<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
<TABLE>
<S> <C>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
</TABLE>
COMMISSION FILE NUMBER 1-12261
------------------------
SUPERIOR TELECOM INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-2248978
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1790 BROADWAY 10019-1412
NEW YORK, NEW YORK (Zip code)
(Address of principal
executive offices)
</TABLE>
Registrant's telephone number, including area code 212-757-3333
------------------------
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 and (2) has been subject to such filing
requirements for the past 90 Days. Yes X No
---- ----
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
<TABLE>
<CAPTION>
OUTSTANDING AT MARCH 1,
CLASS 1997
- ----------------------------------- ---------------------------
<S> <C>
Common Stock, $.10 Par Value 12,924,048
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the requirements of Form 10-Q and therefore do
not include all information and footnotes required by generally accepted
accounting principles. However, in the opinion of management, all adjustments
(which, except as disclosed elsewhere herein, consist only of normal recurring
accruals) necessary for a fair presentation of the results of operations for the
relevant periods have been made. Results for the interim periods are not
necessarily indicative of the results to be expected for the year.
2
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1996 1997
--------- -----------
(NOTE 1) (UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents............................................ $ 351 $ 12,327
Accounts receivable (less allowance for doubtful accounts of: April,
$166; January, $172)............................................... 53,689 35,039
Inventories.......................................................... 57,726 48,073
Other current assets................................................. 6,142 4,170
--------- -----------
Total current assets............................................... 117,908 99,609
Property, plant, and equipment, net.................................... 76,528 76,209
Long-term investments and other assets................................. 1,215 5,024
Goodwill (less accumulated amortization; April, $3,256; January,
$4,407).............................................................. 48,414 47,224
--------- -----------
Total assets..................................................... $ 244,065 $ 228,066
--------- -----------
--------- -----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of long-term debt.................................... $ 484 $ 419
Accounts payable..................................................... 46,253 27,840
Accrued expenses..................................................... 12,445 19,512
--------- -----------
Total current liabilities.......................................... 59,182 47,771
--------- -----------
Long-term debt, less current portion................................... 11,540 124,949
--------- -----------
Other long-term liabilities............................................ 7,951 7,951
--------- -----------
Due to Alpine and affiliate............................................ 113,736 --
--------- -----------
Preferred stock of subsidiary.......................................... -- 11,945
--------- -----------
Commitments and contingencies
Stockholders' equity:
Common stock, April 1996; DNE Systems, Inc. and Superior
Telecommunications Inc............................................. 1 --
Common stock, Superior Telecom Inc., $.01 par value; authorized
25,000,000 shares; issued 12,924,048 shares........................ -- 129
Capital in excess of par value....................................... 42,254 27,394
Cumulative translation adjustment.................................... (214) (34)
Retained earnings.................................................... 9,615 7,961
--------- -----------
Total stockholders' equity......................................... 51,656 35,450
--------- -----------
Total liabilities and stockholders' equity....................... $ 244,065 $ 228,066
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE THREE
MONTHS MONTHS
ENDED ENDED
JANUARY 31, JANUARY 31,
1996 1997
----------- -----------
(NOTE 1)
<S> <C> <C>
Net sales.......................................................... $ 91,185 $ 97,391
Cost of goods sold................................................. 80,284 79,964
----------- -----------
Gross profit..................................................... 10,901 17,427
Selling, general and administrative................................ 3,484 4,046
Amortization of goodwill........................................... 397 434
----------- -----------
Operating income................................................. 7,020 12,947
Interest income.................................................... -- 16
Interest (expense)................................................. (4,227) (2,370)
Preferred stock dividends of subsidiary............................ -- (179)
Other income (expense), net........................................ (7) (35)
----------- -----------
Income before income taxes....................................... 2,786 10,379
Provision for income taxes......................................... (1,169) (4,247)
----------- -----------
Net income....................................................... $ 1,617 $ 6,132
----------- -----------
----------- -----------
Net income per share of common stock............................. $ 0.27 $ 0.47
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
4
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIVE MONTHS
NINE MONTHS ENDED FOUR MONTHS
ENDED SEPTEMBER ENDED
JANUARY 31, 30, JANUARY 31,
1996 1996 1997
----------- ----------- -----------
(NOTE 1) (NOTE 1)
<S> <C> <C> <C>
Net sales............................................... $ 299,585 $ 211,025 $ 133,116
Cost of goods sold...................................... 268,141 178,224 109,528
----------- ----------- -----------
Gross profit.......................................... 31,444 32,801 23,588
Selling, general and administrative..................... 10,171 6,591 5,846
Amortization of goodwill................................ 1,161 721 576
----------- ----------- -----------
Operating income...................................... 20,112 25,489 17,166
Interest income......................................... 349 -- 17
Interest (expense)...................................... (12,817) (6,973) (3,377)
Preferred stock dividends of subsidiary................. -- -- (276)
Other income (expense), net............................. 17 (62) (39)
----------- ----------- -----------
Income before income taxes and extraordinary item..... 7,661 18,454 13,491
Provision for income taxes.............................. (2,799) (7,368) (5,530)
----------- ----------- -----------
Income before extraordinary item...................... 4,862 11,086 7,961
Extraordinary (loss) on early extinguishment of debt.... (2,645) -- --
----------- ----------- -----------
Net income............................................ $ 2,217 $ 11,086 $ 7,961
----------- ----------- -----------
----------- ----------- -----------
Net income per share of common stock:
Income before extraordinary item...................... $ 0.81 $ 1.84 $ 0.67
Extraordinary (loss) on early extinguishment of
debt................................................ (0.44) -- --
----------- ----------- -----------
Net income per share of common stock................ $ 0.37 $ 1.84 $ 0.67
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
statements.
