-----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, Izl4cpSRGae6VCVu0IyXHjEyM93dmDWxFS4FYM83T8VMYu6qUB7SFbJTqDo3Xm5e k5MRvlEI/tqxPt76ZR/6DA== 0000950135-97-000066.txt : 19970110 0000950135-97-000066.hdr.sgml : 19970110 ACCESSION NUMBER: 0000950135-97-000066 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19970109 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRAN CORP CENTRAL INDEX KEY: 0000718487 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 042729372 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-19449 FILM NUMBER: 97502937 BUSINESS ADDRESS: STREET 1: 50 HALL ROAD CITY: STURBRIDGE STATE: MA ZIP: 01566 BUSINESS PHONE: 5083472261 S-3 1 SPECTRAN CORPORATION FORM S-3 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1997. REGISTRATION NO. 33- ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ SPECTRAN CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 04-2729372 (STATE OR OTHER JURISDICTION OF (IRS EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
50 HALL ROAD STURBRIDGE, MASSACHUSETTS 01566 (508) 347-2261 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ RAYMOND E. JAEGER, PH.D. CHAIRMAN OF THE BOARD SPECTRAN CORPORATION 50 HALL ROAD STURBRIDGE, MASSACHUSETTS 01566 (508) 347-2261 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ COPIES TO: IRA S. NORDLICHT, ESQ. WILLIAM C. LANCE, ESQ. HACKMYER & NORDLICHT PEABODY & BROWN 645 FIFTH AVENUE 101 FEDERAL STREET NEW YORK, NEW YORK 10022 BOSTON, MASSACHUSETTS 02110 (212) 421-6500 (617) 345-1000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. [ ] If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] ------------------------ CALCULATION OF REGISTRATION FEE ==============================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE REGISTRATION FEE - -------------------------------------------------------------------------------------------------------------- Common Stock, $.10 par value per share........................... 2,070,000 $23.3125 $48,256,875 $14,624 ============================================================================================================== (1) Includes 270,000 shares which the Underwriters have the option to purchase to cover over-allotments, if any. (2) Estimated solely for the purpose of determining the registration fee pursuant to Rule 457.
------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED JANUARY 9, 1997 PROSPECTUS 1,800,000 SHARES [SPECTRAN LOGO] COMMON STOCK Of the 1,800,000 shares of Common Stock offered hereby, 1,450,000 shares are being sold by SpecTran Corporation ("SpecTran" or the "Company") and 350,000 shares are being sold by a Selling Stockholder. See "Principal and Selling Stockholders." The Company will not receive any of the proceeds from the sale of the shares by the Selling Stockholder. The Common Stock is quoted on the Nasdaq National Market under the symbol "SPTR." On January 7, 1997, the last reported sale price for the Common Stock, as reported on the Nasdaq National Market, was $23.375 per share. See "Price Range of Common Stock and Dividend Policy." ------------------------ THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING ON PAGE 6. ------------------------ THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ===========================================================================================
PROCEEDS TO UNDERWRITING PROCEEDS TO SELLING PRICE TO PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER(2) - ------------------------------------------------------------------------------------------- Per Share.................. $ $ $ $ - ------------------------------------------------------------------------------------------- Total(3)................... $ $ $ $ =========================================================================================== (1) The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the offering payable by the Company estimated at $400,000 and payable by the Selling Stockholder estimated at $60,000. (3) The Company has granted to the Underwriters a 30-day option to purchase up to a maximum of 270,000 additional shares of Common Stock to cover over-allotments, if any. If such option is exercised in full, the total "Price to Public," "Underwriting Discount" and "Proceeds to Company" will be $ , $ and $ , respectively. See "Underwriting."
------------------------ The shares of Common Stock are offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters and subject to their right to reject orders in whole or in part. It is expected that delivery of the shares of Common Stock will be made in Boston, Massachusetts, on or about , 1997. TUCKER ANTHONY RAYMOND JAMES & ASSOCIATES, INC. INCORPORATED THE DATE OF THIS PROSPECTUS IS , 1997 3 (Inside Front Cover - PAGE 2 Captions) Corporate logo on the top of the page with the text immediately below "Innovation in optical fiber" 1. Picture of glass preforms. Text under the picture "Spectran Communication Fiber Technologies, Inc. - Multimode optical fiber - Single-mode optical fiber" 2. Picture of computer peripheral, keyboard and mouse. Text under the picture "Spectran Specialty Optics Company - Specialty fiber and cable - Value-added components and assemblies" 3. Picture of four different types of cables. Text under the picture "General Photonics, LLC a Spectran/General Cable Joint Venture - Engineered fiber optic cable - Installation products" 4 ------------------------ IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN ADDITION, CERTAIN UNDERWRITERS (AND SELLING GROUP MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING." ------------------------ The following trademarks and tradenames of SpecTran are mentioned in this Prospectus: SPECTRAGUIDE[Registered Trademark], HCS[Registered Trademark] (Hard Clad Silica), Avioptics[Trademark], Flightguide[Trademark], Ultrasil[Trademark], PYROCOAT[Trademark], V-System[Trademark] and V-Pin[Trademark]. 2 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information, including "Risk Factors" and the financial statements and notes thereto, appearing elsewhere in this Prospectus or incorporated herein by reference. The discussion in this Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. The Company's actual results and the timing of certain events may differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." THE COMPANY SpecTran Corporation ("SpecTran" or the "Company") develops, manufactures and markets high quality optical fiber, optical fiber cables and value-added optical fiber components and assemblies. The Company's products are used in a broad range of applications, including local area networks ("LANs"), wide area networks ("WANs"), customer premises systems, computer and peripheral connections, intranets, the Internet, telephone systems, industrial process controls, avionics and medical devices. The Company, either directly or through its joint venture, sells its products to over 500 customers, including large multi-national companies such as Lucent Technologies Inc. ("Lucent"), Corning Incorporated ("Corning"), Siemens-Rolm, Nortel, Lockheed-Martin and Ericsson. Rapid advances in information, communications and entertainment technologies are creating growing demand for higher speed, greater bandwidth communications, which the Company believes will be increasingly satisfied by optical fiber-based communication systems. Optical fiber offers a number of advantages over many other modes of communication, such as increased bandwidth, lower transmission loss, immunity to electromagnetic and radio frequency interference, greater security, smaller size and lower weight. An industry expert forecasts that worldwide consumption of optical fiber and cable will grow at a compound annual rate of approximately 18% in kilometers over the period of 1996-2001. The Company primarily focuses on niche markets which it believes will grow at significantly faster rates than the overall optical fiber and cable market during this period. SpecTran operates through two wholly-owned subsidiaries, SpecTran Communication Fiber Technologies, Inc. ("SpecTran Communication") and SpecTran Specialty Optics Company ("SpecTran Specialty"), and through General Photonics, LLC ("General Photonics"), a recently formed joint venture with General Cable Corporation ("General Cable"), one of the largest manufacturers and suppliers in the United States wire and cable industry. SpecTran Communication develops, manufactures and markets multimode and single-mode optical fiber for data communications and telecommunications applications. SpecTran Specialty, acquired in February 1994, develops, manufactures and markets specialty multimode and single-mode fiber and value-added fiber optic products for industrial, military/aerospace, communication and medical applications. General Photonics develops, manufactures and markets communications-grade fiber optic cable primarily for the customer premises market in the United States, Canada and Mexico. SpecTran's strategy is to capitalize on its proprietary manufacturing processes and technologies and license rights in order to strengthen its position as a leading supplier to data communications and specialty markets and to further penetrate targeted international telecommunications markets. The Company is implementing this strategy by increasing its production capacity and efficiency; pursuing alliances with other industry leaders; developing higher-margin, value-added products; expanding international and domestic distribution; leveraging its core technologies and acquiring complementary products, technologies and businesses. The Company's research and development activities are directed towards improving its manufacturing processes and efficiencies for existing products as well as developing new products. The Company intends to focus on market niches where it has established or believes it can develop a leadership position, deliver technologically innovative products and continue to capitalize on its vertically integrated infrastructure. SpecTran, incorporated in 1981 in Delaware, has executive offices at 50 Hall Road, Sturbridge, Massachusetts 01566, and its telephone number is (508) 347-2261. 3 6 - -------------------------------------------------------------------------------- THE OFFERING Common Stock Offered by Company.............. 1,450,000 shares Common Stock Offered by the Selling Stockholder........................ 350,000 shares Common Stock to be Outstanding after the Offering............................... 7,200,071 shares(1) Use of Proceeds.............................. For the expansion of manufacturing capacity, working capital and general corporate purposes. See "Use of Proceeds." Nasdaq National Market Symbol................ SPTR - --------------- (1) Based upon 5,400,071 shares of Common Stock of the Company issued and outstanding on December 31, 1996. Excludes 650,703 shares of Common Stock subject to options granted to employees and directors of the Company at a weighted average exercise price of $9.64 per share. Includes 350,000 shares of Common Stock to be outstanding upon exercise by the Selling Stockholder of its warrant to purchase such shares at an exercise price of $2.00 per share, which shares are being sold by the Selling Stockholder in the offering.
------------------------ Except as otherwise noted, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option to purchase up to 270,000 shares of Common Stock and does not reflect the exercise after December 31, 1996 of options issued under the Company's Incentive Stock Option Plans. - ------------------------------------------------------------------------------- 4 7 - -------------------------------------------------------------------------------- SUMMARY CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA) The following data should be read in conjunction with the Company's consolidated financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included or incorporated by reference in this Prospectus.
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------------------------- ----------------- 1991 1992 1993 1994(1) 1995(2)(3) 1995 1996(3) ------- ------- ------- ------- ---------- ------- ------- (UNAUDITED) STATEMENTS OF OPERATIONS DATA(3): Net Sales............................... $16,255 $21,371 $25,578 $26,926 $38,581 $27,035 $44,915 Gross Profit............................ 6,096 8,734 9,615 7,623 13,061 9,094 16,294 Income (Loss) from Operations........... 3,218 4,852 5,368 (670) 565 293 4,064 Net Income (Loss)....................... 2,758 3,644 3,655 (487) 542 270 2,524 Net Income (Loss) per Share............. $ .50 $ .66 $ .67 $ (.09) $ .10 $ .05 $ .43 Weighted Average Number of Common Shares Outstanding........................... 5,521 5,556 5,488 5,203 5,583 5,410 5,930
AS OF SEPTEMBER 30, 1996 ---------------------------------------- PRO FORMA ACTUAL PRO FORMA(4) ADJUSTED(5) ------- ------------ ----------- BALANCE SHEET DATA(3): Working Capital.................................................. $16,168 29,789 $61,949 Total Assets..................................................... 46,561 57,846 90,006 Long-term Debt................................................... 12,000 24,000 24,000 Stockholders' Equity............................................. 27,163 27,361 59,521
- --------------- (1) Included in 1994 are results of SpecTran Specialty from its date of acquisition on February 18, 1994. (2) Included in 1995 are results of Applied Photonic Devices, Inc. from its date of acquisition on May 23, 1995. (3) See accompanying pro forma condensed consolidated balance sheet as of September 30, 1996 and pro forma condensed consolidated statements of operations for the year ended December 31, 1995 and the nine months ended September 30, 1996 following the consolidated financial statements giving effect to the formation of General Photonics as if that transaction had occurred January 1, 1995 and the sale of $24.0 million of senior notes and the restructuring of the Company's revolving credit facility, as if those transactions had occurred September 30, 1996. See also "Recent Developments -- Senior Debt Financing and Refinancing of Existing Bank Loans" and "Recent Developments -- Joint Venture." (4) Adjusted on a pro forma basis to give effect to the formation of General Photonics and the senior debt financing and refinancing as shown in the accompanying pro forma condensed consolidated financial statements. (5) Adjusted to reflect (i) the events described under "Recent Developments -- Senior Debt Financing and Refinancing of Existing Bank Loans" and "Recent Developments -- Joint Venture," (ii) the sale of 1,450,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $23.375 per share and the application of the estimated net proceeds to the Company therefrom as described under "Use of Proceeds" and (iii) the exercise by the Selling Stockholder of its warrant to purchase 350,000 shares of Common Stock at an exercise price of $2.00 per share. - -------------------------------------------------------------------------------- 5 8 RISK FACTORS In addition to the other information in this Prospectus, prospective investors should consider the following risk factors inherent in and affecting the business of the Company. The discussion in this Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. Such statements include market size, market growth rates and market share estimates, about which the Company cannot provide any assurances of accuracy. The Company's actual results and the timing of certain events may differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." COMPETITION. The markets for the Company's products are very competitive. The Company's main competitors for its general applications optical fibers, including both data communications and telecommunications, are its licensors, Corning and Lucent, to whom the Company pays royalties and who have substantially greater resources and operating experience than the Company. The Company's main competitors for its specialty fiber and fiber products generally have been smaller operations, but some of these competitors are part of companies with greater resources and operating experience than the Company. General Photonics' optical fiber cable products compete with products offered by large companies with substantially greater resources and operating experience than General Photonics or the Company. Access to the United States optical fiber market is to some extent limited by patents covering fundamental optical fiber technology. The Company believes that certain Corning patents, which may have been relevant to the Company's single-mode fiber, including patents covered by a non-exclusive license from Corning to the Company, have expired in many countries (including the United States). The Company further believes that a certain United States patent, covered by this non-exclusive license, with relevance to the Company's multimode fiber, expires in 1999. In addition, the Company believes that a certain Lucent patent licensed to the Company relating to its multimode and single-mode fiber expires in 1997. The expiration of these patents may permit other companies to enter the market without a Corning or Lucent patent license. In addition, there can be no assurance that other companies, foreign or domestic, will not be licensed by Corning or Lucent. Competition could increase if new companies enter the market or if existing competitors expand their product lines. An increase in competition could have a material adverse effect on the Company's business, results of operations or financial condition because of, among other things, price reductions and loss of market share. There can be no assurance that the Company will be able to maintain its competitive position. See "Business -- Competition." PRICE COMPETITION AND CHANGING MARKET CONDITIONS. Price competition for the Company's optical fiber is intense. In past periods in which excess supply or production capacity has been available, the unit price of optical fiber has declined and customers have been reluctant to enter into long-term supply agreements. For example, in 1994 the Company's unit price, gross margins and net income declined due, in part, to industry oversupply and to two large customers supplying their needs internally. Industry experts have noted that demand for optical fiber currently exceeds supply and the Company believes that demand will continue to exceed supply in the near term. However, a number of the Company's competitors have announced capacity increases which could become operational as early as the latter part of 1997. There can be no assurance that market conditions will not change in the future. A decline in the unit price of the Company's optical fiber due to changes in the market could have a material adverse effect on the Company's business, results of operations or financial condition. See "Business -- Competition" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." TECHNOLOGICAL ADVANCES; DEPENDENCE ON FUTURE PRODUCT DEVELOPMENT. The fiber optic industry has been characterized by rapid technological advances and improvements in manufacturing efficiencies. The Company's ability to operate profitably depends, in large part, upon its timely access to, or development of, technological advances and its ability to use those advances to improve existing products, develop new products and manufacture those products efficiently. There is no assurance that the Company will be successful in these endeavors. The failure to introduce new or enhanced products on a timely and cost competitive basis could have a material adverse effect on the Company's business, results of operations or financial condition. See "Business -- Research and Development." 6 9 COMPETING TECHNOLOGIES. The Company's fiber optic products compete directly with other existing products which use competing technologies, including copper wire, enhancements to the existing copper wire telephony infrastructure and wireless communications. Improvements in existing alternative approaches or the development and introduction of new competing approaches or technologies to the Company's fiber optic products could have a material adverse effect on the Company's business, operating results or financial condition. MANAGEMENT OF GROWTH. The Company has experienced rapid growth, particularly during 1995 and the first nine months of 1996. The future success of the Company will depend upon, among other factors, the ability of the Company to generate capital through operations, to recruit and retain highly skilled and experienced management and technical personnel and to manage the effects of growth on all aspects of its business, including research, development, manufacturing, distribution, marketing, administration and finance. Any failure by the Company to generate adequate capital, attract or retain necessary personnel, conduct its expansion or manage growth effectively could have a material adverse effect on the Company's business, results of operations or financial condition. CAPACITY EXPANSION. Currently, the Company is operating substantially at full capacity at its principal fiber manufacturing plant in Sturbridge, Massachusetts. The Company has recently begun a major capacity expansion at that manufacturing facility, and SpecTran Specialty is expanding and moving into a new facility. There can be no assurance that these expansions in manufacturing capacity will be completed on time and/or on budget, that the Company will not experience manufacturing delays or problems, a decrease in production yields and other inefficiencies that can accompany the start-up of new manufacturing facilities or that adequate equipment and personnel will be available to operate these new manufacturing facilities. The completion of the Company's planned expansion will require substantial funds. The Company anticipates that the estimated net proceeds from this offering, borrowings and internally generated cash flow will be adequate to fund the expansion. If adequate funds are not available to complete the expansion, the Company may be required to scale-down the expansion. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." If the Company experiences significant delays or problems in implementing its capacity expansions, such delays or problems could have a material adverse effect on the Company's business, results of operations or financial condition. CORNING LICENSE, INCLUDING LIMITATIONS THEREUNDER. A significant portion (approximately 43% in 1995 and 40% in the first nine months of 1996) of the optical fiber manufactured and sold by the Company is subject to its license from Corning which contains certain annual quantity limitations. Sales made directly or indirectly to certain customers such as Corning, Lucent and the United States Government are permitted without limitation. The quantities that can be manufactured under the license increase annually through the year 2000. The Company believes, however, that after expiration of a certain Corning patent in 1999, it no longer will need this license to manufacture any of its current multimode products, and, thus, no longer will be subject to these quantity limitations. The Company believes that manufacturing and sale of its single-mode fiber is not subject to the Corning license. Corning has the right to terminate the license in the event that more than 30% of the Company's voting stock is acquired, directly or indirectly, by another manufacturing company. Such termination could have a material adverse effect on the Company's business, results of operations or financial condition. See "Business -- Proprietary Rights." MATERIAL SUPPLY AGREEMENTS. In 1996 the Company announced three-year agreements with Corning and Lucent to supply multimode fiber valued at approximately $28 million and $35 million in total revenues, respectively. Should the Company not be able to perform under these agreements, such failure would have a material adverse effect on its business, results of operations or financial condition. NEW JOINT VENTURE. In December 1996 the Company announced the formation of General Photonics, a joint venture with General Cable for the manufacture of optical cable. General Photonics will purchase its optical fiber from the Company and General Cable will become the joint venture's principal sales outlet for optical fiber cable for the customer premises market in the United States, Canada and Mexico. The Company believes that it will be able to supply General Photonics' needs for optical fiber products. The Company also believes, but cannot assure, that General Cable will be able to sell General Photonics' optical cable products 7 10 and that General Photonics will become a major customer of the Company. In addition, there are risks inherent in a joint venture relationship including, among other things, whether the parties will be able to work together successfully and share the same goals and strategies over a long period of time. Failure of the General Photonics joint venture could have a material adverse effect on the Company's business, results of operations or financial condition. See "Business -- Customers and Marketing" and "Recent Developments -- Joint Venture." INTERNATIONAL SALES. For the fiscal years ended December 31, 1994 and 1995 and the nine month period ended September 30, 1996, export sales from the United States accounted for approximately 11%, 22% and 25%, respectively, of the Company's total revenues. The Company anticipates that international sales will continue to account for a significant portion of sales. The Company intends to continue to expand its export sales and to enter additional international markets, which will require significant management attention and financial resources. The Company's operating results are subject to the risks inherent in international sales, including, but not limited to, regulatory requirements, political and economic changes and disruptions, transportation delays and potentially adverse tax consequences. In addition, fluctuations in exchange rates may render the Company's products less competitive relative to local product offerings, or could result in foreign exchange losses, depending upon the currency in which the Company sells its products. Sales of certain products may be restricted by foreign patents, and the Company may be required to seek additional patent licenses and pay royalties. These factors could have a material adverse effect on the Company's business, results of operations or financial condition. SIGNIFICANT DEPENDENCE UPON SINGLE OPTICAL FIBER MANUFACTURING FACILITY. While some manufacturing of optical fiber is done at the Company's facility in Avon, Connecticut, substantially all of its manufacturing of optical fiber occurs at its plant in Sturbridge, Massachusetts. Although the Company maintains a certain amount of business interruption insurance, any significant disruption of operations at this facility, its other facilities or those of General Photonics could have a material adverse effect on the Company's business, results of operations or financial condition. ENVIRONMENTAL REGULATIONS. The Company is subject to a number of federal, state and local governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in its business. Any failure to comply with present or future regulations could result in fines being imposed on the Company and the suspension of production or a cessation of operations. In addition, such regulations could restrict the Company's ability to expand or could require the Company to acquire costly equipment or to incur other significant expenses to comply with environmental regulations or to clean up any discharges. MERGERS AND ACQUISITIONS. The Company may in the future pursue acquisitions of complementary product lines, technologies or businesses. Future acquisitions could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, which could have a material adverse effect on the Company's business, results of operations or financial condition. In addition, mergers and acquisitions involve numerous risks, including difficulties in the assimilation of the operations, technologies and products of the acquired companies, the diversion of management's attention from other business concerns, the risk of entering markets in which the Company has no or limited direct prior experience, the seasonality of sales, the possible difficulty of operating companies in different geographical locations with different corporate cultures, and the potential loss of key employees of the acquired company. There are currently no binding agreements or understandings with respect to any future acquisitions. FLUCTUATIONS IN OPERATING RESULTS. The Company's revenues and operating results may vary significantly from quarter to quarter as a result of a number of factors, many of which are outside of management's control. These factors include, among others, changes in demand for the Company's products, changes in pricing policies by the Company and its competitors, manufacturing delays and inefficiencies, the timing of the Company's and its competitors' planned capacity increases, the entrance of new competitors, the timing and impact of acquisitions and general economic conditions both domestically and internationally. 8 11 VOLATILITY OF THE COMPANY'S STOCK PRICE. The market price of the Company's Common Stock has fluctuated significantly. The Company believes that factors both related and unrelated to the performance of the Company have caused market price volatility, and there can be no assurance that the market price of the Company's Common Stock will not experience significant fluctuations in the future. See "Price Range of Common Stock and Dividend Policy." NO DIVIDENDS. The Company has paid no dividends since its inception. It anticipates retaining future earnings for operations and does not anticipate that dividends will be paid in the foreseeable future. See "Price Range of Common Stock and Dividend Policy." ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Restated Certificate of Incorporation and Amended and Restated By-Laws and Delaware law could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. See "Description of Securities." In addition, Corning has the right to terminate its patent license to the Company in the event that more than 30% of the Company's voting stock is acquired, directly or indirectly, by another manufacturing company. In connection with the recently formed General Photonics joint venture, General Cable has agreed that it will not, without the Company's consent, acquire any interest in the Company's securities for at least the life of the venture. The Company has recently sold $24.0 million of senior secured notes. The holders of the senior secured notes have the right to require the Company to repay the senior secured notes if any person other than a member of then current management or a group composed of all members of then current management acquires more than 30% of the Company's voting stock prior to January 1, 2000 or 50% of the Company's voting stock thereafter. See "Recent Developments -- Senior Debt Financing and Refinancing of Existing Bank Loans." Some employee benefits may be accelerated upon the occurrence of certain change in control events. Such arrangements, individually and in the aggregate, could diminish the opportunities for a stockholder to participate in tender offers (including tender offers at a price above the then current market price of the Common Stock) and mergers and major corporate transactions and could limit the price that certain investors might be willing to pay in the future for shares of Common Stock. 9 12 RECENT DEVELOPMENTS Joint Venture. In December 1996, the Company formed General Photonics, a 50-50 joint venture between the Company and General Cable. General Cable, a subsidiary of Wassall plc, is one of the leading manufacturers and suppliers in the United States wire and cable industry, with 1995 sales approximating $1.1 billion. General Cable, through its subsidiary, General Cable Industries, Inc. purchased certain assets of the Company's optical fiber cable subsidiary, Applied Photonic Devices, Inc. ("APD"), for approximately $6.3 million (subject to adjustment) and then contributed them to General Photonics for a 50% equity interest. APD contributed its remaining assets to General Photonics in exchange for the other 50% equity interest. General Photonics' primary mission is to design, develop and manufacture optical fiber cable for the customer premises market in the United States, Canada and Mexico. General Photonics will purchase its optical fiber from SpecTran Communication. Fiber optic cable and other products manufactured by General Photonics will be marketed primarily through General Cable's direct sales force and sales representatives, with marketing, technical sales support as well as some direct sales and customer support provided by General Photonics personnel. Both the Company and General Cable have agreed not to compete with General Photonics. In addition, General Cable has agreed that it will not, without the Company's consent, acquire any interest in the Company's securities for at least the life of the joint venture. General Photonics will be accounted for as an unconsolidated subsidiary under the equity method of accounting pursuant to which the Company will record its 50% interest in the net operating results. Prior to the formation of General Photonics, APD's results of operations, including net sales and expenses, were consolidated with those of the Company. APD's operations had accounted for approximately 25% of the Company's 1996 net sales. See "Pro Forma Condensed Consolidated Financial Information." Senior Debt Financing and Refinancing of Existing Bank Loans. In December 1996, the Company sold to a limited number of selected institutional investors an aggregate principal amount of $24.0 million of senior secured notes (the "Notes"), consisting of $16.0 million of 9.24% Series A Senior Secured Notes due December 26, 2003 (the "Series A Notes") and $8.0 million of 9.39% Series B Senior Secured Notes due December 26, 2004 (the "Series B Notes"). Interest on the Notes is payable semi-annually, with five equal annual principal repayments required beginning December 26, 1999 for the Series A Notes and December 26, 2000 for the Series B Notes. The Notes constitute senior secured debt of the Company secured by a first priority security interest in substantially all of the assets of the Company and all current and hereinafter created or acquired subsidiaries, a pledge by the Company of the issued and outstanding stock of its subsidiaries and mortgages on real estate owned by the Company's subsidiaries. The Company's obligations are also guaranteed by the Company's subsidiaries and rank on an equal basis with all other senior secured indebtedness of the Company. The Company may repay the Notes at any time, subject to the payment of an amount to compensate the noteholders for lost interest, except for a one-time prepayment of up to $3.0 million of the Notes, ratably, which the Company may make without any such payment on any annual anniversary date of the Notes commencing December 26, 2000. The noteholders have the right to require repayment of the notes if any person other than a member of then current management or a group composed of all members of then current management acquires more than 30% of the voting stock of the Company prior to January 1, 2000 or 50% thereafter. The Notes also provide for certain financial and non-financial covenants usual for this type of transaction. The Company concurrently used approximately $14 million from the sale of the Notes to repay all outstanding indebtedness and restructured its existing $22.0 million of total borrowing capacity with its principal bank, composed of a $14.5 million revolving credit agreement and $7.5 million in equipment and real estate term loans, into a $20.0 million revolving credit agreement, maturing December 1999, with the same security interest in the Company's assets as the Notes. The Company has the option to select from time to time the interest rate on the revolving credit agreement at either the LIBOR rate plus 1.5% or Fleet Bank's prime rate provided that, under certain circumstances, Fleet Bank may deem that the LIBOR rate is not available. See "Pro Forma Condensed Consolidated Financial Information." Expansion of Manufacturing Facility. The Company has commenced the expansion of its principal manufacturing facility for multimode and single-mode fiber located in Sturbridge, Massachusetts. The expansion will increase the size of the facility from approximately 50,000 square feet to approximately 100,000 square feet and is expected to result in an approximately 100% increase in manufacturing capacity. This 10 13 expansion is planned in stages (the first phase is expected to be completed in the second half of 1997) and will be financed by the net proceeds of this offering, cash flow from operations and borrowings. See "Business -- Properties" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." Acquisition of New Facility by Specialty Fiber Operation. In October 1996, SpecTran Specialty purchased a 42,000 square foot building located in Avon, Connecticut. The Company expects that the facility will be ready to commence manufacturing operations in approximately mid-1997. The Company will continue to conduct its specialty fiber operations at its current facilities until modifications to the new building are completed. The Company is expanding the new facility to approximately 58,000 square feet which it anticipates will result in an increase in SpecTran Specialty's manufacturing capacity of approximately 50%. See "Business -- Properties." Recent Supply Agreements. In 1996 the Company announced three year agreements with Corning and Lucent to supply multimode fiber valued at approximately $28 million and $35 million in total revenues, respectively. These sales are not subject to the annual quantity limitations contained in the Company's patent license from Corning. 11 14 USE OF PROCEEDS The net proceeds to the Company from the sale of the 1,450,000 shares of Common Stock offered hereby by the Company are estimated to be $31.5 million ($37.4 million if the Underwriters' over-allotment option is exercised in full), at an assumed public offering price of $23.375 per share and after deducting the underwriting discount and estimated offering expenses payable by the Company. The Company will not receive any proceeds from the sale of Common Stock by the Selling Stockholder in this offering, but will receive $700,000 from the Selling Stockholder's exercise of its warrant. The Company intends to use the net proceeds from this offering for the expansion of manufacturing capacity, working capital and general corporate purposes. Pending such use, net proceeds will be invested in short-term, high-grade interest-bearing securities. PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Company's Common Stock is traded on the Nasdaq National Market under the symbol "SPTR." Set forth below is high and low bid information for the Company's Common Stock for the periods indicated as reported on the Nasdaq National Market:
HIGH LOW ------ ------ 1995 First Quarter......................................... 6 1/8 4 5/8 Second Quarter........................................ 6 1/2 4 7/8 Third Quarter......................................... 6 3/4 5 1/2 Fourth Quarter........................................ 6 5 1996 First Quarter......................................... 8 1/4 5 1/4 Second Quarter........................................ 23 1/2 8 Third Quarter......................................... 19 3/4 12 1/2 Fourth Quarter........................................ 22 15 5/8 1997 First Quarter (through January 7, 1997)............... 22 5/8 20 3/8
On January 7, 1997, the closing price of the Common Stock, as reported on the Nasdaq National Market, was $23 3/8, and on that date there were 753 holders of record of the Company's Common Stock. The Company has not paid any cash dividends on the Common Stock and does not intend to pay cash dividends in the foreseeable future. The Company expects that earnings will be retained to finance the Company's business. Future dividends, if any, will depend upon the Company's earnings, financial condition, cash requirements, future prospects and other factors deemed relevant by the Company's Board of Directors from time to time. 12 15 CAPITALIZATION The following table sets forth the capitalization of the Company as of September 30, 1996 on a pro forma basis to reflect the events described under "Recent Developments -- Senior Debt Financing and Refinancing of Existing Bank Loans" and "Recent Developments -- Joint Venture," and on a pro forma adjusted basis to reflect (i) the sale of 1,450,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $23.375 and the application of the estimated net proceeds to the Company therefrom as described under "Use of Proceeds," and (ii) the exercise by the Selling Stockholder of its warrant to purchase 350,000 shares of Common Stock at an exercise price of $2.00 per share. This table should be read in conjunction with, and is qualified in its entirety by, the Company's financial statements and the notes thereto included elsewhere or incorporated by reference in this Prospectus.
SEPTEMBER 30, 1996 ------------------------------------- PRO FORMA ACTUAL PRO FORMA ADJUSTED ------- --------- ----------- (IN THOUSANDS) Long-term Debt............................................. $12,000 $24,000 $24,000 ------- ------- ------- Stockholders' Equity: Common Stock, voting, $.10 par value; authorized 20,000,000 shares; 5,396,963 issued and outstanding (actual and pro forma); 7,196,963 (pro forma adjusted) (1)................................................... 539 539 719 Common Stock, non-voting, $.10 par value; authorized 250,000 shares; none issued........................... -- -- Paid-in Capital............................................ 26,745 26,745 58,725 Net Unrealized Gain on Marketable Securities............... 15 15 15 Retained Earnings (Deficit)................................ (136) 62 62 ------- ------- ------- Total Stockholders' Equity....................... 27,163 27,361 59,521 ------- ------- ------- Total Capitalization............................. $39,163 $57,846 $83,521 ======= ======= ======= - --------------- (1) Excludes 643,811 shares of Common Stock subject to options granted to employees and directors of the Company at a weighted average exercise price of $9.45 per share.
13 16 SELECTED CONSOLIDATED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) The following selected consolidated financial data should be read in conjunction with the Company's consolidated financial statements and related notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere or incorporated by reference in this Prospectus. The statements of operations data for the years ended December 31, 1993, 1994 and 1995, and the balance sheet data at December 31, 1994 and 1995 are derived from, and are qualified by reference to, the audited consolidated financial statements and related notes thereto included elsewhere in this Prospectus which have been audited by KPMG Peat Marwick LLP. The statements of operations data for the years ended December 31, 1991 and 1992 and the balance sheet data at December 31, 1991, 1992 and 1993 are derived from audited consolidated financial statements not included herein. The statements of operations data for the nine months ended September 30, 1995 and 1996 and the balance sheet data at September 30, 1996 are derived from unaudited consolidated financial statements that include, in the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the information set forth therein. The results of operations for the nine months ended September 30, 1996 or any other period are not necessarily indicative of future results.
