato paper. Positions required for liquidity needs will be held in high grade short-term or money market balances. The horizon on these corporate funds will be approximately 1/3 for immediate liquidity needs (if necessary), approximately 1/3 to be used for intermediate term purposes, and the remaining approximately third for long term expansion purposes. SpecTran will have full authority and discretion on all investment changes. 53 EX-10.67 3 MORTGAGE BY SPECTRAN CORPORATION DATED 4/25/96 1 Record and Return to: Paul J. D'Onfro, Esquire Mirick, O'Connell, DeMallie & Lougee 1700 Bank of Boston Tower Worcester, MA 01608 MORTGAGE SPECTRAN CORPORATION, a Delaware corporation having a principal place of business at 50 Hall Road, Sturbridge, Massachusetts ("Mortgagor"), for consideration paid, grants the Premises to FLEET NATIONAL BANK, a national banking corporation with a place of business at 370 Main Street, Worcester, Massachusetts ("Mortgagee") with MORTGAGE COVENANTS, to secure the payment, performance and observance of all the Obligations. The term "Obligations" means all of the debts, liabilities, agreements and other obligations of Mortgagor, SPECTRAN SPECIALTY OPTICS COMPANY ("Optics"), APPLIED PHOTONIC DEVICES, INC. ("Photonic") and SPECTRAN COMMUNICATION FIBER TECHNOLOGIES, INC. ("Communication") (Mortgagor, Optics, Photonic and Communication and sometimes hereinafter referred to as "Obligors") due Mortgagee, whether direct or indirect, absolute or contingent, joint or several, due or to become due, now existing or arising in the future. The term "Loan Documents" includes this Mortgage, the $5,000,000.00 Mortgage Note of Obligors, the $5,000,000.00 Term Note of Obligors, the $12,000,000.00 Revolving Note of Obligors, the Loan and Security Agreement among Obligors and Mortgagee and all other documents delivered to Mortgagee in connection with this Mortgage by Obligors and all amendments, extensions and renewals of this Mortgage and the other agreements and documents referred to above. The term "Premises" includes the following, all of which are subject to this Mortgage: (i) The land in Sturbridge, Worcester County, Massachusetts having an address of 50 Hall Road, more particularly described in Exhibit A attached; (ii) All buildings, structures and improvements now or at any time in the future on the land; (iii) All Fixtures, which term means (1) all goods, equipment, fixtures, building materials and tangible personal property (except (a) consumable goods, (b) equipment of Mortgagor which is not affixed to the real estate and (c) personal property owned by tenants of the Premises which the tenants are entitled to remove by law or agreement) now or in the future located on, attached to or incorporated in the construction of and used in connection with the operation of the Premises including, but not limited to, all sidetracks, boilers, tanks, pumps, furnaces, radiators, alarm systems, cooling towers, compressors, elevators, escalators, cranes and all heating, lighting, power, plumbing, electrical, communications, ventilating, refrigerating, air conditioning, sprinkler, incinerating and building service equipment, and (2) all related accessories, additions and replacements; 2 (iv) All right, title and interest of Mortgagor in all easements, rights (including mineral, air and water rights), privileges, appurtenances, licenses, permits and governmental approvals, now or in the future pertaining to the Premises; and (v) All rents, income, profits, royalties or accounts receivables from the Premises. SECTION 1 - GENERAL COVENANTS OF MORTGAGOR. Until the Obligations are paid, performed and observed in full, in addition to the STATUTORY CONDITION, Mortgagor agrees as follows: 1.1 INSURANCE. To keep all buildings, improvements and Fixtures which are part of the Premises insured against direct risk of physical loss in an amount not less than 100% of their replacement cost with deductibles satisfactory to Mortgagee. Mortgagor agrees to maintain such other insurance and in such amounts and on such terms as Mortgagee reasonably requests. If a structure which is part of the Premises is within a flood hazard area, Mortgagor agrees to carry flood insurance to the extent required under applicable law or by Mortgagee. Mortgagor agrees to keep all buildings and improvements under construction insured under a Builder's Risk, Completed Value, non-reporting form of policy which provides coverage for "completion and/or premises occupancy." All insurance will (i) be written with a standard mortgagee clause by companies of recognized responsibility authorized to write such insurance in Massachusetts and having a Best's financial rating of B or better, (ii) be in amounts and on forms satisfactory to Mortgagee, (iii) be payable in case of loss to Mortgagee, as its interest may appear, and (iv) contain a provision that it may not be cancelled or modified without at least ten (10) days prior written notice to Mortgagee. Mortgagor agrees to deliver to Mortgagee, when requested, satisfactory evidence of (a) all existing insurance policies, (b) new policies for insurance about to expire at least ten (10) days before the expiration and (c) payment of all insurance premiums. Subject to the rights of the holder of any prior mortgage, after demand by Mortgagee, Mortgagor agrees (x) to deposit with Mortgagee on each day that interest payments are required by the terms of the Loan Documents, a sum equal to that fraction of insurance premiums payable each year estimated by Mortgagee to be sufficient to provide, in total, a sum adequate to pay the insurance premiums when due, (y) to deposit with Mortgagee the balance necessary to pay the insurance premiums in full before they are due and (z) to forward to Mortgagee bills for the insurance premiums as soon as they are received by Mortgagor. 