-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IO+Z5P7Ib1JS0s7sitFDg2yUQJ0+irMmCY2q9gPxXHCIlvHFAZzj9Avt6fhUXcRi +8eGlUsnPT6n+qP+r8jz0Q== 0000950123-96-001491.txt : 19960402 0000950123-96-001491.hdr.sgml : 19960402 ACCESSION NUMBER: 0000950123-96-001491 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960401 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SPECTRAN CORP CENTRAL INDEX KEY: 0000718487 STANDARD INDUSTRIAL CLASSIFICATION: GLASS PRODUCTS, MADE OF PURCHASED GLASS [3231] IRS NUMBER: 042729372 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-12489 FILM NUMBER: 96542355 BUSINESS ADDRESS: STREET 1: 50 HALL ROAD CITY: STURBRIDGE STATE: MA ZIP: 01566 BUSINESS PHONE: 5083472261 10-K 1 FORM 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) For the fiscal year ended December 31, 1995 / X / OR For the transition period from ................to .................... / / Commission file number 0-12489 SPECTRAN CORPORATION (Exact name of the registrant as specified in its charter) 04-2729372 (I.R.S. Employer Identification No.) 50 Hall Road, Sturbridge, Massachusetts 01566 (Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (508) 347-2261 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered
None .............................................................................. Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value .............................................................................. (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes: X No: -------- ------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. / / 1 2 The aggregate market value of the voting stock held by non-affiliates of the registrant, computed by reference to the closing price of such stock, on February 29, 1996: $42,160,000. The number of shares outstanding of each of the Registrant's classes of common stock, as of the latest practicable date: 5,353,686 shares of common stock, $.10 par value, outstanding on February 29, 1996. DOCUMENTS INCORPORATED BY REFERENCE The information required for Part III hereof is incorporated by reference from the Registrant's Proxy Statement for its 1996 Annual Meeting of Shareholders to be filed within 120 days after the end of the Registrant's fiscal year. PART I ITEM 1. BUSINESS. SpecTran Corporation ("SpecTran," the "Company" or the "Registrant"), which was reorganized in 1995 to operate through three wholly owned subsidiaries, develops, manufactures and markets flexible glass fibers for use as optical waveguide fibers ("optical fibers") and value added fiber optic products. SpecTran Communication Fiber Technologies, Inc. develops, manufactures and markets multimode optical fiber primarily for domestic data communications applications and single-mode fiber for both domestic and international data communication and telecommunications applications. SpecTran Specialty Optics Company, acquired in February 1994, develops, manufactures and markets value added fiber optic products such as special performance fibers and fiber optic cables, coatings and certain related equipment for use in a variety of emerging and developing specialty product markets. Applied Photonic Devices, Inc., acquired in May 1995, develops, manufactures and markets standard and specialty fiber optic cable as well as cable assemblies. Technology Optical fibers are hair-thin, solid strands of high quality glass which are usually combined in cables for transmitting information in the form of light pulses from one point to another. An optical fiber consists of a core of high purity glass which transmits light with little signal loss, typically encased within a covering layer of high purity glass referred to as optical cladding, designed to reduce signal loss through the side walls of the fiber. The information to be transmitted is converted from electrical impulses into light waves by a laser or light emitting diode. At the point of reception, the light waves are converted back into electrical impulses by a photo-detector. Communication by means of light waves guided through glass fibers offers a number of advantages over other modes of communication including metallic conductors and, unlike metallic conductors, are immune to electromagnetic and radio frequency interference. Signals of equal strength can be transmitted over longer distances through optical fibers than through metallic conductors, thus requiring fewer repeaters. Fiber optic cables, into which several optical fibers are usually incorporated, 2 3 are substantially smaller and lighter than metallic cables of the same capacity and can be installed and used in confined spaces. Optical fibers also have advantages over satellite and line of sight transmissions such as microwave, in that fiber optic cables provide interference-free communications that offer a high degree of security. The Company typically manufactures optical fibers by introducing vapors and gases of varying chemical compositions into a special glass tube in a clean, controlled environment. The glass tube, which will ultimately form all or a portion of the optical cladding, and the vapors and gases are simultaneously heated and oxide particles, formed through a reaction of chemical vapors with oxygen, are deposited on and adhere to the inside of the tube. As the particles attach to the tube wall, they are fused to create a layer of high purity glass. Succeeding layers of glass of the same or different compositions are deposited in this fashion to permit the transmission of light in accordance with the desired specifications. The glass tube is then collapsed into a rod, or primary preform, consisting of a deposited core, in certain instances some deposited clad, and the cladding provided by the glass tube. In most cases an additional cladding layer is added to this primary preform. The rod is then placed at the top of a fiber drawing tower, heated until it softens and drawn into a fiber of predetermined diameter. The Company has patented technology which permits the direct deposit of high purity glass, thus reducing or eliminating the need for glass tubes, which can be used independently or in conjunction with its existing processes. This technology is most suitable for the low-cost manufacture of single-mode, long-distance fibers and for the manufacture of glass rods for the production of specialty optical fibers. The Company owns certain hard polymer claddings and coatings and fiber termination technology known as "crimp/cleave," which permits easier attachment of optical fibers to connectors and other components and has certain proprietary technology used for the cabling of optical fiber. The Company also owns technology related to the processing of a wide variety of polymeric compounds for the manufacture of optical fiber cable. This technology provides environmental protection for both outdoor cables and nonflammable, low smoke, low toxicity cables used inside buildings. In addition, the Company considers the designs of its optical fiber cable products to provide a significant competitive advantage. Optical Fiber and Related Products SpecTran presently manufactures and sells a variety of optical fibers and value added optical fiber products. The Company's short-distance, or multimode, fibers are used for communications within a computer, between computers and peripherals as well as in local and wide area networks. The Company's long-distance, or single-mode, fibers are used for carrying commercial data communications and telecommunications signals. The Company also manufactures a wide variety of specialty optical fibers and related products that are typically incorporated into a customer's product or systems based on their special characteristics or benefits. Certain specialty optical fibers marketed by the Company are solid glass or glass/polymer hybrid structures. Their application can be broadly categorized into fibers for communications, power delivery or sensing. These general categories may be further engineered for a wide range of physical special products including, for example, fibers designed for low cost 3 4 communications links, various laser delivery applications, extremely high power laser delivery applications, radiation resistant industrial and military applications, ultra-high speed communications, sensors, soldered or hermetic attachments to semiconductor devices such as laser diodes or integrated optics packages, underwater and/or down-hole applications and certain hot and/or adverse environments, high and/or long-term reliability applications and data collection, sensors and certain medical applications. The Company produces fiber, bundle, special designs and complex assemblies for the industrial, telecommunication, short haul data communication, medical, military, aerospace and transportation markets. The Company is a leader in field applicable "crimp/cleave" connector systems and associated hardware for the attachment of optical fibers to connectors and other components. The Company also develops, markets and sells optical fiber cable and components for indoor (tight buffered cables) and outdoor (loose tube gel-filled) data, video and voice applications. In addition, the Company produces high fiber count loose tube splitter kits (allowing for easy termination for loose tube cables) and other splitter and breakout cable termination systems. Proprietary Rights The Company considers its proprietary know-how with respect to the development and manufacture of flexible glass fibers and value added optical fiber products to be a valuable asset. This know-how includes formulation of new glass compositions, development of special fiber coatings, coating application, fiber design, fiber drawing, optical fiber cabling methods, fiber crimping, gluing, polishing, cleaving, proprietary testing capabilities, development and implementation of manufacturing processes and quality control techniques, and design and construction of manufacturing and quality control equipment. In addition, application knowledge and product combination knowledge are also considered to be valuable assets of the Company. The Company has from Corning, Incorporated ("Corning"), formerly Corning Glass Works, a limited, non-assignable, non-exclusive, royalty-bearing license to make, use and sell optical fibers under certain of Corning's United States patents owned or filed for on or before January 1, 1996, in the field of optical fibers. See Note 4 of "Notes to Consolidated Financial Statements." This license agreement extended and expanded a previous similar license. The license contains certain annual quantity limitations not applicable to sales made directly or indirectly (through cablers or other companies) to certain customers such as Corning, AT&T and the United States Government, which increase annually through the year 2000. The quantity of optical fiber licensed for manufacture under this license is significantly greater than was permitted under the prior license. The license has a term equal to the life of the last to expire of the Corning or Company patents licensed under the agreement. Corning has the right to terminate the license in the event that more than thirty percent of the Company's voting stock is acquired, directly or indirectly, by another manufacturing company. The Company is required to grant back to Corning a non-exclusive royalty-free license for any patent it owned or filed for on or before January 1, 1996, in the field of optical fibers. The Company has from AT&T Technologies, Inc. ("AT&T Technologies"), formerly Western Electric Company, Incorporated, a subsidiary of American Telephone and Telegraph Company ("AT&T"), a non-assignable, non-exclusive, unlimited, royalty-bearing license under all patents covering optical fiber and optical fiber cable owned by AT&T Technologies or which AT&T 4 5 Technologies and its affiliates have the right to license on or before August 15, 1986. The Company granted back to AT&T Technologies and to AT&T a non-exclusive, royalty-free license under patents the Company may obtain relating to optical fiber inventions made on or before August 15, 1986. The license extends for the life of the last to expire of the patents licensed under the agreement. Approximately 43% of the Company's sales during 1995 were subject to the Corning license and 61% subject to the AT&T license. These license agreements required aggregate royalty payments by the Company of approximately 8.5% of net sales of the Company's products manufactured under the agreements during 1995. The Company believes that manufacturing and sale of its single-mode fiber is not subject to the Corning license agreement. The Company presently does not expect to need the Corning license for the manufacture of its multimode fiber after 1999. The Company's specialty fiber operation has a non-exclusive, royalty-bearing license granted by Sumitomo Electric Industries, Ltd. to make, use and sell primary coated optical fiber, preforms or glass rods for optical fiber in the United States under one of Sumitomo's United States and foreign patents and to use and sell primary coated optical fiber, preforms or glass rods for optical fiber worldwide, except Japan. The license terminates upon termination of the underlying patents. None of the Company's production of optical fibers was subject to royalties under this license during 1995. The Company and its subsidiaries own 25 U.S. patents relating to products, processes and equipment in the fields of optical fibers, optical connectors, coatings and cleaving tools. It has also filed applications for two additional patents in the same fields of use. The Company believes that under the terms of existing cross-license agreements, the optical fiber patents would be required to be made available to Corning and certain of those patents would be required to be made available to AT&T, on a royalty-free basis. The Company is using its registered trademark SPECTRAGUIDE for its optical fiber and, for certain of its optical fiber value added fiber products, the registered trademarks HCS (Hard Clad Silica), Avioptics, Flightguide, Ultrasil, PYROCOAT, V-System, V-Pin and OPTI-Pak. Research and Development Research and development activities, and the Company's ability to develop and improve products employing both existing and new technology, are important to the Company. During the fiscal years ended December 31, 1995, 1994 and 1993, the Company spent $2,826,867, $1,974,466 and $953,703, respectively, on research and development. The Company's personnel conduct virtually all of its research and development activities with some external consulting. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations." Customers and Marketing The Company sells its standard optical fibers to various cable manufacturers, internationally and domestically, which assemble them into cables for resale in configurations of their own design. Specialty fiber products are sold directly to a large number of OEM manufacturers, product development groups, international distributors and manufacturer's representatives, installers, 5 6 universities and governmental agencies primarily for use in the telecommunications, short-haul datacommunications, medical, military, aerospace and transportation markets. Optical fiber cable and cable accessories are sold, directly and through independent sales representatives, domestically and internationally, to the data communications, video, security, transportation, utilities and process control markets. For the year ended December 31, 1995, sales of the Company's optical fiber products to each of two companies (in alphabetical order, Chromatic Technologies, Inc and Optical Cable Corporation) were equal to ten percent or more of the Company's revenues. These two companies together accounted for 24% of the Company's revenues. The loss of either of these customers could have a material adverse effect on the Company's operations. See Note 9 of "Notes to Consolidated Financial Statements." The Company markets its standard data communications and telecommunications optical fiber products principally through direct sales in the United States and through a network of manufacturer representatives internationally. Specialty fiber products are marketed domestically through a direct field sales engineering force and internationally through a network of technical distributors and sales representatives. Optical fiber cable and cable components are marketed through a direct sales force and a network of distributors and sales representatives. The Company advertises in trade publications, distributes brochures and other material to its mailing list of potential customers worldwide and attends and demonstrates its products at trade shows, technical symposia and standards committees. Backlog As of January 31, 1996, the Company's backlog of orders was approximately $17,400,000, as compared to a backlog of $10,100,000 as of March 17, 1995. The entire backlog as of January 31, 1996 is expected to be delivered during 1996. Competition The number of participants in the optical fiber industry is to some extent limited by patents covering the fundamental optical fiber technology, the need for substantial capital investment, and the availability of highly specialized equipment and personnel with the requisite technical expertise. However, the Company believes that certain patents relating to the production of single-mode fiber have expired in many countries, including the United States, and no longer block entry. During most of 1995 market competition moderated as fiber supply began to tighten in the face of increasing worldwide demand for single-mode and multimode fiber and pricing has become more stable. Competition for specialty markets in 1995 was moderate, except in the medical market, where due to flat growth, price pressures on specialty fiber suppliers intensified. Competition for supply of optical fiber cables is strong, although the Company has attempted to focus on certain types of value added optical fiber cables that serve specific and specialized needs so that in a number of situations it has been the only producer of such cable for a period of time. 6 7 Optical fibers offer a number of advantages over other means of transmitting information, such as through metallic wire, satellite and other line of sight transmissions (e.g., microwaves) and compete favorably with them although there has been an increase in interest in wireless communications in the marketplace. Many companies producing such other means of transmitting information have substantially greater resources and operating experience than the Company. In emerging markets and in applications where the use of optical fiber is new or not well understood, the Company often competes with mature, existing technology. The Company produces and sells optical fibers both for general applications, including data communications and telecommunications, and for specialized markets as well as optical fiber cable and cable components. While there may be somewhat less competition in the specialized markets, all of these markets are extremely competitive. The Company's main competitors for its general applications fibers, including both data communications and telecommunications, are its licensors to whom the Company pays royalties and who have substantially greater resources and operating experience than the Company. The Company's main competitors for its specialty fibers generally have been smaller operations, although some of those competitors are part of a company with substantially greater resources than the Company. The Company's main competitors for its optical fiber cable products are large companies with substantially greater resources and operating experience than the Company. The Company competes for sales based upon its ability to fill orders promptly at competitive prices, product performance, product features, unique proprietary products and product combinations, flexibility, quality and service. Raw Materials and Quality Control The basic raw materials required for the manufacture of the Company's products are high quality raw glass tubes and rods, various chemicals and gases, preforms and certain polymers. The Company believes that its sources of supply of these raw materials are adequate and that alternative sources are available. The Company's quality control programs are essential to its success. They are designed to maintain strict tolerances during the manufacturing process and to assure performance standards of its optical fibers. The Company performs quality control testing on all of the optical fiber it produces. The Company designs and builds at its corporate facilities much of its automated standard product manufacturing and some of its quality control systems. In November 1995, the Company's fiber making operation became certified under the ISO 9001 standard which is an internationally recognized, quality system consisting of a set of functions, policies and operating methodologies which are designed to ensure process consistency. Both the Company's specialty optical fiber and its optical cable operations utilize internal testing procedures based on the internationally recognized "Fiber Optic Test Procedures" and have in place and continue to develop specialized proprietary testing systems and procedures to support the requirements of specialty fiber and cable customers. The Company's specialty fiber operation became ISO 9001 certified in March 1996. 7 8 Employees As of December 31, 1995, the Company employed 300 persons, of whom 35 were employed in technology, 184 were employed in manufacturing operations and 81 provided marketing, administrative, management and other support services. The Company's employees are not represented by a labor union. The Company believes its employee relations to be satisfactory. ITEM 2. PROPERTIES. The Company's administrative offices and the offices and production facilities of SpecTran Communication Fiber Technologies, Inc. are located in an approximately 50,000 square foot building situated on approximately 43 acres of land owned by the Company in Sturbridge, Massachusetts. Sixty percent of that acreage is classified as an industrial zone. The Company also owns an approximately 5,000 square foot office building used for offices that is next to this manufacturing facility. SpecTran Specialty Optics Company leases approximately 33,000 square feet under three leases in Avon, Connecticut for its office and production facilities. Each of the leases is for a term of three years expiring February 18, 1997, subject to the subsidiary's right to renew each lease for one three-year renewal term. Applied Photonic Devices, Inc. leases office and production facilities in an approximately 45,000 square foot facility located in Danielson, Connecticut under a lease with a term of two years expiring January 14, 1998, subject to the subsidiary's right to renew such lease for two consecutive one year renewal terms. ITEM 3. LEGAL PROCEEDINGS. None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. 8 9 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. The Company's Common Stock is traded in the over-the-counter market on the NASDAQ National Market System under the symbol SPTR. The following table sets forth the high and low sales prices for the Common Stock for the periods indicated.
Price ----- Fiscal Year Fiscal Quarter Ended High Low ----------- -------------------- ---- --- 1994 March 31, 1994 12-1/4 7-1/2 June 30, 1994 8-1/4 4 September 30, 1994 6 4-1/8 December 31, 1994 7 4-1/4 1995 March 31, 1995 6-5/8 4-5/8 June 30, 1995 7-1/4 4-7/8 September 30, 1995 7-1/8 5-1/2 December 31, 1995 6-5/8 5
The approximate number of shareholders of record of the Company's Common Stock as of February 7, 1996 was 800 which includes all shares held in nominee names by brokerage firms and financial institutions as one stockholder. It is estimated that such shares held in street name are held for approximately 5,200 stockholders. The Company has never declared or paid cash dividends. 9 10 ITEM 6. SELECTED FINANCIAL DATA.
Year Ended December 31 -------------------------------------------------------------- OPERATING RESULTS 1995 1994 1993 1992 1991 ----------------- ---- ---- ---- ---- ---- Net Sales $38,581 $26,926 $25,578 $21,371 $16,255 Gross Profit 13,061 7,623 9,615 8,734 6,096 Income (loss) Before Taxes 777 (487) 5,629 5,012 3,428 Net Income (loss) 542 (487) 3,655 3,644 2,758 Net Income (loss) Per Share of Common Stock .10 (.09) .67 .66 .50 FINANCIAL POSITION ------------------ Total Assets 40,365 31,362 26,712 22,800 19,810 Total Long-Term Debt 10,000 5,240 300 367 708 Total Stockholders' Equity 24,295 23,104 23,613 20,009 15,864
Notes to Selected Financial Data (1) In thousands of dollars except per share data. (2) The Company has never declared or paid cash dividends. 10 11 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Operating Results Year Ended December 31, 1995 Versus Year Ended December 31, 1994 Overview In 1995, SpecTran's revenues increased 43.3% to $38,580,608 and the Company earned net income of $542,037, or $.10 per share compared with revenues of $26,926,077 and a loss of $487,381, or $.09 per share in 1994. The improved revenues and earnings in 1995 were primarily due to strong market demand for the Company's standard and specialty products. The acquisition of Applied Photonic Devices, Inc. also contributed to higher revenues in 1995. Although SpecTran returned to profitability in 1995, income was still constrained by significant investment in manufacturing development costs, primarily related to communication fiber products. Net Sales Net sales of $38,580,608 for the year ended December 31, 1995, were $11,654,531 (43.3%) higher than for the year ended December 31, 1994. The increase was primarily caused by higher sales volumes due to strong market demand for the Company's standard communication fiber, both multimode and single-mode, as well as specialty products. The acquisition of Applied Photonic Devices, Inc. and a full year of sales of SpecTran Specialty Optics Company, acquired in February, 1994, also contributed to the increase. Gross Profit The Company earned a gross profit of $13,061,053 during 1995 which was a $5,438,427 (71.3%) increase over 1994. The gross profit, as a percentage of sales, increased to 33.9% in 1995 from 28.3% in 1994. Major factors positively impacting gross profit were improved manufacturing efficiencies, especially in the Company's single-mode product line. However, the gross profit was negatively impacted in 1995 by approximately $1.8 million of costs associated with manufacturing development of single-mode fiber compared to $2 million in 1994. Royalties on sales were approximately 4.1% and 5.5% of total net sales during 1995 and 1994, respectively. The decrease was due to a higher level of sales in 1995 not subject to royalties. Selling & Administrative Selling and administrative costs increased by $3,350,655 (53.0%) during 1995. As a percentage of sales, these costs increased during 1995 to 25.1% from 23.5% during 1994. The significant increase in total selling and administrative spending is primarily due to expenses related to 11 12 the operation of the acquired Applied Photonic Devices, Inc., increased personnel costs and increased market development activities related to single-mode fiber in 1995. Research and Development Research and development costs increased by $852,401 (43.2%) during 1995. Research and development costs as a percentage of sales remained constant from 1994 to 1995 at 7.3%. The Company has continued to invest in programs to improve manufacturing cost and product performance in both the single-mode and multimode product lines, to develop new special performance fiber products and to develop alternative process technologies. Other Income (Expense), net Net other income increased $29,244 (16.0%) during 1995. Interest expense increased $322,922 (106.7%) during 1995 as a result of increased levels of outstanding debt during 1995 associated with the acquisition of Applied Photonic Devices, Inc. Other income increased in 1995 by $351,386 primarily due to non-recurring material recovery income and proceeds received in connection with the conversion of the Company's primary group health insurance provider from a mutual company to a stock company. Income Taxes Income tax expense for the year ended December 31, 1995 was 30.3% of pre-tax income versus no tax provision or benefit for the previous year. Income tax expense was reduced due to a reduction in the valuation allowance for deferred tax assets. The valuation allowance was reduced $437,000 in 1995 due to the Company's belief that it is more likely than not that the additional deferred tax asset will be realized. Excluding the effect of adjusting the valuation allowance, income tax expense as a percentage of pre-tax income was 56.0% in 1995. See Note 8 of "Notes to Consolidated Financial Statements." No tax benefit was provided in 1994 due to the uncertainty of the future realization of net operating loss and tax credit carryforwards. Net Income (loss) The Company's net income in 1995 was $542,037, a 1.4% return on sales compared to a net loss in 1994 of $487,381. Year Ended December 31, 1994 Versus Year Ended December 31, 1993 Overview SpecTran incurred a net loss for 1994 of $487,381, or $.09 per share as a result of manufacturing and marketing costs associated with development of single-mode fiber and unfavorable market conditions for the Company's standard products which existed through most of the year. This 12 13 was partially offset by the results of SpecTran Specialty Optics Company, which was acquired in February 1994. Net Sales Net sales of $26,926,077 for the year ended December 31, 1994, were $1,347,882 (5.3%) higher than for the year ended December 31, 1993, due primarily to additional revenue provided by SpecTran Specialty Optics Company. The increased revenue provided by SpecTran Specialty Optics Company offset the decline in revenues from the Company's standard products where sales to two key customers, as anticipated and previously reported, declined significantly in 1994 and unfavorable market conditions throughout most of the year caused lower average unit selling prices than in 1993. Also helping to offset the decrease in sales of the Company's standard datacommunication multimode fiber were initial sales of single-mode optical fiber. Gross Profit The Company earned a gross profit of $7,622,626 during 1994 which was a $1,992,235 (20.7%) decline over 1993. The gross profit, as a percentage of sales, dropped to 28.3% in 1994 from 37.6% in 1993. A major factor negatively impacting gross profit was approximately $2 million of costs associated with manufacturing development of single-mode fiber. Royalties on sales were approximately 5.5% and 6.4% of total net sales during 1994 and 1993, respectively. The decrease was due to a higher level of sales in 1994 not subject to royalties. Selling & Administrative Selling and administrative costs increased by $3,025,949 (91.9%) during 1994. As a percentage of sales, these costs increased during 1994 to 23.5% from 12.9% during 1993. The significant increase in total selling and administrative spending is primarily due to expenses related to the operation of the acquired SpecTran Specialty Optics Company, increased personnel costs, and higher costs associated with international marketing of single-mode fiber. Research & Development Research and development costs increased by $1,020,763 (107.0%) during 1994. Research and development costs as a percentage of sales increased to 7.3% in 1994 from 3.7% in 1993. The Company has invested heavily in improved multimode products and processes, alternative process technologies and development of single-mode fiber, accounting for this increase. Other Income (Expense), net Other income (expense) net decreased $77,814 (29.8%) during 1994. The change is made up of increased interest income of $81,544 (33.2%), increased interest expense of $265,672 (720.5%), and increased other income of $106,314 (203.4%). Interest income increased during 1994 primarily as 13 14 a result of higher yields on investments. The increase in interest expense is a result of increased levels of outstanding debt during 1994. The Company had $5,240,000 outstanding on a revolving loan at a variable rate of interest. Other income increased in 1994 by $106,314 primarily due to royalty income received by SpecTran Specialty Optics Company. Income Taxes No tax benefit was provided for the 1994 loss largely due to the uncertainty of future realization of certain of the carry forward amounts of investment and research and experimentation tax credits which begin to expire in 1996. A tax provision of 35.1% of pre-tax income was provided in 1993. Net Income (loss) The Company's net loss in 1994 was $487,381. Net income in 1993 was $3,655,084 which was a 14.3% return on sales. Liquidity and Capital Resources At December 31, 1995, the Company had net working capital of $15,958,150, a current ratio of 3.6 to 1, and an aggregate of $1,624,515 in cash and cash equivalents. In addition, the Company had total marketable securities of $5,220,998, including $1,132,682 classified as long-term, which could be converted into cash if needed. On March 30, 1995, the Company entered into an amended agreement with its principal bank, Fleet Bank of Massachusetts, N.A. ("the Bank") under which the Company can borrow the lesser of $10,000,000 or an amount based upon certain percentages of the value of cash on deposit, eligible accounts receivable and eligible inventory. As of December 31, 1995, the full $10,000,000 was outstanding under the agreement. Interest is payable at the lower of prime or the LIBOR rate plus 1.5%. The loan agreement terminates on March 31, 1997, and any outstanding balances must be repaid on that date. As security for the loan the Company has pledged all of its assets, except its real property. In addition the obligation is guaranteed by the Company's subsidiaries and is secured by their assets. Capital expenditures for 1995 were $2,540,678, an increase of 1.4% over 1994, principally for manufacturing equipment and software to improve efficiencies and increase capacity. Investments were also made to upgrade management information systems to strengthen the Company's infrastructure. The Company is considering a significant increase in capital expenditures for 1996 to further improve efficiencies and increase capacity and is exploring financing necessary for these expenditures. Existing working capital, borrowings, and expected positive cash flow from 1996 operations should be sufficient to meet the Company's cash needs in 1996. 14 15 Subsequent Events Applied Photonic Devices, Inc. ("APD") leased an additional 36,410 square foot facility located in Dayville, Connecticut, which will be largely dedicated to increasing manufacturing capacity, on February 6, 1996 with another 26,250 square feet to be available on or before July 1, 1997. The lease is for a term of five years expiring February 6, 2001, at an annual rate of $100,125. APD has the right to renew the lease for one three-year extension and one two-year extension. New Accounting Pronouncements Effective January 1, 1996, the Company will adopt Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). The Statement encourages, but does not require, a fair value based method of accounting for stock-based compensation plans. SFAS No. 123 allows an entity to continue to measure compensation cost for those plans using the intrinsic value based method prescribed by APB Opinion No. 25. For those entities to use the intrinsic value based method, SFAS No. 123 requires pro forma disclosures of net income and earnings per share computed as if the fair value based method had been applied. The Company intends to continue to account for stock-based compensation costs under APB Opinion No. 25 and will provide the additional required disclosures relating to 1995 and 1996 stock options in its 1996 financial reports. On January 1, 1996, the Company adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement requires that long-lived assets and certain identifiable intangibles to be held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This statement also requires that long-lived assets and certain identifiable intangibles to be disposed of be reported at the lower of carrying value or fair value less costs to sell. Adoption of the statement had no impact on the Company's financial statements. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The response to this Item is submitted as a separate section of this Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 15 16 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information to be contained under the heading "Election of Directors" in the Company's proxy statement relating to the 1996 Annual Meeting of Shareholders (the "Proxy Statement") is hereby incorporated herein by reference. ITEM 11. EXECUTIVE COMPENSATION. The information with respect to compensation of certain executive officers and all executive officers of the Company as a group to be contained under the headings "Compensation of Executive Officers and Directors" in the Proxy Statement is hereby incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information with respect to ownership of the Company's Common Stock by management and by certain other beneficial owners to be contained under the heading "Principal Stockholders and Other Information" in the Proxy Statement is hereby incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information with respect to certain relationships and related transactions to be contained under the heading "Certain Transactions" in the Proxy Statement is hereby incorporated herein by reference. 16 17 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) 1. & 2. Financial Statements and Financial Statement Schedules: The response to this portion of Item 14 is submitted as a separate section of this Form 10-K. 3. Exhibits: See Exhibit Index on Pages 19 through 21 of this Form 10-K. (b) Reports on Form 8-K filed during the final quarter of fiscal 1995: None SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: SPECTRAN CORPORATION March 29, 1996 By: /s/ Glenn Moore -------------------------------- Glenn Moore President and Chief Executive Officer March 29, 1996 By: /s/ Bruce A. Cannon ---------------------------- Bruce A. Cannon Senior Vice President and Chief Financial Officer and Chief Accounting Officer
17 18 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signatures Title Date ---------- ----- ---- /s/ Raymond E. Jaeger Chairman of the Board March 29, 1996 ------------------------- Raymond E. Jaeger /s/ Glenn Moore Director, President and March 29, 1996 ----------------------- Chief Executive Officer Glenn Moore /s/ Richard A.M.C. Johnson Director March 29, 1996 -------------------------- Richard A.M.C. Johnson /s/ Ira S. Nordlicht Director March 29, 1996 --------------------------- Ira S. Nordlicht /s/ Bruce A. Cannon Director and Principal March 29, 1996 ------------------------ Financial Officer Bruce A. Cannon /s/ Paul D. Lazay Director March 29, 1996 ----------------------- Paul D. Lazay /s/ Joseph C. Bothwell, Jr. Director March 29, 1996 ----------------------------- Joseph C. Bothwell, Jr. /s/ Richard Donofrio Director March 29, 1996 ------------------------ Richard Donofrio /s/ John E. Chapman Director and Principal March 29, 1996 ----------------------- Operating Officer John E. Chapman /s/ Lily K. Lai Director March 29, 1996 ------------------------ Lily K. Lai
