<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 0-12489
SPECTRAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2729372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Hall Road, Sturbridge, Massachusetts 01566
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 347-2261
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No. __
The number of shares of the registrant's Common Stock outstanding as of
April 30, 1998, was 7,001,683.
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PART I - FINANCIAL INFORMATION
SPECTRAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in thousands except per share amounts
(unaudited)
<TABLE>
Three Months Ended
March 31,
---------
1998 1997
---- ----
<S> <C> <C>
Net Sales $ 15,227 $ 16,228
Cost of Sales 10,116 9,686
--------------- ---------------
Gross Profit 5,111 6,542
Selling and Administrative Expenses 3,134 3,982
Research and Development Costs 1,176 781
--------------- ---------------
Income from Operations 801 1,779
--------------- ---------------
Other Income (Expense):
Interest Income 114 276
Interest Expense (124) (353)
Other, Net (Note 5) 842 (53)
--------------- ---------------
Other Income (Expense), net 832 (130)
--------------- ---------------
Income before Income Taxes 1,633 1,649
Income Tax Expense 637 567
--------------- ---------------
Income before Equity in Joint Venture 996 1,082
Equity (Loss) from Joint Venture (132) 40
--------------- ---------------
Net Income $ 864 $ 1,122
=============== ===============
Net Earnings per Common Shares:
Basic $.12 $.18
==== ====
Diluted $.12 $.17
==== ====
Weighted Average Number of
Common Shares Outstanding:
Basic 7,002 6,085
===== ======
Diluted 7,192 6,616
===== ======
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
2
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SPECTRAN CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
Dollars in thousands
<TABLE>
March 31, 1998 December 31, 1997
-------------- -----------------
(unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 1,299 $ 445
Current Portion of Marketable Securities -- 5,535
Trade Accounts Receivable, net 12,394 8,622
Inventories 11,783 9,666
Deferred Income Taxes, net 1,189 1,189
Prepaid Expenses and Other Current Assets 2,112 1,943
---------------- ---------------
Total Current Assets 28,777 27,400
Investment in Joint Venture 4,081 4,213
Property, Plant and Equipment, net 61,376 55,409
Other Assets:
Long-term Marketable Securities -- 996
License Agreements, net 552 603
Deferred Income Taxes, net 412 412
Goodwill, net 852 872
Other Long-term Assets 2,173 2,200
---------------- ---------------
Total Other Assets 3,989 5,083
---------------- ---------------
Total Assets $ 98,223 $ 92,105
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 6,326 $ 4,758
Income Taxes Payable 735 573
Accrued Liabilities 5,523 6,015
--------------- ----------------
Total Current Liabilities 12,584 11,346
Long-term Debt (Note 4) 28,000 24,000
Stockholders' Equity:
Common Stock, voting, $.10 par value; authorized
20,000,000 shares; outstanding 7,001,349 shares and
7,000,634 shares in 1998 and 1997, respectively 700 700
Common Stock, non-voting, $.10 par value;
authorized 250,000 shares; no shares outstanding -- --
Paid-in Capital 50,238 50,223
Net Unrealized Loss on Marketable Securities -- (1)
Retained Earnings 6,701 5,837
--------------- ----------------
Total Stockholders' Equity 57,639 56,759
--------------- ----------------
Total Liabilities & Stockholders' Equity $ 98,223 $ 92,105
=============== ================
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
3
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SPECTRAN CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
(unaudited)
<TABLE>
Three Months Ended March 31,
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 864 $ 1,122
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization 1,386 933
Other Non-Cash Charges (25) (243)
Changes in Other Components of Working Capital (4,798) (4,896)
--------------- ---------------
Net Cash Used in Operating Activities (2,573) (3,084)
Cash Flows from Investing Activities:
Loss on Disposition of Equipment 60 --
Acquisition of Property, Plant and Equipment (7,313) (4,848)
Purchase of Marketable Securities (9,652) (119,494)
Proceeds from Sale/Maturity of Marketable Securities 16,184 102,289
Investment in Joint Venture 132 (40)
--------------- ---------------
Net Cash Used in Investing Activities (589) (22,093)
Cash Flows from Financing Activities:
Borrowings of Long-term Debt 4,000 --
Proceeds from Exercise of Stock Options and Warrants 16 11
Issuance of Common Stock -- 23,170
--------------- ---------------
Cash Provided by Financing Activities 4,016 23,181
Increase (Decrease) in Cash and Cash Equivalents 854 (1,996)
Cash and Cash Equivalents at Beginning of Period 445 3,565
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 1,299 $ 1,569
=============== ===============
</TABLE>
See accompanying notes to these condensed consolidated financial statements.
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SPECTRAN CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The financial information for the three months ended March 31, 1998, is
unaudited but reflects all adjustments (consisting solely of normal recurring
adjustments) which the Company considers necessary for a fair statement of
results for the interim period. The results of operations for the three months
ended March 31, 1998, are not necessarily indicative of the results for the
entire year.