1.2 TAXES. To pay or cause to be paid, before the last day on which payment may be made without penalty or interest (the "Payment Date") all taxes (or payments in lieu of taxes), special or general assessments, water and sewer charges and other municipal charges with respect to the Premises ("Taxes"), except for Taxes which Mortgagor is contesting in good faith for which adequate reserves have been made. After the occurrence of an Event of Default and upon written demand by Mortgagee, Mortgagor agrees (i) to deposit with Mortgagee on each day that interest payments are required by the terms of the Loan Documents, a sum equal to that fraction of the Taxes for each year estimated by Mortgagee to be sufficient to provide, in total, a sum adequate to pay the Taxes on the Payment Date, (ii) to deposit with Mortgagee the balance necessary to pay the Taxes in full before the Payment Date and (iii) to forward to Mortgagee bills 2 3 for the Taxes as soon as they are received by Mortgagor. Mortgagee may invest all sums deposited by Mortgagor for its own account without obligation to pay interest to Mortgagor. 1.3 MORTGAGES AND ENCUMBRANCES. To keep the title to the Premises free of all mortgages and other encumbrances except (i) the lien for Taxes not yet due, (ii) the lien for Taxes being contested in good faith for which adequate reserves have been made, (iii) encumbrances assented to by Mortgagee, (iv) encumbrances which individually do not exceed $5,000.00 and (v) encumbrances for more than $5,000.00 which are not discharged, satisfied, stayed or bonded within thirty (30) days after Mortgagor becomes aware of the existence of such encumbrances. 1.4 MAINTENANCE AND USE OF PREMISES. To maintain the Premises in substantially the same condition as they now are or may be in the future, reasonable wear and tear excepted. Mortgagor agrees not to permit (i) removal, demolition or other waste of the Premises, (ii) lapse or revocation of any material license, permit or other governmental authorization issued with respect to the Premises, (iii) material change in the structure or use of the Premises or (iv) violation in any material respect of a law or ordinance affecting the Premises or its use. At Mortgagee's request, Mortgagor agrees to provide evidence of compliance with the provisions of this or any other covenant in the Loan Documents. 1.5 LEASES. To deliver to Mortgagee for examination and copying originals of all leases, licenses, franchises and other agreements under which a person occupies any part of the Premises ("Leases"). Mortgagor assigns the Leases and all rent, income, fees and other amounts due Mortgagor under the Leases ("Rents") to Mortgagee as additional security for the Obligations. Mortgagor grants to Mortgagee full power, as irrevocable attorney-in-fact of Mortgagor, to execute and deliver assignments of the Leases and the Rents to itself, to any future holder of this Mortgage or to any person claiming title to the Premises as a result of foreclosure proceedings in the event Mortgagor fails to do so. When an Event of Default exists, Mortgagee may, without waiving any of its other rights, collect the Rents and enforce all obligations of tenants under the Leases without taking possession of the Premises and without performing any obligations of the landlord under the Leases. 1.6 ENVIRONMENTAL LAWS AND COMPLIANCE. To comply with and to cause the Premises to comply in all material respects with all applicable Federal, state and local laws, codes, ordinances, rules, regulations and interpretations now or in the future existing, and all applicable orders of administrative agencies including, but not limited to, the Comprehensive Environmental Response Compensation and Liability Act, the Resource Conservation and Recovery Act of 1976, the Superfund Amendments and Reauthorization Act of 1986 and Massachusetts General Laws, Chapters 21C and 21E, relating to the environment, health, safety, sanitation, underground storage tanks and the "release or threat of release" of Hazardous Materials (the "Environmental Laws"). The term "Hazardous Materials" means (i) lead paint, asbestos, radon and (ii) "oil", "hazardous materials", "hazardous wastes" and "hazardous substances" as those terms are defined in the Environmental Laws. 3 4 1.6.1 COPIES OF NOTICES. To give to Mortgagee, immediately, copies of all notices, reports, citations and other communications given or received by Mortgagor in connection with any Environmental Laws whether or not relating to the Premises. 1.6.2 TESTING AND REMEDIATION. Provided Mortgagee has reasonable grounds to believe that Hazardous Materials have been released at the Premises in amounts in excess of reportable thresholds, Mortgagee or its agents may enter the Premises at any time and perform, or may require Mortgagor to deliver to Mortgagee, whatever tests it considers necessary to determine the existence or non-existence of Hazardous Materials. If Hazardous Materials exist on the Premises in amounts exceeding reportable thresholds and such Hazardous Materials are not contained and/or removed in accordance with applicable law by Mortgagor within 30 days after receipt of notice thereof from Mortgagee or if such Hazardous Materials cannot be contained and/or removed within such period, Mortgagee has not commenced containment and/or removal and does not continue to prosecute such containment and/or removal with reasonable diligence (in any event such containment and/or removal must be completed within 180 days after notice thereof from Mortgagee), Mortgagee has the right (but not the obligation) to cause the Hazardous Material to be contained and/or removed, and, using contractors of its choice, to enter the Premises to perform any remedial action it considers necessary, all without incurring liability to Mortgagor for any action taken by Mortgagee or its agents, except for liability incurred by Mortgagor resulting from Mortgagees gross negligence. 