<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 June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 0-12489
SPECTRAN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2729372
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
50 Hall Road, Sturbridge, Massachusetts 01566
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 347-2261
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No __.
The number of shares of the registrant's Common Stock outstanding as of
July 31, 1998, was 7,003,850.
1
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PART I - FINANCIAL INFORMATION
SPECTRAN CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
Dollars in thousands except per share amounts
(unaudited)
<TABLE>
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales $ 32,259 $ 32,109 $ 17,032 $ 15,881
Cost of Sales 24,595 19,405 14,479 9,719
------------- ------------- ------------- -------------
Gross Profit 7,664 12,704 2,553 6,162
Selling and Administrative Expenses 6,652 7,888 3,518 3,906
Research and Development Costs 2,581 1,598 1,406 817
------------- ------------- ------------- -------------
Income(Loss) from Operations (1,569) 3,218 (2,371) 1,439
Other Income (Expense):
Interest Income 147 765 33 489
Interest Expense (476) (464) (352) (111)
Other, Net 1,583 (11) 741 42
------------- ------------- ------------- -------------
Other Income (Expense), net 1,254 290 422 420
------------- ------------- ------------- -------------
Income (Loss) before Income Taxes (315) 3,508 (1,949) 1,859
Income Tax Expense (Benefit) (123) 1,193 (760) 626
------------- ------------- ------------- -------------
Income (Loss) before Equity in Joint Venture (192) 2,315 (1,189) 1,233
Income (Loss) from Joint Venture, Net of
Income Taxes (326) 137 (194) 97
------------- ------------- ------------- -------------
Net Income (Loss) $ (518) $ 2,452 $ (1,383) $ 1,330
============= ============= ============= =============
Net Income (Loss) per Common Share:
Basic $ (.07) $ .37 $ (.20) $ .19
=========== ============== =========== ==============
Diluted $ (.07) $ .35 $ (.20) $ .18
=========== ============== ============== ==============
Weighted Average Number of
Common Shares Outstanding:
Basic 7,002 6,499 7,022 6,913
========== =========== ============ =========
Diluted 7,002 6,988 7,022 7,360
========== =========== ============ =========
</TABLE>
See accompanying notes to these consolidated financial statements.
2
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SPECTRAN CORPORATION
CONSOLIDATED BALANCE SHEETS
Dollars in thousands
<TABLE>
June 30, 1998 December 31, 1997
------------- -----------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents $ 2,797 $ 445
Current Portion of Marketable Securities -- 5,535
Trade Accounts Receivable, net 11,244 8,622
Income Taxes Receivable 815 --
Inventories 10,232 9,666
Deferred Income Taxes, net 1,189 1,189
Prepaid Expenses and Other Current Assets 2,635 1,943
---------------- ---------------
Total Current Assets 28,912 27,400
Investment in Joint Venture 3,887 4,213
Property, Plant and Equipment, net 65,456 55,409
Other Assets:
Long-term Marketable Securities -- 996
License Agreements, net 502 603
Deferred Income Taxes, net 412 412
Goodwill, net 832 872
Other Long-term Assets 2,146 2,200
---------------- ---------------
Total Other Assets 3,892 5,083
---------------- ---------------
Total Assets $ 102,147 $ 92,105
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 6,089 $ 4,758
Income Taxes Payable -- 573
Accrued Liabilities 5,796 6,015
--------------- ----------------
Total Current Liabilities 11,885 11,346
Long-term Debt 34,000 24,000
Stockholders' Equity:
Common Stock, voting, $.10 par value; authorized
20,000,000 shares; outstanding 7,002,350 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 50,243 50,223
Net Unrealized Gain (Loss) on Marketable Securities -- (1)
Retained Earnings 5,319 5,837
--------------- ----------------
Total Stockholders' Equity 56,262 56,759
--------------- ----------------
Total Liabilities & Stockholders' Equity $ 102,147 $ 92,105
================ ===============
</TABLE>
See accompanying notes to these consolidated financial statements.