The consolidated results for the three months ended March 31, 1998,
include the accounts of SpecTran Corporation (the Company) and its wholly-owned
subsidiaries, SpecTran Communication Fiber Technologies, Inc.("SpecTran
Communication"), SpecTran Specialty Optics Company ("SpecTran Specialty"), and
Applied Photonic Devices, Inc. ("APD"), which holds the Company's investment in
General Photonics, LLC, a 50-50 joint venture between the Company and General
Cable Corporation ("General Cable") a former subsidiary of Wassall plc. The
Company sold certain of the assets of APD to General Cable and then contributed
the remaining non-cash assets of APD to General Photonics for a 50% equity
interest. The investment in General Photonics is accounted under the equity
method of accounting pursuant to which the Company records its 50% interest in
General Photonics' net operating results. Prior to the formation of General
Photonics, APD's results of operations, including net sales and expenses, were
consolidated with those of the Company. All significant intercompany balances
and transactions have been eliminated.
These financial statements supplement, and should be read in
conjunction with, the Company's audited financial statements for the year ended
December 31, 1997, as contained in the Company's Form 10-K as filed with the
United States Securities and Exchange Commission.
2. INVENTORIES
Inventories consisted of (in thousands):
<TABLE>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Raw Materials $ 3,807 $ 4,036
Work in Process 1,762 1,010
Finished Goods 6,214 4,620
--------------- ---------------
$ 11,783 $ 9,666
=============== ===============
</TABLE>
5
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3. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment consisted of (in thousands):
<TABLE>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Land and Land Improvements $ 978 $ 978
Buildings and Improvements 11,773 10,453
Machinery and Equipment 37,837 33,567
Construction in Progress 28,790 27,694
---------------- ---------------
79,378 72,692
Less Accumulated Depreciation and Amortization 18,002 17,283
---------------- ---------------
$ 61,376 $ 55,409
================ ===============
</TABLE>
4. LONG-TERM DEBT
Long-term debt consisted of (in thousands):
<TABLE>
March 31, 1998 December 31, 1997
-------------- -----------------
<S> <C> <C>
Revolving Credit Loan Facility at the Lower of
Prime or LIBOR plus 1.5% $ 4,000 $ --
Series A Senior Secured Notes at 9.24% Interest 16,000 16,000
Series B Senior Secured Notes at 9.39% Interest 8,000 8,000
--------- ---------
Total $ 28,000 $ 24,000
======== =========
</TABLE>
In December 1996, the Company sold to a limited number of selected institutional
investors an aggregate principal amount of $24.0 million of senior secured notes
consisting of $16.0 million of 9.24% interest Series A Senior Secured Notes due
December 26, 2003, and $8.0 million of 9.39% interest Series B Senior Secured
Notes due December 26, 2004. The Company also has a $20.0 million revolving
credit agreement with its principal bank, maturing in December 1999. As of March
31, 1998 the Company had borrowed $4.0 million against the revolving agreement.
5. CORNING SETTLEMENT
On March 13, 1998, the Company announced the settlement of Corning's
obligation to purchase multimode fiber from the Company under a multiyear supply
contract the companies entered into on January 1, 1996. Corning has terminated
its purchase of multimode fiber from the Company in exchange for a series of
cash payments to the Company totaling $4.1 million. In the March 31, 1998
quarter the Company recognized income on the settlement of approximately
$900,000.
6
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6. COMPUTATION OF EARNINGS PER COMMON SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 "Earnings per Share" (SFAS 128) which has changed
the method of computing and presenting earnings per common share. All prior
periods presented have been restated in accordance with SFAS 128. This
restatement had an immaterial impact on prior periods' earnings per common share
amounts calculated under previous standard.
Under SFAS 128, primary earnings per common share has been replaced
with basic earnings per common share. The basic earnings per share computation
is based on the earnings applicable to common stock divided by the weighted
average number of shares of common stock outstanding at March 31, 1998 and March
31, 1997.
Fully diluted earnings per common share has been replaced with diluted
earnings per common share. The diluted earnings per common share computation
includes the common stock equivalency of options granted to employees under the
stock incentive plan. Excluded from the diluted earnings per common share
calculation are options granted to employees that are anti-dilutive based on the
average stock price for the year.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31, 1997
Results of Operations
The following table sets forth, for the periods indicated, certain
financial data as a percentage of net sales:
<TABLE>
THREE MONTHS ENDED MARCH 31,
1998 1997
---- ----
<S> <C> <C>
Net Sales 100.0% 100.0%
Cost of Sales 66.4% 59.7%
----- -----
Gross Profit 33.6% 40.3%
Selling and Administrative Expenses 20.6% 24.5%
Research and Development Cost 7.7% 4.8%
---- ----
Income from Operations 5.3% 11.0%
Other income (Expense), net 5.5% (.8)%
---- -----
Income before Income Taxes 10.8% 10.2%
Income Tax Expense 4.2% 3.5%
---- ----
Income before Equity in Joint Venture 6.6% 6.7%
Income from Joint Venture, net (.9)% .2%
----- ---
Net Income 5.7% 6.9%
==== ====
</TABLE>
Net Sales
- ---------
Net sales decreased $1.0 million, or 6.2%, from $16.2 million for the three
months ended March 31, 1997, to $15.2 million for the three months ended March
31, 1998. This decrease was primarily due to lower unit selling prices for both
multimode and single-mode fiber due to the highly competitive market conditions
caused by an industry-wide oversupply situation. In addition, the volume of
single-mode fiber sales in the March 1998 quarter was substantially lower than
in the same quarter last year, in large part due to unsettled economic
conditions in Asia and the strength of the dollar which requires lower selling
prices to match regional competition. These decreases were partially offset by
continued strong market demand for the Company's multimode communication fiber,
and increased revenues at SpecTran Specialty.
