-----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, A7fyqPLwEDVohIe/4mEgtzMivq69xSirudV7c0i7fKOzfy23F/Hk4NksaktNZUPv a7LVCKA6PZZW3zDoyZXSqg== 0000950135-97-001510.txt : 19970401 0000950135-97-001510.hdr.sgml : 19970401 ACCESSION NUMBER: 0000950135-97-001510 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRAN CORP CENTRAL INDEX KEY: 0000718487 STANDARD INDUSTRIAL CLASSIFICATION: GLASS, GLASSWARE, PRESSED OR BLOWN [3220] IRS NUMBER: 042729372 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12489 FILM NUMBER: 97569106 BUSINESS ADDRESS: STREET 1: 50 HALL ROAD CITY: STURBRIDGE STATE: MA ZIP: 01566 BUSINESS PHONE: 5083472261 10-K 1 SPECTRAN CORP. ANNUAL REPORT ON FORM 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) For the fiscal year ended December 31, 1996 [X] OR For the transition period from _____________ to _________________ [ ] Commission file number 0-12489 SPECTRAN CORPORATION (Exact name of the registrant as specified in its charter) 04-2729372 (I.R.S. Employer Identification No.) 50 Hall Road, Sturbridge, Massachusetts 01566 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code (508) 347-2261 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered None --------------------------------------------------------------- Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value --------------------------------------------------------------- (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: X No: __ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] 1 2 The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock, on February 26, 1997: $117.3 million. The number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 6,902,196 shares of common stock, $.10 par value, outstanding on February 26, 1997. DOCUMENTS INCORPORATED BY REFERENCE The information required for Part III hereof is incorporated by reference from the Registrant's Proxy Statement for its 1997 Annual Meeting of Shareholders to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant's fiscal year. PART I Item 1. BUSINESS. SpecTran Corporation ("SpecTran," the "Company" or the "Registrant") operates through two wholly-owned subsidiaries, SpecTran Communication Fiber Technologies, Inc. ("SpecTran Communication") and SpecTran Specialty Optics Company ("SpecTran Specialty"), and through General Photonics, LLC ("General Photonics"), a recently formed joint venture with General Cable Corporation ("General Cable"). The Company sold certain of the assets of its wholly-owned subsidiary, Applied Photonic Devices, Inc. ("APD"), and then contributed the remaining assets of APD to General Photonics for a 50% equity interest. (See Note 14 to the Consolidated Financial Statements - "Acquisitions/Joint Venture"). SpecTran Communication develops, manufactures and markets multimode and single-mode optical fiber for data communications and telecommunications applications. SpecTran Specialty, acquired in February 1994, develops, manufactures and markets specialty multimode and single-mode fiber and value-added fiber optic products for industrial, military/aerospace, communication and medical applications. General Photonics develops, manufactures and markets communications-grade fiber optic cable primarily for the customer premises market in the United States, Canada and Mexico. Technology Fiber optic technology utilizing glass as a communications medium was developed in the 1970s and offers numerous technical advantages over traditional media such as copper. Optical fibers are hair-thin solid strands of high quality glass usually combined in cables for transmitting information in the form of light pulses. An optical fiber consists of a core of high purity glass which transmits light with little signal loss. This core is typically encased within a covering layer of high purity glass 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 2 3 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 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. Products The following table describes the Company's and General Photonics' principal product areas and the markets they serve:
- ----------------------------------------------------------------------------------------------------------------------------------- Products Applications Target Customers - --------------------------------------------------------------------------------------------------------------------------------- SpecTran Communication - ----------------------------------------------------------------------------------------------------------------------------------- Data communication grade multimode Data communications, including Integrated cablers (e.g., Lucent, fiber: 50, 62.5 and 100 micrometer FDDI and fast Ethernet; LANs; video; Chromatic Technologies); independent core diameters CCTV; computer peripherals channel cablers (e.g., Optical Cable attachment Corporation, CommScope, General Photonics) - ----------------------------------------------------------------------------------------------------------------------------------- Telephone grade single-mode fiber Telephony (principally in emerging Independent data communications economies); high-speed domestic cablers; international short-distance data communication, telecommunications cablers including Fibre Channel and FDDI (e.g., India, China, Mexico) - -----------------------------------------------------------------------------------------------------------------------------------
3 4
- ----------------------------------------------------------------------------------------------------------------------------------- Products Applications Target Customers - ----------------------------------------------------------------------------------------------------------------------------------- SpecTran Specialty - ----------------------------------------------------------------------------------------------------------------------------------- Step & graded index multimode fiber & Factory LANs and PLC interconnects; Factory, transportation and medical cable: polymer clad/glass core, high mobile video; avionics; high-speed OEMs; systems designers and numerical aperture, radiation ground-based transportation; integrators; geophysical exploration tolerant, power delivery and high geophysical exploration and companies; US government and temperature fiber; avionics cable; monitoring; sensing; power military; utilities; telecom and high dielectric strength cable; transmission, including laser supercomputer OEMs; systems tether cables surgery; blood gas monitoring; designers and integrators radiation 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; optoelectronic cable: photo-sensitive, rare-earth, amplifiers, geophysical exploration manufacturers; well-logging delay line, fatigue resistant fiber; and monitoring; gyroscopes; companies and system integrators; avionics cable; tether cables wave-length division multiplexers defense contracts - ----------------------------------------------------------------------------------------------------------------------------------- Components and assemblies: crimp and Industrial automation; OEMs; systems designers and cleave connectors; pigtails; fiber environmental monitoring;customer integrators; facilities managers; optic arrays; specialty and hybrid premises networking; military spec utilities; optoelectronic device interconnects; tool kits and high reliability assemblies; manufacturers; defense contractors high power laser delivery; sensing; illumination; spectroscopy - ----------------------------------------------------------------------------------------------------------------------------------- General Photonics - ----------------------------------------------------------------------------------------------------------------------------------- Indoor cable: tight buffered Building backbones; riser and Networking systems and LAN OEMs; distribution and breakout designs plenum installation systems designers and integrators; installers; facilities managers - ----------------------------------------------------------------------------------------------------------------------------------- Outdoor cable: loose tube; Customer premises backbones, Networking systems and LAN OEMs; gel-filled; direct burial; aerial; including densely populated systems designers and integrators; armored; figure eight buildings and campuses; Fibre installers; facilities managers Channel; FDDI; bypass telecom - ----------------------------------------------------------------------------------------------------------------------------------- Cable accessories: pulling devices; Customer premises systems and LAN Installers; system integrators; LAN breakout, splitter and restoration installation & repair OEMs; utilities kits; cable terminations - -----------------------------------------------------------------------------------------------------------------------------------
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, systems integrators and installers primarily for use in the customer premises market in the United States, Canada and Mexico. 4 5 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 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% or more of the Company's revenues. These two companies together accounted for 24% of the Company's revenues in 1995. For the year ended December 31, 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 patent rights to outside vapor deposition processes collectively known as hybrid vapor deposition ("HVD") which it is continuing to develop for possible use in conjunction with its single-mode fiber production process. 5 6 In the MCVD process, once deposition is completed, the glass tube is then collapsed into a rod, or primary preform, consisting of a deposited core, in certain instances some deposited cladding and cladding provided by the glass tube itself. In most cases, additional cladding is added to this primary preform. The rod is then placed at the top of a fiber drawing tower, heated until it softens and drawn into a fiber of predetermined diameter. The 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 its 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. 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 6 7 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 Corning license is not applicable to sales made directly or indirectly to certain customers such as Corning, Lucent and the United States Government. The quantities that can be manufactured under the license increase annually through the year 2000. The license has a term equal to the life of the last to expire of the Corning or Company patents licensed under the agreement. Corning has the right to terminate the license in the event that more than 30% of the Company's voting stock is acquired, directly or indirectly, by another manufacturing company. The Company granted back to Corning a non-exclusive royalty-free license for any of its patents with a filing date prior to January 1, 1996, in the field of optical fiber. Lucent 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 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 36% of the Company's net sales during 1996 were subject to the Corning license and approximately 62% were subject to the Lucent license. These license agreements required aggregate royalty payments by the Company of approximately 3.7% of net sales of the Company's products manufactured under the agreements during 1996. The Company believes that certain Corning patents, which may have been relevant to the Company's single-mode fiber, including patents covered by a non-exclusive license from Corning to the Company, have expired in many countries (including the United States). Therefore, the Company believes that manufacturing and sale of its single-mode fiber is not subject to the Corning license and has been marketing its single-mode fiber without payments of royalties to Corning and without regard to the annual quantity limitations of the Corning license since 1993. The Company presently does not expect to need the Corning license for the manufacture of its multimode fiber after 1999 because the Company believes that a Corning United States patent with relevancy to its multimode fiber will expire in 1999. Patents and Trademarks. The Company and its subsidiaries own 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 required to be made available royalty-free to Lucent. 7 8 The Company is using its trademark SPECTRAGUIDE(R) for its commercial grade optical fiber and for certain of its value added fiber products. It also uses the trademarks HCS(R) (Hard Clad Silica), Avioptics(TM), Flightguide(TM), PYROCOAT(TM), V-System(TM) and V-Pin(TM). Research and Development Research and development activities, and the Company's ability to develop and improve products employing both existing and new technology, are important to the Company. During the fiscal years ended December 31, 1996, 1995 and 1994, the Company spent $3.1 million, $2.8 million and $2.0 million, respectively, or 5.1%, 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. The Company has continued to invest in programs to reduce manufacturing cost and improve product performance in both the single-mode and multimode product lines, to develop new optical fiber products and to develop alternative process technologies. The Company's personnel conduct substantially all of its research and development activities. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Backlog As of January 31, 1997, the Company's backlog of orders was approximately $69.4 million, as compared to a backlog of $17.4 million as of January 31, 1996. Approximately $30.9 million of the January 31, 1997 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. Optical fiber cable and cable components are also sold through General Photonics. While there may be less competition in the specialized markets, all of the markets served by the Company and General Photonics are very competitive. The Company's main competitors for its fibers for data communications and telecommunications are its licensors, Corning and Lucent, to whom the Company pays royalties and who have substantially greater resources and operating experience than the Company. The Company's main competitors for its specialty fibers generally have been smaller operations, but some of those competitors are part of companies with substantially greater resources than the Company. General Photonics' main competitors for its optical fiber cable products are large companies with substantially greater resources and operating experience than the Company and General Photonics, some of which may also be customers of SpecTran 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. 8 9 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. Item 2. 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 SpecTran Communication in Sturbridge, Massachusetts. SpecTran Communication 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, 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 9 10 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. Item 3. LEGAL PROCEEDINGS. None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 10 11 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded on the NASDAQ National Market System under the symbol "SPTR." Set forth below is high and low sales price information for the Company's Common Stock for the periods indicated as reported on the NASDAQ National Market: Price ----- Fiscal Year Fiscal Quarter Ended High Low ----------- -------------------- ---- --- 1995 March 31, 1995 6-5/8 4-5/8 June 30, 1995 7-1/4 4-7/8 September 30, 1995 7-1/8 5-1/2 December 31, 1995 6-5/8 5 1996 March 31, 1996 8-7/8 5-1/4 June 30, 1996 28-5/8 8 September 30, 1996 22-1/8 12-1/2 December 31, 1996 23-3/8 16-1/8 The approximate number of shareholders of record of the Company's Common Stock as of February 26, 1997 was 728 which includes all shares held in nominee names by brokerage firms and financial institutions as one stockholder. It is estimated that such shares held in street name are held for approximately 6,300 stockholders. The Company has never declared or paid cash dividends. 11 12 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.