18 19 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 3.1 Certificate of Incorporation of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 3.2 By-Laws of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 4.5* Form of Stock Certificate for Voting Common Stock. 10.1 Registrant's 1991 Incentive Stock Option Plan. (Incorporated by reference to the Registrant's Proxy Statement dated April 9, 1991.) 10.7* License Agreement dated August 15, 1981, between the Registrant and Western Electric Company, Incorporated. (Registrant has been granted confidential treatment of portions of this Exhibit.) 10.9 License Agreement dated October 31, 1983, between the Registrant and Gulf & Western Manufacturing Company. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1989.) 10.15 License Agreement dated January 21, 1985, between the Registrant and Aetna Telecommunications Laboratories. (Registrant has been granted confidential treatment of portions of this Exhibit.) (Incorporated by reference to the Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1990.) 10.45 Conversion Agreement dated as of November 8, 1990, by and among Registrant, Allen & Company Incorporated, Richard A.M.C. Johnson and Patrick E. Brake. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.) 10.46 Common Stock Purchase Warrant issued to Allen & Company Incorporated pursuant to the Conversion Agreement listed as Exhibit 10.45. (Incorporated by reference to the Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1990.) 10.49 License Agreement dated as of the first day of January 1991 by and between the Registrant and Corning, Incorporated. (Registrant has been granted confidential treatment of portions of this Exhibit.) (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 19 20 10.51 Registrant's Income Growth Incentive Plan adopted effective January 1, 1990. (Incorporated by reference to the Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1990.) 10.53 Asset Purchase Agreement between Ensign-Bickford Optics Company and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 8-K filed March 4, 1994.) 10.54 Stock Purchase Agreement between Ensign-Bickford Optical Technologies, Inc. and EBOT Acquisition Corp. dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 8-K dated March 4, 1994.) 10.55 Lease between 150 Fisher Associates Limited Partnership and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.56 Lease between Avon Park Properties and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.57 Lease between Avon Park Properties and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.58 Patent License Agreement dated as of July 7, 1987 between Sumitomo Electric Industries, Ltd. and Lightwave Technologies, Inc. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.59 Loan Agreement dated January 21, 1994, between Fleet Bank of Massachusetts, N.A. and SpecTran Corporation. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.60 Loan Agreement dated March 30, 1995, between Fleet Bank of Massachusetts, N.A. and SpecTran Corporation. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 31, 1995.) 10.61 Stock Purchase Agreement among APD Acquisition Crop. and Irving N. Dwyer, David P. DaVia, The Irving N. Dwyer and Annette M. Dwyer Charitable Remainder Trust and the DaVia Charitable Remainder Trust. (Incorporated by reference to the Registrant's Report on Form 8-K filed June 7, 1995.) 10.62 Directors Retirement Plan dated December 27, 1995. 10.63 Registrant's Employee Profit Sharing Plan as revised and adopted effective January 1, 1995. 20 21 10.64 Lease between Mark C. Yellin and Applied Photonic Devices, Inc. dated January 15, 1996. 10.65 Lease between Fabrilock, Inc. and Applied Photonic Devices, Inc. dated February 6, 1996. 11.1 Schedule of Earnings Per Share Calculation. 21.0 Subsidiaries. - ------------------------------ * Incorporated by reference to Registrant's Registration Statement on Form S-1 (Reg. No. 2-83172) effective June 2, 1983. 21 22 SPECTRAN CORPORATION FORM 10-K ITEMS 8, 14 (a) (1) AND (2) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE The following consolidated financial statements of the registrant required to be included in Item 8 and 14 (a) (1) are listed below:
Page ---- Independent Auditors' Report F-2 Financial Statements: Consolidated Balance Sheets as of December 31, 1995 and 1994 F-3 and F-4 Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994 and 1993 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994 and 1993 F-6 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995, 1994 and 1993 F-7 Notes to Consolidated Financial Statements F-8 through F-23
The following financial statement schedule of the registrant is included pursuant to Item 14 (a) (2):
Financial Statement Schedule Page - ---------------------------- ---- II. Valuation and Qualifying Accounts F-24
Schedules other than those mentioned above are omitted because the conditions requiring their filing do not exist or because the required information is presented in the consolidated financial statements, including the notes thereto. F-1 23 Independent Auditors' Report The Board of Directors and Stockholders SpecTran Corporation: We have audited the consolidated financial statements of SpecTran Corporation as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SpecTran Corporation as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Boston, Massachusetts February 2, 1996 F-2 24 SPECTRAN CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994 ASSETS
1995 1994 ---- ---- Current Assets (Note 6): Cash and Cash Equivalents $ 1,624,515 $ 477,022 Current Portion of Marketable Securities (Note 2) 4,088,316 2,563,400 Accounts Receivable, trade, net of allowance for doubtful accounts of $265,061 and $123,795 in 1995 and 1994, respectively 7,798,517 6,183,461 Inventories (Note 3) 7,414,718 4,100,179 Income Taxes Receivable -- 501,629 Deferred Income Taxes, net of valuation allowance of $120,000 and $66,000 in 1995 and 1994, respectively (Note 8) 588,000 303,000 Prepaid Expenses and Other Current Assets 513,356 267,871 ------------ ----------- Total Current Assets 22,027,422 14,396,562 ------------ ----------- Property, Plant and Equipment (Note 6): Land and Land Improvements 407,705 395,113 Buildings and Building Improvements 3,729,114 3,266,189 Machinery and Equipment 17,229,195 14,612,501 Construction in Progress 1,640,786 1,625,056 ------------ ----------- 23,006,800 19,898,859 Less Accumulated Depreciation and Amortization 12,716,752 10,482,710 ------------ ----------- 10,290,048 9,416,149 ------------ ----------- Other Assets (Note 6): Long-term Marketable Securities (Note 2) 1,132,682 3,274,759 License Agreements, net of accumulated amortization of $1,004,416 and $803,500 in 1995 and 1994, respectively (Note 4) 1,004,417 1,205,300 Deferred Income Taxes, net of valuation allowance of $910,000 and $1,401,000 in 1995 and 1994, respectively (Note 8) 1,652,000 1,702,000 Goodwill, net of accumulated amortization of $279,302 and $74,600 in 1995 and 1994, respectively (Note 12) 4,156,392 1,106,806 Other, net 101,751 260,361 ----------- ----------- 8,047,242 7,549,226 ----------- ----------- Total Assets $40,364,712 $31,361,937 =========== ===========
See accompanying notes to consolidated financial statements. F-3 25 SPECTRAN CORPORATION CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994 LIABILITIES AND STOCKHOLDERS' EQUITY
1995 1994 ---- ---- Current Liabilities: Accounts Payable $ 2,762,265 $ 751,455 Income Taxes Payable 224,576 -- Accrued Defined Benefit Pension Liability (Note 11) 117,798 65,571 Accrued Liabilities (Note 5) 2,964,633 2,200,825 ----------- ----------- Total Current Liabilities 6,069,272 3,017,851 ----------- ----------- Long-term Debt (Note 6) 10,000,000 5,240,000 ----------- ----------- Stockholders' Equity (Note 7): Common Stock, voting, $.10 par value; authorized 20,000,000 shares; issued and outstanding 5,353,686 shares and 5,207,409 shares in 1995 and 1994, respectively 535,369 520,741 Common Stock, non-voting, $.10 par value; authorized 250,000 shares, no shares issued or outstanding -- -- Paid-in Capital 26,442,794 26,028,279 Net unrealized loss on marketable securities (22,264) (242,438) Retained Earnings (Deficit) (2,660,459) (3,202,496) ----------- ----------- Total Stockholders' Equity 24,295,440 23,104,086 ----------- ----------- Total Liabilities and Stockholders' Equity $40,364,712 $31,361,937 =========== ===========
See accompanying notes to consolidated financial statements. F-4 26 SPECTRAN CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ---- ---- ---- Net Sales (Note 9) $38,580,608 $26,926,077 $25,578,195 Cost of Sales 25,519,555 19,303,451 15,963,334 ----------- ----------- ----------- Gross Profit 13,061,053 7,622,626 9,614,861 Selling and Administrative Expenses 9,669,316 6,318,661 3,292,712 Research and Development Costs 2,826,867 1,974,466 953,703 ----------- ----------- ----------- Income (Loss) from Operations 564,870 (670,501) 5,368,446 ----------- ----------- ----------- Other Income (Expense): Interest Income 327,873 327,093 245,549 Interest Expense (625,468) (302,546) (36,874) Other, Net 509,959 158,573 52,259 ----------- ----------- ----------- Other Income 212,364 183,120 260,934 ----------- ----------- ----------- Income (Loss) before Income Taxes 777,234 (487,381) 5,629,380 Income Tax Expense (Note 8) 235,197 -- 1,974,296 ----------- ----------- ----------- Net Income (Loss) $542,037 $ (487,381) $ 3,655,084 =========== =========== =========== Weighted Average Number of Shares of Common Stock Outstanding - Primary 5,582,349 5,202,604 5,484,406 =========== =========== =========== Weighted Average Number of Shares of Common Stock Outstanding - Fully Diluted 5,582,752 5,202,604 5,487,949 =========== =========== =========== Net Income (Loss) per Share of Common Stock: Primary $.10 $(.09) $.67 ==== ====== ==== Fully Diluted $.10 $(.09) $.67 ==== ====== ====
See accompanying notes to consolidated financial statements. F-5 27 SPECTRAN CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 ---- ---- ---- Cash Flows from Operating Activities: Net income (loss) $ 542,037 $ (487,381) $ 3,655,084 Reconciliation of Net income (loss) to Net Cash Provided by Operating Activities Add charges (deduct credits) not affecting cash: Depreciation and amortization 2,337,624 1,685,902 1,025,215 Loss (gain) on sale of assets 7,900 3,700 (50,151) Loss on sale of marketable securities 17,308 -- -- Changes in valuation accounts (632,579) 265,454 (100,400) Change in long-term deferred income taxes 576,446 (1,384,000) 1,651,271 Change in other long-term assets (109,908) (6,459) -- Changes in assets and liabilities, net of effects from purchase of businesses: Current deferred income taxes (339,000) 967,000 3,825 Accounts receivable (408,642) (467,297) (2,007,296) Inventories (2,501,207) 1,136,606 (809,484) Prepaid expenses and other current assets (259,717) 87,610 61,553 Income taxes payable/receivable 716,212 (694,763) 402,624 Accounts payable and accrued liabilities 1,853,768 (58,661) 133,409 --------------- ------------- ------------ Net Cash Provided by Operating Activities 1,800,242 1,047,711 3,965,650 --------------- ------------- ------------ Cash Flows from Investing Activities: Acquisition of businesses, net of cash acquired (3,821,707) (6,662,226) (326,697) Acquisition of property, plant and equipment (2,540,678) (2,499,511) (1,342,885) Purchase of marketable securities (10,893,792) (3,178,186) (8,881,587) Proceeds from sale/maturity of marketable securities 11,838,928 3,137,214 2,831,590 Proceeds from sale of equipment 4,500 -- 151 Acquisitions of other assets, net -- -- 20,000 --------------- ------------- ------------ Net Cash Used in Investing Activities (5,412,749) (9,202,709) (7,699,428) --------------- ------------- ------------ Cash Flows from Financing Activities: Borrowings of long-term debt 4,760,000 5,240,000 -- Reduction of debt -- (366,673) (66,666) Tax effect of disqualifying disposition of ISO shares -- 119,700 (105,800) Proceeds from exercise of stock options and warrants -- 100,803 55,195 --------------- ------------- ------------ Net Cash Provided by (Used in) Financing Activities 4,760,000 5,093,830 (117,271) --------------- ------------- ------------ Increase (Decrease) in Cash and Cash Equivalents 1,147,493 (3,061,168) (3,851,049) Cash and Cash Equivalents at Beginning of Year 477,022 3,538,190 7,389,239 --------------- ------------- ------------ Cash and Cash Equivalents at End of Year $ 1,624,515 $ 477,022 $ 3,538,190 =============== ============= ============
See accompanying notes to consolidated financial statements. F-6 28 SPECTRAN CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Net Unrealized Common Stock Loss on Retained Total ------------ Paid-in Marketable Earnings Stockholders Shares Par Value Capital Securities (Deficit) Equity ------ --------- ------- --------- --------- ------ Balance at December 31, 1992 5,140,573 $514,057 $25,865,065 $ -- $ (6,370,199) $ 20,008,923 Exercise of Warrants (Note 7) 20,000 2,000 38,000 -- -- 40,000 Exercise of Stock Options 4,502 451 14,744 -- -- 15,195 Tax Effect of Disqualifying Disposition of ISO Shares (Note 8) -- -- (105,800) -- -- (105,800) Net Income -- -- -- -- 3,655,084 3,655,084 --------- -------- ----------- -------- ----------- ---------- Balance at December 31, 1993 5,165,075 516,508 25,812,009 -- (2,715,115) 23,613,402 Exercise of Stock Options (Note 7) 42,334 4,233 96,570 -- -- 100,803 Tax Effect of Disqualifying Disposition of ISO Shares (Note 8) -- -- 119,700 -- -- 119,700 Unrealized Loss on Marketable Securities -- -- -- (242,438) -- (242,438) Net Loss -- -- -- -- (487,381) (487,381) --------- -------- ----------- -------- ----------- ---------- Balance at December 31, 1994 5,207,409 520,741 26,028,279 (242,438) (3,202,496) 23,104,086 Exercise of Stock Options (Note 7) 1,833 183 6,461 -- -- 6,644 Issuance of Shares in Connection with Acquisition (Note 12) 144,444 14,445 408,054 -- -- 422,499 Unrealized Gain on Marketable Securities -- -- -- 220,174 -- 220,174 Net Income -- -- -- -- 542,037 542,037 --------- -------- ----------- -------- ----------- ---------- Balance at December 31, 1995 5,353,686 $535,369 $26,442,794 $ (22,264) $ (2,660,459) $24,295,440 ========= ======== =========== ======== =========== ===========
See accompanying notes to consolidated financial statements. F-7 29 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 1995 and 1994 1 - NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF BUSINESS SpecTran develops, manufactures and markets a wide range of fiber optic products. These include multimode and single-mode optical fiber, cable and cable assemblies for use in data communications and telecommunications applications. The Company also develops special performance fibers, coatings, cables and other value-added products for use in a variety of specialty markets. PRINCIPLES OF CONSOLIDATION AND BASIS OF ACCOUNTING The consolidated financial statements include the accounts of SpecTran Corporation (the Company) and all wholly owned subsidiaries: SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, and Applied Photonic Devices, Inc. All significant intercompany balances and transactions have been eliminated. Management uses estimates and assumptions in preparing the financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities and the reported revenue and expenses. Actual results may vary from the estimates. Certain 1994 and 1993 balances have been reclassified to be consistent with the current year's presentation. REVENUE RECOGNITION Sales revenues are recognized upon shipment of goods. Customers generally have the right to return for replacement any goods which do not meet the customer's purchase order specifications. Sales revenues and cost of sales as reported in the consolidated statements of operations are adjusted to reflect estimated returns and warranty costs. MARKETABLE SECURITIES Marketable securities are classified as available-for-sale and reported at fair value, with unrealized gains and losses excluded from earnings and reported as a separate component of stockholders' equity, net of estimated income taxes. Gains and losses on the sale of marketable securities are recognized at the time of sale on a specific identification basis. INVENTORIES Inventories are stated at the lower of cost or market value. Cost is determined by the first-in, first-out method. F-8 30 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 STATEMENTS OF CASH FLOWS For purposes of the statements of cash flows, the Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. Supplemental disclosure of cash flow information includes cash paid during the year for:
1995 1994 1993 ---- ---- ---- Interest $509,535 $238,565 $34,334 Income Taxes 99,700 560,000 372,376
PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are carried at cost. Machinery and equipment assembled by the Company are valued at the cost of component parts purchased, plus the approximate labor and overhead costs to the Company. Significant renewals and betterments are capitalized. The cost of maintenance and repairs is charged to income as incurred. Repairs and maintenance costs amounted to $967,581, $697,366 and $624,822 in 1995, 1994 and 1993, respectively. Depreciation is provided by the straight-line method. The principal annual rates of depreciation are: Buildings and building improvements..................4% Machinery and equipment.......................20% to 33 1/3% Depreciation expense of property, plant and equipment amounted to $1,901,052, $1,390,462 and $806,252 in 1995, 1994 and 1993, respectively. COST IN EXCESS OF NET ASSETS ACQUIRED AND OTHER INTANGIBLES The Company monitors its cost in excess of net assets acquired (goodwill) and its other intangibles to determine whether any impairment of these assets has occurred. In making such determination with respect to goodwill, the Company evaluates the performance, on an undiscounted basis, of the underlying businesses which gave rise to such amount. Amortization of goodwill is recorded on a straight-line basis over the estimated useful life of 15 years. With respect to other intangibles, which include the cost of license agreements and patents, the Company bases its determination of impairment on the performance, on an undiscounted basis, of the related products. F-9 31 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 LICENSE AGREEMENT AND OTHER ASSETS The total cost of the license agreement obtained in 1991 is being amortized and charged to expense based on a ten year life. Amortization expense amounted to $200,883 for 1995, 1994 and 1993. Deferred financing costs are amortized and charged to expense over the lives of the related debt. Patents are being amortized over a seventeen year life. SINGLE-MODE FIBER MANUFACTURING DEVELOPMENT COSTS Manufacturing development costs are expensed as incurred. In addition to Research and Development expenses for single-mode fiber, there were manufacturing development costs relating to single-mode fiber of approximately $1.8 million in 1995 and $2 million in 1994, respectively, that were included in cost of sales. INCOME TAXES The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. INCOME (LOSS) PER SHARE OF COMMON STOCK Income (loss) per share of common stock as computed is based on the weighted average number of shares outstanding during the periods, including common stock equivalents of stock purchase warrants and stock options. For 1994, the stock purchase warrants and stock options have not been included in the computation of loss per share since the effect would be antidilutive. FINANCIAL INSTRUMENTS Financial instruments of the Company consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and its bank loan. The carrying amounts of these financial instruments approximate their fair value. F-10 32 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 2 - MARKETABLE SECURITIES A summary of marketable securities available for sale at December 31, 1995 and 1994 is as follows.
Quoted Purchase Amortized Unrealized Unrealized Market Price Cost Gains Losses Value ----- ---- ----- ------ ----- 1995 - ---- Mutual Funds $1,190,392 $1,190,392 $ -- $ -- $1,190,392 U.S. Government and Agency Obligations 3,924,523 3,922,976 1,803 32,385 3,892,394 Corporate Equities 129,895 129,895 8,317 -- 138,212 ---------- ---------- ------- -------- ---------- Total $5,244,810 $5,243,263 $10,120 $ 32,385 $5,220,998 ========== ========== ======= ======== ========== 1994 - ---- Mutual Funds $500,000 $ 500,000 $ -- $ -- $ 500,000 U.S. Government and Agency Obligations 5,582,389 5,580,597 -- 242,438 5,338,159 --------- ------------- ------- -------- ---------- Total $6,082,389 $ 6,080,597 $ -- $242,438 $5,838,159 ========== ============= ======= ======== ==========
The Company received 5,119 shares of stock, with a value of $129,895, as a result of the conversion of State Mutual Life Assurance Company of America, the Company's health insurer, from a mutual company to a stock company in November 1995. The amortized cost and estimated market value of debt securities are shown below.
1995 1994 ---- ---- Amortized Quoted Amortized Quoted Cost Market Value Cost Market Value ---- ------------ ---- ------------ Expected Maturities: Within one year $2,917,219 $2,894,111 $2,165,704 $2,063,400 One to five years 1,005,757 998,283 3,414,893 3,274,759
Proceeds from sales of marketable securities during 1995 were $1,490,000; a pretax loss of $17,308 was recognized on these sales. There were no sales of marketable securities during 1994 or 1993. F-11 33 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 3 - INVENTORIES Inventories consisted of:
December 31, ------------------------------- 1995 1994 ---- ---- Raw Materials $3,131,753 $1,751,859 Work in Process 1,507,830 779,067 Finished Goods 2,775,135 1,569,253 ---------- ----------- $7,414,718 $4,100,179 ========== ===========
4 - LICENSE AGREEMENTS In February, 1983, the Company obtained from Corning, Incorporated ("Corning") a limited, non-assignable, non-exclusive royalty-bearing license to make, use and sell optical fiber under certain of Corning's United States patents owned or filed for on or before January 1, 1988. The Company granted to Corning a non-exclusive royalty-free license for any United States patents filed for on or before January 1, 1988 related to the subject matter of the Corning or Company patents licensed under the agreement. In January, 1991, the Company entered into a new fiber manufacturing license agreement with Corning which expanded and extended the original 1983 agreement. The new agreement gives SpecTran the ability to increase substantially its fiber production using Corning's United States patents, providing for an immediate considerable increase in licensed fiber eligible for manufacture by SpecTran in 1991, with further annual increases through the year 2000. The Company paid a $2 million fee for the new license agreement in four semiannual installments of $500,000, beginning in January, 1991. The license obtained from Corning is limited, non-assignable, non-exclusive and royalty-bearing, to make, use and sell optical fiber under certain of Corning's United States patents owned or filed for on or before January 1, 1996. The Company granted to Corning a non-exclusive royalty-free license for any United States patents filed for on or before January 1, 1996 related to optical fiber. The Company believes that its manufacturing and sale of single-mode fiber is not subject to the Corning license agreement. At December 31, 1995, the Company or its subsidiaries had a non-assignable, non-exclusive, unlimited, royalty-bearing license from AT&T Technologies, Inc. and a non-exclusive, royalty-bearing license granted by Sumitomo Electric Industries, Ltd. to make, use and sell optical fibers under certain patents owned by those companies. No payments are required under these licenses other than royalty payments. F-12 34 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 Total royalties expensed during the years ended December 31, 1995, 1994 and 1993 were $1,591,309, $1,474,254 and $1,643,659, respectively. 5 - ACCRUED LIABILITIES Accrued liabilities consisted of:
December 31, -------------------------------------- 1995 1994 ---- ---- Salaries and Wages $ 435,979 $ 226,751 Royalties 889,305 809,205 Health Insurance 411,339 258,471 Incentive Compensation 503,380 317,732 Other 724,630 588,666 ----------- ---------- $ 2,964,633 $2,200,825 =========== ==========
6 - LONG-TERM DEBT Long-term debt consisted of the following:
December 31, -------------------------- 1995 1994 ---- ---- Bank revolving loan up to the lesser of $10 million or an amount based upon certain percentages of the value of cash on deposit, eligible accounts receivable and eligible inventory, provided that if at any time the outstanding principal of the loan exceeds the total amount which may be borrowed under the terms of the amended agreement, the full amount of the excess, together with accrued and unpaid interest on the excess, is payable in full. Interest is payable quarterly in arrears at the lower of prime or the LIBOR rate plus 1.5% (7.365% at December 31, 1995). The loan agreement terminates on March 31, 1997 and any outstanding balances must be repaid on that date. As security for the loan, the Company has pledged all of its assets, except its real property. The loan also carries certain restrictive covenants for which the Company was in compliance at December 31, 1995. In addition, the obligation is guaranteed by the Company's subsidiaries and is secured by its assets. $10,000,000 $5,240,000 =========== ==========
F-13 35 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 7 - STOCKHOLDERS' EQUITY (a) Warrants As part of an agreement entered into in September, 1990 with Allen & Company, Incorporated (Allen), warrants to purchase 350,000, 30,000 and 20,000 shares of SpecTran voting common stock at an exercise price of $2.00 through August 14, 1999, were issued to Allen, Richard A.M.C. Johnson, a current director of the Company, and Patrick E. Brake, a former director of the Company, respectively. At December 31, 1995 Allen owned 3.1% of the Company's outstanding stock. If the entire Allen warrant were exercised, Allen would own approximately 9.0% of the Company's outstanding stock. In June, 1992 the Johnson warrant was exercised and in January, 1993 the Brake warrant was exercised. (b) Stock Options Pursuant to the Company's Incentive Stock Option Plan adopted in November, 1981, as amended, incentive and nonqualified options may be granted to purchase up to an aggregate of 455,000 shares of the Company's voting Common Stock, $.10 par value, at prices not less than 100% of the fair market value of the shares at the time the options are granted. Currently, all options are exercisable in full three years from the date of grant in cumulative annual installments of 33 1/3% commencing one year after the date of grant, and expire ten years after grant. Under its provisions, no options were to be issued under the Incentive Stock Option Plan adopted in November, 1981 (Old Plan) after the plan reached its tenth anniversary. During the year ended December 31, 1991, a new Incentive Stock Option Plan (New Plan) was adopted. The terms of the New Plan are identical to those of the Old Plan except that (1) the number of shares eligible for issuance shall be 625,490, (2) provision is made for the non-discretionary grant of nonqualified options to directors who are not full-time employees of the Company or any subsidiary ("outside directors") and (3) provision is made for all outstanding options to vest upon the occurrence of a change in control (as defined in the New Plan). F-14 36 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 Activity in the plans for the years ended December 31, 1995, 1994 and 1993 is summarized below:
Shares Shares Under Option Available ------------------- for Option Shares Price Amount ---------------- ------------ --------------------------- -------------- Balance at December 31, 1992 239,758 235,608 $1.188 - $22.250 $1,933,541 Options Granted (117,900) 117,900 $8.000 - $11.750 1,038,225 Options Exercised -- (4,502) $ 3.370 (15,195) Options Forfeited 1,767 (1,767) $3.375 - $22.250 (21,164) ------------ ---------- ------------ ----------- ----------- Balance at December 31, 1993 123,625 347,239 $1.188 - $22.250 2,935,407 Increase in Shares Reserved 255,000 -- -- -- -- Options Granted (125,600) 125,600 $4.750 - $ 8.870 831,225 Options Exercised -- (42,334) $1.375 - $ 3.370 (100,803) Options Forfeited 19,234 (19,234) $3.375 - $22.250 (228,546) ------------ ---------- ------------ ----------- ----------- Balance at December 31, 1994 272,259 411,271 $1.188 - $22.250 3,437,283 Options Granted (139,750) 139,750 $5.375 - $ 5.500 733,000 Options Exercised -- (1,833) $3.375 - $ 4.750 (6,644) Options Forfeited 5,700 (5,700) $6.000 - $22.250 (56,750) ------------ ---------- ------------ ----------- ----------- Balance at December 31, 1995 138,209 543,488 $3.375 - $22.250 $4,106,889 ============ ========== ============ =========== ===========
As of December 31, 1995, options for 280,789 shares were vested and exercisable at an aggregate exercise amount of $2,437,321 ($8.68 per share). F-15 37 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 8 - INCOME TAXES Income tax expense attributable to income (loss) from operations differs from the computed expected tax expense (benefit) determined by applying the federal income tax rate of 34 percent as follows:
1995 1994 1993 ------ ---- ---- Computed expected tax expense (benefit) at 34% $ 264,000 $ (165,710) $ 1,913,989 State income taxes, net of federal effect and change in valuation allowance 81,000 (30,717) 366,384 Research and experimentation credits 243,975 (243,975) -- Goodwill amortization 50,000 -- -- Increase (decrease) in valuation allowance for deferred income taxes (437,000) 417,000 (350,000) Other 33,222 23,402 43,923 ---------- ------------ ------------- $ 235,197 $ -- $ 1,974,296 =========== ============ =============
Total income tax expense (benefit) for the years ended December 31, 1995, 1994 and 1993 was allocated as follows:
1995 1994 1993 ------ ---- ---- Income tax expense (benefit) attributable to: Income from operations $ 235,197 -- $ 1,868,496 Stockholders' equity, for compensation expense for tax purposes from the disqualifying disposition of stock options -- (119,700) 105,800 ----------- ------------ ------------- $ 235,197 $ (119,700) $ 1,974,296 =========== ============ =============
F-16 38 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 Income tax expense (benefit) attributable to income from operations consists of:
Current Deferred Total ------- -------- ----- Year ended December 31, 1995: Federal $ 276,750 $ (119,553) $ 157,197 State 158,000 (80,000) 78,000 --------- ------------ ----------- $ 434,750 $ (199,553) $ 235,197 ========= =========== =========== Year ended December 31, 1994: Federal $ -- $ 27,000 $ 27,000 State -- (27,000) (27,000) --------- ----------- ---------- $ -- $ -- $ -- ========= =========== =========== Year ended December 31, 1993: Federal $ 226,000 $ 1,193,170 $ 1,419,170 State 549,000 6,126 555,126 --------- ----------- ----------- $ 775,000 $ 1,199,296 $ 1,974,296 ========== ========== ===========
The significant components of deferred income tax expense (benefit) attributable to income from operations for the years ended December 31, 1995, 1994 and 1993 are as follows:
1995 1994 1993 ------ ---- ---- Deferred tax expense (benefit) (exclusive of the effects of other components listed below) $ 237,447 $ (417,000) $ 1,549,296 Increase (decrease) in valuation allowance for deferred income taxes (437,000) 417,000 (350,000) ----------- ---------- ----------- Deferred income tax expense (benefit) attributable to income from operations $ (199,553) $ -- $ 1,199,296 ============ ========== ===========
F-17 39 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 The tax effect of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below:
1995 1994 ---- ---- Deferred tax assets: Accounts receivable $115,000 $ 54,000 Inventories 433,000 91,000 Accrued liability - compensation related expense 122,000 99,000 Accrued liability - pension and post retirement benefits 121,000 8,000 Other nondeductible reserves and accruals (49,000) 188,000 Fixed assets (27,000) 79,000 Net operating loss carryforward benefit 998,000 1,283,000 Credit carryforwards benefit 1,657,000 1,748,000 ----------- ----------- Total gross deferred tax assets 3,370,000 3,550,000 Less valuation allowance (1,030,000) (1,467,000) ----------- ----------- Net deferred tax assets 2,340,000 2,083,000 Deferred tax liabilities (100,000) (78,000) ----------- ----------- Net deferred tax assets 2,240,000 2,005,000 Less current portion 588,000 303,000 ----------- ----------- Long-term deferred tax asset $ 1,652,000 $ 1,702,000 =========== ===========
The valuation allowance for deferred tax assets as of December 31, 1995 was $1,030,000. Based on the Company's level of net income and projected future earnings, the Company believes that it is more likely than not that a portion of the deferred tax asset will be realized in the future. In 1995, the portion of the deferred tax asset which is expected to be realized increased from 1994; therefore, the Company reduced its valuation allowance by $437,000. The remaining valuation allowance relates primarily to the risk that a portion of the tax credit carryforwards will not be used before they expire. F-18 40 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 At December 31, 1995, the Company had the following net operating loss carryforwards available to offset future taxable income and income tax credits available to offset future income taxes:
Amount Expires ------ ------- Net Operating Loss Carryforward $2,521,000 2001-2009 Federal Research and Experimentation Tax Credits 290,000 1996-2001 Federal Investment Tax Credits 879,000 1996-2001 Alternative Minimum Tax Credit 487,000 Indefinite
9 - MAJOR CUSTOMERS The approximate net product sales by the Company to customers accounting for 10% or more of total net annual sales are as follows:
1995 1994 1993 ---- ---- ---- Customer Amount % Amount % Amount % -------- ------ - ------ - ------ - A $5,040,131 13 $4,034,253 15 $3,491,710 14 B 4,152,736 11 5,076,782 19 5,177,935 20 C 2,591,995 10 7,591,420 30
Substantially all of the Company's business is to customers in the telecommunications and data communications industries. International sales, primarily in Asia and Europe, accounted for 22% of total sales. 10 - COMMITMENTS SpecTran Specialty Optics Company leases office and production facilities under leases through February 18, 1997 with a right to renew for one three-year renewal term. Applied Photonic Devices, Inc. leases office and production facilities under a lease through January 14, 1998 with a right to renew for two consecutive one-year renewal terms. The scheduled rental payments required under these operating leases at December 31, 1995 are as follows: 1996 $314,000 1997 74,000 1998 2,000 -------- Total $390,000 --------
Total rent expense for the years ended December 31, 1995 and 1994 was $363,938 and $241,592, respectively. There was no rent expense in 1993. F-19 41 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 11 - EMPLOYEE BENEFIT PLANS a) Defined Benefit Pension Plan The Company sponsors a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and an average of the employee's highest ten consecutive years of earnings. The Company's funding policy is, to the extent possible, to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date, but also for those expected to be earned in the future. The Company had an unrecognized loss in 1995 was due to a change in the discount rate to 7.0% from 8.5% in the prior year as a result of declining interest rates. This was partially offset by investment gains in excess of actuarially assumed returns. This is the primary reason for the increase in the projected benefit obligation for 1995. The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1995 and 1994. Actuarial present value of benefit obligations:
1995 1994 ---- ---- Vested benefit obligation $ 612,782 $ 348,701 ========== ============ Accumulated benefit obligation $ 751,158 $ 395,367 ========== ============ Projected benefit obligation $1,437,020 $ 771,899 Plan assets at fair value - primarily mutual funds 911,923 603,938 ---------- ------------ Projected benefit obligation in excess of plan assets 525,097 167,961 Unrecognized net gain (loss) (162,760) 161,892 Unrecognized net obligation at January 1, 1991 being recognized over 17.4 years (244,539) (264,282) ---------- ----------- Accrued pension cost $ 117,798 $ 65,571 ========== ===========
Net pension cost for 1995 and 1994 included the following components:
1995 1994 ---- ---- Service cost - benefits earned during period $ 151,425 $134,015 Interest cost on projected benefit obligation 66,441 59,365 Actual return on assets (186,244) (36,018) Net amortization and deferral 145,428 15,339 ----------- -------- Net pension cost $ 177,050 $172,701 =========== ========
F-20 42 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 Assumptions used in the accounting as of December 31 were as follows:
1995 1994 ---- ---- Discount rate 7.0% 8.5% Rates of increase in compensation levels 5.0% 5.0% Expected long-term rate of return on assets 8.5% 8.5%
b) Directors Retirement Plan In December, 1995 the Company adopted a Directors Retirement Plan which provides for retirement benefits for all outside directors with five full calendar years of service as of the named retirement date (Age 70). The Company expensed $100,000 in 1995 to provide for past service costs. c) Defined Contribution Pension Plan The Company sponsors a defined contribution pension plan covering substantially all of its employees. Contributions to the plan are discretionary and amounted to $83,490, $113,831 and $96,757 in 1995, 1994 and 1993, respectively. d) Bonus Plans The Company sponsors an Employee Profit Sharing Plan covering all employees. The Company also sponsored a transitional plan covering key employees in 1995 which replaced an Income Growth Incentive Plan in 1994 and 1993. These plans provide for the payment of bonuses if certain performance objectives are obtained. Bonuses of $379,967, $331,174 and $455,779, respectively, were charged to operations in 1995, 1994 and 1993. 12 - ACQUISITIONS a) Applied Photonic Devices, Inc. On May 23, 1995 the Company purchased all the outstanding capital stock of Applied Photonic Devices, Inc. ("APD") for cash and common stock worth approximately $3.9 million. The Company also retired approximately $600,000 of APD bank debt. APD, located in Danielson, Connecticut, manufactures and sells fiber optic cable and related components. The purchase method of accounting was used and the results of operations of APD are included in the consolidated financial statements from May 23, 1995. Goodwill of $3,255,165 resulted from the purchase and is being amortized over 15 years. Amortization expense amounted to $126,590 in 1995. F-21 43 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 b) Ensign-Bickford Acquisitions On February 18, 1994 the Company purchased substantially all assets of Ensign-Bickford Optics Company ("EBOC") and Ensign-Bickford Optical Technologies, Inc. ("EBOT"), wholly owned subsidiaries of Ensign-Bickford Industries, Inc., for approximately $7 million. EBOC, renamed SpecTran Specialty Optics Company, manufactures and sells optical fibers, cables and related components. The operations of EBOT, which were conducted in Van Nuys, California, were moved to Sturbridge, Massachusetts. The purchase method of accounting was used and the results of operations of SpecTran Specialty Optics Company are included in the consolidated financial statements from February 18, 1994. c) Proforma Statements of Operations The following pro-forma statements of operations for the years ended December 31, 1995 and 1994 present the results of operations as if the Company had acquired APD as of January 1, 1994. Also included in 1994 are the results of operations as if the Company had acquired the assets of EBOC and EBOT as of January 1, 1994.