Gross Profit
- ------------
Gross profit decreased $1.4 million, or 21.9%, from $6.5 million for
the three months ended March 31, 1997, to $5.1 million for the three months
ended March 31, 1998. As a percentage of net sales, the gross profit decreased
to 33.6% for the three months ended March 31, 1998 from 40.3% for the three
months ended March 31, 1997. The decrease in gross profit was primarily due to
the decrease in net sales for the 1998 period and industry pricing pressure for
standard communication fiber products. This was partially offset by higher
manufacturing efficiencies at SpecTran Specialty following the consolidation of
its operations at its new facility. As a percentage of net sales, royalties
increased from 3.2% in the three months ended March 31, 1997 to 4.1% for the
three months ended March 31, 1998 primarily due to an increase in the percentage
of net sales subject to royalty.
8
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Selling and Administration
- --------------------------
Selling and administrative expenses decreased $848,000, or 21.3%, from
$4.0 million for the three months ended March 31, 1997 to $3.1 million for the
three months ended March 31, 1998. Included in the three months of March 31,
1997 were $700,000 of costs associated with the Company's one-time management
reorganization and training costs. As a percentage of net sales, selling and
administrative expenses decreased to 20.6% for the three months ended March 31,
1998 from 24.5% for the three months ended March 31, 1997.
Research and Development
- ------------------------
Research and development costs increased $395,000, or 50.6%, from
$781,000 for the three months ended March 31, 1997 to $1.2 million for the three
months ended March 31, 1998. The Company continues to increase its investment in
programs to improve manufacturing cost and product performance in both multimode
and single-mode product lines, to develop new special performance fiber products
and to develop alternative process technologies. As a percentage of net sales,
research and development costs increased from 4.8% for the three months ended
March 31, 1997 to 7.7% for the three months ended March 31, 1998.
Other Income (Expense), net
- ---------------------------
Other income (expense), net favorably increased by $962,000 for the
three months ended March 31, 1998 compared to the same period of 1997, primarily
due to approximately $900,000 of other income related to the settlement of a
multi-year supply contract with Corning. Interest income decreased by $162,000,
or 58.7%, for the three months ended March 31, 1998, as compared to the same
period in 1997 due to a lower level of cash available for investment. Net
interest expense decreased by $229,000, or 64.9%, for the three months ended
March 31, 1998, compared to the same period in 1997 due to a higher level of
capitalized interest associated with the Company's capacity expansion programs.
Other income (expense) increased $895,000 primarily due to the Company's
settlement of a multi-year supply contract with Corning.
Income Taxes
- ------------
A tax provision of 39.0% of pre-tax income was provided for the three
months ended March 31, 1998 compared to a tax provision of 34.4% of pre-tax
income for the comparable period in 1997. The lower effective tax rate for the
1997 period was due to the Company benefiting from tax credit carryforwards and
low state income taxes as a result of the high level of investment tax credits
due to the capacity expansions.
Income from Equity in Joint Venture
- -----------------------------------
The Company realized a loss of $132,000, net of tax, from its equity in
General Photonics, the joint venture formed in December, 1996 with General
Cable. The loss was due to lower than anticipated revenues.
Net Income
Net income for the three months ended March 31, 1998 decreased
$258,000, or 23.0%, from the same period in 1997. Net income decreased primarily
as a result of the decreased sales and gross profit for the three months ended
March 31, 1998 compared to the same period in 1997.
9
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Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of cash are cash flow from operations,
established bank credit facilities and existing cash balances. As of March 31,
1998, the Company had approximately $1.3 million of cash and cash equivalents.
In addition, the Company has a $20.0 revolving credit agreement with its
principal bank, $16.0 million of which is currently available. The Company at
March 31, 1998, had working capital of approximately $16.2 million and a current
ratio of 2.3 to 1.
The Company is continuing its capacity expansion which will require
approximately $16.0 million in capital expenditures through the remainder of
1998, which will result in total expenditures for capacity expansion of
approximately $44.0 million at SpecTran Communication and $12.0 million at
SpecTran Speciality. When fully operational, the expansion at SpecTran
Communication will increase capacity there by 100%, and the expansion at
SpecTran Specialty which was completed in 1997 increased capacity there by 50%.