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------------------------------------ ------------------ 1991 1992 1993 1994(1) 1995(2)(3) 1995 1996(3) ------- ------- ------- ------- ---------- ------- ------- (UNAUDITED) STATEMENTS OF OPERATIONS DATA(3): Net Sales................................... $16,255 $21,371 $25,578 $26,926 $38,581 $27,035 $44,915 Cost of Sales............................... 10,159 12,637 15,963 19,303 25,520 17,941 28,621 ------- ------- ------- ------- ------- ------- ------- Gross Profit................................ 6,096 8,734 9,615 7,623 13,061 9,094 16,294 Selling and Administrative Expenses......... 2,525 3,253 3,293 6,319 9,669 6,698 9,909 Research and Development Cost............... 353 629 954 1,974 2,827 2,103 2,321 ------- ------- ------- ------- ------- ------- ------- Income (Loss) from Operations............... 3,218 4,852 5,368 (670) 565 293 4,064 Interest Income............................. 245 244 246 327 328 240 166 Interest Expense............................ (81) (58) (37) (303) (626) (434) (528) Other, Net.................................. 46 (26) 52 159 510 358 122 ------- ------- ------- ------- ------- ------- ------- Other Income (Expense), Net................. 210 160 261 183 212 164 (240) Income (Loss) before Income Taxes........... 3,428 5,012 5,629 (487) 777 457 3,824 Income Tax Expense.......................... 670 1,368 1,974 -- 235 187 1,300 ------- ------- ------- ------- ------- ------- ------- Net Income (Loss)........................... $ 2,758 $ 3,644 $ 3,655 $ (487) $ 542 $ 270 $ 2,524 ======= ======= ======= ======= ======= ======= ======= Net Income (Loss) per Share................. $ .50 $ .66 $ .67 $ (.09) $ .10 $ .05 $ .43 Weighted Average Number of Common Shares Outstanding............................... 5,521 5,556 5,488 5,203 5,583 5,410 5,930 ======= ======= ======= ======= ======= ======= =======
AS OF SEPTEMBER 30, 1996 AS OF DECEMBER 31, -------------------------------------- --------------------------------------------------- PRO FORMA 1991 1992 1993 1994 1995 ACTUAL PRO FORMA(4) ADJUSTED(5) ------- ------- ------- ------- ------- ------- ------------ ----------- BALANCE SHEET DATA(3): Working Capital............... $ 7,780 $11,860 $11,853 $11,379 $15,959 $16,168 $29,789 $61,949 Total Assets.................. 19,810 22,848 26,712 31,362 40,365 46,561 57,846 90,006 Long-term Debt................ 708 367 300 5,240 10,000 12,000 24,000 24,000 Stockholders' Equity.......... 15,864 20,009 23,614 23,104 24,296 27,163 27,361 59,521 - --------------- (1) Included in 1994 are results of SpecTran Specialty from its date of acquisition on February 18, 1994. (2) Included in 1995 are results of APD from its date of acquisition on May 23, 1995. (3) See accompanying pro forma condensed consolidated balance sheet at September 30, 1996 and pro forma condensed consolidated statements of operations for the year ended December 31, 1995 and the nine months ended September 30, 1996, following the consolidated financial statements, giving effect to the formation of General Photonics as if that transaction had occurred January 1, 1995 and the sale of $24.0 million of senior notes and the restructuring of the Company's revolving credit facility as if those transactions had occurred September 30, 1996. See also "Recent Developments -- Senior Debt Financing and Refinancing of Existing Bank Loans" and "Recent Developments -- Joint Venture." (4) Adjusted on a pro forma basis to give effect to the formation of General Photonics and the senior debt financing and refinancing as shown in the accompanying pro forma condensed consolidated financial statements. (5) Adjusted to reflect (i) the events described under "Recent Developments -- Senior Debt Financing and Refinancing of Existing Bank Loans" and "Recent Developments -- Joint Venture," (ii) the sale of 1,450,000 shares of Common Stock offered by the Company hereby at an assumed public offering price of $23.375 per share and the application of the estimated net proceeds to the Company therefrom as described under "Use of Proceeds" and (iii) the exercise by the Selling Stockholder of its warrant to purchase 350,000 shares of Common Stock at an exercise price of $2.00 per share.
14 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations section and other parts of this Prospectus contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. The Company's actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and in "Risk Factors" and "Business." OVERVIEW Currently, SpecTran develops, manufactures, and markets high quality optical fiber, optical fiber cables and value-added optical fiber components and assemblies. Prior to 1993, the Company had a narrow customer base and was focused on the production of multimode fiber for the domestic market. In 1993 the Company began to implement a strategic plan to diversify its products, markets and customer base. As part of this plan, the Company reintroduced single-mode fiber in 1993 and began marketing it internationally. In 1994 the Company acquired Ensign-Bickford's specialty fiber operations (which later became SpecTran Specialty), allowing the Company to become a world-wide leader in fiber optic specialty applications. The Company entered the fiber optic cable market in May 1995 by acquiring APD in order to participate more extensively in the rapid growth of the data communications market, the principal end market of multimode fiber. In December 1996 the Company formed General Photonics, a joint venture with General Cable, to develop, manufacture and market fiber optic cable. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain financial data as a percentage of net sales:
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ------------------------- ----------------- 1993 1994 1995 1995 1996 ----- ----- ----- ----- ----- (UNAUDITED) Net Sales...................................... 100.0% 100.0% 100.0% 100.0% 100.0% Cost of Sales.................................. 62.4% 71.7% 66.1% 66.4% 63.7% ----- ----- ----- ----- ----- Gross Profit................................. 37.6% 28.3% 33.9% 33.6% 36.3% Selling and Administrative Expenses............ 12.9% 23.5% 25.1% 24.7% 22.1% Research and Development Cost.................. 3.7% 7.3% 7.3% 7.8% 5.2% ----- ----- ----- ----- ----- Income (Loss) from Operations.................. 21.0% (2.5)% 1.5% 1.1% 9.0% Other Income (Expense), net.................... 1.0% .7% .5% .6% (.5)% Income (Loss) before Income Taxes.............. 22.0% (1.8)% 2.0% 1.7% 8.5% Income Tax Expense............................. 7.7% -- 0.6% 0.7% 2.9% ----- ----- ----- ----- ----- Net Income (Loss)......................... 14.3% (1.8)% 1.4% 1.0% 5.6% ===== ===== ===== ===== =====
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 Net Sales Net sales increased $17.9 million, or 66.1%, from $27.0 million to $44.9 million for the nine months ended September 30, 1996. This increase was primarily due to strong market demand for the Company's multimode and single-mode communications fiber. The acquisition of APD in May 1995 also contributed to the increase in net sales. Selling prices for multimode and single-mode fiber have increased in 1996, largely due to the strong market demand and price adjustments related to certain raw material cost increases in the case of multimode fiber. SpecTran Communication represented approximately half of the Company's net sales with the balance divided relatively evenly between SpecTran Specialty and APD. 15 18 Gross Profit Gross profit increased $7.2 million, or 79.2%, from $9.1 million to $16.3 million for the nine months ended September 30, 1996. As a percentage of net sales, the gross profit increased to 36.3% for the nine months ended September 30, 1996 from 33.6% for the nine months ended September 30, 1995. This increase in gross profit was primarily due to increased net sales in 1996 and lower production costs resulting from manufacturing process and yield improvements. The increase in gross margin was partially offset by lower margins at APD which was acquired in May 1995 and at SpecTran Specialty. As a percentage of net sales, royalties decreased from 4.2% for the nine months ended September 30, 1995 to 3.8% for the nine months ended September 30, 1996. This decrease in royalties as a percentage of net sales was primarily due to an increase in the net sales not subject to royalties. Selling and Administrative Selling and administrative expenses increased by $3.2 million, or 47.9%, from $6.7 million to $9.9 million for the nine months ended September 30, 1996. This increase was primarily due to including a full nine months of APD expenses in the 1996 period versus only four months in the 1995 period. A substantially higher provision for incentive compensation in the 1996 period also contributed to the increase. As a percentage of net sales, selling and administrative expenses decreased to 22.1% for the nine months ended September 30, 1996 from 24.7% for the nine months ended September 30, 1995. Research and Development Research and development costs increased by $218,000, or 10.4%, from $2.1 million to $2.3 million for the nine months ended September 30, 1996. As a percentage of net sales, research and development costs decreased from 7.8% for the nine months ended September 30, 1995 to 5.2% for the nine months ended September 30, 1996. The Company's increased research and development spending, in absolute dollars, 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 Other income (expense) net declined by $404,000 for the nine months ended September 30, 1996 compared to the same period of 1995. The decline was caused by higher interest expense of $94,000 (21.7%) and lower interest income of $74,000 (30.8%) in the 1996 nine month period versus the comparable 1995 period, in addition to the absence of the non-recurring material recovery income in the 1996 nine month period. Income Taxes A tax provision of 34% of pre-tax income was provided for the nine months ended September 30, 1996 compared to a tax provision of 41% of pre-tax income in the comparable period in 1995. The estimated effective tax rate for 1996 of 34% is lower than the statutory and prior year's tax rates due to an anticipated reduction in 1996 in the valuation allowance for deferred tax assets due to the Company's belief that it is more likely than not that the additional deferred tax asset will be realized through the utilization of operating loss and tax credit carryforwards. The higher rate in the 1996 September quarter was to adjust the year-to-date estimated tax rate up to 34% from the 27% that had been used in the 1996 first half. Net Income Net income for the nine months ended September 30, 1996 was $2.5 million or 5.6% of net sales. Net income for the same period in 1995 was $270,000, or 1.0% of net sales. 16 19 YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 Net Sales Net sales increased $11.7 million, or 43.3%, from $26.9 million to $38.6 million for the year ended December 31, 1995. The increase was primarily caused by higher sales volumes due to strong market demand for the Company's standard communication fiber, both multimode and single-mode, as well as specialty products. The acquisition of APD and a full year of sales of SpecTran Specialty, acquired in February 1994, also contributed to the increase. Gross Profit Gross profit increased $5.4 million, or 71.3%, from $7.6 million to $13.1 million for the year ended December 31, 1995. The gross profit, as a percentage of net sales, increased to 33.9% in 1995 from 28.3% in 1994. Major factors positively impacting gross profit were improved manufacturing efficiencies, especially in the Company's single-mode product line. However, the gross profit was negatively impacted in 1995 by approximately $1.8 million of costs associated with manufacturing development of single-mode fiber compared to $2 million in 1994. Royalties on sales were approximately 4.1% and 5.5% of total net sales during 1995 and 1994, respectively. The decrease in royalties was due to a higher level of sales in 1995 not subject to royalties. Selling and Administrative Selling and administrative expenses increased $3.4 million, or 53.0%, from $6.3 million to $9.7 million for the year ended December 31, 1995. As a percentage of net sales, these costs increased during 1995 to 25.1% from 23.5% during 1994. The significant increase in total selling and administrative spending was primarily due to expenses related to the operation of the acquired APD increased personnel costs and increased market development activities related to single-mode fiber in 1995. Research and Development Research and development costs increased by $853,000, or 43.2%, from $2.0 million to $2.8 million for the year ended December 31, 1995. Research and development costs as a percentage of net sales remained constant from 1994 to 1995 at 7.3%. The Company has continued to invest in programs to improve manufacturing cost and product performance in both the single-mode and multimode product lines, to develop new special performance fiber products and to develop alternative process technologies. Other Income (Expense), net Other income (expense), net increased by $29,000, or 16.0%, from $183,000 to $212,000 for the year ended December 31, 1995. Interest expense increased by $323,000, or 106.7% from $303,000 to $626,000 during 1995 as a result of increased levels of outstanding debt during 1995 associated with the acquisition of APD. Other income increased in 1995 by $351,000 primarily due to non-recurring material recovery income and proceeds received in connection with the conversion of the Company's primary group health insurance provider from a mutual company to a stock company. Income Taxes Income tax expense for the year ended December 31, 1995 was 30.3% of pre-tax income versus no tax provision or benefit for the previous year. Income tax expense was reduced due to a reduction in the valuation allowance for deferred tax assets. The valuation allowance was reduced $437,000 in 1995 due to the Company's belief at the time that it was more likely than not that the additional deferred tax asset will be realized. Excluding the effect of adjusting the valuation allowance, income tax expense as a percentage of pre-tax income was 56.0% in 1995. See Note 10 of "Notes to Consolidated Financial Statements." No tax benefit was provided in 1994 due to the uncertainty of the future realization of net operating loss and tax credit carryforwards. 17 20 Net Income (Loss) The Company's net income in 1995 was $542,000, a 1.4% return on net sales compared to a net loss in 1994 of $487,000. YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993 Net Sales Net sales increased $1.3 million, or 5.3%, from $25.6 million to $26.9 million for the year ended December 31, 1994, due primarily to additional revenue provided by SpecTran Specialty. The increased revenue provided by SpecTran Specialty offset the decline in revenues from the Company's standard products where sales to two key customers, as anticipated and previously reported, declined significantly in 1994 and unfavorable market conditions throughout most of the year caused lower average unit selling prices than in 1993. Also helping to offset the decrease in sales of the Company's standard datacommunication multimode fiber were initial sales of single-mode optical fiber. Gross Profit Gross profit decreased $2.0 million, or 20.7%, from $9.6 million to $7.6 million for the year ended December 31, 1994. The gross profit, as a percentage of net sales, dropped to 28.3% in 1994 from 37.6% in 1993. A major factor negatively impacting gross profit was approximately $2 million of costs associated with manufacturing development of single-mode fiber. Royalties on net sales were approximately 5.5% and 6.4% of total net sales during 1994 and 1993, respectively. The decrease was due to a higher level of sales in 1994 not subject to royalties. Selling and Administrative Selling and administrative expenses increased $3.0 million, or 91.9%, from $3.3 million to $6.3 million for the year ended December 31, 1994. As a percentage of net sales, these costs increased during 1994 to 23.5% from 12.9% during 1994. The significant increase in total selling and administrative spending was primarily due to expenses related to the operation of the acquired SpecTran Specialty, increased personnel costs, and higher costs associated with international marketing of single-mode fiber. Research and Development Research and development costs increased by $1.0 million, or 107.0%, from $954,000 to $2.0 million for the year ended December 31, 1994. Research and development costs as a percentage of net sales increased to 7.3% in 1994 from 3.7% in 1993. The Company has invested heavily in improved multimode product and processes, alternative process technologies and development of single-mode fiber, accounting for this increase. Other Income (Expense), net Other income (expense), net decreased by $78,000, or 29.8%, from $261,000 to $183,000 for the year ended December 31, 1994. The change was made up of increased interest income of $81,000 (33.2%), increased interest expense of $266,000 (720.5%) and increased other income of $107,000 (203.4%). Interest income increased during 1994 primarily as a result of higher yields on investments. The increase in interest expense was a result of increased levels of outstanding debt during 1994. The Company had $5.2 million outstanding on a revolving loan at a variable rate of interest. Other income increased in 1994 by $106,000 primarily due to royalty income received by SpecTran Specialty. Income Taxes No tax benefit was provided for the 1994 loss largely due to the uncertainty of future realization of certain of the carryforward amounts of investment and research and experimentation tax credits which begin to expire in 1996. A tax provision of 35.1% of pre-tax income was provided in 1993. 18 21 Net Income (Loss) The Company's net loss in 1994 was $487,000. Net income in 1993 was $3.7 million which was a 14.3% return on sales. QUARTERLY INFORMATION The following table represents unaudited quarterly operating results for the Company for the quarters ended in the fiscal years ended December 31, 1994 and December 31, 1995 and the three quarters ended September 30, 1996. The Company believes that the following selected quarterly information includes all adjustments (consisting of normal, recurring adjustments) that the Company considers necessary for a fair presentation, in accordance with generally accepted accounting principles. Results for any particular quarter are not necessarily indicative of any future period. See "Risk Factors -- Fluctuations in Operating Results."
1994 1995 1996 ---------------------------------- ---------------------------------- --------------------------- QTR.1 QTR.2 QTR.3 QTR.4 QTR.1 QTR.2 QTR.3 QTR.4 QTR.1 QTR.2 QTR.3 ------ ------ ------- ------ ------ ------ ------ ------- ------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE DATA) Net Sales................. $5,786 $6,639 $ 6,135 $8,366 $7,965 $9,099 $9,971 $11,546 $13,473 $15,281 $16,161 Gross Profit.............. 2,061 2,103 1,267 2,192 2,894 2,841 3,359 3,967 4,756 5,318 6,220 Selling and Administrative Expenses................ 1,312 1,627 1,716 1,664 2,038 2,128 2,532 2,971 2,819 3,449 3,641 Income from Operations.... 457 166 (1,208) (85) 102 54 136 273 1,028 1,198 1,838 Net Income (Loss)......... 319 136 (720) (222) 83 8 179 272 684 833 1,007 Net Income (Loss) per Common Share............ $ .06 $ .03 $ (.14) $ (.04) $ .02 -- $ .03 $ .05 $ .12 $ .14 $ .17
LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of cash are cash flow from operations, established bank credit facilities and existing cash balances. During the nine months ended September 30, 1996, the Company generated $1.6 million in net cash from operating activities, borrowed an additional $2.0 million under its bank credit facility, and reduced its marketable securities by an additional $2.8 million. Substantially all of this cash was used to fund capital expenditures of approximately $6.2 million. As of September 30, 1996, the Company had approximately $4.6 million of cash, cash equivalents and marketable securities, including approximately $1.4 million in marketable securities classified as long-term assets, which could be converted to cash if necessary. The Company's net working capital position as of September 30, 1996 was approximately $16.2 million. In December 1996, as part of the formation of General Photonics, its 50-50 joint venture with General Cable, the Company sold certain assets of APD for approximately $6.3 million (subject to adjustment). Also in December 1996, the Company sold an aggregate principal amount of $24.0 million of senior secured notes and concurrently restructured its existing loans from its principal bank into a $20.0 million revolving credit agreement. Approximately $14 million raised from the sale of the Notes was used to repay existing indebtedness leaving all $20.0 million of the revolving credit agreement available for use by the Company. See "Recent Developments -- Joint Venture" and "Recent Developments - -- Senior Debt Financing and Refinancing of Existing Bank Loans." The Company has plans for capacity expansion requiring significant capital expenditures through approximately the end of 1997. Planned expenditures for capacity expansion include approximately $32 million for SpecTran Communication and approximately $9 million for SpecTran Specialty. When completed, these expansions are expected to increase SpecTran Communication's capacity by 100% and SpecTran Specialty's by 50%. The Company intends to finance these expansions through a combination of cash flow from operations, net proceeds from this offering and borrowings. 19 22 RECENT ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board (the "FASB") issued SFAS No. 123, "Accounting for Stock-Based Compensation," which established financial accounting and reporting standards for stock-based employee compensation plans. Companies are encouraged, rather than required, to adopt a new method that accounts for stock compensation awards based on their fair value using an option pricing model. Companies that do not adopt this new method will be required to make pro forma footnote disclosures of net income as if the fair value-based method of accounting required by SFAS No. 123 had been applied. The Company adopted SFAS No. 123 on January 1, 1996. Adoption of this pronouncement did not have a material impact on the Company's financial position or results of operations as the Company will make pro forma footnote disclosures in its December 31, 1996, financial statements. On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This statement also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying value or fair value less costs to sell. Adoption of the statement had no impact on the Company's financial statements. 20 23 BUSINESS The discussion in this Prospectus contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties. The Company's actual results and the timing of certain events may differ materially from the results discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and in "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." GENERAL SpecTran develops, manufactures and markets high quality optical fiber, optical fiber cables and value-added optical fiber components and assemblies. The Company's products are used in a broad range of applications, including LANs, WANs, customer premises systems, computer and peripheral connections, intranets, the Internet, telephone systems, industrial process controls, avionics and medical devices. The Company, either directly or through its joint venture, sells its products to over 500 customers, including large multi-national companies such as Lucent, Corning, Siemens-Rolm, Nortel, Lockheed-Martin and Ericsson. Rapid advances in information, communications and entertainment technologies are creating growing demand for higher speed, greater bandwidth communications, which the Company believes will be increasingly satisfied by optical fiber-based communication systems. Optical fiber offers a number of advantages over many other modes of communication, such as increased bandwidth, lower transmission loss, immunity to electromagnetic and radio frequency interference, greater security, smaller size and lower weight. An industry expert forecasts that worldwide consumption of optical fiber and cable will grow at a compound annual rate of approximately 18% in kilometers over the period of 1996-2001. The Company primarily focuses on niche markets which it believes will grow at significantly faster rates than the overall optical fiber and cable market during this period. SpecTran operates through two wholly-owned subsidiaries, SpecTran Communication and SpecTran Specialty, and through General Photonics, a recently formed joint venture with General Cable, one of the largest manufacturers and suppliers in the United States wire and cable industry. SpecTran Communication develops, manufactures and markets multimode and single-mode optical fiber for data communications and telecommunications applications. SpecTran Specialty, acquired in February 1994, develops, manufactures and markets proprietary multimode and single-mode fiber and value-added fiber optic products for industrial, military/aerospace, communication and medical applications. General Photonics, which was formed in December 1996 and is the successor to the fiber optic cable business previously conducted by the Company's subsidiary, APD, develops, manufactures and markets communications-grade fiber optic cable primarily for the customer premises market in the United States, Canada and Mexico. TECHNOLOGY Fiber optic technology utilizing glass as a communications medium was developed in the 1970s and offers numerous technical advantages over traditional media such as copper. Optical fibers are hair-thin solid strands of high quality glass usually combined in cables for transmitting information in the form of light pulses. An optical fiber consists of a core of high purity glass which transmits light with little signal loss. This core is typically encased within a covering layer of high purity glass referred to as optical cladding, which reduces signal loss through the side walls of the fiber. The information to be transmitted is converted from electrical impulses into light waves by a laser or light emitting diode. At the point of reception, the light waves are converted back into electrical impulses by a photo-detector. Optical fiber's advantages include its high bandwidth, which permits reliable transmission of complex signals such as multiple high-quality audio and video channels and high-speed data formats such as Fiber Distributed Data Interface (FDDI), Asynchronous Transfer Mode (ATM) and other communications protocols. Compared to traditional copper cable used in telephony, optical fiber has thousands of times the information carrying capacity, occupies less space and operates over greater distances with significantly less attenuation. This high capacity and reliability makes optical fiber systems well suited for interactive 21 24 applications, allowing digitally encoded voice, data and video signals to be transmitted in large volumes at high speed. Furthermore, optical fiber is immune to electrical surges and electromagnetic interference which cause static in copper wire transmission and wireless communication. Optical fiber has technical advantages over wireless communications media such as transmission quality and signal reliability. Optical fiber is also a safer choice in flammable environments because it does not carry electricity. Additionally, communicating through optical fiber is more secure than copper and wireless communications because tapping into fiber optic cable without detection is very difficult. Optical fiber quality is measured by several performance characteristics and is reflected in the price of the fiber. These performance characteristics include bandwidth, attenuation (signal loss over distance), tensile strength, geometry and the dimensional and optical uniformity of the fiber. Optical fiber users and manufacturers have established specifications and standards for both multimode and single-mode fiber. OPTICAL FIBER MARKETS AND APPLICATIONS Overview. Industry data suggest that the worldwide fiber market measured in kilometers is composed of approximately 90% single-mode fiber and approximately 10% multimode fiber. According to industry data, in 1995 the worldwide market totaled over 20 million kilometers having grown approximately 28% in that year and in 1994. An industry expert believes that worldwide consumption of optical fiber in kilometers will grow at an annual rate of approximately 18% over the period from 1996-2001. In the past, North America has accounted for at least half of the worldwide consumption of optical fiber. In recent years, however, North America's share of the fiber market has declined due to dramatically increased fiber usage in other parts of the world. In 1995 North America's share amounted to approximately 40%, with the Pacific Rim and other emerging markets such as India, China, Latin America and Eastern Europe together accounting for approximately 42%. Furthermore, that same industry expert is forecasting that by the year 2001 the Pacific Rim will be the highest volume consumer of optical fiber. Multimode Fiber. The principal market for the Company's multimode fiber products is the data communications industry in North America, with an emphasis on short distance communications between computers and from computers to peripheral equipment, such as in LANs, WANs, intranets and the Internet. The Company believes that the North American market for multimode fiber presently is approximately $150 million annually, of which SpecTran Communication's share is approximately 20%. An industry expert projects that the consumption of multimode fiber in North America will grow at a compound annual rate, in kilometers, of approximately 24% through 2001. The Company believes that during the last two years SpecTran Communication's production and sale of multimode fiber grew in excess of overall optical fiber and cable market rates. Single-mode Fiber. The principal market for the Company's single-mode fiber products is the telecommunications industry, where the fiber is used mainly for long distance telephone lines. The Company believes that the worldwide market for single-mode fiber is approximately $1.6 billion annually. An industry expert estimates that this market has grown at a compound annual rate, in kilometers, in excess of 20% during the last two years and that the worldwide single-mode fiber market will grow at approximately 15% through 2001. As part of the Company's reintroduction in 1993 of its single-mode fiber product, the Company spent over $6 million in research and manufacturing development in part to ensure that its product would meet the standards required by the marketplace. The Company has and will continue to focus its single-mode fiber sales efforts in selected developing and newly industrialized countries that are aggressively upgrading their communication infrastructures, such as the Pacific Rim countries, India and Latin American countries. The single-mode fiber market in these countries is projected to grow at annual rates well in excess of the growth anticipated for the single-mode market as a whole. Single-mode fiber sales in dollars currently represent a small portion of SpecTran Communication's sales. However, the volume of SpecTran Communication's single-mode sales in kilometers for 1996 began to approach the kilometer volume of its sales of multimode fiber. Specialty Fiber Products. Fiber optic products are increasingly being utilized as components and sub-assemblies for a variety of applications in the communications, industrial, military/aerospace and medical 22 25 markets. The Company has focused on and believes it is a leading company in these markets world-wide. The Company believes that the aggregate worldwide market for these specialty applications approximates at least $90 million annually and is expected to grow at a rate in excess of the overall fiber and cable market through 2001. Fiber Optic Cable. Fiber optic cables are engineered protective sheaths which surround optical fiber and are the means by which optical fiber is typically installed and used. Cables are constructed of various extruded polymers, filling compounds, strength members and other jacketing materials. The price of optical fiber cables varies depending upon the design complexity and the number of optical fibers in a cable, with the largest cost component being the optical fiber included in the cable. The Company presently believes that the market for optical cable for the customer premises market in the United States, Canada and Mexico, the market and territory General Photonics primarily serves, approximates $350 million annually. An industry expert estimates that this market will grow at a compound annual rate, measured in cabled fiber kilometers, of approximately 24% through 2001, similar to the expected growth in the multimode optical fiber market. BUSINESS STRATEGY SpecTran's strategy is to capitalize on its proprietary manufacturing processes and technologies and license rights in order to strengthen its position as a leading supplier to data communications and specialty markets and to further penetrate targeted international telecommunications markets. The Company is implementing this strategy by increasing its production capacity and efficiency; pursuing strategic alliances with other industry leaders; developing higher-margin, value-added products; expanding international and domestic distribution; leveraging its core technologies; and seeking to acquire complementary products, technologies and businesses. The Company's research and development activities are directed towards improving its manufacturing processes and efficiencies for existing products as well as developing new products. The Company intends to focus on market niches where it has established or believes it can develop a leadership position, deliver technologically innovative products and continue to take advantage of its vertically integrated infrastructure. Expand Manufacturing Capacity. In order to capitalize on the expected growth in its target markets, the Company is significantly expanding manufacturing capacity at all of its operations. The largest investment is being made at SpecTran Communication with the goal of ensuring product availability for the Company's customers. The Company believes that this expansion should result in certain economies of scale enabling it to reduce unit manufacturing costs. Pursue Strategic Alliances. The Company has aggressively pursued strategic relationships in order to leverage its strengths with those of other industry leaders. Recently, the Company formed General Photonics, a joint venture with General Cable. Because General Cable has an established presence in the data communications market, its distribution network and field sales force will be the primary means by which General Photonics products will be marketed. The Company intends to continue to review partnering opportunities with candidates that have the potential to accelerate its growth and increase its profitability. In addition, the Company has patent licenses from Corning and Lucent which it uses in conjunction with its own internal proprietary technologies and has multi-year agreements to supply optical fiber to both of these companies. Develop Value-Added Products. Fiber optics components are increasingly used in a wide range of products being developed and sold by OEMs. These components are often highly engineered, requiring significant technical development such as that provided by the Company. These specialized components generally have higher gross margins and can often be provided on a sole source basis. The Company is aggressively pursuing these markets by developing relationships with OEMs and continually improving its own internal engineering and development efforts. The Company believes these specialty markets represent a significant future profit opportunity. Expand International and Domestic Distribution. With its increased product diversity and greater manufacturing capacity, the Company is seeking to expand its international and domestic distribution. The Company has increased its international sales to approximately 25% of total sales in the first nine months of 1996 from approximately 11% in 1994 through acquisitions and new international distributors. The Company will continue to focus its single-mode fiber sales in selected developing and newly industrialized countries that 23 26 are aggressively upgrading their communication infrastructures, such as the Pacific Rim countries, India and Latin American countries. The single-mode fiber market in these countries is projected to grow at annual rates well in excess of the growth anticipated for the single-mode market as a whole. The Company also intends to continue increasing its international sales by aggressive marketing of its specialty fiber optic products. Domestically, the Company is seeking to expand distribution through the General Photonics joint venture. Leverage Core Technologies. The Company has substantial experience and know-how in manufacturing optical fiber, optical cable and fiber optic specialty products. This expertise has facilitated the continual enhancement of existing products and the development of new products. In addition, the Company has lowered manufacturing costs through process improvements, including advances in manufacturing equipment. The Company is also developing new technology for the manufacture of fiber. The Company expects to continue directing research and development efforts toward the development of new products and product enhancements and improving its manufacturing technology and know-how in order to increase its sales and profitability. Acquire Complementary Products, Technologies or Companies. The Company seeks to enhance its growth, improve its gross margins and capitalize on emerging markets and technologies by pursuing selected acquisitions. For example, the Company added higher gross margin, value-added products and vertically integrated through the acquisition of SpecTran Specialty in February 1994. The Company entered the fiber optic cable market in May 1995 by the acquisition of APD in order to vertically integrate and to participate more extensively in the rapid growth of the data communications market, the principal end market of multimode fiber. The Company intends to continue to review potential acquisitions and will pursue those opportunities which it believes will accelerate its growth, improve its profitability or enhance its competitive position. There are currently no binding agreements or understandings with respect to any future acquisitions. 