1.7 INDEMNIFICATION. To defend, indemnify and hold Mortgagee and its directors, officers, agents and employees harmless against all claims, losses and liabilities, including reasonable attorneys' fees and costs of litigation (but not including consequential, special, exemplary or punitive damages), incurred by Mortgagee on account of (i) Mortgagor's failure to comply with Environmental Laws, (ii) a release or threat of release of Hazardous Materials on the Premises, (iii) any activity on or condition of the Premises which requires removal, remediation or corrective action under applicable Environmental Laws and (iv) any future law, regulation, judicial order or governmental action affecting the Premises. 1.8 ALIENATION. Not to cause or permit, directly or indirectly, whether voluntarily or by operation of law, (i) title to all or part of the Premises to become vested in a person other than Mortgagor, or (ii) all or part of the Premises to become subject to the provisions of Massachusetts General Laws, Chapter 183A relating to condominiums. If any of the changes described above occur, in addition to exercising remedies available to it, Mortgagee may, at its option and without notice to Mortgagor, deal with the successor in interest with reference to this Mortgage and the Obligations in the same manner as with Mortgagor, without reducing or discharging Mortgagor's liability for the Obligations. SECTION 2 - EVENTS OF DEFAULT. The occurrence of one or more of the following events or conditions is an Event of Default and a breach of the condition of this Mortgage: (i) The failure to pay an Obligation when due and, except in the case of a demand Obligation, the continuation of the failure beyond an applicable period of notice or grace; 4 5 (ii) The failure, other than in the payment of money, to perform or observe an Obligation which continues beyond an applicable period of notice or grace; (iii) A statement, certificate, report, financial statement, representation or warranty made or furnished to Mortgagee by a party to the Loan Documents or in compliance with the provisions of the Loan Documents proves to have been false or incomplete in any material respect when made; (iv) Mortgagor or a guarantor of the Obligations (a) is or becomes insolvent within the meaning of the Massachusetts Uniform Commercial Code; (b) files a petition in bankruptcy or a petition to take advantage of an insolvency act; (c) makes an assignment for the benefit of its creditors; (d) consents to the appointment of a receiver or custodian of itself or of the whole or a substantial part of its property; (e) is named debtor party in an involuntary bankruptcy proceeding and the proceeding is not dismissed within sixty (60) days; (f) files a petition or answer seeking reorganization or arrangement under a Federal or state law; or (g) dies, dissolves or terminates its existence; (v) With respect to Mortgagor or a guarantor, and without the consent of either, a court enters an order (a) appointing a receiver or custodian of either or of the whole or a substantial part the property of either, or (b) approving a petition filed against either seeking reorganization or arrangement under a Federal or state law, and the order is not vacated, set aside or stayed within sixty (60) days after it is entered; (vi) Under a law for the relief or aid of debtors, a court assumes custody or control of Mortgagor or a guarantor or of the whole or a substantial part of the property of either, and the custody or control is not terminated or stayed within sixty (60) days after the date it is assumed; (vii) A court enters final judgment against Mortgagor or a guarantor for the payment of money, and within sixty (60) days after entry of the judgment Mortgagor or the guarantor does not (a) discharge the judgment or provide for its discharge in accordance with its terms, or (b) procure a stay of execution and within the (60) day period, or such longer period during which execution of the judgment has been stayed, appeal and cause the execution to be stayed during the appeal; (viii) The failure by Mortgagor or a guarantor (a) to pay when due the principal of, or interest or premium on, any indebtedness (other than an Obligation) incurred or assumed by Mortgagor or the guarantor for money borrowed or for the acquisition of property or (b) to perform or observe any of the obligations which are imposed on Mortgagor or the guarantor by an agreement securing or evidencing the indebtedness or under which the indebtedness is issued, and in either case the failure is not cured within an applicable period of grace or notice; or (ix) The occurrence of an Event of Default under the Loan Documents. 5 6 SECTION 3 - RIGHTS AND REMEDIES. Without prejudice to Mortgagee's rights with respect to Obligations payable on demand, if an Event of Default exists, Mortgagee may, without notice except to the extent notice is required by law, exercise the rights and remedies provided in this Section 3, conferred by law or under the Loan Documents with respect to the Premises, Mortgagor or any other person. Mortgagee's rights and remedies are cumulative and not exclusive of or alternative to any rights or remedies it would otherwise have. A delay or failure by Mortgagee in exercising or enforcing its rights or remedies does not constitute a waiver. 3.1 REMEDIES. Whenever an Event of Default exists, Mortgagee may: (i) Declare the Obligations immediately due and payable, without presentment, notice, protest or further demand, all of which are hereby expressly waived; (ii) Exercise the STATUTORY POWER OF SALE; (iii) Initiate actions or proceedings available to Mortgagee under applicable law to protect its interest in the Premises and the Obligations; or (iv) Petition for the appointment of a receiver of the Premises, which appointment may be made ex parte and without notice except to the extent notice is required by law, without regard to the solvency of Mortgagor or a guarantor at the time of application for the receiver and without regard to the value of the Premises. 