The Company intends to continue to finance this expansion through a combination
of cash flow from operations and borrowings.
Other Matters
- -------------
Charles B. Harrison, a Company Director since July 1997, was appointed
President and Chief Executive Officer of the Company, effective April 13, 1998,
succeeding Dr. Raymond E. Jaeger. Dr. Jaeger remains the Company's Chairman of
the Board.
Forward Looking Statements
- --------------------------
This report contains forward looking statements which are subject to a
number of risks and uncertainties that may cause actual results to differ
materially from expectations. These uncertainties include, but are not limited
to, general economic conditions and competitive conditions in markets served by
the Company.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.108 Employment Agreement between SpecTran Corporation and Charles
B. Harrison dated as of April 1, 1998.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
which this report was filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
SPECTRAN CORPORATION
(Registrant)
Date: May 15, 1998 BY:
/s/ Charles B. Harrison
------------------------
Charles B. Harrison
President and
Chief Executive Officer
Date: May 15, 1998 BY:
/s/ Bruce A. Cannon
--------------------
Bruce A. Cannon
Senior Vice President,
Chief Financial Officer and
Chief Accounting Officer
11
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SPECTRAN CORPORATION
EXHIBIT 10.108
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, executed as of April 1, 1998, between SpecTran
Corporation, a Delaware corporation (hereinafter referred to as the
"Corporation"), and Charles B. Harrison (hereinafter referred to as
"Executive").
W I T N E S S E T H:
WHEREAS, Executive desires to be employed by the Corporation; and the
Corporation desires to enter into this employment agreement with Executive.
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree with each other as follows:
1. Employment. (a) The Corporation agrees to and does hereby employ
Executive, and Executive agrees to and does hereby accept employment by the
Corporation, as President and Chief Executive Officer of the Corporation,
subject to the supervision and direction of the Board of Directors. The Company
will use its best efforts to nominate Executive for election to the Board of
Directors of the Company and will appoint Executive a Director of the
Corporation's subsidiaries and a Director of the Corporation's affiliate,
General Photonics LLC. The term of Executive's employment hereunder will be for
the one year period commencing on April 13, 1998, and ending at midnight on the
12th day of April, 1999 (the "Base Term"). The Base Term shall be automatically
renewed on a daily basis so that on each date during which Executive is employed
under this Agreement the remaining term shall be a period of one year
terminating at midnight of the first anniversary of the day immediately
preceding such date, unless at any time the outside (i.e., non-employee) members
of the Corporation's Board of Directors terminate the automatic daily renewal
feature of this Agreement as provided in Article 1(b) below. The Base Term and
all renewals thereof shall be deemed the "Employment Period" and shall
hereinafter be referred to as such.
(b) At any time during the Employment Period the outside (i.e.,
non-employee) members of the Corporation's Board of Directors may by resolution
terminate the automatic daily renewal of this Agreement and set a termination
date which shall be midnight of the first anniversary of the date immediately
preceding the day on which such resolution was adopted (the "Termination Date").
Written notice ("Notice of Nonrenewal") of the outside directors' resolution
setting a Termination Date shall be executed by each outside director and
delivered to Executive within two business days of the adoption of such
resolution. A Notice of Nonrenewal may be rescinded at any time by resolution of
the outside members of the Corporation's Board of Directors executed and
delivered in the same fashion.
(c) If, following delivery to Executive of the Notice of Nonrenewal,
neither the Corporation nor Executive terminates Executive's employment under
Article 12 below, this Agreement shall continue in full force and effect for the
one-year period set forth in the Notice of Nonrenewal, and shall terminate on
the Termination Date.
1
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2. Scope of Duties/Headquarters/Other Directorships.
(a) Executive agrees that as President and Chief Executive Officer of
the Corporation, or in such other senior executive position to which he may be
appointed, he will devote his full time and effort during the Employment Period
to the performance of the duties of such office. Among other things, Executive,
working with the current Chairman of the Board of Directors, will develop a
review and analysis of the Corporation's strategic plan for presentation to the
Board of Directors within five months after the commencement of Executive
employment. Executive and the current Chairman of the Board of Directors will
share responsibility for this analysis with the goal being the presentation of a
mutually agreed report. If there is not mutual agreement, then Executive's
responsibility will be to present Executive's own views to the Board of
Directors as well as the alternatives.
(b) Executive shall make his business headquarters at Sturbridge,
Massachusetts and shall relocate should the Corporation change its headquarters.
Executive shall undertake such travel as the Corporation may request.
(c) It is understood and agreed that Executive will advise the
Corporation of his intentions to act as a director of other corporations and may
hold such directorships and shall be permitted to devote such time thereto as
may reasonably be necessary to discharge the ordinary duties attendant upon any
such directorships. Executive agrees that he will, upon request of the Board of
Directors of the Corporation, resign from any such directorship notwithstanding
that the Corporation may have theretofore approved his accepting or retaining
such directorship.