Year Ended December 31 (in thousands, except per share data) ---------------------------------------------------------------- OPERATING RESULTS 1996 1995 1994 1993 1992 - ----------------- ---- ---- ---- ---- ---- Net Sales $ 61,571 $38,581 $26,926 $25,578 $21,371 Gross Profit 22,375 13,061 7,623 9,615 8,734 Income (Loss) Before Income Taxes 5,537 777 (487) 5,629 5,012 Net Income (Loss) 3,655 542 (487) 3,655 3,644 Net Income (Loss) Per Share of Common Stock .62 .10 (.09) .67 .66 FINANCIAL POSITION Total Assets 62,456 40,365 31,362 26,712 22,848 Long-Term Debt 24,000 10,000 5,240 300 367 Stockholders' Equity 28,403 24,296 23,104 23,614 20,009
12 13 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Year Ended December 31, 1996 Compared to Year Ended December 31, 1995 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: Years Ended December 31, ------------------------ 1996 1995 1994 ---- ---- ---- Net Sales 100.0% 100.0% 100.0% Cost of Sales 63.7% 66.1% 71.7% ------ ------ ------ Gross Profit 36.3% 33.9% 28.3% Selling and Administrative Expenses 22.1% 25.1% 23.5% Research and Development Cost 5.1% 7.3% 7.3% ------ ------ ------ Income (Loss) from Operations 9.1% 1.5% (2.5)% Other Income (Expense), net (.1)% .5% .7% ------ ------ ------ Income (Loss) before Income Taxes 9.0% 2.0% (1.8)% Income Tax Expense 3.1% 0.6% -- ------ ------ ------ Net Income (Loss) 5.9% 1.4% (1.8)% ====== ====== ====== 13 14 Net Sales Net sales increased $23.0 million, or 59.6%, from $38.6 million to $61.6 million in 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. Gross Profit Gross profit increased $9.3 million, or 71.3%, from $13.1 million to $22.4 million in 1996. As a percentage of net sales, the gross profit increased to 36.3% for the year ended December 31, 1996 from 33.9% for the year ended December 31, 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. As a percentage of net sales, royalties decreased from 4.1% in 1995 to 3.7% in 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 & Administrative Selling and administrative expenses increased $3.9 million, or 41.1%, from $9.7 million to $13.6 million for the year ended December 31, 1996. This increase was primarily due to including a full year of APD expenses in 1996 versus only seven months in 1995. 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 year ended December 31, 1996 from 25.1% for the year ended December 31, 1995. Research and Development Research and development costs increased $305,000, or 10.8%, from $2.8 million to $3.1 million for the year ended December 31, 1996. As a percentage of net sales, research and development costs decreased from 7.3% for the year ended December 31, 1995 to 5.1% for the year ended December 31, 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. 14 15 Other Income (Expense), net Other income (expense), net declined by $277,000 for the year ended December 31, 1996 compared to the same period of 1995. The decline was caused primarily by the absence of non-recurring income in 1996 partially offset by a decrease in interest expense of $155,000 due to capitalization of interest in 1996 related to the Company's ongoing plant expansion. Income Taxes A tax provision of 34% of pre-tax income was provided for the year ended December 31, 1996 compared to a tax provision of 30% of pre-tax income in 1995. The effective tax rates for 1996 and 1995 were lower than the statutory combined federal and state tax rates due primarily to a reduction of $400,000 in 1996 and $437,000 in 1995 in the valuation allowance for deferred tax assets due to the Company's belief that it is more likely than not that the additional deferred tax assets will be realized through the utilization of operating loss and tax credit carryforwards. See Note 10 of "Notes to the Consolidated Financial Statements." Net Income Net income for the year ended December 31, 1996 was $3.7 million or 5.9% of net sales. Net income for the same period in 1995 was $542,000, or 1.4% of net sales. 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. 15 16 Selling & 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 & 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. 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. 16 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 year ended December 31, 1996, the Company generated $4.6 million in net cash from operating activities. 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 $6.0 million (subject to adjustment), $5.3 million of which was received in 1996, and the remainder placed in escrow. The Company also contributed $100,000 to the joint venture. 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 $14.0 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. A substantial portion of this cash was used to fund capital expenditures of $11.1 million. The remaining amount was invested in the Company's short-term marketable securities. As of December 31, 1996, the Company had approximately $19.0 million of cash, cash equivalents and marketable securities, including approximately $1.6 million in marketable securities classified as long-term assets, which could be converted to cash if necessary. The Company's net working capital position at December 31, 1996 was approximately $24.3 million. The Company has plans for capacity expansion requiring significant capital expenditures through approximately the end of 1997. Planned expenditures for capacity expansion include approximately $32.0 million for SpecTran Communication and approximately $9.0 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, borrowings and net proceeds from a stock offering ( see "Subsequent Event"). Subsequent Events On February 18, 1997, the Company completed a secondary public offering for a total of 1,500,000 shares of common stock at a price of $19.00 per share, including 200,000 shares sold by a selling stockholder. This offering, including the exercise price of warrants exercised by the selling stockholder, raised approximately $23.0 million for the Company (See "Note 15 to the Consolidated Financial Statements - Subsequent Event"). 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. On March 21, 1997, Dr. Raymond E. Jaeger, Chairman of the Board of Directors, assumed the additional role of Chief Executive Officer of the Company while Mr. Glenn E. Moore, formerly the Company's CEO, left the Company to pursue other interests. 17 18 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 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 (See "Note 9 to the Consolidated Financial Statements - Stockholder's Equity"). 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. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The response to this Item is submitted as a separate section of this Form 10-K. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 18 19 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information to be contained under the heading "Election of Directors" in the Company's proxy statement relating to the 1997 Annual Meeting of Shareholders (the "Proxy Statement") is hereby incorporated herein by reference. Item 11. EXECUTIVE COMPENSATION. The information with respect to compensation of certain executive officers and all executive officers of the Company as a group to be contained under the heading "Compensation of Executive Officers and Directors" in the Proxy Statement is hereby incorporated herein by reference. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information with respect to ownership of the Company's Common Stock by management and by certain other beneficial owners to be contained under the heading "Principal Stockholders and Other Information" in the Proxy Statement is hereby incorporated herein by reference. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information with respect to certain relationships and related transactions to be contained under the heading "Certain Transactions" in the Proxy Statement is hereby incorporated herein by reference. 19 20 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. & 2. Financial Statements and Financial Statement Schedules: The response to this portion of Item 14 is submitted as a separate section of this Form 10-K. 3. Exhibits: See Exhibit Index on Pages 22 through 27 of this Form 10-K. (b) Reports on Form 8-K filed during the final quarter of fiscal 1996: See Exhibits 10.86, 10.87, 10.88, 10.89, 10.90, 10.91, 10.92, 10.93, 10.94, 10.95, 10.96 and 10.97. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: SPECTRAN CORPORATION March 27, 1997 By: /s/ Raymond E. Jaeger -------------------------------- Raymond E. Jaeger President, Chief Executive Officer and Chairman of the Board of Directors March 27, 1997 By: /s/ Bruce A. Cannon -------------------------------- Bruce A. Cannon Senior Vice President, Chief Financial Officer and Chief Accounting Officer 20 21 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signatures Title Date ---------- ----- ---- /s/ Raymond E. Jaeger President, Chief Executive Officer March 27, 1997 - --------------------------- and Chairman of the Board of Raymond E. Jaeger Directors (principal executive officer) /s/ Bruce A. Cannon Senior Vice President, Chief March 27, 1997 - --------------------------- Financial Officer, Secretary, Bruce A. Cannon Treasurer and Director (principal financial officer and principal accounting officer) /s/ John E. Chapman Senior Vice President - March 27, 1997 - --------------------------- Technology and Director John E. Chapman /s/ Ira S. Nordlicht Director March 27, 1997 - --------------------------- Ira S. Nordlicht /s/ Paul D. Lazay Director March 27, 1997 - --------------------------- Paul D. Lazay /s/ Richard Donofrio Director March 27, 1997 - --------------------------- Richard Donofrio /s/ Lily K. Lai Director March 27, 1997 - --------------------------- Lily K. Lai 21 22 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 3.1 Certificate of Incorporation of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 3.2 By-Laws of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 4.5* Form of Stock Certificate for Voting Common Stock. 10.1 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. (Registrant has been granted confidential treatment of portions of this Exhibit.) 10.49 License Agreement dated as of the first day of January 1991 by and between the Registrant and Corning, Incorporated. (Registrant has been granted confidential treatment of portions of this Exhibit.) (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 10.53 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 filed 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.) 22 23 10.61 Stock Purchase Agreement among APD Acquisition Corp. and Irving N. Dwyer, David P. DaVia, The Irving N. Dwyer and Annette M. Dwyer Charitable Remainder Trust and the DaVia Charitable Remainder Trust. (Incorporated by reference to the Registrant's Report on Form 8-K filed June 7, 1995.) 10.62 Directors Retirement Plan dated December 27, 1995. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996.) 10.63 Registrant's Employee Profit Sharing Plan as revised and adopted effective January 1, 1995. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 29, 1996). 10.64 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.) 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.) 23 24 10.75 Contractual Agreement Between Lucent Technologies Inc. and SpecTran Corporation dated October 3, 1996. (Registrant has been granted confidential treatment for portions of this Exhibit.) (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.76 Three Year Multimode Optical Fiber Supply Contract between Corning Incorporated and SpecTran Corporation dated as of January 1, 1996. (Registrant has been granted confidential treatment for portions of this Exhibit.) (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.79 Key Employee Incentive Plan effective as of January 1, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.80 Employment Agreement between SpecTran Corporation and Raymond E. Jaeger dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.81 Employment Agreement between SpecTran Corporation and Bruce A. Cannon dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.82 Employment Agreement between SpecTran Corporation and John E. Chapman dated as of December 14, 1992. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 10.83 Employment Agreement between SpecTran Corporation and Crawford L. Cutts dated as of January 1, 1996. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q dated November 13, 1996.) 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.) 