Statements of Operations (unaudited) 1995 1994 ---- ---- Sales $ 41,481,721 $ 33,253,945 Cost of Sales 27,657,265 23,733,979 --------------- --------------- Gross Profit 13,824,456 9,519,966 Operating Expenses 13,210,111 9,950,605 Other Income 212,364 160,135 --------------- --------------- Income (loss) Before Taxes 826,709 (270,504) Income Tax Expense 255,481 -- --------------- --------------- Income (loss) $ 571,228 $ (270,504) =============== =============== Earnings (loss) per share: Weighted average shares outstanding 5,654,571 5,347,048 ========= ========= Net Income (loss) per share $.10 $(.05) ==== =====
F-22 44 SPECTRAN CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) December 31, 1995 and 1994 13 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Quarters First Second Third Fourth ------------------------------------------------------------------------------------------------------------- 1995 ---- Net Sales $7,965,079 $9,099,384 $9,970,586 $11,545,559 Gross Profit 2,893,576 2,841,480 3,359,437 3,966,560 Net Income 82,914 8,219 178,837 272,067 Net Income per Share .02 -- .03 .05 1994 ---- Net Sales $5,786,219 $6,639,044 $6,135,369 $ 8,365,445 Gross Profit 2,061,402 2,103,432 1,266,815 2,190,977 Net Income (Loss) 319,018 136,331 (720,374) (222,356) Net Income (Loss) per Share .06 .03 (.14) (.04)
F-23 45 SPECTRAN CORPORATION SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
Column A Column B Column C Column D Column E -------- -------- -------- -------- -------- Balance at Additions Balance Beginning Charged to at End Description of Period Expenses Deductions of Period ------------ --------- -------- ---------- --------- For the Year Ended December 31, 1995: Allowance - Net Deferred Tax Asset $1,467,000 $ -- $437,000 $1,030,000 ========== ======== ======== ========== Allowance for Doubtful Accounts $ 123,795 $141,266 $ -- $ 265,061 ========== ======== ======== ========== Allowance for Obsolete Inventory $ 556,489 $ -- $ 89,395 $ 467,094 ========== ======== ======== ========== For the Year Ended December 31, 1994: Allowance - Net Deferred Tax Asset $1,050,000 $417,000 $ -- $1,467,000 ========== ======== ========= ========== Allowance for Doubtful Accounts $ 100,000 $ 81,546 $ 57,751 $ 123,795 ========== ======== ========= ========== Allowance for Obsolete Inventory $ 434,600 $300,000 $ 178,111 $ 556,489 ========== ======== ========= ========== For the Year Ended December 31, 1993: Allowance - Net Deferred Tax Asset $1,400,000 $ -- $ 350,000 $1,050,000 ========== ======== ========= ========== Allowance for Doubtful Accounts $ 150,000 $ -- $ 50,000 $ 100,000 ========== ======== ========= ========== Allowance for Obsolete Inventory $ 135,000 $299,600 $ -- $ 434,600 ========== ======== ========= ==========
F-24 46 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 3.1 Certificate of Incorporation of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 3.2 By-Laws of the Registrant, as amended. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 4.5* Form of Stock Certificate for Voting Common Stock. 10.1 Registrant's 1991 Incentive Stock Option Plan. (Incorporated by reference to the Registrant's Proxy Statement dated April 9, 1991.) 10.7* License Agreement dated August 15, 1981, between the Registrant and Western Electric Company, Incorporated. (Registrant has been granted confidential treatment of portions of this Exhibit.) 10.9 License Agreement dated October 31, 1983, between the Registrant and Gulf & Western Manufacturing Company. (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1989.) 10.15 License Agreement dated January 21, 1985, between the Registrant and Aetna Telecommunications Laboratories. (Registrant has been granted confidential treatment of portions of this Exhibit.) (Incorporated by reference to the Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1990.) 10.45 Conversion Agreement dated as of November 8, 1990, by and among Registrant, Allen & Company Incorporated, Richard A.M.C. Johnson and Patrick E. Brake. (Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1990.) 10.46 Common Stock Purchase Warrant issued to Allen & Company Incorporated pursuant to the Conversion Agreement listed as Exhibit 10.45. (Incorporated by reference to the Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1990.) 10.49 License Agreement dated as of the first day of January 1991 by and between the Registrant and Corning, Incorporated. (Registrant has been granted confidential treatment of portions of this Exhibit.) (Incorporated by reference to Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1991.) 47 10.51 Registrant's Income Growth Incentive Plan adopted effective January 1, 1990. (Incorporated by reference to the Registrant's Annual Report on Form 10-K for its fiscal year ended December 31, 1990.) 10.53 Asset Purchase Agreement between Ensign-Bickford Optics Company and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 8-K filed March 4, 1994.) 10.54 Stock Purchase Agreement between Ensign-Bickford Optical Technologies, Inc. and EBOT Acquisition Corp. dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 8-K dated March 4, 1994.) 10.55 Lease between 150 Fisher Associates Limited Partnership and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.56 Lease between Avon Park Properties and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.57 Lease between Avon Park Properties and SpecTran Specialty Optics Company dated February 18, 1994. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.58 Patent License Agreement dated as of July 7, 1987 between Sumitomo Electric Industries, Ltd. and Lightwave Technologies, Inc. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.59 Loan Agreement dated January 21, 1994, between Fleet Bank of Massachusetts, N.A. and SpecTran Corporation. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 30, 1994.) 10.60 Loan Agreement dated March 30, 1995, between Fleet Bank of Massachusetts, N.A. and SpecTran Corporation. (Incorporated by reference to the Registrant's Report on Form 10-K dated March 31, 1995.) 10.61 Stock Purchase Agreement among APD Acquisition Crop. and Irving N. Dwyer, David P. DaVia, The Irving N. Dwyer and Annette M. Dwyer Charitable Remainder Trust and the DaVia Charitable Remainder Trust. (Incorporated by reference to the Registrant's Report on Form 8-K filed June 7, 1995.) 10.62 Directors Retirement Plan dated December 27, 1995. 10.63 Registrant's Employee Profit Sharing Plan as revised and adopted effective January 1, 1995. 48 10.64 Lease between Mark C. Yellin and Applied Photonic Devices, Inc. dated January 15, 1996. 10.65 Lease between Fabrilock, Inc. and Applied Photonic Devices, Inc. dated February 6, 1996. 11.1 Schedule of Earnings Per Share Calculation. 21.0 Subsidiaries. - ------------------------------ * Incorporated by reference to Registrant's Registration Statement on Form S-1 (Reg. No. 2-83172) effective June 2, 1983. EX-10.62 2 RETIREMENT PLAN FOR OUTSIDE DIRECTORS 1 SPECTRAN CORPORATION EXHIBIT 10.62 SPECTRAN CORPORATION RETIREMENT PLAN FOR OUTSIDE DIRECTORS 1. Purpose and Intent. The Corporation has determined that it is important for its future growth and in its best interest to attract and retain experienced and knowledgeable individuals to serve as outside directors of SpecTran(1) and its Affiliates. To accomplish this goal, the Board voted on December 27, 1995 to adopt this Retirement Plan for Outside Directors (the "Plan") which provides a retirement benefit for Outside Directors. While any benefits are paid under this Agreement to an Outside Director, such Outside Director will be available to consult for the Corporation. Further, these benefits are subject to forfeiture if an Outside Director is removed for Cause (as defined herein) or, as described below, competes with the Corporation. This Plan is not intended to be a Qualified Plan under the Internal Revenue Code of 1986, as amended. 2. Definitions. As used in this Plan, the following words and phrases wherever capitalized shall have the following meanings unless the context clearly indicates that a different meaning is intended: (a) "Affiliate" shall mean any person or entity which controls, is controlled by or is under common control with the Corporation. For the purpose of this Plan, control shall mean ownership of fifty percent (50%) or more of the voting stock of any entity. (b) "Board" shall mean the Board of Directors of SpecTran. (c) "Change in Control" shall have the meaning set forth in Section 16 of this Plan. (d) The "Corporation" shall mean SpecTran, its successors and assigns, including but not limited to any corporation, firm or person which is the survivor of a merger or - ------------------------------------ (1) Initial capitalized words may be defined below in Section 2. 1 2 SPECTRAN CORPORATION consolidation with SpecTran or which acquires substantially all of the assets of SpecTran, and any of SpecTran's Affiliates. (e) "Normal Retirement Date" shall mean an Outside Director's sixty-fifth birthday. (f) "Outside Director" shall mean a non-employee director of the Corporation and/or one or more of its Affiliates. (g) "Retirement Benefit" shall have the meaning set forth in Section 4 of this Plan. (h) "SpecTran" shall mean SpecTran Corporation, a Delaware corporation. 3. Eligibility. (a) All Outside Directors of the Corporation are eligible to participate in the Plan after the completion of five full calendar years as an Outside Director, including service prior to the date of the adoption of this Plan. For the sake of clarity, if an individual during his tenure as a director has been served both as an Outside Director and a director employed by the Corporation, his service as a director while being employed by the Corporation shall not be considered when determining eligibility or the amount of benefits payable under this Plan. Notwithstanding anything contained herein, this Plan is not an agreement or guaranty that an Outside Director's service as a director of the Corporation will be continued after the expiration of his term. (b) As a condition of the eligibility of any Outside Director to participate in this Plan, the Corporation may require Outside Directors to enter into an Agreement with the Corporation for the purpose of memorializing each Outside Director's understanding of and agreement with the terms of this Plan. 4. Retirement Benefits. Each Outside Director will be entitled to a retirement benefit, determined as of the effective date of the termination of his service as an Outside Director for whatever reason except Cause, including whether by (i) death,(ii) disability, (iii) mandatory retirement at age 70 or (iv) early retirement. The retirement benefit shall be an annual amount 2 3 SPECTRAN CORPORATION equal to the lesser of (i) $1,000 multiplied by each full calendar year of service as an Outside Director or (ii) $10,000 (the "Retirement Benefit"). The Retirement Benefit shall be paid for ten (10) years in equal monthly installments commencing on the first day of the month immediately following the later of an Outside Director's actual date of termination of service as an Outside Director or the Normal Retirement Date (unless payment is accelerated in accordance with Sections 15 and 16 below). Outside Directors are required to resign as a director of the Corporation on their seventieth birthday, if they have not previously done so. 5. Vesting. Anything to the contrary in this Plan notwithstanding, each eligible Outside Director shall be entitled to one hundred percent (100%) of any benefit payable under this Plan under any one or more of Sections 4, 6, 15 or 16 at the date on which his entitlement to such benefit shall be determined commencing with his original date of service as an Outside Director, provided that such benefits are subject to forfeiture as described in Sections 8 and 9, below. 6. Death of Outside Director. (a) If an Outside Director dies while serving as an Outside Director, SpecTran will pay to the Outside Director's designated beneficiaries, a total annual amount equal to the Retirement Benefit earned by the Outside Director as of the date of death, payable over a period of ten (10) years commencing on the first day of the month next following the delivery to the Corporation of a death certificate and on a monthly basis thereafter. (b) If an Outside Director dies following the commencement of the payment of the Retirement Benefit under Section 4 hereof, such payments shall continue to the designated beneficiaries of the Outside Director until all of the Retirement Benefit has been paid. (c) If an Outside Director dies following the termination of his service as an Outside Director of the Corporation and prior to the commencement of the payment of benefits under Section 4 hereof, SpecTran shall pay to such Outside Director's designated beneficiaries an annual benefit which shall be the Outside Director's Retirement Benefit as of the date of the termination of his service as an Outside Director. Such benefits shall be payable monthly, 3 4 SPECTRAN CORPORATION commencing on the first day of the month following the Normal Retirement Date, or any date prior to the Normal Retirement Date approved by the Corporation, and continuing for ten (10) years; provided, however, that such Outside Director's designated beneficiaries shall be entitled to accelerate payment of such benefit if and to the same extent the Outside Director would have been entitled to an accelerated payment of the Retirement Benefit had he survived. 7. Beneficiaries. Each Outside Director shall designate, in writing to the Corporation, on the form titled "Designation of Beneficiary" attached hereto as Schedule A, one or more beneficiaries. Outside Directors may change their designated beneficiaries by delivering to the Corporation a dated, revised Designation of Beneficiary form, revoking the prior designation. If no beneficiary is so named by an Outside Director or if no beneficiary named in the Designation of Beneficiary form is living at the time a payment is due, benefit payments shall be made, when due, to the Outside Director's estate. If payment of benefits to a beneficiary commences and such beneficiary dies before all amounts to which such beneficiary is entitled have been paid, the remaining benefits shall be paid to the successive beneficiary or beneficiaries, if any, designated by the Outside Director, or if none, to the beneficiary's estate. 8. Competition with the Corporation. (a) In the event that during the two year period immediately following the resignation or removal of an Outside Director from the Board for any reason, such Outside Director shall compete with the business of the Corporation, then the Retirement Benefit which might otherwise be due and payable to him under this Plan shall be immediately forfeited and all rights of such Outside Director and his beneficiaries hereunder shall become void; provided, however, that if (a) the Outside Director leaves the Board for any reason during the twelve (12) month period following a Change in Control or (b) an event described in Section 15 occurs and the Corporation's successor does not assume its obligations hereunder, the provisions of Section 8 shall not apply, but the provisions of Section 15 and 16 shall govern. An Outside Director will be deemed to have competed with the business of the Corporation if, during the two year period following his 4 5 SPECTRAN CORPORATION resignation or removal from the Board, he either (a) engages, 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 his tenure on the Board or which the Corporation planned, during his tenure on the Board, to enter, (b) solicits any past, present or future customers of the Corporation in any way relating to any business in which the Corporation was engaged during his tenure on the Board, or which the Corporation planned during his tenure on the Board, to enter, or (c) induces or actively attempts to influence any employee or consultant of the Corporation to terminate his employment or consultancy with the Corporation. 9. Forfeiture. Anything to the contrary in this Plan notwithstanding (other than Sections 15 and 16), the Retirement Benefits payable under this Plan to any Outside Director shall be immediately forfeited and all rights of such Outside Director and his beneficiaries hereunder shall become null and void, if such Outside Director is removed from the Board for Cause. For this purpose, a removal shall be a removal for "Cause" only if the removal is for one or more of the following: (i) the conviction of an Outside Director for committing any felony, (ii) stealing from the Corporation, (iii) a willful violation by an Outside Director of a material provision of this Plan and (iv) if an Outside Director engages in gross misconduct, such as fraud, dishonesty or gross negligence. If (a) the Outside Director leaves the Board for any reason during the twelve (12) month period following a Change in Control or (b) an event described in Section 15 occurs and the Corporation's successor does not assume its obligations hereunder, the provisions of Section 9 shall not apply, but the provisions of Section 15 and 16 shall govern. 10. Availability To Consult. For so long as an Outside Director is receiving benefits pursuant to this Plan, he will keep himself available to consult with, and respond to inquiries from, the Corporation relating to its business affairs, at reasonable time(s) and to a reasonable extent. 11. Interest. Any payment that is required to be made hereunder that is delayed beyond the date specified in this Plan shall bear interest at a variable rate which shall be the rate of interest 5 6 SPECTRAN CORPORATION on one year U.S. Treasury Bills determined at the first auction of each calendar year or part thereof during the period of which interest is to be applied to any obligation hereunder. 12. Alienability. No Outside Director, nor any beneficiary under this Plan, shall have any power or right to transfer, assign, anticipate, hypothecate, mortgage, commute, modify, or otherwise encumber in advance any of the benefits payable under this Plan, and any attempt to do so shall be deemed null and void. The seizure of the benefits payable hereunder for the payment of any debts, judgments, alimony or separate maintenance, owed by an Outside Director, his beneficiary, or any of them, or the transfer of such benefit by operation of law in the event of bankruptcy, or otherwise, shall be deemed to be a transfer prohibited by this Plan, and will result in the immediate termination of all benefits payable under this Plan to such Outside Director, or his beneficiary, as the case may be. 13. Participation in Other Plans. Nothing contained in this Plan shall be construed to alter, abridge, or in any manner affect the rights and privileges of Outside Directors to participate in and be covered by any plan or plans under which they are eligible to participate which the Corporation may have or hereafter have. 14. Funding. (a) The Corporation reserves the right at its sole and exclusive discretion to insure or otherwise provide for the obligations of the Corporation undertaken by this Plan or to refrain from same, and to determine the extent, nature and method thereof, including the establishment of one or more trusts. Should the Corporation elect to insure this Plan, in whole or in part, through the medium of insurance or annuities, or both, the Corporation shall be the owner and beneficiary of the policy or annuity. At no time shall any Outside Director be deemed to have any right, title or interest in or to any specified asset or assets of the Corporation, or any trust or escrow arrangement, including, but not by way of restriction, any insurance or annuity contracts or the proceeds therefrom. 6 7 SPECTRAN CORPORATION (b) Any such policy, contract or asset shall not in any way be considered to be security for the performance of the Corporation's obligations under this Plan. (c) If the Corporation purchases a life insurance or annuity policy on the life of any Outside Director, the Outside Director, as a condition of his participation in this Plan, must agree to sign any papers that may be required for that purpose and to undergo any medical examination or tests (at the Corporation's expense) which may be necessary, and generally cooperate with the Corporation in securing such policy. (d) To the extent an Outside Director acquires a right to receive benefits under this Plan, such right shall be equivalent to the right of an unsecured general creditor of the Corporation. 15. Reorganization. SpecTran shall not merge or consolidate into or with another corporation if such merger or consolidation shall result in the other corporation being the survivor corporation, nor shall it sell substantially all of its assets to another corporation, firm or person, unless and until such other corporation, firm or person agrees in writing without further qualification to assume and discharge the obligations of SpecTran under this Plan. If such corporation, firm or person does not so agree to assume and discharge such obligations, SpecTran shall pay to each Outside Director, in one lump sum, his Retirement Benefit as of the date of such merger, consolidation or sale. All calculations of the Retirement Benefit, for purposes of this Section 15, shall be discounted to present value in accordance with the actuarial tables used in SpecTran's defined benefit pension plan. For the purpose of clarification, any transaction between SpecTran and any of its Affiliates is not intended to be covered by this Section. 16. Change in Control. In the event that a Change in Control occurs prior to the Normal Retirement Date of an Outside Director and either (a) such Outside Director is removed from the Board up to and including twelve (12) months from such Change in Control or (b) such Outside Director voluntarily resigns from the Board up to and including twelve (12) months from such Change in Control, then in either case SpecTran shall pay to such Outside Director, in one 7 8 SPECTRAN CORPORATION lump sum, his Retirement Benefit as of the date of his removal or resignation from the Board. All calculations of the Retirement Benefit, for purposes of this Section 16, shall be discounted to present value in accordance with the actuarial tables used in SpecTran's defined benefit pension plan. For the purposes of this Plan, "Change in Control" shall mean (a) the date of public announcement that a person has become, without the approval of the Board, the beneficial owner of 20% or more of the voting power of all securities of SpecTran then outstanding; (b) the date of the commencement of a tender offer or tender exchange by any person, without the approval of the Board, if upon the consummation thereof such person would be the beneficial owner of 20% or more of the voting power of all securities of SpecTran then outstanding; or (c) the date on which individuals who constituted the Board on the date this Plan 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 shall be considered as though such person were an incumbent director. 17. Amendment or Termination. The Board reserves the right to amend this Plan from time to time or terminate this Plan; provided, however, that no such amendment or termination shall adversely affect the rights of any Outside Director or beneficiary without such person's prior written consent with respect to the benefits accrued prior to such termination or amendment. 18. Operation of Law on Corporation's Obligations. In the event that any governmental entity promulgates any statute, rule, regulation, policy or order which restricts or prohibits the Corporation from making payments to an Outside Director under this Plan, then the Corporation's obligations to make payments hereunder shall terminate or be restricted or suspended (consistent with such law or binding regulation, policy or order) for so long as such restriction or prohibition applies to the Corporation. Nothing in this Plan is intended to require or shall be construed as requiring the Corporation to do or fail to do any act in violation of any applicable law or binding regulation, policy or order. 8 9 SPECTRAN CORPORATION 19. Claims Procedure. In the event that benefits under this Plan are not paid to an Outside Director (or his beneficiary in the case of an Outside Director's death), and such person feels entitled to receive them, a claim shall be made in writing to the Corporation within sixty (60) days after written notice from the Corporation to the Outside Director or his beneficiary or personal representative that payments are not being made or are not to be made under this Plan. Such claim shall be reviewed by the Corporation. If the claim is approved or denied, in full or in part, the Corporation shall provide a written notice of approval or denial within sixty (60) days from the date of receipt of the claim setting forth the specific reason for denial, specific reference to the provision of this Plan upon which the denial is based, and any additional material or information necessary to perfect the claim, if any. Also, such written notice shall indicate the steps to be taken if a review of the denial is desired. If a claim is denied (a claim shall be deemed denied if the Corporation does not take action within the aforesaid sixty (60) day period) and a review is desired, the Outside Director (or his beneficiary in the case of the Outside Director's death), shall notify the Corporation in writing within twenty (20) days. In requesting a review, the Outside Director or his beneficiary may review this Plan or any document relating to it and submit any written issues and comments he or she may feel appropriate. In its sole discretion the Corporation shall then review the claim and provide a written decision within sixty (60) days. This decision likewise shall state the specific reasons for the decision and shall include reference to specific provisions of this Plan on which the decision is based. Any decision of the Corporation shall not be binding on the Outside Director, his personal representative, or any beneficiary without consent, nor shall it preclude further action by the Outside Director, his personal representatives or beneficiary. 20. Arbitration. All claims, disputes and other matters in question between the Corporation and any eligible Outside Director hereto arising out of or relating to this Plan or the breach thereof shall be decided by arbitration in accordance with the Rules of the American Arbitration Association then obtaining, subject to the limitations and restrictions stated below. Neither party will be permitted to submit a dispute to arbitration without first following the procedures set forth in Section 19. Notice of demand for arbitration must be filed in writing with 9 10 SPECTRAN CORPORATION the other party and with the American Arbitration Association. The demand must be made within a reasonable time after the claim, dispute or other matter in question has arisen. In no event may the demand for arbitration be made if the institution of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute of limitations. Arbitrations hereunder will be held in the English language in Boston, Massachusetts or such other place as the parties may agree. The award rendered by the arbitrators will be final, not subject to appeal and judgment may be entered upon it in any court having jurisdiction thereof. Each party will bear all of his or its own costs and expenses associated with the arbitration, and the parties shall equally share the administrative costs of the arbitration. 21. Governing Law. The parties, terms and conditions of this Plan are subject to and shall be governed by the laws of the Commonwealth of Massachusetts without giving effect to the principles of conflicts of law. 22. Gender. Any reference in this Plan to the masculine shall be deemed to include the feminine where the context so requires. 10 11 SPECTRAN CORPORATION SCHEDULE A DESIGNATION OF BENEFICIARY Date:______________ Gentlemen: In accordance with the provisions of the SpecTran Corporation Retirement Plan for Outside Directors, I hereby designate ________________________ residing at ____________________________* as my beneficiary to receive payment thereunder in the event of my death before payments in full thereunder have been made. In the event said beneficiary predeceases me, I hereby designate ________________________ residing at ____________________________* as beneficiary in his or her stead. Very truly yours, --------------------------- * If more than one beneficiary is to be designated, add a page listing the beneficiaries and specify the percentage of each payment to be received by each beneficiary. 11 EX-10.63 3 EMPLOYEE PROFIT SHARING PLAN 1 SPECTRAN CORPORATION EXHIBIT 10.63 SpecTran Corporation and Subsidiaries EMPLOYEE PROFIT SHARING PLAN 1. Purpose The SpecTran Corporation (the "Company") Employee Profit Sharing Plan ("EPSP" or the "Plan") is designed to allow employees to share in the profits generated as a result of their work and to encourage employee actions that contribute to increased profitability. This plan covers employees of SpecTran Communication Fiber Technologies, Inc., SpecTran Specialty Optics Company, Applied Photonic Devices, Inc. and Corporate employees of SpecTran Corporation. 2. Effective Date The EPSP was originally effective as of January 1, 1990, and was modified effective January 1, 1995, to give effect to multiple business units. It is intended that the EPSP will be effective for future fiscal years as well. However, the Company's Board of Directors may suspend or terminate the EPSP at any time, and may change the terms of and amend the Plan from time to time in such respects as the Board deems advisable for the best interests of the Company. 3. Terms and Conditions a) Eligibility All full time regular employees (those working 40 or more hours per week) are included in the EPSP, and regular part-time employees may be included in the EPSP on a case by case basis as determined by the CEO. No action on the part of the employee is required in order to be included in the Plan. In order to be eligible for the annual payment made within 90 days from year end, the participant must be an employee in good standing on the last day of the Plan year (December 31). If either the employee or the Company terminates an employee's employment after the end of the Plan year but before the final payment is made, the chief executive officer, at his sole discretion, will decide whether or not the final bonus payment will be made. 1 2 SPECTRAN CORPORATION b) Employment Participation in this EPSP is not intended to be, nor should it be accepted as an offer or contract of employment. The relationship between the Company and its personnel is one of voluntary employment "at will." c) Administration The EPSP will be administered by an Administrator who will be selected by the Chief Executive Officer. The Chief Executive Officer shall have the sole authority to interpret the provisions of the Plan, determine the amount of awards earned under the Plan, and to generate payments to participants. All decisions and interpretations of the Chief Executive Officer are final. 4. Determination of Award a) Overview Participants will receive a percentage of their salary based upon the level of their individual operating unit's profitability, with Corporate personnel based upon the level of profitability of all operating units combined. The maximum percentage of salary that can be earned under the EPSP is limited to 10%. In the case of individual operating units, no awards will be earned under the Plan unless the individual operating unit meets certain profitability goals. It is possible for awards to be earned by one or more operating units even if the other operating units, or the Company as a whole, is not profitable. b) Definitions (1) Salary: The participants' gross payroll earnings, including overtime and shift differential, but excluding amounts paid for other employee benefit plans such as, for example but not limited to, Company contributions to the 401(k) Plan, disability payments, and excess life insurance contributions. (2) Pre-Bonus Income: The operating unit's pre-tax income plus the provision for incentive payments, including a provision for the Company's portion of FICA expense on the incentive payments. The Board of Directors may, at its discretion, decide to either include or exclude from the calculation any unusual non-operating items included in pre-tax income. (3) Return on Revenues: The percentage of Pre-Bonus Income divided by revenues. 2 3 SPECTRAN CORPORATION (4) Performance Percentage: The percentage obtained by dividing actual Pre-Bonus Income for the year by the year's budgeted pre- bonus income from the operations plan approved by the Board at the beginning of the Plan year, limited to 125%. The Performance Percentage is used in determining the amount of the award earned under the Plan by a participant. (5) Adjusted Return on Revenues: The percentage obtained by multiplying the Return on Revenues times the Performance Percentage. (6) EPSP %: The percentage of each participant's Salary that will be paid as an incentive award under this Plan, based upon a formula according to the level of Adjusted Return on Revenues. (7) Adjusted Pre-Bonus Income: Pre-bonus income less 6% times operating unit net revenues. c) Calculation of Operating Unit EPSP Award The percentage of Salary to be paid to each participant of an operating unit under this EPSP, subject to the maximum limitation of 10%, is calculated as follows: RETURN ON REVENUES X PERFORMANCE PERCENTAGE = ADJUSTED RETURN ON REVENUES The EPSP% is based upon the Adjusted Return on Revenues, as follows:
Adjusted Return on Revenues EPSP % --------------------------- ------ Less than 8% 0% 8%-9% 1%-2% Over 9% 2% plus 50% times excess over 9%