3.2 RECEIVER. Effective upon the occurrence of an Event of Default, Mortgagor consents to the appointment of Mortgagee or other qualified person as receiver, to take possession of and to operate the Premises and to collect the Rents. Notwithstanding the appointment of a receiver or other custodian, Mortgagee is entitled, as pledgee, to the possession and control of all cash, deposits and instruments at the time payable or deliverable under this Mortgage. 3.3 SPECIFIC PERFORMANCE. Failure by Mortgagor to perform its agreements contained in the Loan Documents will result in irreparable harm to Mortgagee for which Mortgagee has no adequate remedy at law. Therefore, Mortgagor agrees that its agreements contained in the Loan Documents are specifically enforceable by Mortgagee. 3.4 FORECLOSURE SALES. Mortgagee has the right in case of a sale which it is entitled to make, to sell the Premises at public auction, either as a whole or by parcels and without regard to other collateral now or in the future securing the Obligations. In the case of a sale by parcels, the purchaser of a parcel will take good title, even if a sum may already have been realized from the sale of other parcels sufficient to satisfy all the Obligations. The foreclosure sale may be held at the offices of Mortgagee or on or near the Premises, without notice or demand, except to the extent notice or demand is required by law. 3.5 FORECLOSURE EXPENSES, SURPLUS. If (i) foreclosure, bankruptcy or other legal proceedings involve Mortgagee's interest under this Mortgage, whether the proceedings are begun 6 7 by Mortgagee or others and whether the proceedings are suspended or terminated or the Premises redeemed, or (ii) Mortgagee takes possession of the Premises, Mortgagee will be entitled to collect and Mortgagor agrees to reimburse Mortgagee for all expenses, including reasonable attorneys' fees, incurred by Mortgagee in the foreclosure, bankruptcy or other legal proceeding or in the maintenance, protection and management of the Premises. If surplus proceeds are realized from a foreclosure sale, Mortgagee will not be liable for interest on the proceeds pending distribution, and all costs and reasonable attorneys' fees incurred by it in proceedings to determine the person or persons entitled to the surplus will be paid from the surplus proceeds. 3.6 FORBEARANCE NOT A WAIVER. The liability of Mortgagor will not be reduced, the priority of this Mortgage will not be affected, and the rights of Mortgagee with respect to Mortgagor or the security for the Obligations will not be impaired by any of the following events, regardless of whether Mortgagee receives additional consideration: (i) the sale of all or part of the Premises, (ii) a forbearance by Mortgagee, (iii) an extension of the time for payment or performance of the Obligations, (iv) a release of security for or a guarantor of the Obligations or (v) an indulgence given by Mortgagee to Mortgagor or to any other person having an interest in the Premises or liable for the Obligations. Mortgagor waives notice of any extension, forbearance or indulgence and agrees that no waiver, express or implied, by Mortgagee of a default by a party to the Loan Documents will constitute a waiver of a future default in the same or any other provision of the Loan Documents. 3.7 INSURANCE POLICIES. If this Mortgage is foreclosed, Mortgagor grants to Mortgagee full power, as irrevocable attorney-in-fact of Mortgagor, to cancel the insurance required to be maintained by Mortgagee under this Mortgage, retain the return premiums and apply them to the Obligations or to transfer the insurance to a person claiming title to the Premises as a result of foreclosure proceedings. SECTION 4 - DAMAGE TO PREMISES. Mortgagor appoints Mortgagee as its irrevocable attorney-in-fact (i) to adjust and to settle claims on account of damage to the Premises resulting from a taking or casualty, (ii) to receive all condemnation and insurance proceeds ("Proceeds") arising out of the damage and (iii) to endorse in favor of itself or any other person drafts or checks for Proceeds received by it. Provided no Event of Default exists under the Loan Documents, all Proceeds will be applied by Mortgagee, to the cost of restoring the Premises. Mortgagee may, in its discretion, (a) pay the Proceeds to Mortgagor for application to the cost of the work, or (b) advance the Proceeds from time to time to Mortgagor and/or its contractor for application to the cost of the work as the cost is certified to Mortgagee by an architect or contractor in charge of the restoration who has been approved in writing by Mortgagee. Mortgagee is not obligated to make advances if, as a result, the balance of the Proceeds are or will become less than the amount specified in the architect's or contractor's certificate as the amount required to complete the restoration. Upon receipt by Mortgagee of satisfactory evidence that the restoration has been completed, that the cost of all labor and materials has been paid in full and that there are no liens on the Premises and if no Event of Default exists, Mortgagee agrees to pay the balance of the Proceeds held by it to Mortgagor. If the Proceeds held by 7 8 Mortgagee are insufficient to pay the entire cost of restoration, Mortgagor agrees to pay the deficiency on demand. After the occurrence of an Event of Default under the Loan Documents, Mortgagee may, at its option, apply all Proceeds to the Obligations, whether or not then due, in any order Mortgagee determines. SECTION 5 - PAYMENTS BY MORTGAGEE. Mortgagee is authorized but not obligated (i) to pay all Taxes with accrued interest, penalties and charges, (ii) to pay the premiums for insurance required under the Loan Documents, (iii) to incur and pay reasonable expenses, including attorneys' fees, in protecting its rights under the Loan Documents, and maintaining, protecting or managing the collateral