24 25 10.87 Note Purchase Agreement between SpecTran Corporation and CM Life Insurance Company dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.88 Note Purchase Agreement between SpecTran Corporation and The Mutual Life Insurance Company of New York dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.89 Note Purchase Agreement between SpecTran Corporation and Atwell & Co. dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.90 Security Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.91 Trademark Security Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.92 Patent Collateral Assignment among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.93 Pledge Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.94 Mortgage, Assignment of Rents and Security Agreement by SpecTran Communication Fiber Technologies, Inc. to Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.95 Open-End Mortgage, Assignment of Rents and Security Agreement by SpecTran Specialty Optics Company to Fleet National Bank, as Trustee, dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 25 26 10.96 Guaranty Agreement dated as of December 1, 1996 by SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company and Applied Photonic Devices, Inc. in favor of Massachusetts Mutual Life Insurance Company, CM Life Insurance Company, The New York Mutual Life Insurance Company and Atwell & Co. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.97 Loan Agreement among SpecTran Corporation, SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Fleet National Bank dated as of December 1, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated December 31, 1996.) 10.98 Limited Liability Company Agreement of General Photonics, LLC between Applied Photonic Devices, Inc. and General Cable Industries, Inc. dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 10.99 Asset Purchase Agreement among Applied Photonic Devices, Inc., SpecTran Corporation, General Cable Corporation and General Cable Industries, Inc. dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 10.100 Investor's Representations, Contribution Agreement and Subscription Agreement among Applied Photonic Devices, Inc., SpecTran Corporation and General Photonics, LLC dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 10.101 Non-Competition Agreement among General Cable Industries, Inc., General Cable Corporation, Applied Photonic Devices, Inc., SpecTran Corporation and General Photonics, LLC dated December 23, 1996. (Registrant has been granted confidential treatment for portions of this Exhibit.) (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 10.102 Standstill Agreement among General Cable Industries, Inc., General Cable Corporation and SpecTran Corporation dated as of December 23, 1996. (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 26 27 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 been granted confidential treatment for portions of this Exhibit.) (Incorporated by reference to the Registrant's Current Report on Form 8-K dated January 8, 1997.) 10.104 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. (Incorporated by reference to the Registrant's Registration Statement on Form S-3 (Reg. No. 333-19449) effective February 12, 1997.) 10.106 Common Stock Purchase Warrant issued to Allen & Company Incorporated. 11.1 Schedule of Earnings Per Share Calculation. 21.0 Subsidiaries. - ---------- * Incorporated by reference to Registrant's Registration Statement on Form S-1 (Reg. No. 2-83172) effective June 2, 1983. 28 SpecTran Corporation Form 10-K Items 8, 14 (a) (1) and (2) Index to Consolidated Financial Statements and Schedule The following consolidated financial statements of the registrant required to be included in Item 8 and 14 (a) (1) are listed below: Page ---- Independent Auditors' Report F-2 Financial Statements: Consolidated Balance Sheets as of December 31, 1996 and 1995 F-3 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994 F-4 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994 F-5 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994 F-6 Notes to Consolidated Financial Statements F-7 through F-24 The following financial statement schedule of the registrant is included pursuant to Item 14 (a) (2): Financial Statement Schedule Page - ---------------------------- ---- I. Valuation and Qualifying Accounts F-25 Schedules other than those mentioned above are omitted because the conditions requiring their filing do not exist or because the required information is presented in the consolidated financial statements, including the notes thereto. F-1 29 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. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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, 1996 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, 1996, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Boston, Massachusetts February 18, 1997 F-2 30 SpecTran Corporation Consolidated Balance Sheets Dollars in thousands ASSETS (NOTE 8 AND 14) 1996 1995 -------- -------- Current Assets: Cash and Cash Equivalents $ 3,565 $ 1,625 Current Portion of Marketable Securities (Note 2) 13,822 4,088 Trade Accounts Receivable, net of allowance for doubtful accounts of $218 and $265 in 1996 and 1995, respectively 7,621 7,799 Inventories (Note 3) 7,254 7,415 Deferred Income Taxes, net (Note 10) 791 588 Prepaid Expenses and Other Current Assets 1,316 513 -------- -------- Total Current Assets 34,369 22,028 -------- -------- Investment in Joint Venture (Note 14) 4,135 -- Property, Plant and Equipment, net (Note 4) 17,890 10,290 Other Assets: Long-term Marketable Securities (Note 2) 1,595 1,133 License Agreements, net (Note 5) 804 1,004 Deferred Income Taxes, net (Note 10) 814 1,652 Goodwill, net (Note 6) 950 4,156 Other Long-Term Assets (Note 13) 1,899 102 -------- -------- Total Other Assets 6,062 8,047 -------- -------- Total Assets $ 62,456 $ 40,365 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities (Note 14): Accounts Payable $ 3,763 $ 2,762 Income Taxes Payable 301 225 Accrued Defined Benefit Pension Liability (Note 13) 1,461 118 Accrued Liabilities (Note 7) 4,528 2,964 -------- -------- Total Current Liabilities 10,053 6,069 -------- -------- Long-term Debt (Note 8) 24,000 10,000 -------- -------- Stockholders' Equity (Note 9 and 15): Common Stock, voting, $.10 par value; authorized 20,000,000 shares; outstanding 5,400,071 shares and 5,353,686 shares in 1996 and 1995, respectively 540 535 Common Stock, non-voting, $.10 par value; authorized 250,000 shares, no shares outstanding -- -- Paid-in Capital 26,884 26,443 Net Unrealized Loss on Marketable Securities (Note 2) (16) (22) Retained Earnings (Deficit) 995 (2,660) -------- -------- Total Stockholders' Equity 28,403 24,296 -------- -------- Total Liabilities and Stockholders' Equity $ 62,456 $ 40,365 ======== ======== See accompanying notes to consolidated financial statements. F-3 31 SpecTran Corporation Consolidated Statements of Operations Dollars in thousands except per share amounts Years Ended December 31, ---------------------------------- 1996 1995 1994 -------- -------- -------- Net Sales (Note 11) $ 61,571 $ 38,581 $ 26,926 Cost of Sales 39,196 25,520 19,303 -------- -------- -------- Gross Profit 22,375 13,061 7,623 Selling and Administrative Expenses 13,641 9,669 6,319 Research and Development Costs 3,132 2,827 1,974 -------- -------- -------- Income (Loss) from Operations 5,602 565 (670) -------- -------- -------- Other Income (Expense): Interest Income 226 328 327 Interest Expense (471) (626) (303) Other, Net 180 510 159 -------- -------- -------- Other Income (Expense), net (65) 212 183 -------- -------- -------- Income (Loss) before Income Taxes 5,537 777 (487) Income Tax Expense (Note 10) 1,882 235 -- -------- -------- -------- Net Income (Loss) $ 3,655 $ 542 $ (487) ======== ======== ======== Weighted Average Number of Common Shares Outstanding 5,926 5,583 5,203 ======== ======== ======== Net Income (Loss) per Common Share $ .62 $ .10 $ (.09) ======== ======== ======== See accompanying notes to consolidated financial statements. F-4 32 SpecTran Corporation Consolidated Statements of Cash Flows Dollars in thousands
Years Ended December 31, -------------------------------- 1996 1995 1994 -------- -------- -------- Cash Flows from Operating Activities: Net income (loss) $ 3,655 $ 542 $ (487) Reconciliation of net income (loss) to net cash provided by operating activities: Depreciation and amortization 3,071 2,338 1,686 Loss (gain) on sale of assets -- 8 4 Loss on sale of marketable securities -- 17 -- Changes in valuation accounts (380) (632) 265 Change in long-term deferred income taxes 1,118 576 (1,384) Change in other long-term assets (344) (110) (6) Changes in assets and liabilities, net of effects from purchase of businesses: Current deferred income taxes (83) (339) 967 Accounts receivable (2,136) (409) (467) Inventories (3,742) (2,501) 1,137 Prepaid expenses and other current assets (50) (260) 87 Income taxes payable/receivable (150) 716 (695) Accounts payable and accrued liabilities 3,606 1,854 (59) -------- -------- -------- Net Cash Provided by Operating Activities 4,565 1,800 1,048 -------- -------- -------- Cash Flows from Investing Activities: Sale of Assets of Applied Photonic Devices 5,278 -- -- Acquisition of businesses -- (3,822) (6,662) Acquisition of property, plant and equipment (11,100) (2,540) (2,500) Purchase of marketable securities (29,658) (10,894) (3,178) Proceeds from sale/maturity of marketable securities 19,458 11,839 3,137 Proceeds from sale of equipment -- 5 -- Investment in joint venture (354) -- -- -------- -------- -------- Net Cash Used in Investing Activities (16,376) (5,412) (9,203) -------- -------- -------- Cash Flows from Financing Activities: Borrowings of long-term debt 28,000 4,760 5,240 Reduction of debt (14,000) -- (367) Tax effect of disqualifying disposition of ISO shares 117 -- 120 Proceeds from exercise of stock options and warrants 329 -- 101 Deferred financing costs (695) -- -- -------- -------- -------- Net Cash Provided by Financing Activities 13,751 4,760 5,094 -------- -------- -------- Increase (Decrease) in Cash and Cash Equivalents 1,940 1,148 (3,061) Cash and Cash Equivalents at Beginning of Year 1,625 477 3,538 -------- -------- -------- Cash and Cash Equivalents at End of Year $ 3,565 $ 1,625 $ 477 ======== ======== ========
See accompanying notes to consolidated financial statements. F-5 33 SpecTran Corporation Consolidated Statements of Stockholders' Equity For the Years Ended December 31, 1996, 1995 and 1994 Dollars in thousands
Net Unrealized Gain(Loss) Common Stock on Retained Total --------------------- Paid-in Marketable Earnings Stockholders' Shares Par Value Capital Securities (Deficit) Equity --------- --------- --------- --------- --------- --------- 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) 46,385 5 324 -- -- 329 Tax Effect of Disqualifying Disposition of ISO shares -- -- 117 -- -- 117 (Note 10) Unrealized Gain on Marketable Securities -- -- -- 6 -- 6 Net Income -- -- -- -- 3,655 3,655 --------- --------- --------- --------- --------- --------- Balance at December 31, 1996 5,400,071 $ 540 $ 26,884 $ (16) $ 995 $ 28,403 ========= ========= ========= ========= ========= =========