24 27 PRODUCTS The following table describes the Company's and General Photonics' principal product areas and the markets they serve: - ------------------------------------------------------------------------------------------------------- PRODUCTS APPLICATIONS TARGET CUSTOMERS - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- SpecTran Communications - ------------------------------------------------------------------------------------------------------- Data communication grade Data communications, including Integrated cablers (e.g., Lucent, multimode fiber: 50, 62.5 and FDDI and fast Ethernet; LANs; Chromatic Technologies); 100 micrometer core diameters video; CCTV; computer peripherals independent cablers (e.g., channel attachment Optical Cable Corporation, CommScope, General Photonics) - ------------------------------------------------------------------------------------------------------- Telephone grade single-mode Telephony (principally in Independent data communications fiber emerging economies); high-speed domestic cablers; international short-distance data telecommunications cablers communication, including Fibre (e.g., India, China, Mexico) Channel and FDDI - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- SpecTran Specialty - ------------------------------------------------------------------------------------------------------- Step and graded index multimode Factory LANs and PLC Factory, transportation and fiber and cable: polymer interconnects; mobile video; medical OEMs; systems designers clad/glass core, high numerical avionics; high-speed ground-based and integrators; geophysical aperture, radiation tolerant, transportation; geophysical exploration companies; US power delivery and high exploration and monitoring; government and military; temperature fiber; avionics sensing; power transmission, utilities; telecom and cable; high dielectric strength including laser surgery; blood supercomputer OEMs; systems cable; tether cables gas monitoring; radiation designers and integrators resistant links; high-speed, short-distance telecom interconnects (e.g., telephone switching systems and PBXs); supercomputer links - ------------------------------------------------------------------------------------------------------- Specialty single-mode fiber and Metallized pigtails, couplers, Telecommunications; cable: photo-sensitive, amplifiers, geophysical optoelectronic manufacturers; rare-earth, delay line and exploration and monitoring; well-logging companies and system fatigue resistant fiber; gyroscopes; wave- length division integrators; defense contractors avionics cable; tether cables multiplexers - ------------------------------------------------------------------------------------------------------- Components and assemblies: crimp Industrial automation; OEMs; systems designers and and cleave connectors; pigtails; environmental monitoring; integrators; facilities managers; fiber optic arrays; specialty customer premises networking; utilities; optoelectronic device and hybrid interconnects; tool military spec and high manufacturers; defense kits reliability assemblies; high contractors power laser delivery; sensing; illumination; spectroscopy - ------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------- General Photonics - ------------------------------------------------------------------------------------------------------- Indoor cable: tight buffered Building backbones; riser and Networking systems and LAN OEMs; distribution and breakout plenum installation systems designers and designs integrators; installers; facilities managers - ------------------------------------------------------------------------------------------------------- Outdoor cable: loose tube; Customer premises backbones, Networking systems and LAN OEMs; gel-filled; direct burial; including densely populated systems designers and aerial; armored; figure eight buildings and campuses; Fibre integrators; installers; Channel; FDDI; bypass telecom facilities managers - ------------------------------------------------------------------------------------------------------- Cable accessories: pulling Customer premises systems and LAN Installers; system integrators; devices; breakout, splitter and installation and repair LAN OEM's; utilities restoration kits; cable terminations - -------------------------------------------------------------------------------------------------------
25 28 CUSTOMERS AND MARKETING The Company sells its multimode and single-mode optical fibers to various cable manufacturers, domestically and internationally, which assemble them into cables for resale in configurations of their own design. Specialty fiber products are sold directly to a large number of OEMs, product development groups, international distributors and manufacturers' representatives, installers, universities and governmental agencies, primarily for use in the industrial, medical, military, aerospace, transportation and telecommunications and data communications markets. Optical fiber cable and cable accessories, manufactured by General Photonics, are sold largely to distributors, system integrators and installers primarily for use in the customer premises market in the United States, Canada and Mexico. The Company markets its multimode and single-mode data communications and telecommunications optical fiber products principally through a direct sales force in the United States and through a network of manufacturer's representatives internationally. Specialty fiber products are marketed domestically through a direct technical field sales force and internationally through a network of technical distributors and sales representatives. Optical fiber cable and cable components produced by General Photonics are marketed primarily through General Cable's direct sales force and sales representatives. Marketing, technical support and some direct sales and customer support are provided by General Photonics personnel. The Company advertises in trade publications, distributes brochures and other material to its mailing list of potential customers worldwide and participates at trade shows, technical symposia and standards committees. As a result of its diversification efforts and broader product offering, the Company has significantly increased its customer base over the last three years and plans to continue to expand this base aggressively within its targeted markets. The Company's international sales have increased from approximately 11% of the Company's net sales in 1994 to approximately 22% in 1995 and approximately 25% in the first nine months of 1996. The Company has more than 500 customers in over 25 countries. For the year ended December 31, 1995, sales of the Company's optical fiber products to each of Chromatic Technologies, Inc. and Optical Cable Corporation were equal to 10% percent or more of the Company's revenues. These two companies together accounted for 24% of the Company's revenues in 1995. For the nine months ended September 30, 1996, only Optical Cable Corporation accounted for more than 10% of the Company's revenues. MANUFACTURING AND QUALITY CONTROL The basic raw materials required for the manufacture of the Company's optical fiber products are high quality glass tubes and rods, various chemicals and gases and certain polymers. The Company believes that its sources of supply of these raw materials are adequate and that alternative sources are available. The Company typically manufactures optical fibers by introducing vapors and gases of varying chemical compositions into a special glass tube in a clean, controlled environment. In the modified chemical vapor deposition ("MCVD") process, an inside vapor deposition process used by the Company, the glass tube, which forms all or a portion of the optical cladding, and the introduced vapors and gases are simultaneously heated, and oxide particles, formed through a reaction of chemical vapors with oxygen, are deposited on and adhere to the inside of the tube. As the particles attach to the tube wall, they are fused to create a layer of high purity glass. Succeeding layers of glass of the same or different compositions are deposited in this fashion to permit the transmission of light in accordance with the desired specifications. The Company believes that the MCVD process is more flexible than other processes in the production of optical fiber and uses it to produce both multimode and single-mode fiber. The other main process for making optical fiber is the outside vapor deposition process which, the Company believes, is less flexible overall, but more cost effective for producing single-mode fiber. As part of its acquisition of SpecTran Specialty, the Company acquired the rights to a patented outside vapor deposition process known as hybrid vapor deposition ("HVD") which it is continuing to develop for possible use in conjunction with its single-mode fiber production process. In the MCVD process, once deposition is completed, the glass tube is then collapsed into a rod, or primary preform, consisting of a deposited core, in certain instances some deposited cladding and cladding provided by the glass tube itself. In most cases, additional cladding is added to this primary preform. The rod 26 29 is then placed at the top of a fiber drawing tower, heated until it softens and drawn into a fiber of predetermined diameter. The majority of the Company's specialty products use a proprietary polymer clad glass core fiber drawn from manufactured or purchased silica rod. This fiber is either sold to third parties or cabled and/or combined with assemblies and sold. The Company owns certain hard polymer cladding, coating and fiber termination technology known as "crimp/cleave," which facilitates attachment of optical fibers to connectors and other components and has certain proprietary technology used for the cabling of optical fiber. The Company has developed proprietary technology related to the processing of a wide variety of polymeric compounds for the manufacture of optical fiber cable. General Photonics purchases fiber from the Company and protectively covers and bundles the fibers into cable. Certain of General Photonics' technology enables the manufacture of nonflammable, low smoke, low toxicity cables for use both outdoors and inside buildings, which the Company believes provides a significant competitive advantage. The Company believes that its quality control programs are essential to its success. The Company's quality control programs are designed to maintain strict tolerances during the manufacturing process and to assure performance standards of its products. The Company performs quality control testing on all of its products. The Company designs and builds much of the equipment it uses to manufacture and test its optical fiber products. In November 1995, SpecTran Communication's facility in Sturbridge, Massachusetts became certified under ISO 9001, an internationally recognized manufacturing standard designed to ensure process consistency. SpecTran Specialty's Avon, Connecticut facility became ISO 9001 certified in March 1996. All of the Company's operations utilize internal testing procedures based on the internationally recognized "Fiber Optic Test Procedures" and have in place and continue to develop specialized proprietary testing systems and procedures to support the requirements of their respective customers. ENVIRONMENTAL MATTERS The Company uses certain hazardous materials in its research and manufacturing operations. As a result, the Company is subject to federal, state and local governmental regulations. The Company believes that it has complied with all regulations and has all permits necessary to conduct its business. See "Risk Factors -- Environmental Regulations." PROPRIETARY RIGHTS The Company considers its proprietary know-how with respect to the development and manufacture of flexible glass fibers and value-added optical fiber products to be a valuable asset. This know-how includes formulation of new glass compositions, development of special fiber coatings, coating applications, fiber designs, preform fabrication, fiber drawing, optical fiber cabling methods, fiber cleaving, polishing and end finishing techniques, proprietary testing capabilities, development and implementation of manufacturing processes and quality control techniques, and design and construction of manufacturing and quality control equipment. Product and application knowledge are also considered to be valuable assets of the Company. Corning License. The Company has a limited, non-assignable, non-exclusive, royalty-bearing license from Corning to make, use and sell fiber under certain of Corning's United States patents with a filing date prior to January 1, 1996, in the field of optical fiber. The license contains certain annual quantity limitations. The limitations are not applicable to sales made directly or indirectly to certain customers such as Corning, Lucent and the United States Government. The quantities that can be manufactured under the license increase annually through the year 2000. The license has a term equal to the life of the last to expire of the Corning or Company patents licensed under the agreement. Corning has the right to terminate the license in the event that more than 30% of the Company's voting stock is acquired, directly or indirectly, by another manufacturing company. The Company granted back to Corning a non-exclusive royalty-free license for any of its patents with a filing date prior to January 1, 1996, in the field of optical fiber. Lucent License. The Company has a non-assignable, non-exclusive, unlimited, royalty-bearing license from Lucent under all patents covering optical fiber and optical fiber cable owned by Lucent or which Lucent and its affiliates had the right to license on or before August 15, 1986. The Company granted back to Lucent a non-exclusive, royalty-free license under patents the Company may obtain relating to optical fiber inventions 27 30 made on or before August 15, 1986. The license extends for the life of the last to expire of the patents licensed under the agreement. Sales Subject to Corning and Lucent License Agreements. Approximately 43% of the Company's net sales during 1995 were subject to the Corning license and 61% subject to the Lucent license. These license agreements required aggregate royalty payments by the Company of approximately 8.5% of net sales of the Company's products manufactured under the agreements during 1995. Approximately 40% of the Company's net sales during the nine months ended September 30, 1996 were subject to the Corning license and approximately 62% of net sales were subject to the Lucent license. The Company believes that certain Corning patents, which may have been relevant to the Company's single-mode fiber, including patents covered by a non-exclusive license from Corning to the Company, have expired in many countries (including the United States). Therefore, the Company believes that manufacturing and sale of its single-mode fiber is not subject to the Corning license and has been marketing its single-mode fiber without payment of royalties to Corning and without regard to the annual quantity limitations of the Corning license since 1993. The Company presently does not expect to need the Corning license for the manufacture of its multimode fiber after 1999 because the Company believes that a Corning United States patent with relevancy to its multimode fiber will expire in 1999. Patents and Trademarks. The Company and its subsidiaries own 24 U.S. patents relating to products, processes and equipment in the fields of optical fibers, optical connectors, coatings and cleaving tools. The Company believes that its patents afford it certain competitive advantages. Under the terms of the Corning and Lucent license agreements, the optical fiber patents are required to be made available royalty-free to Corning and certain of those patents are also be required to be made available royalty-free to Lucent. The Company is using its trademark SPECTRAGUIDE(R) for its commercial grade optical fiber and for certain of its value added fiber products. It also uses the trademarks HCS(R) (Hard Clad Silica), Avioptics(TM), Flightguide(TM), Ultrasil(TM), PYROCOAT(TM), V-System(TM) and V-Pin(TM). RESEARCH AND DEVELOPMENT Research and development activities to develop and improve products employing both existing and new technology are important to the Company. During the fiscal years ended December 31, 1993, 1994 and 1995, the Company spent approximately $1.0 million, $2.0 million and $2.8 million, respectively, or approximately 3.7%, 7.3% and 7.3%, respectively, of its net sales on research and development. The Company expects to continue to increase the annual dollar amount of its research and development expenditures. During the nine months ended September 30, 1996, the Company spent $2.3 million, or approximately 5.2% of its net sales, on research and development. The Company has continued to invest in programs to reduce manufacturing cost and improve product performance in both the single-mode and multimode product lines, to develop new optical fiber products and to develop alternative process technologies. The Company's personnel conduct substantially all of its research and development activities. BACKLOG As of December 31, 1996, the Company's backlog of orders was approximately $54.4 million as compared to a backlog of $9.5 million as of December 31, 1995. Approximately $26.8 million of this backlog is expected to be delivered during 1997. COMPETITION The Company produces and sells optical fibers and value added optical fiber components and assemblies for data communications, telecommunications and specialized applications. The Company also sells optical fiber cable and cable components through General Photonics. While there may be less competition in the specialized markets, all of the markets served by the Company and General Photonics are very competitive. The Company's main competitors for its fibers for data communications and telecommunications are its licensors, Corning and Lucent, to whom the Company pays royalties and who have substantially greater resources and operating experience than the Company. The Company's main competitors for its specialty fibers generally have been smaller operations, but some of those competitors are part of companies with substantially greater resources than the Company. General Photonics' main competitors for its optical fiber 28 31 cable products are large companies with substantially greater resources and operating experience than the Company and General Photonics, some of which may also be customers of SpecTran Communications. The Company competes for sales based upon its ability to fill orders promptly at competitive prices, product performance, product features, unique proprietary products, flexibility, quality and service. The Company believes that optical fibers offer a number of advantages over and compete favorably with other means of transmitting information, such as copper wire, satellite and other line of sight transmissions (e.g., microwaves) despite increased interest in wireless communications in the marketplace and enhancements to the existing copper wire telephony infrastructure. Many companies offering such other means of transmitting information have substantially greater resources and operating experience than the Company. The Company often competes with both mature existing technology and new technology, some of which have cost advantages over optical fiber for certain applications. The number of participants in the optical fiber industry is to some extent limited by patents covering the fundamental optical fiber technology, the need for substantial capital investment and the availability of highly specialized equipment and personnel with the requisite technical expertise. The Company believes that certain Corning patents, which may have been relevant to the Company's single-mode fiber, including patents covered by a non-exclusive license from Corning to the Company, have expired in many countries (including the United States). The Company further believes that a certain Corning United States patent, covered by this non-exclusive license, with relevance to the Company's multimode fiber, expires in 1999. In addition, the Company believes that a certain Lucent patent licensed to the Company relating to its multimode and single-mode fiber expires in 1997. The expiration of these patents may or may not reduce the patent barrier to entry by other participants. The Company estimates that the initial investment required for a turn-key manufacturing facility capable of producing 200,000 kilometers of world-class multimode optical fiber annually is between $50 million and $100 million. EMPLOYEES As of December 31, 1996, the Company employed 381 persons, of whom 101 were employed in technology, 171 were employed in manufacturing operations and 109 provided marketing, administrative, management and other support services. These numbers do not include 58 employees of General Photonics previously employed by APD. The Company's employees are not represented by a labor union. The Company believes its employee relations are good. PROPERTIES The Company's administrative offices and the offices and production facilities of SpecTran Communication are located in an approximately 50,000 square foot building which the Company is in the process of expanding to approximately 100,000 square feet. The building is situated on approximately 43 acres of land owned by the Company in Sturbridge, Massachusetts. The Company also owns an approximately 5,000 square foot office building used for offices that is next to this manufacturing facility. SpecTran Specialty leases approximately 33,000 square feet under three leases in Avon, Connecticut for its office and production facilities. Each of the leases is for a term of three years expiring February 18, 1997, two of which have been extended through August 18, 1997. On October 31, 1996, SpecTran Specialty purchased a 42,000 square foot building and approximately 14 acres on which it is located in Avon, Connecticut. During 1997 the Company expects to expand the facility to approximately 58,000 square feet and consolidate all of SpecTran Specialty's operations in that facility. General Photonics has assumed APD's lease for offices and production facilities in an approximately 45,000 square foot facility located in Danielson, Connecticut with a term of two years expiring January 14, 1998, subject to General Photonics' right to renew the lease for two consecutive one year renewal terms. General Photonics has also assumed APD's lease for offices and production facilities in a 36,410 square foot facility located in Dayville, Connecticut under a lease expiring February 6, 2001, which is subject to a three year renewal option, followed by a second renewal option for an additional two years. LEGAL PROCEEDINGS There are no material actions currently pending against the Company. 29 32 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS The executive officers and directors of the Company are as follows:
NAME AGE POSITION(S) ---- --- ----------- Raymond E. Jaeger(1)............... 58 Chairman of the Board of Directors and Director Glenn E. Moore(1).................. 45 President, Chief Executive Officer and Director Bruce A. Cannon(1)................. 50 Senior Vice President, Chief Financial Officer, Secretary, Treasurer and Director John E. Chapman.................... 41 President of SpecTran Communication; Senior Vice President -- Technology and Director of SpecTran Crawford L. Cutts.................. 45 President, General Photonics (as of December 23, 1996; previously President of APD) William B. Beck.................... 44 President of SpecTran Specialty Ira S. Nordlicht(2)(3)(4).......... 47 Director Paul D. Lazay(2)(3)(4)............. 57 Director Richard M. Donofrio(1)(2)(3)(4).... 58 Director Lily K. Lai(1)(2)(3)............... 55 Director - --------------- (1) Member of the Finance Committee (2) Member of the Audit Committee (3) Member of the Compensation and Incentive Stock Option Committee (4) Member of the Nominating Committee
DR. JAEGER has been Chairman of the Board of Directors of the Company since April 1981 and also is Chairman of the Board of each of its wholly-owned subsidiaries and a Director of General Photonics. He assisted in the formation of the Company and served as President and Chief Executive Officer of the Company from the inception of the Company through December 1995. Prior to joining the Company, Dr. Jaeger was Director of Research and Development and then Vice President, Corporate Research and Development of Galileo Electro-Optics Corporation from 1976 to 1981. Dr. Jaeger was employed by Bell Telephone Laboratories from 1959 until 1976. At that company, he was engaged in research and development of fiber optic materials and processes. Dr. Jaeger is named as the inventor or co-inventor on 16 patents assigned to either Western Electric Company, Incorporated, or the Company, and has written numerous articles for technical and trade publications. Dr. Jaeger holds a B.S., an M.A. and a Ph.D. in Ceramics from Rutgers University. MR. MOORE joined the Company in January 1996, as President and Chief Executive Officer of the Company. He is also a Director of the Company and the Chief Executive Officer and a Director of each of its wholly-owned subsidiaries and a Director of General Photonics. Prior to joining the Company, he was employed from 1976 to 1995 at AMP, Incorporated in various management positions including from 1985 to 1995 as Product Manager, Business Manager and Division Manager of the Electro-Optics Division and Division Manager and General Manager of the Optical Connectors and Assemblies Division. From 1982 to 1985 he supported the U.S.-based operation of AMP as Manager, Computer Integrated Manufacturing Systems, building on his computer and communication experience from 1972 to 1982. Mr. Moore holds a B.A. in Mathematics from Lebanon Valley College and an M.B.A. from Harvard Graduate School of Business Administration. 30 33 MR. CANNON joined the Company in May 1983 as Controller and was appointed Vice President, Finance, and Controller in May 1985. He was appointed Treasurer in 1986, Secretary and Director in March 1987 and Senior Vice President and Chief Financial Officer in December 1987. Mr. Cannon is also Secretary, Treasurer and a Director of each of the Company's wholly-owned subsidiaries. He was employed by SCA Services, Inc. from 1972 through 1982 in various financial and accounting positions, including as Division Controller and Assistant Corporate Controller. Mr. Cannon was a Certified Public Accountant and was previously employed by Arthur Andersen & Co., an international public accounting firm. He holds a B.S. in Accounting from Eastern Kentucky University. MR. CHAPMAN, appointed President of SpecTran Communication in October, 1995, is also Senior Vice President -- Technology of SpecTran. Mr. Chapman joined the Company in July 1983 as a Project Leader working on the development of automated test equipment. In July 1985 he assumed the position of Director of Equipment Technology and in October 1986 became the Director of Quality Assurance and Management Information Systems. Mr. Chapman was appointed Director of Manufacturing and then Vice President of Manufacturing and Engineering in December 1987, and in May 1990 was appointed Senior Vice President of Manufacturing and Technology. Mr. Chapman was appointed Chief Operating Officer, Executive Vice President and Director of the Company in January 1994. After the reorganization of the Company in 1995, Mr. Chapman was appointed to the positions he holds presently. Mr. Chapman is also a Director of each of the Company's wholly-owned subsidiaries. Prior to joining the Company he was employed by Valtec Corporation, an optical fiber manufacturer and cabler, from March 1979 in various engineering positions related to the design of optical fiber and the development of special optical measurement equipment. Mr. Chapman holds a B.S. in Physics from the University of Lowell and an M.S. in Electrical Engineering from Northeastern University. MR. NORDLICHT, a Director of the Company since February 1986, is a partner in the law firm of Hackmyer & Nordlicht which provides legal services to the Company. Prior to entering the private practice of law, Mr. Nordlicht served as Counsel and Foreign Policy Advisor to the Chairman, U.S. Senate Foreign Relations Committee (1978-1979), counsel to the U.S. Senate Foreign Relations Subcommittee on Foreign Economic Policy (1975-1978) and Senior Trial Attorney for the Federal Trade Commission (1972-1975). From 1980-1982 he also served as a Secretary of Energy appointee to the National Petroleum Counsel. Mr. Nordlicht is a Director of each of the Company's wholly-owned subsidiaries. He holds a B.A. in Economics from Harpur College (State University of New York at Binghamton) and a J.D. from New York University. DR. LAZAY, a Director of the Company since March 1987, is a business consultant for technology companies. Previously he served from April through June 1995 as General Manager and Vice President of Cisco Systems, a data networks company, and prior to that, from October 1993 he was a business consultant for technology companies. He served as President, Chief Executive Officer and a Director for Telco Systems, Inc., a designer and manufacturer of high speed digital fiber optic transmission terminals and multiplexing equipment until October 1993. Prior to joining Telco Systems in May 1986 as Vice President of Engineering, Dr. Lazay spent four years with ITT's Electro-Optical Products Division, first as Director of Fiber Optic Development and then as Vice President, Director of Engineering. From 1969 until 1982 he worked for Bell Telephone Laboratories, assuming a number of increasingly responsible positions at its Material Research Laboratory. Dr. Lazay is a Director of each of the Company's wholly-owned subsidiaries. He holds a Ph.D. in Physics from the Massachusetts Institute of Technology. MR. DONOFRIO, a Director of the Company since May 1993, is a co-owner and has been employed as Executive Vice President of Leeverall, Inc. since his retirement from SNET in May 1993, where he had served as one of three Senior Vice Presidents reporting to the President and CEO. Continuously employed by SNET since 1961, during the five years prior to his retirement he held a number of Senior and Group Vice President positions and served as the President of SNET Diversified Group, Inc. Mr. Donofrio is a member of the Board of Directors of the University of New Haven, the National Engineering Consortium, Griffin Health Services Corp., Griffin Hospital Corp. and the Greater New Haven United Way. Mr. Donofrio is a Director of each of the Company's wholly-owned subsidiaries and General Photonics. Mr. Donofrio holds a B.S. in Business Administration from Norwich University and attended the M.B.A. program at the University of Hartford. 31 34 DR. LAI, a Director of the Company since March 1995, is President of First American Development Corporation, a management consulting and international business development company. Previously, Dr. Lai headed the Corporate Planning and Development Department at Pitney Bowes, Inc. from 1989 to 1993. She was the Chief Financial and Planning Officer and the Vice President of Asia/Pacific Operations at US West International from 1987 to 1989. Dr. Lai worked for AT&T from 1971 to 1987 in various corporate positions including Director of Corporate Strategy and Development (1983-1986), responsible for AT&T's global business development activities, and Director of International Public Affairs and Public Relations (1986-1987), responsible for managing AT&T's relationships with all international constituents (governments, partners, trade associations, presses, advertising agencies, employees, etc.). Dr. Lai is a Director of each of the Company's wholly-owned subsidiaries. Dr. Lai is an MIT Sloan Fellow and holds a Ph.D. and an M.A. in Economics from the University of Wisconsin-Madison, as well as a B.S. and an M.S. in Agricultural Economics from National Taiwan University and the University of Kentucky, respectively. MR. CUTTS was appointed President and a Director of General Photonics, the Company's joint venture with General Cable, as of December 23, 1996. Previously, since October 1995, he had served as President and a Director of APD. He joined the Company in April 1991, as Vice President, Business Development, responsible for marketing, sales and corporate development activities. Prior to joining the Company he was employed by Norton Company from February 1978 to March 1991 in various management positions in several divisions, including Market Manager, Advanced Ceramics, responsible for the electronics market and Manager, Corporate Development, responsible for mergers and acquisitions. From 1976 until 1977 he was employed by Owens-Corning Fiberglass. Mr. Cutts holds both a B.A. in Mathematics and Economics and a M.S. in Industrial Administration from Union College. MR. BECK, appointed President and a Director of SpecTran Specialty in October 1995, joined the Company in February 1994, as Vice President and General Manager of SpecTran Specialty following the acquisition of SpecTran Specialty by the Company. Prior to joining SpecTran Specialty he was employed by Ensign-Bickford Optics Company and/or Ensign-Bickford Optical Technologies from July 1984 in various management positions, including President, General Manager and Sales Marketing Manager. Mr. Beck holds a B.A. in Geography and Economics from Dartmouth College and a M.A. in Business Administration from Rensselaer Polytechnic Institute. 32 35 PRINCIPAL AND SELLING STOCKHOLDERS The following table sets forth certain information as of December 31, 1996 (except as otherwise specified herein), regarding the beneficial ownership of Common Stock of the Company by (i) each person who is known to the Company to beneficially own more than 5% of the outstanding shares of Common Stock of the Company, (ii) each director and executive officer of the Company and (iii) all directors and executive officers of the Company as a group. The table also sets forth information regarding such beneficial ownership by each such person or group after adjustment for the offering, assuming no exercise of the over-allotment option granted to the Underwriters. Of the 1,800,000 shares of Common Stock offered hereby, 350,000 are being sold by Allen & Company Incorporated (the "Selling Stockholder"), a principal stockholder of the Company, representing all of the shares beneficially owned by the Selling Stockholder on December 31, 1996. These shares will be acquired by the Selling Stockholder upon exercise of a warrant issued to it in November 1990 (which incorporated warrants issued in August 1986 and August 1981), in conjunction with an equity investment and the conversion into equity of certain funds the Selling Stockholder had loaned to the Company.