securing the Obligations, (iv) to pay indebtedness secured by a mortgage of real estate or security interest in property or Fixtures included as part of the Premises, (v) to add all amounts paid or incurred for the above purposes to the principal amount of the Obligations, and (vi) to apply to the above purposes or to the repayment of amounts paid by Mortgagee, sums paid under the Loan Documents as interest or principal. The amounts paid by Mortgagee will bear interest at the highest rate payable under the Loan Documents and will be payable on demand. SECTION 6 - ENTRY BY MORTGAGEE. Mortgagee or its agents may enter the Premises at any time upon reasonable advance notice, before or after an Event of Default, to inspect the Premises, to appraise the Premises, to determine compliance with the provisions of the Loan Documents and to take any action while on the Premises authorized under this Mortgage or which it considers necessary to preserve the value of the Premises. Entry by Mortgagee for the purposes authorized under this Section will not be considered entry for any other purpose or constitute possession of the Premises. Mortgagor agrees to reimburse Mortgagee on demand for all expenses incurred in connection with an entry made under this Section, including the cost of appraisal, testing, remedial action or other activities by Mortgagee or its agents while on the Premises other than expenses attributable to Mortgagee's gross negligence. SECTION 7 - NOTICES AND COMMUNICATIONS. All notices, demands, requests and other communications provided for or permitted under this Mortgage must be in writing and be delivered by hand or sent by telecopy, nationally recognized and reputable overnight delivery service, express mail, certified mail or first-class mail, postage prepaid, to the parties, respectively at the following addresses: (a) If to Mortgagee, at the address stated at the beginning of this Mortgage (or at such other address as Mortgagee designates in writing to Mortgagor), with a copy to the persons Mortgagee designates in writing to Mortgagor, or (b) if to Mortgagor, at the address stated at the beginning of this Mortgage (or at such other address as Mortgagor designates in writing to Mortgagee) with a copy to the persons Mortgagor designates in writing to Mortgagee. A communication provided for in this Mortgage will become effective only when the person to whom it is given receives it or is considered to have received it. If it is mailed by express, 8 9 certified or first-class mail, it will be considered to be received on (i) the second business day after being mailed or (ii) the day of its receipt, whichever is earlier. If given by telecopy, it will be considered to be received when confirmation of complete receipt is received by the transmitting person during normal business hours on a business day, or on the next business day if confirmation is received after normal business hours. SECTION 8 - MISCELLANEOUS PROVISIONS. The following miscellaneous provisions are applicable to this Mortgage: 8.1 SUCCESSORS AND ASSIGNS. The term "Mortgagee" includes Mortgagee, its successors and assigns, and any subsequent holder or holders of this Mortgage. The term "Mortgagor" includes Mortgagor and any subsequent owner or owners of the equity of redemption of the Premises assented to by Mortgagee. All of the agreements of Mortgagor are binding upon the successors and assigns of the original Mortgagor and any person claiming under Mortgagor. 8.2 AMENDMENT. This Mortgage may not be amended except by written agreement signed by Mortgagor and Mortgagee. 8.3 HEADINGS. The headings contained in this Mortgage are for reference purposes only and do not affect the meaning or interpretation of this Mortgage. 8.4 GOVERNING LAW. This Mortgage will be construed under and governed by the laws of the Commonwealth of Massachusetts. 8.5 SEVERABILITY. If a provision of this Mortgage is held to be invalid or unenforceable, the provision will be enforceable to the extent that a court, after limiting or reducing it, considers it reasonable to enforce the provision. If it is held to be unreasonable to enforce the provision to any extent, the provision will be severed from this Mortgage and the remainder of this Mortgage will continue in effect. 8.6 DISCHARGE. Upon satisfaction of the Obligations, Mortgagee will execute and deliver to Mortgagor a discharge of mortgage in recordable form. SECTION 9 - CONSENT TO JURISDICTION; WAIVERS. MORTGAGOR IRREVOCABLY AND UNCONDITIONALLY (i) SUBMITS TO PERSONAL JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS OVER ANY ACTION OR PROCEEDING ARISING OUT OF THE LOAN DOCUMENTS, AND (ii) WAIVES ALL PERSONAL RIGHTS UNDER THE LAWS OF ANY STATE (a) TO TRIAL BY JURY, (b) TO OBJECT TO JURISDICTION WITHIN THE COMMONWEALTH OF MASSACHUSETTS OR VENUE IN A PARTICULAR FORUM WITHIN THE COMMONWEALTH OF MASSACHUSETTS AND (c) TO CLAIM OR RECOVER ANY DAMAGES OTHER THAN ACTUAL DAMAGES INCLUDING SPECIAL EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES. MORTGAGOR AGREES THAT, IN ADDITION TO METHODS OF SERVICE OF PROCESS PROVIDED FOR UNDER 9 10 APPLICABLE LAW, SERVICE MAY BE MADE BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO MORTGAGOR AT THE ADDRESS PROVIDED IN SECTION 7, WHICH SERVICE WILL BE COMPLETE FIVE (5) DAYS AFTER BEING MAILED. This provision may not be construed to prevent Mortgagor from bringing an action or proceeding or exercising its rights in any other jurisdiction. Mortgagor acknowledges that it has been informed by Mortgagee that the provisions of this Section constitute a material inducement upon which Mortgagee has relied, is relying and will rely in entering into this Mortgage and the other Loan Documents, and that it has reviewed the provisions of this Section with its counsel. Either party may file an original counterpart or a copy of this Section with any court as written evidence of the consent of Mortgagor and Mortgagee to