See accompanying notes to consolidated financial statements. F-6 34 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1996 and 1995 1 - Nature of Business and Summary of Significant Accounting Policies Nature of Business SpecTran Corporation (the "Company") develops, manufactures and markets a wide range of fiber optic products. These include multimode and single-mode optical fiber and cable for use in data communications and telecommunications applications. The Company also develops special performance fibers, coatings, cables, cable assemblies and other value-added products for use in a variety of specialty markets. Principles of Consolidation and Basis of Accounting The consolidated financial statements include the accounts of the Company and all wholly owned subsidiaries: SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company and Applied Photonic Devices, Inc. In December 1996 the Company announced the formation of General Photonics LLP, a 50-50 joint venture between the Company and General Cable Corporation ("General Cable"), a subsidiary of Wassall plc. The Company sold certain of the assets of Applied Photonic Devices, Inc. to General Cable and then contributed the remaining non-cash assets of APD to General Photonics for a 50% equity interest. (See Note 14). 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 its net operating results. Prior to the formation of General Photonics, APD's results of operations, including net sales and expenses, were consolidated with those of the Company. All significant intercompany balances and transactions have been eliminated. Management uses estimates and assumptions in preparing the financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities and the reported revenue and expenses. Actual results may vary from the estimates. Certain 1995 and 1994 balances have been reclassified to be consistent with the current year's presentation. Revenue Recognition Sales revenues are recognized upon shipment of goods. Customers generally have the right to return for replacement any goods which do not meet the customer's purchase order specifications. Sales revenues and cost of sales as reported in the consolidated statements of operations are adjusted to reflect estimated returns and warranty costs. F-7 35 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 Marketable Securities Marketable securities are classified as available-for-sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity, net of estimated income taxes. Gains and losses on the sale of marketable securities are recognized at the time of sale on a specific identification basis. Inventories Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first-out method. Statements of Cash Flows For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Supplemental disclosure of cash flow information includes cash paid during the year for (in thousands): 1996 1995 1994 ------ ------ ------ Interest $ 780 $ 510 $ 239 Income Taxes 1,044 100 560 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 $1.5 million, $1.0 million and $697,000 in 1996, 1995 and 1994, 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 $2.5 million, $1.9 million and $1.4 million in 1996, 1995 and 1994, respectively. F-8 36 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 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 1996, 1995 and 1994. 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. 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 start-up costs relating to single-mode fiber of approximately $1.8 million in 1995 and $2.0 million in 1994, respectively, that were included in cost of sales. There were no manufacturing development start-up costs relating to single-mode fiber in 1996. 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 F-9 37 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 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, accrued expenses, bank loan and senior secured notes. The carrying amounts of these financial instruments approximate their fair value. Stock-Based Compensation Statement of Financial Accounting Standards Number 123, "Accounting for Stock-Based Compensation", encourages, but does not require companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board Opinion Number 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of the grant over the amount an employee must pay to acquire the stock. 2 - Marketable Securities A summary of marketable securities available for sale for the years ended December 31, 1996 and 1995 is as follows (in thousands): Quoted Purchase Amortized Unrealized Unrealized Market Price Cost Gains Losses Value ------- ------- ------- ------- ------- 1996 Money Market $ 4,715 $ 4,715 $ -- $ -- $ 4,715 U.S. Government and Agency Obligations 902 900 -- 12 888 Corporate Debt Securities 860 859 -- 3 856 Commercial Paper 8,959 8,959 -- 1 8,958 ------- ------- ------- ------- ------- Total $15,436 $15,433 $ -- $ 16 $15,417 ======= ======= ======= ======= ======= 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 ======= ======= ======= ======= ======= F-10 38 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 In November, 1995, 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. This stock was sold in 1996. The amortized cost and estimated market value of debt securities are shown below (in thousands): 1996 1995 ------------------------ ------------------------ Amortized Quoted Amortized Quoted Cost Market Value Cost Market Value --------- ------------ --------- ------------ Expected Maturities: Within one year $592 $588 $2,917 $2,894 One to five years 1,167 1,156 1,006 999 Proceeds from sales of marketable securities during 1996 and 1995 were $1 million and $1.5 million, respectively. Pretax losses of $19,000 for 1996 and $17,000 for 1995 were recognized on these sales. 3 - Inventories Inventories consisted of (in thousands): December 31, --------------------- 1996 1995 ------ ------ Raw Materials $3,677 $3,132 Work in Process 1,209 1,508 Finished Goods 2,368 2,775 ------ ------ $7,254 $7,415 ====== ====== 4 - Property, Plant and Equipment Property, plant and equipment consisted of (in thousands): December 31, ---------------------- 1996 1995 ------- ------- Land and Land Improvements $ 937 $ 408 Buildings and Improvements 3,840 3,729 Machinery and Equipment 19,213 17,229 Construction in Progress 8,611 1,641 ------- ------- 32,601 23,007 Less: Accumulated Depreciation 14,711 12,717 ------- ------- Property, Plant and Equipment, net $17,890 $10,290 ======= ======= F-11 39 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 The Company has plans for capacity expansion requiring significant capital expenditures through approximately the end of 1997. Planned expenditures for capacity expansion include approximately $32.0 million for SpecTran Communication and approximately $9.0 million for SpecTran Specialty. 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 license has a term equal to the life of the last to expire of the Corning or Company patents licensed under the agreement. Corning has the right to terminate the license in the event that more than 30% of the Company's voting stock is acquired, directly or indirectly, by another manufacturing company. The Company granted to Corning a non-exclusive royalty-free license for any 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 December 31, 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. During 1996, approximately 36% and 62% of the Company's net sales, respectively, were subject to the Corning and Lucent licenses. During 1995, approximately 43% and 61% of the Company's net sales, respectively, were subject to the Corning and Lucent licenses. The Corning license contains certain annual quantity limitations which increase annually through the year 2000. F-12 40 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 Total royalties expensed during the years ended December 31, 1996, 1995 and 1994 were $2.3 million, $1.6 million and $1.5 million, respectively. 6 - Goodwill Goodwill consisted of (in thousands): December 31, ---------------------- 1996 1995 ------- ------- Goodwill $ 1,181 $ 4,435 Less Accumulated Amortization (231) (279) ------- ------- $ 950 $ 4,156 ======= ======= 7 - Accrued Liabilities Accrued liabilities consisted of (in thousands): December 31, --------------------- 1996 1995 ------ ------ Salaries and Wages $ 827 $ 436 Royalties 1,149 889 Health Insurance 514 411 Incentive Compensation 1,451 503 Other 587 725 ------ ------ $4,528 $2,964 ====== ====== 8 - Long-Term Debt Long-term debt consisted of (in thousands): December 31, ----------------- 1996 1995 ------- ------- Revolving credit loan facility at the lower of prime or LIBOR plus 1.5%, repaid in April 1996 $ -- $10,000 Series A Senior Secured Notes at 9.24% interest 16,000 -- Series B Senior Secured Notes at 9.39% interest 8,000 -- ------- ------- Total $24,000 $10,000 ======= ======= In December 1996, the Company sold to a limited number of selected institutional investors an aggregate principal amount of $24.0 million of senior secured notes (the "Notes"), consisting of $16.0 million of 9.24% interest Series A Senior Secured Notes due December 26, 2003 (the "Series A Notes") and $8.0 million of 9.39% interest Series B Senior Secured Notes due December 26, 2004 (the "Series B Notes"). Interest on the Notes is F-13 41 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 payable semi-annually, with five equal annual principal repayments required beginning December 26, 1999 for Series A Notes and December 26, 2000 for Series B Notes. The Notes constitute senior secured debt of the Company secured by a first priority security interest in substantially all of the assets of the Company and all current and hereinafter created or acquired subsidiaries, a pledge by the Company of the issued and outstanding stock of its subsidiaries and mortgages on real estate owned by the Company's subsidiaries. The Company's obligations are also guaranteed by the Company's subsidiaries and rank on an equal basis with all other senior secured indebtedness of the Company. The Notes also provide for certain financial and non-financial covenants usual for this type of transaction. The Company used approximately $14.0 million from the sale of the Notes to repay all outstanding indebtedness and restructured its existing $22.0 million of total borrowing capacity with its principal bank, composed of a $14.5 million revolving credit agreement and $7.5 million in equipment and real estate term loans, into a $20.0 million revolving credit agreement, maturing December 1999, with the same security interest in the Company's assets as the Notes. 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. As of December 31, 1996 the Company had no borrowing against the revolving credit agreements. 9 - Stockholders' Equity (a) Warrants As part of an agreement entered into in September, 1990 with Allen & Company, Incorporated (Allen), warrants to purchase 350,000, 30,000 and 20,000 shares of SpecTran voting common stock at an exercise price of $2.00 through August 14, 1999, were issued to Allen, Richard A.M.C. Johnson, who retired as a director of the Company in 1996, and Patrick E. Brake, a former director of the Company, respectively. At December 31, 1996 Allen owned none of the Company's outstanding stock; if the entire Allen warrant were exercised, 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. For related subsequent event, see Note 15. (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. F-14 42 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 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 is 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. Activity in the plans for the years ended December 31, 1996, 1995 and 1994 is summarized below (in thousands except per share amounts):
Shares Available Shares Under Option for Option Shares Price Amount ---------- ------- ------------------ ------ 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 $1.375 - $22.250 4,107 Increase in Shares Reserved 250,000 -- -- -- -- Options Granted (165,500) 165,500 $5.500 - $21.750 2,594 Options Exercised -- (46,385) $1.375 - $15.250 (329) Options Forfeited 11,900 (11,900) $3.375 - $15.250 (100) ------- ------- -------- ------- ------ Balance at December 31, 1996 234,609 650,703 $1.375 - $22.250 $6,272 ======= ======= ======== ======= ======
F-15 43 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 As of December 31, 1996, options for 356,591 shares were vested and exercisable at an aggregate exercise amount of $2.9 million ($8.20 per share). The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option plan. Accordingly, no compensation cost has been recognized for its fixed stock options plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant dates for awards under the plan consistent with the provisions of FASB Statement 123, the Company's net income and earnings per share for the year ended December 31, 1996 would have been reduced to the pro forma amounts indicated below: 1996 1995 ------- ------- Net income (in thousands): As reported $ 3,655 $ 542 Pro forma $ 3,340 $ 233 Net income per share As reported $ .62 $ .10 Pro forma $ .56 $ .04 The fair value of options granted under the Company's fixed stock option plan during 1996 and 1995 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: no dividend yield, expected volatility of 64%, risk free interest rate of 7%, and expected life of five years. 