AMOUNT AND NATURE OF AMOUNT AND NATURE BENEFICIAL OWNERSHIP OF BENEFICIAL PRIOR TO OFFERING OWNERSHIP AFTER OFFERING ------------------------ NUMBER ------------------------ NUMBER OF OF SHARES NUMBER OF SHARES OF PERCENT OF TO BE SHARES OF PERCENT OF NAME AND ADDRESS OF COMMON COMMON SOLD IN COMMON COMMON BENEFICIAL OWNER STOCK STOCK(1) OFFERING STOCK STOCK(2) - ------------------- --------- ---------- --------- --------- ---------- Raymond E. Jaeger.................... 185,967(3) 3.3% -- 185,967 2.5% Allen & Company Incorporated......... 350,000(4) 6.1% 350,000 -- -- Dimensional Fund Advisors Inc. ...... 361,100(5) 6.7% -- 361,100 5.0% Ira S. Nordlicht..................... 14,331(6) * -- 14,331 * Paul D. Lazay........................ 8,999(7) * -- 8,999 * Bruce A. Cannon...................... 51,667(8) * -- 51,667 * Richard M. Donofrio.................. 7,499(9) * -- 7,499 * John E. Chapman...................... 56,667(10) 1.0% -- 56,667 1.0% Lily K. Lai.......................... 333(11) * -- 333 * Glenn E. Moore....................... 16,667(12) * -- 16,667 * Crawford L. Cutts.................... 46,666(13) * -- 46,666 * William B. Beck...................... 20,000(14) * -- 20,000 * All directors and executive officers as a group (10 persons)............ 408,796(15) 7.2% -- 408,796 5.4%
- --------------- * Less than 1% (1) Percentage of beneficial ownership is based on the 5,400,071 shares of Common Stock outstanding on December 31, 1996. Shares of Common Stock subject to stock options and warrants that are exercisable within 60 days of December 31, 1996 are deemed outstanding for computing the percentage of the person or group holding such options or warrants, but are not deemed outstanding for computing the percentage of any other person or group. (2) Percentage of beneficial ownership is based on the 7,200,071 shares of Common Stock to be outstanding after giving effect to the sale of the shares of Common Stock to the public offered by the Company hereby, the exercise by the Selling Stockholder of its warrant to purchase 350,000 shares of Common Stock and assuming no exercise of outstanding options or other issuance of shares after December 31, 1996. (3) Includes 86,667 shares subject to options exercisable within 60 days. Does not include 29,333 shares subject to options not exercisable within 60 days. 33 36 (4) Shares underlying the currently exercisable warrant which is being exercised to acquire 350,000 shares of Common Stock of the Company being offered by the Selling Stockholder. Allen & Company Incorporated's address is 711 Fifth Avenue, New York, New York 10022. (5) This information is based upon information provided by Dimensional Fund Advisors, Inc. on January 7, 1997. Dimensional Fund Advisors Inc.'s address is 1299 Ocean Avenue, 11th Floor, Santa Monica, California 90401. (6) Includes 8,999 shares subject to options exercisable within 60 days. Does not include 2,001 shares subject to options not exercisable within 60 days. (7) Includes 8,999 shares subject to options exercisable within 60 days. Does not include 2,001 shares subject to options not exercisable within 60 days. (8) Includes 51,667 shares subject to options exercisable within 60 days. Does not include 21,333 shares subject to options not exercisable within 60 days. (9) Includes 6,999 shares subject to options exercisable within 60 days. Does not include 2,001 shares subject to options not exercisable within 60 days. (10) Includes 56,667 shares subject to options exercisable within 60 days. Does not include 23,333 shares subject to options not exercisable within 60 days. (11) Includes 333 shares subject to options exercisable within 60 days. Does not include 6,667 shares subject to options not exercisable within 60 days. (12) Includes 16,667 shares subject to options exercisable within 60 days. Does not include 33,333 shares subject to options not exercisable within 60 days. (13) Includes 46,666 shares subject to options exercisable within 60 days. Does not include 23,001 shares subject to options not exercisable within 60 days. (14) Includes 20,000 shares subject to options exercisable within 60 days. Does not include 18,000 shares subject to options not exercisable within 60 days. (15) Includes 303,664 shares subject to options exercisable within 60 days. Does not include 161,003 shares subject to options not exercisable within 60 days. 34 37 DESCRIPTION OF SECURITIES GENERAL The following description of the capital stock of the Company and certain provisions of the Company's Restated Certificate of Incorporation (the "Certificate") and Amended and Restated By-Laws (the "By-Laws") is a summary of and is qualified in its entirety by the provisions of the Certificate and the By-Laws. COMMON STOCK The Company's authorized capital stock consists of 20,000,000 shares of voting Common Stock, $.10 par value, and 250,000 shares of Non-Voting Common Stock, $.10 par value. Except with respect to voting rights, shares of Non-Voting Common Stock are identical in all respects to shares of voting Common Stock. Holders of all outstanding shares are entitled to such dividends as may be declared by the Board of Directors and, in the event of liquidation, dissolution or winding up of the affairs of the Company, are entitled to receive, on a pro-rata basis, all assets of the Company remaining after satisfaction of all liabilities. Holders have no preemptive rights to purchase additional shares of any class of the Company's capital stock. The issued and outstanding shares of Common Stock are, and the shares of Common Stock offered hereby will be, when offered and sold, duly authorized, validly issued, fully paid and nonassessable. The shares have no conversion rights, are not subject to redemption and are not subject to calls, assessments or liabilities. Each outstanding share of the voting Common Stock is entitled to one vote, either in person or by proxy, on all matters which may be voted upon by the holders thereof at meetings of the stockholders. The Non-Voting Common Stock has no vote. CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE AND BY-LAWS Certain provisions of the Company's Certificate and By-Laws and Delaware law could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of Common Stock. The Certificate and the By-Laws provide for a classified Board of Directors, divided into three classes, with directors in each class elected for a three-year term. The By-Laws impose various procedural and other requirements that could make it more difficult for stockholders to effect certain corporate actions. The Certificate and the By-Laws require stockholder action to be taken at a meeting and do not permit stockholder action by written consent. By requiring stockholder action to be taken at a meeting, matters requiring a stockholder vote are subject to notice, the solicitation of proxies, and the consideration of all of the stockholders of the Company. This provision will make it more difficult and time consuming for a substantial stockholder to gain control of the Board by effecting a sudden change in its composition, and will provide the Board with an opportunity to review any proposal from a substantial stockholder as well as appropriate alternatives thereto. The Certificate contains an "other constituencies" provision which will enable the Board, in the face of an acquisition proposal, to exercise its business judgment over the full range of factors which affect the ongoing business of the Company. The Certificate contains an anti-greenmail provision providing that no short-term (less than two years) holder of 5% or more of the shares of Common Stock of the Company can secure for itself the repurchase of its shares at a price not available to the other stockholders. Of the 20,250,000 shares of Common Stock (including 250,000 shares of Non-Voting Common Stock) which the Company is authorized to issue, only 8,080,214 will be outstanding or reserved for issuance after the offering and none of the Non-Voting Common Stock will be outstanding. See "Shares Available for Future Sale." The authorized but unissued shares of Common Stock could be used to make a change in control of the Company more difficult. Under certain circumstances such shares could be used to create voting impediments or to frustrate persons seeking to effect a takeover or otherwise gain control of the Company or could be privately placed with purchasers who might side with the Board in opposing a hostile takeover bid and could be used to dilute the stock ownership of a person or entity seeking to obtain control of the Company. The Company has also not opted out of certain protections of the Delaware Business Corporation Law discussed below. 35 38 DELAWARE TAKEOVER STATUTE The Company is subject to Section 203 of the Delaware General Corporation Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that such stockholder became an interested stockholder, unless: (i) prior to such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder; (ii) upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding those shares owned by (x) persons who are directors and also officers and (y) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or (iii) on or subsequent to such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the interested stockholder. Section 203 defines business combination to include: (i) any merger or consolidation involving the corporation and the interested stockholder; (ii) any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder; (iii) subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; (iv) any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation beneficially owned by the interested stockholder; or (v) the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. In general, Section 203 defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by such entity or person. The Company may opt out of the effect of Section 203 by amendment of the Certificate or By-Laws approved by holders of a majority of the shares entitled to vote, provided that such amendment would not take effect until 12 months after its adoption and would not affect any business combinations with interested stockholders effected during such 12 months. To date, the Company has not opted out of Section 203. TRANSFER AGENT The Transfer Agent and Registrar for the Common Stock is American Stock Transfer and Trust Company, New York, New York. 36 39 SHARES AVAILABLE FOR FUTURE SALE As of December 31, 1996, 5,400,071 shares of Common Stock of the Company were outstanding, and 1,230,143 shares were reserved for issuance pursuant to the exercise of stock options under the Company's Incentive Stock Option Plans and the warrant of the Selling Stockholder, leaving 13,369,076 shares of Common Stock available for issuance from time to time by the Board of Directors, as the interests of the Company may require. Upon completion of this offering, the Company will have 7,200,071 shares of Common Stock outstanding based on shares of Common Stock outstanding as of December 31, 1996. Of such shares of Common Stock, 6,950,495 shares will be freely tradeable without restriction or further registration under the Securities Act of of 1933 as amended, (the "Securities Act"), unless purchased by "affiliates" of the Company, as that term is defined in Rule 144 under the Securities Act. The remaining 249,576 shares are held by persons who may be deemed affiliates of the Company or are "restricted securities" under Rule 144 and will be eligible for sale on the date of this Prospectus subject to the restrictions of Rule 144. Without the prior written consent of Tucker Anthony Incorporated, the Company has agreed that it will not, for a period of 180 days from the date of this Prospectus, offer, sell or otherwise dispose of any of the Company's equity securities (except that the Company may grant additional options to purchase shares of Common Stock, and issue shares, under its Incentive Stock Option Plans), and the Company's directors and executive officers, holding an aggregate of 408,796 shares of Common Stock and options exercisable within 60 days of December 31, 1996 to acquire shares of Common Stock have agreed that they will not, for a period of 90 days from the date of this Prospectus, offer, sell or otherwise dispose of any of the Company's equity securities that they beneficially own or control other than gifts (up to 5,000 shares in the aggregate) or transfers by will or intestacy to immediate family members, provided that the transferee agrees to these same limitations. In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated), who has beneficially owned restricted securities within the meaning of Rule 144 for the required time periods, is entitled to sell within any three-month period a number of shares that does not exceed the greater of (i) 1% of the then outstanding shares of the Company's Common Stock (approximately 72,001 shares after the offering) or (ii) the average weekly trading volume of the Company's Common Stock in the over the counter market during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission (the "Commission"). Sales under Rule 144 are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about the Company. Any person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of the Company at any time during the 90 days preceding a sale, and who owns shares within the definition of "restricted securities" under Rule 144 that were purchased from the Company (or any affiliate) at least three years previously, will be entitled to sell such shares under Rule 144(k) without regard to the volume limitations, manner of sale provisions, public information requirements or notice requirements. As of December 31, 1996, options to purchase 650,703 shares of Common Stock were issued and outstanding under the Company's Incentive Stock Option Plans. The Company has filed registration statements under the Securities Act covering in the aggregate approximately 880,143 shares of Common Stock reserved for issuance under its Incentive Stock Option Plans. Shares registered under such registration statements are, subject to Rule 144 volume limitations applicable to affiliates, available for sale in the open market, except to the extent that such shares are subject to vesting restrictions with the Company and the lock-up arrangements described above. 37 40 UNDERWRITING The Underwriters named below, acting through Tucker Anthony Incorporated and Raymond James & Associates, Inc. as Representatives, have agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company and the Selling Stockholder, and the Company and the Selling Stockholder have agreed to sell to the Underwriters, the number of shares of Common Stock set forth opposite their names below:
NUMBER OF NAME SHARES ---- --------- Tucker Anthony Incorporated................................ Raymond James & Associates, Inc. .......................... --------- Total............................................ 1,800,000 =========
The Underwriters will purchase all shares of Common Stock offered hereby, other than over-allotment shares, if any of such shares are purchased. The Underwriting Agreement provides that the obligations of the several Underwriters are subject to conditions precedent specified therein. In the event of a default by an Underwriter, the commitment set forth above of the non-defaulting Underwriters may be increased or the Underwriting Agreement may be terminated. The Company and the Selling Stockholder have been advised by the Representatives that the Underwriters propose to offer the shares of Common Stock to the public at the offering price set forth on the cover page of this Prospectus and to certain dealers at such price less a concession not in excess of $ per share. Such dealers may reallow a concession of not in excess of $ per share to certain other dealers. After the public offering, the offering price, concession and reallowance to dealers may be changed by the Underwriters. The Company has granted to the Underwriters an option, exercisable by the Underwriters not later than 30 days after the effective date of this Prospectus, to purchase up to 270,000 additional shares of Common Stock at the public offering price, less the underwriting discount set forth on the cover page of this Prospectus. The Underwriters may exercise such option, in whole or in part, only to cover over-allotments made in connection with the sale of the shares of Common Stock offered hereby. To the extent that Underwriters exercise such option, each Underwriter will become obligated, subject to certain conditions, to purchase approximately the same percentage thereof that the number of shares of Common Stock to be purchased by it shown in the above table bears to the total shown, and the Company will be obligated, pursuant to the option, to sell such shares to the Underwriters. In connection with this offering, certain Underwriters and selling group members may engage in passive market making transactions in the Common Stock on the Nasdaq National Market immediately prior to the commencement of sales in this offering, in accordance with Rule 10b-6A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Passive market making consists of displaying bids on the Nasdaq National Market limited by the bid prices of independent market makers and purchases limited by such prices and effected in response to order flow. Net purchases by a passive market maker on each day are limited to a specified percentage of the passive market maker's average daily trading volume in the Common Stock during a specified period and must be discontinued when such limit is reached. Passive market making may stabilize the market price of the Common Stock at a level above that which might otherwise prevail and, if commenced, may be discontinued at any time. The Company and the Selling Stockholder have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to certain payments that the Underwriters may be required to make. Without the prior written consent of Tucker Anthony Incorporated, the Company has agreed that it will not, for a period of 180 days from the date of this Prospectus, offer, sell or otherwise dispose of any of the Company's equity securities (except that the Company may grant additional options to purchase shares of Common Stock, and issue shares, under its Incentive Stock Option Plans), and the Company's directors 38 41 and executive officers, holding an aggregate of 408,796 shares of Common Stock and options exercisable within 60 days of December 31, 1996 to acquire shares of Common Stock have agreed that they will not, for a period of 90 days from the date of this Prospectus, offer, sell or otherwise dispose of any of the Company's equity securities that they beneficially own or control other than gifts (up to 5,000 shares in the aggregate) or transfers by will or intestacy to immediate family members, provided that the transferee agrees to these same limitations. LEGAL MATTERS The validity of the shares of Common Stock of the Company offered hereby will be passed upon for the Company by Hackmyer & Nordlicht, New York, New York. Ira S. Nordlicht, a partner in the law firm of Hackmyer & Nordlicht, is a Director of the Company and beneficially owns 14,331 shares of Common Stock. Certain legal matters in connection with the offering will be passed upon for the Underwriters by Peabody & Brown (a partnership including professional corporations), Boston, Massachusetts. EXPERTS The consolidated financial statements of the Company as of December 31, 1994 and 1995, and for each of the years in the three-year period ended December 31, 1995 included or incorporated by reference in this Prospectus and Registration Statement, have been included or incorporated by reference in reliance on the reports of KPMG Peat Marwick LLP, independent certified public accountants, given upon the authority of said firm as experts in accounting and auditing. ADDITIONAL INFORMATION The Company is subject to the informational requirements of the Exchange Act and in accordance therewith files reports, proxy statements and other information with the the Commission. Such reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth Street NW, Room 1024, Washington, D.C. 20549, and at the Regional Offices of the Commission at Room 1400, 75 Park Place, New York, New York 10007, and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511, and copies of such materials can be obtained from the Public Reference Section of the Commission at the above address in Washington, D.C. at prescribed rates. The Commission maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the commission. The address of such Web site is http://www.sec.gov. The Company's securities are listed on the Nasdaq National Market and the Company's reports, proxy statements and other information can be inspected at the offices of Nasdaq at 1735 K Street, N.W., Washington, D.C. 20006. The Company has filed with the Commission a registration statement on Form S-3 (the "Registration Statement") under the Securities Act with respect to the shares of Common Stock offered hereby. This Prospectus, which constitutes a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement. For further information with respect to the Company and the shares of Common Stock offered hereby, reference is made to the Registration Statement and the exhibits filed as a part thereof. Statements contained herein concerning the provisions of documents which are a part of the Registration Statement but which are not a part of this Prospectus are summaries of such documents, and each such statement herein is qualified in its entirety by reference to the copy of the applicable document filed with the Commission. Copies of the Registration Statement and the exhibits thereto are on file at the Commission and may be obtained upon payment of the prescribed fee or may be examined without charge at the public reference facilities of the Commission. 39 42 INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The Company's Annual Report on Form 10-K for the year ended December 31, 1995, the Company's Current Report on Form 8-K dated December 31, 1996 reporting the senior debt financing and refinancing of existing bank loans, the Company's Current Report on Form 8-K dated January 8, 1997 reporting the formation of General Photonics, LLC, the Company's Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1996, June 30, 1996 and September 30, 1996 and the Company's Proxy Statement for the Annual Meeting of Stockholders held on May 31, 1996 have been filed with the Commission pursuant to Sections 13 and 14 of the Exchange Act, and, together with the Company's Registration Statement on Form 8-A, are incorporated herein by reference except as supplemented or modified herein. All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Prospectus and prior to the termination of the offering of the Common Stock being offered hereunder shall be deemed to be incorporated herein by reference and shall be a part hereof from the date of filing of such documents. Any statements contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any subsequently filed document which also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any statements so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide, without charge, to each person, including any beneficial owner, to whom a copy of this Prospectus is delivered, upon the written or oral request of such person, a copy of any and all of the documents that have been incorporated herein by reference (other than exhibits thereto, unless such exhibits are specifically incorporated by reference into such documents). Written requests for such copies should be directed to Bruce A. Cannon, Chief Financial Officer, SpecTran Corporation, 50 Hall Road, Sturbridge, Massachusetts 01566. Telephone inquiries may be directed to Mr. Cannon at (508) 347-2261. 40 43 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report.............................................. F-2 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 1994 and 1995 and (Unaudited) September 30, 1996....................................... F-3 Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and (Unaudited) for the Nine Months Ended September 30, 1995 and 1996.......................................... F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and (Unaudited) for the Nine Months Ended September 30, 1995 and 1996.......................................... F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1993, 1994 and 1995 and (Unaudited) for the Nine Months Ended September 30, 1996............................................. F-6 Notes to Consolidated Financial Statements.............................. F-7 through F-20 Pro Forma Financial Information (Unaudited)............................. F-21 through F-23
F-1 44 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders SpecTran Corporation: We have audited the consolidated financial statements of SpecTran Corporation as listed in the accompanying index. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SpecTran Corporation as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Boston, Massachusetts February 2, 1996 F-2 45 SPECTRAN CORPORATION CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1994 1995 1996 ------- ------- ------------- (UNAUDITED) ------------- (DOLLARS IN THOUSANDS) ASSETS Current Assets (Note 8): Cash and Cash Equivalents................................ $ 477 $ 1,625 $ 2,174 Current Portion of Marketable Securities (Note 2)........ 2,563 4,088 972 Trade Accounts Receivable, net of allowance for doubtful accounts of $124, $265 and $280 in 1994, 1995 and 1996.................................................. 6,184 7,799 10,201 Inventories (Note 3)..................................... 4,100 7,415 8,967 Income Taxes Receivable.................................. 502 -- -- Current Deferred Income Taxes, net (Note 10)............. 303 588 685 Prepaid Expenses and Other Current Assets................ 268 513 567 ------- ------- ------- Total Current Assets.................................. 14,397 22,028 23,566 Property, Plant and Equipment, net (Notes 4 and 8)......... 9,416 10,290 14,702 Other Assets (Note 8): Long-term Marketable Securities (Note 2)................. 3,275 1,133 1,422 License Agreements, net (Note 5)......................... 1,205 1,004 854 Deferred Income Taxes, net (Note 10)..................... 1,702 1,652 974 Goodwill, net (Notes 6 and 14)........................... 1,107 4,156 3,935 Other Long-term Assets (Note 13)......................... 260 102 1,108 ------- ------- ------- Total Other Assets.................................... 7,549 8,047 8,293 ------- ------- ------- Total Assets..................................... $31,362 $40,365 $46,561 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable......................................... $ 751 $ 2,762 $ 2,727 Income Taxes Payable..................................... -- 225 231 Accrued Defined Benefit Pension Liability (Note 13)...... 66 118 799 Accrued Liabilities (Note 7)............................. 2,201 2,964 3,641 ------- ------- ------- Total Current Liabilities........................ 3,018 6,069 7,398 Long-term Debt (Note 8).................................... 5,240 10,000 12,000 Stockholders' Equity (Note 9): Common Stock, voting, $.10 par value; authorized 20,000,000 shares; outstanding 5,207,409 shares, 5,353,686 shares and 5,396,963 shares in 1994, 1995 and 1996, respectively................................ 520 535 539 Common Stock, non-voting, $.10 par value; authorized 250,000 shares; no shares outstanding................. -- -- -- Paid-in Capital.......................................... 26,028 26,443 26,745 Net Unrealized Gain/(Loss) on Marketable Securities...... (242) (22) 15 Retained Earnings (Deficit).............................. (3,202) (2,660) (136) ------- ------- ------- Total Stockholders' Equity............................ 23,104 24,296 27,163 ------- ------- ------- Total Liabilities and Stockholders' Equity....... $31,362 $40,365 $46,561 ======= ======= =======
See accompanying notes to these consolidated financial statements. F-3 46 SPECTRAN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, --------------------------- ----------------- 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) Net Sales (Note 11).............................. $25,578 $26,926 $38,581 $27,035 $44,915 Cost of Sales.................................... 15,963 19,303 25,520 17,941 28,621 ------- ------- ------- ------- ------- Gross Profit................................... 9,615 7,623 13,061 9,094 16,294 Selling and Administrative Expenses.............. 3,293 6,319 9,669 6,698 9,909 Research and Development Costs................... 954 1,974 2,827 2,103 2,321 ------- ------- ------- ------- ------- Income (Loss) from Operations.................... 5,368 (670) 565 293 4,064 ------- ------- ------- ------- ------- Other Income (Expense): Interest Income................................ 246 327 328 240 166 Interest Expense............................... (37) (303) (626) (434) (528) Other, Net..................................... 52 159 510 358 122 ------- ------- ------- ------- ------- Other Income (Expense), net.................... 261 183 212 164 (240) ------- ------- ------- ------- ------- Income (Loss) before Income Taxes................ 5,629 (487) 777 457 3,824 Income Tax Expense (Note 10)..................... 1,974 -- 235 187 1,300 ------- ------- ------- ------- ------- Net Income (Loss)................................ $ 3,655 $ (487) $ 542 $ 270 $ 2,524 ------- ------- ------- ------- ------- Net Income (Loss) per Common Share............... $ .67 $ (.09) $ .10 $ .05 $ .43 ======= ======= ======= ======= ======= Weighted Average Number of Common Shares Outstanding.................................... 5,488 5,203 5,583 5,410 5,930 ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements. F-4 47 SPECTRAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED YEARS ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------- ----------------- 1993 1994 1995 1995 1996 ------- ------- -------- ------- ------- (IN THOUSANDS) (UNAUDITED) Cash Flows from Operating Activities: Net income (loss)............................. $ 3,655 $ (487) $ 542 $ 270 $ 2,524 Reconciliation of net income (loss) to net cash provided by operating activities: Depreciation and amortization......... 1,025 1,686 2,338 1,688 2,189 Loss (gain) on sale of assets......... (50) 4 8 4 -- Loss on sale of marketable securities.......................... -- -- 17 -- 19 Changes in valuation accounts......... (100) 265 (632) (150) (242) Change in long-term deferred income taxes............................... 1,651 (1,384) 576 -- 832 Change in other long-term assets...... -- (6) (110) 18 (1,019) Changes in assets and liabilities, net of effects from purchase of businesses: Current deferred income taxes.............. 4 967 (339) -- 23 Accounts receivable........................ (2,007) (467) (409) (481) (2,508) Inventories................................ (809) 1,137 (2,501) (1,501) (1,479) Prepaid expenses and other current assets................................... 61 87 (260) (451) (54) Income taxes payable/receivable............ 402 (695) 716 455 6 Accounts payable and accrued liabilities... 133 (59) 1,854 233 1,323 ------- ------- ------- ------- ------- Net Cash Provided by Operating Activities....... 3,965 1,048 1,800 85 1,614 ------- ------- ------- ------- ------- Cash Flows from Investing Activities: Acquisition of businesses, net of cash acquired................................... (307) (6,662) (3,822) (3,818) -- Acquisition of property, plant and equipment.................................. (1,342) (2,500) (2,540) (1,552) (6,209) Purchase of marketable securities............. (8,882) (3,178) (10,894) (6,494) (7,380) Proceeds from sale/maturity of marketable securities................................. 2,832 3,137 11,839 7,496 10,218 Proceeds from sale of equipment............... -- -- 5 -- -- ------- ------- ------- ------- ------- Net Cash Used in Investing Activities........... (7,699) (9,203) (5,412) (4,368) (3,371) ------- ------- ------- ------- ------- Cash Flows from Financing Activities: Borrowings of long-term debt.................. -- 5,240 4,760 4,760 2,000 Reduction of debt............................. (67) (367) -- -- -- Tax effect of disqualifying disposition of 150 shares..................................... (106) 120 -- -- -- Proceeds from exercise of stock options and warrants................................... 56 101 -- -- 306 ------- ------- ------- ------- ------- Net Cash Provided by (Used in) Financing Activities.................................... (117) 5,094 4,760 4,760 2,306 ------- ------- ------- ------- ------- Increase (Decrease) in Cash and Cash Equivalents................................... (3,851) (3,061) 1,148 477 549 Cash and Cash Equivalents at Beginning of Period........................................ 7,389 3,538 477 477 1,625 ------- ------- ------- ------- ------- Cash and Cash Equivalents at End of Period...... $ 3,538 $ 477 $ 1,625 $ 954 $ 2,174 ======= ======= ======= ======= =======
See accompanying notes to consolidated financial statements. F-5 48 SPECTRAN CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995 AND NINE MONTHS ENDED SEPTEMBER 30, 1996
NET UNREALIZED GAIN (LOSS) COMMON STOCK ON RETAINED TOTAL -------------------- PAID-IN MARKETABLE EARNINGS STOCKHOLDERS' SHARES PAR VALUE CAPITAL SECURITIES (DEFICIT) EQUITY --------- --------- ------- ----------- -------- ------------- (DOLLARS IN THOUSANDS) Balance at December 31, 1992............ 5,140,573 $ 514 $25,865 $ -- $ (6,370) $20,009 Exercise of Warrants (Note 9)......... 20,000 2 38 -- -- 40 Exercise of Stock Options............. 4,502 1 15 -- -- 16 Tax Effect of Disqualifying Disposition of ISO Shares (Note 10)................................ -- -- (106) -- -- (106) Net Income............................ -- -- -- -- 3,655 3,655 --------- ---- ------- ----- ------- ------- Balance at December 31, 1993............ 5,165,075 517 25,812 -- (2,715) 23,614 Exercise of Stock Options (Note 9).... 42,334 3 96 -- -- 99 Tax Effect of Disqualifying Disposition of ISO Shares (Note 10)................................ -- -- 120 -- -- 120 Unrealized Loss on Marketable Securities......................... -- -- -- (242) -- (242) Net Loss.............................. -- -- -- -- (487) (487) --------- ---- ------- ----- ------- ------- Balance at December 31, 1994............ 5,207,409 520 26,028 (242) (3,202) 23,104 Exercise of Stock Options (Note 9).... 1,833 -- 7 -- -- 7 Issuance of Shares in Connection with Acquisition (Note 14).............. 144,444 15 408 -- -- 423 Unrealized Gain on Marketable Securities......................... -- -- -- 220 -- 220 Net Income............................ -- -- -- -- 542 542 --------- ---- ------- ----- ------- ------- Balance at December 31, 1995............ 5,353,686 535 26,443 (22) (2,660) 24,296 Exercise of Stock Options (Note 9).... 43,277 4 302 -- -- 306 Unrealized Gain on Marketable Securities......................... -- -- -- 37 -- 37 Net Income............................ -- -- -- -- 2,524 2,524 --------- ---- ------- ----- ------- ------- Balance at September 30, 1996 (Unaudited)........................... 5,396,963 $ 539 $26,745 $ 15 $ (136) $27,163 ========= ==== ======= ===== ======= =======
See accompanying notes to consolidated financial statements. F-6 49 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1993, 1994 AND 1995 (INFORMATION PERTAINING TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS UNAUDITED) 1 -- NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS SpecTran develops, manufactures and markets a wide range of fiber optic products. These include multimode and single-mode optical fiber and cable for use in data communications and telecommunications applications. The Company also develops special performance fibers, coatings, cables, cable assemblies and other value-added products for use in a variety of specialty markets. PRINCIPLES OF CONSOLIDATION AND BASIS OF ACCOUNTING The consolidated financial statements include the accounts of 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. For related event subsequent to these financial statements see "Note 15 -- Subsequent Event (unaudited)." Management uses estimates and assumptions in preparing the financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities and the reported revenue and expenses. Actual results may vary from the estimates. Certain 1993 and 1994 balances have been reclassified to be consistent with the 1995 presentation. UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS The consolidated financial statements as of and for the nine months ended September 1995 and 1996 are unaudited; however, they include all adjustments (consisting of normal recurring adjustments) considered necessary by management for a fair presentation of the financial position and the results of operations for these periods. The results of operations for interim periods are not necessarily indicative of the results that may be expected for the entire year. REVENUE RECOGNITION Sales revenues are recognized upon shipment of goods. Customers generally have the right to return for replacement any goods which do not meet the customer's purchase order specifications. Sales revenues and cost of sales as reported in the consolidated statements of operations are adjusted to reflect estimated returns and warranty costs. MARKETABLE SECURITIES Marketable securities are classified as available-for-sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity, net of estimated income taxes. Gains and losses on the sale of marketable securities are recognized at the time of sale on a specific identification basis. INVENTORIES Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first-out method. F-7 50 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STATEMENTS OF CASH FLOWS For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Supplemental disclosure of cash flow information includes cash paid during the periods for (in thousands):
NINE MONTHS YEARS ENDED DECEMBER ENDED 31, SEPTEMBER 30, ---------------------- ------------- 1993 1994 1995 1995 1996 ---- ---- ---- ---- ---- Interest...................................... $ 34 $239 $510 $342 $575 Income Taxes.................................. 372 560 100 10 692
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Machinery and equipment assembled by the Company are valued at the cost of component parts purchased, plus the approximate labor and overhead costs to the Company. Significant renewals and betterments are capitalized. The cost of maintenance and repairs is charged to income as incurred. Repairs and maintenance costs amounted to $625,000, $697,000 and $1 million in 1993, 1994 and 1995, respectively, and $653,000 and $1.1 million for the nine months ended September 30, 1995 and 1996, respectively. Depreciation is provided by the straight-line method. The principal annual rates of depreciation are: Buildings and building improvements...........................4% Machinery and equipment...........................20% to 33 1/3% Depreciation expense of property, plant and equipment amounted to $806,000, $1.4 million and $1.9 million in 1993, 1994 and 1995, respectively, and $1.4 million and $1.8 million for the nine months ended September 30, 1995 and 1996, respectively. COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER INTANGIBLES The Company monitors its cost in excess of net assets acquired (goodwill) and its other intangibles to determine whether any impairment of these assets has occurred. In making such determination with respect to goodwill, the Company evaluates the performance, on an undiscounted basis, of the underlying businesses which gave rise to such amount. Amortization of goodwill is recorded on a straight-line basis over the estimated useful life of 15 years. With respect to other intangibles, which include the cost of license agreements and patents, the Company bases its determination of impairment on the performance, on an undiscounted basis, of the related products. LICENSE AGREEMENT AND OTHER ASSETS The total cost of the license agreement obtained in 1991 is being amortized and charged to expense based on a ten year life. Amortization expense amounted to $201,000 for 1993, 1994 and 1995 and $151,000 for both the nine months ended September 30, 1995 and 1996. Deferred financing costs are amortized and charged to expense over the lives of the related debt. Patents are being amortized over a seventeen year life. F-8 51 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SINGLE-MODE FIBER MANUFACTURING DEVELOPMENT COSTS Manufacturing development costs are expensed as incurred. In addition to Research and Development expenses for single-mode fiber, there were manufacturing development costs relating to single-mode fiber of approximately $2 million in 1994 and $1.8 million in 1995 that were included in cost of sales. INCOME TAXES The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. INCOME (LOSS) PER SHARE OF COMMON STOCK Income (loss) per share of common stock as computed is based on the weighted average number of shares outstanding during the periods, including common stock equivalents of stock purchase warrants and stock options. For 1994, the stock purchase warrants and stock options have not been included in the computation of loss per share since the effect would be antidilutive. Fully diluted income per share approximates primary income per share for all periods presented. FINANCIAL INSTRUMENTS Financial instruments of the Company consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and its bank loans. The carrying amounts of these financial instruments approximate their fair value. F-9 52 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 2 -- MARKETABLE SECURITIES A summary of marketable securities available for sale at December 31, 1994, 1995 and September 30, 1996 is as follows (in thousands):
QUOTED PURCHASE AMORTIZED UNREALIZED UNREALIZED MARKET PRICE COST GAINS LOSSES VALUE -------- --------- ---------- ---------- ------ 1994 Mutual Funds.................................. $ 500 $ 500 $ -- $ -- $ 500 U.S. Government and Agency Obligations........ 5,582 5,580 -- 242 5,338 ------ ------ --- ---- ------ Total................................. $6,082 $ 6,080 $ -- $242 $5,838 ====== ====== === ==== ====== 1995 Mutual Funds.................................. $1,190 $ 1,190 $ -- $ -- $1,190 U.S. Government and Agency Obligations........ 3,925 3,923 2 32 3,893 Corporate Equities............................ 130 130 8 -- 138 ------ ------ --- ---- ------ Total................................. $5,245 $ 5,243 $ 10 $ 32 $5,221 ====== ====== === ==== ====== 1996 Mutual Funds.................................. $ 380 $ 380 $ -- $ -- $ 380 U.S. Government and Agency Obligations........ 902 903 -- 17 886 Corporate Debt Securities..................... 981 966 -- 5 961 Corporate Equities............................ 130 130 37 -- 167 ------ ------ --- ---- ------ Total................................. $2,393 $ 2,379 $ 37 $ 22 $2,394 ====== ====== === ==== ======
The Company received 5,119 shares of stock, with a value of $130,000, as a result of the conversion of State Mutual Life Assurance Company of America, the Company's health insurer, from a mutual company to a stock company in November 1995. The amortized cost and estimated market value of debt securities are shown below (in thousands).