3
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SPECTRAN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
(unaudited)
<TABLE>
Six Months Ended June 30,
1998 1997
---- ----
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ (518) $ 2,452
Reconciliation of Net Income to Net Cash Provided by
(Used in) Operating Activities:
Depreciation and Amortization 2,972 1,939
Other Non-Cash Charges 5,022 (562)
Loss (Equity) in Unconsolidated Joint Venture 326 (137)
Changes in Other Components of Working Capital (9,183) (3,482)
Loss on Disposition of Equipment 204 2
--------------- --------------
Net Cash Provided by (Used in) Operating Activities (1,177) 212
Cash Flows from Investing Activities:
Acquisition of Property, Plant and Equipment (13,024) (16,559)
Purchase of Marketable Securities (9,652) (199,493)
Proceeds from Sale/Maturity of Marketable Securities 16,184 190,888
--------------- --------------
Cash Used in Investing Activities (6,492) (25,164)
Cash Flows from Financing Activities:
Borrowings of Long-term Debt 10,000 --
Proceeds from Exercise of Stock Options and Warrants 21 240
Issuance of Common Stock, net -- 23,077
-------------- --------------
Cash Provided by Financing Activities 10,021 23,317
Increase (Decrease) in Cash and Cash Equivalents 2,352 (1,635)
Cash and Cash Equivalents at Beginning of Period 445 3,565
--------------- --------------
Cash and Cash Equivalents at End of Period $ 2,797 $ 1,930
=============== ==============
</TABLE>
See accompanying notes to these consolidated financial statements.
4
<PAGE>
SPECTRAN CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The financial information for the three months and six months ended
June 30, 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 periods. The results of operations for the
three months and six months ended June 30, 1998, are not necessarily indicative
of the results for the entire year.
The consolidated results for the three months and six months ended June 30,
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. In December 1996, 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 for 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>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Raw Materials $ 3,401 $ 4,036
Work in Process 1,079 1,010
Finished Goods 5,752 4,620
--------------- ---------------
$ 10,232 $ 9,666
=============== ===============
</TABLE>
5
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3. PROPERTY, PLANT & EQUIPMENT
Property, plant and equipment consisted of (in thousands):
<TABLE>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Land and Land Improvements $ 978 $ 978
Buildings and Improvements 24,479 10,453
Machinery and Equipment 40,008 33,567
Construction in Progress 19,345 27,694
---------------- ---------------
84,810 72,692
Less Accumulated Depreciation and Amortization 19,354 17,283
---------------- ---------------
$ 65,456 $ 55,409
================ ===============
</TABLE>
4. LONG-TERM DEBT
Long-term debt consisted of (in thousands):
<TABLE>
June 30, 1998 December 31, 1997
------------- -----------------
<S> <C> <C>
Revolving Credit Loan Facility at the Lower of
Prime or LIBOR plus 1.5% $ 10,000 $ --
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 $ 34,000 $ 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 June 30, 1998, the Company had borrowed $10.0 million against the
revolving agreement.
Due to the loss incurred in this year's second quarter, the Company was in
violation as of June 30, 1998, of certain covenants contained in both the
revolving credit agreement and the senior secured notes. Subsequent to the end
of the quarter, the Company obtained waivers of the violations as of June 30,
1998 from the bank regarding the revolving credit agreement and the note holders
regarding the senior secured notes. The Company is currently in discussions with
its lenders to obtain modifications of certain covenants contained in the loan
agreements to accommodate this decline in earnings.
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. For the three months and six
months ended June 30, 1998, the Company recognized income on the settlement of
approximately $900,000 and $1.8 million, respectively.
6
<PAGE>
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 June 30, 1998 and June
30, 1997.
Fully diluted earnings per common share has been replaced with diluted
earnings per common share. The diluted earnings per common share computation for
the three months and six months ended June 30, 1997, 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. For the three months and six months ended June 30, 1998, diluted
earnings per common share excludes the common share equivalency of options
granted to employees under the stock incentive plan since the effects would be
anti-dilutive.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three and Six Months Ended June 30, 1998 Compared to Three and Six Months Ended
June 30, 1997
Overview of Results for the June, 1998 Quarter
SpecTran incurred a net loss for the June, 1998 quarter of $1.4
million, or $.20 per diluted share. Reduced earnings at all three operating
units contributed to the net loss.
The lower earnings at the Communication Fiber Technologies subsidiary
was caused by an industry-wide oversupply situation resulting in a highly
competitive market environment and price weakness. Overall demand is still
strong and while the overall volume of standard communication fiber sold during
this year's second quarter was up slightly compared with the same quarter last
year, declining selling prices, particularly for single-mode fiber, caused a
reduction in gross profit margins.
Lower earnings at the Specialty Optics subsidiary resulted from
operational issues rather than the lack of market demand. Charles B. Harrison,
SpecTran's President and Chief Executive Officer, has assumed operational
control of this subsidiary until a new general manager can be recruited and is
restructuring its management and systems. William B. Beck, the former general
manager and President of SpecTran Specialty Optics Company, has left the Company
to pursue other interests. Manufacturing and engineering personnel from the
Company's Communication Fiber Technologies subsidiary have been assigned to
address specific operational issues.