3. Employment Period - Annual Compensation. (a) Annual Executive
Compensation. For the services and duties to be rendered and performed by
Executive during the Employment Period, the Corporation agrees to pay Executive
compensation at the rate of not less than Twenty Thousand Eight Hundred Thirty
Three dollars and Thirty Three cents ($20,833.33) per month, for a total of Two
Hundred Fifty Thousand dollars and no cents ($250,000.00) per year, which amount
may be increased by action of the Compensation and Incentive Stock Option
Committee (or a successor thereof) of the Board of Directors and subsequent
resolution of the Board of Directors at such time or times and in such amount or
amounts as it or they may in its and their sole discretion determine (this
annual amount to be referred to as "Base Annual Executive Compensation"). Base
Annual Executive Compensation shall be payable in equal semi-monthly
installments. The Corporation shall reimburse Executive for all expenses
reasonably and necessarily incurred in connection with his employment by the
Corporation, including traveling expenses while absent, on the Corporation's
business, from his business headquarters. Through the end of 1998, Executive
will be reimbursed for up to Twenty Five Thousand dollars ($25,000) of travel
expense (upon submission of receipts) between the Corporation's headquarters and
Executive's home in Missouri. The Company will pay to Executive Thirty Thousand
dollars ($30,000) for expenses relating to Executive's relocation to Sturbridge,
Massachusetts and Executive will be reimbursed, based upon receipts, for
reasonable temporary lodging in Sturbridge, Massachusetts for a period of six
weeks. Executive will receive a monthly automobile allowance of Eight Hundred
Twenty Five Dollars and no cents ($825.00).
2
<PAGE>
(b) Bonus. Executive will be eligible to participate in the
Corporation's key employee incentive plan which, based upon the achievement of
certain specified objectives, will entitle Executive, while in the position of
Chief Executive Officer, to a target bonus equal to fifty percent (50%) of the
Base Annual Executive Compensation with additional opportunities to earn up to a
maximum of one hundred twenty five percent (125%) of Executive Base Annual
Executive Compensation. However, for 1998, Executive understands that the target
bonus will be twenty-five percent (25%) of the Base Annual Executive
Compensation. Executive will also be eligible to participate in the
Corporation's all employee profit sharing plan, which entitles Executive to earn
up to ten percent (10%) of Base Annual Executive Compensation as additional
compensation. Notwithstanding anything herein to the contrary, Executive
understands and agrees that the plans referred to in this Section 3(b) are
subject to amendment or termination at the discretion of the Board of Directors.
The Company and Executive agree that any cash bonuses earned by Executive in
accordance with the plans described in this subparagraph or otherwise will be
placed in a "Rabbi Trust" and paid to Executive in six equal annual
installments, the first of which is to be paid on the first business day of the
first January after Executive is no longer an employee of the Company.
(c) Stock Options. At the first meeting of the Compensation and
Incentive Stock Option Committee after Executive's first day as a full time
employee of the Corporation (the "First Day"), Executive will be granted
incentive stock options to purchase up to an aggregate of Fifty Thousand
(50,000) shares of common stock at a per share exercise price equal to the
closing price of the Corporation's common stock on the First Day, as reported on
the NASDAQ National Market (the "Closing Price"). Six (6) months after the First
Day, Executive will be granted incentive stock options1 (subject to Executive's
right to elect otherwise as provided in the last sentence of this paragraph) to
purchase an additional Fifty Thousand (50,000) shares of common stock, Twenty
Five Thousand (25,000) of which will be at a per share exercise price equal to
One Hundred Fifty Percent (150%) of the closing price on date of grant, with the
second Twenty Five Thousand (25,000) at a per share exercise price of $20.00.
Should the closing price on the date of grant of these last options exceed
Twenty Dollars and no cents ($20.00) per share, then Executive may elect to
receive this second set of options to purchase Twenty Five Thousand (25,000)
shares of common stock either as incentive stock options at the closing price on
the date of grant, or as non-qualified options at a per share exercise price of
Twenty Dollars and no cents ($20.00).
- --------
1 The Corporation presently has an insufficient number of shares reserved for
issuance as incentive stock options to make this second grant of incentive stock
options to purchase 50,000 shares of common stock. The Corporation will be
seeking stockholder approval to reserve additional shares for issuance as
incentive stock options at its next Annual Meeting of Stockholders, presently
scheduled on or about May 31, 1998. While the Corporation does not anticipate
that the stockholders will reject such a resolution, should they do so,
Executive will have the option of receiving these options as non-qualified
options promptly after the Annual Meeting, or awaiting the next meeting of
stockholders at which the stockholders approve such additional reservation.
3
<PAGE>
4. Vacation. Executive shall be entitled to a vacation each year equal
to one (1) month. Said vacation may be taken all at once or weekly at the sole
discretion of Executive.