The dollar amount to be paid to each participant, subject to the cap of 10% and the limitations in 4(e) below, will be: SALARY X EPSP % d) Calculation of Corporate EPSP Award The EPSP% for Corporate employees will be based upon the combined Adjusted Return on Revenues for all operating units. 3 4 SPECTRAN CORPORATION e) Limitations The total of all EPSP awards for an individual operating unit to be paid under this Plan cannot exceed 25% of Adjusted Pre-Bonus Income. In the event that the total of all EPSP awards calculated under 4(c) above exceeds 25% of Adjusted Pre-Bonus Income, each participants' EPSP award will be prorated, calculated as follows: PARTICIPANT'S SALARY X 25% OF ADJUSTED PRE-BONUS INCOME ------------------------------- SUM OF ALL PARTICIPANTS' SALARY 5. Payment Within ninety (90) days from year end, each participant's EPSP award will be calculated based on audited results for the entire year, and the full amount of the EPSP award will be paid to participants. In order to be eligible for the payment made within 90 days from year end, the participant must be an employee in good standing on the last day of the Plan year (December 31). If employment is terminated after the last day of the Plan year but before final payment is made, the chief executive officer will decide whether or not to make the payment. 4 5 SPECTRAN CORPORATION 6. Examples The following illustrates how the calculations are performed:
OPERATING UNIT PERSONNEL CORPORATE CFT SSOC APD COMBINED 19XX ACTUAL RESULTS ------------------- Revenues 30,000 14,000 10,000 54,000 Pre-Bonus Income 4,200 1,680 800 6,680 Return on Revenues 14.0% 12.0% 8.0% 12.4% 19XX BUDGET ----------- Pre-Bonus Income 4,000 1,500 900 6,400 Performance Percentage 105.0% 112.0% 88.9% 104.4% ADJUSTED RETURN OF REVENUES 14.7% 13.4% 7.1% 12.9% --------------------------- EPSP % SUBJECT TO LIMITATION 4.9% 4.2% 0.0% 4.0% ---------------------------- LIMITATION: ---------- Pre-Bonus Income 4,200 1,680 800 6,680 6% of Net Revenues 1,800 840 600 3,240 ----- --- --- ----- Adjusted Pre-Bonus Income 2,400 840 200 3,440 Limitation Rate 25% 25% 25% 25% --- --- --- --- Dollar Limit 600 210 50 860 Salaries & Wages 7,000 5,500 1,000 13,500 ----- ----- ----- ------ EPSP % Limitation 8.6% 3.8% 5.0% 6.4% ==== ==== ==== ==== ACTUAL EPSP% 4.9% 3.8% 0.0% 4.0% ------------ ==== ==== ==== ==== Participant's Salary 25,000 30,000 20,000 40,000 ------ ------ ------ ------ ACTUAL BONUS (NOT ROUNDED) 1,213 1,145 0 1,580 -------------------------- ===== ===== = =====
5 EX-10.64 4 LEASE - MARK YELLIN 1 EXHIBIT 10.64 1 LEASE AGREEMENT =============================================================================== This LEASE AGREEMENT, by and between: MARK C. YELLIN, 62 CAMBRIDGE LANE, BOYNTON BEACH, FLORIDA, 33436, HEREINAFTER CALLED THE "LANDLORD", and APPLIED PHOTONIC DEVICES, INC., a CONNECTICUT CORPORATION WITH ITS PRINCIPLE PLACE OF BUSINESS IN BROOKLYN, CT. HEREINAFTER CALLED THE "TENANT". THE PARTIES AGREE AS FOLLOWS: 1. LEASED PREMISES. The TENANT leases from the LANDLORD THE FIRST FLOOR (GROUND LEVEL) SPACE AT THE LARGE BUILDING NOW OCCUPIED BY TENANT, AT 50 TIFFANY STREET, BROOKLYN, CT, BEING 45,000 SQUARE FEET, +/- AND MORE PARTICULARLY SHOWN ON - EXHIBIT "A" ATTACHED HERETO AND MADE A PART HEREOF, hereinafter called the "Leased PREMISES" or the "PREMISES". 2. TERM. a. This Lease shall be for a TERM of TWO (2) YEARS, and shall commence on JANUARY 15, 1996, and shall end on JANUARY 14, 1998, UNLESS EXTENDED AS HEREINAFTER SET FORTH. 3. BASIC RENT. a. THE BASIC RENT payable hereunder is: YEAR I-(1/15/96 TO 1/14/97)-$50,625.00 PER ANNUM, PAYABLE IN EQUAL MONTHLY INSTALLMENTS OF $4,218.75. YEAR II- (1/15/97 TO 1/14/98):-$ 51,750.00 PER ANNUM, PAYABLE IN EQUAL MONTHLY INSTALLMENTS OF $4,312.50. 2 2 b. ALL BASIC RENT is payable on the FIFTEENTH (15TH.) OF EACH MONTH DURING THE TERM AND ANY EXTENSION THEREOF, IN ADVANCE. 4. LATE CHARGE/INTEREST. a. If any monthly rent payment is LATE, i.e. not received by LANDLORD OR POSTMARKED by the TWENTY-FIFTH (25TH) DAY of the month, then an additional LATE CHARGE EQUAL TO THREE PER CENT (3%) OF THE AMOUNT DUE is payable by TENANT. b. If any rent is not received by the 15th day of the FOLLOWING month, Interest at the rate of ONE PERCENT (1%) per month shall be paid by TENANT commencing on the 15th day of the FOLLOWING month, until paid. 5. WHERE TO PAY RENT/ADDRESSES. a. All RENT is payable to: "MARK C. YELLIN" at BOX 506 FARMINGTON, CT. 06034, or at another location that LANDLORD may designate in writing. b. This shall be LANDLORD'S mailing address for any Notice. LANDLORD'S address for hand delivery shall be 628 Farmington Avenue, Farmington, CT. 06032. c. The Leased PREMISES shall be TENANT'S address for any hand delivered Notice and written Notices to Box 118, Danielson, CT, 06239 6. USE OF PREMISES. The TENANT may use the PREMISES FOR: A LIGHT MANUFACTURING FACILITY, ASSEMBLY, STORAGE, OFFICES, and similar businesses. a. ALL USES OF THE PREMISES MUST BE LAWFUL. b. NO ILLEGAL SUBSTANCES MAY BE BROUGHT ONTO THE PREMISES, AND NO ILLEGAL ACTIVITIES ARE PERMITTED. 7. SUBLEASE OR ASSIGNMENT. a. This Lease shall NOT be assigned or a Sublease entered into without the PRIOR WRITTEN APPROVAL of the LANDLORD. 3 3 LANDLORD'S APPROVAL SHALL NOT BE UNREASONABLY WITHHELD. b. In the event a Sublease or Assignment is approved by LANDLORD, in writing, then the present TENANT and all the GUARANTORS of this Lease shall still remain fully responsible for all of the terms and conditions of this Lease, including the payment of rent, until the TERM, and any extension thereof, ends, and also for any obligations that extend beyond the termination of the Lease Term, provided that in the event of an Assignment, TENANT will not be responsible for an extension of this Lease unless approved in writing by TENANT. 8. CARE OF PREMISES/REPAIRS AND MAINTENANCE a. During the TERM and any extension thereof, TENANT at its expense, shall make necessary repairs to and maintain the INTERIOR of the PREMISES. LANDLORD'S Superintendent will assist with interior repairs as best he can. b. TENANT shall return the PREMISES and all systems therein to LANDLORD in good condition at the end of the TERM, and any extension thereof, reasonable wear and tear excepted. c. TENANT shall replace all broken or burned out light bulbs, ballasts, and all broken windows, interior doors, interior walls, and shall repair or replace all broken interior plumbing fixtures; interior electric fixtures and systems; and air conditioning systems (IF ANY) servicing the PREMISES, during the TERM, and any extension thereof. LANDLORD'S Superintendent will assist in replacing light bulbs and ballasts. d. LANDLORD shall repair and maintain the ROOF, the FOUNDATION and the EXTERIOR WALLS of the PREMISES, during the TERM, and any extension thereof. 9. TRASH/ICE/SNOW/LAWNS. a. TENANT shall keep the PREMISES clean. b. TENANT shall NOT COMMIT WASTE, I.E. SHALL NOT DAMAGE THE PREMISES. c. TENANT shall not permit anything to be done or do anything on the PREMISES that shall constitute a Public or Private Nuisance, as defined in the Connecticut statutes and case law. d. TENANT may keep a dumpster at a location approved by LANDLORD, and shall promptly pay for all trash removal as needed. 4 4 e. LANDLORD will provide with reasonable promptness under the circumstances, removal of snow and ice from the sidewalks and from all parking areas at 15-50 Tiffany Street, Brooklyn, CT. TENANT shall reimburse LANDLORD for 28% of the costs thereof. f. LANDLORD will provide reasonable lawn & shrub maintenance and care and common area maintenance at 15-50 Tiffany Street, Brooklyn, CT. TENANT shall reimburse LANDLORD 28% OF THE OUT OF POCKET COSTS THEREOF. 10. HAZARDOUS MATERIALS. a. TENANT shall NOT bring flammable, toxic or hazardous materials onto the PREMISES, EXCEPT AS PROVIDED IN "B" BELOW. b. TENANT may bring in small amounts of such materials normally and necessarily used in its business, and shall carefully store same. THESE MATERIALS SHALL BE STORED, USED AND MAINTAINED BY TENANT ONLY IN ACCORDANCE WITH ALL APPLICABLE FEDERAL, STATE AND LOCAL ORDINANCES, CODES, RULES AND REGULATIONS. c. TENANT shall be solely responsible for and pay any and all costs or damages WHICH ARE PROVED 10 BE CAUSED BY SAID FLAMMABLE, TOXIC OR HAZARDOUS MATERIALS, no matter when the damage arises. 11. UTILITIES. a. TENANT shall pay for ALL utilities used by TENANT at the Leased PREMISES, AND DIRECTLY BILLED TO TENANT BY THE UTILITY COMPANY, including 100% of electricity and telephone. b. As ADDITIONAL RENT, TENANT shall promptly reimburse to LANDLORD, within ten (10) days after receipt of an invoice and receipts from LANDLORD, monthly as billed, the following: i. FUEL--- ---33.3% * of total fuel costs for the large building 50 Tiffany Street-(3 floors); ii. BOILER, SPRINKLER SYSTEM and HEATING SYSTEM (REPAIRS, INSPECTION & MAINTENANCE)---. ---33.3% * 5 5 of the total inspection fees, maintenance costs and repair costs for the boilers, sprinkler systems and heating system (in the large building). a. LANDLORD'S Superintendent, if able to do same, shall perform minor maintenance and repairs to these systems. b. Permanent improvements to these systems i.e. IMPROVEMENTS COSTING MORE THAN $3,000.00 IN THE AGGREGATE, PER OCCURRENCE, SHALL BE PAID FOR AS FOLLOWS: 33.3%* OF THE FIRST $3,000.00 BY TENANT, THE BALANCE BY LANDLORD. * (NOTE: IF THE BALANCE OF THE LARGE BUILDING (CONTAINING THE LEASED PREMISES) BECOMES TOTALLY OR PARTIALLY VACANT, THEN A GREATER PERCENTAGE OF THESE COSTS SHALL BE REASONABLY ALLOCATED TO TENANT). iii. INSIDE REPAIRS & MAINTENANCE- ---100% of interior maintenance and repairs. LANDLORD'S Superintendent shall assist as available. iv. SEWER.--- ---75% # of the sewer charges for 15-50 Tiffany Street. (Sewer charges are based on industrial water usage). (# Unless active usage of the water by another tenant, in which event an equitable division.) v. WATER. INDUSTRIAL USAGE--- ---95% # of domestic water used in the large building. (# Unless active usage by other Tenants, in which event an equitable division.) vi. SPRINKLER (FIRE PROTECTION) WATER--- ---33.3% of the sprinkler water expenses (fire protection) in the large building. vii. SUPERINTENDENTS ASSISTANCE--- TENANT shall pay the sum of $200.00 monthly to LANDLORD as partial reimbursement for Superintendent's aid in routine maintenance of the heating system, sprinkler system, lawn, grounds, common areas and general assistance. 12. INSPECTION OF PREMISES. a. LANDLORD'S Superintendent shall be provided at all times, with a key to the PREMISES for emergency access. 6 6 b. LANDLORD or his Superintendent may enter the PREMISES during business hours, AFTER FIRST COMING TO THE DESK AND MAKING THE RECEPTIONIST AWARE OF THE INSPECTION: i. to inspect the condition of the PREMISES and to see that TENANT is complying with the terms and conditions of this Lease; ii. to make improvements or repairs that TENANT does not make, and LANDLORD reasonably considers to be necessary; iii; or, to show the PREMISES to prospective lenders, purchasers, or tenants. c. TENANT shall not unreasonably refuse such entry. d. LANDLORD'S Superintendent may enter the PREMISES without notice at any time, if there is an emergency at the PREMISES or to inspect same for maintenance purposes or to perform maintenance. E. LANDLORD COVENANTS THAT TENANT, UPON PAYING THE RENTAL REQUIRED HEREIN AND PERFORMING TENANT'S COVENANTS SET FORTH HEREIN, SHALL AND MAY PEACEFULLY AND QUIETLY HAVE, HOLD AND ENJOY THE LEASED PREMISES FOR THE TERM AFORESAID. 13. DEFAULT. TENANT is in Default under this Lease if: i. any of the monthly rent payments are not actually RECEIVED by LANDLORD by the TWENTY FIFTH (25TH) day of the month when due; or ii. if TENANT violates any MATERIAL term or condition of this Lease; or iii. if TENANT abandons or vacates the PREMISES or fails to occupy the PREMISES for a consecutive period of THIRTY (30) days (unless TENANT is on vacation); or iv. if TENANT shall knowingly bring hazardous or toxic materials onto the Leased PREMISES (other than in quantities necessary for its business operations). a. If TENANT fails to cure a Default under "i" or "iii" above, WITHIN FIVE (5) DAYS OF THE DATE OF ACTUAL MAILING (OR HAND DELIVERY) BY LANDLORD OF A NOTICE OF DEFAULT; [or for a DEFAULT UNDER "ii" or "iv" above, WITHIN THIRTY (30) DAYS] then LANDLORD may enter the PREMISES at any time on or after the SIXTH (6TH) day after the Notice was deposited into the US mails, CERTIFIED MAIL/postage prepaid, (OR HAND DELIVERED) [OR ON OR AFTER THE THIRTY FIRST (31ST). DAY,] AS THE CASE MAY BE, and LANDLORD may then REPOSSESS and take control of the PREMISES and ALL OF his property and LANDLORD MAY take possession of the PREMISES, without liability to TENANT. 7 7 b. Such re-entry shall not release the TENANT from any rent to be paid or covenants to be performed hereunder during the full Term and any extensions thereto, or those obligations that continue after the Term ends. c. Further, LANDLORD without such re-entry, may recover possession of the PREMISES in the manner prescribed by statute related to summary process, and any demand for rent, re-entry for condition broken, and any and all Notices to Quit, or other formalities of any nature, to which the TENANT may be entitled, in such an event, are hereby specifically waived. d. After default made in any of the covenants herein contained, the acceptance of rent or failure to re-enter by LANDLORD shall not be held to be a waiver of LANDLORD'S right to terminate this Lease UNLESS THE DEFAULT IS CURED IN THE MANNER SPECIFIED ABOVE, and LANDLORD may re-enter and take possession thereof the same as if no rent had been accepted after such default. 14. SECURITY DEPOSIT. TENANT has deposited with LANDLORD $__NONE________ as Security for TENANT'S faithful performance under this Lease. a. If TENANT fails to perform any of its promises and agreements under this Lease, LANDLORD may use this Security Deposit to help cure these defaults. b. If TENANT fulfills its promises and agreements under this Lease, the Security Deposit shall be returned to TENANT within 15 days after the Lease ends, with interest if the law calls for interest, otherwise with no interest. 15. BINDING. a. This Lease binds the parties, their heirs, executors, successors and assigns. b. If there is more than one person signing this Lease as TENANT, or GUARANTOR, then each one of the signing TENANTS and GUARANTORS agrees he is individually and jointly liable for all the terms and conditions under this Lease, including the full and prompt payment of the Rent, whether or not any of the other TENANTS fulfills his obligations under this Lease. 16. PARKING. 8 8 a. TENANT shall have the privilege of parking up to FIFTY (50) vehicles in the LANDLORD'S adjoining parking lots, at locations reasonably determined by LANDLORD. FIVE (5) OF THE FIFTY (50) SPACES SHALL BE DESIGNATED FOR TENANT'S USE. b. This parking shall be AT TENANT'S RISK AND SHALL BE during TENANT'S usual business hours. c. No subletting of parking to others, except for approved subleases and assignment of this Lease. 17. ATTORNEYS FEES. If TENANT is in Default hereunder, and LANDLORD uses an attorney to evict TENANT and/or to collect past due rent, TENANT agrees to pay all reasonable attorneys fees, and all court costs and costs of collection. 18. FIRE/GENERAL LIABILITY INSURANCE. a. LANDLORD shall obtain: i. so called "commercial package insurance" coverage, including full fire insurance coverage on the large building-50 TIFFANY STREET, BROOKLYN, CT and the drives, parking areas and appurtenances including the Leased PREMISES, in an amount not less than 80% of the replacement value thereof, including all improvements, alterations and additions thereto. ii. general liability insurance coverage, iii. boiler insurance. iv. Federal flood insurance, if available. b. TENANT shall promptly reimburse LANDLORD for 33.3% of the total costs of this insurance, within fifteen (15) days of receipt of billing. c. TENANT shall not be liable for any increase in the cost of this insurance which increase is a result of a change in the status of another tenant at 50 Tiffany Street, or through LANDLORD'S own usage. d. If the period of coverage and billing starts before this Term, the reimbursement shall be prorated during the Term. E. TENANT SHALL BE AN ADDITIONAL INSURED IN SAID POLICY. 9 9 f. TENANT MAY REQUEST A CERTIFICATE EVIDENCING THIS INSURANCE FROM LANDLORD AND SAID REQUEST SHALL BE HONORED WITHIN A REASONABLE TIME. 19. TENANT'S LIABILITY INSURANCE. a. TENANT shall keep the Leased PREMISES insured, at its sole cost, and expense, against claims for personal injury and/or property damage. b. TENANT shall obtain and maintain at all times during the TERM of this Lease, and any extension thereof: --GENERAL PUBLIC LIABILITY INSURANCE insuring the PREMISES and ALL APPURTENANCES, DRIVES, WALKS, and PARKING LOTS, WITH LIMITS OF AT LEAST ONE MILLION DOLLARS ($1,000,000.00) per person, and ONE MILLION DOLLARS ($1,000,000.00) per occurrence, and THREE HUNDRED THOUSAND DOLLARS ($300,000.00) PROPERTY DAMAGE COVERAGE. c. Said LIABILITY INSURANCE POLICY SHALL BE with a Company authorized to do business in the State of Connecticut. d. Both the TENANT and the LANDLORD shall be a "NAMED INSURED" under this LIABILITY INSURANCE POLICY. e. TENANT shall provide to LANDLORD a Certificate evidencing this insurance coverage before occupying the PREMISES. f. Said insurance shall provide that it may not be canceled without ten (10) days prior written notice to each insured party. 20. DAMAGE TO TENANT'S PROPERTY/EQUIPMENT. LANDLORD is not liable for any damage, loss, theft or other damages to TENANTS property or equipment, while in, on or about the PREMISES, no matter how caused, except as may be caused by LANDLORD'S gross negligence or by the willful misconduct of LANDLORD'S employees or agents. 21. PERSONAL PROPERTY TAXES/ IMPROVEMENTS. TENANT shall pay all of its personal property taxes and all taxes assessed because of TENANTS improvements, if any. 22. INDEMNIFICATION. 10 10 a. TENANT shall save and hold the LANDLORD harmless and indemnify LANDLORD from and against all costs, suits, expenses, damages and/or claims for injury or damage to person or property arising out of the use and occupancy by TENANT of the Leased PREMISES, EXCEPT THAT WHICH MAY BE CAUSED BY LANDLORD'S GROSS NEGLIGENCE OR BY THE WILLFUL MISCONDUCT OF LANDLORD'S EMPLOYEES OR AGENTS. b. LANDLORD shall not be liable for loss of or damage to any of TENANT'S or others property or business, or for injury to any persons occurring in the Leased PREMISES by reason of any existing or future condition, defect, matter or thing in said Leased PREMISES; or for acts, omissions, or negligence of other persons or tenants in, on or about the said LANDLORD'S entire property at 15-50 Tiffany Street (other than LANDLORD, its employees and agents), or for any costs, expenses, damages and/or fines arising out of or connected with the TENANT'S use and or occupancy of the Leased PREMISES, and TENANT shall indemnify LANDLORD and hold him harmless for any of same. c. LANDLORD shall save and hold TENANT harmless and indemnify TENANT from and against all costs, suits, expenses, damages and/or claim for injury or damage to person or property arising out of LANDLORD'S GROSSLY negligent failure to maintain the exterior walls, roof and foundation of the large building in which the Leased PREMISES are a part. 23. WAIVER OF SUBROGATION. To the extent the same are covered by adequate insurance, LANDLORD and the TENANT, and all persons claiming under them, hereby mutually release and discharge each other from all claims and liabilities arising from or caused by any hazard on or at the Leased PREMISES, or in connection with property on, or activities conducted on, the Leased PREMISES, regardless of the cause of the loss or damage. 24. DESTRUCTION OF THE PREMISES. A. PARTIAL DESTRUCTION. i. In the event the PREMISES are partially destroyed to the extent of FIFTY (50%) PER CENT OR LESS of the value of the large building at 50 Tiffany Street, the LANDLORD shall forthwith repair, rebuild or restore the PREMISES as speedily as is practicable. ii. If the damage is such as to render the PREMISES partially untenantable by the TENANT the rent shall abate apportionately. 11 11 iii. If the damage is such as to render the PREMISES totally untenantable by the TENANT, the rent and additional rent shall abate proportionately. iv. If the portion of the PREMISES which remains tenantable is reasonably insufficient for TENANT to conduct its business operations in a normal manner, AND FURTHER if TENANT does not in fact conduct any business therein, then TENANT'S obligation to pay rent and additional rent shall cease from the occurrence of such damage until the PREMISES are substantially restored to a tenantable condition or until TENANT conducts any business in or occupies same; and then the rent shall be payable as before such damage. v. Notwithstanding the foregoing provisions of this section 24(A), if the PREMISES are not substantially restored within ninety (90) days after the partial destruction thereof, TENANT shall have the option to renegotiate this Lease. B. SUBSTANTIAL DESTRUCTION i. In the event the PREMISES are damaged by fire or other casualty to the extent of MORE THAN FIFTY (50%) of the value of the large building at 50 Tiffany Street, Brooklyn, CT. LANDLORD shall have the Option to decide whether or not to rebuild. ii. The LANDLORD shall notify the TENANT of his decision to rebuild or not, within FORTY FIVE (45) days after the occurrence of the damage or destruction. iii. In the event LANDLORD decides to rebuild, LANDLORD shall start rebuilding as speedily as practicable, but the rent hereunder shall abate proportionately from the date of the occurrence until the restoration is completed, or the date the PREMISES are occupied by TENANT, whichever is sooner, at which time the rent shall be paid, in accordance with the terms hereof. iv. In the event LANDLORD shall decide not to rebuild, then the LANDLORD may, upon written Notice to TENANT, cancel and terminate this Lease, and this Lease shall cease and be of no effect, except the TENANT shall pay rent up to the date of the fire or other casualty, and shall pay any other payments called for hereunder to such date. v. Notwithstanding the provisions of this Section 24(B) if the PREMISES are not substantially restored within one hundred twenty (120) days after the substantial destruction thereof as described in Section (B)(i), TENANT shall have the option to terminate this Lease, said option to be exercised in writing, and must be received by LANDLORD between the one hundred and 12 12 tenth (110th) and one hundred twentieth (120th) day after the occurrence of the damage, time being of the essence. C. In NO event shall the LANDLORD be liable for any damage sustained by TENANT by reason of such fire or other casualty or by reason of the repair or restoration, unless caused by the willful act OR GROSS NEGLIGENCE of the LANDLORD or his servants or employees. D. All proceeds payable for the destruction of the PREMISES and permanent improvements therein, shall be paid solely to the LANDLORD. E. TENANT shall during and after the TERM hereof and all extensions, and after termination of this Lease, be responsible for payment of any and all environmental cleanup expenses for the cleanup and/or removal of toxic or hazardous materials that TENANT brought onto the Leased PREMISES; and not for any other environmental cleanup expenses. 25. UTILITY EASEMENTS. LANDLORD shall have the right to grant utility easements in areas of the PREMISES, so long as the use of these easements does not materially and unreasonably interfere with TENANT'S business. 26. CONDEMNATION. If the PREMISES or any part thereof is condemned, by any public or quasi public authority, then this Lease, at the option of the LANDLORD, shall cease and terminate and TENANT shall have no claim or interest in or to the award of damages for the taking. 27. NON-WAIVER. The LANDLORD'S failure to act upon any breach of any of the covenants of this Lease by TENANT, shall not be a waiver thereof, and LANDLORD may at any time, act upon such default; nor shall it prohibit LANDLORD from acting upon any future beach of TENANT'S covenants. 28. HOLDING OVER. If TENANT remains on the PREMISES BEYOND THE EXPIRATION DATE OF this LEASE, it shall NOT create a new Lease, but TENANT shall pay a per diem rate for use and occupancy equal to one and one half times the per diem rate then in force (using a 30 day month), as well as all other charges due hereunder. 13 13 29. BROKER. TENANT represents that there is NO real estate broker or real estate agent involved in this Lease, and TENANT will hold LANDLORD harmless for any such claim for a fee. 30. TENANT'S BANKRUPTCY. a. If at any time after the commencement of this Lease, any TENANT shall make an ASSIGNMENT FOR THE BENEFIT OF CREDITORS, OR BE DECLARED A BANKRUPT, then LANDLORD may at his option, TERMINATE THIS LEASE. b. THE exercise of this OPTION shall be EVIDENCED BY a NOTICE TO THAT EFFECT SERVED UPON THE ASSIGNEE, RECEIVER OR TRUSTEE of the bankrupt TENANT, but such termination shall not release or discharge any payment of rent due hereunder THEN ACCRUED, NOR ANY LIABILITY THEN ACCRUED BY REASON OF ANY AGREEMENT OR COVENANT CONTAINED ON THE PART OF THE TENANT. c. FURTHER IF THERE IS MORE THAN ONE TENANT HEREUNDER, THE REMAINING NON BANKRUPT TENANT OR TENANTS SHALL, at LANDLORD'S OPTION, REMAIN FULLY RESPONSIBLE HEREUNDER, AND ALL GUARANTORS SHALL CONTINUE TO BE AND SHALL REMAIN FULLY RESPONSIBLE HEREUNDER. 31. REAL ESTATE TAXES/FIRE DISTRICT TAXES/MUNICIPAL ASSESSMENTS. TENANT shall reimburse LANDLORD for:- a. 28% of the total real property taxes, fire district taxes and municipal assessments on the entire premises at 15-50 Tiffany Street, Brooklyn, CT. b. For the taxes, fire district taxes and municipal assessments assessed or paid before the Term hereof starts, such reimbursement shall be prorated, at the beginning and end of the TERM and any extensions. 32. SIGNS. a. Businesslike signs may be placed by TENANT at the Leased PREMISES, and on the outer fence. 33. INCREASE IN LANDLORD'S INSURANCE PREMIUMS. 14 14 TENANT shall PROMPTLY pay as additional rent, any amount that LANDLORD'S existing Fire and/or Liability insurance premiums are increased because of any use of the PREMISES by TENANT. 34. RENOVATIONS. a. TENANT may renovate the Premises, but shall have LANDLORD' PRIOR WRITTEN APPROVAL of the renovation PLANS, BEFORE STARTING. b. LANDLORD'S APPROVAL SHALL NOT BE UNREASONABLY WITHHELD. c. TENANT shall perform all renovation work in a workmanlike manner, and in accordance with all codes, ordinances, laws and regulations of the Town of Brooklyn, State of Connecticut and United States of America, and TENANT shall be fully responsible for all costs of the renovations. d. TENANT must bond AND promptly remove ANY mechanic's lien on the Leased PREMISES within ten (10) days of TENANTS LEARNING of same, OR WITHIN FORTY FIVE (45) DAYS OF ITS FILING (WHICHEVER DATE IS SOONER). e. All permanent improvements and/or permanent fixtures installed at the Leased PREMISES shall belong to the LANDLORD at the termination of this LEASE. 35. SUBORDINATION TO MORTGAGES, ETC. a. This Lease is subordinate to all present and future mortgages affecting the PREMISES. b. The TENANT agrees to execute at no cost to LANDLORD any instrument which may be deemed necessary or desirable by LANDLORD to further effect the subordination of this Lease to any such mortgage. Upon executing such document, or documents, TENANT shall receive a non-disturbance document from the LANDLORD and LANDLORD'S lender. 36. NOTICE OF LEASE. Upon the request of either Party, both Parties agree to execute and deliver a Notice of this Lease, in form appropriate for recording. 15 15 37. OPTION TO EXTEND. a. IF this Lease shall THEN be in full force and effect AND IF TENANT shall have fully fulfilled all of its terms and conditions and NOT THEN be in Default hereunder: the TENANT shall have -TWO (2) OPTIONS TO EXTEND this Lease, EACH OPTION FOR ONE (1) ADDITIONAL TERM OF ONE (1) YEAR, ON THE SAME TERMS AND CONDITIONS, EXCEPT for the provision for RENT. b. ALL EXERCISES OF THESE OPTIONS TO EXTEND, MUST BE IN WRITING, SENT CERTIFIED MAIL RETURN RECEIPT REQUESTED, AND TIME IS OF THE ESSENCE. c. FIRST OPTION TO EXTEND. i. TENANT MUST SEND A WRITTEN NOTICE OF ITS EXERCISE OF THE FIRST OPTION TO EXTEND FOR ONE (1) ADDITIONAL YEAR. ii. THIS NOTICE MUST BE RECEIVED BY LANDLORD NO LATER THAN 4:30 PM, ON MAY 1, 1997. D. SECOND OPTION TO EXTEND. i. TENANT MUST SEND A WRITTEN NOTICE OF ITS EXERCISE OF THE SECOND OPTION TO EXTEND FOR ONE (1) ADDITIONAL YEAR. ii. THIS NOTICE MUST BE RECEIVED BY LANDLORD NO LATER THAN 4:30 PM, ON MAY 1, 1998. e. BASIC RENT: i. THE BASIC RENT PAYABLE DURING THE FIRST OPTION TERM (1/14/98 TO 1/15/99) SHALL BE $53,437.56, PAYABLE $4,453.13 MONTHLY, IN ADVANCE, DURING THE EXTENDED ONE YEAR TERM. ii. THE BASIC RENT PAYABLE DURING THE SECOND OPTION TERM (1/15/98 TO 1/14/99) SHALL BE 16 16 $ 54,562.56, PAYABLE $4,546.88, MONTHLY, IN ADVANCE, DURING THE EXTENDED SECOND OPTION TERM 38. THE FOREGOING IS THE FULL AND COMPLETE LEASE BETWEEN THE PARTIES HERETO, AND MAY NOT BE MODIFIED OR CHANGED, EXCEPT IN WRITING, SIGNED BY BOTH PARTIES HERETO. 39. THIS LEASE INCORPORATES THE AGREEMENT OF THE PARTIES WITH RESPECT TO THE SUBJECT MATTER OF THIS LEASE. THE PRESENT LEASE BETWEEN THE PARTIES SHALL REMAIN IN FULL FORCE AND EFFECT, UNTIL THIS LEASE COMMENCES. END OF LEASE TERMS IN WITNESS WHEREOF THE PARTIES HAVE SIGNED THIS LEASE. LANDLORD: WITNESS: /s/ Mark C. Yellin /s/ Michael P. Lajoie ------------------------- -------------------------- MARK C. YELLIN MICHAEL P. LAJOIE TENANT WITNESSES: APPLIED PHOTONIC DEVICES, INC. /s/ David P. DaVia /s/ Patricia A. Cournoyer ------------------------- -------------------------- by its Vice President duly authorized /s/ Carol A. Osberg -------------------------- STATE OF CONNECTICUT COUNTY OF WINDHAM ss: BROOKLYN, DATE: NOVEMBER 13, 1995 PERSONALLY APPEARED -- MARK C. YELLIN, SIGNER AND SEALER OF THIS LEASE, AND ACKNOWLEDGED THE SAME TO BE HIS FREE ACT & DEED BEFORE ME /s/ Annette M. Dwyer - ---------------------- ANNETTE M. DWYER My Commission Expires 10/31/98 NOTARY PUBLIC STATE OF MASSACHUSETTS ss: STURBRIDGE COUNTY OF WORCESTER DATE: NOVEMBER 10, 1995 EX-10.65 5 LEASE - FABRILOCK, INC. 1 EXHIBIT 10.65 LEASE Between FABRILOCK, INC., as Landlord AND APPLIED PHOTONIC DEVICES, INC., as Tenant ATTORNEY FOR LANDLORD: ATTORNEY FOR TENANT: Michael S. Stiebel Brian M. Hand Hunt, Leibert, & Chester, P.C. Hackmyer & Nordlicht 94 Hungerford Street 645 Fifth Avenue Hartford, CT 06106 New York, NY 10022 (860) 246-5889 (212) 421-6500 2 This Lease is made and entered into this 6th day of February, 1996 by and between FABRILOCK, INC., a Connecticut corporation, with its principal place of business at 300 Lake Road, P.O. Box 871, Dayville, CT 06241-1537 (hereinafter referred to as "Landlord") and APPLIED PHOTONIC DEVICES, INC., a corporation, with its principal place of business at 50 Tiffany Street, Brooklyn, Connecticut 06259 hereinafter referred to as "Tenant"). ARTICLE 1 GRANT 1.01 Premises. Landlord, for and in consideration of the rents herein reserved and of the covenants and agreements herein contained on the part of Tenant to be performed, hereby leases to Tenant and Tenant accepts from Landlord, certain space shown on Exhibit A attached hereto and made a part hereof, containing approximately 36,410 rentable square feet plus 26,250 feet square in the south section of building to be available on or before July 1, 1997 for the balance of this lease, in area (hereinafter referred to as the "Premises"), situated in an industrial/office building located at 300 Lake Road, Dayville, Connecticut (the "Building"). The term "Building" includes the land on which the Building is situated, and is legally described in Exhibit B attached hereto (the "Land"), and all easements and rights appurtenant to the Land and Building. No rights to light or air over any real estate, whether belonging to Landlord or any other party are granted to Tenant by this Lease. 1.02 Common Areas. Landlord hereby grants to Tenant during the term of this Lease, a license to use, in common with the others entitled to such use, the Common Areas as they from time to time exist, subject to the rights, powers and privileges herein reserved to Landlord. The term "Common Areas" as used herein will include all areas and facilities outside the Premises that are provided and designated for general use and convenience of Tenant and other tenants. Common Areas include but are not limited to pedestrian sidewalks, loading docks, landscaped areas, roadways, parking areas, and rights of way, if any. All Common Areas and other facilities in or about the Building provided by Landlord shall be subject to the exclusive control and management of Landlord. 1.03 Parking. Tenant shall be entitled to park in common with other tenants of Landlord. Tenant agrees not to overburden the parking facilities and agrees to cooperate with Landlord and other tenants in the use of parking facilities. Landlord reserves the right in its absolute discretion to determine whether parking facilities are becoming crowded and, in such event, to allocate parking spaces among Tenant and other tenants, provided that at a minimum, Tenant shall be entitled to fifty (50) spaces. Landlord may designate parking spaces in the Common Areas for the handicapped visitors to the Building and other tenants. ARTICLE 2 2 3 TERM 2.01 Lease Term. The Premises are leased for a term ("Term") to commence on the Commencement Date (as determined pursuant to Section 3.01) and shall end on the last day of the month, in which the fifth (5th) anniversary of the Commencement Date occurs, unless sooner terminated as herein provided. If Landlord gives and Tenant accepts possession prior to the Commencement Date, such occupancy shall be subject to all the terms and conditions of this Lease and rent and other charges shall be prorated to the date that Tenant takes possession of the Premises. 