DECEMBER 31, --------------------------------------------------- 1994 1995 SEPTEMBER 30, 1996 ------------------------ ------------------------ ------------------------ AMORTIZED QUOTED AMORTIZED QUOTED AMORTIZED QUOTED COST MARKET VALUE COST MARKET VALUE COST MARKET VALUE --------- ------------ --------- ------------ --------- ------------ Expected Maturities: Within one year............ $ 2,166 $2,063 $ 2,917 $2,894 $ 660 $ 656 One to five years.......... 3,414 3,275 1,006 999 1,209 1,191
Proceeds from sales of marketable securities during 1995 were $1.5 million. Proceeds from the sales of marketable securities for the nine months ended September 30, 1995 and 1996 were $1.5 million and $1 million, respectively. Pretax losses of $17,000 for 1995 and the nine months ended September 30, 1995 and $19,000 for the nine months ended September 30, 1996 were recognized on these sales. F-10 53 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 3 -- INVENTORIES Inventories consisted of (in thousands):
DECEMBER 31, ------------------- SEPTEMBER 30, 1994 1995 1996 ------- ------- ------------- Raw Materials............................................ $ 1,752 $ 3,132 $ 4,142 Work in Process.......................................... 779 1,508 2,211 Finished Goods........................................... 1,569 2,775 2,614 ------ ------ ------ $ 4,100 $ 7,415 $ 8,967 ====== ====== ======
4 -- PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consisted of (in thousands):
DECEMBER 31, ------------------- SEPTEMBER 30, 1994 1995 1996 ------- ------- ------------- Land and Land Improvements................................. $ 395 $ 408 $ 497 Buildings and Improvements................................. 3,266 3,729 3,803 Machinery and Equipment.................................... 14,613 17,229 19,437 Construction in Progress................................... 1,625 1,641 5,478 ------- ------- ------- 19,899 23,007 29,215 Less: Accumulated Depreciation............................. 10,483 12,717 14,513 ------- ------- ------- Property, Plant and Equipment, net......................... $ 9,416 $10,290 $14,702 ======= ======= =======
5 -- LICENSE AGREEMENTS In February, 1983, the Company obtained from Corning, Incorporated ("Corning") a limited, non-assignable, non-exclusive royalty-bearing license to make, use and sell optical fiber under certain of Corning's United States patents owned or filed for on or before January 1, 1988. The Company granted to Corning a non-exclusive royalty-free license for any United States patents filed for on or before January 1, 1988 related to the subject matter of the Corning or Company patents licensed under the agreement. In January, 1991, the Company entered into a new fiber manufacturing license agreement with Corning which expanded and extended the original 1983 agreement. The new agreement gives SpecTran the ability to increase substantially its fiber production using Corning's United States patents, providing for an immediate considerable increase in licensed fiber eligible for manufacture by SpecTran in 1991, with further annual increases through the year 2000. The Company paid a $2 million fee for the new license agreement in four semiannual installments of $500,000, beginning in January, 1991. The license obtained from Corning is limited, non-assignable, non-exclusive and royalty-bearing, to make, use and sell optical fiber under certain of Corning's United States patents owned or filed for on or before January 1, 1996. The Company granted to Corning a non-exclusive royalty-free license for any United States patents filed for on or before January 1, 1996 related to optical fiber. The Company believes that its manufacturing and sale of single-mode fiber is not subject to the Corning license agreement. At September 30, 1996, the Company or its subsidiaries had a non-assignable, non-exclusive, unlimited, royalty-bearing license from Lucent Technologies Inc. ("Lucent"), formerly AT&T Technologies, Inc. and a non-exclusive, royalty-bearing license granted by Sumitomo Electric Industries, Ltd. to make, use and sell optical fibers under certain patents owned by those companies. No payments are required under these licenses other than royalty payments. F-11 54 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) During 1995, approximately 43% and 61% of the Company's net sales, respectively, were subject to the Corning and Lucent licenses. During the nine months ended September 30, 1996, approximately 40% and 62% of the Company's net sales, respectively, were subject to the Corning and Lucent licenses. The Corning license contains certain annual quarterly limitations which increase annually through the year 2000. Total royalties expensed during the years ended December 31, 1993, 1994 and 1995 were $1.6 million, $1.5 million and $1.6 million, respectively, and for the nine months ended September 30, 1995 and 1996 were $1.2 million and $1.7 million, respectively. 6 -- GOODWILL Goodwill consisted of (in thousands):
DECEMBER 31, ----------------- SEPTEMBER 30, 1994 1995 1996 ------ ------ ------------- Goodwill............................................. $1,182 $4,435 $ 4,435 Less Accumulated Amortization........................ (75) (279) (500) ------ ------ ------ $1,107 $4,156 $ 3,935 ====== ====== ======
7 -- ACCRUED LIABILITIES Accrued liabilities consisted of (in thousands):
DECEMBER 31, ----------------- SEPTEMBER 30, 1994 1995 1996 ------ ------ ------------- Salaries and Wages................................... $ 227 $ 436 $ 875 Royalties............................................ 809 889 618 Health Insurance..................................... 258 411 477 Incentive Compensation............................... 318 503 1,010 Other................................................ 589 725 661 ------ ------ ------ $2,201 $2,964 $ 3,641 ====== ====== ======
8 -- LONG-TERM DEBT Long-term debt consisted of (in thousands):
DECEMBER 31, ------------------ SEPTEMBER 30, 1994 1995 1996 ------ ------- ------------- Revolving credit loan facility at the lower of prime or LIBOR plus 1.5%, repaid in April 1996.......... $5,240 $10,000 $ -- Revolving credit loan facility at the lower of prime or LIBOR plus 1.5% at an average rate of 7.16%.... -- -- 10,000 Term loan facility at the lower of prime or LIBOR rate plus 1.5% at an average rate of 6.99%........ -- -- 2,000 ------ ------- ------- Total..................................... $5,240 $10,000 $12,000 ====== ======= =======
On April 25, 1996 and subsequently amended on September 4, 1996, SpecTran Corporation and its subsidiaries entered into a new 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 $14,500,000 revolving note which is payable F-12 55 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) April 1, 1999, a $4,000,000 term note which is payable in quarterly installments commencing January 1, 1997 and maturing on April 1, 2001 and a $3,500,000 mortgage note which is payable in quarterly installments commencing July 1, 1997 and maturing 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 September 30, 1996, the Company had outstanding $10 million under the revolving credit agreement and $2 million under the term loan agreements with Fleet. The revolving credit agreement, as well as the other loan agreements, provides for among other things, maintaining specified tangible net worth and earnings levels and additionally imposes limitations on indebtedness. As of September 30, 1996, the Company was in compliance with all its covenants. For related subsequent events "See Note 15 -- Subsequent Events." 9 -- STOCKHOLDERS' EQUITY (a) Warrants As part of an agreement entered into in September, 1990 with Allen & Company, Incorporated (Allen), warrants to purchase 350,000, 30,000 and 20,000 shares of SpecTran voting Common Stock at an exercise price of $2.00 through August 14, 1999, were issued to Allen, Richard A.M.C. Johnson, a former director of the Company, and Patrick E. Brake, a former director of the Company, respectively. If the entire Allen warrant were exercised, as of September 30, 1996, Allen would own approximately 6.1% of the Company's outstanding stock. In June, 1992 the Johnson warrant was exercised and in January, 1993 the Brake warrant was exercised. (b) Stock Options Pursuant to the Company's Incentive Stock Option Plan adopted in November, 1981, as amended, incentive and nonqualified options may be granted to purchase up to an aggregate of 455,000 shares of the Company's voting Common Stock, $.10 par value, at prices not less than 100% of the fair market value of the shares at the time the options are granted. Currently, all options are exercisable in full three years from the date of grant in cumulative annual installments of 33 1/3% commencing one year after the date of grant, and expire ten years after grant. Under its provisions, no options were to be issued under the Incentive Stock Option Plan adopted in November, 1981 (Old Plan) after the plan reached its tenth anniversary. During the year ended December 31, 1991, a new Incentive Stock Option Plan (New Plan) was adopted. The terms of the New Plan are identical to those of the Old Plan except that (1) the number of shares eligible for issuance shall be 625,490, (2) provision is made for the non-discretionary grant of nonqualified options to directors who are not full-time employees of the Company or any subsidiary ("outside directors") and (3) provision is made for all outstanding options to vest upon the occurrence of a change in control (as defined in the New Plan). At the Company's Annual Meeting in 1996, the holders of Common Stock approved an amendment to the New Plan increasing the number of shares of Common Stock reserved for issuance by 250,000. F-13 56 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Activity in the plans for the years ended December 31, 1993, 1994 and 1995 and September 30, 1996 is summarized below:
SHARES SHARES UNDER OPTION AVAILABLE --------------------- AMOUNT FOR OPTION SHARES PRICE (IN THOUSANDS) ---------- ------- --------------------- -------------- Balance at December 31, 1992............ 239,758 235,608 $ 1.188 - $22.250 $1,934 Options Granted....................... (117,900) 117,900 $ 8.000 - $11.750 1,038 Options Exercised..................... -- (4,502) $ 3.370 (16) Options Forfeited..................... 1,767 (1,767) $ 3.375 - $22.250 (21) --------- ------- ------ ------- ------ Balance at December 31, 1993............ 123,625 347,239 $ 1.188 - $22.250 2,935 Increase in Shares Reserved........... 255,000 -- -- -- -- Options Granted....................... (125,600) 125,600 $ 4.750 - $ 8.870 831 Options Exercised..................... -- (42,334) $ 1.375 - $ 3.370 (101) Options Forfeited..................... 19,234 (19,234) $ 3.375 - $22.250 (228) --------- ------- ------ ------- ------ Balance at December 31, 1994............ 272,259 411,271 $ 1.188 - $22.250 3,437 Options Granted....................... (139,750) 139,750 $ 5.375 - $ 5.500 733 Options Exercised..................... -- (1,833) $ 3.375 - $ 4.750 (6) Options Forfeited..................... 5,700 (5,700) $ 6.000 - $22.250 (57) --------- ------- ------ ------- ------ Balance at December 31, 1995............ 138,209 543,488 $ 3.375 - $22.250 4,107 Increase in Shares Reserved........... 250,000 -- -- -- -- Options Granted....................... (155,500) 155,500 $ 5.500 - $22.250 2,381 Options Exercised..................... -- (43,277) $ 1.375 - $15.750 (306) Options Forfeited..................... 11,900 (11,900) $ 3.375 - $11.750 (100) --------- ------- ------ ------- ------ Balance at September 30, 1996........... 244,609 643,811 $ 3.375 - $22.250 $6,082 ========= ======= ====== ======= ======
As of December 31, 1995, options for 280,789 shares were vested and exercisable at an aggregate exercise amount of $2.4 million ($8.68 per share). As of September 30, 1996, options for 339,225 shares were vested and exercisable at an aggregate exercise amount of $2.8 million ($8.28 per share). F-14 57 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10 -- INCOME TAXES Income tax expense attributable to income (loss) from operations differs from the computed expected tax expense (benefit) determined by applying the federal income tax rate of 34 percent as follows (in thousands):
NINE MONTHS YEARS ENDED DECEMBER 31, ENDED -------------------------- SEPTEMBER 30, 1993 1994 1995 1996 ------ ----- ----- ------------- Computed expected tax expense (benefit) at 34%...... $1,914 $(165) $ 264 $ 1,300 State income taxes, net of federal effect and change in valuation allowance.................. 366 (31) 81 230 Research and experimentation credits.............. -- (244) 244 -- Goodwill amortization............................. -- -- 50 -- Increase (decrease) in valuation allowance for deferred income taxes.......................... (350) 417 (437) (274) Other............................................. 44 23 33 44 ------ ----- ----- ------ $1,974 $ -- $ 235 $ 1,300 ====== ===== ===== ======
Total income tax expense (benefit) was allocated as follows (in thousands):
NINE MONTHS YEARS ENDED DECEMBER 31, ENDED -------------------------- SEPTEMBER 30, 1993 1994 1995 1996 ------ ----- ----- ------------- Income tax expense (benefit) attributable to: Income from operations............................ $1,868 $ -- $ 235 $ 1,300 Stockholders' equity, for compensation expense for tax purposes from the disqualifying disposition of stock options............................... 106 (120) -- -- ------ ----- ----- ------ $1,974 $(120) $ 235 $ 1,300 ====== ===== ===== ======
F-15 58 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Income tax expense (benefit) attributable to income from operations consisted of (in thousands):
CURRENT DEFERRED TOTAL ------- -------- ------ Year ended December 31, 1993: Federal................................................ $ 226 $1,193 $1,419 State.................................................. 549 6 555 ---- ------ ------ $ 775 $1,199 $1,974 ==== ====== ====== Year ended December 31, 1994: Federal................................................ $ -- $ 27 $ 27 State.................................................. -- (27) (27) ---- ------ ------ $ -- $ -- $ -- ==== ====== ====== Year ended December 31, 1995: Federal................................................ $ 277 $ (120) $ 157 State.................................................. 158 (80) 78 ---- ------ ------ $ 435 $ (200) $ 235 ==== ====== ====== Nine Months ended September 30, 1996: Federal................................................ $ 582 $ 441 $1,023 State.................................................. 137 140 277 ---- ------ ------ $ 719 $ 581 $1,300 ==== ====== ======
The significant components of deferred income tax expense (benefit) attributable to income from operations are as follows (in thousands):
NINE MONTHS YEARS ENDED DECEMBER 31, ENDED -------------------------- SEPTEMBER 30, 1993 1994 1995 1996 ------ ----- ----- ------------- Deferred tax expense (benefit) (exclusive of the effects of other components listed below)......... $1,549 $(417) $ 237 $ 855 Increase (decrease) in valuation allowance for deferred income taxes............................. (350) 417 (437) (274) ------ ----- ----- ----- Deferred income tax expense (benefit) attributable to income from operations......................... $1,199 $ -- $(200) $ 581 ====== ===== ===== =====
F-16 59 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):
DECEMBER 31, ------------------- SEPTEMBER 30, 1994 1995 1996 ------- ------- ------------- Deferred tax assets: Accounts receivable.............................. $ 54 $ 115 $ 119 Inventories...................................... 91 433 402 Accrued liability -- compensation related expense....................................... 99 122 116 Accrued liability -- pension benefits............ 8 121 158 Other nondeductible reserves and accruals........ 188 (49) (49) Fixed assets..................................... 79 (27) -- Net operating loss carryforward benefit.......... 1,283 998 26 Credit carryforwards benefit..................... 1,748 1,657 1,643 ------ ------ ------ Total gross deferred tax assets............... 3,550 3,370 2,415 Less valuation allowance...................... (1,467) (1,030) (756) ------ ------ ------ Net deferred tax assets....................... 2,083 2,340 1,659 Deferred tax liabilities........................... (78) (100) -- ------ ------ ------ Net deferred tax assets............................ 2,005 2,240 1,659 Less current portion............................... 303 588 685 ------ ------ ------ Long-term deferred tax asset....................... $ 1,702 $ 1,652 $ 974 ------ ------ ------
The valuation allowance for deferred tax assets as of December 31, 1995 and September 30, 1996 were $1 million and $756,000, respectively. Based on the Company's level of net income and projected future earnings, the Company believes that it is more likely than not that a portion of the deferred tax asset will be realized in the future. In 1995, the portion of the deferred tax asset which is expected to be realized increased from 1994; therefore, the Company reduced its valuation allowance by $437,000. The remaining valuation allowance relates primarily to the risk that a portion of the tax credit carryforwards will not be used before they expire. At December 31, 1995, the Company had the following net operating loss carryforwards available to offset future taxable income and income tax credits available to offset future income taxes (in thousands):
AMOUNT EXPIRES ------ --------- Net Operating Loss Carryforward................................ $2,521 2001-2009 Federal Research and Experimentation Tax Credits............... 290 1996-2001 Federal Investment Tax Credits................................. 879 1996-2001 Alternative Minimum Tax Credit................................. 487 Indefinite
11 -- MAJOR CUSTOMERS The approximate net product sales by the Company to customers accounting for 10% or more of total net annual sales are as follows (in thousands):
YEARS ENDED DECEMBER 31, NINE MONTHS -------------------------------------------------------- ENDED SEPTEMBER 30, 1993 1994 1995 1996 -------------- -------------- -------------- -------------- CUSTOMER AMOUNT % AMOUNT % AMOUNT % AMOUNT % ------------------ ------ --- ------ --- ------ --- ------ --- A.............. $3,492 14 $4,034 15 $5,040 13 $6,306 14 B.............. 5,178 20 5,077 19 4,153 11 C.............. 7,591 30 2,592 10
F-17 60 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Substantially all of the Company's business is to customers in the telecommunications and data communications industries. International sales, primarily in Asia and Europe, accounted for 22% of total sales in 1995 and 25% of total sales for the nine months ended September 30, 1996. 12 -- COMMITMENTS SpecTran Specialty Optics Company leases office and production facilities under leases through February 18, 1997 two of which have been extended through April 18, 1997. Applied Photonic Devices, Inc. leases office and production facilities under a lease through January 14, 1998 with a right to renew for two consecutive one-year renewal terms. Applied Photonic Devices, Inc. also leases additional office and production facilities under a lease through February 6, 2001 with a right to renew for one three-year renewal term, followed by a second right to renew for an additional two years. The scheduled rental payments required under these operating leases are as follows (in thousands):
DECEMBER 31, SEPTEMBER 30, 1995 1996 ------------ ------------- 1996....................................................... $314 $ 406 1997....................................................... 74 174 1998....................................................... 2 102 ---- ---- Total............................................ $390 $ 682 ==== ====
Total rent expense for the years ended December 31, 1994 and 1995 and the nine months ended September 30, 1995 and 1996 was $242,000, $364,000, $269,000 and $287,000, respectively. There was no rent expense in 1993. 13 -- EMPLOYEE BENEFIT PLANS (a) Defined Benefit Pension Plan The Company sponsors a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and an average of the employee's highest ten consecutive years of earnings. The Company's funding policy is, to the extent possible, to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The Company's unrecognized net loss in 1995 was due to a change in the discount rate to 7.0% from 8.5% in the prior year as a result of declining interest rates. This was partially offset by investment gains in excess of actuarially assumed returns. This is the primary reason for the increase in the projected benefit obligation for 1995. The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1994 and 1995. F-18 61 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Actuarial present value of benefit obligations (in thousands):
1994 1995 ----- ------ Vested benefit obligation............................. $ 349 $ 613 ----- ------ Accumulated benefit obligation........................ $ 395 $ 751 ----- ------ Projected benefit obligation.......................... $ 772 $1,437 Plan assets at fair value -- primarily mutual funds...... 604 912 ----- ------ Projected benefit obligation in excess of plan assets.... 168 525 Unrecognized net gain (loss)............................. 162 (163) Unrecognized net obligation at January 1, 1991 being recognized over 17.4 years............................ (264) (244) ----- ------ Accrued pension cost..................................... $ 66 $ 118 ===== ======
Net pension cost for 1994 and 1995 included the following components (in thousands):
1994 1995 ----- ------ Service cost -- benefits earned during period.............. $ 134 $ 151 Interest cost on projected benefit obligation.............. 59 66 Actual return on assets.................................... (36) (186) Net amortization and deferral.............................. 15 146 ----- ----- Net pension cost........................................... $ 172 $ 177 ===== =====
Assumptions used in the accounting as of December 31 were as follows:
1994 1995 ----- ------ Discount rate.............................................. 8.5% 7.0% Rates of increase in compensation levels................... 5.0% 5.0% Expected long-term rate of return on assets................ 8.5% 8.5%
(b) Directors Retirement Plan In December, 1995 the Company adopted a Directors Retirement Plan which provides for retirement benefits for all outside directors with five full calendar years of service as of the later of age 70 or the date of actual retirement as a director. The Company expensed $100,000 in 1995 to provide for past service costs. (c) Defined Contribution Pension Plan The Company sponsors a defined contribution pension plan covering substantially all of its employees. Contributions to the plan are discretionary and amounted to $97,000, $114,000 and $83,000 in 1993, 1994 and 1995, respectively. (d) Supplementary Retirement Agreements The Company entered into supplemental retirement agreements with five executive officers in 1996. These agreements provide benefits based on years of service and average eligible pay for executives. The Company's liability for prior service costs related to these agreements was approximately $715,000. This amount has been recorded as another long-term asset and as accrued defined benefit pension liability. F-19 62 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (e) Bonus Plans The Company sponsors an Employee Profit Sharing Plan covering all employees. The Company also sponsored a transitional plan covering key employees in 1995 and adopted a Key Employee Incentive Plan in 1996 which replaced an Income Growth Incentive Plan in 1994 and 1993. These plans provide for the payment of bonuses if certain performance objectives are obtained. Bonuses of $456,000, $331,000 and $380,000, respectively, were charged to operations in 1993, 1994 and 1995 and $259,000 and $1 million, respectively, for the nine months ended September 30, 1995 and 1996. 14 -- ACQUISITIONS (a) Applied Photonic Devices, Inc. On May 23, 1995 the Company purchased all the outstanding capital stock of Applied Photonic Devices, Inc. ("APD") for cash and common stock worth approximately $3.9 million. The Company also retired approximately $600,000 of APD bank debt. APD, located in Danielson, Connecticut, manufactures and sells fiber optic cable and related components. The purchase method of accounting was used and the results of operations of APD are included in the consolidated financial statements from May 23, 1995. Goodwill of $3,255,000 resulted from the purchase and is being amortized over 15 years. Amortization expense amounted to $127,000 and $163,000 in fiscal 1995 and the nine months ended September 30, 1996. (b) Ensign-Bickford Acquisitions On February 18, 1994 the Company purchased substantially all assets of Ensign-Bickford Optics Company ("EBOC") and Ensign-Bickford Optical Technologies, Inc. ("EBOT"), wholly owned subsidiaries of Ensign-Bickford Industries, Inc., for approximately $7 million. EBOC, renamed SpecTran Specialty Optics Company, manufactures and sells optical fibers, cables and related components. The operations of EBOT, which were conducted in Van Nuys, California, were moved to Sturbridge, Massachusetts. The purchase method of accounting was used and the results of operations of SpecTran Specialty Optics Company are included in the consolidated financial statements from February 18, 1994. 15 -- SUBSEQUENT EVENTS (UNAUDITED) In December 1996, the Company announced the formation of General Photonics, a 50-50 joint venture between the Company and General Cable, a subsidiary of Wassall plc. General Cable purchased certain assets of the Company's optical fiber cable subsidiary, APD, for approximately $6.3 million and then contributed them to General Photonics for a 50% equity interest. APD contributed its remaining assets to General Photonics in exchange for its 50% equity interest. See -- "Pro Forma Financial Information." Also in December 1996, the Company sold $24 million of senior secured notes (the "Notes") and concurrently replaced its existing borrowing arrangements with its principal bank with a $20 million revolving credit agreement. The Company used approximately $14 million of the money raised from the sale of the Notes to retire its existing indebtedness to its principal bank, thus making available for borrowing the entire $20.0 million of the revolving credit agreement. F-20 63 SPECTRAN CORPORATION PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION In December 1996, the Company formed General Photonics, a 50-50 joint venture between the Company and General Cable, a subsidiary of Wassall plc. General Cable purchased certain assets of the Company's optical fiber cable subsidiary, Applied Photonics Devices, for approximately $6.3 million and then contributed them to General Photonics for a 50% equity interest. Applied Photonics Devices contributed its remaining assets to General Photonics in exchange for its 50% equity interest. The Company will account for its interest in the joint venture under the equity method. The following pro forma condensed consolidated balance sheet at September 30, 1996 and pro forma condensed consolidated statements of operations for the year ended December 31, 1995 and nine months ended September 30, 1996 present the condensed consolidated balance sheet and results of operations of the Company as if the joint venture with General Photonics existed as of January 1, 1995 and as if the December 1996 sale of $24.0 million of senior notes to investors and the restructuring of bank loan agreements occurred as of September 30, 1996. See "Recent Developments -- Senior Debt Financing and Refinancing of Existing Bank Loans." PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996 (UNAUDITED)
SEPTEMBER 30, 1996 ------------------------------------------------ PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (DOLLARS IN THOUSANDS) ASSETS Current Assets: Cash and Cash Equivalents........................ $ 2,174 $18,483(1)(2)(3) $20,657 Current Portion of Marketable Securities......... 972 -- 972 Trade Accounts Receivable, net................... 10,201 (2,252)(1) 7,949 Inventories...................................... 8,967 (3,511)(1) 5,456 Prepaid Expenses and Other Current Assets........ 1,252 (12)(1) 1,240 ------- ------- ------- Total Current Assets.......................... 23,566 12,708 36,274 Investment in Joint Venture........................ -- 2,448(1)(4) 2,448 Property, Plant and Equipment, net................. 14,702 (893)(1) 13,809 Other Assets: Long-term Marketable Securities.................. 1,422 -- 1,422 Other Long-Term Assets........................... 6,871 (2,978)(1) 3,893 ------- ------- ------- Total Other Assets............................ 8,293 (2,978) 5,315 ------- ------- ------- Total Assets............................. $46,561 $11,285 $57,846 ======= ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Total Current Liabilities........................ $ 7,398 $ (913)(1) $ 6,485 Long-term Debt..................................... 12,000 12,000(2)(3) 24,000 Stockholders' Equity: Common Stock, voting............................... 539 -- 539 Common Stock, non-voting........................... -- -- -- Paid-In Capital.................................... 26,745 -- 26,745 Net Unrealized Gain (Loss) on Marketable Securities....................................... 15 -- 15 Retained Earnings (Deficit)........................ (136) 198(4)(10) (62) ------- ------- ------- Total Stockholders' Equity.................... 27,163 198 27,361 ------- ------- ------- Total Liabilities and Stockholders' Equity................................. $46,561 $11,285 $57,846 ======= ======= =======
See accompanying notes to pro forma financial statements. F-21 64 SPECTRAN CORPORATION PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE YEARS ENDED DECEMBER 31, 1995 ---------------------------------------------- PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- (DOLLARS IN THOUSANDS) Net Sales........................................ $38,581 $(3,499)(5)(10) $35,082 Cost of Sales.................................... 25,520 (2,010)(5)(10) 23,510 ------- ------- ------- Gross Profit..................................... 13,061 (1,489) 11,572 Operating Expenses............................... 12,496 (1,033)(6) 11,463 ------- ------- ------- Income from Operations........................... 565 456 109 Other Income..................................... 212 330(7) 542 Equity in Earnings of Joint Venture.............. -- 179(8) 179 ------- ------- ------- Income before Income Taxes....................... 777 53 830 Income Tax Expense............................... 235 (104)(9) 131 ------- ------- ------- Net Income.................................. $ 542 $ 157 $ 699 ======= ======= ======= Net Income (Loss) per Share of Common Stock..................................... $0.10 $0.13 ======= ======= Weighted Average shares outstanding.............. 5,583 5,583 ======= =======
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 ---------------------------------------------- PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- Net Sales........................................ $44,915 $(7,043)(5)(10) $37,872 Cost of Sales.................................... 28,621 (4,727)(5)(10) 23,894 ------- ------- ------- Gross Profit..................................... 16,294 (2,316) 13,978 Operating Expenses............................... 12,230 (1,659)(6) 10,571 ------- ------- ------- Income from Operations........................... 4,064 (657) 3,407 Other Income (Expense)........................... (240) 270(7) 30 Equity in Earnings of Joint Venture.............. -- 220(8) 220 ------- ------- ------- Income before Income Taxes....................... 3,824 (167) 3,657 Income Tax Expense............................... 1,300 (208)(9) 1,092 ------- ------- ------- Net Income.................................. $ 2,524 $ 41 $ 2,565 ======= ======= ======= Net Income (Loss) per Share of Common Stock..................................... $0.43 $0.43 ======= ======= Weighted Average shares outstanding.............. 5,930 5,930 ======= =======
See accompanying notes to pro forma financial statements. F-22 65 NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENTS OF OPERATIONS (1) To record the receipt of $6.3 million cash in exchange for certain assets of Applied Photonic Devices purchased by General Cable and to record the contribution of the remaining Applied Photonic Devices assets and liabilities to General Photonics in return for half the equity in the joint venture. (2) To record the elimination of $2.2 million of outstanding debt incurred with the original purchase of Applied Photonic Devices. (3) To record the receipt of $24 million cash from the issuance of senior secured notes on December 30, 1996 and the repayment of outstanding borrowings from the proceeds of the notes. (4) To record the investment in the new joint venture, General Photonics, and related earnings for the period from January 1, 1995. (5) To eliminate sales and cost of sales of Applied Photonic Devices, net of intercompany sales and gross profit between subsidiaries. (6) To eliminate operating expenses of Applied Photonic Devices. (7) To increase interest income on the $4.1 million cash increase and decrease interest expense for the $2.2 million repayment of debt. (8) To record SpecTran's 50% share of the after-tax earnings of the unconsolidated joint venture, General Photonics. (9) To record the tax effect of the above adjustments. (10) To eliminate the intercompany profit in ending inventory of General Photonics. F-23 66 (Inside Back Cover Captions) Corporate logo on the top of the page with the text immediately below "Innovation in optical fiber" 1. Picture of technician treating a glass preform with chemicals. Text to the right of the picture "SpecTran uses proprietary technology to manufacture preforms, the first step in optical fiber production. SpecTran's design innovations enable the company to produce the broadest range of fibers for specialty applications, in addition to standard fibers for communication applications." 2. Picture of a technician on a platform monitoring a draw tower. Text above the picture "SpecTran engineers and technicians closely monitor every stage of the production process. Continuous improvements are implemented to ensure SpecTran's products remain competitive in the dynamic fiber optic market." 3. Picture of a technician viewing a screen while testing the fiber. Text below the picture "Large volumes of optical fiber are evaluated by the quality control department each day. Automated equipment, like this high speed tester, ensure testing is both efficient and accurate." 4. Picture of technician with a microscope viewing the fiber core. Text to the right of the picture "The optical fiber industry demands close attention to quality. In addition to being ISO 9001 registered, SpecTran's manufacturing processes produce optical fibers that meet the stringent specifications demanded by cable manufacturers throughout the world." 67 ================================================================================ TABLE OF CONTENTS
PAGE ---- Prospectus Summary............. 3 Risk Factors................... 6 Recent Developments............ 10 Use of Proceeds................ 12 Price Range of Common Stock and Dividend Policy............. 12 Capitalization................. 13 Selected Consolidated Financial Data........................ 14 Management's Discussion and Analysis of Financial Condition and Results of Operations.................. 15 Business....................... 21 Management..................... 30 Principal and Selling Stockholders................ 33 Description of Securities...... 35 Shares Available for Future Sale........................ 37 Underwriting................... 38 Legal Matters.................. 39 Experts........................ 39 Additional Information......... 39 Incorporation of Certain Information by Reference.... 40 Index to Consolidated Financial Statements.................. F-1
------------------------ NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDER OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF ANY OFFER TO BUY, THE COMMON STOCK IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. ================================================================================ 1,800,000 SHARES [SPECTRAN LOGO] COMMON STOCK --------------------------- PROSPECTUS --------------------------- , 1997 TUCKER ANTHONY INCORPORATED RAYMOND JAMES & ASSOCIATES, INC. ================================================================================ 68 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The expenses in connection with the issuance and distribution of the securities being registered, other than underwriting discounts and commissions, are estimated as follows: SEC Registration Fee......................................... $ 15,000 Legal Fees and Expenses...................................... 207,000 Accounting Fees.............................................. 100,000 NASD Filing Fee.............................................. 5,000 Nasdaq National Market Listing Fee........................... 17,000 Blue Sky Fees and Expenses (including Legal Fees)............ $ 20,000 Printing..................................................... 60,000 Transfer Agent's and Registrar's Fees and Expenses........... 3,000 Miscellaneous................................................ 50,000 -------- Total................................................... 460,000 ========
Allen & Company Incorporated, the Selling Stockholder, has agreed to reimburse the Company for approximately 19% up to a maximum of $60,000 of such total expenses. The other expenses incurred by the Company in connection with the offering reflected above will be paid by the Company. ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS Section 145 of the Delaware General Corporation Law sets forth provisions with respect to indemnification of a corporation's directors, officers, employees and agents. The Certificate of Incorporation of the Company provides for indemnification of directors from breaches of fiduciary duty under certain limited circumstances. The Registrant maintains officers' and directors' liability insurance. The Underwriting Agreement, filed as Exhibit 1.1 to this Registration Statement, provides for indemnification and contribution by the Underwriters with respect to certain liabilities of directors and officers of the Registrant. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or arrangements, such provisions or arrangements may be limited by the Registrant's undertaking set forth in the fourth paragraph of Item 17 of this Registration Statement. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 1.1 Proposed Form of Underwriting Agreement. 3.1 Certificate of Incorporation of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 3.2 By-Laws of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 4.5 Form of Stock Certificate for Voting Common Stock. (Incorporated by reference to Registrant's Registration Statement on Form S-1 (Reg. No. 2-83172) effective June 2, 1983.) 5.1 Opinion of Hackmyer & Nordlicht. (To be filed by amendment) 10.1 Registrant's 1991 Incentive Stock Option Plan. (Incorporated by reference to the Registrant's Proxy Statement dated April 9, 1991.)
II-1 69 10.7 License Agreement dated August 15, 1981 between the Registrant and Western Electric Company, Incorporated. (Incorporated by reference to Registrant's Registration Statement on Form S-1 (Reg. No. 2-83172) effective June 2, 1983.) (Registrant has been granted confidential treatment of portions of this Exhibit.) 10.46 Common Stock Purchase Warrant issued to Allen & Company Incorporated. (Incorporated by reference to the Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1990.) 10.49 License Agreement dated as of the first day of January 1991 by and between the Registrant and Corning Incorporated. (Registrant has been granted confidential treatment of portions of this Exhibit.) (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 10.53 Asset Purchase Agreement between Ensign-Bickford Optics Company and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 8-K dated March 3, 1994.) 10.54 Stock Purchase Agreement between Ensign-Bickford Optical Technologies, Inc. and EBOT Acquisition Corp. dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 8-K dated March 3, 1994.) 10.55 Lease between 150 Fisher Associates Limited Partnership and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.56 Lease between Avon Park Properties and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.57 Lease between Avon Park Properties and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.61 Stock Purchase Agreement among APD Acquisition Corp. and Irving N. Dwyer, David P. DaVia, The Irving N. Dwyer and Annette M. Dwyer Charitable Remainder Trust and The DaVia Charitable Remainder Trust. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 31, 1995) 10.62 Directors Retirement Plan dated December 27, 1995 (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996) 10.63 Registrant's Employee Profit Sharing Plan as revised and adopted effective January 1, 1995 (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996) 10.64 Lease between Mark C. Yellin and Applied Photonic Devices, Inc. dated January 15, 1996. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996) 10.65 Lease between Fabrilock, Inc. and Applied Photonic Devices, Inc. dated February 6, 1996. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996) 10.69 Supplemental Retirement Agreement between Spectran Corporation and Raymond E. Jaeger dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996) 10.70 Supplemental Retirement Agreement between SpecTran Corporation and Bruce A. Cannon dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996) 10.71 Supplemental Retirement Agreement between SpecTran Corporation and Crawford L. Cutts dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996) 10.72 Supplemental Retirement Agreement between SpecTran Corporation and William B. Beck dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996) 10.73 Supplemental Retirement Agreement between SpecTran Corporation and John E. Chapman dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996)
II-2 70 10.74 Lease between CRJ Realty Trust and SpecTran Communication Fiber Technologies, Inc. dated July 22, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996) 10.75 Contractual Agreement Between Lucent Technologies Inc. and SpecTran Corporation dated October 3, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit) (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.76 Three Year Multimode Optical Fiber Supply Contract between Corning Incorporated and SpecTran Corporation dated as of January 1, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit) (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.79 Key Employee Incentive Plan effective as of January 1, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.80 Employment Agreement between SpecTran Corporation and Raymond E. Jaeger dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.81 Employment Agreement between SpecTran Corporation and Bruce A. Cannon dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.82 Employment Agreement between SpecTran Corporation and John E. Chapman dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.83 Employment Agreement between SpecTran Corporation and Crawford L. Cutts dated as of January 1, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.84 Employment Agreement between SpecTran Corporation and William B. Beck dated as of February 18, 1994. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.85 Employment Agreement between SpecTran Corporation and Glenn E. Moore dated as of December 1995. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.86 Note Purchase Agreement between SpecTran Corporation and Massachusetts Mutual Life Insurance Company dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.87 Note Purchase Agreement between SpecTran Corporation and CM Life Insurance Company dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.88 Note Purchase Agreement between SpecTran Corporation and The Mutual Life Insurance Company of New York dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.89 Note Purchase Agreement between SpecTran Corporation and Atwell & Co. dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.90 Security Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.91 Trademark Security Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc, SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996)
II-3 71 10.92 Patent Collateral Assignment among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc, SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.93 Pledge Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc, SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.94 Mortgage, Assignment of Rents and Security Agreement by SpecTran Communication Fiber Technologies, Inc. to Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.95 Open-End Mortgage, Assignment of Rents and Security Agreement by SpecTran Specialty Optics Company to Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.96 Guaranty Agreement dated as of December 1, 1996 by SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company and Applied Photonic Devices, Inc. in favor of Massachusetts Mutual Life Insurance Company, CM Life Insurance Company, The New York Mutual Life Insurance Company and Atwell & Co. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.97 Loan Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.98 Limited Liability Company Agreement of General Photonics, LLC between Applied Photonic Devices, Inc. and General Cable Industries, Inc. dated as of December 23, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit) (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997) 10.99 Asset Purchase Agreement among Applied Photonic Devices, Inc., SpecTran Corporation, General Cable Corporation and General Cable Industries, Inc. dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997) 10.100 Investor's Representations, Contribution Agreement and Subscription Agreement among Applied Photonic Devices, Inc., SpecTran Corporation and General Photonics, LLC dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997) 10.101 Non-Competition Agreement among General Cable Industries, Inc., General Cable Corporation, Applied Photonic Devices, Inc., SpecTran Corporation and General Photonics, LLC dated December 23, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit) (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997) 10.102 Standstill Agreement among General Cable Industries, Inc., General Cable Corporation and SpecTran Corporation dated as of December 23, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit) (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997) 10.103 Letter amendment to Three Year Multimode Optical Fiber Supply Contract between Corning Incorporated and SpecTran Corporation dated as of January 1, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit.) (Incorporated by reference from Registrant's Current Report on Form 8-K dated January 8, 1997) 10.104 Letter amendment to Employment Agreement between SpecTran Specialty Optics Company and William B. Beck dated April 18, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997) 10.105 Cross-Indemnity Agreement between SpecTran Corporation and Allen & Company Incorporated (to be filed by amendment). 23.1 Report and Consent of KPMG Peat Marwick.