General Photonics, the Company's cabling joint venture with General Cable,
is experiencing lower than expected sales due to soft domestic customer premises
cable market and pricing, not unlike our competitors. Stringent cost control
measures have recently been implemented which are expected to lead to improved
results at General Photonics for the second half.
Due to the loss incurred during this year's second quarter, the Company is
in violation of certain covenants with its debt holders. Subsequent to the end
of the quarter, the Company obtained waivers of the violations as of June 30,
1998. The Company is currently in discussions with its lenders to obtain
modifications of certain covenants contained in the loan agreements to
accommodate this decline in earnings.
8
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, certain
financial data as a percentage of net sales:
<TABLE>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0% 100.0%
Cost of Sales 76.2% 60.4% 85.0% 61.2%
----- ----- ----- -----
Gross Profit 23.8% 39.6% 15.0% 38.8%
Selling and Administrative Expenses 20.7% 24.6% 20.6% 24.6%
Research and Development Cost 8.0% 5.0% 8.3% 5.1%
---- ---- ---- ----
Income (Loss) from Operations (4.9)% 10.0% (13.9)% 9.1%
Other Income (Expense), net 3.9% .9% 2.5% 2.6%
---- --- ---- ----
Income (Loss) before Income Taxes (1.0%) 10.9% (11.4)% 11.7%
Income Tax Expense (Benefit) (.4)% 3.7% (4.5)% 3.9%
----- ---- ------ ----
Income (Loss) before Equity in
Joint Venture (.6)% 7.2% (6.9)% 7.8%
Income (Loss) from Joint Venture, net (1.0)% .4% (1.1)% .6%
------ --- ------ ---
Net Income (1.6)% 7.6% (8.0)% 8.4%
====== ==== ====== ====
</TABLE>
Net Sales
- ---------
Net sales of $17.0 million and $32.3 million for the three months and six
months ended June 30, 1998, were $1.2 million, or 7.2% and $150,000, or .5%,
higher than the comparable periods of 1997. The increases were primarily due to
increased revenues at SpecTran Specialty. Sales growth was adversely effected by
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 for the three
months and six months ended June 30, 1998, were substantially lower than in the
comparable periods in 1997, in large part due to continued unsettled economic
conditions and competitive market conditions in Asia.
Gross Profit
- ------------
Gross profit of $2.6 million and $7.7 million for the three months and
six months ended June 30, 1998, was $3.6 million, or 58.6% and $5.0 million, or
39.7% lower than for the comparable periods in 1997. As a percentage of net
sales the gross profit decreased to 15.0% and 23.8% for the three months and six
months ended June 30, 1998, from 38.8% and 39.6% for the three months and six
months ended June 30, 1997. The decrease in gross profit for both periods was
primarily due to operational and inventory issues at SpecTran Specialty and
continued industry pricing pressures for standard communication fiber products.
As a percentage of net sales, royalty expense increased from 2.5% and 2.8% for
the three months and six months ended June 30, 1997, to 3.1% and 3.6% for the
three months ended June 30, 1998, primarily due to an increase in the percentage
of net sales subject to royalty.
Selling and Administration
- --------------------------
Selling and administrative expenses decreased $388,000, or 9.9%, and
$1.2 million, or 15.7%, for the three months and six months ended June 30, 1998.
Included in the three months and six months ended June 30, 1997, were $400,000
and $1.1 million, respectively, 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% and 20.7% for the three
months and six months ended June 30, 1998, from 24.6% for both the three months
and six months ended June 30, 1997.
Research and Development
- ------------------------
Research and development costs increased $589,000, or 7.2%, and $983,000,
or 61.5 % for the three months and six months ended June 30, 1998. Assuming the
Company obtains modifications from its debtholders, the Company plans to
continue 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 form 5.1% and 5.0% for the three months and six months ended
June 30, 1997, to 8.3% and 8.0% for the three months and six months ended June
30, 1998.