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): 1996 1995 1994 ------- ------- ------- Computed expected tax expense (benefit) at 34% $ 1,883 $ 264 $ (165) State income taxes, net of federal effect and change in valuation allowance 298 81 (31) Research and experimentation credits -- 244 (244) Goodwill amortization 74 50 -- Increase (decrease) in valuation allowance for deferred income taxes (400) (437) 417 Other 27 33 23 ------- ------- ------- $ 1,882 $ 235 $ -- ======= ======= ======= F-16 44 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 Total income tax expense (benefit) for the years ended December 31, 1996, 1995 and 1994 was allocated as follows (in thousands): 1996 1995 1994 ------- ------- ------- Income tax expense (benefit) attributable to: Income from operations $ 1,882 $ 235 $ -- Stockholders' equity, for compensation expense for tax purposes from the disqualifying disposition of stock options (117) -- (120) ------- ------- ------- $ 1,765 $ 235 $ (120) ======= ======= ======= Income tax expense (benefit) attributable to income from continuing operations consists of (in thousands): Current Deferred Total -------- -------- -------- Year ended December 31, 1996: Federal $ 687 $ 668 $ 1,355 State 560 (33) 527 -------- -------- -------- $ 1,247 $ 635 $ 1,882 ======== ======== ======== Year ended December 31, 1995: Federal $ 277 $ (120) $ 157 State 158 (80) 78 -------- --------- -------- $ 435 $ (200) $ 235 ======== ======== ======== Year ended December 31, 1994: Federal $ -- $ 27 $ 27 State -- (27) (27) -------- -------- -------- $ -- $ -- $ -- ======== ======== ======== F-17 45 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 The significant components of deferred income tax expense (benefit) attributable to income from operations for the years ended December 31, 1996, 1995 and 1994 are as follows (in thousands): 1996 1995 1994 ------- ------- ------- Deferred tax expense (benefit) (exclusive of the effects of other components listed below) $ 1,035 $ 237 $ (417) Increase (decrease) in valuation allowance for deferred income taxes (400) (437) 417 ------- ------- ------- Deferred income tax expense (benefit) attributable to income from operations $ 635 $ (200) $ -- ======= ======= ======= 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): 1996 1995 ------- ------- Deferred tax assets: Accounts receivable $ 125 $ 115 Inventories 536 433 Accrued liability - compensation related expense 115 122 Accrued liability - pension 219 121 Other nondeductible reserves and accruals 9 (49) Fixed assets -- (27) Net operating loss carryforward benefit 204 998 Credit carryforwards benefit 1,583 1,657 ------- ------- Total gross deferred tax assets 2,791 3,370 Less valuation allowance (630) (1,030) ------- ------- Net deferred tax assets 2,161 2,340 Deferred tax liabilities (556) (100) ------- ------- Net deferred tax assets 1,605 2,240 Less current portion 791 588 ------- ------- Long-term deferred tax asset $ 814 $ 1,652 ======= ======= F-18 46 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 The valuation allowance for deferred tax assets as of December 31, 1996 and 1995 was $630,000 and $1 million, respectively. Based on the Company's level of net income and projected future earnings, the Company believes that it is more likely than not that a portion of the deferred tax asset will be realized in the future. During 1996, the portion of the deferred tax asset which is expected to be realized increased from 1995; therefore, the Company reduced its valuation allowance by $400,000. 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, 1996, the Company had the following income tax credits available to offset future income taxes (in thousands): Amount Expires ------ ------- Federal Investment Tax Credits $841 1997-2001 Alternative Minimum Tax Credit 742 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): 1996 1995 1994 ---- ---- ---- Customer Amount % Amount % Amount % -------- ------ - ------ - ------ - A $7,902 13 $5,040 13 $4,034 15 B 4,153 11 5,077 19 C 2,592 10 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 25%, 22% and 11% of total sales in 1996, 1995 and 1994, respectively. 12 - Commitments SpecTran Specialty Optics Company leases office and production facilities under leases through February 18, 1997 which have been extended through August 18, 1997. SpecTran Communication Fiber Technologies, Inc. leases office space under a lease through June 30, 1997. The scheduled rental payments required under these operating leases for 1997 are $169,000. The Company has no lease commitments after 1997. Lease commitments of APD were assumed by General Photonics LLC. F-19 47 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 Total rent expense for the years ended December 31, 1996, 1995 and 1994 was $634,000, $364,000 and $242,000, respectively. A portion of the total rent expense for 1996 and 1995 was for APD, since its acquisition in May, 1995. 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 had an unrecognized net gain in 1996 as compared to an unrecognized net loss in 1995, which was due to a change in the discount rate to 7.0% in 1995 from 8.5% in 1994 as a result of declining interest rates. The discount rate for 1996 was increased to 7.5% based on current interest rates. The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1996 and 1995. Actuarial present value of benefit obligations (in thousands): 1996 1995 ------- ------- Vested benefit obligation $ 803 $ 613 ======= ======= Accumulated benefit obligation $ 901 $ 751 ======= ======= Projected benefit obligation $ 1,650 $ 1,437 Plan assets at fair value - primarily mutual funds 1,195 912 ------- ------- Projected benefit obligation in excess of plan assets 455 525 Unrecognized net gain (loss) 36 (163) Unrecognized net obligation at January 1, 1991 being recognized over 17.4 years (197) (244) ------- ------- Accrued pension cost $ 294 $ 118 ======= ======= Net pension cost for 1996 and 1995 included the following components: 1996 1995 ----- ----- Service cost - benefits earned during period $ 289 $ 151 Interest cost on projected benefit obligation 103 66 Actual return on assets (129) (186) Net amortization and deferral 65 146 ----- ----- Net pension cost $ 328 $ 177 ===== ===== F-20 48 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 Assumptions used in the accounting as of December 31 were as follows: 1996 1995 ------ ------ Discount rate 7.5% 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) Supplemental Retirement Agreements The Company entered into supplemental retirement agreements with five executive officers in 1996. These agreements provide benefits based on years of service and average eligible pay for executives. The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1996 and 1995. Actuarial present value of benefit obligations (in thousands): 1996 ------- Vested benefit obligation $ 0 ======= Accumulated benefit obligation $ 1,170 ======= Projected benefit obligation $ 1,398 Unrecognized prior service cost $(1,096) ------- Accrued pension cost $ 302 ======= Net pension cost for 1996 and 1995 included the following components: 1996 1995 ---- ---- Service cost - benefits earned during period $116 $-- Interest cost on projected benefit obligation 84 -- Net amortization and deferral 2 100 ---- ---- Net pension cost $202 $100 ==== ==== Assumptions used in the accounting as of December 31 were as follows: 1996 ---- Discount rate 7.0% Rates of increase in compensation levels 5.0% Expected long-term rate of return on assets 8.5% COLA increase 3.5% F-21 49 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 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 $361,000, $83,000 and $114,000 in 1996, 1995 and 1994, respectively. d) Directors Retirement Plan In December, 1995 the Company adopted a Directors Retirement Plan which provides for retirement benefits for all outside directors with five full calendar years of service as of the later of age 70 or the date of actual retirement as a director. There was no expense in 1996 to provide for past service costs. 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. These plans provide for the payment of bonuses if certain performance objectives are obtained. Bonuses of $1.4 million, $380,000 and $331,000, respectively, were charged to operations in 1996, 1995 and 1994. 14 - Acquisitions/Joint Venture a) Applied Photonic Devices, Inc. On May 23, 1995 the Company purchased all the outstanding capital stock of Applied Photonic Devices, Inc. ("APD") for cash and common stock worth approximately $3.9 million. The Company also retired approximately $600,000 of APD bank debt. 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 $3.3 million resulted from the purchase and is being amortized over 15 years. Amortization expense amounted to $217,000 and $127,000 in 1996 and 1995, respectively. 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 $6.0 million (subject to adjustment) and then contributed them to General Photonics for a 50% equity interest. F-22 50 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 APD contributed its remaining assets to General Photonics in exchange for its 50% equity interest. The net assets, including goodwill, of General Photonics totaled $10.2 million at December 31, 1996. The Company will account for its interest in the joint venture under the equity method and no gain or loss has been recognized as a result of this transaction. The following pro forma statement of operations for the year ended December 31, 1996 presents the results of operations as if the Company had entered into the joint venture as of January 1, 1996 (in thousands): Statements of Operations (unaudited) 1996 ------- Sales $51,413 Cost of Sales 31,977 ------- Gross Profit 19,436 Operating Expenses 14,632 Equity in Earnings of Joint Venture 530 Other Income 297 ------- Income Before Taxes 5,631 Income Tax Expense 1,915 ------- Net Income $ 3,716 ======= Net Income per Share of Common Stock $ .63 ======= Weighted Average shares outstanding 5,926 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. F-23 51 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1996 and 1995 15 - Subsequent Event On February 18, 1997 the Company completed a secondary public offering of 1,500,000 shares of common stock at a price of $19.00 per share. Of the 1,500,000 shares, 1,300,000 were sold by the Company and 200,000 by Allen & Company, a selling stockholder. The following table sets forth the stockholders' equity of the Company as of December 31, 1996 on a pro forma basis to reflect (i) the sale of 1,300,000 shares of common stock offered by the Company at a public offering price of $19.00 and (ii) the exercise by the selling stockholder of its warrant to purchase 200,000 shares of common stock at an exercise price of $2.00 per share. December 31, 1996 Actual Pro Forma -------- --------- (in thousands) Stockholders' Equity: Common Stock, voting, $.10 par value; authorized 20,000,000 shares; 5,400,071 outstanding; 6,900,071 (pro forma) $ 540 $ 690 Common Stock, non-voting, $.10 par value; authorized 250,000 shares; non issued -- -- Paid-in Capital 26,884 49,952 Net Unrealized Loss on Marketable Securities (16) (16) Retained Earnings 995 995 -------- -------- Total Stockholders' Equity $ 28,403 $ 51,621 ======== ======== 16 - Quarterly Financial Information (unaudited) In thousands of dollars except per share data Quarters First Second Third Fourth - -------------------------------------------------------------------------------- 1996 Net Sales $13,473 $15,281 $16,161 $16,656 Gross Profit 4,756 5,318 6,220 6,081 Net Income 684 833 1,007 1,131 Net Income per Share .12 .14 .17 .19 1995 Net Sales $ 7,965 $ 9,099 $ 9,971 $11,546 Gross Profit 2,894 2,841 3,359 3,967 Net Income 83 8 179 272 Net Income per Share .02 -- .03 .05 F-24 52 SPECTRAN CORPORATION Schedule I - Valuation and Qualifying Accounts For the Years Ended December 31, 1996, 1995 and 1994 Dollars in Thousands Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance at Additions Balance Beginning Charged to at End Description of Period Expenses Deductions of Period ----------- --------- -------- ---------- --------- For the Year Ended December 31, 1996: Allowance - Net Deferred Tax Asset $ 1,030 $ -- $ 400 $ 630 ======== ======== ======== ======== Allowance for Doubtful Accounts $ 265 $ $ 47 $ 218 ======== ======== ======== ======== Allowance for Obsolete Inventory $ 467 $ -- $ 194 $ 273 ======== ======== ======== ======== For the Year Ended December 31, 1995: Allowance - Net Deferred Tax Asset $ 1,467 $ -- $ 437 $ 1,030 ======== ======== ======== ======== Allowance for Doubtful Accounts $ 124 $ 141 $ -- $ 265 ======== ======== ======== ======== Allowance for Obsolete Inventory $ 556 $ -- $ 89 $ 467 ======== ======== ======== ======== For the Year Ended December 31, 1994: Allowance - Net Deferred Tax Asset $ 1,050 $ 417 $ -- $ 1,467 ======== ======== ======== ======== Allowance for Doubtful Accounts $ 100 $ 82 $ 58 $ 124 ======== ======== ======== ======== Allowance for Obsolete Inventory $ 434 $ 300 $ 178 $ 556 ======== ======== ======== ======== F-25 EX-10.106 2 COMMON STOCK PURCHASE WARRANT 1 SPECTRAN CORPORATION EXHIBIT 10.106 THE SHARES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED BY AND SUBJECT TO A CONVERSION AGREEMENT AMONG SPECTRAN CORPORATION, ALLEN & COMPANY INCORPORATED, RICHARD A.M.C. JOHNSON AND PATRICK E. BRAKE DATED AS OF NOVEMBER 8, 1990 AND ON FILE AT THE OFFICES OF THE COMPANY. Void after August 14, 1999 Right to Purchase 150,000 Shares of Common Stock (subject to adjustment) of SpecTran Corporation SPECTRAN CORPORATION COMMON STOCK PURCHASE WARRANT SPECTRAN CORPORATION (the "Company"), a Delaware corporation, hereby certifies that, for value received, ALLEN & COMPANY INCORPORATED, or assigns, is entitled, subject to the terms set forth below, to purchase from the Company at any time on or from time to time after August 14, 1990 and before 5:00 P.M., New York City time, on August 14, 1999, 150,000 fully paid and non-assessable shares of Common Stock of the Company, at the price per share (the "Purchase Price") of $2.00. The number and character of such shares of Common Stock and the Purchase Price are subject to adjustment as provided herein. This Common Stock Purchase Warrant (the "Warrant") is issued to Allen & Company Incorporated as of November 8, 1990 and evidencing the right to purchase an aggregate of not more than 150,000 shares of Common Stock of the Company, subject to adjustment as provided herein. These are the remaining shares from a Warrant to purchase 350,000 shares which was exercised, in part, for 200,000 shares, on February 18, 1997. 