2.02 Holdover Tenancy. Any holding over by Tenant of the Premises after the expiration of the Term shall operate and be construed to be a tenancy from month to month only, at 150% of the Annual Base Rent herein specified (prorated on a monthly basis) unless Landlord shall specify a different rent, in its Sole discretion, and shall otherwise be on the terms, covenants and conditions herein specified so far as applicable. Any holding over without Landlord's consent shall constitute a default by Tenant and entitle Landlord to exercise any remedies provided in Article 13 hereof or otherwise. Notwithstanding the foregoing, in the event Landlord consents to Tenant's holding over and there is a resulting month to month tenancy under the terms provided herein, then either Tenant or Landlord may terminate said month to month tenancy upon thirty (30) days prior written notice. If Tenant fails to surrender the Premises upon termination of the Lease, then Tenant shall, in addition to any other liabilities to Landlord accruing therefrom, indemnify and hold Landlord harmless from loss or liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant arising due to such failure. 2.03 Term Extension. (a) Provided: a) There is not then occurring an Event of Default, under the terms of this Lease; and b) This Lease is in full force and effect Tenant shall have the option to extend the Term of this Lease for one 3 year extension and one 2 year extension. Each additional period shall be called an Extension Period. The Extension Period shall commence on the date immediately following the originally fixed termination date or the prior Extension Period, as the case may be. (b) The option contained in this section may only be exercised by written notice to Landlord given at least six (6) months before the end of the Term or the then current Extension Period as then constituted is scheduled to expire. (c) If Tenant shall fail to exercise its option during a period when the option is available, when Tenant is not entitled to exercise the option or when this instrument is no longer in full force and effect for any reason, the option contained in this section shall be void. 3 4 (d) Upon expiration of the second Extension Period, Tenant shall have no further option to extend the term. ARTICLE 3 COMPLETION AND OCCUPANCY OF THE PREMISES 3.01 Delivery of the Premises. Landlord shall deliver possession of the Premises to Tenant on or before February 12, 1996 (the "Commencement Date"). 3.02 Delayed Delivery. (a) If Landlord shall be unable to deliver possession of the Premises on or before the Commencement Date for any cause beyond the control of Landlord, Landlord shall not be subject to any liability for failure to deliver possession on said date, nor shall the validity of this Lease or the obligations of Tenant hereunder be in any way affected. (b) Any other provision of this Lease notwithstanding, in the event Landlord is unable to deliver possession of the Premises (a) on or before the Commencement Date, Tenant shall have the right to cancel the Lease by written notice delivered to Landlord within seven (7) days thereafter. 3.03 Landlord's Work. There is no work to be performed by Landlord at the premises on behalf of Tenant ("Landlord Work"). Tenant has inspected the Premises and takes the Premises "as is". Notwithstanding the foregoing, Landlord represents that on the Commencement Date all of the Building's systems will be in good working order and the Premises will be fit for use and occupancy by Tenant. ARTICLE 4 RENT AND SECURITY 4.01 Annual Base Rent (a) Beginning with the Commencement Date and continuing throughout the Term, Tenant shall pay to or upon the order of Landlord an annual rental of One Hundred Thousand One Hundred Twenty Seven Dollars and Fifty Cents ($100,127.50) ("Annual Base Rent") payable in consecutive monthly installments of Eight Thousand Three Hundred Forty Three and 96/100 ($8,343.96) on or before the first day of each calendar month in advance. All payments of rent shall be made without demand, deduction, counterclaim, set-off, discount or abatement in lawful money of the United States of America. If the Commencement Date should occur on a day other than the first day of a calendar month, or the Expiration Date should occur on a day other than the last day of a calendar month, then the monthly installment of Annual Base Rent for such fractional month shall be prorated upon a daily basis based upon a thirty (30) day month. For purposes of this Lease, 4 5 the first "Lease Year" shall commence on the Commencement Date and shall end on the last day of the twelfth (12th) full calendar month following the Commencement Date. Each Lease Year thereafter shall consist of twelve (12) consecutive calendar months following the end of the immediately preceding Lease Year except that the final Lease Year shall end on the Expiration Date. (b) if Tenant exercises Tenant's option to extend the Term, pursuant to Section 2.03, the Annual Base Rent during the Extension Period shall be ninety five (95) percent of the fair market value of the rent for a multi-tenanted building for a specified use similar to Tenant's (the "Extension Rent"). If the parties cannot agree on the Extension Rent after Tenant notifies Landlord of its intention to exercise its extension option, the Extension Rent shall be the Annual Base Rent in effect during the year prior to the Extension Period, increased to reflect the percentage increase in the Consumer Price Index for the Dayville region, if any, from the prior year. In no case shall the Extension Rent be less than $20,495.00 per year. 4.02 Additional Rent. Tenant shall pay to Landlord all charges and other amounts required under this Lease and the same shall constitute additional rent hereunder (herein called "Additional Rent"). All such amounts and charges shall be payable to Landlord at the place where the Annual Base Rent is payable. Landlord shall have the same remedies for a default in the payment of Additional Rent as for a default in the payment of Annual Base Rent. 4.03 Place of Payment. The Annual Base Rent and all other sums payable to Landlord under this Lease shall be paid to Landlord at 300 Lake Road, P.O. Box 871, Dayville, Connecticut 06241-1537, or at such other place as Landlord shall designate in writing to Tenant from time to time. 4.04 Terms of Payment. Tenant shall pay to Landlord, within thirty (30) days after delivery by Landlord to Tenant of bills or statements therefor: (a) sums equal to all expenditures made and monetary obligations incurred by Landlord including, without limitation, expenditures made and obligations incurred for reasonable counsel fees, in connection with the remedying by Landlord for Tenant's account pursuant to the provisions of Article 13 hereof; (b) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 13 hereof; (c) sums equal to all expenditures made and monetary obligations incurred by Landlord, including, without limitation, expenditures made and obligations incurred for reasonable counsel fees, in collecting or attempting to collect the Annual Base Rent, any Additional Rent or any other sum of money accruing under this Lease or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law; and (d) all other sums of money (other than Annual Base Rent and Additional Rent which are to be due and payable) accruing from Tenant to Landlord under the provisions of this Lease. Any sum of money (other than Annual Base Rent) accruing from Tenant to Landlord pursuant to any provision of this Lease arising prior to the 5 6 termination or expiration thereof, whether prior to or after the Commencement Date, may, at Landlord's option, be deemed Additional Rent. All obligations of the Tenant under this Lease, including, without limitation, the Tenant's obligations under this Section 4.04, shall survive the expiration or sooner termination of the Term. 4.05 Late Charges. If Tenant shall fail to pay any Annual Base Rent or Additional Rent after the date same is due and payable, such unpaid amounts shall be subject to a late payment charge equal to the lesser of (i) one and one-half percent (1.5%) per month, or (ii) the maximum allowed by law of such unpaid amounts (the "Default Rate") in each instance to cover Landlord's cost resulting from Tenant's failure. Such late payment charge shall be paid to Landlord together with such unpaid amounts. Such late payment charge and administrative charge shall not diminish or impair any other remedies available to Landlord. 4.06 Security Deposit. (a) By execution of this Lease, Landlord acknowledges receipt of Tenant's security deposit in the amount of Sixteen Thousand Six Hundred Eighty Seven and 92/100 Dollars ($16,687.92) (the "Security Deposit") for the faithful performance of all terms, covenants and conditions of this Lease. Tenant agrees that Landlord may, without waiving any of Landlord's other rights and remedies under this Lease upon the occurrence of any of the Events of Default described in Article 13 hereof, apply the Security Deposit to remedy any failure by Tenant to repair or maintain the Premises or to perform any other terms, covenants or conditions contained herein. Should Landlord use any portion of the Security Deposit to cure any Event of Default by Tenant hereunder, Tenant shall forthwith replenish the Security Deposit to the original amount Landlord shall not be required to keep the Security Deposit separate from its general funds, and Tenant shall be entitled to interest on any such deposit. Upon the occurrence of any of the Events of Default described in Article 13 hereof, the Security Deposit shall become due and payable to Landlord to the extent required to compensate Landlord for damages incurred, or to reimburse Landlord as provided herein, in connection with any such Event of Default. (b) In the event of a sale or leasing of the Building, Landlord shall have the right to transfer the balance of the Security Deposit to the new owner or to tenant Landlord shall thereupon be released by Tenant from all liability for the return of the Security Deposit; and Tenant agrees to look to the new landlord. (c) If Tenant performs all of Tenant's obligations hereunder during the Term, Landlord will, within 30 days after the expiration or earlier termination of the Lease, return the Security Deposit, or so much as has not been applied by Landlord, to Tenant or the last permitted assignee of Tenant's interest hereunder at the expiration of the Term. ARTICLE 5 ADDITIONAL RENT CHARGES 6 7 5.01 Tenant's Allocated Share. (a) For the purposes of this Article, Tenant's Allocated Share means a fraction, the numerator of which is the gross leasable area of the Premises and the denominator of which is the gross leasable area of the Building. Presently, the gross leasable area of the Premises is 36,410 square feet and the gross leasable area of the Building is 80,180 square feet. (b) If Landlord constructs additional buildings on the Land or enlarges the Building, Tenant's Allocated Share set forth in this section shall be adjusted to reflect that Landlord has constructed additional buildings on the Land or enlarge the Building. 5.02 Taxes. (a) From and after the Commencement Date, Tenant shall pay "Taxes" to Landlord. (b) The following terms have the following meanings: (i) "Taxes" means Tenant's Allocated Share of all Impositions. (ii) "Impositions" means all taxes, assessments (special or otherwise, foreseen or unforeseen, ordinary or extraordinary), water or sewer rents, and all other governmental charges assessed, levied or imposed against the Premises and the Land and Building during any tax fiscal year occurring wholly or partially within the Term. If any governmental authority imposes, assesses or levies a tax on rent or any other tax upon Landlord as a substitute in whole or in part for real estate taxes or assessments, or as additional taxes, the substitute tax or additional tax shall be deemed to be an Imposition. (c) If any tax payment year occurs partially within and without the Term, then, within a reasonable time after the Commencement Date and Expiration Date, Landlord and Tenant shall adjust Taxes with respect to any such tax payment year so that Tenant shall bear Taxes which are attributable to the Term and Landlord shall bear the remainder. (d) (i) Tenant shall pay Taxes to Landlord in monthly installments. Installments shall be paid on the first day of each month of the Term, in advance and in the same manner and at the same time as Base Rent. The first installment shall be paid on the Commencement Date. If the Commencement Date does not occur on the first day of a month, Tenant shall pay an equitable share of a full month's installment for the remainder of such month upon the Commencement Date. (ii) Each installment that Tenant is obligated to pay to Landlord on account of Taxes shall be in amounts estimated by Landlord at Landlord's discretion based upon the actual bill for Impositions or if not available, then based upon the prior year's bills 7 8 for Impositions paid. Landlord represents that the total of all Impositions affecting the Premises, Building and Land in 1995 was $21,000.00 and that tenant's allocated share of such Impositions would have been $9,534.00 in 1995 had the Lease been in effect during that year. (iii) After the end of each Lease Year, Landlord shall send a statement to Tenant setting forth Taxes for that Lease Year accompanied by a copy of the bills for Impositions reflected on Landlord's statement. If the installments paid by Tenant with respect to any Lease Year shall exceed Taxes for that Lease Year, Landlord shall credit the difference to Tenant's obligation to pay Taxes during the succeeding Lease Year. If the installments payable with respect to any Lease Year shall be less than Taxes for that Lease Year, Tenant shall pay Landlord the difference promptly within 30 days after receipt of Landlord's statement. if after the Lease expires or is terminated it is determined that Tenant's payment of Impositions exceeded Impositions allocable to Tenant, Landlord shall refund the difference to the Tenant promptly after the determination of such overpayment is made. 5.03 Common Area Contribution. (a) From and after the Commencement Date, Tenant shall pay "Common Area Contribution" to the Landlord in accordance with this Section. (i) "Common Area Contribution" means Tenant's Allocated Share of "Common Area Expenses". (ii) "Common Area Expenses" means all costs incurred in connection with the maintenance, repair, replacement and operation of the Building and Land (other than costs related to obligations undertaken by Landlord pursuant to Section 8.01); maintaining repairing or replacing on-site or off-site facilities including the water lines, utility lines and conduits, drainage and sewer systems serving the Common Area. Common Area Expenses include, but are not limited to, the costs incurred in connection with the following: lighting the Common Area; the cost of maintaining, painting, repairing or replacing, when necessary any traffic signals servicing the Land and Building; landscaping, planting, replanting and cleaning the Common Area, including snow and ice removal; the maintenance of insurance with respect to the Land and Building including fire with extended coverage, rental value insurance, and public liability insurance for the Common Area; the cost of improvements to the Common Area (but not any improvements which are of a structural nature or which constitute capital items under generally accepted accounting principles); policing and security for the Common Area. (b) (i) Tenant shall pay monthly installments on account of Common Area Contribution to Landlord. The installments shall be paid in the same manner and at the same time as Base Rent. The first installment shall be due on the Commencement Date. 8 9 (ii) If the Commencement Date does not occur on the first day of the month, Tenant shall pay a partial installment, on account of Common Area Contribution, to Landlord upon the Commencement Date, pro-rated for the portion of the month in which Tenant will be in possession of the Premises. (iii) Each Installment shall be in amounts estimated by Landlord in Landlord's reasonable discretion, but shall be based upon an anticipated budget for the Land and Building. Landlord represents that the total Common Area Expenses in 1995 were $ and that Tenant's Common Area Contribution for 1995 would have been $ had this Lease been in effect during that year. (iv) Within ninety days after each Lease Year, Landlord shall send a statement to Tenant setting forth Common Area Expenses and Tenant's Common Area Contribution, in reasonable detail, for that Lease Year. If Tenant's Common Area Contribution exceeds the installments paid by Tenant under this subsection, Tenant shall pay to Landlord the difference between Common Area Contribution for that Lease Year and the aggregate amount paid by Tenant on account of Tenant's Common Area Contribution for that Lease Year. The payment shall be made within thirty days after Landlord renders the statement whether or not Tenant objects to Landlord's statement. If Tenant does not object to Landlord's statement in writing by the sixtieth day following the date of Landlord's statement, Landlord's statement shall be deemed approved. If Tenant objects to Landlord's written statement, Landlord shall send to Tenant, within sixty days of Landlord's receipt of Tenant's written objection, a statement certified by Landlord's chief financial officer indicating the Tenant's Common Area Contribution accompanied by copies of all invoices for Common Area Expenses. If the installments paid by Tenant under this section exceed Tenant's Common Area Contribution, Landlord shall credit such excess Common Area Contribution payments to Tenant's next Lease Year payments, or, if the Lease has terminated or expired, Landlord will promptly refund such excess payments to Tenant upon the determination that an overpayment has been made. (v) Tenant's obligations to pay Common Area Charges are subject to Landlord consulting with and obtaining Tenant's consent prior to incurring any such cost or expense outside the normal course of business. 5.04 Payment of Utility Charges. (a) From and after the Commencement Date, Tenant shall pay for all utility services and charges whether or not measured by meters. (b) Tenant shall install an electric meter or sub-meter to the Premises and shall pay for electricity. (c) Tenant shall, from and after the Commencement Date, pay for water consumed as shown on the meter which Tenant shall install in the Premises. 9 10 (d) Landlord reserves the right to install meters which will measure any and all utility services used by Tenant and the other occupants of the Building and Land. Tenant agrees to pay Tenant's Allocated Share of the costs to install the master meters. Tenant shall pay Landlord for all utilities not measured by direct utility company meters (for which Tenant shall pay such utility charges directly to the utility company) Tenant consumes or which is supplied to the Premises within ten days after Landlord renders a bill. None of the charges set forth in this subsection shall be deemed to be "Taxes". (e) Landlord shall have the right to include any or all of the utility charges not paid directly by Tenant as Common Area Expenses. ARTICLE 6 SERVICES AND UTILITIES 6.01 Services. Landlord shall provide the following services at Landlord's expense (except as otherwise provided): (a) Water for cleaning, grounds maintenance, fire protection, drinking, lavatory and toilet purposes drawn through fixtures installed by Landlord or by Tenant with Landlord's written consent. (b) Reasonable amounts of heat as reasonably determined by Landlord. (c) Maintenance of the Common Areas so that they are clean and free from accumulations of debris, filth, rubbish and garbage. The manner in which such Common Areas shall be so maintained, and the expenditures for such maintenance, shall be at the sole discretion of Landlord. (d) Snow and ice removal and all other services described in Section 5.03(a)(ii). 6.02 Utilities. Tenant shall pay all costs incidental to heat (beyond what Landlord supplies), air conditioning and electric service. Tenant, at Tenant's sole cost and expense shall install an electrical meter or submeter to maintain all electricity used by Tenant at the Premises. 6.03 Trash Removal. Tenant shall provide for Tenant's own trash removal and pay for all costs incidental to removal of Tenant's trash. 6.04 Maintenance of Common Areas. The manner in which the Common Areas are maintained and operated and the expenditures therefor shall be at the sole discretion of Landlord subject to Section 5.03(c). Landlord reserves the right from time to time to (a) make changes in the shape, size, location, number and extent of the land and improvements which constitute the Common Areas, provided that Landlord shall not impair the Tenant's 10 11 ability to operate its business, except temporary impairments required by said changes; (b) make such improvements, alterations and repairs to the Common Areas as may be required by governmental authorities or by utility companies servicing the Building; and (c) construct, maintain and operate lighting and other facilities on all said areas and improvements and to police the same. Tenant agrees that Landlord may change the form of ownership of the Building into a common interest community, such as a condominium or cooperative, so long as such change does not affect Tenant's rights or obligations under this Lease. The creation of said common interest community will not grant to Tenant any rights not specifically enumerated hereunder. The use of the Common Areas shall be subject to such reasonable regulations and changes therein as Landlord shall make from time to time, including (but not by way of limitation) the right to close from time to time, if necessary, all or any portion of the Common Areas to such extent as may be legally sufficient, in the opinion of Landlord's counsel, to prevent a dedication thereof or the accrual of rights of any person or of the public therein; provided, however, Landlord shall do so at such times and in such manner as shall minimize any disruption to Tenant. 6.05 Access to Premises. Landlord reserves and shall at all times have the right to enter the Premises at all reasonable times during normal business hours and upon reasonable advance notice to inspect same, to supply any service to be provided by Landlord to Tenant hereunder, to show the Premises to prospective purchasers, mortgagees or tenants, and to alter, improve or repair the Premises and any portion of the Building, without abatement of Annual Base Rent or Additional Rent, and may for that purpose erect, use and maintain scaffolding, pipes, conduits and other necessary structures in and through the Premises where reasonably required by the character of the work to be performed, provided that the entrance to the Premises shall not be blocked thereby, Landlord shall use its best efforts to minimize the inconvenience to Tenant and further provided that the business of Tenant shall not be interfered with unreasonably. Tenant hereby waives any claim for damages for any injury or inconvenience to or interference with Tenant's business, any loss of occupancy or quiet enjoyment of the Premises or any other loss occasioned thereby, except that Tenant does not waive any claim for damages, loss or liability incurred as the result of negligence by Landlord, its employees and agents. For each of the aforesaid purposes, landlord shall at all times have and retain a key with which to unlock all of the doors in, upon and about the Premises, excluding Tenant's vaults and safes and any area designated as a "clean" room, or special security areas (designated in advance), and Landlord shall have the right to use any and all means that landlord may deem necessary or proper to open said doors in an emergency, in order to obtain entry to any portion of the Premises. 6.06 Interruption of Services. Landlord shall not be liable for any interruption in or failure to furnish any services or utilities when such interruption or failure is caused by acts of God, accidents, breakage, repairs, strikes, lockouts, other labor disputes, the making of necessary repairs, alterations or improvements to the Premises or the Building, the inability to obtain an adequate supply of fuel, steam, water, electricity, labor or other supplies, any event included in Section 16.13, or by any other condition beyond Landlord's 11 12 reasonable control, including, without limitation, any governmental energy conservation program, and Tenant shall not be entitled to any damages resulting from such failure nor shall such failure relieve Tenant of the obligation to pay the Annual Base Rent and Additional Rent reserved hereunder or constitute or be construed as a constructive or other eviction of Tenant unless such failure continues for a period of three months or more. In the event any governmental entity promulgates or revises any statute, ordinance or building, fire or other code or imposes mandatory or voluntary controls or guidelines on Landlord or the Building or any part thereof, relating to the use or conservation of energy, water, gas, light or electricity or the reduction of automobile or other emissions or the provision of any other utility or service provided with respect to this Lease or in the event Landlord is required or elects to make alterations to any part of the Building in order to comply with such mandatory or voluntary controls or guidelines, Landlord may, in its sole discretion, comply with such mandatory or voluntary controls or guidelines or make such alterations to the Building. Such compliance and the making of such alterations shall in no event entitle Tenant to any damages, relieve Tenant of the obligation to pay the full Annual Base Rent and Additional Rent reserved hereunder or constitute or be construed as a constructive or other eviction of Tenant unless such failure continues for a period of three months or more. 6.07 No Eviction. Landlord and its agents and representatives shall have the right to enter upon the Premises for any and all of the purposes set forth in this Article and may exercise any and all of the foregoing rights without being deemed guilty of a forcible or unlawful entry into, or a detainer of, the Premises, or an eviction, actual or constructive of Tenant from the Premises, or any portion thereof, and without incurring any liability to Tenant therefor, to change the arrangement and/or location of entrances or passageways, doors and doorways, and corridors, elevators, stairs, toilets and other public parts of the Building. ARTICLE 7 CONDUCT OF BUSINESS BY TENANT 7.01 Permitted Use. The Premises shall be used and occupied for light manufacturing and general office and clerical work, including but not limited to a thermoplastic extrusion coating and fiberoptic cable processing facility. Tenant shall occupy and use the Premises during the term for the purpose above specified and no other use or uses. Tenant and all sublessees or assignees of Tenant shall not use or occupy, or permit the use or occupancy of, the Premises or any part thereof for any use other than the sole uses specifically set forth above or in any illegal manner, or in any manner that, in Landlord's judgment, would materially adversely affect or interfere with any services required to be furnished by Landlord to Tenant or to any other tenant or occupant of the Building, or with the proper and economical rendition of any such service. 7.02 Applicable Laws. Tenant, at Tenant's expense, shall comply promptly with the laws, ordinances, rules, regulations and orders of all governmental authorities in effect 12 13 from time to time during the Term that shall impose any duty on Landlord or Tenant with respect to the Premises or the use and occupancy thereof (including, without limitation, a special aquifer permit for the Town of Killingly, the Americans with Disabilities Act and the Federal Occupational Safety and Health Act of 1970), and will obtain any and all licenses and permits necessary for any such use. Tenant shall not be required to make any structural Alterations (as defined in Section 8.03, below) in or to the Premises in order to comply with the foregoing, unless such Alterations shall be necessitated or occasioned, in whole or in part, by the acts, omissions or negligence of Tenant, or any person claiming through or under Tenant, or any of their servants, employees, contractors, agents, visitors or licensees, or by the use or occupancy or manner of use or occupancy of the Premises by Tenant or any such person, or is required by reason of a breach of any of Tenant's covenants and agreements hereunder. Any work or installation made or performed by or on behalf of Tenant or any person claiming through or under Tenant pursuant to the provisions of this Article shall be made in conformity with, and subject to the provisions of Sections 7.04, 8.02 and 8.03. 7.03 Landlord's Rules and Regulations. Tenant shall faithfully observe and comply with the rules and regulations attached to this Lease as Exhibit C, and all modifications thereof and additions thereto from time to time put into effect by Landlord. Tenant shall not use or permit the use of the Premises in any manner that will create waste or a nuisance, or which shall tend to unreasonably disturb other tenants of the Building, Landlord shall not be responsible to Tenant for the nonperformance of any of said rules and regulations by any other tenants or occupants on the Building, but will use its best efforts to investigate and remedy reasonable complaints from Tenant. In the event of an express and direct conflict between the terms, covenants, agreements and conditions of this Lease and the terms, covenants, agreements and conditions of such rules and regulations, as modified and amended from time to time by Landlord, this Lease shall control. 7.04 No Liens. Tenant shall keep the Premises and Building free from any liens or encumbrances arising out of any work performed, material furnished or obligations incurred by or for Tenant or any person or entity claiming through or under Tenant. Prior to Tenant performing any construction or other work on or about the Premises for which a lien could be filed against the Premises or the Building, Tenant shall obtain satisfactory lien waiver agreements with each contractor who is to perform such work or furnish any material. If any mechanics' or other lien shall be filed against the Premises or the Building purporting to be for labor or material furnished or to be furnished at the request of the Tenant, then Tenant shall at its expense cause such lien to be discharged of record by payment, bond or otherwise, within thirty (30) days after the filing thereof. If Tenant shall fail to cause such lien to be discharged of record within such thirty (30) day period, in addition to any other remedy available to it for such a default, Landlord may cause such lien to be discharged by payment, bond or otherwise, without investigation as to the validity thereof or as to any offsets or defenses thereto, and Tenant shall, upon demand, reimburse Landlord for all amounts paid and costs incurred including reasonable attorneys' fees, in having such lien discharged of record. 13 14 7.05 Hazardous Materials. (a) Tenant shall not dispose of or release, or permit the disposal or release of, any hazardous or toxic waste or substance governed by the provisions of 42 U.S.C. Section 6901 et seq. or 42 U.S.C. Section 9601 et seq., or by any federal, state or local laws, in, above, on or under the Premises or the Building ("Hazardous Substance"). Tenant shall remove, clean-up and remedy any Hazardous Substance on the Premises or Building proven to be caused by Tenant to the extent required by applicable law, provided that the presence of such Hazardous Substance resulted from the action or inaction of Tenant, its employees, subleasees, assignees, contractors or agents. (b) Tenant hereby grants Landlord the right to inspect the Premises at reasonable times and upon reasonable advance notice throughout the Term of this Lease, to determine that Tenant is in compliance with applicable environmental laws and Tenant agrees to allow Landlord to review all of Tenant's records necessary to ascertain that Tenant is in compliance with applicable environmental laws. Tenant shall cooperate with Landlord in satisfying any legal requirements imposed upon Landlord resulting solely from Tenant's operations in the Premises, and shall, upon request, furnish complete information to Landlord concerning the use or existence of any hazardous substances, contamination or pollution at the Building. All records and information disclosed to Landlord hereunder shall be treated by Landlord as highly confidential business information of Tenant and will not be disclosed by Landlord to third parties without Tenant's prior written consent. (c) Tenant shall defend, indemnify and hold harmless Landlord from and against any and all liability, loss, suits, claims, actions, causes of action, proceedings, demands, costs, penalties, fines and expenses, including, without limitation, reasonable attorneys' fees, consultants' fees, and clean-up costs resulting from the presence of any Hazardous Substance on the Premises or the Building proven to be caused by Tenant, or arising out of any material violation(s) by Tenant of any applicable law regarding Hazardous Substances. 