II-4 72 23.2 Consent of Hackmyer & Nordlicht. (To be filed by amendment) 24.0 Power of Attorney. (See page II-6)
ITEM 17. UNDERTAKINGS 1. The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be the initial bona fide offering thereof. 2. The undersigned registrant hereby undertakes to deliver or cause to be delivered with the prospectus, to each person to whom the prospectus is sent or given, the latest annual report to security holders that is incorporated by reference in the prospectus and furnished pursuant to and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of 1934; and, where interim financial information required to be presented by Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or cause to be delivered to each person to whom the prospectus is sent or given, the latest quarterly report that is specifically incorporated by reference in the prospectus to provide such interim financial information. 3. The undersigned registrant hereby undertakes to provide to the Underwriters at the closing specified in the underwriting agreement certificates in such denomination and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. 4. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. II-5 73 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-3 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Sturbridge, State of Massachusetts, on January 9, 1997. SPECTRAN CORPORATION /S/ RAYMOND E. JAEGER, PH.D. By:................................. RAYMOND E. JAEGER, PH.D. CHAIRMAN OF THE BOARD Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form S-3 has been signed by the following persons in the capacities and on the dates indicated. Each person whose signature appears below hereby authorizes each of Raymond E. Jaeger, Glenn E. Moore and Bruce A. Cannon, as attorney-in-fact, to sign and file on his or her behalf, individually and in each capacity stated below, any pre-effective or post-effective amendment hereto or any registration statement relating to the offering covered hereby filed pursuant to Rule 462(b) under the Securities Act of 1933, as amended.
SIGNATURE TITLE DATE --------- ----- ---- /s/ DR. RAYMOND E. JAEGER Chairman of the Board of January 9, 1997 ........................................ Directors (principal DR. RAYMOND E. JAEGER executive officer) /s/ GLENN E. MOORE President, Chief Executive January 9, 1997 ........................................ Officer and Director GLENN E. MOORE /s/ BRUCE A. CANNON Senior Vice President, Chief January 9, 1997 ........................................ Financial Officer, BRUCE A. CANNON Secretary, Treasurer and Director (principal financial officer and principal accounting officer) /s/ JOHN E. CHAPMAN Senior Vice President -- January 9, 1997 ........................................ Technology and Director JOHN E. CHAPMAN /s/ IRA S. NORDLICHT Director January 9, 1997 ........................................ IRA S. NORDLICHT /s/ DR. PAUL D. LAZAY Director January 9, 1997 ........................................ DR. PAUL D. LAZAY /s/ RICHARD M. DONOFRIO Director January 9, 1997 ........................................ RICHARD M. DONOFRIO Director January , 1997 ........................................ DR. LILY K. LAI
II-6 74 EXHIBIT INDEX
EXHIBITS DESCRIPTION - -------- ----------- 1.1 Proposed Form of Underwriting Agreement. 3.1 Certificate of Incorporation of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 3.2 By-Laws of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 4.5 Form of Stock Certificate for Voting Common Stock. (Incorporated by reference to Registrant's Registration Statement on Form S-1 (Reg. No. 2-83172) effective June 2, 1983.) 5.1 Opinion of Hackmyer & Nordlicht. (To be filed by amendment) 10.1 Registrant's 1991 Incentive Stock Option Plan. (Incorporated by reference to the Registrant's Proxy Statement dated April 9, 1991.) 10.7 License Agreement dated August 15, 1981 between the Registrant and Western Electric Company, Incorporated. (Incorporated by reference to Registrant's Registration Statement on Form S-1 (Reg. No. 2-83172) effective June 2, 1983.) (Registrant has been granted confidential treatment of portions of this Exhibit.) 10.46 Common Stock Purchase Warrant issued to Allen & Company Incorporated pursuant to the Conversion Agreement listed as Exhibit 10.45. (Incorporated by reference to the Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1990.) 10.49 License Agreement dated as of the first day of January 1991 by and between the Registrant and Corning Incorporated. (Registrant has been granted confidential treatment of portions of this Exhibit.) (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 10.53 Asset Purchase Agreement between Ensign-Bickford Optics Company and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 8-K dated March 3, 1994.) 10.54 Stock Purchase Agreement between Ensign-Bickford Optical Technologies, Inc. and EBOT Acquisition Corp. dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 8-K dated March 3, 1994.) 10.55 Lease between 150 Fisher Associates Limited Partnership and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.56 Lease between Avon Park Properties and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.57 Lease between Avon Park Properties and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.61 Stock Purchase Agreement among APD Acquisition Corp. and Irving N. Dwyer, David P. DaVia, The Irving N. Dwyer and Annette M. Dwyer Charitable Remainder Trust and The DaVia Charitable Remainder Trust. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 31, 1995) 10.62 Directors Retirement Plan dated December 27, 1995 (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996) 10.63 Registrant's Employee Profit Sharing Plan as revised and adopted effective January 1, 1995 (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996) 10.64 Lease between Mark C. Yellin and Applied Photonic Devices, Inc. dated January 15, 1996. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996) 10.65 Lease between Fabrilock, Inc. and Applied Photonic Devices, Inc. dated February 6, 1996. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996) 10.69 Supplemental Retirement Agreement between Spectran Corporation and Raymond E. Jaeger dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996)
75
EXHIBITS DESCRIPTION - -------- ----------- 10.70 Supplemental Retirement Agreement between SpecTran Corporation and Bruce A. Cannon dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996) 10.71 Supplemental Retirement Agreement between SpecTran Corporation and Crawford L. Cutts dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996) 10.72 Supplemental Retirement Agreement between SpecTran Corporation and William B. Beck dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996) 10.73 Supplemental Retirement Agreement between SpecTran Corporation and John E. Chapman dated May 8, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996) 10.74 Lease between CRJ Realty Trust and SpecTran Communication Fiber Technologies, Inc. dated July 22, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated August 9, 1996) 10.75 Contractual Agreement Between Lucent Technologies Inc. and SpecTran Corporation dated October 3, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit) (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.76 Three Year Multimode Optical Fiber Supply Contract between Corning Incorporated and SpecTran Corporation dated as of January 1, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit) (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.79 Key Employee Incentive Plan effective as of January 1, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.80 Employment Agreement between SpecTran Corporation and Raymond E. Jaeger dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.81 Employment Agreement between SpecTran Corporation and Bruce A. Cannon dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.82 Employment Agreement between SpecTran Corporation and John E. Chapman dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.83 Employment Agreement between SpecTran Corporation and Crawford L. Cutts dated as of January 1, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.84 Employment Agreement between SpecTran Corporation and William B. Beck dated as of February 18, 1994. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.85 Employment Agreement between SpecTran Corporation and Glenn E. Moore dated as of December 1995. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996) 10.86 Note Purchase Agreement between SpecTran Corporation and Massachusetts Mutual Life Insurance Company dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.87 Note Purchase Agreement between SpecTran Corporation and CM Life Insurance Company dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.88 Note Purchase Agreement between SpecTran Corporation and The Mutual Life Insurance Company of New York dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996)
76
EXHIBITS DESCRIPTION - -------- ----------- 10.89 Note Purchase Agreement between SpecTran Corporation and Atwell & Co. dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.90 Security Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.91 Trademark Security Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc, SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.92 Patent Collateral Assignment among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc, SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.93 Pledge Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc, SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.94 Mortgage, Assignment of Rents and Security Agreement by SpecTran Communication Fiber Technologies, Inc. to Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.95 Open-End Mortgage, Assignment of Rents and Security Agreement by SpecTran Specialty Optics Company to Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.96 Guaranty Agreement dated as of December 1, 1996 by SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company and Applied Photonic Devices, Inc. in favor of Massachusetts Mutual Life Insurance Company, CM Life Insurance Company, The New York Mutual Life Insurance Company and Atwell & Co. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.97 Loan Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996) 10.98 Limited Liability Company Agreement of General Photonics, LLC between Applied Photonic Devices, Inc. and General Cable Industries, Inc. dated as of December 23, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit) (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997) 10.99 Asset Purchase Agreement among Applied Photonic Devices, Inc., SpecTran Corporation, General Cable Corporation and General Cable Industries, Inc. dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997) 10.100 Investor's Representations, Contribution Agreement and Subscription Agreement among Applied Photonic Devices, Inc., SpecTran Corporation and General Photonics, LLC dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997) 10.101 Non-Competition Agreement among General Cable Industries, Inc., General Cable Corporation, Applied Photonic Devices, Inc., SpecTran Corporation and General Photonics, LLC dated December 23, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit) (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997)
77
EXHIBITS DESCRIPTION - -------- ----------------------------------------------------------------------------------- 10.102 Standstill Agreement among General Cable Industries, Inc., General Cable Corporation and SpecTran Corporation dated as of December 23, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit) (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997) 10.103 Letter amendment to Three Year Multimode Optical Fiber Supply Contract between Corning Incorporated and SpecTran Corporation dated as of January 1, 1996. (Registrant has applied for confidential treatment for portions of this Exhibit.) (Incorporated by reference from Registrant's Current Report on Form 8-K dated January 8, 1997) 10.104 Letter amendment to Employment Agreement between SpecTran Specialty Optics Company and William B. Beck dated April 18, 1996. (Incorporated by reference to the Registrant's Report on Form 8-K dated January 8, 1997) 10.105 Cross-Indemnity Agreement between SpecTran Corporation and Allen & Company Incorporated (to be filed by amendment). 23.1 Report and Consent of KPMG Peat Marwick. 23.2 Consent of Hackmyer & Nordlicht. (To be filed by amendment) 24.0 Power of Attorney. (See page II-6)
EX-1.1 2 UNDERWRITING AGREEMENT 1 SPECTRAN CORPORATION COMMON STOCK (PAR VALUE $.10 PER SHARE) UNDERWRITING AGREEMENT Boston, Massachusetts January , 1997 TUCKER ANTHONY INCORPORATED RAYMOND JAMES & ASSOCIATES, INC. As Representatives of the Several Underwriters c/o Tucker Anthony Incorporated One Beacon Street Boston, Massachusetts 02108 Ladies and Gentlemen: SpecTran Corporation, a Delaware corporation (the "Company"), and the stockholder of the Company named in Schedule B hereto (the "Selling Stockholder") confirm their agreement with Tucker Anthony Incorporated ("Tucker Anthony") and Raymond James & Associates, Inc. ("Raymond James"), and each of the other underwriters, if any, named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 11), for whom Tucker Anthony and Raymond James are acting as representatives (in such capacity, Tucker Anthony and Raymond James are herein called the "Representatives"), with respect to the sale by the Company and the Selling Stockholder and the purchase by the Underwriters, acting severally and not jointly, of an aggregate of 1,800,000 shares of the common stock, $.10 par value per share, of the Company ("Common Stock"), of which 1,450,000 shares are to be sold by the Company and 350,000 shares are to be sold by the Selling Stockholder (collectively, the "Firm Shares"), and with respect to the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase from the Company all or any part of 270,000 additional shares of Common Stock for the purpose of covering over-allotments, if any. The Firm Shares and all or any part of the shares of Common Stock subject to the option described in Section 2(b) hereof (the "Option Shares") are hereinafter collectively referred to as the "Shares." 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDER. I. The Company represents and warrants to, and agrees with, each of the Underwriters as of the date hereof, and as of the Closing Date, as defined in Section 2(c) hereof, and the Option Closing Date, as defined in Section 2(b) hereof, if any, as follows: (a) A registration statement on Form S-3 (File No. ) with respect to the Shares, including a prospectus subject to completion, has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the applicable Rules and Regulations (as defined below) of the Securities and Exchange Commission (the "Commission") and has been filed with the Commission; such amendments to such registration statement, and such amended prospectuses subject to completion, as may have been required prior to the date hereof have been similarly prepared and filed with the Commission; and the Company will file such additional amendments to such registration statement, and such amended prospectuses subject to completion, as may hereafter be required. Copies of such registration statement and each such amendment, each such related prospectus subject to completion (collectively, the "Preliminary Prospectuses" and individually, a "Preliminary Prospectus"), each document incorporated by reference therein and each exhibit thereto 2 have been delivered to you. For purposes hereof, "Rules and Regulations" means the rules and regulations adopted by the Commission under either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable. If the registration statement has been declared effective under the Act by the Commission, the Company will prepare and promptly file with the Commission, pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations under the Act or as part of a post-effective amendment to the registration statement (including a final form of prospectus), the information omitted from the registration statement pursuant to Rule 430A(a) of the Rules and Regulations under the Act. If the registration statement has not been declared effective under the Act by the Commission, the Company will prepare and promptly file a further amendment to the registration statement, including a final form of prospectus. The term "Registration Statement" as hereinafter used in this Agreement shall mean such registration statement, including financial statements, schedules and exhibits in the form in which it became or becomes, as the case may be, effective (including, if the Company omitted information from the registration statement pursuant to Rule 430A(a) of the Rules and Regulations under the Act, the information deemed to be a part of the registration statement at the time it became effective pursuant to Rule 430A(b) of the Rules and Regulations under the Act) and, in the event of any amendment thereto after the effective date of such registration statement, shall also mean (from and after the effectiveness of such amendment) such registration statement as so amended, together with any registration statement filed by the Company pursuant to Rule 462(b) under the Act. The term "Prospectus" as used in this Agreement shall mean the prospectus relating to the Shares as included in such registration statement at the time it became or becomes, as the case may be, effective, except that if any revised prospectus shall be provided to the Underwriters by the Company for use in connection with the offering of the Shares that differs from the Prospectus on file with the Commission at the time the registration statement became or becomes, as the case may be, effective (whether or not such revised prospectus is required to be filed with the Commission pursuant to Rule 424(b)(3) of the Rules and Regulations under the Act), the term "Prospectus" shall refer to such revised prospectus from and after the time it is first provided to the Underwriters for such use, together with the term sheet or abbreviated term sheet filed with the Commission pursuant to Rule 424(b)(7) under the Act. Any reference herein to the Registration Statement, the Prospectus, any amendment or supplement thereto or any Preliminary Prospectus shall be deemed to refer to and include the documents incorporated by reference therein, and any reference herein to the terms "amend," "amendment" or "supplement" with respect to the Registration Statement or Prospectus shall be deemed to refer to and include the filing of any document with the Commission deemed to be incorporated by reference therein. (b) Neither the Commission nor any state regulatory authority has issued any order preventing or suspending the use of any Preliminary Prospectus, at the time of filing thereof, or instituted proceedings for that purpose, and each such Preliminary Prospectus, at the time of filing thereof, has conformed in all material respects to the requirements of the Act and the Rules and Regulations and, at the time of filing thereof, has not included any untrue statement of a material fact or omitted to state any material fact necessary to make the statements therein not misleading and at the time the Registration Statement became or becomes, as the case may be, effective and at all times subsequent thereto up to and including the Closing Date (as hereinafter defined) and any Option Closing Date (as hereinafter defined), and during such longer period as the Prospectus may be required to be delivered in connection with sales by an Underwriter or a dealer, (i) the Registration Statement and Prospectus, and any amendments or supplements thereto, contained and will contain all material information required to be included therein by the Act and the Rules and Regulations and conformed and will conform in all material respects to the requirements of the Act and the Rules and Regulations, and (ii) neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto included or will include any untrue statement of a material fact or omitted or will omit to state any material fact required to be stated therein or necessary to make the statements therein in light of the circumstances under which they were made not misleading. The documents incorporated by reference in the Registration Statement, the Prospectus, any amendment or supplement thereto or any Preliminary Prospectus, when they became or become effective under the Act or were or are filed with the Commission under the Exchange Act, as the case may be, 2 3 conformed or will conform in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the Rules and Regulations, and as of the date any such document was or is filed with the Commission under the Exchange Act such document did not, and on Closing Date and on any Option Closing Date will not, omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (c) The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware. Each of the subsidiaries of the Company (collectively, the "Wholly-Owned Subsidiaries" and individually, a "Wholly-Owned Subsidiary") has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware. General Photonics LLC, the joint venture between the Company and General Cable Industries, Inc. ("GCI") (the "Joint Venture"), has been duly organized and is validly existing as a limited liability company in good standing under the laws of the State of Delaware. (The Wholly-Owned Subsidiaries and the Joint Venture are herein called collectively, the "Subsidiaries" and individually, a "Subsidiary.") The Company and each of the Subsidiaries are duly qualified and licensed and in good standing as foreign corporations or as a foreign limited liability company, as the case may be, in each jurisdiction in which their respective ownership or leasing of any properties or the character of their respective operations requires such qualification or licensing, except where the failure to be so qualified would not have a material adverse effect on the condition, financial or otherwise, or on the business affairs, position, prospects, value, operation, properties, business or results of operation of the Company and the Subsidiaries taken as a whole whether or not arising in the ordinary course of business (a "Material Adverse Effect"). The Company and each of the Subsidiaries have all requisite power and authority (corporate and as a limited liability company, as appropriate), and have obtained any and all necessary authorizations, approvals, orders, licenses, certificates, franchises and permits of and from all governmental or regulatory officials and bodies (including, without limitation, the United States Environmental Protection Agency and those other officials and bodies having jurisdiction over similar matters), to own or lease their respective properties and conduct their respective businesses as described in the Prospectus (collectively, "Government Approvals"), except where the failure to so obtain any such Government Approval would not have a Material Adverse Effect; the Company and each of the Subsidiaries are and have been doing business in compliance with all such Government Approvals, except where the failure to so comply would not have a Material Adverse Effect; and neither the Company nor any of the Subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Government Approvals. All of the outstanding shares of capital stock of each of the Wholly-Owned Subsidiaries have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company free and clear of all liens, encumbrances and security interests, except that all of the outstanding shares of capital stock of the Wholly-Owned Subsidiaries are pledged as security for the Company's aggregate principal amount of $24 million Senior Secured Notes and $20 million revolving credit facility from Fleet National Bank; 50 percent of the ownership interests in the Joint Venture have been duly acquired and are owned by Applied Photonic Devices, Inc., a Wholly-Owned Subsidiary ("APD"), free and clear of all liens, encumbrances and security interests and the other 50 percent of the ownership interests are owned by GCI; and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into, or exchange any securities for, shares of capital stock of or ownership interests in any of the Subsidiaries are outstanding, except for certain rights held by GCI to acquire the ownership interests of APD in the Joint Venture in the event of the bankruptcy of the Company or APD or a material breach by APD, the Company or any of the Company's affiliates of any of the agreements related to the formation and operations of the Joint Venture. (d) On September 30, 1996, the Company had the duly authorized, issued and outstanding capitalization set forth in the Prospectus under "Capitalization" based upon the assumptions set forth therein and would have had the pro forma as adjusted capitalization set forth therein based upon the assumptions set forth therein, and the Company is not a party to or bound by any instrument, agreement or other arrangement (except for stock options and underlying shares of Common Stock under the Company's Incentive Stock Option Plan and shares of Common Stock underlying warrants held by the 3 4 Selling Stockholder described in the Prospectus) providing for it to issue any capital stock, rights, warrants, options or other securities, except for this Agreement. The Shares and all other securities issued or issuable by the Company conform in all material respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. All issued and outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable and were not issued in violation of any preemptive rights or other rights to subscribe for or purchase securities. The Shares have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable and are not and will not be subject to any preemptive or other rights to subscribe for or purchase securities; the holders thereof will not be subject to any liability solely as such holders; and the certificates representing the Shares will be in due and proper form as previously authorized by the Company. (e) The audited and unaudited consolidated financial statements of the Company and the Wholly-Owned Subsidiaries, together with the notes and schedules thereto, included or incorporated by reference in the Registration Statement, each Preliminary Prospectus and the Prospectus fairly present the financial position and the results of operations, changes in cash flows and changes in stockholders' equity of the Company at the respective dates and for the respective periods to which they apply; and each of such audited consolidated financial statements has been prepared in conformity with generally accepted accounting principles and the Rules and Regulations, consistently applied throughout the periods involved, all adjustments necessary for a fair presentation of results for such periods have been made and such unaudited consolidated financial statements have been prepared on a basis substantially consistent with that of such audited consolidated financial statements. Except as described in the Prospectus, there has been no change or development involving a Material Adverse Effect since the date of the consolidated financial statements included or incorporated by reference in any of the Preliminary Prospectuses, the Prospectus and the Registration Statement, and the outstanding debt, the property, both tangible and intangible, and the business of the Company and each of the Subsidiaries conform in all respects to the descriptions thereof contained in the Registration Statement and the Prospectus. The summary and selected financial and statistical consolidated data included or incorporated by reference in the Registration Statement and the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with the unaudited and audited consolidated financial statements included or incorporated by reference therein. The Company's internal accounting controls are sufficient to cause the Company to comply with the Foreign Corrupt Practices Act of 1977, as amended. Neither the Company nor any of the Subsidiaries has any material contingent obligation which is not disclosed in the Registration Statement. (f) KPMG Peat Marwick LLP ("KPMG"), whose reports are filed with the Commission as a part of the Registration Statement, are independent certified public accountants as required by the Act and the Rules and Regulations. (g) (i) The Company and each of the Subsidiaries has paid all federal, state, local and foreign taxes for which they are respectively liable and which are due and payable, including, but not limited to, withholding taxes and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of 1986, as amended, and (ii) none of the Company or any Subsidiary has any tax deficiency or claims outstanding, proposed or assessed against it. (h) No transfer tax, stamp duty or other similar tax is payable by or on behalf of the Underwriters in connection with (i) the issuance by the Company of the Shares, (ii) the purchase by the Underwriters of the Shares, or (iii) the consummation by the Company and the Selling Stockholder of any of their respective obligations under this Agreement. (i) The Company and each of the Subsidiaries maintain insurance of the types and in the amounts which the Company reasonably believes to be adequate for their respective businesses, all of which insurance is in full force and effect. (j) There is no action, suit, proceeding, inquiry, investigation, litigation or governmental proceeding, domestic or foreign, pending or, to the Company's knowledge, threatened against (or currently existing or 4 5 previously occurring facts or circumstances that provide a basis for the same), or involving the properties or business of the Company or any of the Subsidiaries that (i) questions the validity of the capital stock of the Company or this Agreement or of any action taken or to be taken by the Company pursuant to or in connection with this Agreement, (ii) is required to be disclosed in the Registration Statement that is not so disclosed (and such proceedings, if any, as are summarized in the Registration Statement are accurately summarized in all material respects), (iii) would have a Material Adverse Effect or (iv) relates to or affects the Company or processes or products which the Company designed, developed, licenses, uses, manufactures or markets which, if adversely determined, would have a Material Adverse Effect. (k) The Company has full legal right, power and authority to enter into this Agreement and to consummate the transactions provided for herein; and this Agreement has been duly authorized, executed and delivered by the Company. This Agreement, assuming it has been duly authorized, executed and delivered by the Underwriters, constitutes a legal, valid and binding agreement of the Company enforceable against the Company in accordance with its terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law), and none of the Company's execution or delivery of this Agreement, its performance hereunder, its consummation of the transactions contemplated herein or the conduct of its business and that of each of the Subsidiaries as described in the Registration Statement, the Prospectus and any amendments or supplements thereto conflicts with or will conflict with in any material respect or results or will result in any breach or violation of any of the material terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction on equity of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company or any of the Subsidiaries, pursuant to the terms of (i) the corporate charter, operating agreement or by-laws of the Company or any of the Subsidiaries, (ii) any license, contract, indenture, mortgage, deed of trust, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which any of them is or may be bound or to which any of their respective properties or assets (tangible or intangible) is or may be subject or (iii) any statute, judgment, decree, order, rule or regulation applicable to the Company or any of the Subsidiaries of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body, domestic or foreign, having jurisdiction over the Company or any of the Subsidiaries or any of their respective activities or properties. (l) No consent, approval, authorization or order of, and no filing with, any court, regulatory body, government agency or other body, domestic or foreign, is required for the issuance of the Shares pursuant to the Prospectus and the Registration Statement, or the performance of this Agreement and the transactions contemplated hereby, except such as have been or may be obtained under the Act or may be required under state securities or Blue Sky laws in connection with the Underwriters' purchase and distribution of the Shares. (m) All executed agreements or copies of executed agreements filed or incorporated by reference as exhibits to the Registration Statement to which the Company or any of the Subsidiaries is a party or by which any of them may be bound or to which any of their respective assets, properties or businesses may be subject have been duly and validly authorized, executed and delivered by the Company and such Subsidiaries, and, assuming due authorization, execution and delivery by the other parties thereto, constitute the legal, valid and binding agreements of the Company and such Subsidiaries enforceable against the Company and such Subsidiaries in accordance with their respective terms (except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law). The descriptions in the Registration Statement of contracts and other 5 6 documents are accurate in all material respects and fairly present the information required to be shown with respect thereto by Form S-3, and there are no contracts or other documents that are required by the Act to be described in the Registration Statement or filed or incorporated by reference as exhibits to the Registration Statement that are not described or filed or incorporated by reference as required, and the exhibits that have been filed or incorporated by reference are complete and correct copies of the documents of which they purport to be copies. (n) Subsequent to the respective dates as of which information is set forth in the Registration Statement and Prospectus, and except as may otherwise be indicated or contemplated herein or therein, neither the Company nor any of the Subsidiaries has (i) issued any securities or incurred any liability or obligation, direct or contingent, for borrowed money (except for (A) the issuance by the Company of shares of Common Stock upon the exercise of previously granted stock options, and (B) borrowings made pursuant to the Company's and the Subsidiaries' existing credit agreements), (ii) entered into any transaction which would have a Material Adverse Effect or (iii) declared or paid any dividend or made any other distribution on or in respect of its capital stock. (o) No material default exists in the due performance and observance of any term, covenant or condition of any license, contract, indenture, mortgage, installment sale agreement, lease, deed of trust, voting trust agreement, stockholders agreement, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company or any of the Subsidiaries is a party or by which the Company or any of the Subsidiaries may be bound or to which any of the property or assets (tangible or intangible) of the Company or any of the Subsidiaries is subject or affected. (p) The Company and each of the Subsidiaries have a generally satisfactory employer-employee relationship with their respective employees and are in compliance with all federal, state, local, and, where applicable, foreign, laws and regulations respecting employment and employment practices, terms and conditions of employment and wages and hours, except where the failure to so comply would not have a Material Adverse Effect. To the Company's knowledge, there are no pending investigations involving the Company or any of the Subsidiaries by the United States Department of Labor or any other governmental agency responsible for the enforcement of such federal, state, local or foreign laws and regulations. To the Company's knowledge, there is no unfair labor practice charge or complaint against the Company or any of the Subsidiaries pending before the National Labor Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened against or involving the Company or any of the Subsidiaries, and no such strike, picketing, boycott, dispute, slowdown or stoppage has ever occurred. No representation question exists respecting the employees of the Company or any of the Subsidiaries, and no collective bargaining agreement or modification thereof is currently being negotiated by the Company or any of the Subsidiaries. There are no expired or existing collective bargaining agreements of the Company or any of the Subsidiaries. (q) Neither the Company nor any of the Subsidiaries has incurred any material liability arising under or as a result of the application of the provisions of the Act. (r) Neither the Company nor any of the Subsidiaries maintains, sponsors or contributes to any program or arrangement that is an "employee pension benefit plan," an "employee welfare benefit plan," or a "multiemployer plan" (collectively, the "ERISA Plans") as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"). With respect to any "defined benefit plan," as defined in Section 3(35) of ERISA, that the Company or any of the Subsidiaries, now or at any time previously, maintains or contributes to, all applicable federal laws and regulations have been complied with, except for such instances of noncompliance which, either singly or in the aggregate, would not have a Material Adverse Effect. Neither the Company nor any of the Subsidiaries has ever completely or partially withdrawn from a "multiemployer plan." (s) The Company is in compliance with all applicable existing federal, state, local and foreign laws and regulations relating to the protection of human health or the environment or imposing liability or 6 7 requiring standards of conduct concerning any Hazardous Materials ("Environmental Laws"), except for such instances of noncompliance which, either singly or in the aggregate, would not have a Material Adverse Effect. The term "Hazardous Material" means (i) any "hazardous substance" as defined by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, (ii) any "hazardous waste" as defined by the Resource Conservation and Recovery Act, as amended, (iii) any petroleum or petroleum product, (iv) any polychlorinated biphenyl and (v) any pollutant or contaminant or hazardous, dangerous or toxic chemical, material, waste or substance regulated under or within the meaning of any other Environmental Law. (t) The Company maintains a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (u) The Company has filed a notice with Nasdaq of intent to issue and has paid the required fee to have the Shares listed on the Nasdaq National Market. (v) The Company has not distributed and will not distribute (within the meaning of Rule 140 of the Rules and Regulations under the Act) any offering material in connection with the offering and sale of the Shares, other than the Prospectus, any Preliminary Prospectus, the Registration Statement and other materials permitted by the Act. (w) No holders of any securities of the Company or of any options, warrants or other convertible or exchangeable securities of the Company exercisable for or convertible or exchangeable for securities of the Company have the right to include any securities issued by the Company in the Registration Statement or any registration statement to be filed by the Company within 180 days of the date hereof or to require the Company to file a registration statement under the Act during such 180-day period. (x) The Company has not taken and will not take, directly or indirectly (except for any action that may be taken by the Underwriters), any action designed to or which has constituted or which might reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Shares or otherwise. (y) Except to the extent disclosed in the Prospectus, (i) the Company and each of the Subsidiaries own or possess, or have a license or other right to use, the patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), technology, trademarks, service marks and trade names, together with all applications for any of the foregoing, currently used or held for use by them in connection with their respective businesses, (ii) neither the Company nor any of the Subsidiaries has received any notice of infringement of or conflict with asserted rights of others with respect to any of the foregoing and (iii) except as set forth in the Registration Statement, neither the Company nor any of the Subsidiaries is obligated or under any liability whatsoever to make any material payments by way of royalties, fees or otherwise to any owner or licensee of, or other claimant to, any patent, patent right, license, invention, trademark, service mark, trade name, copyright, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), technology or other intangible asset, with respect to the use thereof or in connection with the conduct of its business or otherwise. (z) The Company and each of the Subsidiaries have good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus (including the financial statements included or incorporated by reference therein) to be owned or leased by them, free and clear of all liens, charges, claims, encumbrances, pledges, security interests, defects or 7 8 other restrictions on equity of any kind whatsoever, other than (i) those referred to in the Prospectus (including such financial statements), (ii) liens for taxes not yet due and payable and (iii) mechanics, materialmen, warehouse and other statutory liens arising in the ordinary course of business which, either individually or in the aggregate, do not have a Material Adverse Effect. (aa) Except as described in the Prospectus under "Underwriting" and on the cover page thereof, there are no claims, payments, issuances, arrangements or understandings for services in the nature of a finder's or origination fee with respect to the sale of the Shares hereunder or any other arrangements, agreements, understandings, payments or issuance with respect to the Company or any of the Subsidiaries or any of their respective officers, directors, employees or affiliates that may affect the Underwriters' compensation, as determined by the National Association of Securities Dealers, Inc. ("NASD"). (bb) Quotations and last sale data with respect to the Company's Common Stock are reported on the National Association of Securities Dealers Automated Quotation National Market System (the "NASDAQ-NMS") under the symbol "SPTR" and the Company knows of no currently existing reason or set of facts which is likely to result in the inability or refusal to quote the Common Stock or the Shares. (cc) The Company is not an "investment company" or an "affiliated person" or "promoter" of, or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"), or subject to regulation under the 1940 Act. (dd) Any certificate signed by any officer of the Company and delivered to the Underwriters or to the Underwriters' Counsel (as hereinafter defined) shall be deemed a representation and warranty by the Company to the Underwriters as to the matters covered thereby. (ee) The Company has delivered to the Representatives written agreements, in form and substance satisfactory to the Representatives, with each of its directors and executive officers who own Common Stock (each such person is named in Schedule C hereto), to the effect that, among other things, such director or officer will not, for a period ending 90 days after the date of the Prospectus, directly or indirectly, offer, sell, assign, transfer, encumber, contract to sell, grant an option to purchase or otherwise sell or dispose of shares of Common Stock or other capital stock of the Company, any options, rights