150,000 of these shares was originally subject to a warrant issued August 14, 1981 and another 100,000 of these shares was originally subject to a warrant issued August 14, 1986; both warrants were amended and incorporated into this Warrant in accordance with the Conversion Agreement (defined below). As used herein the following terms, unless the context otherwise requires, have the following respective meanings: (a) The term "Company" includes any corporation which shall succeed to or assume the obligations of the Company hereunder. 2 SPECTRAN CORPORATION (b) The term "Common Stock" includes all stock of any class or classes (however designated) of the Company, authorized upon the Original Issue Date or thereafter, the holders of which shall have the right, without limitation as to amount, either to all or to a share of the balance of current dividends and liquidating dividends after the payment of dividends and distributions on any shares entitled to preference, and the holders of which shall ordinarily, in the absence of contingencies, be entitled to vote for the election of a majority of directors of the Company (even though the right so to vote has been suspended by the happening of such a contingency). (c) "Conversion Agreement" shall mean the Conversion Agreement among SpecTran Corporation, Allen & Company Incorporated ("Allen"), Richard A.M.C. Johnson ("Johnson"), 145 La Vereda Road, Santa Barbara, California 93108, and Patrick E. Brake ("Brake"), 711 Fifth Avenue, New York, New York 10022, dated as of November 8, 1990. (d) The "Original Issue Date" is November 8, 1990, the date as of which the Warrants were first issued. (e) The term "Other Securities" refers to any stock other than Common Stock) and other securities of the Company or any other person (corporate or otherwise) which the holders of the warrants at any time shall be entitled to receive, or shall have received, upon the exercise of the Warrants, in lieu of or in addition to Common Stock, or which at any time shall be issuable or shall have been issued in exchange for or in replacement of Common Stock or Other Securities pursuant to section 7 or otherwise. (f) The terms "registered" and "registration" refer to a registration effected by filing a registration statement in compliance with the Securities Act, to permit the disposition of Common Stock (or Other Securities) issued or issuable upon the exercise of Warrants, and any post-effective amendment and supplements filed or required to be filed to permit any such disposition. (g) The term "Securities Act" means the Securities Act of 1933 as the same shall be in effect at the time. (h) The term "Warrants" shall mean, collectively, the warrant held by Allen to purchase 350,000 shares of Common Stock (individually, the "Allen Warrant"), the warrant held by Johnson to purchase 30,000 shares of Common Stock (individually, the "Johnson Warrant"), and the warrant held by Brake to purchase 20,000 shares of Common Stock (individually, the "Brake Warrant"). The term "Warrant" shall mean the warrant evidenced by this document. 3 SPECTRAN CORPORATION 1. Registration, etc. 1.1 In the event that the Company proposes, at any time within the four year period commencing one year from the Original Issue Date, to file a registration statement (including a registration statement to be filed under subparagraph 1.2 hereof) on a general form of registration under the Securities Act and relating to securities issued or to be issued by it, or if the Company has filed such a registration statement and proposes to file a post-effective amendment thereto within the four year period described in the first clause of this sentence, then it shall give written notice of such proposal to Allen. If, within thirty (30) days after the giving of such notice, Allen shall request in writing that all or any of such Common Stock or Other Securities issued or issuable upon exercise of the Warrants be included in such proposed registration, the Company will, at its own expense, also register such securities as shall have been requested by Allen in writing; provided, however, that: (a) the record owners of such securities shall deliver to the Company a statement in writing from the beneficial owners of such securities that they bona fide intend to sell, transfer or otherwise dispose of such securities; (b) the Company shall not be required to include any of such securities if, by reason of such inclusion, the Company shall be required to prepare and file a registration statement on a form promulgated by the Securities and Exchange Commission substantially differed from that which the Company otherwise would use; (c) such record and/or beneficial owners shall cooperate with the Company in the preparation of registration statement to the extent required to furnish information concerning such owners therein; and (d) if any underwriter or managing agent is purchasing or arranging for the sale of the securities then being offered by the Company under such registration statement, then such record and/or beneficial owners (i) shall agree to have the securities being so registered sold to or by such underwriter or managing agent on terms substantially equivalent to the terms at which the Company is selling the securities so registered, or (ii) shall delay the sale of such securities for the 30 day period commencing with the effective date of the registration statement, provided that, if such owner elects, alternative (i) and if the underwriter or managing agent shall in good faith object to the sale at that time of such securities, then the sale of such securities may be delayed for a period not to exceed 90 days from the effective date of such registration statement. 1.2 After one year from the Original Issue Date, but prior to the expiration of four years from the date thereof, the Company will, upon the written request of Allen, prepare and file as promptly as is reasonably possible upon being furnished with the requisite information 4 SPECTRAN CORPORATION for such purpose, and use its reasonable best efforts to make effective, at the expense of the registered owners of Warrants and/or shares of Common Stock issued upon the exercise of the Warrants which are the subject of Allen's request, a registration statement (but only two) covering such Common Stock or Other Securities issued or issuable upon exercise of such Warrants requested to be sold by Allen. 1.3 In connection with the filing of a registration statement pursuant to subsections 1.1 or 1.2 of this section 1, the Company shall: (a) notify Allen as to the filing thereof and of all amendments thereto filed prior to the effective date of said registration statement; (b) notify Allen promptly after it shall have received notice thereof, of the time when the registration statement becomes effective or any supplement to any prospectus forming a part of the registration statement has been filed; (c) prepare and file any necessary amendment or supplement to such registration statement or prospectus as may be necessary to comply with section 10(a)(3) of the Securities Act or advisable in connection with the proposed distribution of the securities by the owners thereof; (d) use its reasonable best efforts to qualify the shares of Common Stock or Other Securities being so registered for sale under the securities or blue sky laws of not more than eight states as Allen may designate in writing and to register or obtain the approval of any federal or state authority which may be required in connection with the proposed distribution, except, in each case, in jurisdictions in which the Company must either qualify to do business or file a general consent to service of process as a condition to the qualification of such securities; (e) notify Allen of any stop order suspending the effectiveness of the registration statement and use its reasonable best efforts to remove such stop order; (f) undertake to keep said registration statement and prospectus effective for a period of nine months after such shares of Common Stock first become free to be sold under such registration statement; (g) furnish to Allen as soon as available, copies of any such registration statement and each preliminary or final prospectus and any supplement or amendment required to be prepared pursuant to the foregoing provisions of this paragraph 1, all in such quantities as Allen may from 5 SPECTRAN CORPORATION time to time reasonably request. The Company shall furnish to Allen without cost one set of the Exhibits to such registration statement. 1.4 The record owners of the shares of Common Stock or Other Securities being so registered agree to pay all of the underwriting discounts and commissions, transfer taxes, registration fees and their own counsel fees with respect to the securities owned by them and being registered. The Company agrees that the costs and expenses which it is obligated to pay in connection with a registration statement to be filed pursuant to subsection 1.1 above, and the record owners agree that the costs and expenses which they are obligated to pay in connection with a registration statement to be filed pursuant to subsection 1.2 above, include, but are not limited to, the fees and expenses of counsel for the Company, the fees and expenses of its accountants and all other costs and expenses incident to the preparation, printing and filing under the Securities Act of any such registration statement, each prospectus and all amendments and supplements thereto, the costs incurred in connection with the qualification of such securities for sale in not more than eight states, including fees and disbursements of counsel for the Company, and the costs of supplying a reasonable number of copies of the registration statement, each preliminary prospectus, final prospectus and any supplements or amendments thereto to Allen. 1.5 The Company agrees to enter into an appropriate cross-indemnity agreement with any underwriter (as defined in the Securities Act) for such record owners in connection with the filing of a registration statement pursuant to subsections 1.1 or 1.2 hereof. 1.6 In the event that the Company shall file any registration statement including therein all or any part of shares of Common Stock or Other Securities issued or issuable upon exercise of the Warrants, the Company and each record and/or beneficial owner of such securities shall enter into an appropriate cross-indemnity agreement whereby each such owner shall indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement and each person, if any, who controls the Company within the meaning of the Securities Act against any losses, claims, damages or liabilities (or actions in respect thereof) arising out of or based upon any untrue statement or alleged untrue statement of any material fact contained in such registration statement, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, if the statement or omission was made in reliance upon and in conformity with written information furnished or required to be furnished by such owner or such controlling person expressly for use in such registration statement. 