7.06 Tenant's Failure to Maintain. If Landlord gives Tenant notice of the necessity of any repairs or replacements required to be made under Section 8.02 and Tenant fails to commence diligently to effect the same within 30 days thereafter (except that no notice will be required in case of any emergency repair or replacement necessary to prevent substantial damage or deterioration), Landlord, at its option and in addition to any other remedies, may proceed to make such repairs or replacements and the expenses incurred by Landlord in connection therewith, shall be due and payable from Tenant upon demand as Additional Rent; provided, that Landlord's making any such repairs or replacements shall not be deemed a waiver of Tenant's default in failing to make the same, and for them provided that Landlord will use its best efforts to minimize the costs incurred by it in making such repairs or replacements. 7.07 Surrender. Upon the expiration or sooner termination of the Term, Tenant will quietly and peacefully surrender to Landlord the Premises in as good condition as when 14 15 Tenant took possession, ordinary wear and tear excepted, and otherwise as is required in Article 8. Tenant shall surrender the Premises to Landlord at the end of the Term hereof, without notice of any kind, and Tenant waives all right to any such notice as may be provided under any laws now or hereafter in effect in Connecticut. ARTICLE 8 ALTERATIONS, IMPROVEMENTS AND SIGNAGE 8.01 Landlord's Obligations. Landlord will maintain all structural components of the Building, including, without limitation, the roof, foundation, exterior and load-bearing walls (including exterior windows and doors), the structural floor slabs and all other structural elements of the Premises, as well as the common elements of the Building and the HVAC system, in good repair, reasonable wear and use excepted. Maintenance and repair expenses caused by Tenant's willful misconduct or grossly negligent acts or omissions shall be paid directly to Landlord by Tenant upon demand and shall not constitute a Common Area Contribution. Landlord, at its own cost and expense, shall pay for any capital improvements carried out by Landlord at the Building. In the event of repairs contemplated in the Sections entitled "Damage or Destruction" or "Condemnation", the provisions of that Section shall control. Landlord shall not be liable for and, except as provided in Articles 10 and 11 hereof, there shall be no abatement of Annual Base Rent with respect to any injury to or interference with Tenant's business arising from any repairs, maintenance, alteration or improvement in or to any portion of the Building, including the Premises, or in or to the fixtures, appurtenances and equipment therein, unless any injury, loss, liability or damage incurred by Tenant results from the willful acts of negligence of Landlord, its employees or agents. 8.02 Tenant's Obligations. (a) Tenant shall take good care of the Premises, and at Tenant's cost and expense, shall make all repairs and replacements as and when Landlord deems reasonably necessary, to preserve the Premises in good working order for premises of this age and type, normal wear and tear exempted, and in a clean, safe and sanitary condition, including, without limitation, the windows and plate glass doors, floors and interior walls, as well as those parts and fixtures of the heating, air-conditioning, ventilating, electrical, lighting (including revamping), plumbing and sprinkler systems that are within the Premises, will not overburden the floor, and will commit no waste. Notwithstanding the foregoing, Tenant is not obligated to restore the Premises to a condition superior to the condition of the Premises as of the commencement of Tenant's occupancy. (b) Tenant shall repair, at its cost, all deteriorations or damages to the Building occasioned by its negligent acts or omissions or willful misconduct. If Tenant does not make such repairs to the Building promptly, Landlord may, but need not, make such repairs, and Tenant shall promptly pay the cost thereof, provided that Landlord uses its best efforts to 15 16 minimize such costs. All repairs and replacements made by or on behalf of Tenant or any person claiming through or under Tenant shall be made and performed (a) at Tenant's cost and expense and at such time and in such manner as Landlord may designate, (b) by contractors or mechanics approved by Landlord, such approval not to be unreasonably withheld (c) so that same shall be at least equal in quality, value, and utility to the condition of the work or installation at the time of the damage caused by Tenant, (d) in accordance with the Rules and Regulations for the Building adopted by Landlord from time to time in effect at the time the damage occurs and in material compliance with all applicable laws and regulations of governmental authorities having jurisdiction over the Premises, and (e) pursuant to plans, drawings and specifications which have been reviewed and approved by Landlord prior to the commencement of the repairs or replacements, such approval not to be unreasonably withheld, and subject to all other terms and conditions of this Lease, including, but not limited to, Section 7.04. 8.03 Alterations. Tenant shall not make or permit any alterations in or additions to the mechanical, plumbing, HVAC or electrical systems in the Building, and shall not make or permit any decorations, alterations, installations, additions or improvements, structural or otherwise (the "Alterations") in or to the Premises without Landlord's advance written consent in each and every instance, such consent not to be unreasonably withheld. All Alterations permitted by Landlord and made by or on behalf of Tenant or any person claiming through or under Tenant shall be made and performed (a) at Tenant's cost and expense and at such time and in such manner as Landlord may designate, (b) by contractors or mechanics approved by Landlord, (c) so that same shall be at least equal in quality, value, and utility to the condition of the work or installation at the time the alteration is commenced, (d) in accordance with the Rules and Regulations for the Building adopted by Landlord from time to time in effect at the time Tenant submits a request for consent to make Alterations and in material compliance with all applicable laws and regulations of governmental authorities having jurisdiction over the Premises, (e) pursuant to plans, drawings and specifications which have been reviewed and approved by Landlord prior to the commencement of the Alterations, such approval not to be unreasonably withheld, and (f) subject to all other terms and conditions of this Lease including, but not limited to, Section 7.04. Tenant shall submit to Landlord a final certificate of occupancy upon completion. Tenant shall have no right to enter upon, or alter in any way, the roof of the Building without the prior written consent of Landlord. Any damage caused by Tenant shall be payable by Tenant to Landlord upon demand and shall not constitute an Operating Expense. 8.04 Tenant's Property. Any trade fixtures, furnishings, equipment and personal property placed in the Premises that are removable without damage to the Building or the Premises, whether the property of Tenant or leased by Tenant, are herein sometimes called "Tenant's Property". Any replacements of any property of Landlord, whether made at Tenant's expense or otherwise, shall be and remain the property of Landlord. Any of Tenant's Property remaining on the Premises at the expiration of the Term shall be removed by Tenant at Tenant's cost and expense, and Tenant shall, at its cost and expense, repair any 16 17 damage to the Premises or the Building caused by such removal. Any of Tenant's Property. not removed from the Premises prior to the expiration date of this Lease shall, at Landlord's option, become the property of Landlord or Landlord may remove such Tenant's Property, and Tenant shall pay to Landlord, Landlord's cost of removal and of any repairs in connection therewith within ten (10) days after Tenant's receipt of a bill therefor. Tenant's obligation to pay any such costs shall survive any termination of this Lease. 8.05 Ownership and Removal. All appurtenances, additions, fixtures and improvements attached to or installed in or upon the Premises, whether placed there by Tenant or by Landlord, shall be Landlord's property and shall remain upon the Premises at the termination of this Lease by lapse of time or otherwise without compensation or allowance or credit to Tenant. Landlord may require, in its discretion, the removal by Tenant of any property which has been attached to or installed in the Premises. Tenant shall pay to Landlord or its designees the cost of repairs of any damage to the Premises or Building and losses caused by the removal of such property. 8.06 Signage. Landlord shall have the absolute and exclusive right to approve or disapprove the content, design, size and location of any and all interior and/or exterior signs, graphics or window advertising erected and/or maintained on the interior or exterior of the Premises or, Building and Tenant shall not install or maintain any sign or graphics on the exterior or interior of the Premises or Building without first obtaining Landlord's written approval and consent, such approval and consent not to be unreasonably withheld. If required by Landlord, Tenant shall purchase identification signs for the exterior of the Building, each of said signs to be of a size and design to be approved in writing by Landlord, and installed at a place designated by Landlord. Tenant shall be responsible for all costs of signage which shall be billed individually to Tenant. ARTICLE 9 INSURANCE 9.01 (a) Tenant's Insurance. Tenant, at its own expense, shall obtain and keep in force with companies reasonably acceptable to Landlord during the Term: (a) comprehensive general liability insurance against liability for bodily injury and property damage, including contractual liability, in the amount of $2,000,000.00 maximum combined single limit; (b) property insurance, including standard fire and extended coverage insurance, in amounts necessary to provide replacement cost coverage, for Tenant's Property, trade fixtures, machinery, equipment, furniture, furnishings and any Alterations in which Tenant has an insurable property interest, including, without limitation, vandalism and malicious mischief and sprinkler leakage coverage; (c) plate glass insurance for the Premises; (d) Workers' Compensation Insurance as required by all applicable law; and (e) any other insurance reasonably required by Landlord. Such limits shall be for any greater amounts as may be reasonably indicated by circumstances from time to time existing. 17 18 (b) Landlord's Insurance. Landlord, at its own expense, shall obtain and keep in force with companies reasonably acceptable to Tenant during the Term covering the Building and the Land: (a) comprehensive general liability insurance against liability for bodily injury and property damage, including contractual liability, in the amount of $2,000,000.00 maximum combined single limit. Such limit shall be for any greater amounts as may be reasonably indicated by circumstances from time to time existing. The aforesaid insurance shall be in companies and in form and substance reasonably satisfactory to Tenant. Such insurance shall name Tenant as an additional insured, shall specifically include the liability assumed hereunder by Landlord (provided that the amount of such insurance shall not be construed to limit the liability of Landlord hereunder), and shall provide that it is primary insurance, and not excess over or contributory with any other valid, existing and applicable insurance in force for or on behalf of Tenant, and shall provide that Tenant shall receive thirty (30) days' written notice from the insurer prior to any cancellation or change of coverage. Landlord shall deliver the policy of such insurance or certificates thereof to Tenant on or before the Commencement Date, and thereafter at least thirty (30) days before the expiration date of an expiring policy. Landlord's compliance with the provisions of this Section 9.01(b) shall in no way limit Landlord's liability under any other provisions of this Lease. 9.02 Delivery of Policies. The aforesaid insurance shall be in companies and in form, substance and amount (where not above stated) reasonably satisfactory to Landlord. Such insurance shall name Landlord as an additional insured, shall specifically include the liability assumed hereunder by Tenant (provided that the amount of such issuance shall not be construed to limit the liability of Tenant hereunder), and shall provide that it is primary insurance, and not excess over or contributory with any other valid, existing and applicable insurance in force for or on behalf of Landlord, and shall provide that Landlord shall receive thirty (30) days' written notice from the insurer prior to any cancellation or change of coverage. Tenant shall deliver copies of policies of such insurance or certificates thereof to Landlord on or before the Commencement Date, and thereafter at least thirty (30) days before the expiration dates of expiring policies. Tenant's compliance with the provisions of this Article 9 shall in no way limit Tenant's liability under any of the other provisions of this Lease. Tenant hereby unconditionally assigns to Landlord all of Tenant's rights under its insurance coverages called for hereunder in respect to all Alterations attached to or installed in the Premises, which, by virtue of Section 8.04 herein, is the property of Landlord. 9.03 Increased Insurance Risk. Tenant shall not do or permit anything to be done, or keep or permit anything to be kept in the Premises, which would: (a) be a material violation of any governmental law or regulation, (b) invalidate or be in conflict with any material provision of any fire or other insurance policies covering the Building or any property located therein (provided that Tenant is given a copy of such insurance policies to review). Tenant, at Tenant's expense, shall comply in all material respects with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body that shall hereafter perform the function of such Association. 18 19 9.04 Tenant's Indemnity. Tenant agrees to protect, indemnify and save harmless landlord, from and against any and all loss, cost, liability, damage and expense including, without limitation, claims, demands, penalties, causes of action, costs and expenses and reasonable attorneys' fees imposed upon and incurred by or asserted against Landlord from the following: (a) an Event of Default (as defined in Section 13.01), (b) the use or occupancy or manner of use or occupancy of the Premises by Tenant or any person claiming through or under Tenant, (c) the condition of the Premises or any occurrence or happening on the Premises from any cause whatsoever except those conditions which are not caused by Tenant, (d) any acts, omissions or negligence of Tenant or any person claiming through or under Tenant, or of the contractors, agents, servants, employees, visitors or licensees of Tenant or any such person, in, on or about the Premises or the Building, either prior to, during, or after the expiration of, the Term including, without limitation, any acts, omissions or negligence of Tenant in the making or performing of any Alterations in or to the Premises, or (e) for personal injury, death or property damage, occasioned by any use, occupancy, condition, occurrence, omission or negligence referred to in the preceding clauses. In case any action, suit or proceeding is brought against Landlord by reason of any such occurrence, Tenant will, at Tenant's expense, resist and defend such action, suit or proceeding or cause the same to be resisted or defended by counsel reasonably approved by Landlord, such approval not to be unreasonably withheld. Tenant's obligations under this Section 9.04 are subject to Landlord notifying Tenant in writing of any claim by a third party for which Tenant would be required to indemnify Landlord hereunder within five days of becoming aware of such claim. 9.05 Limitation on Landlord's Liability. Landlord shall not be responsible or liable to Tenant for any loss or damage to Tenant, or its business (including any loss of income therefrom) or its property occasioned by or through the acts or omissions of persons occupying adjoining premises or any part of the premises adjacent to or connected with the Premises or any part of the Building, unless such loss or damage results from the intentional misconduct or negligence of Landlord, or its employees, contractors, agents, servants, visitors or licensees. 9.06 Waiver of Claims. (a) Landlord and Tenant hereby agree and hereby waive any and all rights of recovery against each other for loss or damage occurring to the Premises or the Building or any of Landlord's or Tenant's Property contained therein regardless of the cause of such loss or damage to the extent that the loss or damage is covered by the injured party's insurance or the insurance the injured party is required to carry under this Lease, whichever is greater (without regard to any deductible provision in any policy). This waiver does not apply to claims caused by a party's willful misconduct. (b) Each party will assure that its insurance permits waiver of liability and contains a waiver of subrogation. Each party shall secure an appropriate clause in, or an endorsement to, each insurance policy obtained by or required to be obtained by Landlord 19 20 or Tenant, as the case may be, under this Lease, pursuant to which the insurance company: (i) waives any right of subrogation against Landlord or Tenant as the same may be applicable, or (ii) permits Landlord or Tenant, prior to any loss to agree to waive any claim it might have against the other without invalidating the coverage under the insurance policy. If, at any time, the insurance carrier of either party refuses to write (and no other insurance carrier licensed in Connecticut will write) insurance policies which consent to or permit such release of liability, then such party shall notify the other party and upon the giving of such notice, this Section shall be void and of no effect. ARTICLE 10 CASUALTY 10.01 Damage or Destruction. (a) Tenant shall give prompt notice to Landlord of any damage by fire or other casualty to the Premises. In the event that the Premises (other than Tenant's Alterations), or any part thereof, or access thereto, shall be damaged or destroyed by fire or other insured casualty, but the Tenant shall continue to have reasonably convenient access to the Premises and no portion of the Premises (other than Tenant's Alterations) shall thereby be rendered unfit for use and occupancy by the Tenant for the purposes set forth in Section 7.01, the Landlord, provided Landlord's mortgagee so permits, shall repair such damage or destruction (except damage or destruction to Tenant's Property or Tenant's Alterations, unless Landlord receives insurance proceeds covering Tenant's Alterations) with reasonable diligence. During the period when such repair work is being conducted, Annual Base Rent and Additional Rent shall not be abated or suspended. (b) In the event that the Premises, or any part thereof, or access thereto, shall be so damaged or destroyed by fire or other insured casualty that the Tenant shall not have reasonably convenient access to the Premises or any portion of the Premises shall thereby be otherwise rendered unfit for use and occupancy by the Tenant for the purposes set forth in Section 7.01, and if in the sole judgment of the Landlord the damage or destruction may be repaired within one hundred eighty (180) days after the occurrence of the damage or destruction, then the Landlord shall so notify the Tenant within thirty (30) days after the occurrence of the damage or destruction and shall repair such damage or destruction (except damage or destruction to Tenant's Property or Tenant's Alterations) with reasonable diligence, provided Landlord's mortgagee so permits. In the event that the Landlord shall not complete such repairs within one hundred eighty (180) days after the occurrence of the damage or destruction, then the Tenant shall have the right to terminate the term of this lease by giving written notice of such termination to the Landlord within thirty (30) days after the end of such one hundred eighty (180) day period; provided, however, that in the event that the completion of repairs shall be delayed by strikes, governmental regulation, zoning laws, inability to obtain labor or materials, from any other cause beyond the Landlord's control, the time for completion shall be extended by the period of such delay, 20 21 provided that in no event shall the repair take longer than 210 days. If in the sole judgment of the Landlord the Premises, or means of access thereto, cannot be repaired within one hundred eighty (180) days after the occurrence of the damage or destruction and the Landlord does not give the Tenant the notice referred to in this Section 10.01(b), then either party shall have the right to terminate the term of this Lease by giving written notice of such termination to the other party within the period of thirty (30) to forty-five (45) days after the occurrence of such damage or destruction. If neither party gives such notice of intention to terminate the term of this Lease, then the Landlord shall repair the damage or destruction with reasonable diligence. 10.02 Abatement of Rent. In the event that Tenant shall not have reasonably convenient access to the Premises or any portion of the Premises shall be otherwise rendered unfit for use and occupancy by the Tenant for the purposes set forth in Section 7.01 by reason of such damage or destruction, then Annual Base Rent and Additional Rent shall be equitably suspended or abated until the Landlord shall have substantially completed the repair of the Premises and the means of access thereto. If such damage or destruction was caused by the negligence or willful act or omission of the Tenant or any of its officers, employees, contractors, agents or invitees, then there shall be no abatement of Annual Base Rent or Additional Rent; an election by Landlord to carry rental loss insurance shall in no way affect the provisions of this Article 10. 10.03 Events of Termination. (a) If more than 25% of the gross rentable area of the Premises shall be wholly or substantially damaged or destroyed by fire or other casualty at any time during the last six (6) months of the Term, either Landlord or Tenant may terminate this Lease by delivery of written notice of such termination to the other party within thirty (30) days after the occurrence of such damage. (b) Notwithstanding the provisions of this Article 10, if, prior to or during the Term: (i) the Premises shall be so damaged by fire or other casualty that, in Landlord's opinion, substantial alteration, demolition or restoration of the Premises shall be required, or (ii) the Building shall be so damaged by fire or other casualty that, in Landlord's reasonable estimate, the cost to repair the damage will be more than 25% of the replacement value of the Building immediately prior to the occurrence of the casualty (whether or not the Premises shall have been damaged or rendered untenantable), then, in any of such events, Landlord, at Landlord's option, and with the written consent of Landlord's Mortgagee, may give to Tenant, within ninety (90) days after such fire or other casualty, a thirty (30) days' notice of Expiration Date of this Lease and, in the event such notice is given, this Lease and the term shall terminate upon the expiration of such thirty (30) days with the same effect as if the date of expiration of such thirty (30) days were the Expiration Date; and the Annual Base Rent and Additional Rent shall be apportioned as 21 22 of such date and any prepaid portion of Annual Base Rent or Additional Rent for any period after such date and the Security Deposit shall be refunded by Landlord to Tenant. 10.04 Insurance Proceeds Upon Termination. If this Lease is terminated pursuant to any right given Landlord to do so under this Section, all insurance proceeds payable with respect to the damage giving rise to such right of termination (other than insurance proceeds payable to Tenant covering Tenant's losses for destruction of its property and business interruption) shall be paid to Landlord and Tenant shall have no claim therefor. No damages, compensation or claim shall be payable by the Landlord to Tenant, or any other person, by reason of inconvenience, loss of business or annoyance arising from any damage or destruction, or any repair thereof, as is referred to in this Article 10. 10.05 Scope of Landlord's Repairs. In the event Landlord elects or shall be obligated to repair or restore any damage or destruction as aforesaid, the scope of work shall be limited to the original basic building and interior work, and Landlord shall have no obligation to restore or replace Tenant's Property or Tenant's Alterations (unless Landlord receives the insurance proceeds covering Tenant's Alterations). ARTICLE 11 CONDEMNATION 11.01 Condemnation of Premises. (a) In the event that the whole or a substantial part of the Premises shall be condemned or taken in any manner for any public or quasi-public use, including, without limitation, a conveyance or assignment in lieu of a condemnation or taking, this Lease and the term and estate hereby granted shall automatically cease and terminate as of the earlier of the date of the vesting of tide or the date of dispossession of Tenant as a result of such condemnation or other taking. (b) If less than the whole or a substantial part of the Premises shall be so condemned or taken, and after such condemnation, taking or sale, the Premises can be used for the same purpose as prior thereto in the manner and to the extent Tenant previously conducted its operations, the Lease term shall automatically cease only on the part so taken, as of the earlier of the date of the vesting of title or the date of dispossession of Tenant as a result of such condemnation or taking. 11.02 Taking of Building. If: (a) more than 25% of the gross rentable area of the Building shall be condemned, taken or sold, or (b) if any portion of the Building shall be so condemned or taken, or if any adjacent property or street shall be condemned or improved by a public or quasi-public authority in such a manner as to require the use of any part of the Premises or of the Building, so as to require, in the opinion of Landlord, a substantial alteration or reconstruction of the Building, then this Lease may be terminated 22 23 by Landlord, as of the earlier of (i) the date of the vesting of title, or the date of dispossession as a result of such condemnation or taking, or (ii) by written notice from Landlord to Tenant that the termination shall occur on the sixtieth (60) day following Landlord's receipt of notice of the date on which said vesting or dispossession will occur. In such event, the Annual Base Rent and Additional Rent hereunder shall be apportioned as of such date. 11.06 Temporary Taking. This Lease shall not be affected if the taking authority by the exercise of its power of eminent domain shall take the use or occupancy of the Premises or any part thereof for a temporary period (hereinafter, "Temporary Taking"). The full amount of Annual Base, Additional Rent and other charges payable by the Tenant under this Lease shall be abated during such temporary taking. Except only to the extent that the Tenant may be prevented from so doing pursuant to the terms of the order of the taking authority, Tenant shall continue to perform and observe all its other obligations under this Lease, as though the Temporary Taking had not occurred. Tenant shall be entitled to receive the entire amount of any award made for the Temporary Taking, whether paid by way of damages, rent or otherwise, unless the period of temporary use or occupancy shall extend to or beyond the Expiration Date of this Lease, in which case the award shall be apportioned between Landlord and Tenant as of the Expiration Date, but Landlord shall in that circumstance receive the entire portion of the award that is attributable to physical damage to the Premises and the restoration thereof to the condition immediately prior to the taking. 11.04 Awards. Except as provided in the preceding Section 11.03, Landlord shall be entitled to the entire award in any condemnation proceeding or other proceeding for taking for public or quasi-public use, including, without limitation, any award made for the value of the leasehold estate created by this Lease. No award for any partial or entire taking shall be apportioned, and Tenant hereby assigns to Landlord any award that may be made in such condemnation or other taking, together with any and all rights of Tenant now or hereafter arising in or to same or any part thereof; provided, however, that nothing contained herein shall be deemed to give Landlord any interest in or to require Tenant to assign to Landlord any award made to Tenant specifically for its relocation expenses or the taking of personal property and fixtures belonging to Tenant provided that such award does not diminish or reduce the amount of the award payable to Landlord. 11.05 Abatement of Rent. In the event of a partial condemnation or other taking that does not result in a termination of this Lease as to the entire Premises, then the Annual Base Rent shall be adjusted in proportion to that portion of the Premises taken by such condemnation or other taking. Landlord shall, at its expense, make all necessary repairs or alterations to the Building so as to constitute the remaining Premises a complete architectural unit to the extent that the same may be feasible, provided that Landlord shall not be obligated to undertake any such repairs and alterations if the cost thereof exceeds the award resulting from such taking. Any such abatement shall cease upon substantial completion of such repairs and restoration. 23 24 ARTICLE 12 ASSIGNMENT AND SUBLETTING 12.01 Assignment. (a) Tenant shall not directly or indirectly, voluntarily or by operation of law, sell, assign, encumber, pledge or otherwise transfer this lease, the Premises or Tenant's leasehold estate hereunder (collectively, "Assignment"), without Landlord's prior written consent in each instance. Such consent not to be unreasonably withheld, provided, however that Tenant may assign Tenant's leasehold estate and this Lease to any Affiliate of Tenant. For the purpose of this Agreement, Affiliate shall mean any party which controls, is controlled by, or is under common control with, Tenant. (b) if Tenant desires at any time to enter into an Assignment of this Lease, it shall first given written notice to Landlord of its desire to do so, which notice shall contain: (i) the name of the proposed assignee, (ii) the nature of the proposed assignee's business to be carried on in the Premises, (iii) the terms and provisions of the proposed Assignment including any sum(s) payable to Tenant as consideration for entering into the Assignment, or (iv) such financial and other information as Landlord may reasonably request concerning the proposed assignee (the "Assignment Notice"). (c) At any time within thirty (30) days after Landlord's receipt of the Assignment Notice, Landlord may by written notice to Tenant elect to: (i) take an Assignment of Tenant's leasehold estate specified in Tenant's notice hereunder, (iii) consent to the Assignment, or (iv) disapprove the Assignment, provided that prior to electing any of options (i), (ii) or (iv), Landlord will consider and will not unreasonably withhold consent to the proposed Assignment. In the event Landlord elects to take an Assignment from Tenant as described in subsection (i) above, the rent payable by Landlord as tenant thereunder shall be the lower of that set forth in Tenant's notice or the Annual Base Rent payable by Tenant under this Lease at the time of the Assignment. In the event Landlord elects the option set forth in subsection (i) above, then Landlord shall have the right to use the Premises for any legal purpose in its sole discretion and the right to further assign or sublease the Premises without the consent of Tenant. If Landlord consents to the Assignment within said thirty (30) day period, Tenant may thereafter within ninety (90) days, enter into such Assignment, upon the terms and conditions set forth in the Assignment; provided, that if any sum is payable to Tenant in consideration such sum will be paid to Landlord as Additional Rent prior to the execution of the Assignment. In addition, if any amounts are payable to Tenant as rent under the Assignment, then Tenant shall pay to Landlord monthly during the term of such Assignment as Additional Rent an amount equal to any amount by which the total of all such rent payable to Tenant exceeds the monthly Annual Base Rent then payable by Tenant under the Lease. (d) If Landlord consents to an Assignment by Tenant, the assignee shall assume 24 25 the primary responsibility for Tenant's Obligations hereunder, provided that no consent by Landlord to any Assignment by Tenant shall relieve Tenant of secondary liability for any obligation to be performed by Tenant under this Lease, whether arising before or after the Assignment, but not any obligation which arises during any renewal or extension of this Lease. The consent by Landlord to any Assignment shall not relieve Tenant from the obligations to obtain Landlord's express written consent to any other or subsequent Assignment. Any Assignment that is not in compliance with this Section 12 shall be void and, at the option of Landlord, shall constitute a material default by Tenant under this Lease. The acceptance of Annual Base Rent or Additional Rent by Landlord from a proposed assignee shall not constitute the consent to such Assignment by Landlord. (e) The following shall be an Assignment for purposes of this Article 12: (i) if Tenant is a partnership, any change in the ownership (voluntary, involuntary, by operation of law or otherwise) of 50% or more of the aggregate of the partnership interests in Tenant existing on the date of execution hereof, or the dissolution of the partnership; (ii) if Tenant is a corporation whose shares are not publicly traded, any dissolution, merger, consolidation or other reorganization of Tenant, or any change in the ownership (voluntary, involuntary, by operation of law, creation of new stock or otherwise) of 50% or more of its capital stock from the ownership existing on the date of the execution hereof (other than a transfer to an Affiliate); (iii) if Tenant is any other entity (except a corporation or other entity whose shares are publicly traded), any dissolution or any change in the ownership (voluntarily, involuntarily, by operation of law or otherwise), of 50% or more in the aggregate of an interest in Tenant by any party or parties in interest on the date of execution hereof; or (iv) the sale of 50% or more of the value of the assets of Tenant. Landlord's consent to any such Assignment will not be deemed a consent to any subsequent Assignment. As used in this Section 12.01(e), the term "Tenant" shall also mean any entity which has guaranteed Tenant's obligations under this Lease, and the prohibition hereof shall be applicable to any sales or transfers of the stock or partnership interests of said guarantor. (f) Each assignee, shall assume, as provided in this Section 12.01(f), all obligations of Tenant under this Lease and shall be primarily liable for the payment of Annual Base Rent and Additional Rent, and for the performance of all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the balance of the Term. No Assignment otherwise permitted hereunder shall be binding on Landlord unless the assignee or Tenant shall deliver to Landlord within ten (10) days of execution a counterpart of the Assignment and an instrument in recordable form to be provided by Landlord that contains a covenant of assumption by the assignee and form to Landlord, consistent with the requirements of this Section 12.01(f), but the failure or refusal of the assignee to execute such instrument of assumption shall not release or discharge the assignee from its liability as set forth above. (g) In no event shall this Lease be assigned or assignable by operation of law or by voluntary or involuntary bankruptcy proceedings or otherwise, and in no event shall this 25 26 Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency, reorganization or other debtor relief proceedings. 