the waiver of their rights to trial by jury. WITNESS the execution hereof under seal this ______ day of April, 1996. SPECTRAN CORPORATION By:/s/Glenn E. Moore ------------------- Its President By:/s/ Bruce A. Cannon ------------------- Its Treasurer COMMONWEALTH OF MASSACHUSETTS Worcester, ss. April 25, 1996 Then personally appeared the above-named Glenn Moore, its President, and acknowledged the foregoing instrument to be the free act and deed of SPECTRAN CORPORATION, before me. /s/ ---------------------- Notary Public My Commission Expires: -------------- 10 11 COMMONWEALTH OF MASSACHUSETTS Worcester, ss. April 25, 1996 Then personally appeared the above-named Bruce A. Cannon, its Treasurer, and acknowledged the foregoing instrument to be the free act and deed of SPECTRAN CORPORATION, before me. /s/ ---------------------- Notary Public My Commission Expires: -------------- 11 EX-10.68 4 PLEDGE AGREEMENT DATED APRIL 25, 1996 1 PLEDGE AGREEMENT This PLEDGE AGREEMENT is made this 25th day of April, 1996 and is among SPECTRAN CORPORATION, having a place of business at 50 Hall Road, Sturbridge, Massachusetts ("Borrower"); FLEET NATIONAL BANK, having a place of business at 370 Main Street, Worcester, Massachusetts ("Lender") and FLEET INVESTMENT ADVISORS, having a place of business at 75 State Street, Boston, Massachusetts ("Agent"). In order to induce Lender to make a loan in the amount of $22,000,000.00 (the "Loan") to Borrower and its subsidiaries pursuant to various notes issued by Borrower and its subsidiaries to Lender dated of even date herewith (the "Notes") and in consideration thereof and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Pledge of Collateral. 1.1 In order to secure the payment and satisfaction of all sums due under the Loan and all documents executed in connection therewith, including the Notes and this Pledge Agreement (the "Documents") and in order to secure the performance of all of the obligations of Borrower and its subsidiaries under the Documents, Borrower hereby pledges, assigns, transfers to Lender, grants to Lender a continuing security interest in and delivers (in the case of certificated securities of which Borrower is in possession) to Lender the shares, securities or other property described in Exhibit A attached hereto and any and all replacements and proceeds thereof (the "Pledged Collateral"). The Pledged Collateral is held in Borrower's account (#0000610770) with Agent (the "Account"). 2. Rights and Remedies. 2.1 So long as (i) no Event of Default shall have occurred under the Documents and (ii) Borrower is in compliance with its obligations under the Documents, Borrower shall be entitled to (a) receive all sums paid in respect of interest, dividends, or any other distributions on the Pledged Collateral (whether in the form of cash payments, additional shares, reclassified or readjusted shares or otherwise) (b) exercise any and all voting rights as owner of the Pledged Collateral, and (c) sell and/or trade the Pledged Collateral, provided all of Borrower's investments must be in accordance with the parameters set forth in Exhibit 6.02(l) to the Loan Agreement. Other than as set forth above, Borrower acknowledges that it will not give any instructions to otherwise deal with any of the Pledged Collateral not specifically provided in the preceding sentence without the prior written consent of Lender. 2.2 If an Event of Default under the Documents shall have occurred, Lender shall have the following rights and remedies in addition to the rights and remedies of a secured party under the Uniform Commercial Code, all such rights and remedies being cumulative, not exclusive, and enforceable alternatively, successively or concurrently, at such time or times as Lender deems expedient: 2 (i) Lender may demand, sue for, collect or make any compromise or settlement Lender deems suitable in respect of the Pledged Collateral; (ii) Lender may sell, resell, assign, deliver, or otherwise dispose of any or all of the Pledged Collateral, for cash upon such terms at such place or places, at such time or times and to such entities or other persons as Lender deems expedient, all without demand for performance by Borrower or any notice or advertisement whatsoever, except as expressly provided herein; and (iii) Lender may cause all or any part of the Pledged Collateral to be transferred into its name or the name of its nominee or nominees. 2.3 In the event of any private sale of the Pledged Collateral, Lender shall give Borrower ten (10) days prior written notice of the time after which any private sale is to be made. In the event of any disposition other than a private sale no notice will be required. Borrower hereby acknowledges that ten (10) days prior written notice of private sale shall be reasonable notice. Lender may enforce its rights hereunder without any other notice and without compliance with any other condition precedent now or hereafter imposed by statute, rule of law or otherwise (all of which are hereby expressly waived by Borrower to the fullest extent permitted by law). Lender may apply the cash proceeds actually received from any sale or other disposition to the reasonable expenses of retaking, holding, preparing for sale, selling and the like, to reasonable attorneys' fees, and other expenses which may be incurred by Lender in attempting to collect the Loan or to enforce the Documents or in the prosecution or defense of any action or proceeding related to the subject matter of the Documents and then to the Loan in such order or preference as Lender may determine. 3. Covenants and Warranties. 3.1 Borrower agrees to reimburse Lender, on demand, for any amounts paid or advanced by Lender for the purpose of preserving the Pledged Collateral or any part thereof and/or any liabilities or expenses incurred by Lender as the transferor or holder of the Pledged Collateral. 