5. Secrets. Executive agrees that any trade secrets or any other
proprietary information (whether in written, verbal or any other form) relating
to the existing or contemplated business and/or field of interest of the
Corporation or any of its affiliates (for the purpose of this Agreement, an
affiliate of the Corporation shall be deemed to be any corporation or other
legal entity which controls the Corporation, which is controlled by the
Corporation, or which is under common control with the Corporation), or of any
corporation or other legal entity in which the Corporation or any of its
affiliates has an ownership interest of more than twenty-five percent (25%), and
any proprietary information (whether in written, verbal or any other form) of
any of the Corporation's customers, suppliers, licensor or licensees, including,
but not limited to, information relating to inventions, disclosures, processes,
systems, methods, formulae, patents, patent applications, machinery, materials,
notes, drawings, research activities and plans, costs of production, contract
forms, prices, volume of sales, promotional methods, lists of names or classes
of customers, which he has heretofore acquired during his employment by the
Corporation or any of its affiliates or which he may hereafter acquire during
his employment with the Corporation or any of its affiliates, in both cases
whether during or outside business hours, whether or not on the Corporation's
premises, as the result of any disclosures to him, or in any other way, shall be
regarded as held by him in a fiduciary capacity solely for the benefit of the
Corporation, its successors or assigns, and shall not at any time, either during
the term of this Agreement or thereafter, be disclosed, divulged, furnished, or
made accessible by him to anyone, or be otherwise used by him, except in the
regular course of business of the Corporation or its affiliates. Upon
termination of his employment, Executive shall return or deliver to the
Corporation all tangible forms of such information in his possession or control,
and shall retain no copies thereof. Information shall, for purposes of this
Agreement, be considered to be secret if not known by the trade generally, even
though such information may have been disclosed to one or more third parties
pursuant to any business discussion or agreement, including distribution
agreements, joint research agreements or other agreements entered into by the
Corporation or any of its affiliates.
6. Patents. Executive agrees to and does hereby sell, assign, transfer
and set over to the Corporation, its successors, assigns, or affiliates, as the
case may be, all his right, title, and interest in and to any inventions,
improvements, processes, patents or applications for patents which he develops
or conceives individually or in conjunction with others during his employment by
the Corporation, or, having possibly conceived same prior to his employment, may
complete while in the employ of the Corporation or any of its affiliates, in
both cases whether during or outside business hours, whether or not on the
Company's premises, which inventions, improvements, processes, patents or
applications for patents are (i) in connection with any matters within the scope
of the existing or contemplated business of the Corporation or any of its
affiliates, or (ii) aided by the use of time, materials, facilities or
information paid for or provided by the Corporation, all of the foregoing to be
held and enjoyed by the Corporation, its successors, assigns or affiliates, as
the case may be, to the full extent of the term for which any Letters Patent may
be granted and as fully as the same would have been held by Executive, had this
Agreement, sale or assignment not been made. Executive will make, execute and
deliver any and all instruments and documents necessary to obtain patents for
such inventions, improvements and processes in any and all countries. Executive
hereby irrevocably appoints the Corporation to be his attorney in fact in the
name of and on behalf of Executive to execute all such instruments and do all
such things and generally to use the Executive's name for the purposes of
assuring to the Corporation (or its nominee) the full benefit of its rights
under the provisions of Articles 5 and 6.
4
<PAGE>
7. Disability. (a) In the event Executive becomes partially disabled,
or becomes totally disabled (as determined in accordance with Article 7(c)
below) and such total disability has continued for less than six (6) full
consecutive calendar months, then the Corporation shall continue during the
Employment Period to pay Executive at the rate of his Base Annual Executive
Compensation as set forth in Article 3 and continue the benefits provided for
him in Articles 8 and 9 hereof. The Corporation shall retain the right,
notwithstanding Executive's partial disability, to deliver a Notice of
Nonrenewal during such time as such partial disability continues, unless
Executive has already received a Notice of Nonrenewal, in which event such prior
Notice of Nonrenewal shall remain effective notwithstanding Executive's partial
disability. In any event, the Corporation's obligations in the event of
Executive's partial disability shall terminate upon the end of the Employment
Period.
(b) In the event Executive becomes totally disabled (as determined in
accordance with Article 7(c) below), and such total disability has continued for
six (6) full consecutive calendar months or more, then for so long thereafter
during the Employment Period as such total disability shall continue or for a
period of one (1) year, whichever is longer, Executive shall be paid at
seventy-five percent (75%) of the rate of his Base Annual Executive Compensation
as set forth in Article 3 hereof. For purposes of determining the balance of the
Employment Period under this Article 7(b), Executive shall be deemed to have
received a Notice of Nonrenewal effective on the last day of said six-month
period, unless he has already received a Notice of Nonrenewal, in which event
such prior Notice of Nonrenewal shall be controlling.