5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED JANUARY 31, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN FOREIGN TREASURY STOCK
------------------------- EXCESS RETAINED CURRENCY ---------------------
SHARES AMOUNT OF PAR EARNINGS TRANSLATION SHARES AMOUNT
------------ ----------- ----------- ----------- ------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at incorporation (see Note
1)............................... 6,024,048 $ 60 $ -- $ -- $ -- -- $ --
Foreign currency translation....... (34)
Dividends paid on common stock..... (117,129)
Initial public offering of common
stock............................ 6,900,000 69 101,573
Capital contribution............... 42,950
Purchase of treasury stock......... (450,000) (8,055)
Exchange of treasury stock for
preferred stock of subsidiary.... 450,000 8,055
Net income for the period ended
January 31, 1997................. 7,961
------------ ----- ----------- ----------- --- ---------- ---------
Balance at January 31, 1997........ 12,924,048 $ 129 $ 27,394 $ 7,961 $ (34) -- $ --
------------ ----- ----------- ----------- --- ---------- ---------
------------ ----- ----------- ----------- --- ---------- ---------
<CAPTION>
TOTAL
-----------
<S> <C>
Balance at incorporation (see Note
1)............................... $ 60
Foreign currency translation....... (34)
Dividends paid on common stock..... (117,129)
Initial public offering of common
stock............................ 101,642
Capital contribution............... 42,950
Purchase of treasury stock......... (8,055)
Exchange of treasury stock for
preferred stock of subsidiary.... 8,055
Net income for the period ended
January 31, 1997................. 7,961
-----------
Balance at January 31, 1997........ $ 35,450
-----------
-----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS
NINE MONTHS ENDED FOUR MONTHS
ENDED SEPTEMBER ENDED
JANUARY 31, 30, JANUARY 31,
1996 1996 1997
----------- ----------- -----------
(NOTE 1) (NOTE 1)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income before extraordinary item.................. $ 4,862 $ 11,086 $ 7,961
Adjustments to reconcile income to cash provided by
operations:
Depreciation and amortization....................... 6,290 3,700 3,169
Amortization of deferred financing costs............ 333 20 332
Other, net.......................................... 49 66 --
Change in assets and liabilities:
Accounts receivable................................. 7,295 409 18,241
Inventories......................................... 4,874 19,218 (9,565)
Other current assets................................ (1,330) 460 212
Other assets........................................ 106 2 59
Accounts payable and accrued expenses............... 4,847 (5,041) (509)
Other liabilities................................... (257) 57 --
----------- ----------- -----------
Cash flows provided by operating activities............. 27,069 29,977 19,900
----------- ----------- -----------
Cash flows from investing activities:
Acquisitions, net of cash acquired.................... (103,409) -- --
Net proceeds from sale of common stock................ -- -- 101,642
Capital expenditures.................................. (2,792) (2,745) (3,299)
Capital expenditures on BICC assets................... (3,895) -- --
Other................................................. 1,485 35 1,969
----------- ----------- -----------
Cash flows provided by (used for) investing
activities............................................ (108,611) (2,710) 100,312
----------- ----------- -----------
Cash flows from financing activities:
Borrowings (repayments) under revolving credit
facilities, net..................................... $ (17,644) $ -- $ 115,629
Capitalized financing costs........................... (3,215) -- (4,203)
Borrowings from (repayments to) Alpine, net........... 108,852 (26,768) (92,694)
Dividends on common stock............................. -- -- (117,129)
Repayments of long-term debt.......................... (147,951) (216) (2,067)
Purchase of treasury stock............................ -- -- (8,055)
Long-term borrowings.................................. 141,352 -- --
----------- ----------- -----------
Cash flows provided by (used for) financing
activities............................................ 81,394 (26,984) (108,519)
Net increase in cash and cash equivalents............... (148) 283 11,693
Cash and cash equivalents at beginning of period........ 273 351 634
----------- ----------- -----------