9
<PAGE>
Other Income (Expense), net
- ---------------------------
Other income (expense), net favorably increased by $2,000 or .5%, and
$964,000 or 332.4%, for the three months and six months ended June 30, 1998,
compared with the same periods in 1997. Interest income decreased for the three
months and six months ended June 30, 1998, by $456,000 and $618,000,
respectively due to a lower level of cash available for investment. Net interest
expense increased for the three months and six months ended June 30, 1998 by
$241,000 and $12,000, respectively. The increase for the three months primarily
relates to a higher level of borrowings under the Company's revolving credit
agreement and to a lower level of capitalized interest associated with the
Company's capacity expansion programs. Other, net increased for the three months
and six months ended June 30, 1998, by $699,000 and $1.6 million, respectively,
primarily due to the Company's settlement of a multi-year contract with Corning.
Income Taxes
- ------------
The Company realized a tax benefit for the three months and six months
ended June 30, 1998, as compared to a tax provision of 33.7% and 34.0% for the
three months and six months ended June 30, 1997. The tax benefit was due to the
loss incurred by the Company for the 1998 periods.
Income from Equity in Joint Venture
- -----------------------------------
The Company realized losses of $194,000 and $326,000, net of tax, for the
three months and six months ended June 30, 1998, from its investment in General
Photonics, the joint venture formed in December, 1996 with General Cable. The
loss was due to lower than anticipated revenues and gross profit.
Net Income
- ----------
The net loss for the three months and six months ended June 30, 1998, was
$1.4 million and $518,000 as compared to net income for the three months and six
months ended June 30, 1997, of $1.3 million and $2.5 million. The loss for the
three months ended June 30, 1998, was due to the operational and inventory
issues at SpecTran Specialty, the loss from its equity in General Photonics and
a lower level of earnings at SpecTran Communication due to competitive market
conditions.
Liquidity and Capital Resources
- -------------------------------
The Company's principal sources of cash are cash flow from operations,
established bank credit facilities and existing cash balances. Although the
Company did not generate positive cash flow from operations during the first
half of 1998, it does expect to generate positive cash flow for the entire year.
As of June 30, 1998, the Company had approximately $2.8 million of cash and cash
equivalents. In addition, the Company has a $20.0 millino revolving credit
agreement with its principal bank, $10.0 million of which has been drawn down.
The Company at June 30, 1998, had working capital of approximately $17.0 million
and a current ratio of 2.4 to 1.
The results for the three months and six months ended June 30, 1998, have
put the Company in violation of certain covenants with its debtholders. The
Company has obtained waivers of the violations as of June 30, 1998, and has
initiated discussions with its debtholders to obtain modifications of certain
covenants in its loan agreements to accommodate the temporary decline in
earnings. There can be no assurance that the modifications in the loan
agreements will be obtained, or that the Company will be able to borrow
additional amounts under its revolving credit agreement.
The Company is continuing its capacity expansion which will require
approximately $10.0 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 Specialty. When fully operational, the expansion at SpecTran
Communication will increase capacity there by 100%. The expansion at SpecTran
Specialty, which was completed in 1997, increased capacity by 50%. The Company
intends to continue to finance this expansion through a combination of cash flow
from operations and borrowings, assuming it obtains the appropriate
modifications with its debtholders.
10
<PAGE>
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.
Pursuant to Rule 14a-4 adopted under the Securities Exchange Act of 1934,
unless a stockholder who desires to introduce a proposal at the Company's annual
meeting of stockholders notifies the Company at least 45 days prior to the
month and day of the mailing of the prior year's proxy statement (i.e., by March
16, 1999), the proxyholders designated by management will be allowed to use
their discretionary voting authority when the proposal is raised at the annual
meeting, without any discussion of the matter in the proxy statement.
Management is aware of the potential software logic anomalies associated
with the year 2000 date change. The Company has evaluated the potential issues
that need to be addressed in its operations and has developed a plan for their
remediation. Parts of this plan have already been implemented. Based on
currently known information, costs of addressing the issue are not expected to
have a material effect upon the Company's financial position, results of
operations, or cash flows in future periods. As part of the process, the Company
plans on communicating with certain service providers, suppliers, and customers
to obtain information regarding their plans to address Year 2000 issues, to the
extent that they have such issues. There can be no assurance that third parties'
systems, upon which the Company may rely will become Year 2000 compliant in a
timely manner.
Subsequent Events
- -----------------
In July 1998, the Company announced that William B. Beck, the former
general manager and President of SpecTran Specialty, had left the company to
pursue other interests.
In August 1998, the Company announced the election of Robert A. Schmitz
to the Board of Directors.
As discussed above, subsequent to the end of the quarter, the Company
obtained from its debtholders waivers as of June 30, 1998 of violations of
certain covenants due to the loss incurred in this year's second quarter. The
Company is currently in discussions with its lenders to obtain modifications of
certain covenants contained in the loan agreements to accommodate this decline
in earnings.