(c) For purposes of this Agreement, determination of whether Executive
is or is not totally disabled shall be made as follows:
(i) Executive's inability, physical or mental,
for whatever reason, to be able to perform his duties to the Corporation shall
be total disability; and
(ii) If any difference shall arise between the
Corporation and Executive as to whether he is totally disabled, such
difference shall be resolved as follows: Executive shall be examined by a
physician appointed by the Corporation and a physician appointed by Executive.
If said two physicians shall disagree concerning whether Executive is totally
disabled, that question shall be submitted to a third physician, who shall be
selected by such two physicians. The medical opinion of such third physician,
after examination of Executive and consultation with such other two physicians,
shall decide the question.
(d) Should Executive become totally disabled then he may by action of
the Board of Directors be removed from his position and employment with the
Corporation.
5
<PAGE>
8. Death. In the event of the death of Executive during the Employment
Period, the Corporation shall continue to pay Executive's Base Annual Executive
Compensation for a period of one (1) year from the date of death. The salary
payment will be made to the wife of Executive or if no wife shall survive
Executive, to his estate.
9. Employee Benefits. (a) Executive may participate in any life
insurance, hospitalization or surgical program, or insurance program presently
in effect or hereafter adopted by the Corporation, to the extent, if any, that
he may be eligible to do so under the provisions of such plan or program. The
Corporation may terminate, modify, or amend any such plan or program, in the
manner and to the extent permitted therein, and the rights of Executive under
any such plan or program shall be subject to any such right of termination,
modification, or amendment. To the extent any payments under any such plan or
program are made to Executive because he is disabled, such amounts shall be
credited against amount due to Executive under Article 7.
(b) The Corporation shall provide Executive with term life insurance
for which Executive may designate one or more beneficiaries, with a death
benefit equal to two (2) times the Base Annual Executive Compensation. To the
extent that such life insurance is not provided in the Corporation's existing
employee benefits package, the Corporation will endeavor to take out
supplemental coverage, provided that Executive shall cooperate in obtaining such
coverage, that Executive is not uninsurable, and that the premium is not
unreasonably high.
(c) For the sake of clarification, and notwithstanding any other
provision of this Agreement, it is understood and agreed that all benefits
provided to Executive under this Agreement shall be provided to the extent that
they exceed any employee benefit provided to Executive other than specifically
through this Agreement, such as the programs, plans, etc. referred to in Article
9(a) above. The benefits provided under this Agreement shall be supplemental to
benefits provided otherwise to Executive by the Corporation, and shall not be
provided to the extent that they are duplicative.
10. Covenant Not to Solicit Employees. During the one-year period
immediately following termination of Executive's employment with the Company
(the "One-Year Period"), Executive agrees that, if such agreement is requested
by the Company, he will not (a) solicit any past, present or future customers of
the Corporation in any way relating to any business in which the Corporation was
engaged during the term of his employment, or which the Corporation planned,
during the term of his employment, to enter, or (b) induce or actively attempt
to influence any other employee or consultant of the Company to terminate his or
her employment or consultancy with the Company. During the One-Year Period,
provided that the Company has requested the non-competition agreement referred
to above with respect to said period, Executive shall be paid, in the same
manner as paid while Executive was an employee, compensation equal to
seventy-five percent (75%) of Executive's Base Annual Executive Compensation and
employee benefits he received during the last year of employment with the
Company, and, in addition, the Company shall have the right to call upon
Executive's services as a consultant. In the event that Executive violates any
provision of this Article 10, then in addition to any other remedies available
to the Corporation, the Corporation shall have the right immediately to
terminate any payments or benefits provided or to be provided to Executive under
this Agreement.
6
<PAGE>
11. Assignment. This Agreement may be assigned by the Corporation as
part of the sale of substantially all of its business; provided, however, that
the purchaser shall expressly assume all obligations of the Corporation under
this Agreement. Further, this Agreement may be assigned by the Corporation to an
affiliate, provided that any such affiliate shall expressly assume all
obligations of the Corporation under this Agreement, and provided further that
the Corporation shall then fully guarantee the performance of the Agreement by
such affiliate. Executive agrees that if this Agreement is so assigned, all the
terms and conditions of this Agreement shall remain between such assignee and
himself with the same force and effect as if said Agreement had been made with
such assignee in the first instance.
12. Termination.
(a) Survival. The provisions of Articles 5, 6, 10, 12 and
--------
14 and shall survive the termination of this Agreement.
(b) Termination by Executive. Subject to the provisions of Article
12(c)(iii) regarding a Change in Control, if at any time during the Employment
Period (whether or not Executive has received a Notice of Nonrenewal), Executive
elects to terminate his employment with the Corporation, then the Corporation's
obligations to Executive under this Agreement shall be limited to the Base
Annual Executive Compensation and benefits earned up to the date of Executive's
departure.
(c) Termination Without Cause.