Cash and cash equivalents at end of period.............. $ 125 $ 634 $ 12,327
----------- ----------- -----------
Supplemental disclosures:
Taxes paid............................................ $ 34 $ 569 $ 2,284
----------- ----------- -----------
Interest paid......................................... $ 13,989 $ 7,610 $ 1,058
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE MONTHS
NINE MONTHS ENDED FOUR MONTHS
ENDED SEPTEMBER ENDED
JANUARY 31, 30, JANUARY 31,
1996 1996 1997
----------- ----------- -----------
(NOTE 1) (NOTE 1)
<S> <C> <C> <C>
Non-cash investing and financing activities:
Exchange of common stock for subsidiary preferred
stock:
Preferred stock acquired............................ $ 8,055
-----------
Treasury stock issued............................... $ 8,055
-----------
Acquisition of business:
Assets, net of cash acquired........................ $ 126,127
Liabilities assumed................................. (22,718)
-----------
Net cash paid....................................... $(103,409)
-----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 31, 1997
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
REORGANIZATION
Superior Telecom Inc. ("Superior Telecom" or the "Company") was incorporated
in July 1996 as a wholly owned subsidiary of The Alpine Group, Inc. ("Alpine").
At the date of incorporation, the Company had no operations or material assets
or liabilities. On October 2, 1996, Alpine completed a reorganization (the
"Reorganization") whereby 100% of the common stock of two of Alpine's
subsidiaries, Superior Telecommunications Inc. ("Superior") and DNE Systems,
Inc. ("DNE") were contributed to the Company. Prior to the Reorganization and
pursuant to a recapitalization of Superior and DNE, Superior issued to Alpine
20,000 shares of 6% Cumulative Preferred Stock (the "Superior Preferred Stock"),
par value $1.00 per share, with a liquidation preference of $1,000 per share and
Superior and DNE declared a dividend payable to Alpine of $117.1 million. In
conjunction with the Reorganization, the Company borrowed $154.0 million under a
new revolving credit facility (the "Credit Facility"), (see Note 4), the net
proceeds of which were used to repay the net amount of intercompany debt owed by
Superior and DNE to Alpine of $87.9 million and to pay to Alpine $63.8 million
of the aforementioned dividend.
OFFERING
In October 1996, the Company sold 6,000,000 shares of its common stock (the
"Common Stock") through an initial public offering (the "Offering") at $16.00
per share. The Company used the net proceeds of approximately $88.3 million to
repay $34.4 million under the Credit Facility and to pay to Alpine the remaining
balance of the aforementioned dividend declared by Superior and DNE.
In November 1996, the underwriters of the Offering exercised their
overallotment option to purchase an additional 900,000 shares of Common Stock at
$16.00 per share. The Company used the net proceeds of approximately $13.3
million to repurchase 450,000 shares of Common Stock for approximately $8.1
million, with the balance applied to reduce the amount outstanding under the
Credit Facility. The repurchased shares of Common Stock were then transferred to
Alpine in exchange for $8.1 million in principal amount of the Superior
Preferred Stock. On February 12, 1997, Superior redeemed at face value an
additional $11.3 million principal amount of the Superior Preferred Stock.
As a result of the Offering, Alpine's ownership interest in Superior Telecom
declined to 50.1%.
BASIS OF PRESENTATION
These financial statements present the balance sheet of the Company at
January 31, 1997 and the statement of operations and stockholders' equity for
the period October 2, 1996 (the date of the Reorganization) through January 31,
1997. For comparative purposes, the combined financial statements of the
predecessor companies, Superior and DNE, have also been included herein for
periods prior to the Reorganization. These financial statements consist of the
combined balance sheet of Superior and DNE at April 30, 1996 and the combined
statements of operation of Superior and DNE for the nine months ended January
31, 1996 and the five months ended September 30, 1996. These financial
statements should be read in conjunction with the summary of accounting policies
and notes to the combined financial statements of Superior and DNE included in
the Company's Registration Statement filed on Form S-1 on September 12, 1996.