The Company presently anticipates revenue growth in 1998 over the
previous year, but perhaps not the double digit growth previously announced.
Recent Accounting Pronouncements
- --------------------------------
Effective June 15, 1998, the provisions of Statements of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," will apply to the Company. The Company anticipates that application
of these statements will have no effect on the presentation of its financial
information.
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-1, "Accounting for Costs of Computer
software Developed or Obtained for Internal Use." SOP 98-1 provides guidance on
accounting for the costs of computer software developed or obtained for internal
use, and is effective for fiscal years beginning December 31, 1998, with earlier
application encouraged. The adoption of SOP 98-1 is not expected to have a
material effect on the Company's financial statements.
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.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) 10.109 Employment agreement between SpecTran Corporation and William
B. Beck dated as of June 20, 1998.
10.110 Employment agreement between SpecTran Corporation and Dr.
Raymond E. Jaeger dated as of April 13, 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: August 14, 1998 BY:
/s/ Charles B. Harrison
------------------------
Charles B. Harrison
President and
Chief Executive Officer
Date: August 14, 1998 BY:
/s/ Bruce A. Cannon
--------------------
Bruce A. Cannon
Senior Vice President,
Chief Financial Officer and
Chief Accounting Officer
12
<PAGE>
EXHIBIT 10.109
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, executed as of June 20, 1998 between SpecTran
Corporation, a Delaware corporation (hereinafter referred to as the
"Corporation"), and William B. Beck (hereinafter referred to as "Executive").
W I T N E S S E T H:
WHEREAS, SpecTran Specialty Optics Company ("SSOC"), a subsidiary
of the Corporation, presently employs Executive; and
WHEREAS, the Corporation wishes to employ and Executive wishes to be so
employed by the Corporation;
NOW, THEREFORE, in consideration of the covenants and agreements herein
contained, the parties hereto agree with each other as follows:
Introduction. This Agreement replaces the Employment Agreement between
SSOC and Executive dated February 18, 1994 as amended by a letter agreement
between SSOC and Executive dated April 18, 1996, which Employment Agreement, as
amended, provided for February 19 to February 18 successive one year employment
terms unless notice is otherwise provided.
1. Employment. The Corporation agrees to and does hereby employ
Executive and Executive agrees to and does hereby accept employment by the
Corporation as Vice President Marketing and Sales of the Corporation, or in any
other capacity as determined by its Board of Directors, subject to the
supervision and direction of the President and Chief Executive Officer of the
Corporation, commencing on the date hereof and ending on midnight February 18,
1999 (the "Base Term"). The Base Term shall be automatically extended for
successive one-year periods unless either party provides notice to the other to
the contrary at least five (5) business days prior to the end of the Base Term
or any extension thereof, subject to prior termination in accordance with the
provisions of Article 12 hereof. The Base Term and any extensions thereof shall
be referred to in this Agreement as the "Employment Period".
2. Scope of Duties. Executive agrees that he will devote his full time
and effort during the Employment Period to the performance of the duties of his
office. 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.
3. Employment Period - Compensation.
(a) 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 Twelve Thousand
Two Hundred Fifty Dollars and No Cents ($12,250.00) per month, (this amount to
be referred to as "Executive Compensation"). Executive shall be considered for
an increase in Executive Compensation effective June 1, 1999. 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 its
business headquarters. The Board of Directors of the Corporation may increase
Executive's Executive Compensation at such time or times and in such amount or
amounts as it may in its sole discretion determine.
(b) Other Compensation.
i. Profit Sharing Plan. Executive will participate
in the Corporation's Profit Sharing Plan. Executive understands that the
targets set for the Profit Sharing Plan areestablished annually by the
Corporation's Board of Directors and often vary fromyear to year.
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ii. Incentive Plan. Executive will participate in
the Key Employee Incentive Plan established by the Corporation or related
transition or successor plans. For the second half of 1998, while nominally
Executive's participation in this Plan will permit Executive to earn a bonus
or up to thirty percent (30%) of Executive's 1998 second half base salary
(Executive Compensation), the present expectation is that Executive will not
earn a bonus of more than fifteen percent (15%) of Executive's 1998 second
half base salary (Executive Compensation).
iii. Stock Options. Executive will be eligible for
consideration for grants of stock options on an annual basis; whether Executive
receives a grant and the number of options granted is at the discretion of the
Board of Directors.
iv. Automobile Allowance. Executive will receive a
car allowance of $825 per month.