(i) Subject to the provisions of Article
12(c)(ii) below, and provided there has been no Change in Control(as defined in
Article 12(c)(v) below), in the event the Corporation dismisses Executive
without Cause from employment in a senior executive capacity with the
Corporation, the Corporation shall continue to fulfill its obligations under
this Agreement until the later of: (A) the date six months following
Executive's dismissal, or (B) the end of the Employment Period. For purposes
of determining the end of the Employment Period under this Article, Executive
shall be deemed to have received a Notice of Nonrenewal effective on the
date of his dismissal without Cause, unless he has already received a Notice
of Nonrenewal, in which event such prior Notice of Nonrenewal shall be
controlling.
(ii) Provided there has been no Change in
Control (as defined in Article 12(c)(v) below), if Executive takes other
employment during the six-month period following his dismissal without Cause,
then the Corporation's obligation to Executive shall be limited to payment of
Executive's Base Annual Executive Compensation for the balance of said six-month
period. Provided there has been no Change in Control (as defined in Article
12(c)(v) below), if Executive takes other employment after the end of the
six-month period following his dismissal without Cause but before the end of the
Employment Period, the Corporation's obligations to Executive under this
Agreement shall cease upon Executive's taking such other employment.
(iii) In the event that a Change in Control
occurs during the Employment Period and either [A] Executive is dismissed
without Cause from employment in a senior executive capacity up to and including
twelve (12) months from such Change in Control or [B] Executive voluntarily
leaves the employ of the Corporation up to and including twelve (12) months from
such Change in Control, then in either case the Corporation shall continue to
fulfill its obligations under this Agreement for a period of twelve (12) months
from such dismissal without Cause or voluntary departure, as the case may be;
provided, however, that if Executive takes other employment during said
twelve-month period, the Corporation's obligation to Executive for the balance
of said twelve-month period shall be limited to payment of Executive's Base
Annual Executive Compensation.
7
<PAGE>
(iv) Notwithstanding anything to the
contrary in this Agreement, the Corporation, in its sole and absolute
discretion, may accelerate the payment of any amounts payable under Article
12(c) hereof to Executive, provided, however, that accelerating such payments
does not affect Executive's eligibility to continue his insurance benefits on
the same basis (both with respect to coverage and contributions) as the
Corporation's active employees until such time as he would have received the
last amount payable under Article 12(c) hereof had payment thereof not been
accelerated pursuant to this Article 12(c)(iv).
(v) "Change in Control" shall mean [A] the
date of public announcement that a person has become, without the approval
of the Corporation's Board of Directors, the beneficial owner of 20% or more of
the voting power of all securities of the Corporation then outstanding; [B] the
date of the commencement of a tender offer or tender exchange by any person,
without the approval of the Corporation's Board of Directors, if upon the
consummation thereof such person would be the beneficial owner of 20% or more of
the voting power of all securities of the Corporation then outstanding; or [C]
the date on which individuals who constituted the Board of Directors of the
Corporation on the date this Agreement was adopted cease for any reason to
constitute a majority thereof, provided that any person becoming a director
subsequent to such date whose election or nomination was approved by at least
three quarters of such incumbent Board of Directors shall be considered as
though such person were an incumbent director.
(vi) "Cause" shall mean [A] breach of
Executive's obligations under Article 5 or 10of this Agreement, [B] stealing
from the Corporation or [C] Executive'sconviction of a felony.
(d) Executive agrees not to apply for or receive unemployment
insurance benefits while receiving any benefits under this contract.
13. Notices. All notices required or permitted to be given hereunder
shall be mailed by certified mail or delivered by hand to the party to whom such
notice is required or permitted to be given hereunder. If mailed, any such
notice shall be deemed to have been given when mailed as evidenced by the
postmark at point of mailing. If delivered by hand, any such notice shall be
deemed to have been given when received by the party to whom notice is given, as
evidenced by written and dated receipt of the receiving party.
Any notice to the Corporation or to any assignee of the Corporation
shall be addressed as follows:
SpecTran Corporation
50 Hall Road
Sturbridge, MA 01566
Attn: Chief Financial Officer
With an additional copy to:
Ira S. Nordlicht, Esq.
Nordlicht & Hand
645 Fifth Avenue
New York, New York 10022
Any notice to Executive shall be addressed to the address appearing on
the records of the Corporation at the time such notice is given.
Either party may change the address to which notice to it is to be
addressed, by notice as provided herein.
14. Applicable Law. This Agreement shall be interpreted and enforced in
accordance with the laws of the Commonwealth of Massachusetts without giving
effect to the principles of conflicts of law.
15. Effective Date. This Agreement shall become effective as of the
date first mentioned in this Agreement.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed the above
Agreement as of the day and year first above written.
SPECTRAN CORPORATION
___________________ By /s/ Raymond E. Jaeger
NOTARY Name: Raymond E. Jaeger
Title: Chairman of the Board
and Chief Executive Officer
___________________ /s/ Charles B. Harrison
NOTARY Charles B. Harrison
9
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