Furthermore, these financial statements reflect all adjustments (which, except
as disclosed elsewhere herein, consist only of normal recurring accruals) which,
in the opinion of management, are necessary for a fair presentation of the
results of operations for the interim periods presented.
9
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997
(UNAUDITED)
2. INVENTORIES
The components of inventories are:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1996 1997
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials........................................... $ 11,086 $ 9,586
Work in process......................................... 13,216 10,254
Finished goods.......................................... 33,424 28,233
--------- -----------
$ 57,726 $ 48,073
--------- -----------
--------- -----------
</TABLE>
3. INCOME PER SHARE
Income per common share is determined by dividing net income attributable to
Common Stock by the weighted average number of shares of Common Stock, and when
dilutive, common share equivalents outstanding. The weighted average number of
common and common equivalent shares outstanding used in computing income per
share for the nine months ended January 31, 1996 and the five months ended
September 30, 1996 was 6,024,048, and for the four months ended January 31, 1997
was 11,895,000.
4. DEBT
Debt consists of the following:
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1996 1997
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Credit Facility(a)...................................... $ -- $ 115,629
Lease finance obligations(b)............................ 5,853 5,832
Mortgage loan(c)........................................ 4,996 3,907
Other................................................... 1,175 --
--------- -----------
Total debt............................................ 12,024 125,368
Less: current portion of long-term debt................. 484 419
--------- -----------
Long-term debt........................................ $ 11,540 $ 124,949
--------- -----------
--------- -----------
</TABLE>
The aggregate principal maturities of long-term debt for the five years
subsequent to January 31, 1997 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------
<S> <C>
1998.......................................................................... $ 419
1999.......................................................................... 457
2000.......................................................................... 487
2001.......................................................................... 604
2002.......................................................................... 116,102
</TABLE>
- ------------------------
(a) Interest on the Credit Facility is payable quarterly based upon the prime
rate plus 0.5% or the Eurodollar rate plus 1.5%. The variable components of
these rates are subject to periodic adjustment after October 1997 based on
the ratio of debt to cash flow (as defined). The Credit Facility has a five-
10
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997
(UNAUDITED)
year term with a total commitment of $150.0 million, which is reduced by
$25.0 million in each of October 1999 and October 2000. Loans under the
Credit Facility are guaranteed by the Company's domestic subsidiaries and
are secured by substantially all of the assets of the Company and by the
stock of each of the Company's domestic subsidiaries.
(b) The lease finance obligations result from the sale/leaseback of two
properties during fiscal 1994 which, because of the Company's continuing
involvement in the form of repurchase options, have been recorded under the
finance method. The lease finance obligations at January 31, 1997 consist
of: (a) $5.0 million related to the sale/leaseback of a Superior
manufacturing facility and (b) $0.8 million related to the sale/leaseback of
a manufacturing facility previously owned by DNE.
(c) The mortgage loan is payable by DNE to the Connecticut Development
Authority. The loan is collateralized by DNE's real estate, machinery and
equipment. The loan is payable in March 2002 and is subject to a 20-year
amortization schedule. The interest rate is 7.25% through February 28, 1999
and, thereafter, the higher of 7.25% or the yield on U.S. Treasury
securities with the same maturity.
5. STOCK OPTIONS
The Company adopted the 1996 Employee Stock Option Plan (the "Stock Option
Plan") on October 10, 1996. Under the Stock Option Plan, the Company has
1,250,000 shares of Common Stock reserved for issuance. The shares may be
granted from time to time to the Company's key employees, officers, advisors and
independent consultants, and non-employee directors of the Company or its
subsidiaries. The Stock Option Plan provides for both grants of incentive and
non-incentive stock options. No options may be granted after 10 years from the
effective date of the Stock Option Plan.
As of January 31, 1997, the Company had granted 735,000 options pursuant to
the Stock Option Plan with the per share exercise prices thereof ranging between
$16.00 to $17.25.
On October 10, 1996, the Company adopted an Employee Stock Purchase Plan
(the "Stock Purchase Plan") in which all employees of the Company who work more
than 20 hours per week and at least five months per year are eligible to
participate. The purpose of the Stock Purchase Plan is to provide employees of
the Company with an opportunity to purchase Common Stock through payroll
deductions. The Stock Purchase Plan provides that employees may utilize 1% to
25% of their gross compensation, up to a maximum of $25,000 per year, to
purchase Common Stock at a price equal to the lesser of 85% of the fair market
value of a share of Common Stock on either (i) the date immediately preceding
the first day of each calendar quarter and (ii) the last day of each calendar
quarter. There are 250,000 shares of Common Stock reserved for issuance under
the Stock Purchase Plan.