or warrants to purchase shares of Common Stock or other capital stock of the Company or any securities convertible into or exchangeable or exercisable for shares of Common Stock or other capital stock of the Company now owned by such person or subsequently acquired (or as to which such person now or hereafter has the right to direct the disposition of) otherwise than hereunder or with the prior written consent of Tucker Anthony; provided, however, that such agreements may contain an exception providing that such officers and directors during such period may, without such consent, convey shares of Common Stock (i) by gift to immediate family members to the extent that the total of the number of shares of Common Stock which are or have been the subject of all such conveyances by all such officers and directors during such period is less than or equal to 5,000 shares of Common Stock (including in such calculation all shares of Common Stock which are the subject of any transaction pending during such period) and (ii) by will or intestacy to immediate family members provided in both cases that such transferees enter into agreements for the benefit of the Underwriters containing all of the restrictions set forth in this Section 1.I(ee) with respect to such shares of Common Stock. II. The Selling Stockholder represents and warrants to, and agrees with, each of the Underwriters and the Company as of the date hereof and as of the Closing Date, as defined in Section 2(c) hereof, that: (a) The Selling Stockholder as of the Closing Date will have valid marketable title to such of the Shares as are to be sold by the Selling Stockholder, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest other than pursuant to this Agreement; the Selling Stockholder has full right, power and authority to sell, assign, transfer and deliver the Shares to be sold by the Selling Stockholder hereunder; and upon delivery of such Shares and payment of the purchase price as herein contemplated, each of the Underwriters will obtain valid marketable title to the Shares purchased by it from the Selling Stockholder, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest. 8 9 (b) The Selling Stockholder has duly authorized, executed and delivered, in the form heretofore furnished to the Representatives, a Power of Attorney (the "Power of Attorney") appointing Raymond E. Jaeger and Bruce A. Cannon as attorneys-in-fact (collectively, the "Attorneys" and individually, an "Attorney") and a Custody Agreement (the "Custody Agreement") with Hackmyer & Nordlicht named therein, as custodian (the "Custodian"); each of the Power of Attorney and the Custody Agreement constitutes a valid and binding agreement of the Selling Stockholder, enforceable in accordance with its terms, except as the enforcement thereof may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable, and except as rights to indemnity or contribution may be limited by applicable law; and each of such Attorneys approved by the Selling Stockholder, acting alone, is authorized to execute and deliver this Agreement and the certificate referred to in Section 6(j) hereof on behalf of the Selling Stockholder, to determine the purchase price to be paid by the several Underwriters to the Selling Stockholder as provided in Section 2 hereof, to exercise the Selling Stockholder Warrants (as defined in paragraph (e) of this Section 1.II), to authorize the delivery of the Shares as are to be sold by the Selling Stockholder under this Agreement and to duly endorse (in blank or otherwise) the certificate or certificates representing such Shares or a stock power or powers with respect thereto, to accept payment therefor (net of the aggregate exercise price for full exercise of the Selling Stockholder Warrants) and otherwise to act on behalf of the Selling Stockholder in connection with this Agreement and to pay all expenses in connection therewith. (c) All authorizations, approvals, consents and orders necessary for the execution and delivery on behalf of the Selling Stockholder of the Power of Attorney and the Custody Agreement, the execution and delivery on behalf of the Selling Stockholder of this Agreement, the exercise of the Selling Stockholder Warrants and the sale and delivery of the Shares as are to be sold by the Selling Stockholder under this Agreement (other than, at the time of the execution hereof (if the Registration Statement has not yet been declared effective by the Commission), the issuance of the order of the Commission declaring the Registration Statement effective and such authorizations, approvals or consents as may be necessary under state or other securities or Blue Sky laws) have been obtained and are in full force and effect; and the Selling Stockholder has full right, power and authority to enter into and perform its obligations under the Power of Attorney and the Custody Agreement and this Agreement, to exercise the Selling Stockholder Warrants and to sell, assign, transfer and deliver the Shares to be sold by the Selling Stockholder under this Agreement. (d) Other than the Selling Stockholder Warrants and the Shares to be sold by the Selling Stockholder under this Agreement, the Selling Stockholder does not beneficially own any shares of Common Stock or other capital stock of the Company, any options, rights or warrants to purchase shares of Common Stock or other capital stock of the Company or any securities convertible into or exchangeable or exercisable for shares of Common Stock or other capital stock of the Company, nor does the Selling Stockholder have any right or arrangement to acquire any capital stock, options, rights, warrants or other securities of the Company. (e) A warrant certificate (the "Warrant Certificate") in the name of the Selling Stockholder representing warrants to purchase 350,000 shares of Common Stock of the Company at a purchase price of $2.00 per share (the "Selling Stockholder Warrants"), together with a form of subscription duly executed in blank and a stock power(s) duly endorsed in blank by the Selling Stockholder with respect to the 350,000 Shares to be acquired upon exercise of the Selling Stockholder Warrants, have been, and as of the Closing Date certificates in negotiable form for all Shares to be sold by the Selling Stockholder under this Agreement will have been, placed in custody with the Custodian for the purpose of effecting delivery of such Shares hereunder. (f) This Agreement has been duly executed and delivered by or on behalf of the Selling Stockholder and is a valid and binding agreement of the Selling Stockholder, enforceable in accordance with its terms, except as the indemnification and contribution provisions hereunder may be limited by applicable law and except as the enforcement hereof may be limited by applicable bankruptcy, insolvency, reorganization, 9 10 moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and the application of equitable principles in any action, legal or equitable; and the performance of this Agreement and the consummation of the transactions herein contemplated will not result in a breach of or default under any bond, debenture, note or other evidence of indebtedness, or any contract, indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which the Selling Stockholder is a party or by which the Selling Stockholder or any Shares as are to be sold by the Selling Stockholder hereunder may be bound or result in any violation of any law, order, rule, regulation, writ, injunction or decree of any court or governmental agency or body. (g) The Selling Stockholder has not taken and will not take, directly or indirectly, any action designed to, or which might reasonably be expected to, cause or result in stabilization or manipulation of the price of the Common Stock to facilitate the sale or resale of the Shares. (h) The Selling Stockholder has not distributed and will not distribute any prospectus or other offering material in connection with the offering and sale of the Shares. (i) All information furnished by or on behalf of the Selling Stockholder relating to the Selling Stockholder and the Shares as are to be sold by the Selling Stockholder that is contained in the representations and warranties of the Selling Stockholder in the Selling Stockholder's Power of Attorney or set forth in the Registration Statement and the Prospectus is, and on the Closing Date will be, true, correct and complete, and does not, and on the Closing Date will not, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. (j) The Selling Stockholder will review the Prospectus and will comply with all agreements and satisfy all conditions on its part to be complied with or satisfied pursuant to this Agreement on or prior to the Closing Date, including full exercise of the Selling Stockholder Warrants to acquire 350,000 Shares, and will advise one of its Attorneys prior to the Closing Date if any statement to be made on behalf of the Selling Stockholder in the certificate contemplated by Section 6(j) would be inaccurate if made of the Closing Date. (k) The Selling Stockholder does not have any preemptive right, co-sale right or right of first refusal or other similar right to purchase any of the Shares that are to be sold by the Company to the Underwriters pursuant to this Agreement. 2. PURCHASE, SALE AND DELIVERY OF THE SHARES. (a) On the basis of the representations, warranties, covenants and agreements herein contained, and subject to the terms and conditions herein set forth, the Company agrees to sell 1,450,000 Firm Shares to the several Underwriters, the Selling Stockholder agrees to sell to the several Underwriters the number of Firm Shares set forth on Schedule B opposite the name of the Selling Stockholder, and each Underwriter, severally and not jointly, agrees to purchase that number of Firm Shares set forth in Schedule A opposite its name plus any additional number of Firm Shares that such Underwriter may become obligated to purchase pursuant to the provisions of Section 11 hereof. The Warrant Certificate in the name of the Selling Stockholder representing the Selling Stockholder Warrants to purchase 350,000 shares of Common Stock of the Company at a purchase price of $2.00 per share, together with a form of subscription duly executed in blank and a stock power(s) duly endorsed in blank by the Selling Stockholder with respect to the 350,000 Shares to be acquired upon exercise of the Selling Stockholder Warrants, have been, and as of the Closing Date certificates in negotiable form for the total number of Shares to be sold hereunder by the Selling Stockholder will have been, placed in custody with the Custodian pursuant to the Custody Agreement executed by the Selling Stockholder for delivery of all Shares to be sold hereunder by the Selling Stockholder. The Selling Stockholder specifically agrees that the Selling Stockholder Warrants represented by the Warrant Certificate and the Shares represented by the certificates held and to be held in custody for the Selling Stockholder under the Custody Agreement are subject to the interests of the Underwriters hereunder, that the arrangements 10 11 made by the Selling Stockholder for such custody and the full exercise of the Selling Stockholder Warrants are to that extent irrevocable, and that the obligations of the Selling Stockholder hereunder shall not be terminable by any act or deed of such Selling Stockholder (or by any other person, firm or corporation including the Company, the Custodian or the Underwriters) or by operation of law (including without limitation, the bankruptcy, insolvency, dissolution, liquidation or termination of the Selling Stockholder) or by the occurrence of any other event or events, except as set forth in the Custody Agreement. If any such event should occur prior to the delivery to the Underwriters of the Shares hereunder, the Selling Stockholder Warrants shall be exercised in full and certificates for the Shares shall be delivered by the Custodian in accordance with the terms and conditions of this Agreement as if such event has not occurred, regardless of whether or not the Custodian shall have received notice of such event. The Custodian is authorized to receive and acknowledge receipt of the proceeds of sale of the Shares to be held by it upon full exercise of the Selling Stockholder Warrants (net of the aggregate exercise price for the full exercise of the Selling Stockholder Warrants) against delivery of such Shares. (b) In addition, on the basis of the representations, warranties, covenants and agreements herein contained and upon not less than two business days' notice from the Representatives of the Underwriters, for a period of thirty days from the effective date of this Agreement, the Company grants to the Underwriters an option to purchase up to 270,000 Option Shares. Such option is granted solely for the purpose of covering over-allotments in the sale of Firm Shares and is exercisable as provided in Section 4 hereof. Option Shares shall be purchased severally for the account of the Underwriters in proportion to the number of Firm Shares set forth opposite the name of such Underwriters in Schedule A hereto. (The time and date of delivery of any of the Option Shares is herein called the "Option Closing Date.") The respective purchase obligations of each Underwriter with respect to the Option Shares may be adjusted by the Representatives so that no Underwriter shall be obligated to purchase Option Shares other than in 100 share increments. The price of both the Firm Shares and any Option Shares shall be $ per share. (c) Payment of the purchase price for, and delivery of certificates for, the Firm Shares and the Option Shares shall be made on each of the Closing Date and the Option Closing Date, respectively, at the Representatives' election by certified or bank cashier's check(s) in New York Clearing House funds, payable to the order of the Company and (on the Closing Date) the Custodian, as applicable, at the offices of Tucker Anthony at One Beacon Street, Boston, Massachusetts, or at such other place as shall be agreed upon by the Representatives, the Company and (with respect to the Closing Date) the Selling Stockholder or, if mutually agreed to by the Company and the Representatives, by wire transfer, upon delivery of certificates (in form and substance satisfactory to the Representatives) representing such securities to the Representatives. Delivery and payment for the Firm Shares shall be made at 10:00 a.m. (Eastern Time) on the third business day following the public offering, or at such other time and date as shall be agreed upon by the Representatives and the Company. (The time and date of payment for and delivery of the Firm Shares is herein called the "Closing Date.") In the event that any or all of the Option Shares are purchased by the Underwriters, the date and time at which certificates for Option Shares are to be delivered shall be determined by the Representatives and the Company but shall not be earlier than three nor later than ten full business days after the exercise of such option, nor in any event prior to the Closing Date. Certificates for the Firm Shares and the Option Shares, if any, shall be in definitive, fully registered form, shall bear no restrictive legends and shall be in such denominations and registered in such names as the Representatives may request in writing at least two (2) business days prior to the Closing Date or the Option Closing Date, as the case may be. The certificates for the Firm Shares and the Option Shares, if any, shall be made available to the Representatives at such office or such other place as the Representatives may designate for inspection and packaging not later than 9:30 a.m. (Eastern Time) on the last business day prior to the Closing Date or the Option Closing Date, as the case may be. 11 12 3. PUBLIC OFFERING OF THE SHARES. As soon after the Registration Statement becomes effective as the Representatives deem advisable, the Underwriters shall make a public offering of the Shares at the price and upon the other terms set forth in the Prospectus. 4. COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDER. I. The Company agrees with each of the Underwriters as follows: (a) The Company will use its best efforts to cause the Registration Statement and any amendment thereof, if not effective at the time and date that this Agreement is executed and delivered by the parties hereto, to become effective as promptly as possible; it will notify the Representatives, promptly after it shall receive notice thereof, of the time when the Registration Statement or any subsequent amendment to the Registration Statement has become effective or any supplement to the Prospectus has been filed; if the Company omitted information from the Registration Statement at the time it was originally declared effective in reliance upon Rule 430A(a), the Company will provide evidence satisfactory to the Representatives that the Prospectus contains such information and has been filed, within the time period prescribed, with the Commission pursuant to subparagraph (1) or (4) of Rule 424(b) of the Rules and Regulations under the Act or as part of a post-effective amendment to such Registration Statement as originally declared effective which is declared effective by the Commission; if for any reason the filing of the final form of Prospectus is required under Rule 424(b)(3) of the Rules and Regulations under the Act, it will provide evidence satisfactory to the Representatives that the Prospectus contains such information and has been filed with the Commission within the time period prescribed; it will notify the Representatives promptly of any request by the Commission for the amending or supplementing of the Registration Statement or the Prospectus or for additional information; promptly upon the Representatives' request, it will prepare and file with the Commission any amendments or supplements to the Registration Statement or Prospectus which, in the opinion of counsel for the several Underwriters ("Underwriters' Counsel"), may be necessary or advisable so as to comply with all applicable laws and regulations (including, without limitation, Section 11 under the Act and Rule 10b-5 under the Exchange Act) in connection with the distribution of the Shares by the Underwriters; it will promptly prepare and file with the Commission, and promptly notify the Representatives of the filing of, any amendments or supplements to the Registration Statement or Prospectus which may be necessary to correct any statements or omissions, if, at any time when a prospectus relating to the Shares is required to be delivered under the Act, any event shall have occurred as a result of which the Prospectus or any other prospectus relating to the Shares as then in effect would include an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; in case any Underwriter is required so as to comply with all applicable laws and regulations (including, without limitation, Section 11 under the Act and Rule 10b-5 under the Exchange Act) to deliver a prospectus nine months or more after the effective date of the Registration Statement in connection with the sale of the Shares, it will prepare promptly upon request, but at the expense of such Underwriter, such amendment or amendments to the Registration Statement and such prospectus or prospectuses as may be necessary to permit compliance with the requirements of Section 10(a)(3) of the Act; and it will file no amendment or supplement to the Registration Statement or Prospectus (other than any document required to be filed under the Exchange Act that upon filing is deemed incorporated therein by reference) which shall not previously have been submitted to the Representatives a reasonable time prior to the proposed filing thereof or to which you shall reasonably object in writing or which is not in compliance with the Act and the Rules and Regulations under the Act. The Company will furnish to the Representatives at or prior to the filing thereof a copy of any document that upon filing is deemed to be incorporated by reference in the Registration Statement or Prospectus. (b) The Company will advise the Representatives, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of the Registration Statement or of the initiation or threat of any proceeding for that purpose; and it will 12 13 promptly use its best efforts to prevent the issuance of any stop order or to obtain its withdrawal at the earliest possible moment if such stop order should be issued. (c) The Company will use its best efforts to qualify the Shares for offering and sale under the securities laws of such jurisdictions as the Representatives may designate and to continue such qualifications in effect for so long as may be required for purposes of the distribution of the Shares, except that the Company shall not be required in connection therewith or as a condition thereof to qualify as a foreign corporation or to execute a general consent to service of process in any jurisdiction. In each jurisdiction in which the Shares shall have been qualified as above provided, the Company will make and file such statements and reports in each year as are or may be reasonably required by the laws of such jurisdiction. (d) The Company will furnish to each of the Underwriters, as soon as available, copies of the Registration Statement (three of which, to be delivered to the Representatives, will be manually signed and which will include all exhibits), each Preliminary Prospectus, the Prospectus and any amendment or supplements to such documents, including any prospectus prepared to permit compliance with Section 10(a)(3) of the Act, all in such quantities as you may from time to time reasonably request. (e) The Company will make generally available to its stockholders as soon as practicable, but in any event not later than the 45th day following the end of the fiscal quarter first occurring after the first anniversary of the effective date of the Registration Statement, an earning statement (which will be in reasonable detail but need not be audited) complying with the provisions of Section 11(a) of the Act and covering a twelve-month period beginning after the effective date of the Registration Statement. (f) During a period of five years after the date hereof, the Company will furnish to its stockholders, to the extent required by applicable laws or the Rules and Regulations, as soon as practicable after the end of each respective period, annual reports (including financial statements audited by independent certified public accountants) and unaudited quarterly reports of operations for each of the first three quarters of the fiscal year, and will furnish to you and each of the Underwriters, upon written request (i) concurrently with furnishing to its stockholders, statements of operations of the Company for each of the first three quarters in the form furnished to the Company's stockholders; (ii) concurrently with furnishing to its stockholders, a balance sheet of the Company as of the end of such fiscal year, together with statements of operations, cash flows and stockholders' equity of the Company for such fiscal year, accompanied by a copy of the certificate or report thereon of independent certified public accountants; (iii) as soon as they are available, copies of all reports (financial or other) mailed to stockholders; (iv) as soon as they are available, copies of all reports and financial statements furnished to or filled with the Commission, any securities exchange or the NASD; (v) every material press release and every material news item or article in respect of the Company or its affairs which was released or prepared by the Company or any of the Subsidiaries; and (vi) any additional information of a public nature concerning the Company or any of the Subsidiaries, or their respective businesses which you may reasonably request. During such five year period the foregoing financial statements shall be on a consolidated basis to the extent that the accounts of the Company and the Subsidiaries are consolidated, and shall be accompanied by similar financial statements for any Subsidiary which is not so consolidated. (g) The Company will apply the net proceeds from the sale of the Shares being sold by it in the manner set forth under the caption "Use of Proceeds" in the Prospectus. (h) The Company will maintain a transfer agent and, if necessary under the jurisdiction of incorporation of the Company, a registrar (which may be the same entity as the transfer agent) for its Common Stock. (i) The Company will use its best efforts to cause the transfer agent for the Common Stock to register the transfer of the Shares upon their presentation in proper form for transfer by the Selling Stockholder and to have certificates representing the Shares available to you as required hereunder; provided, that the Company shall not be required to take any action unless the Registration Statement is then effective under the Act. 13 14 (j) If the transactions contemplated hereby are not consummated by reason of any failure, refusal or inability on the part of the Company or the Selling Stockholder to perform any agreement on its part to be performed hereunder or to fulfill any condition of the Underwriters' obligations hereunder, or if the Company shall terminate this Agreement under Section 10(a), the Company will reimburse the several Underwriters for all reasonable out-of-pocket expenses (including reasonable fees and disbursements of Underwriters' Counsel) incurred by the Underwriters in investigating, preparing to market and marketing the Shares. (k) If at any time during the 90-day period after the Registration Statement becomes effective, any publication or event relating to or affecting the Company shall occur as a result of which in your opinion the market price of the Common Stock has been or is likely to be materially affected (regardless of whether such publication or event necessitates a supplement to or amendment of the Prospectus), the Company will, after written notice from the Representatives advising the Company to the effect set forth above, forthwith prepare, consult with the Representatives concerning the substance of, and disseminate a press release or other public statement, reasonably satisfactory to the Representatives, responding to or commenting on such publication or event. (l) For a period ending 180 days from the date of the Prospectus, the Company will not, without your prior written consent, issue, sell, offer or agree to sell, or otherwise dispose of, directly or indirectly, any Common Stock, any options, rights or warrants with respect to any shares of Common Stock or any securities convertible into, exercisable for or exchangeable for Common Stock other than the sale of the Shares and the Option Shares to be sold by the Company hereunder, the Company's issuance of shares of Common Stock pursuant to the exercise of currently outstanding stock options and warrants and the grant of options currently authorized under the Company's 1991 Incentive Stock Option Plan. II. The Selling Stockholder agrees with each of the Underwriters and the Company that in order to document the Underwriters' compliance with the reporting and withholding provisions of the Tax Equity and Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax Compliance Act of 1983 with respect to the transactions herein contemplated, the Selling Stockholder shall deliver to you prior to or on the Closing Date a properly completed and executed United States Treasury Department Form W-9 or Form W-8 (or other applicable form or statement specified by Treasury Department regulations in lieu thereof). 5. PAYMENT OF EXPENSES. (a) The Company agrees to pay on each of the Closing Date and the Option Closing Date (to the extent not paid on the Closing Date) all expenses and fees (other than fees of Underwriters' Counsel, except as provided in (iii), (v) and (vii) below) incident to the performance of the obligations of the Company and the Selling Stockholder under this Agreement (provided that as between the Company and the Selling Stockholder their relative obligations to pay shall be in such a manner as the Company and the Selling Stockholder have agreed or shall agree), including, without limitation, (i) the fees and expenses of accountants and counsel for the Company, (ii) all costs and expenses incurred in connection with the preparation, duplication, printing, filing (including the filing fees of the Commission), mailing (including postage with respect thereto) and delivery of the Registration Statement, the Preliminary Prospectuses and the Prospectus and any amendments and supplements thereto, including the cost of all copies thereof supplied to the Underwriters in quantities as hereinabove stated, (iii) all costs and expenses incurred in connection with the printing, mailing and delivery of this Agreement, the Selected Dealer Agreements, the Agreement Among Underwriters, Underwriters' Questionnaires, Underwriters' Powers of Attorney, the Selling Stockholder's Power of Attorney and Custody Agreement and related documents, including the cost of all copies thereof supplied to the Underwriters in quantities as hereinabove stated, (iv) the printing, engraving, issuance and delivery of the Shares, including any transfer or other taxes payable thereon, (v) the qualification of the Shares under state or foreign securities or Blue Sky laws, including the costs or printing and mailing a Blue Sky Memorandum and any supplements or amendments thereto and disbursements and fees of Peabody & Brown, Underwriters' Counsel, in connection therewith, (vi) fees and expenses of the Company's transfer agent, (vii) fees and expenses incurred in connection with the review by the NASD of certain of the matters set forth in this 14 15 Agreement, and (viii) the fees and expenses incurred in connection with the listing of the Shares on the NASDAQ-NMS and any other exchange. (b) If this Agreement is terminated by the Representatives in accordance with the provisions of Section 6, Section 10(b) or Section 12, unless the basis upon which the Representatives terminate this Agreement results from the default or omission of any Underwriter, the Company shall reimburse and indemnify the Underwriters for all of their reasonable out-of-pocket expenses (provided that as between the Company and the Selling Stockholder their relative obligations to pay shall be in such a manner as the Company and the Selling Stockholder have agreed or shall agree), including the fees and disbursements of Peabody & Brown, Underwriters' Counsel, and the Blue Sky fees and expenses identified in Section 5(a)(v) above. 6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the Underwriters hereunder shall be subject to the continuing accuracy of the representations and warranties of the Company and the Selling Stockholder herein as of the date hereof and as of the Closing Date and (with respect to the Company) the Option Closing Date, if any, as if they had been made on and as of the Closing Date or the Option Closing Date, as the case may be; the accuracy on and as of the Closing Date or Option Closing Date, if any, of the statements of officers of the Company made pursuant to the provisions hereof; and the performance by the Company and the Selling Stockholder on and as of the Closing Date and (with respect to the Company) the Option Closing Date, if any, of its respective covenants and obligations hereunder and to the following further conditions: (a) The Registration Statement shall have become effective not later than 5:00 p.m.., Eastern Time, on the date of this Agreement or such later date and time as shall be consented to in writing by the Representatives, and, at the Closing Date and the Option Closing Date, if any, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the satisfaction of Underwriters' Counsel. If the Company has elected to rely upon Rule 430A of the Rules and Regulations under the Act, the price of the Shares and any other information previously omitted from the effective Registration Statement pursuant to such Rule 430A shall have been transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules and Regulations under the Act within the prescribed time period, and, prior to the Closing Date, the Company shall have provided evidence satisfactory to the Representatives of such timely filing, or a post-effective amendment providing such information shall have been promptly filed and declared effective in accordance with the requirements of Rule 430A of the Rules and Regulations under the Act. (b) The Representatives shall not have advised the Company that the Registration Statement, or any amendment thereto, contains an untrue statement of fact that, in the Representatives' opinion or in the opinion of Underwriters' Counsel, is material, or omits to state a fact that, in the Representatives' opinion or in the opinion of Underwriters' Counsel, is material and is required to be stated therein or is necessary to make the statements therein not misleading, or that the Prospectus, or any supplement thereto, contains an untrue statement of fact that, in the Representatives' opinion or in the opinion of Underwriters' Counsel, is material, or omits to state a fact that, in the Representatives' opinion or in the opinion of Underwriters' Counsel, is material and is required to be stated therein or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (c) On the Closing Date and the Option Closing Date, if any, the Representatives shall have received the opinion of Peabody & Brown, Underwriters' Counsel, dated the Closing Date and the Option Closing Date, if any, addressed to the Representatives, to the effect that: (i) the capital stock of the Company, including, without limitation, the Common Stock, conforms in all material respects to the description thereof contained in the Prospectus; 15 16 (ii) the Registration Statement is effective under the Act, and if applicable, the filing of all pricing and other information has been timely made in the appropriate form under Rule 430A of the Rules and Regulations, and, to such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or threatened by the Commission. Such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company, counsel for the Company, representatives of the independent certified public accountants for the Company and the Representatives, at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed, and, although such counsel is not passing upon and does not assume any responsibility for, nor has such counsel independently verified, the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus (except as to matters referred to in subparagraph (i) above of this Section 6(c)), no facts have come to the attention of such counsel (relying as to materiality to a large extent upon the opinions of officers and other representatives of the Company) that lead them to believe that either the Registration Statement or any amendment thereto, at the time such Registration Statement or amendment became effective or any Preliminary Prospectus (other than information omitted pursuant to Rule 430A) or the Prospectus or any amendment or supplement thereto as of the date of such opinion contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading (it being understood that such counsel need express no view with respect to the financial statements and schedules and other financial and statistical data included in any Preliminary Prospectus, the Registration Statement (including any exhibit thereto) or the Prospectus or any amendment or supplement thereto); (iii) each of the Preliminary Prospectuses, the Registration Statement and the Prospectus and any amendments or supplements thereto (other than the financial statements and schedules and other financial and statistical data included therein, as to which no opinion need be rendered) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations; and (iv) this Agreement has been duly authorized, executed and delivered by the Company. The opinion of Underwriters' Counsel to be dated the Option Closing Date, if any, may confirm as of the Option Closing Date the statements made by such counsel in their opinion delivered on the Closing Date. (d) On the Closing Date and the Option Closing Date, if any, the Underwriters shall have received the favorable opinion of Hackmyer & Nordlicht, counsel to the Company, dated the Closing Date and the Option Closing Date, if any, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) the Company and each of the Subsidiaries (A) are duly organized and validly existing as corporations or, with respect to the Joint Venture, as a limited liability company, in good standing under the laws of the State of Delaware, and (B) are duly qualified and licensed and in good standing as foreign corporations or as a foreign limited liability company, as the case may be, in each jurisdiction in which their respective ownership or leasing of any properties or the character of their respective operations require such qualification or licensing, except where the failure to be so qualified, considering all such cases in the aggregate, does not involve a material risk to the businesses, properties, financial position or results of operations of the Company and the Subsidiaries taken as a whole; all of the outstanding shares of capital stock of each of the Wholly-Owned Subsidiaries have been duly authorized and validly issued and are fully-paid and non-assessable, and, according to the stock ledger of each Wholly-Owned Subsidiary, all of the outstanding shares of capital stock of the Wholly-Owned Subsidiaries are owned of record by the Company; and 50 percent of the ownership interests in the Joint Venture are owned by the Company and the other 50 percent of such ownership interests are owned by General Cable Industries, Inc. To such counsel's 16 17 knowledge, relying solely on the stock ledger, stock transfer ledger and minute books of the Wholly-Owned Subsidiaries and the Joint Venture and certificates of the Company's officers, and without making any other investigation, independent or otherwise, the outstanding shares of capital stock of the Wholly-Owned Subsidiaries owned by the Company and the 50 percent ownership interests in the Joint Venture owned by APD are owned free and clear of all liens, encumbrances and security interests, except that all of the outstanding shares of capital stock of the Wholly-Owned Subsidiaries are pledged as security for the Company's aggregate principal amount of $24 million Senior Secured Notes and $20 million revolving credit facility from Fleet National Bank, and no options, warrants or other rights to purchase, agreements or other obligations to issue or other rights to convert any obligations into, or exchange any securities for, any shares of capital stock of or ownership interests in any of the Subsidiaries are outstanding, except for certain rights held by GCI to acquire the interests of APD in the Joint Venture in certain circumstances; (ii) the Company and each of the Subsidiaries have the corporate or other power to own, lease and operate their respective properties and to conduct their respective businesses as described in the Prospectus; (iii) the authorized and outstanding capital stock of the Company as of September 30, 1996, is as set forth in the Prospectus under the heading "Capitalization," subject to the assumptions set forth therein, and, except as provided for in this Agreement and as described in the Prospectus, to such counsel's knowledge the Company is not a party to or bound by any instrument, agreement or other arrangement providing (except for stock options and underlying shares of Common Stock under the Company's 1991 Incentive Stock Option Plan and shares of Common Stock underlying the warrants held by the Selling Stockholder described in the Prospectus) for it to issue any capital stock, rights, warrants, options or other securities. All shares of Common Stock of the Company issued and outstanding on the date hereof prior to the issuance of the Shares have been duly authorized and validly issued and are fully paid and non-assessable; and to such counsel's knowledge, none of such shares were issued in violation of any preemptive right, co-sale right, right of first refusal or other similar right; and the capital stock of the Company, including, without limitation, the Common Stock, conforms in all material respects to the description thereof contained in the Prospectus. To such counsel's knowledge, the Firm Shares and the Option Shares are not and will not be subject to any preemptive rights or other rights to subscribe for or purchase securities. The Firm Shares and the Option Shares have been duly authorized and, when issued, paid for and delivered in accordance with the terms hereof, will be validly issued, fully paid and non-assessable; and the certificates representing the Shares are in due and proper form. To such counsel's knowledge, no holders of any securities of the Company or of any options, warrants or other convertible or exchangeable securities of the Company exercisable for or convertible or exchangeable for securities of the Company have the right to include any securities issued by the Company in the Registration Statement or any registration statement to be filed by the Company within 180 days of the date hereof or to require the Company to file a registration statement under the Act during such 180-day period; (iv) the Registration Statement is effective under the Act, and, if applicable, the filing of all pricing and other information has been timely made in the appropriate form under Rule 430A of the Rules and Regulations under the Act, and, to the best of such counsel's knowledge, no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or to such counsel's knowledge, threatened by the Commission; (v) each of the Preliminary Prospectuses, the Registration Statement and the Prospectus and any amendment or supplement thereto (other than the financial statements and schedules, related notes and other financial and statistical data included therein, as to which no opinion need be rendered) comply as to form in all material respects with the requirements of the Act and the Rules and Regulations under the Act; and the documents incorporated by reference in the Registration Statement and the Prospectus and any amendments or supplements thereto, when they became effective under the Act or were filed with the Commission under the Exchange Act, as the case may 17 18 be, complied as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the Rules and Regulations. Such counsel shall state that such counsel has participated in conferences with officers and other representatives of the Company and representatives of the independent certified public accountants for the Company, at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed, and, although such counsel is not passing upon and does not assume any responsibility for, nor has such counsel independently verified, the accuracy, completeness or fairness of the statements contained in the Registration Statement and Prospectus (except as to matters referred to in subparagraph (xii) (insofar as they relate to statements in the Prospectus under the heading "DESCRIPTION OF SECURITIES") and in the third clause of the second sentence of subparagraph (iii) of this Section 6(d)), no facts have come to the attention of such counsel that lead them to believe that either the Registration Statement or any amendment thereto, at the time such Registration Statement or amendment became effective or any Preliminary Prospectus (other than information omitted pursuant to Rule 430A) or the Prospectus or any amendment or supplement thereto as of the date of such opinion contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading; further, no facts have come to the attention of such counsel to cause it to believe that any document incorporated by reference in the Registration Statement, the Prospectus, any amendment or supplement thereto or any Preliminary Prospectus, as of the date of the filing thereof with the