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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
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
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(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. [ ]
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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
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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:
<TABLE>
<CAPTION>
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Products Applications Target Customers
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SpecTran Communication
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<S> <C> <C>
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)
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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)
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</TABLE>
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<TABLE>
<CAPTION>
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Products Applications Target Customers
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SpecTran Specialty
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<S> <C> <C>
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
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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
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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
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General Photonics
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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
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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
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Cable accessories: pulling devices; Customer premises systems and LAN Installers; system integrators; LAN
breakout, splitter and restoration installation & repair OEMs; utilities
kits; cable terminations
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</TABLE>
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.
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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.
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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
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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.
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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.
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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
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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.
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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.
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Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.
<TABLE>
<CAPTION>
Year Ended December 31
(in thousands, except per share data)
----------------------------------------------------------------
OPERATING RESULTS 1996 1995 1994 1993 1992
- ----------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
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
</TABLE>
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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%
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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%
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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)%
====== ====== ======
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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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 32
SpecTran Corporation
Consolidated Statements of Cash Flows
Dollars in thousands
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 33
SpecTran Corporation
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1996, 1995 and 1994
Dollars in thousands
<TABLE>
<CAPTION>
Net
Unrealized
Gain(Loss)
Common Stock on Retained Total
--------------------- Paid-in Marketable Earnings Stockholders'
Shares Par Value Capital Securities (Deficit) Equity
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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):
<TABLE>
<CAPTION>
Shares
Available Shares Under Option
for Option Shares Price Amount
---------- ------- ------------------ ------
<S> <C> <C> <C> <C> <C>
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
======= ======= ======== ======= ======
</TABLE>
F-15
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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
<PAGE> 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
<PAGE> 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.
<PAGE> 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.
<PAGE> 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.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
Calculation of Primary Net Income (Loss) per Share 1996 1995 1994
- -------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
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)
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
Calculation of Fully Diluted Net Income (Loss) per Share 1996 1995 1994
- -------------------------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
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)
=========== =========== ===========
</TABLE>
<PAGE> 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
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,565
<SECURITIES> 15,417
<RECEIVABLES> 7,839
<ALLOWANCES> 218
<INVENTORY> 7,254
<CURRENT-ASSETS> 34,369
<PP&E> 32,601
<DEPRECIATION> 14,711
<TOTAL-ASSETS> 62,456
<CURRENT-LIABILITIES> 10,053
<BONDS> 0
0
0
<COMMON> 540
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 62,456
<SALES> 61,571
<TOTAL-REVENUES> 61,571
<CGS> 39,196
<TOTAL-COSTS> 59,969
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 471
<INCOME-PRETAX> 5,537
<INCOME-TAX> 1,882
<INCOME-CONTINUING> 3,655
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,655
<EPS-PRIMARY> .62
<EPS-DILUTED> .61
</TABLE>