2. Sale or Exercise Without Registration. If, at the time of any exercise, transfer or surrender for exchange of a Warrant or of Common Stock (or Other Securities) previously issued upon the exercise of Warrants, such Warrant or Common Stock (or Other Securities) shall not be registered under the Securities Act, the Company may require, as a condition or allowing such exercise, transfer or exchange, that the owner or transferee of such Warrant or Common Stock (or Other Securities), as the case may be, furnish to the Company a satisfactory opinion of counsel to the effect that such exercise, transfer or exchange may be made without registration under the Securities Act, provided that the disposition thereof shall at all times be within the 6 SPECTRAN CORPORATION control of such owner or transferee, as the case may be, and provided further that nothing contained in this section 2 shall relieve the Company from complying with any request for registration pursuant to section 1 hereof. Allen or its assigns, Johnson or his assigns, and Brake or his assigns, as the case may be, in each case as the first holder of his or its Warrant represents to the Company that he or it is acquiring the Warrant for investment and not with a view to the distribution thereof. 3. Right of First Refusal. The Allen Warrant and Common Stock (or Other Securities) previously issued upon the exercise of the Allen Warrant shall be subject to the right of first refusal and other procedures contained in Section 3. of the Conversion Agreement. 4. Exercise of Warrant; Partial Exercise. 4.1 Exercise in Full. Subject to the provisions hereof, this Warrant may be exercised in full by the holder thereof by surrender of the Warrant, with the form of subscription at the end hereof duly executed by such holder, to the Company at its principal office in Sturbridge, Mass., accompanied by payment, in cash or by certified or official bank check payable to the order of the Company, in the amount obtained by multiplying the number of shares of Common Stock called for on the face of the Warrant (without giving effect to any adjustment therein) by the Purchase Price. 4.2 Partial Exercise. Subject to the provisions hereof, this Warrant may be exercised in part by surrender of the Warrant in the manner and at the place provided in subsection 4.1 except that the amount payable by the holder upon any partial exercise shall be the amount obtained by multiplying (a) the number of shares of Common Stock (without giving effect to any adjustment therein) designated by the holder in the subscription at the end hereof by (b) the Purchase Price. Upon any such partial exercise, the Company at its expense will forthwith issue and deliver to or upon the order of the holder thereof a new warrant or warrants of like tenor, in the name of the holder thereof or as such holder (upon payment by such holder of any applicable transfer taxes) may request, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of the partially exercised warrant minus the number of such shares designated by the holder in the subscription at the end hereof. 4.3 Company to Reaffirm Obligations. The Company will, at the time of any exercise of this Warrant, upon the request of the holder thereof, acknowledge in writing its continuing obligation to afford to such holder any rights (including, without limitation, any right to registration of the shares of Common Stock or Other Securities issued upon such exercise) to which such holder shall continue to be entitled after such exercise in accordance with the provisions of this Warrant, provided that if the holder of this Warrant shall fail to make any such request, such failure shall not affect the continuing obligation of the Company to afford such holder any such rights. 5. Delivery of Stock Certificates, etc., on Exercise. As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 10 days thereafter, the 7 SPECTRAN CORPORATION Company at its expense (including the payment by it of any applicable issue taxes) will cause to be issued in the name of and delivered to the holder hereof, or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, a certificate or certificates for the number of fully paid and non-assessable shares of Common Stock (or Other Securities) to which such holder shall be entitled upon such exercise, plus, in lieu of any fractional share to which such holder would otherwise be entitled, cash equal to such fraction multiplied by the then current market value of one full share, together with any other stock or other securities and property (including cash, where applicable) to which such holder is entitled upon such exercise pursuant to section 6 or otherwise. 6. Adjustment for Dividends in Other Stock, Property, etc.; Reclassification, etc.In case at any time or from time to time after the Original Issue Date the holders of Common Stock (or Other Securities) shall have received, or (on or after the record date fixed for the determination of stockholders eligible to receive) shall have become entitled to receive, without payment therefor (a) other or additional stock or other securities or property (other than cash) by way of dividend, or (b) any cash paid or payable (including, without limitation, by way of dividend), except out of earned surplus of the Company, or (c) other or additional (or less) stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, recapitalization, combination of shares or similar corporate rearrangement, then, and in each such case the holder of this Warrant, upon the exercise hereof as provided in section 4, shall be entitled to receive the amount of stock and other securities and property (including cash in the case referred to in subdivisions (b) and (c) of this section 6) which such holder would hold on the date of such exercise if on the Original Issue Date it had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant and had thereafter, during the period from the Original Issue Date to and including the date of such exercise, retained such shares and all such other or additional (or less) stock and other securities and property (including cash in the cases referred to in subdivisions (b) and (c) of this section 6) receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by section 7 and 8 hereof. 7. Reorganization, Consolidation, Merger, etc. 7.1 General. In case the Company after the Original Issue Date shall (a) effect a reorganization, (b) consolidate with or merge into any other person, or (c) transfer all or substantially all of its properties or assets to any other person under any plan or arrangement contemplating the dissolution of the Company within 24 months from the date of such transfer, then, in each such case, the holder of this Warrant, upon the exercise hereof as provided in section 4 at any time after the consummation of such dissolution, as the case may be, shall be entitled to receive (and the Company shall be entitled to deliver), in lieu of the Common Stock 8 SPECTRAN CORPORATION (or Other Securities) issuable upon such exercise prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such holder would have been entitled upon such consummation or in connection with such dissolution, as the case may be, if such holder had so exercised this Warrant immediately prior thereto, all subject to further adjustment thereafter as provided in section 6 and 8 hereof. The Company agrees that in the event that it effects a consolidation with or merger into any other person, it shall be a condition of such consolidation or merger that the resulting entity agree to register all shares or other shares or other securities under the Securities Act of 1933 so that all persons receiving shares in the consolidation or merger shall be free to sell said shares pursuant to an effective registration statement immediately after the consolidation or merger. 7.2 Warrant to Continue in Full Force and Effect. Upon any reorganization, consolidation, merger or transfer (and any dissolution following any transfer) pursuant to section 7.1 this Warrant shall continue in full force and effect and the terms hereof shall be applicable to the shares of stock and other securities and property receivable upon the exercise of this Warrant after the consummation of such reorganization, consolidation, merger, transfer or dissolution, as the case may be, and shall be binding upon the issuer of any such stock or other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Warrant. 8. Other Adjustments. 8.1 General. In any case to which sections 6 and 8 hereof are not applicable, where the Company shall issue or sell shares of its Common Stock after the Original Issue Date, other than shares issued or sold in connection with options or rights granted pursuant to the Company's Incentive Stock Option Plan (or any similar plan it might adopt), without consideration or for a consideration per share less than the Purchase Price in effect pursuant to the terms of this Warrant at the time of issuance or sale of such additional shares, except where such shares are issued or sold pursuant to the exercise of any warrant or option or issued prior to the date of this Warrant, then the Purchase Price in effect hereunder shall simultaneously with such issuance or sale be reduced to a price determined by dividing (1) an amount equal to (a) the total number of shares of Common Stock outstanding immediately prior to such issuance or sale multiplied by the Purchase Price in effect hereunder at the time of such issuance or sale, plus (b) the consideration, if any, received by the Company upon such issuance or sale by (2) the total number of shares of Common Stock outstanding immediately after issuance or sale of such additional shares. 8.2 Convertible Securities. In case the Company shall issue or sell any securities convertible into Common Stock of the Company ("Convertible Securities") after the date hereof, other than shares issued or sold in connection with options or rights granted pursuant to the Company's Incentive Stock Option Plan (or any similar plan it might adopt), there shall be determined the price per share for which Common Stock is issuable upon the conversion or exchange thereof, such determination to be made by dividing (a) the total amount 9 SPECTRAN CORPORATION received or receivable by the Company as consideration, if any, payable to the Company upon the conversion or exchange thereof, by (b) the maximum number of shares of Common Stock of the Company issuable upon the conversion or exchange of all of such Convertible Securities. If the price per share so determined shall be less than the applicable Purchase Price per share, then such issue or sale shall be deemed to be an issue or sale for cash (as of the date of issue or sale of such Convertible Securities) of such maximum number of shares of Common Stock at the price per share so determined, provided that, if such Convertible Securities shall by their terms provide for an increase or increases, with the passage of time, in the amount of additional consideration, if any, to the Company, or in the rate of exchange, upon the conversion or exchange thereof, the adjusted purchase price per share shall, forthwith upon any such increase becoming effective, be readjusted to reflect the same, and provided further, that upon the expiration of such rights of conversion or exchange of such Convertible Securities, if any thereof shall not have been exercised, the adjusted Purchase Price per share shall forthwith be readjusted and thereafter be the price which it would have been had an adjustment been made on the basis that the only shares of Common Stock so issued or sold were issued or sold upon the conversion or exchange of such Convertible securities, and that they were issued or sold for the consideration actually received by the Company upon such conversion or exchange, plus the consideration, if any, actually received by the Company for the issue or sale of all of such Convertible Securities which shall have been converted or exchanged. 8.3 Rights and Options. In case the Company shall grant any rights or options, other than options or rights granted pursuant to the Company's Incentive Stock Option Plan (or any similar plan it might adopt), to subscribe for, purchase or otherwise acquire Common Stock, there shall be determined the price per share for which Common Stock is issuable upon the exercise of such rights or options, such determination to be made by dividing (a) the total amount, if any, received or receivable by the Company as consideration for the granting of such rights or options, plus the minimum aggregate amount of additional consideration payable to the Company upon the exercise of such rights or options, by (b) the maximum number of shares of Common Stock of the Company issuable upon the exercise of such rights or options. If the price per share so determined shall be less than the applicable Purchase Price per share, then the granting of such rights or options shall be deemed to be an issue or sale for cash (as of the date of the granting of such rights or options) of such maximum number of shares of Common Stock at the price per share so determined, provided that, if such rights or options shall by their terms provide for an increase or increases, with the passage of time, in the amount of additional consideration payable to the Company upon the exercise thereof, the adjusted purchase price per share shall, forthwith upon any such increase becoming effective, be readjusted to reflect the same, and provided, further, that upon the expiration of such rights or options, if any thereof shall not have been exercised, the adjusted Purchase Price per share shall forthwith be readjusted and thereafter be the price which it would have been had an adjustment been made on the basis that the only shares of Common Stock so issued or sold were those issued or sold upon the exercise of such rights or options and that they were issued or sold for the consideration 10 SPECTRAN CORPORATION actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such right or options, whether or not exercised. 