Commission, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading and no facts have come to the attention of such counsel that cause it to believe that on the Closing Date or the Option Closing Date, as the case may be, such incorporated documents taken as a whole contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading (it being understood that such counsel need express no view with respect to the financial statements and schedules, related notes, and other financial and statistical data included or incorporated by reference in any Preliminary Prospectus, the Registration Statement (including any exhibit thereto) or the Prospectus or any amendment or supplement thereto). In addition, such counsel shall state that they know of no contracts, leases or other documents of a character required to be described in the Registration Statement or Prospectus or to be filed or incorporated by reference as exhibits to the Registration Statement which are not described or filed or incorporated by reference as required; (vi) (A) to such counsel's knowledge, there is not pending or threatened against the Company or any of the Subsidiaries, or involving any of their respective properties or businesses, any action, suit, proceeding, inquiry, investigation, litigation or governmental proceeding, domestic or foreign, that (x) is required to be disclosed in the Registration Statement and is not so disclosed (and such proceedings as are summarized in the Registration Statement are accurately summarized in all respects), (y) questions the validity of the capital stock of the Company or this Agreement or of any action taken or to be taken by the Company pursuant to or in connection with this Agreement, or (z) except as may be disclosed in the Registration Statement, may have a Material Adverse Effect; and (B) no statute or regulation or legal or governmental proceeding required to be described in the Prospectus is not described as required; (vii) such counsel is not aware of any claim of infringement on the part of any third party of the patents or patent applications of the Company or any of the Subsidiaries, patents licensed to the Company or any of the Subsidiaries or trademarks, trade secrets, know-how or other proprietary rights of the Company or any of the Subsidiaries; (viii) the Company has full legal right, power and authority to enter into this Agreement and to consummate the transactions provided for herein; and this Agreement has been duly authorized, executed and delivered by the Company. None of the Company's execution or delivery of this Agreement, its performance hereunder or its consummation of the transactions contemplated herein conflicts with or will conflict with or results or will result in any breach or violation of any of the 18 19 material terms or provisions of, or constitutes or will constitute a default under, or result in the creation or imposition of any lien, charge, claim, encumbrance, pledge, security interest, defect or other restriction on equity of any kind whatsoever upon, any property or assets (tangible or intangible) of the Company or any of the Subsidiaries pursuant to the terms of (A) the corporate charter, operating agreement or by-laws or other governing instrument of the Company or any of the Subsidiaries, (B) any voting trust agreement or any stockholders agreement, or any indenture, mortgage, deed of trust, note, loan or credit agreement or other agreement or instrument known to such counsel to which the Company or any of the Subsidiaries is a party or by which any of them is or may be bound or to which any of their respective properties or assets (tangible or intangible) is or may be subject, or (C) any statute, rule or regulation or, to such counsel's knowledge, any judgment, decree or order applicable to the Company or any of the Subsidiaries of any arbitrator, court, regulatory body or administrative agency or other governmental agency or body having jurisdiction over the Company or any of the Subsidiaries or any of their respective activities or properties, the violation of which would have a Material Adverse Effect; (ix) no consent, approval, authorization or order, and no filing with, any federal or state court, regulatory body, government agency or other body (other than such as have been effected under the Act and such as may be required under Blue Sky or state securities laws or the rules of the NASD in connection with the purchase and distribution of the Shares by the Underwriters, as to which no opinion need be rendered) is required in connection with the issuance of the Shares pursuant to the Prospectus and the Registration Statement, the performance of this Agreement and the transactions contemplated hereby; (x) neither the Company nor any of the Subsidiaries is in violation of any term or provision of its corporate charter, operating agreement, or by-laws or other governing instrument; (xi) the statements in the Prospectus under the captions "BUSINESS-Proprietary Rights" and "DESCRIPTION OF SECURITIES" have been reviewed by such counsel, and insofar as they refer to statements of law, descriptions of statutes, contracts, licenses, rules or regulations or legal conclusions, are correct in all material respects; (xii) the Company is not an "investment company" or an "affiliated person" or "promoter" of, or "principal underwriter" for, an "investment company," as defined in the 1940 Act or subject to regulation under such Act; and (xiii) to such counsel's knowledge, no person, corporation, trust, partnership, association or other entity has the right to include and/or register any securities of the Company in the Registration Statement or to require the Company to file any registration statement. In rendering such opinions, such counsel may rely as to matters of fact, to the extent they deem proper, on certificates and written statements of responsible officers of the Company and the Subsidiaries and certificates or other written statements of officers of departments of various jurisdictions having custody of documents respecting the corporate existence or good standing of the Company and the Subsidiaries, provided that copies of any such statements or certificates shall be delivered to Underwriters' Counsel if requested and may rely on opinions of Pennie and Edmonds, patent counsel of the Company, for matters relating to intellectual property provided that such opinion shall be delivered to Underwriters' Counsel. For purposes of any of the opinions to be rendered by such counsel pursuant to this subsection (d) of Section 6, the term "to such counsel's knowledge" shall mean, to the extent that such opinion relates to a factual issue or to a mixed questions of law and fact, that after examination of documents in such counsel's files and considering the actual knowledge of the individual attorneys in such counsel's firm who have given substantive attention to matters on behalf of the Company or his or her role as counsel, such counsel finds no reason to believe that any of such opinions is factually incorrect, and that no further investigation, independent or otherwise, has been undertaken by such counsel. 19 20 The opinion of Hackmyer & Nordlicht, counsel to the Company, to be dated the Option Closing Date, if any, may confirm as of the Option Closing Date the statements made by such counsel in their opinion delivered on the Closing Date. (e) On the Closing Date, the Underwriters shall have received the favorable opinion of , counsel to the Selling Stockholder, dated the Closing Date, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) the Power of Attorney and the Custody Agreement of the Selling Stockholder have been duly authorized, executed and delivered on behalf of the Selling Stockholder and are valid instruments legally sufficient for the purposes intended; (ii) the Selling Stockholder has full right, power and authority to enter into and to perform its obligations under this Agreement and to sell, transfer, assign and deliver the Shares to be sold by the Selling Stockholder hereunder; (iii) this Agreement has been duly authorized, executed and delivered on behalf of the Selling Stockholder; (iv) upon the delivery of and payment for the Shares as contemplated in this Agreement, and upon registration of the Shares in the names of the Underwriters, the Underwriters will have acquired good and valid title to the Shares being sold by the Selling Stockholder free of any pledge, lien, security interest, encumbrance, claim or equitable interest, including any lien in favor of the Company or any restriction on transfer imposed by the Company; and the owner of the Shares being sold by the Selling Stockholder hereunder, if other than the Selling Stockholder, is precluded from asserting against the Underwriters the ineffectiveness of any unauthorized endorsement. (f) On the Closing Date and the Option Closing Date, if any, the Underwriters shall have received the favorable opinion of Pennie and Edmonds, patent counsel to the Company, dated the Closing Date and the Option Closing Date, if any, addressed to the Underwriters and in form and substance satisfactory to Underwriters' Counsel, to the effect that: (i) the License Agreement (the "Corning Agreement") dated as of January 1, 1991 between Corning Incorporated ("Corning") and the Company licenses the Company to make, use and sell optical fiber under U.S. patents owned by Corning during the term of the Corning Agreement which relate to optical fiber and which have filing dates prior to January 1, 1996. (ii) the Patent License Agreement between Lucent Technologies, Inc. ("Lucent") (successor to American Telephone and Telegraph Company and Western Electric Company, Incorporated (collectively, "AT&T")) and the Company dated August 15, 1981 licenses the Company to make, use and sell optical fiber and optical fiber cables under U.S. and foreign patents issued at any time for inventions made prior to August 14, 1986 and owned or controlled by AT&T or its subsidiaries. (iii) the Company has been granted "have made" license rights such that the Company may manufacture optical fiber for Corning and Lucent using its current processes without accruing royalties to Corning or Lucent and without regard to quantity limitations set forth in the Corning Agreement. (iv) based on assumptions set forth in the opinion, the Company's manufacture, use and sale of single-mode optical fiber has not been restricted by U.S. patents of Corning or subject to the Corning Agreement since 1993 and the Company's manufacture, use and sale of multimode optical fiber will not be restricted by U.S. patents of Corning or be subject to the Corning Agreement after 1999. A certain identified U.S. patent of Lucent relating to Company's single-mode and multimode fiber expires in 1997. (v) to the extent not disclosed in the Prospectus, the Company is listed in the records of the U.S. Patent Office and Trademark Office as the holder of record of the patents and patent applications set forth in a schedule to such opinion, and such counsel knows of no unrecorded claims 20 21 of third parties to any ownership interest or lien with respect to any of such patents or patent applications; (vi) the statements in the Prospectus under the caption "BUSINESS-Proprietary Rights" (the "Intellectual Property Portion"), to the best of such counsel's knowledge, insofar as such statements constitute a summary of the Company's patents and patent applications, the expiration of certain patents owned by Corning and Lucent, licenses granted to the Company to make, use and sell optical fiber, "have made" license rights granted to the Company by Corning and Lucent and sales to the United States government, are in all material respects accurate summaries and fairly summarize such matters in all material respects, insofar as they refer to legal matters, documents and proceedings relating to such matters; (vii) such counsel is not aware that any of the Company's patents is invalid or that any patent issued in respect of any of the Company's patent applications would be invalid; (viii) such counsel is not aware that any valid patent, including any patent relating to the manufacture of optical fiber or optical fiber cable, is infringed by the activities of the Company described in the Prospectus; (ix) such counsel is not aware of any material defects or form in the preparation or filing of patent applications on behalf of the Company. Such patent applications have been diligently pursued by the Company; (x) such counsel is not aware of any pending or threatened action, suit, proceeding or claim by others that the Company is infringing or otherwise violating any patents, trademarks, trade secrets, know-how or other proprietary rights; (xi) except as specifically disclosed in the Prospectus, such counsel is not aware of any pending or threatened action, suit, proceeding, or claim by others challenging the validity or scope of the patent applications or the patents held by or licensed to the Company; (xii) according to such counsel's records, the Company is listed or is in the process of being listed in the records of the appropriate foreign office as the sole holder of record of the foreign patents and foreign patent applications set forth in a schedule of such opinion. Such counsel knows of no claims of third parties to any ownership interest or lien with respect to any of such patents or patent applications. Such counsel shall also state that since at least 1982 it has represented the Company in the prosecution of all of its patents and that such counsel has participated in conferences with employees of the Company at which the Company's patents, patent applications and the contents of the Intellectual Property Portion of the Registration Statement were discussed, and, although such counsel is not passing upon and does not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement (except as to matters referred to in subparagraph (vi) of this Section 6(f)), on the basis of such conferences and such representation of the Company, nothing has come to the attention of such counsel which leads them to believe that the Intellectual Property Portion of the Registration Statement or any amendment thereto, at the time such Registration Statement or amendment became effective, and such portion of the Prospectus or any amendment or supplement thereto, on the date such Prospectus or amendment or supplement thereto was filed pursuant to Rule 424(b), and such portion of the Registration Statement and the Prospectus, or any amendment or supplement thereto, as of the date of such opinion contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. For purposes of any of the opinions to be rendered by such counsel pursuant to this subsection (f) of Section 6, the term "to the best of such counsel's knowledge" shall mean, to the extent that such opinion relates to a factual issue or to a mixed questions of law and fact, that after examination of documents in such counsel's files and considering the actual knowledge of the individual attorneys in such counsel's 21 22 firm who have given substantive attention to matters on behalf of the Company, such counsel finds no reason to believe that any of such opinions is factually incorrect. The favorable opinion of Pennie and Edmonds, patent counsel to the Company, to be dated the Option Closing Date, if any, may confirm as of the Option Closing Date the statements made in their opinion delivered on the Closing Date. (g) On or prior to each of the Closing Date and the Option Closing Date, if any, Underwriters' Counsel shall have been furnished such customary documents, certificates and opinions as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in subsection (c) of this Section 6, or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions of the Company, the Selling Stockholder or herein contained. (h) Prior to each of the Closing Date and the Option Closing Date, if any, (i) from the respective dates as of which information is set forth in the Registration Statement and Prospectus, there shall have been no developments that, individually or in the aggregate, have had a Material Adverse Effect; (ii) there shall have been no transaction, not in the ordinary course of business, entered into by the Company or any of the Subsidiaries, from the latest date as of which the financial condition of the Company and the Subsidiaries is set forth in the Registration Statement and Prospectus, that, individually or in the aggregate, has had a Material Adverse Effect; (iii) neither the Company nor any of the Subsidiaries shall be in default under any provision of any instrument relating to any of their respective outstanding indebtedness; (iv) no material amount of the assets of the Company or any of the Subsidiaries shall have been pledged or mortgaged, except as set forth in the Registration Statement and Prospectus (including the exhibits to the Registration Statement); (v) no action, suit or proceeding, at law or in equity, shall have been pending or, to the knowledge of the Company, threatened against the Company or any of the Subsidiaries, or affecting any of their respective properties or businesses before or by any court or federal, state or foreign commission, board or other administrative agency wherein an unfavorable decision, ruling or finding would have a Material Adverse Effect; and (vi) no stop order shall have been issued under the Act and no proceedings therefor shall have been initiated, or, to the Company's knowledge, threatened or contemplated by the Commission. (i) At each of the Closing Date and the Option Closing Date, if any, the Underwriters shall have received a certificate of the Company signed by the principal executive officer and by the chief financial officer of the Company, dated the Closing Date or Option Closing Date, as the case may be, to the effect that each of such persons has carefully examined the Registration Statement, the Prospectus and this Agreement and that: (i) the representations and warranties of the Company in this Agreement are true and correct, as if made on and as of the Closing Date or the Option Closing Date, as the case may be, and the Company has complied with all agreements and covenants and satisfied all conditions contained in this Agreement on its part to be performed or satisfied at or prior to such Closing Date or Option Closing Date, as the case may be; (ii) no stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for that purpose have been instituted or are pending or, to the knowledge of such officer, are threatened under the Act; (iii) none of the Registration Statement, the Prospectus nor any amendment or supplement thereto includes any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading and neither the Preliminary Prospectus or any supplement thereto included any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; and (iv) subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus, neither the Company nor any of the Subsidiaries have incurred up to 22 23 and including the Closing Date or the Option Closing Date, as the case may be, other than in the ordinary course of their respective businesses, any material liabilities or obligations, direct or contingent; the Company has not paid or declared any dividends or other distributions on its capital stock; neither the Company nor any of the Subsidiaries has entered into any transactions not in the ordinary course of business; and there has not been any material change in the capital stock or long-term debt or any material increase in the short-term borrowings of the Company or any of the Subsidiaries; neither the Company nor any of the Subsidiaries has sustained any material loss or damage to its property or assets, whether or not insured; there is no litigation that is pending or, to the knowledge of such officers, threatened against the Company or any of the Subsidiaries that is required to be set forth in an amended or supplemented Prospectus that has not been set forth; and there has occurred no event required to be set forth in an amended or supplemented Prospectus that has not been set forth. References to the Registration Statement and the Prospectus in this subsection (i) are to such documents as amended and supplemented at the date of such certificate. (j) At the Closing Date, the Underwriters shall have received a certificate of the Selling Stockholder dated the Closing Date to the effect that the representations and warranties of the Selling Stockholder in this Agreement are true and correct, as if made on and as of the Closing Date, and the Selling Stockholder has complied with all agreements and covenants and satisfied all conditions contained in this Agreement on its part to be performed or satisfied at or prior to the Closing Date. (k) On the date of this Agreement, the Representatives shall have received a letter in form and substance satisfactory to the Underwriters and the Underwriters' Counsel addressed to the Underwriters and dated the date of this Agreement from KPMG and signed by such firm with respect to such matters as shall have been specified to such firm by the Representatives prior to the date hereof. At the Closing Date and the Option Closing Date, if any, the Underwriters shall have received from KPMG a letter, dated as of the Closing Date or the Option Closing Date, as the case may be, reaffirming the statements made in the letter furnished by KPMG to the Underwriters concurrently with the execution of this Agreement, each such reaffirming letter to be in form and substance satisfactory to the Underwriters and the Underwriters' Counsel. (l) On each of the Closing Date and the Option Closing Date, if any, there shall have been duly tendered to the Representatives for the several Underwriters' accounts the appropriate number of Shares. (m) No order suspending the sale of the Shares in any jurisdiction designated by the Representatives pursuant to subsection (c) of Section 4 hereof shall have been issued on either the Closing Date or the Option Closing Date, if any, and no proceedings for that purpose shall have been instituted or to the knowledge of the Representatives or the Company shall be contemplated. (n) The Underwriters shall have received the written agreements of the officers and directors referred to in Section 1.I(ee) hereof. (o) The Shares delivered on the Closing Date or the Option Closing Date shall have been duly listed, subject to notice of official issuance, on the Nasdaq National Market. If any condition to the Underwriters' obligations thereunder to be fulfilled prior to or at the Closing Date or the relevant Option Closing Date, as the case may be, is not so fulfilled, the Representatives may terminate this Agreement or, if the Representatives so elect, they may waive any such conditions that have not been fulfilled or extend the time for their fulfillment. 7. INDEMNIFICATION AND CONTRIBUTION. (a) The Company agrees to indemnify and hold harmless each Underwriter against any losses, claims, damages or liabilities, joint or several, to which such Underwriter may become subject, under the Act or otherwise, specifically including but not limited to losses, claims, damages or liabilities related to negligence on the part of any Underwriter, insofar as such losses, claims, damages or liabilities (or actions 23 24 in respect thereof) arise out of or are based upon any breach of any representation, warranty, agreement or covenant of the Company herein contained or any untrue statement or alleged untrue statement of any material fact contained in the Registration Statement, any Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading; and agrees to reimburse each Underwriter for any legal or other expenses reasonably incurred by it in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in the Registration Statement, such Preliminary Prospectus or the Prospectus, or any such amendment or supplement, in reliance upon and in strict conformity with written information furnished with respect to any Underwriter by such Underwriter expressly for use in the Registration Statement, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, provided that such written information or omissions only pertain to disclosures in the Registration Statement, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto directly relating to the transactions effected by the Underwriters in connection with this offering, and provided further that the foregoing indemnity with respect to any Preliminary Prospectus shall not inure to the benefit of any Underwriter (or to the benefit of any person controlling such Underwriter) if such untrue statement or omission or alleged untrue statement or omission made in any Preliminary Prospectus is eliminated or remedied in the Prospectus and a copy of the Prospectus has not been furnished to the person asserting any such loss, claim, damage or liability at or prior to the written confirmation of the sale of such Shares to such person. The indemnity agreement in this Section 7(a) shall extend upon the same terms and conditions to, and shall inure to the benefit of each person, if any, who controls any Underwriter within the meaning of the Act. This indemnity agreement shall be in addition to any liabilities which the Company or the Selling Stockholder may otherwise have. (b) The Selling Stockholder agrees to indemnify and hold harmless each Underwriter to the same extent as the foregoing indemnity from the Company to the Underwriters but only with respect to statements or omissions, if any, made in the Registration Statement, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto made in reliance upon, and in strict conformity with, written information furnished with respect to the Selling Stockholder by the Selling Stockholder expressly for use in the Registration Statement, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, provided that such written information or omissions only pertain to disclosures in the Registration Statement, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto directly relating to the transactions effected by the Selling Stockholder in connection with this offering. The indemnity agreement in this Section 7(b) shall extend upon the same terms and conditions to, and shall inure to the benefit of each person, if any, who controls any Underwriter within the meaning of the Act. This indemnity agreement shall be in addition to any liabilities which the Company or the Selling Stockholder may otherwise have. (c) Each Underwriter, severally and not jointly, agrees to indemnify and hold harmless the Company and the Selling Stockholder to the same extent as the foregoing indemnity from the Company to the Underwriters but only with respect to statements or omissions, if any, made in the Registration Statement, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto made in reliance upon, and in strict conformity with, written information furnished with respect to any Underwriter by such Underwriter expressly for use in the Registration Statement, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto, provided that such written information or omissions only pertain to disclosures in the Registration Statement, any Preliminary Prospectus or the Prospectus or any amendment or supplement thereto directly relating to the transactions effected by the Underwriters in connection with this offering. 24 25 The indemnity agreement in this Section 7(c) shall extend upon the same terms and conditions to, and shall inure to the benefit of, each officer and director of the Company who has signed the Registration Statement, the Selling Stockholder and each person, if any, who controls the Company or the Selling Stockholder within the meaning of the Act. This indemnity agreement shall be in addition to any liabilities which each Underwriter may otherwise have. For purposes of this Section 7, the Company and the Selling Stockholder acknowledge that the statements with respect to the public offering of the Shares set forth under the heading "UNDERWRITING" and the stabilization legend in the Prospectus and the last paragraph on the outside front cover page of the Prospectus have been furnished by the Underwriters expressly for use therein and constitute the only information furnished in writing by or on behalf of the Underwriters for inclusion in the Prospectus. (d) Promptly after receipt by an indemnified party under this Section 7 of notice of the commencement of any action, such indemnified party will, if a claim in respect thereof is to be made against the indemnifying party under this Section 7, notify the indemnifying party in writing of the commencement thereof but the omission so to notify the indemnifying party will not relieve it from any liability which it may have to any indemnified party under this Section 7 (except to the extent that the omissions of such notice causes actual prejudice to the indemnifying party), or otherwise than under this Section 7. In case any such action is brought against any indemnified party, and it notified the indemnifying party of the commencement thereof, the indemnifying party will be entitled to participate therein, and to the extent that it may elect by written notice delivered to the indemnified party promptly after receiving the aforesaid notice from such indemnified party, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided, however, if the defendants in any such action include both the indemnified parties and the indemnifying party and counsel for the indemnified party shall have reasonably concluded that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party or parties shall have the right to select separate counsel reasonably satisfactory to the indemnifying party or parties to assume such legal defenses and to otherwise participate in the defense of such action on behalf of such indemnified party or parties. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 7 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed separate counsel in accordance with the proviso to the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel approved by the indemnifying party, representing all the indemnified parties under Section 7(a), 7(b) or 7(c) hereof who are parties to such action), (ii) the indemnifying party shall not have employed counsel satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action, or (iii) the indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. In no event shall any indemnifying party be liable in respect of any amounts paid in settlement of any action unless the indemnifying party shall have approved the terms of such settlement; provided however that such consent shall not be unreasonably withheld. (e) In order to provide for just and equitable contribution in any action in which a claim for indemnification is made pursuant to this Section 7 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 7 provides for indemnification in such case, all the parties hereto shall contribute to the aggregate loses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that, except as set forth in Section 7(f) hereof, the Underwriters are responsible pro rata for the portion represented by the percentage that the underwriting discount bears to the initial public offering price, and the Company and the Selling Stockholder are responsible for the remaining portion, provided, however, that (i) no Underwriter shall be required to contribute any amount in excess of the underwriting discount applicable to the Shares purchased by such Underwriter, and (ii) 25 26 no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to a contribution from any person who is not guilty of such fraudulent misrepresentation. This subsection (e) shall not be operative as to any Underwriter to the extent that the Company or the Selling Stockholder has received indemnity payments from such Underwriter under this Section 7 which are not required to be returned pursuant to the order of any court of competent jurisdiction. (f) The liability of the Selling Stockholder under the representations and warranties contained in Section 1 hereof and under the indemnity agreements contained in the provisions of this Section 7 shall be limited in the aggregate to an amount equal to the initial public offering price of the Shares sold by the Selling Stockholder to the Underwriters minus the amount of the underwriting discount paid thereon to the Underwriters by the Selling Stockholder. The Company and the Selling Stockholder may agree, as between themselves and without limiting the rights of the Underwriters under this Agreement, as to the respective amounts of such liability for which they each shall be responsible. (g) The parties to this Agreement hereby acknowledge that they are sophisticated business persons who were represented by counsel during the negotiations regarding the provisions hereof including without limitation the provisions of this Section 7, and are fully informed regarding such provisions. They further acknowledge that the provisions of this Section 7 fairly allocate the risks in light of the ability of the parties to investigate the Company and its business in order to assure that adequate disclosure is made in the Registration Statement and Prospectus as required by the Act and the Exchange Act. The parties are advised that federal or state public policy, as interpreted by the courts in certain jurisdictions, may be contrary to certain of the provisions of this Section 7, and the parties hereto hereby expressly waive and relinquish any right or ability to assert such public policy as a defense to a claim under this Section 7 and further agree not to attempt to assert any such defense. 8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements contained in this Agreement or contained in certificates of officers of the Company submitted pursuant hereto shall be deemed to be representations, warranties and agreements at the Closing Date and the Option Closing Date, as the case may be, and such representations, warranties and agreements, and the indemnity and contribution agreements contained in Section 7 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any Underwriter, the Company, the Selling Stockholder or any controlling person, and shall survive termination of this Agreement or the issuance or sale and delivery of the Shares to the Underwriters. 9. EFFECTIVE DATE. This Agreement shall become effective at 9:30 a.m., Eastern Time, on the date hereof, or at such earlier time after the Registration Statement becomes effective as the Representatives, in their sole discretion, shall release the Shares for the sale to the public, provided, however that the provisions of Sections 5, 7 and 9 of this Agreement shall at all times be effective. For purposes of this Section 9, the Shares to be purchased hereunder shall be deemed to have been so released upon the earlier of dispatch by the Representatives of telegrams to securities dealers releasing such Shares for offering or the release by the Representatives for publication of the first newspaper advertisement that is subsequently published relating to the Shares. 10. TERMINATION. (a) Subject to subsection (d) of this Section 10, the Company may at any time before this Agreement becomes effective in accordance with Section 9, terminate this Agreement. (b) Subject to subsection (d) of this Section 10, the Representatives shall have the right to terminate this Agreement, (i) if any calamitous domestic or international event or act or occurrence has materially disrupted, or in the Representatives' opinion will in the immediate future materially disrupt, general securities markets in the United States; or (ii) if trading on the New York Stock Exchange, the American Stock Exchange or in the over-the-counter market shall have been suspended, or minimum or maximum prices for trading shall have been fixed, or maximum ranges for prices for securities shall have 26 27 been required on the over-the-counter market by the NASD or by order of the Commission or any other government authority having jurisdiction; or (iii) if the United States shall have become involved in a war or major hostilities; or (iv) if a banking moratorium has been declared by New York State, the Commonwealth of Massachusetts or any federal authority; or (v) if a moratorium in foreign exchange trading has been declared; or (vi) if the Company shall have sustained a loss material or substantial to the Company by fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity or malicious act that, whether or not such loss shall have been insured, will, in the Representatives' reasonable opinion, make it inadvisable to proceed with the delivery of the Shares; or (vii) if there shall have been a Material Adverse Effect. (c) If any party hereto elects to prevent this Agreement from becoming effective or to terminate this Agreement as provided in this Section 10, such party shall notify, on the same day as such election is made, the other parties hereto in accordance with the provisions of Section 13 hereof. (d) Notwithstanding any contrary provision contained in this Agreement, any election hereunder or any termination of this Agreement (including, without limitation, pursuant to Sections 11 and 12 hereof), and whether or not this Agreement is otherwise carried out, the provisions of Sections 5, 7 and 9 shall not be in any way affected by such election or termination or failure to carry out the terms of this Agreement or any part hereof. 11. SUBSTITUTION OF THE UNDERWRITERS. If one or more of the Underwriters shall fail (otherwise than for a reason sufficient to justify the termination of this Agreement under the provisions of Section 6, Section 10 or Section 12 hereof) to purchase the Shares that it or they are obligated to purchase on such date under this Agreement (the "Defaulted Securities"), the Representatives shall use their best efforts within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24 hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the total number of Firm Shares to be purchased on such date, the non-defaulting Underwriters shall be obligated to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the total number of Firm Shares and arrangements satisfactory to the Representatives for the purchase of the Defaulted Securities are not made within 36 hours, this Agreement shall terminate without liability on the part of any non-defaulting Underwriters. The Company or the Selling Stockholder may assist the Representatives in making such arrangements by procuring another party satisfactory to the Representatives to purchase the Defaulted Securities on the terms set forth herein. No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of any default by such Underwriter under this Agreement. In the event of any such default that does not result in a termination of this Agreement, the Representatives shall have the right to postpone the Closing Date for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. 12. DEFAULT BY THE COMPANY OR THE SELLING STOCKHOLDER. If the Company or the Selling Stockholder, as applicable, shall fail at the Closing Date or the Option Closing Date, as applicable, to sell and deliver the number of Shares that it is obligated to sell hereunder on such date, then this Agreement shall terminate (or, if such default shall occur with respect to any Option Shares to be purchased on the Option Closing Date, the Underwriters may at the Representatives' option, by 27 28 notice from the Representatives to the Company, terminate the Underwriters' several obligations to purchase Shares from the Company on such date) without any liability on the part of any non-defaulting party other than pursuant to Section 5 and Section 7 hereof. No action taken pursuant to this Section shall relieve the Company or the Selling Stockholder from liability, if any, in respect of such default. 13. NOTICES. All notices and communications hereunder may be mailed or transmitted by any standard form of telecommunication and, except as herein otherwise specifically provided, shall be in writing and shall be deemed to have been duly given when delivered to a notice party hereto at the address specified herein or at the address subsequently communicated in writing to the notice parties. Notices to the Underwriters shall be directed to the Representatives c/o Tucker Anthony Incorporated, One Beacon Street, Boston, Massachusetts 02108, Attention Mark L. Bono, Senior Vice President, with a copy to Peabody & Brown, 101 Federal Street, Boston, Massachusetts 02110, Attention William C. Lance, Esq. Notices to the Company shall be directed to SpecTran Corporation, 50 Hall Road, Sturbridge, Massachusetts 01566, Attention Raymond E. Jaeger, Chairman, with a copy to Hackmyer & Nordlicht, 645 Fifth Avenue, 11th Floor, New York, New York 10022, Attention Ira S. Nordlicht, Esq. Notices to the Selling Stockholder shall be directed to Allen & Company Incorporated, 711 Fifth Avenue, New York, New York, 10022, Attention William F. Leimkuhler, Esq. In each case a notice party may change its address for notice hereunder by a written communication to the other notice parties. 14. PARTIES. This Agreement shall inure solely to the benefit of and shall be binding upon, the Underwriters, the Selling Stockholder, the Company and the controlling persons, directors and officers referred to in Section 7 hereof, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. No purchaser of Shares from any Underwriter shall be deemed to be a successor by reason merely of such purchase. 15. CONSTRUCTION. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT GIVING EFFECT TO THE CHOICE OF LAW OR CONFLICT OF LAWS PRINCIPLES. 16. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which taken together shall be deemed to be one and the same instrument. 17. ENTIRE AGREEMENT. This Agreement and the Schedules hereto contain the entire agreement between the parties hereto in connection with the subject matter hereof and supersede all prior agreements, written or oral, with respect to such subject matter. 28 29 18. AMENDMENT. This Agreement and the Schedules hereto may not be amended, modified or altered without the written agreement of the Company, the Selling Stockholder and the Representatives. If the foregoing correctly sets forth the understanding between the Underwriters and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement among us. Very truly yours, SPECTRAN CORPORATION By:................................. RAYMOND E. JAEGER TITLE: CHAIRMAN SELLING STOCKHOLDER LISTED ON SCHEDULE B HERETO By:................................. , ATTORNEY-IN-FACT CONFIRMED AND ACCEPTED AS OF THE DATE FIRST ABOVE WRITTEN TUCKER ANTHONY INCORPORATED RAYMOND JAMES & ASSOCIATES, INC. By: TUCKER ANTHONY INCORPORATED By:................................. Title:.............................. For themselves and on behalf of and as the Representatives of the other Underwriters named in Schedule A hereto. 29 30 SCHEDULE A
NUMBER OF NAME FIRM SHARES - --------------------------------------------------------------------------------- ----------- Tucker Anthony Incorporated...................................................... Raymond James & Associates, Inc..................................................
30 31 SCHEDULE B
NUMBER OF NAME FIRM SHARES - --------------------------------------------------------------------------------- ----------- Allen & Company Incorporated..................................................... 350,000
31 32 SCHEDULE C
NAME - --------------------------------------------------------------------------------- Raymond E. Jaeger Glenn E. Moore Bruce A. Cannon John E. Chapman Crawford L. Cutts William B. Beck Ira S. Nordlicht Paul D. Lazay Richard M. Donofrio Lily K. Lai
32 EX-23.1 3 REPORT AND CONSENT OF KPMG PEAT MARWICK 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors Spectran Corporation: We consent to the use of our reports included herein and incorporated by reference and to the reference to our firm under the headings "Selected Consolidated Financial Data" and "Experts" in the prospectus. KPMG Peat Marwick LLP Boston, Massachusetts January 8, 1997 -----END PRIVACY-ENHANCED MESSAGE-----