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 and/or any of its Affiliates (defined below), 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, licensors 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, list of names or classes or
customers, which he has heretofore acquired during his employment by EBOC, EBOT,
any of their respective Affiliates (as defined below) 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 EBOC's
EBOT's or 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 EBOC, EBOT or the Corporation or any of their
Affiliates. For the purposes of this Agreement, "Affiliates" shall mean any
corporation, partnership, joint venture, other entity of any type or individual
that directly or indirectly, through one or more intermediaries, controls or is
controlled, or is under common control with, EBOC, EBOT or the Corporation, as
the case may be.
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
Corporation'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 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.
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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 Annual Executive
Compensation as set forth in Article 3 and continue the benefits provided for
him in Articles 8 and 9 hereof. 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 Annual Executive Compensation as
set forth in Article 3 hereof.
(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 amd 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.
8. Death. In the event of the death of Executive during the Employment
Period, the Corporation shall continue to pay Executive's 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 all benefit
plans to the extent, if any, that he may be eligible to do so under the
provisions of such plan or program. Those benefit plans may include medical and
insurance, life and accidental death/dismemberment insurance, short- and
long-term disability, tuition reimbursement, 401(k) plan, stock purchase plan,
vacation and pension plans. 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 amounts due to Executive under Article 7.
(b) 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. For example, if a disability
benefit is available under a program referred to in Article 9(a) above and it
provides the same or greater benefit than provided in Article 7 hereof, then no
benefit will be paid out under Article 7 hereof. If a disability benefit
available under Article 9(a) above is less than that provided in Article 7
hereof, then supplemental payments would be available under Article 7 hereof to
the extent that the total of the payments would equal the aggregated benefits
provided by Article 7.
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10. Covenant Not to Compete. During the Employment Period, Executive
agrees not to compete with the Corporation (the Corporation for purposes of this
Article 10 means the Corporation and its Affiliates) either directly, or by
stock interest exceeding five percent (5%), or otherwise in any way in any
business in which it is then engaged anywhere in the world. During the one-year
period immediately following termination of Executive's employment with the
Corporation, Executive agrees that he will not (a) engage, directly or
indirectly, or by stock interest exceeding five percent (5%), or otherwise in
any way, in 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, (b) 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 (c) induce or actively attempt
to influence any other employee or consultant of the Corporation to terminate
his or her employment or consultancy with the Corporation. During this one-year
period, provided that the Corporation has requested within fifteen (15) business
days after Executive's last day of employment the non-competition agreement
referred to above with respect to said period, Executive shall receive Annual
Executive Compensation and employee benefits paid or maintained in the same
fashion and in amounts not less than those he received during the last year of
employment with the Corporation, and the Corporation 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 or of Article 5, then in addition to
any other remedies available to the Corporation (which can include obtaining
injunctive relief as the parties acknowledge that irreparable damage not
compensable by money can result), the Corporation shall have the right
immediately to terminate any payments or benefits provided or to be provided to
Executive under this Agreement.
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) For Cause. The Corporation may terminate Executive's
employment and this Agreement for Cause by delivering written notice to
Executive, setting forth the reason for termination. For the purpose of this
Agreement, "Cause" shall mean (i) the arrest of the Executive on charges of
having committed any felony, (ii) stealing from the Corporation, (iii) a willful
breach by Executive of a material provision of this Agreement and (iv) if
Executive engages in gross misconduct, such as fraud, dishonesty, gross
negligence or insubordination. If this Agreement is terminated for Cause, the
Corporation's obligation to Executive hereunder shall be limited to the
Executive Compensation and benefits earned up to the date notice of termination
is delivered to Executive.
(b) Termination Without Cause.If the Corporation dismisses
Executive without Cause, 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.
(c) Termination By Executive. If Executive elects to terminate
his employment with the Corporation, the Corporation's obligations to Executive
under this Agreement shall be limited to the Executive Compensation and benefits
earned up to the date of Executive's departure. Nonetheless, the Corporation may
notify Executive that it wishes Executive not to compete and to be available as
a consultant in accordance with and for the compensation set out in Article 10.
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13. Survival. The provisions of Articles 5, 6, 10, 12 and
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15 shall survive the termination of this Agreement.
14. Notices. All notices required or permitted to be given hereunder
shall be mailed by registered 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, Massachusetts 01566
Attn: Charles B. Harrison
President and Chief Executive Officer
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.