3.2 Lender shall be under no duty to: (i) collect or protect the Pledged Collateral or any proceeds thereof or give any notice with respect thereto; (ii) preserve the rights of Borrower with respect to the Pledged Collateral against third parties; (iii) preserve rights against any parties to any instrument or chattel paper which may become a part of the Pledged Collateral; (iv) sell or otherwise realize upon the Pledged Collateral; or (v) seek payment from any particular source. Without limiting the generality of the foregoing, Lender shall not be obligated to take any action in connection with any conversion, call, redemption, retirement or other event relating to any of the Pledged Collateral. 3.3 Borrower agrees to and hereby instructs Agent to comply at all times with the covenants set forth in Section 4 of this Pledge Agreement. 2 3 4. Agent. 4.1 Agent is hereby instructed to make an appropriate entry in its records, either in writing or electronically, to register the pledge of the Pledged Collateral to Lender and to the extent it is holding certificated securities, to hold such securities in its possession on behalf of Lender and to take any other action necessary in order to perfect Lender's security interest in the Pledged Collateral. Agent represents and warrants to Lender that it has taken all necessary action, including making entries in its records reflecting Lender's security interest in the Pledged Collateral held by Agent in the Account and shall maintain such book entries with respect to the Pledged Collateral until it shall have received from Lender written acknowledgment that the security interest granted to Lender by this Pledge Agreement has been terminated. 4.2 Agent shall, at all times hereafter, become and irrevocably remain agent for, and custodian of possession of, all Pledged Collateral in the Account only on behalf of Lender, in its capacity as assignee and secured party of Borrower for purposes of maintaining custody of the Pledged Collateral on behalf of Lender to assure continuing perfection of the pledge, assignment, and security interest granted hereby and to satisfy the terms and conditions of this Pledge Agreement. 4.3 All fees, costs, and expenses due, or to become due to Agent on account of continued maintenance of the Pledged Collateral, shall at all times, however, remain Borrower's responsibility, without charge to Lender, and Lender shall have no liability to Agent in the event of dispute, or claim by Agent against Borrower upon any matter arising out of, or related to, the Pledged Collateral. 4.4 Agent shall not allow assignment, sale (except in accordance with Section 2.1 hereof and the investment parameters set forth in Exhibit 6.02(l) to the Loan Agreement), or hypothecation of the Pledged Collateral without the express written consent of Lender, nor to itself set-off or debit any Pledged Collateral, or proceeds of sale thereof, upon claims or liabilities of Borrower or any other party to it. At Borrower's request, Agent may substitute certain of the Pledged Collateral with other shares, securities or other property which meet the investment parameters set forth in Exhibit 6.02(l) to the Loan Agreement and Agent may facilitate such substitutions and will take all necessary steps to perfect Lender's security interest in such substituted Pledged Collateral. The Pledged Collateral may not be liquidated and the proceeds disbursed to Borrower or any other person or entity without Lender's prior written consent. Unless and until Agent has received written notice from Lender that an Event of Default has occurred under the Documents, Borrower shall be entitled to receive and Agent shall pay to Borrower promptly after receipt, all sums paid in respect of interest, dividends, or any other distributions on the Pledged Collateral (whether in the form of cash payments, additional shares, reclassified or readjusted shares or otherwise), exercise any and all voting rights as owner of the Pledged Collateral, and sell and/or trade the Pledged Collateral. 4.5 In case any of the Pledged Collateral shall be attached, garnished or levied upon pursuant to an order of court, or the delivery thereof shall be stayed or enjoined by an order 3 4 of court or any other order, judgement or decree shall be made or entered by any court affecting such Pledged Collateral or any part thereof, or any act of Agent, Agent is hereby expressly authorized in its reasonable discretion to obey and comply with all final writs, orders, judgments or decrees so entered or issued by any court without the necessity of inquiry whether such court had jurisdiction; and in case Agent obeys or complies with any such writ, order, judgment or decree, Agent shall not be liable to any of the parties hereto or to any other person, firm or corporation by reason of such compliance. Agent shall give written notice promptly to Lender and Borrower if all or any part of the Pledged Collateral shall be attached, garnished, levied upon or otherwise made the subject of judicial action. Should any dispute arise with respect to the Pledged Collateral held by Agent and/or ownership or right of possession of such Pledged Collateral or as to the existence of any Event of Default under the Documents, Agent is authorized and directed to retain in its possession without liability to anyone all (or the portion thereof subject to the dispute) of the Pledged Collateral, then in its possession until such dispute shall have been settled either by mutual agreement of the parties or by a final order, decree or judgement of a court of competent jurisdiction in the United States of America and time for appeal has expired and no appeal has been perfected, provided, however, Agent shall be under no duty to institute or defend any such proceedings. 