12.02 Subletting. (a) Tenant shall not directly or indirectly, permit the Premises to be occupied by anyone other than Tenant or sublet the Premises (collectively, "Sublease") or any portion thereof without Landlord's prior written consent in each instance, which consent shall not be unreasonably withheld, provided, however, that Tenant may make an Assignment to any of its Affiliates. (b) If Tenant desires at any time to enter into a Sublease of the Premises or any portion thereof, it shall first give written notice to Landlord of its desire to do so, which notice shall contain: (i) the name of the proposed subtenant or occupant, (ii) the nature of the proposed subtenant's or occupant's business to be carried on in the Premises, (iii) the portion(s) of the Premises to be subject to Sublease and the square feet thereof and the other terms and provisions of the proposed Sublease including any sum(s) payable to Tenant as consideration for entering into the Sublease, and (iv) such financial and other information as Landlord may reasonably request concerning the proposed subtenant or occupant (the "Sublease Notice"). (c) At any time within thirty (30) days after Landlord's receipt of the Sublease Notice, Landlord may by written notice to Tenant elect to: (i) Sublease itself the portion of the Premises specified in Tenant's notice or any portion thereof, (ii) consent to the Sublease, or (iii) withhold consent to the Sublease, provided that prior to electing any of options (i), (ii) or (iii), Landlord will consider and will not unreasonably withhold consent to the proposed sublet. In the event Landlord elects to sublease from Tenant as described in subsection (i) above, the sub-rent payable by Landlord to Tenant shall be the lower of that set forth in Tenant's notice or the Annual Base Rent payable by Tenant under this Lease at the time of the Sublease (or a proportionate amount thereof representing the portion of the Premises subject to the Sublease if less than the entire Premises is subject to the Sublease). In the event Landlord elects the option set forth in subsection (i) above with respect to a portion of the Premises, then (A) Tenant shall at all times provide reasonable and appropriate access to such portion of the Premises and use of any common facilities, and (B) Landlord shall have the right to use such portion of the Premises for any legal purpose in its sole discretion and the right to further sublease the portion of the Premises subject to Landlord's election without the consent of Tenant. If Landlord consents to the Sublease within said thirty (30) day period, Tenant may thereafter within ninety (90) days, enter into such Sublease of the Premises or portion thereof, upon the terms and conditions set forth in the Sublease Notice; provided, that if any sum is payable to Tenant in consideration of Tenant's entering into such Sublease, then Tenant shall pay such sum to Landlord prior to the execution of the Sublease. In addition, if any amounts are payable to Tenant as sub-rent under the Sublease, Tenant shall pay to Landlord monthly during the 26 27 term of such Sublease on account as Additional Rent the amount by which such monthly sub-rent exceeds the product of: (i) the monthly Annual Base Rent then payable by Tenant under the Lease, and (ii) the fraction derived by dividing the square feet of the portion of the Premises subject to the Sublease by the total rentable area of the Premises. (d) If Landlord consents to a sublet by Tenant, the sublessee shall assume the primary responsibility for Tenant's obligations hereunder with respect to the sublet portion of the Premises, provided that no consent by Landlord to any Sublease by Tenant shall relieve Tenant of secondary liability for any obligation to be performed by Tenant under this Lease with respect to the sublet portion of the Premises, whether arising before or after the Sublease. The consent by Landlord to any Sublease shall not relieve Tenant from the obligation to obtain Landlord's express written consent to any other or subsequent Sublease. Any Sublease that is not in compliance with this Article 12 shall be void and, at the option of Landlord, shall constitute a material default by Tenant under this Lease. The acceptance of Annual Base Rent or Additional Rent by Landlord from a proposed sublessee shall not constitute the consent to such Sublease by Landlord. (e) Each sublessee, shall assume, as provided in this Section 12.02(e), all obligations of Tenant under this Lease and shall be and remain primarily liable for the payment of Annual Base Rent and Additional Rent, and for the performance of all the terms, covenants, conditions and agreements herein contained on Tenant's part to be performed for the balance of the Term with respect to the portion of the Premises being sublet. No Sublease otherwise permitted hereunder shall be binding on Landlord unless the sublessee or Tenant shall deliver to Landlord within ten (10) days of execution a counterpart of the Sublease and an instrument in recordable form to be provided by Landlord that contains a covenant of assumption by the sublessee consistent with the requirements of this Section 12.02(e), but the failure or refusal of the sublessee to execute such instrument of assumption shall not release or discharge the sublessee from its liability as set forth above. (f) INTENTIONALLY DELETED (g) Upon the occurrence of an Event of a Default, if the Premises or any part thereof are then sublet, Landlord, in addition to any other remedies herein provided, or provided by law, may at its option collect directly from such subtenant all rents becoming due to Tenant under such sublease and apply such rent against any sums due to it by Tenant hereunder, and no such collection shall be construed to constitute a novation or a release of Tenant from the further performance of its obligations hereunder. 12.03 Right of First Refusal. (a) In the event any or all of Tenant's interest in the Premises and/or this Lease is transferred by operation of law to any trustee, receiver or other representative or agent of Tenant, or to Tenant as a debtor in possession, and subsequently any or all of Tenant's interest in the Premises and/or this Lease is offered or to be offered by Tenant or any 27 28 trustee, receiver, or other representative or agent of Tenant as to its estate or property, (such person, firm or entity being hereinafter referred to as the "Grantor"), for assignment, conveyance, lease, or other disposition to a person, firm or entity other than Landlord, (each such transaction being hereinafter referred to as a "Disposition"), it is agreed that Landlord has and shall have a right of first refusal to purchase, take, or otherwise acquire the same upon the same terms and conditions as the Grantor thereof shall accept upon such Disposition to such other person, firm, or entity; and as to each such Disposition the Grantor shall give written notice to Landlord in reasonable detail of all of the terms and conditions of such Disposition within twenty (20) days next following its determination to accept the same but prior to accepting the same, and it shall not make the Disposition until and unless Landlord has failed or refused to accept such right of first refusal as to the Disposition, as set forth herein. (b) Landlord shall have twenty (20) days next following its receipt of the written notice as to such Disposition in which to exercise the option to acquire Tenant's interest by such Disposition, and the exercise of the option by Landlord shall be effected by written notice to that effect sent to the Grantor by certified or registered mail; but nothing herein shall require Landlord to accept a particular Disposition or any Disposition, nor does the rejection of any one such offer of first refusal constitute a waiver of release of the obligation of the Grantor to submit other offers hereunder to Landlord. In the event Landlord accepts such offer of first refusal, the transaction shall be consummated pursuant to the terms and conditions of the Disposition described in the notice to Landlord. In the event Landlord rejects such offer of first refusal, Grantor may consummate the Disposition with such other person, firm, or entity; but any decrease in price of more than two percent (2%) of the price sought from Landlord or any change in the terms of payment for such Disposition shall constitute a new transaction requiring a further option of first refusal to be given to Landlord hereunder. ARTICLE 13 DEFAULTS AND REMEDIES 13.01 Events of Default. The occurrence of any one or more of the following events shall constitute an event of default (each an "Event of Default") hereunder: (a) Nonpayment of Annual Base Rent or Additional Rent. Failure to pay any installment of Annual Base Rent or Additional Rent due and payable hereunder, upon the date when said payment is due, such failure continuing for a period of ten (10) business days after receipt by Tenant of written notice thereof. (b) Other Obligations. Failure to perform any obligation, agreement or covenant under this Lease other than those matters specified in subparagraph (a) of this Section 13.01, such failure continuing for thirty (30) business days after written notice by Landlord 28 29 to Tenant specifying such failure, provided that it shall not constitute an Event of Default hereunder if Tenant commences and diligently pursues the cure of such failure within such thirty (30) day period. (c) Abandonment. Vacation or abandonment of the Premises for a continuous period in excess of thirty (30) business days. (d) Removal. Any removal or attempted removal, without the prior approval of Landlord, of any of Tenant's equipment, appliances, or personal property from the Premises for any reason other than the normal and usual operation of Tenant's business. (e) General Assignment. A general assignment by Tenant or Tenant's guarantor (if any) for the benefit of creditors to the extent permitted by applicable law. (f) Bankruptcy. The filing of any voluntary petition in bankruptcy by Tenant or Tenant's guarantor (if any), or the filing of an involuntary petition in bankruptcy by Tenant's creditors or any of guarantor's creditors, which involuntary petition remains undischarged for a period of thirty (30) business days to the extent permitted by applicable law. (g) Receivership. The employment of a receiver to take possession of substantially all of Tenant's assets or any guarantor's assets or the Premises, if such receivership remains undissolved for a period of thirty (30) business days after creation thereof to the extent permitted by applicable law. (h) Attachment. The attachment, execution or other judicial seizure of all or substantially all of Tenant's assets or any guarantor's assets or the Premises, if such attachment or other seizure remains thirty or undischarged for a period of thirty (30) business days after the levy thereof. (i) Insolvency. The admission by Tenant or Tenant's guarantor (if any) in writing of its inability to pay its debts as they become due, the filing by Tenant or Tenant's guarantor (if any) of a petition seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, the filing by Tenant or Tenant's guarantor (if any) of an answer admitting or failing timely to contest a material allegation of a petition filed against Tenant or Tenant's guarantor (if any) in any such proceeding or, if within thirty (30) days after the commencement of any proceeding against Tenant or Tenant's guarantor (if any) seeking any reorganization, or arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, such proceeding shall not have been dismissed. 13.02 Remedies. Upon the occurrence of any Events of Default by Tenant which is not cured by Tenant within the grace periods specified in Section 13.01 hereof, Landlord shall have the following rights and remedies, in addition to all other rights or remedies available 29 30 to Landlord in law or equity: (a) Landlord may cure or perform for the account of Tenant any such matter or obligation in default by Tenant and Tenant shall immediately pay on account as Additional Rent any expenditures made and the amount of any obligations incurred in connection therewith, plus interest, from the date of any such expenditure, at the Default Rate set forth in Section 4.05; (b) Landlord may accelerate all Annual Base Rent and Additional Rent due for the balance of the Term of this Lease and declare the same to be immediately due and payable. In determining the amount of any future payments payable to Landlord on account of Additional Rent under Article 5, Landlord may make such determination based upon the amount of such Additional Rent paid or payable by Tenant for the full year immediately prior to such default; (c) Landlord, at its option, may serve notice upon Tenant that this Lease and the then unexpired Term hereof shall cease and expire and terminate on the date specified in such notice without any right on the part of the Tenant to save the forfeiture by payment of any sum due or by the performance of any term, provision, covenant, agreement or condition broken; and, thereupon and at the expiration of the time limit in such notice, this Lease and the Term hereof granted, as well as the right, title and interest of the Tenant hereunder, shall wholly cease and expire and terminate in the same manner and with the same force and effect as if the date fixed in such notice were the date herein granted for expiration of the Term of this Lease. Thereupon, Tenant shall immediately quit and surrender the Premises to Landlord by summary proceedings, detainer, ejectment or otherwise and remove all occupants thereof and, at Landlord's option, any property or fixtures thereon without being liable for any damages therefor. Upon termination of this Lease, Landlord will be entitled to recover as damages (1) all Annual Base Rent and Additional Rent and other sums due and payable by Tenant on the date of termination; (2) an amount equal to the value of the Annual Base Rent and Additional Rent and other sums provided herein to be paid by Tenant for the residue of the Term hereof, less the fair rental value of the Premises for the residue of the Term (taking into account the amount of rent to be received from replacement tenants (if in fact it is possible to relet the Premises), and the time and expenses necessary to identify and obtain the replacement tenant or tenants, including without limitation, expenses relating to recovery of the Premises, preparation for reletting and for reletting itself including without limitation, brokerage commissions, operating expenses, reasonable attorney fees, rent concessions, and alteration costs); and (3) the cost of performing any other covenants to be performed by Tenant. (d) Landlord may, re-enter and repossess the Premises or any part thereof, and remove Tenant's signs and other evidences of tenancy, and take and hold possession thereof, without such-entry and possession terminating the Lease or releasing Tenant, in whole or in part, from any of Tenant's obligations under this Lease including the obligation to pay Annual Base Rent and Additional Rent for the full Term. In such Event, Landlord, at its 30 31 option, may attempt in its own name, as agent for Tenant, if this Lease not be terminated or in its own behalf if this Lease be terminated, to relet all or any part of such Premises for and upon such terms and to such persons, firms or corporations and for such period or periods as Landlord, in its sole discretion, shall determine, including the term beyond the termination of this Lease; and Landlord shall not be required to accept any tenant offered by Tenant (but will not unreasonably withhold acceptance) or observe any instruction given by Tenant about such reletting. For the purpose of such reletting, Landlord may decorate or make any repairs, changes, alterations or additions in or to the Premises to the extent deemed by Landlord desirable or convenient and the cost of such decoration, repairs, changes, alterations or additions, shall be charged to and be payable by Tenant as: (a) Additional Rent hereunder, or (b) in the event the Lease has been terminated, as damages. Tenant shall also pay to Landlord upon demand any brokerage commissions and reasonable attorneys' fees incurred by Landlord in connection with the foregoing. Any sums collected by Landlord from any new tenant obtained on account of the Tenant shall be credited against the balance of the Annual Base Rent and Additional Rent due hereunder as aforesaid. Tenant shall pay to Landlord monthly, on the days when the Annual Base Rent due would have been payable under this Lease, the amount due hereunder less the amount obtained by Landlord from such new tenant. Tenant agrees that Landlord may file to recover any sums falling due under the terms of this Section from time to time, and all reasonable costs and expenses of Landlord, including reasonable attorney's fees and costs incurred in connection with such suit shall be paid by Tenant. (e) All rents received by Landlord in any reletting shall be applied first to the payment of such expenses as Landlord may have incurred in recovering possession of the Premises and in reletting the same; second, to the payment of any costs and expenses incurred by Landlord either for making necessary repairs to the Premises or in curing any default on the part of Tenant in any covenant or condition herein made binding upon Tenant, and, last, toward the payment of rent due from Tenant under the terms of this Lease, with interest at the lowest Prime Rate quoted in the Wall Street Journal; and Tenant expressly agrees to pay any deficiency then remaining. Any rents received upon reletting of the Premises in excess of the costs, expenses and rents due Landlord described in this subsection shall be paid to Tenant upon the expiration of this Lease. (f) Any and all property belonging to Tenant or to which Tenant is or may be entitled which may be removed from the Premises by Landlord pursuant to the authority of this Lease or applicable law, may be handled, removed or stored in a commercial warehouse or otherwise by Landlord at Tenant's risk and expense and Landlord shall in no event be responsible for the value, preservation or safekeeping thereof. Tenant shall pay to Landlord, upon demand, any and all expenses incurred in such removal and all storage charges for such property so long as the same shall be in Landlord's possession or under Landlord's control. (g) Landlord shall have the right of injunction, in the event of a breach or threatened breach by Tenant of any of the agreements, conditions, covenants or terms 31 32 hereof, to restrain the same and the right to invoke any remedy allowed by law or in equity, whether or not other remedies, indemnity or reimbursements are herein provided. The rights and remedies given to Landlord in this Lease are distinct, separate and cumulative remedies; and no one of them, whether or not exercised by Landlord, shall be deemed exclusive of any of the others. 13.03 No Accord and Satisfaction. Landlord may collect and receive any rent due from Tenant, and the payment thereof shall not constitute a waiver of or affect any notice or demand given, suit instituted or judgment obtained by Landlord, or be held to waive, affect, change, modify or alter the rights or remedies that Landlord has against Tenant in equity, at law, or by virtue of this Lease. No receipt or acceptance by Landlord from Tenant of less than the monthly rent herein stipulated shall be deemed to be other than a partial payment on account for any due and unpaid stipulated rent; no endorsement or statement on any check or any letter or other writing accompanying any check or payment of rent to Landlord shall be deemed an accord and satisfaction, and Landlord may accept and negotiate such check or payment without prejudice to Landlord's rights to (i) recover the remaining balance of such unpaid rent, or (ii) pursue any other remedy provided in this Lease. 13.04 Claims in Bankruptcy. Nothing herein shall limit or prejudice the right of Landlord to prove for and obtain in proceedings for bankruptcy or insolvency by reason of any such termination, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to or less than the amount of the loss or damage referred to above. 13.05 Default by Landlord. Landlord's failure to perform or observe any of its Lease obligations for more than thirty (30) business days after Tenant has delivered written notice thereof to Landlord shall constitute a default under this Lease; provided, however, that if the nature of Landlord's obligation is such that more than thirty (30) days are required for performance then Landlord shall not be in default if Landlord commences performance within such thirty (30) day period and thereafter diligently prosecutes the same to completion. Tenant shall identify the Lease provisions containing the Landlord's obligations that are the subject of Tenant's complaint and specify in reasonable detail the nature and extent of Landlord's failure with respect thereto. If Landlord commits a default, Tenant may pursue any remedies given in this Lease or under the law, including but not limited to, terminating this Lease. ARTICLE 14 NONDISTURBANCE AND RIGHTS OF MORTGAGE HOLDERS 14.01 Subordination. 32 33 (a) Without the necessity of any additional document being executed by Tenant for the purpose of effecting a subordination, Tenant agrees that this Lease and Tenant's tenancy hereunder are and shall be automatically subject and subordinate at all times to (a) the lien of any mortgage that may now exist or hereafter be executed in any amount for which the Building, or Landlord's interest or estate in any of said items is specified as security; and (b) renewals, modifications, consolidations, replacements, and extensions of any of the foregoing. Notwithstanding the foregoing, Landlord and the holder of such mortgage lien on the Building (the "Landlord's Mortgagee") shall have the right to partially subordinate or cause to be subordinated such lien to this Lease, and Tenant agrees to promptly execute an agreement satisfactory in substance and form to Landlord's Mortgagee upon written request of Landlord's Mortgagee. Tenant's agreement in this Section 14.01(a) is subject to the agreement of Landlord's Mortgagee not to disturb Tenant's possession and occupancy of the Premises or join Tenant in any such action as a party defendant so long as Tenant has not committed an Event of Default. (b) In the event that any such mortgage is foreclosed or a conveyance in lieu of foreclosure is made for any reason, Tenant shall, at the option of Landlord's Mortgagee or the grantee or purchaser in foreclosure, notwithstanding any subordination of any such lien to this Lease, attorn to and become the Tenant of the successor in interest to Landlord at the option of such successor in interest. Tenant covenants and agrees to execute and deliver, upon request by Landlord, Landlord's Mortgagee, or by Landlord's successor in interest and in the form requested by Landlord, Landlord's Mortgagee, or by Landlord's successor in interest, any additional documents evidencing the priority or subordination of this Lease with respect to the lien of any such first mortgage including a Subordination and Attornment Agreement satisfactory to Landlord, Landlord's Mortgagee, and Landlord's successors in interest. (c) If Landlord's Mortgagee shall succeed to the interest of Landlord under this Lease, Landlord's Mortgagee shall assume and perform Landlord's obligations under this Lease only while it is the fee owner of the Building and shall not be (i) liable for any breach, act or omission of any prior landlord, including Landlord; (il) subject to offsets, claims or defenses which Tenant might have against prior landlords; (iii) bound by the payment of the rent for more than the current month to any prior landlord. 14.02 Estoppel Certificates. Tenant shall at any time, and from time to time, upon not less than fifteen (15) days prior written notice from Landlord execute, acknowledge and deliver to Landlord, to any prospective purchaser, or Landlord's Mortgagee, a written certificate of Tenant certifying: (a) that Tenant has accepted the Premises and the commencement date and termination date of this Lease; (b) that this Lease is unmodified and in full force and effect (or if there have been modifications, that the same is in full force and effect as modified and stating the modifications), and has not been assigned; (c) that there are not, to Tenant's knowledge, any uncured defaults on the part of the Landlord or Tenant hereunder, or specifying any defaults that exist; (d) whether or not there are then 33 34 existing any defenses against the enforcement of any of the obligations of Tenant under this Lease (and, if so, specifying same); (e) that Tenant has received all required contributions from Landlord on account of Tenant's improvements; (f) the dates, if any, to which the Annual Base Rent and Additional Rent and other charges under this Lease have been paid and the amounts of said Annual Base Rent and Additional Rent, and that no Annual Base Rent, Additional Rent, or security deposit has been paid in advance of its due date, and (g) any other information that may reasonably be required by any of such persons. It is intended that any such certificate of Tenant delivered pursuant to this Section 14.03 may be relied upon by Landlord and any prospective purchaser, Lessor, Landlord's Mortgagee, or Other Mortgagee(s) of any part of the Building. Tenant's failure to deliver such Certificate within said fifteen day period shall be a default hereunder and shall be conclusive upon Tenant that this Lease is in full force and effect and unmodified, and that there are no uncured defaults in Landlord's performance hereunder. 14.03 Quiet Enjoyment. Landlord hereby represents and warrants that it has fee simple title to the Building and the Land and full legal right and authority to enter into this lease and perform its obligations hereunder. Upon Tenant paying the Annual Base Rent and Additional Rent and performing all of Tenant's obligations under this Lease, Tenant may peacefully and quietly enjoy the Premises during the Term as against all persons or entities lawfully claiming by or through Landlord; subject, however, to the provisions of this Lease and to the rights of Landlord's Mortgagee or Other Mortgagee(s). ARTICLE 15 NOTICES 15.01 Manner of Notice. Except as otherwise expressly provided in this Lease, any bills, statements, notices, demands, requests or other communications given or required to be given under this Lease shall be effective only if rendered or given in writing, sent by registered or certified mail or delivered personally, (a) to Tenant (i) at Tenant's address set forth above, if sent prior to Tenant's taking possession of the Premises, or (ii) at the Building if sent subsequent to Tenant's taking possession of the Premises, or (iii) at any place where Tenant or any agent or employee of Tenant may be found if sent subsequent to Tenant's vacating, deserting, abandoning or surrendering the Premises, or (b) to Landlord at Landlord's address set forth above, or (c) to such other address as either Landlord or Tenant may designate as its new address for such purpose by notice given to the other in accordance with the provisions of this Section 15.01. Any such bill, statement, notice, demand, request or other communication shall be deemed to have been rendered or given three (3) days after the date when it shall have been mailed as provided in this Section 15.01 if sent by registered or certified mail, or upon the date personal delivery is made. ARTICLE 16 MISCELLANEOUS 34 35 16.01 Brokers. Landlord and Tenant warrant to each other that they have had no dealings with any broker, agent or finder in connection with this Lease. Both parties hereto agree to protect, indemnify and hold harmless the other from and against any and all expenses with respect to any compensation, commissions and charges claimed by any broker, agent or finder with respect to this Lease or the negotiation thereof that is made by reason of any action or agreement by such party. 16.02 Attorney's Fees. If on account of any default by Tenant in Tenant's obligations under the terms of this Lease, it becomes necessary or appropriate for Landlord to employ attorneys or other persons to enforce any of Landlord's rights or remedies hereunder, Tenant agrees to pay all reasonable fees of such attorneys and other persons and all other costs of any kind so incurred. 16.03 Notice of Lease. Upon the Commencement Date of this Lease, either party shall upon the request of the other, join in the execution of a notice of lease pursuant to Section 47-19 of the Connecticut General Statutes and either party may record the same. Tenant shall not record this Lease, and any recording of this Lease or any memorandum thereof (other than as contemplated by the preceding sentence) shall constitute an Event of Default by Tenant, entitling Landlord to pursue any and all remedies available. to Landlord under this Lease. At the expiration or earlier termination of this Lease, Tenant shall, at the request of Landlord, execute and deliver to Landlord a quit-claim deed, lease cancellation instrument or other instrument of release in form suitable for recording, provided that such document does not have the effect of waiving any claims that either Landlord or Tenant may have against the other arising out of this Lease. In the event that Tenant does not execute and deliver such an instrument to Landlord within ten (10) days following Landlord's written request therefor, Landlord is hereby irrevocably authorized to execute any such instrument of release on behalf of Tenant and record the same, and Tenant hereby appoints Landlord as its attorney-in-fact, which power is coupled with an interest, to accomplish the foregoing. 16.01 No Partnership. Any intention to create a joint venture or partnership relation between the parties hereto is hereby expressly disclaimed. Landlord shall not by the execution of this Lease in any way or for any purpose, become (i) a partner of Tenant in the conduct of Tenant's business or otherwise, or (ii) a joint venturer or a member of a joint enterprise with Tenant. 16.05 Multiple Options. In the event that Tenant has any multiple options to expand, extend or renew this Lease, a later option cannot be exercised unless the prior option to expand, extend or renew this Lease has been properly exercised in accordance with the terms of this Lease. 16.06 No Merger. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation thereof, shall not work a merger unless Lender so elects, and shall, at the option of Landlord, terminate all or any existing subtenancies or may, at the option of 35 36 Landlord, operate as an assignment to Landlord of any or all of such subtenancies. 