15. Applicable Law. This Agreement shall be interpreted and enforced in
accordance with the laws of Massachusetts governing contracts made in and to be
performed solely in such State.
16. Effective Date. This Agreement shall become effective as of the
date first mentioned in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed the above
Agreement as of the day and year first above written.
SPECTRAN CORPORATION
By s/s/ Charles B. Harrison
Charles B. Harrison,
President and
Chief Executive Officer
s/s/ William B. Beck
William B. Beck
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EXHIBIT 10.110
RESTATED EMPLOYMENT AGREEMENT
RESTATED EMPLOYMENT AGREEMENT, executed as of April 13, 1998 between
SpecTran Corporation, a Delaware corporation (hereinafter referred to as the
"Corporation"), and Dr. Raymond E. Jaeger (hereinafter referred to as
"Executive").
W I T N E S S E T H:
WHEREAS, Executive is presently employed by the Corporation pursuant to
an Employment Agreement dated December 14, 1992 (the "1992 Employment
Agreement"); and
WHEREAS, the Corporation recognizes the effort, attention and skill
Executive has given the organization, operation and planning of the Corporation
and 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. Termination of the 1992 Employment Agreement. This Agreement
supersedes and replaces the 1992 Employment Agreement which shall be deemed
terminated as of the date first written above.
2. Employment. The Corporation agrees to and does hereby employ
Executive, and Executive agrees to and does hereby accept employment by the
Corporation, subject to the direction of its President and Chief Executive
Officer and Board of Directors, for the period commencing on April 13, 1998 and
ending at midnight on June 12, 2001 (the "Termination Date," and collectively
the "Base Term"). The Base Term shall not be renewable except by written
amendment signed by both Parties to this Agreement. The Base Term and any
amendments or extensions shall be referred to hereinafter as the "Employment
Period."
3. Scope of Duties/ Headquarters/ Other Directorships.
(a) Executive agrees that as an employee of the Corporation he
will devote his time and effort during the Employment Period to the performance
of the duties of such employment. During the first six months of this Agreement
Executive will work with the Chief Executive Officer to develop a review and
analysis of the Company's strategic plan for presentation to the Board of
Directors, with particular emphasis on the implications for the Company of the
market change that appears to have begun during the third quarter of 1997. While
the goal is the presentation of a mutually agreed report, if there is no mutual
agreement, then the views of the Executive and the Chief Executive Officer will
be presented to the Board of Directors. During the remainder of this Agreement,
Executive shall provide advice and assistance to the Board of Directors and the
Chief Executive Officer and perform such projects as reasonably requested and
mutually agreed. It is anticipated that Executive will perform an active role in
providing advice and counsel with respect to the Corporation's patent and
technology position and licensing arrangements, including those with Corning
Incorporated and Lucent Technologies, as well as consulting support for
partnering and alliances with other firms for strategic purposes. In addition,
Executive will continue to serve as the Corporation's representative to the
International Wire and Cable Symposium Committee, with duties including
attendance at three two-day organizing sessions for the technical Symposium,
evaluation of contributed papers, attendance at the Symposium, planning and
operational development of strategic direction for the Symposium, and serving as
Chair of the Educational Subcommittee, among other things. Executive will
continue to serve as Chairman of the Board of Directors of the Corporation
during the first twelve months of this Agreement and may continue to do so
thereafter, subject to election by the stockholders and determination of the
Board of Directors.
(b) Executive shall make his business headquarters at
Sturbridge, Massachusetts. Executive shall undertake such travel as the
Corporation may request.
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(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 devote such time thereto as may
be reasonably 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.
4. 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 annual compensation at the rate of Two
Hundred Fifty Thousand Dollars and no cents ($250,000.00) per year, (this annual
amount to be referred to as "Annual Executive Compensation"). 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 travelling expenses while absent, on the Corporation's business, from
his business headquarters.
(b) Bonus for Calendar Year 1998. For calendar year 1998 only,
Executive will continue to be eligible to participate in the all employee profit
sharing plan ("EPSP") and for a target bonus of twenty-five percent (25%) of the
Base Annual Executive Compensation under the Corporation's Key Employee
Incentive Plan ("KEIP"), it being expressly understood that determination of
whether or not any such bonus will be paid and the amount of any such bonus
shall be at the sole discretion of the Board of Directors. After Calendar Year
1998, Executive will not be entitled to participate in either the EPSP or the
KEIP.