9. Further Assurances. The Company will take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of stock upon the exercise of all Warrants from time to time outstanding. 10. Accountant's Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable upon the exercise of the Warrants, the Company at its expense will promptly cause the Company's regularly retained auditor to compute such adjustment or readjustment in accordance with the terms of the Warrants and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, and the number of shares of Common Stock outstanding or deemed to be outstanding. The Company will forthwith mail a copy of each such certificate to each holder of a Warrant. 11. Notices of Record Date, etc. In the event of (a) any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend payable out of earned surplus of the Company) or other distribution, or any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, or (b) any capital reorganization of the Company, any reclassification or recapitalization of the capital stock of the Company or any transfer of all or substantially all the assets of the Company to or consolidation or merger of the Company with or into any other person, or (c) any voluntary or involuntary dissolution, liquidation or winding-up of the Company, or (d) any proposed issue or grant by the Company of any shares of stock of any class or any other securities, or any right or option to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities (other than (i) in connection with the Company's Incentive Stock Option Plan (or any similar plan it might adopt), or (ii) the issue of Common Stock on the exercise of the Warrants), then and in each such event the Company will mail or cause to be mailed to each holder of a Warrant a notice specifying (i) the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, (ii) the date on which any such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up is to take 11 SPECTRAN CORPORATION place, and the time, if any, as of which the holder of record of Common Stock (or Other Securities) shall be entitled to exchange their shares of Common Stock (or Other Securities) for securities or other property deliverable upon such reorganization, reclassification, recapitalization, transfer, consolidation, merger, dissolution, liquidation or winding-up, and (iii) the amount and character of any stock or other securities, or rights or options with respect thereto, proposed to be issued or granted, the date of such proposed issue or grant and the persons or class of persons to whom such proposed issue or grant is to be offered or made. Such notice shall be mailed at least 20 days prior to the date therein specified. 12. Reservation of Stock, etc. Issuable on Exercise of Warrants. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of the Warrants, all shares of Common Stock (or Other Securities) from time to time issuable upon the exercise of the Warrants. 13. Listing on Securities Exchanges; Registration. If the Company at any time shall list any Common Stock on any national securities exchange and shall register such Common Stock under the Securities Exchange Act of 1934 (as then in effect, or any similar statue then in effect), the Company will, at its expense, simultaneously list on such exchange, upon official notice of issuance upon the exercise of the Warrants, and maintain such listing of all shares of Common Stock from time to time issuable upon the exercise of the Warrants; and the Company will so list on any national securities exchange, will so register and will maintain such listing of all shares of Common Stock from time to time issuable upon the exercise of the Warrants; and the Company will so list on any national securities exchange, will so register and will maintain such listing of, any Other Securities if and at the time that any securities of like class or similar type shall be listed on such national securities exchange by the Company. 14. Exchange of Warrants. Subject to the provisions of paragraph 2 hereof, upon surrender for exchange of any Warrant, properly endorsed, to the Company, the Company at its own expense will issue and deliver to or upon the order of the holder thereof a new warrant or warrants of like tenor, in the name of such holder or as such holder (upon payment by such holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of common Stock called for on the face or faces of the warrant or warrants so surrendered. 15. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction of mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company at its expense will execute and deliver, in lieu thereof, a new warrant of like tenor. 12 SPECTRAN CORPORATION 16. Warrant Agent. The Company may, by written notice to each holder of a Warrant, appoint an agent having an office in New York, New York, for the purpose of issuing Common Stock (or Other Securities) upon the exercise of the Warrants pursuant to section 4, exchanging Warrants pursuant to section 14, and replacing Warrants pursuant to section 15, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent. 17. Remedies. The Company stipulates that the remedies at law of the holder of this Warrant in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 18. Negotiability, etc. This Warrant is issued upon the following terms, to all of which each holder or owner hereof by the taking hereof consents and agrees: (a) subject to the provisions hereof, title to this Warrant may be transferred by endorsement (by the holder hereof executing the form of assignment at the end hereof) and delivery in the same manner as in the case of a negotiable instrument transferable by endorsement and delivery; (b) subject to the foregoing, any person in possession of this Warrant properly endorsed is authorized to represent himself as absolute owner hereof and is empowered to transfer absolute title hereto by endorsement and delivery hereof to a bona fide purchaser hereof for value; each prior taker or owner waives and renounces all of his equities or rights in this Warrant in favor of each such bona fide purchaser and each such bona fide purchaser shall acquire absolute title hereto and to all rights represented hereby; and (c) until this Warrant is transferred on the books of the Company, the Company may treat the registered holder hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 19. Notices, etc. All notices and other communications from the Company to the holder of this Warrant shall be mailed by first class registered or certified mail, postage prepaid, at such addresses as may have been furnished to the Company in writing by such holder, or, until and address is so furnished, to and at the address of the last holder of this Warrant who has so furnished an address to the Company. 20. Miscellaneous. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought. This Warrant is being delivered in the State of New York and shall be construed and enforced in accordance with 13 SPECTRAN CORPORATION and governed by the laws of such State. The headings in this Warrant are for purposes of reference only, and shall not limit or otherwise affect any of the terms hereof. 21. Extended Expiration. The right to exercise this Warrant shall expire at 5:00 P.M., New York City time, on August 14, 1999, provided, however, that if the holders of Warrants issued hereunder have, in accordance with the terms hereof, requested a registration statement pursuant to subsection 1.2 hereof and such registration statement has not become effective prior to the expiration date of the right to exercise this Warrant, then the right to exercise this Warrant shall be extended and shall expire 30 days after the effective date of such registration statement. 22. Assignability. This Warrant is fully assignable at any time. Dated: SPECTRAN CORPORATION By__________________________ [Corporate Seal] Attest: ___________________________ Secretary 14 SPECTRAN CORPORATION FORM OF SUBSCRIPTION (To be signed only upon exercise of Warrant) To: SPECTRAN CORPORATION The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, * shares of Voting Common Stock of SpecTran Corporation, and herewith makes payment of $ thereof, and requests that the certificates for such shares be issued in the name of, and delivered to, , whose address is Dated: _________________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) _________________________________________________ (Address) - -------- * Insert here the number of shares called for on the face of the Warrant (or, in the case of a partial exercise, the portion thereof as to which the Warrant is being exercised), in either case without making any adjustment for additional Common Stock or any other stock or other securities or property or cash which, pursuant to the adjustment provisions of the Warrant, may be deliverable upon exercise. 15 SPECTRAN CORPORATION FORM OF ASSIGNMENT (To be signed only upon transfer of Warrant) For value received, the undersigned hereby sells, assigns and transfers unto the right represented by the within warrant to purchase ** shares of Voting Common Stock of SpecTran Corporation which the within warrant relates, and appoints Attorney to transfer such right on the books of SpecTran Corporation with full power of substitution in the premises. The warrant being transferred hereby is one of an aggregate of 350,000 Common Stock Purchase warrants issued by SpecTran Corporation to Allen & Company Incorporated as of November 8, 1990. Dated: _________________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) _________________________________________________ (Address) - -------- ** Signature guaranteed by a Bank or Trust Company having its principal office in New York City or by a Member Firm of the New York or American Stock Exchange. EX-11.1 3 SCHEDULE OF EARNINGS PER SHARE CALCULATIONS 1 SPECTRAN CORPORATION EXHIBIT 11.1 SpecTran Corporation Net Income (Loss) per Share Calculation (Dollars in thousands except per share amounts) The following is a calculation of net income (loss) per share for the years ended December 31, 1996, 1995 and 1994.
Years Ended December 31, --------------------------------------- Calculation of Primary Net Income (Loss) per Share 1996 1995 1994 - -------------------------------------------------- ----------- ----------- ----------- Average common shares outstanding 5,374,442 5,298,388 5,202,604 Shares assumed to be repurchased under treasury stock method for stock options and stock purchase warrants 551,423 283,961 -- ----------- ----------- ----------- Total Shares 5,925,865 5,582,349 5,202,604 =========== =========== =========== Net Income (loss) $ 3,655 $ 542 $ (487) =========== =========== =========== Per Share Amount $ .62 $ .10 $ (.09) =========== =========== ===========
Years Ended December 31, --------------------------------------- Calculation of Fully Diluted Net Income (Loss) per Share 1996 1995 1994 - -------------------------------------------------------- ----------- ----------- ----------- Average common shares outstanding 5,374,442 5,298,388 5,202,604 Shares assumed to be repurchased under treasury stock method for stock options and stock purchase warrants 587,934 284,364 -- ----------- ----------- ----------- Total Shares 5,962,376 5,582,752 5,202,604 =========== =========== =========== Net Income (loss) $ 3,655 $ 542 $ (487) =========== =========== =========== Per Share Amount $ .61 $ .10 $ (.09) =========== =========== ===========
EX-21.0 4 SUBSIDIARIES 1 SPECTRAN CORPORATION EXHIBIT 21.0 SUBSIDIARIES Name of Subsidiary Jurisdiction of Incorporation SpecTran Communication Fiber Technologies, Inc. Delaware SpecTran Specialty Optics Company Delaware Applied Photonic Devices, Inc. Delaware EX-27 5 FINANCIAL DATA SCHEDULE
5 1000 US DOLLARS YEAR DEC-31-1996 JAN-01-1996 DEC-31-1996 1 3,565 15,417 7,839 218 7,254 34,369 32,601 14,711 62,456 10,053 0 0 0 540 0 62,456 61,571 61,571 39,196 59,969 0 0 471 5,537 1,882 3,655 0 0 0 3,655 .62 .61
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