16.07 Severability. If any provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby, and each provision of this Lease shall be valid and enforceable to the full extent permitted by law. No remedy or election hereunder shall be deemed exclusive, but shall wherever possible, be cumulative with all other remedies at law or in equity. Neither this Lease nor any term or provision hereof may be changed, waived, discharged or terminated orally, and no breach thereof shall be waived, altered or modified, except by a written instrument signed by the party against which the enforcement of the change, waiver, discharge or termination is sought. Any right to change, waive, discharge, alter or modify, or terminate this Lease shall be subject to the prior express written consent of Landlord's Mortgagee. 16.08 No Waiver. No waiver by Landlord of any provision hereof shall be deemed a waiver of any other provision hereof or of any subsequent breach of the same or any other provision. No waiver of any breach shall affect or alter this Lease, but each and every term, covenant and condition of this Lease shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. No reference to any specific right or remedy shall preclude Landlord from exercising any other right or from having any other remedy or from maintaining any action to which it may otherwise be entitled at law or in equity. No failure by Landlord to insist upon the strict performance of any agreement, term, covenant or condition hereof, or to exercise any right or remedy consequent upon a breach thereof, and no acceptance of full or partial rent during the continuance of any such breach, shall constitute a waiver of any such breach, agreement, term, covenant or condition. 16.09 Bind and Inure. The terms, provisions, covenants and conditions contained in this Lease shall bind and inure to the benefit of Landlord and Tenant, and, except as otherwise provided herein, their respective heirs, legal representatives, successors and assigns; provided, however, upon the sale, assignment or transfer by the Landlord named herein (or by any subsequent landlord) of its interest in the Building, as owner or lessor, including any transfer by operation of law, the Landlord (or any subsequent landlord) shall be relieved from all subsequent obligations or liabilities under this Lease, and all obligations subsequent to such sale, assignment or transfer (but not any obligations or liabilities that have accrued prior to the date of such sale, assignment or transfer) shall be binding upon the grantee, assignee, or other transferee; any such grantee, assignee, or other transferee shall, by accepting such interest, be deemed to have assumed such subsequent obligations and liabilities. Notwithstanding anything to the contrary set forth herein, if Landlord's Mortgagee or Other Mortgagee(s) shall succeed to Landlord's interests hereunder, then Landlord's Mortgagee or Other Mortgagee(s) shall not be deemed to have assumed any obligations or liabilities under this Lease which arose prior to the date any such Mortgagee shall have requested Tenant to attorn to such Mortgagee. 36 37 16.10 Landlord's Liability. (a) The term "Landlord" as used herein and throughout the Lease shall mean only the owner or owners at the time in question of the fee title or a tenant's interest in a ground lease of the Building and this Lease. In the event of any transfer of such title or interest from and after the date of such transfer, Landlord herein named (and in case of any subsequent transfers, the then grantor) and each of its partners, principals, shareholders, beneficiaries or co-tenants (as the case may be) shall be relieved of all liability as respects Landlord's obligations hereunder thereafter to be performed, provided that (i) the transferee of the title and interest of Landlord (and in case of any subsequent transfers, the then grantors) shall automatically, by acceptance of the instrument of transfer agree to assume and perform all of Landlord's obligations under this Lease; and (ii) any monies in the hands of Fabrilock, Inc. or the then grantor at the time of such transfer, in which Tenant has an interest (the Security Deposit), shall be delivered to the grantee. (b) Landlord agrees to protect, indemnify and save harmless Tenant, from and against any and all loss, cost, liability, damage and expense, including) without limitations, claims, demands, penalties, causes of action, costs and expenses and reasonable attorneys' fees imposed upon and incurred by or asserted against Tenant related to (a) The failure by Landlord to observe any of its covenants set forth herein or the breach by Landlord of any of its representations and warranties set forth herein, (b) any acts, omissions or negligence of Landlord or any person claiming through or under Landlord, or if the contractors, agents, servants, employees, visitors or licensees of Landlord or any such person, in, on or about the Premises or the Building, either prior to, during, or after the expiration of, the Term, including, without limitation, any acts, omissions or negligence in the maintenance of the Building and the Common Area or (c) for personal injury, death or property damage occasioned by any use, occupancy, condition, occurrence, omission or negligence of Landlord referred to in the preceding clauses. In case any action, suit or proceeding is brought against Tenant by reason of any such occurrence, Landlord will, at Landlord's expense, resist and defend such action, suit or proceeding or cause the same to be resisted or defended by counsel reasonably approved by Tenant, such approval not to be unreasonably withheld. (c) Landlord's Liability for Environmental Matters. (i) Definitions. (a) "Environmental Condition" shall mean the presence of Hazardous Materials at the Facility which requires removal, remediation, or corrective action pursuant to standards established under applicable Environmental Laws or orders or other directives from any local, state or federal government agency. (b) "Environmental Laws" shall mean any applicable laws relating to or imposing liability or standards of conduct concerning hazardous or toxic materials and substances, air pollution (including noise and odors), water pollution, liquid and solid waste, pesticides, drinking water, community and employee health, environmental land use 37 38 management, stormwater, sediment control, radiation, wetlands, endangered species, environmental permitting and petroleum products, whether now in effect or becoming effective at any time after the date hereof, including but not limited to those dealing with public health and safety and the protection of the environment, such as the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. 136 et seq., as amended; the Toxic Substance Control Act, 15 U.S.C. 2601 et seq., as amended; the Clean Water Act, 33 U.S.C. 1251 et seq., as amended; the National Environmental Policy Act, 42 U.S.C. 4321 et seq., as amended; the Solid Waste Disposal Act, 42 U.S.C. 6901 et seq., as amended; the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. 9601 et seq., as amended; the Clean Air Act, 42 U.S.C. 7401 et seq., as amended; the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. 11001 et seq.; as amended; the Occupational Safety and Health Act, 29 U.S.C. 651 et seq., as amended; the Resource Conservation and Recovery Act, as amended; all Connecticut state and county laws and ordinances relating to environmental, health and safety matters; and all rules and regulations promulgated pursuant to such federal, state and county laws and ordinances. (c) "Hazardous Material" means any pollutant, contaminant, hazardous, toxic or dangerous waste, substance or material, including, but not limited to, any chemical products, petroleum substances, PCBs, asbestos, urea formaldehyde, ammonia, nitrates, semi-volatile or purgeable organics, flammable explosives, radioactive materials, hazardous waste, metals or other materials or substances defined as or included in the definition of substances defined as "hazardous substances," "hazardous materials," "solid waste," "hazardous waste, "toxic substances" or analogous definitions under any Environmental Law. (d) "Material Compliance" means compliance which is not reasonably likely to produce any adverse change in or effect on the operations, properties or condition (financial or otherwise), assets or liabilities of the Tenant and which would not result in civil or criminal liability to any individual. (ii) Responsibility for Environmental Conditions. Landlord hereby assumes all responsibility for all costs, debts, duties, obligations or liabilities for (i) any environmental problem, hazard or condition created, arising from or in existence prior to or as of the date of the commencement of Tenant's occupancy of the Premises and (ii) any environmental problem, hazard or condition created, arising or in existence after the commencement of Tenant's occupancy of the Premises unless the environmental problem, hazard or condition was created, arose from or came into existence as a result of acts or omissions of Tenant, including in either case, without limitation, any such liabilities associated with off-site disposal of any Hazardous Material or with any obligations under any Environmental Law. Not to limit the generality of the foregoing, Landlord will be responsible at its cost and expense for the removal, remediation and correction of all Environmental Conditions at the land and/or the Building for which it is responsible under this Section. 38 39 (iii) Landlord's Representations and Warranties Regarding Environmental Matters. Landlord represents and warrants to and for the benefit of Tenant, its affiliates, and each of their stockholders, officers, directors, employees, agents, successors and assigns, as follows: (a) Landlord has provided to Tenant copies of all studies, reports, notices, orders, warnings and similar documents in Landlord's possession or control analyzing, describing or otherwise relating to Environmental Conditions or activities at the Land and the Building; (b) Landlord is conducting the operation of the Building and Material Compliance with all applicable Environmental Laws and directives of federal, state and local authorities, including, without limitation, the preparation and maintenance of records; and (iv) Indemnification for Environmental Liability. Landlord shall defend, indemnify and hold harmless Tenant, its affiliates, and their respective. stockholders, officers, directors, employees and agents from any and all liabilities, losses, damages (including, without limitation, punitive damages), claims and costs, related to or arising from (i) any breach of Landlord's representations set forth in Section 16.10(c) (iii), above; (ii) the failure by Landlord to fulfill any of its obligations under this Section 16.10 (c); (iii) liability for environmental problems, hazards or conditions effecting or emanating from the Land or the Building which Tenant is not responsible for and (iv) any and all actions (including, without limitation, enforcement actions of any kind, administrative or judicial proceedings, and orders or judgments arising out of or therefrom), suits, claims, proceeding, investigations, audits, administrative or criminal penalties, injunctive or other relief (whether or not based upon personal injury, property damage or contamination of, or adverse effects upon, the environment, water tables or natural resources), costs and other expenses (including attorneys' and consultants' fees, court costs and amounts paid in settlement of any claims or actions) incident to any of the foregoing. (v) Rent Set Off. If Landlord is in default of its obligations contained in Section 16.10(c) (iv) above and Tenant has had to make payment because of such default of Landlord, Tenant may deduct such payments from its rent and apply said payments toward reimbursement of Tenant. 16.11 Interpretation. The words "Landlord" and "Tenant" as used herein shall include the plural as well as the singular. The words used in neuter gender include the masculine and feminine. If there is more than one Tenant, the obligations under this Lease imposed on Tenant shall be joint and several. The captions preceding the articles of this Lease have been inserted solely as a matter of convenience and such captions in no way define or limit the scope or intent of any provision of this Lease. Submission of this instrument for examination does not constitute a reservation of or option for lease of the Premises, and it is not effective as a lease or otherwise until execution and delivery by both 39 40 Landlord and Tenant. 16.12 Time of Essence. Except as provided in Section 16.12, time is of the essence with respect to the due performance of the terms, covenants and conditions herein contained; provided, however that no delay or failure of Landlord to enforce any of the provisions herein contained and no conduct or statement of Landlord shall waive or affect any of Landlord's rights hereunder. 16.13 Force Majeure. Whenever during the Term it becomes impossible for Landlord or Tenant to perform the obligations on either party's part to be performed as a result of war, civil riots, labor disputes or strikes (other than those caused by the willful act or omission of Landlord or Tenant), or Acts of God or the elements, then Landlord or Tenant shall be excused from such performance without penalty or other liability or a breach of or default under this Lease to the other party for the period of time in which the event or events giving rise to the impossibility of performance shall exist. Notwithstanding anything to the contrary contained in this Section 16.13, Landlord and Tenant agree that neither party shall be excused from the timely performance of its obligations under this Lease for a period of time greater than ninety (90) days. 16.14 Joint and Several. If two or more individuals, corporations, partnerships or other business associations (or any combination of two or more thereof) shall sign this Lease as Tenant, the liability of each such individual, corporation, partnership or other business association to pay Annual Base Rent and Additional Rent and perform all other obligations hereunder shall be deemed to be joint and several, and all notices, payments and agreements given or made by, with or to any one of such individuals, corporations, partnerships or other business associations shall be deemed to have been given or made by, with or to all of them. In like manner, if Tenant shall be a partnership or other business association, the members of which are, by virtue of statute or federal law, subject to personal liability, the liability of each such member shall be joint and several. 16.15 Entire Agreement. This Lease, including the Exhibits hereto, which are made part of this Lease, contain the entire agreement of the parties and all prior negotiations and agreements are merged herein. Neither Landlord nor Landlord's agents have made any representations or warranties with respect to the Premises, the Building or this Lease except as expressly set forth herein, and no rights, easements or licenses are or shall be acquired by Tenant by implication or otherwise unless expressly set forth herein. Tenant covenants and agrees that no diminution of light, air or view by any structure that may hereafter be erected (whether or not by Landlord) shall entitle Tenant to any reduction of Annual Base Rent or Additional Rent under this Lease, result in any liability of Landlord or Tenant, or in any other way affect this Lease or Tenant's obligations hereunder. 16.16 Authority. If Tenant signs as a corporation or a partnership, each of the persons executing this Lease on behalf of Tenant does hereby covenant and warrant that 40 41 Tenant is a duly authorized and existing entity, that Tenant has and is qualified to do business in Connecticut, that Tenant has full right and authority to enter into this Lease, and that each and both of the persons signing on behalf of Tenant are authorized to do so. Upon Landlord's request, Tenant shall provide Landlord with evidence reasonably satisfactory to Landlord confirming the foregoing covenants and warranties. 16.17 Governing Law. This Lease and the rights and obligations of the parties hereunder shall be construed and enforced in accordance with the laws of the State of Connecticut. 16.18 Survival. All agreements, covenants and indemnifications contained herein or made in writing pursuant to the terms of this Lease by or on behalf of Tenant shall be deemed material and shall survive expiration or sooner termination of this Lease. 16.19 Other Leases. Landlord reserves the absolute right to effect such other tenancies in the Building as Landlord in the exercise of its sole business judgment shall determine and notwithstanding any other provisions hereof. Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or number of tenants shall, during the term of this Lease or any extension thereof, occupy any space in said Building. 16.20 No Representations. Other than as specifically stated herein, Tenant has examined the Premises, is satisfied with its condition and takes the Premises in "as is" condition with no representation or warranties whatsoever. 16.21 Building Name. The Building may be known by such name as Landlord, in its sole discretion, may elect, and Landlord shall have the right from time to time to change such designation or name without Tenant's consent. ARTICLE 17 EXPANSION PREMISES 17.01 Expansion Premises. Superwinch, Inc. is currently the tenant of approximately 17,540 square feet of space (the "Expansion Premises") in the Building as shown on Exhibit A. The Expansion Premises is scheduled to be vacated by Superwinch, Inc. on or about June 30, 1998. 17.02 Option for Expansion Premises. (a) Provided: (i) There is not then occurring an Event of Default under the terms of this Lease; (ii) this Lease is in full force and effect; and (iii) Superwinch vacates the Expansion Premises, Tenant shall have the option to lease the Expansion Premises. 41 42 (b) The option contained in this section may only be exercised by written notice to Landlord given on or before November 1, 1997. (c) If Tenant shall fail to exercise its option during a period when the option is available, when Tenant is not entitled to exercise its option or when this instrument is no longer in full force and effect for any reason, the option contained in this section shall be void. (d) If Tenant exercises its option for the Expansion Premises, the Expansion Premises shall become incorporated into the definition of Premises and all of the terms and conditions of this Lease shall apply except that; (i) Base Rent for the Expansion Premises shall be the same per square foot as Base Rent is for the Premises and therefore, Base Rent shall be increased to an amount equivalent to the Base Rent per square foot multiplied by the total number of square feet for the whole Premises; (ii) the Security Deposit shall be proportionately increased. 17.03 Base Rent for Expansion Premises. Base Rent for the Expansion Premises shall be the same per square foot as Base Rent for the Premises. 17.04 Early Exercise of Option. If Superwinch vacates the Expansion Premises before May 1, 1998, the time in which Tenant may exercise Tenant's option shall be accelerated to a period of ten (10) days after notice of Landlord that Superwinch will be or has vacated the Expansion Premises. 17.05 Latest Time For Option. If Superwinch vacates the Expansion Premises after June 30, 1998, and Tenant has exercised its option to lease the Expansion Premises, Tenant shall occupy the Expansion Premises and Base Rent (and additional rent and the security deposit) shall be increased within ten (10) days of when Superwinch vacates. 17.06 Toilets. Tenant shall allow the Tenant of the Expansion Premises to use the toilets in the Premises. ARTICLE 18 RELATIONSHIP OF TENANTS AND SPACE The Building is currently occupied or will soon be occupied as follows: Applied Photonic Devices, Inc. ("APD") 36,410 square feet ("Premises") Staples, Inc. ("Staples") 26,250 square feet ("Staples Premises") Superwinch, Inc. ("Superwinch") 17,520 square feet (Superwinch Premises") 80,180 square feet The lease between Landlord and Staples is expected to terminate before the APD lease or the Superwinch Lease. The Superwinch Lease is expected to terminate before the 42 43 APD lease. When Staples vacates the Staples Premises, provided (i) there is not then occurring an Event of Default under this Lease and (ii) this Lease is in full force and effect, the Staples Premises shall become part of the Premises and it shall be included in the term "Premises" as used in this Lease. All terms of this Lease shall continue to apply to the term Premises except: (a) Annual Base Rent shall increase to $172,315.00 and the consecutive monthly payments shall increase to $14,359.58; and (b) The Security Deposit shall be increased to $28,719.16. When the increases called for in items (a) and (b) above have happened, Landlord shall notify Superwinch that Superwinch must vacate the Superwinch Premises and enter into the Staples Premises. When Superwinch vacates the Superwinch Premises and enters into the former Staples Premises, APD shall enter into and take possession of the former Superwinch Premises. When the Superwinch Lease is terminated, provided (i) there is not then occurring an Event of Default under this Lease and (ii) this Lease is in full force and effect, the APD Premises shall become part of the Premises and it shall be included in the term "Premises" as used in this Lease. All terms of this Lease shall continue to apply to the term Premises except: (a) Annual Base Rent shall increase to $220,495.00 and the consecutive monthly payments shall increase to $18,374.58; and (b) The Security Deposit shall be increased to $36,749.16. IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day and year first above written. WITNESSED BY: LANDLORD: /s/Annette M. Dwyer ------------------ Annette M. Dwyer FABRILOCK, INC. /s/David P. DaVia BY: /s/ James M. Godbout ------------------ David P. DaVia TENANT: 43 44 /s/Annette M. Dwyer APPLIED PHOTONIC DEVICES, INC. ------------------- Annette M. Dwyer /s/David P. DaVia BY: /s/ Crawford L. Cutts ------------------- David P. DaVia 44 45 STATE OF CONNECTICUT ) ) ss. Brooklyn COUNTY OF WINDHAM ) On this the 5th day of February, before me, the undersigned, personally appeared James M. Godbout, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and acknowledged that he is a general partner of FABRILOCK, INC., a general partnership and that he, in such capacity being authorized so to do, executed the same as his free act and deed and the free act and deed of the partnership for the purposes therein contained by signing the name of such general partnership as such general partner. IN WITNESS WHEREOF, I hereunto set my hand. [Affix Notarial Seal] /s/ Annette M. Dwyer ------------------------- Court/Notary Public My Commission Expires: 10/31/98 STATE OF CONNECTICUT ) ) ss. Brooklyn COUNTY OF WINDHAM ) On this the 6th day of February, before me, the undersigned, personally appeared Crawford L. Cutts, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and acknowledged that he is a general partner of APPLIED PHOTONIC DEVICES, INC., a general partnership and that he, in such capacity being authorized so to do, executed the same as his free act and deed and the free act and deed of the partnership for the purposes therein contained by signing the name of such general partnership as such general partner. IN WITNESS WHEREOF, I hereunto set my hand. [Affix Notarial Seal] /s/ Annette M. Dwyer ------------------------- Court/Notary Public My Commission Expires: 10/31/98 45 46 EXHIBIT A Schematic drawing of Building TO BE SUPPLIED BY LANDLORD 46 47 EXHIBIT B LEGAL DESCRIPTION An industrial/office building located at 300 Lake Road, Killingly, Connecticut 06110 containing 88,000 square feet. 47 48 EXHIBIT C RULES AND REGULATIONS ATTACHED TO AND MADE A PART OF THIS LEASE 1. Tenant shall not display, inscribe, print, paint, maintain or affix on any place or in or about the Building any sign, notice, legend, direction, figure or advertisement, except on the doors of the Premises and on the Directory Boards, if any, and then only such name or names and matter, and in such color, size, style, place and materials, as shall first have been approved in writing by Landlord. 2. Tenant shall not advertise the business, profession or activities of Tenant conducted in the Building in any manner which violates the letter or spirit of any code of ethics adopted by any recognized association or organization pertaining to such business, profession or activities, and shall not use the name of the Building for any purpose other than as the business address of Tenant, and Tenant shall never use any picture or likeness of the Building in any circulars, notices, advertisements or correspondence without Landlord's prior written consent. 3. Tenant shall not use the Premises for housing accommodations or lodging or sleeping purposes, or do any cooking therein, or use any illumination other than electric light, or use or permit to be brought into the Building any flammable oils or fluids such as gasoline, kerosene, naphtha, and benzine, or any explosives, radioactive materials or other articles deemed hazardous to life, limb or property. 4. Tenant shall not contract for any work or service which might involve the employment of labor incompatible with the Building employees or employees of contractors doing work or performing services by or on behalf of Landlord or with the terms and conditions of any collective bargaining agreement to which landlord or Landlord's agents or contractors may be a party. 5. Tenant shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the Premises. 6. No Tenant shall have any property stored outside, except with the prior consent of landlord. 7. All sidewalks, halls, passages, exits, entrances, elevators and stairways of the Building, if any, shall not be obstructed by any Tenant or used by him for any purpose other than for ingress to and egress from his respective Premises no shall any door be locked during normal business hours. No Tenant and no employees or invitees of Tenant shall go upon the roof of the Building. 48 49 8. Tenant shall not alter any lock nor install any new or additional locks or any bolts on any door of the Premises, except with the prior consent of Landlord, which consent shall not be unreasonably withheld. 9. Tenant shall not overload the floor of the Premises or mark, drive nails, screw or drill into the partitions, woodwork or plaster or in any way deface the Premises or any part thereof. Tenant may fasten its equipment to the floor of the Premises. 10. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Building by reason of noise, odors and/or vibrations, or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought in or kept in or about the Premises or the Building. 11. Tenant shall not use or keep in the Premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material, or use any method of heating or air-conditioning other than that supplied by Landlord. 12. Landlord will direct Tenant as to where and how telephone and telegraph wire are to be introduced. No boring or cutting for wires will be allowed without the consent of Landlord. The location of telephones, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord. 13. Each Tenant, upon the termination of his tenancy, shall deliver to Landlord the keys of offices, rooms and toilet rooms which shall have been furnished Tenant or which Tenant shall have had made, and in the event of loss of any keys so furnished, shall pay the Landlord therefor. 14. Landlord reserves the right to exclude or expel from the Building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the Rules and Regulations of the Building. 15. No vending machine or machines of any description shall be installed, maintained or operated outside the Premises without the written consent of Landlord. 16. Tenant shall not disturb, solicit, or canvass any occupant of the Building and shall cooperate to prevent same. 17. Any permitted corrosive, flammable or other special wastes shall be handled for disposal as directed by Landlord. 18. Tenant's use of the Common Areas shall be limited to access and parking purposes 49 50 and under no circumstances shall Tenant be permitted to store any goods or equipment, conduct any operations or construct or place any improvements, barriers or obstructions in the Common Areas, or otherwise adversely affect the appearance thereof, without the prior consent of Landlord. 19. Tenant shall keep the Premises at a temperature sufficiently high to prevent freezing of water in pipes and fixtures. 20. Tenant agrees to handle and dispose of all rubbish, garbage, and waste from Tenant's operations in accordance with regulations established by Landlord and not permit the accumulation (unless in concealed metal containers), or burning of any rubbish or garbage in, or about any part of the Building, and not permit any garbage or rubbish to be collected or disposed of from the Premises except by Landlord or its designee (but the prices to be charged therefor shall be reasonable). 21. Tenant shall not change (whether by alteration, replacement, rebuilding or otherwise) the exterior color and/or architectural treatment of the Premises or of the Building in which the same are located, or any part thereof. 22. Tenant shall not use the plumbing facilities for any purpose other than for which they were constructed, or dispose of any garbage or other foreign substance therein, whether through the utilization of so-called "disposal" or similar units, or otherwise. 23. INTENTIONALLY OMITTED 24. Tenant shall not install any awnings in or on the Premises which are visible to public view outside the Premises. 25. Tenant shall not permit window cleaning or other exterior maintenance and janitorial services in and for the Premises to be performed except by such person(s) as shall be approved by Landlord and except during reasonable hours designated for such purposes by Landlord. 26. Tenant shall not use any fork-lift truck, tow truck or any other machine for handling freight in such a manner as to cause damage to the Building. Tenant shall be individually liable for any damages incurred by a violation of this provision. 27. Tenant shall not install, operate or maintain in the Premises any electrical equipment which will overload the electrical system therein, or any part thereof, beyond its reasonable capacity for proper and safe operation as determined by Landlord in light of the over-all system and requirements therefor in the Building, or which does not bear underwriters' approval. 50 51 28. Landlord reserves the right to make such other and further nondiscriminatory Rules and Regulations as in its judgment may be necessary or desirable for the safety, care and cleanliness of the Premises and the Building and for the preservation of good order therein. Tenant agrees to abide by all such Rules and Regulations hereinabove stated and any additional Rules and Regulations which are adopted. 29. Notwithstanding the restrictions contained in Section 3, 11 and 17 of these Rules and Regulations, Tenant may keep at the Premises and use at the Premises fuels, cleaning chemicals and hazardous substances in such reasonable amounts for such purposes necessary for Tenant to lawfully conduct Tenant's business as permitted in Section 7.01 herein. Landlord's Initials: Tenant's Initials: ______________ _________________ 51 EX-11.1 6 SCHEDULE OF EARNINGS PER SHARE CALCULATION 1 SPECTRAN CORPORATION EXHIBIT 11.1 SPECTRAN CORPORATION NET INCOME (LOSS) PER SHARE CALCULATION The following is a calculation of net income (loss) per share for the years ended December 31, 1995, 1994 and 1993.
Years Ended December 31, ------------------------------------------ Calculation of Primary Net Income (Loss) per Share 1995 1994 1993 -------------------------------------------------- ------------------------------------------ Average common shares outstanding 5,298,388 5,202,604 5,160,330 Shares assumed to be repurchased under treasury stock method for stock options and stock purchase warrants 283,961 -- 324,076 --------- --------- --------- Total Shares 5,582,349 5,202,604 5,484,406 ========= ========= ========= Net Income (loss) $ 542,037 $(487,381) $3,655,084 ========= ========= ========== Per Share Amount $.10 $(.09) $.67 ==== ====== ====
Years Ended December 31, ------------------------------------------ Calculation of Fully Diluted Net Income (Loss) per Share 1995 1994 1993 -------------------------------------------------------- ------------------------------------------ Average common shares outstanding 5,298,388 5,202,604 5,160,330 Shares assumed to be repurchased under treasury stock method for stock options and stock purchase warrants 284,364 -- 327,619 --------- --------- --------- Total Shares 5,582,752 5,202,604 5,487,949 ========= ========= ========= Net Income (loss) $ 542,037 $(487,381) $3,655,084 ========= ========= =========== Per Share Amount $.10 $(.09) $.67 ==== ====== ====
EX-21.0 7 LIST OF SUBSIDIARIES 1 SPECTRAN CORPORATION EXHIBIT 21.0 SUBSIDIARIES
Name of Subsidiary Jurisdiction of Incorporation ------------------ ----------------------------- SpecTran Communication Fiber Technologies, Inc. Delaware SpecTran Specialty Optics Company Delaware Applied Photonic Devices, Inc. Connecticut
EX-27 8 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1,624,515 4,088,316 7,533,456 265,061 7,414,718 22,027,422 23,006,800 12,716,752 40,364,712 6,069,272 0 0 0 535,369 0 40,364,712 38,580,608 38,580,608 25,519,555 38,015,738 0 0 625,468 777,234 235,197 542,037 0 0 0 542,037 .10 .10
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