(c) Stock Option Grant in 1998. Subject to the stockholders of
the Corporation approving an increase in the number of shares authorized for
issuance under the Corporation's 1991 Incentive Stock Option Plan (the "Plan")
at the Corporation's 1998 annual meeting of stockholders, Executive shall be
granted incentive stock options to purchase 50,000 shares of the Corporation's
common stock under the Plan1.
5. 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.
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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.
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6. 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, one 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, licensors 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, list of names or
classes or 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.
7. 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.
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8. Disability. (a) In the event Executive becomes partially disabled,
or becomes totally disabled (as determined in accordance with Article 8(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 Annual Executive
Compensation as set forth in Article 4 and continue the benefits provided for
him in Articles 9 and 10 hereof. 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 8(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 Annual Executive Compensation as
set forth in Article 4 hereof.
(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.
9. Death. In the event of the death of Executive during the Employment
Period, the Corporation shall continue to pay Executive's 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.
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10. Employee Benefits. (a) Executive may participate in any pension
plan, profit-sharing plan, 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, provided that Executive's participation in
the Corporation's all employee profit sharing plan and Key Employee Incentive
Plan will terminate after calendar year 1998. Executive will be covered under
the Corporation's medical and dental insurance programs, or provided with
identical or substantially similar coverage, until age 65. 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 8.
(b) 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
10(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.
11. Covenant Not to Solicit Employees. During the one-year period
immediately following termination of Executive's employment with the
Corporation, Executive agrees that 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
Corporation to terminate his or her employment or consultancy with the
Corporation. In the event that Executive violates any provision of this Article
11, 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.
12. 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.
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13. Termination.
(a) Survival. The provisions of Articles 6 (Secrets), 7 (Patents), 11
(Covenant Not to Solicit Employees), 13 (Termination) and 15 (Applicable Law)
shall survive the termination of this Agreement. Further, to the extent that
this Agreement expires at the end of its term prior to Executive reaching the
age of 65, then Article 10 shall survive to the extent the Corporation remains
obligated to provide Executive with the coverage described in the second
sentence of Article 10(a) until Executive reaches age 65.
(b) Termination by Executive. Subject to the provisions of Article
13(c)(iii) regarding a Change in Control, if at any time during the Employment
Period, Executive elects to terminate his employment with the Corporation, then
the Corporation's obligations to Executive under this Agreement shall be limited
to the 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 13(c)(ii)
below, and provided there has been no Change in Control (as
defined in Article 13(c)(v) below), in the event the
Corporation dismisses Executive without Cause from employment,
the Corporation shall continue to fulfill its obligations
under this Agreement through the end of the Employment Period
and until Executive reaches age 65 with regard to the coverage
described in the second sentence of Article 10(a).
(ii) In the event Executive takes other employment after being
dismissed without Cause, and provided there has been no Change
in Control (as defined in Article 13(c)(v) below), the
Corporation's obligations to him under this Agreement
including those under the second sentence of Article 10(a)
shall cease upon the later of: (A) Executive's taking other
employment, or (B) six months following his dismissal;
provided, however that the Corporation's obligations under
this Article 13(c)(ii) shall in no event continue beyond the
end of the Employment Period. Moreover, if Executive takes
other employment during the six-month period following his
dismissal without Cause, then the Corporation's obligation to
Executive for the balance of said six-month period shall be
limited to payment of Executive's Annual Executive
Compensation.
(iii) In the event that a Change in Control occurs
during the Employment Period and either [A] Executive is
dismissed without Cause from employment 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 Annual Executive Compensation.
(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 13(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 13(c)
hereof had payment thereof not been accelerated pursuant to
this Article 13(c)(iv).
6
<PAGE>
(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 6, 7 or 11 of this Agreement, [B]
stealing from the Corporation or [C] Executive's conviction of
a felony.
(d) Executive agrees not to apply for or receive unemployment
insurance benefits while receiving any benefits under this contract.
14. Notices. All notices required or permitted to be given hereunder
shall be mailed by registered 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 Executive Officer
with a copy to:
Ira S. Nordlicht, Esq.
Nordlicht & Hand
Olympic Tower
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.
15. Applicable Law. This Agreement shall be interpreted and enforced in
accordance with the laws of Massachusetts without giving effect to the
principles of conflicts of law.
16. Effective Date. This Agreement shall become effective as of the
date first mentioned in this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed the above
Agreement as of the day and year first written above.
SPECTRAN CORPORATION
By: /s/ Charles B. Harrison
Charles B. Harrison
President and Chief Executive Officer
/s/ R. E. Jaeger
Dr. Raymond E. Jaeger
7
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