4.6 Agent may resign at any time upon at least thirty (30) days written notice to Lender and Borrower. In the event that Agent shall so resign or shall for any reason be unable to or unwilling to act as Agent hereunder, then Lender shall appoint a successor agent. Agent and Borrower shall take any and all action (including delivery of the Pledged Collateral to the successor agent) and sign, seal, execute, acknowledge and deliver any and all documents necessary or convenient in the opinion of the succeeding agent to transfer title to all of the Pledged Collateral to such successor. Notwithstanding the foregoing, in no event will Agent's resignation or removal be effective unless and until a successor agent has been appointed in accordance with the terms hereof. 4.7 Agent shall provide Lender and Borrower with information reasonably required by Lender with respect to the value of the Pledged Collateral, income earned thereon or compliance with this Section 4. Agent shall provide to Lender and Borrower within fifteen (15) days of the end of each month a report setting forth (i) the value of the Pledged Collateral, (ii) the income earned thereon, and (iii) such other information as Lender may reasonably request in order to monitor Borrower's compliance with the terms hereof. 4.8 Agent hereby represents and warrants to Lender that: (i) the Pledged Collateral is made up of "certificated securities" as that term is defined in Section 8-102 of the Uniform Commercial Code (the "Code") and the Pledged Collateral is registered in the name and is subject to the exclusive control of The Depository Trust Company ("DTC") or its nominee; (ii) Agent is a "financial intermediary" as that term is defined in Section 8-313(4) of the Code and is not a "clearing corporation", as that term is defined in Section 8-102(3) of the Code; (iii) appropriate entries have been made on the books of DTC to reflect that the Pledged Collateral is being held by DTC for Agent or for one or more other financial intermediaries for the benefit of Agent and (iv) Agent is unaware of any other security interest in, or pledge of, the Pledged 4 5 Collateral. 4.9 Agent's signature hereto will serve as an acknowledgment that (i) it has received a copy of a duly executed original of this Pledge Agreement, (ii) it has received the Pledged Collateral, (iii) the Pledged Collateral has been delivered to the Account, (iv) it has taken all necessary steps to perfect Lender's security interest in the Pledged Collateral and (v) Agent is unaware of any other security interest in, or pledge of, the Pledged Collateral. 4.10 Borrower hereby irrevocably appoints Agent as Borrower's true and lawful attorney-in-fact, with full power (a) to sign or endorse the name of Borrower on any and all of the Pledged Collateral held by Agent hereunder, (b) to keep the Pledged Collateral held hereunder in the form of street certificates or in the name of a nominee without indication of any fiduciary capacity, and (c) in Borrower's name, to sign or execute any other documents or do any act in furtherance of this Pledge Agreement. 4.11 Borrower agrees to indemnify and hold harmless Agent from and against any cost, expense, damage or liability which Agent may incur as a result of compliance herewith except for gross negligence or wilful misconduct. 5. General. 5.1 Each reference herein to Lender shall be deemed to include its successors and assigns, and each reference to Borrower shall be deemed to include the heirs, administrators, legal representatives, successors and assigns of Borrower, all of whom are bound by the provisions hereof. All obligations of Borrower hereunder shall inure to the benefit of Lender. 5.2 No delay on the part of Lender in exercising any rights hereunder or failure to exercise the same shall operate as a waiver of such rights; no notice to or demand on Borrower shall be deemed to be a waiver of any obligations of Borrower or of the right of Lender to take other or further action without notice or demand as provided herein. In any event, no modification or waiver of the provisions hereof will be effective unless in writing and signed by Lender, nor shall any waiver be applicable except in the specific instance or matter for which given. 5.3 Each provision of this Pledge Agreement shall be interpreted in accordance with and in all respects governed by the laws of the Commonwealth of Massachusetts and should any portion of this Pledge Agreement be declared invalid for any reason, such declaration shall have no effect upon the remaining portions of this Pledge Agreement. 5.4 Any notices hereunder shall be deemed given upon delivery if delivered in hand, and only two (2) days after they have been mailed by registered or certified mail, postage prepaid, or twelve (12) hours after such notice has been sent by straight telegram, telegraphic charges prepaid, to the parties at the addresses set forth below: 5 6 (i) SpecTran Corporation 50 Hall Road Sturbridge, MA 01566 (ii) Fleet National Bank 370 Main Street Worcester, MA 01608 Attention: Senior Commercial Loan Officer (iii) Fleet Investment Advisors 75 State Street Boston, MA 02109 IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed as a sealed instrument this 25th day of April, 1996. SPECTRAN CORPORATION By: /s/ G.Moore ------------------------ Its Duly Authorized Officer FLEET NATIONAL BANK By:/s/ John Lynch ------------------------ Its Duly Authorized Officer FLEET INVESTMENT ADVISORS By:/s/ ------------------------ Its Duly Authorized Officer 6 7 Exhibit A PLEDGED COLLATERAL Pledged Collateral held by Agent in account number: 0000610770 as Agent for Lender:
Par Market Value Cusip Description Amount (April _, 1996) - ----- ----------- ------ --------------- Total $___________
7 EX-27 5 FINANCIAL DATA SCHEDULE
5 1 U.S. DOLLARS 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 1 1,037,046 1,228,320 8,940,900 194,379 7,700,736 19,960,554 25,071,741 13,292,551 40,804,658 5,841,779 0 0 0 535,405 0 40,804,658 13,472,523 13,472,523 8,716,304 12,444,699 0 0 186,198 943,316 259,411 683,905 0 0 0 683,905 .12 .12
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