6. RELATED PARTY
Concurrently with the completion of the Reorganization, the Company entered
into a services agreement (the "Services Agreement") with Alpine whereby Alpine
agreed to provide certain services to the Company including, among other things,
assistance with public company reporting, certain financial reporting functions,
legal compliance, banking, risk management and operational and strategic
matters. The Services Agreement provides for the payment by the Company to
Alpine of $0.9 million per year plus reimbursement of any third party expenses
incurred by Alpine. The Company believes that $0.9 million represents a
reasonable estimate of the cost of obtaining the services described above. The
Services Agreement will expire on April 30, 1998.
11
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 31, 1997
(UNAUDITED)
7. COMMITMENTS AND CONTINGENCIES
Soil and groundwater at Superior's Brownwood, Texas facility have been found
to be contaminated with volatile organic compounds as a result of operations at
the facility which management believes occurred prior to Superior's acquisition
of the facility. Superior is in the process of obtaining approval for a
remediation plan from the Texas Natural Resource Conservation Commission. Based
upon investigations performed to date, the Company believes that the cost of
this remediation will not be in excess of $500,000. Pursuant to an agreement
between Superior and the former owner of the facility, Superior has been
reimbursed for approximately 85% of the costs incurred to date in connection
with the investigation and remediation of this facility, and is entitled to
reimbursement of future expenses at percentages ranging from 85% to 25%
(depending on the time at which such expenses are incurred), subject to an
aggregate expense reimbursement of not less than 75%.
In the opinion of management, based on its examination of such matters and
discussions with counsel, the ultimate resolution of all pending or threatened
litigation, claims and assessments will have no material adverse affect upon
Superior Telecom's financial position, liquidity or results of operations.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company, through its two subsidiaries, Superior Telecommunications Inc.
("Superior") and DNE Systems, Inc. ("DNE"), is engaged in the manufacture and
sale of (i) copper wire and cable for the telecommunications industry and (ii)
data communication and other electronic products and systems for defense,
governmental and commercial applications.
As used herein "fiscal 1996" refers to the fiscal year ended April 30, 1996
and "fiscal 1997" refers to the fiscal year ending April 30, 1997.
RESULTS OF OPERATIONS
PRESENTATION OF RESULTS OF OPERATIONS
The following comparative table includes operating statement data for the
Company on an industry segment basis. Such data is presented on an historical
basis for the three months ended January 31, 1997 and on a pro forma basis for
the nine months ended January 31, 1997 and for the three and nine months ended
January 31, 1996. Management believes the pro forma data presented herein for
the periods indicated provides comparability among historical periods and
facilitates an analysis of trends in the Company's operations and profitability.
Such pro forma data includes (i) the combined historical results of operations
of Superior and DNE prior to the Reorganization and their inclusion as
subsidiaries of the Company and (ii) pro forma adjustments to selling, general
and administrative expense, interest expense and income tax expense to reflect
the impact of the Reorganization and the Offering (see Note 1 to the
accompanying unaudited consolidated financial statements), as if such
transactions had occurred on May 1,
13
<PAGE>
1995. Such pro forma adjustments are more fully described in the footnotes
accompanying the following comparative table.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA OPERATING DATA
------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales
Telecommunications wire and cable(1)................ $ 84,445 $ 92,872 $ 288,982 $ 327,728
Data communications electronics..................... 6,740 4,519 18,124 16,413
--------- --------- --------- ---------
Consolidated...................................... 91,185 97,391 307,106 344,141
Gross profit
Telecommunications wire and cable(1)................ $ 8,964 $ 16,447 $ 26,649 $ 52,255
Data communications electronics..................... 1,937 980 5,390 4,134
--------- --------- --------- ---------
Consolidated...................................... 10,901 17,427 32,039 56,389
Gross margin percentage
Telecommunications wire and cable................... 10.6% 17.7% 9.2% 15.9%
Data communications electronics..................... 28.7% 21.7% 29.7% 25.2%
--------- --------- --------- ---------
Consolidated...................................... 12.0% 17.9% 10.4% 16.4%
Selling, general and administrative
Telecommunications wire and cable(1)................ $ 2,138 $ 2,227 $ 5,776 $ 7,199
Data communications electronics..................... 1,346 1,335 4,428 4,587
Corporate(2)........................................ 500 484 1,500 1,484
--------- --------- --------- ---------
Consolidated...................................... 3,984 4,046 11,704 13,270
Amortization of goodwill
Telecommunications wire and cable(1)................ $ 397 $ 434 $ 1,175 $ 1,297
--------- --------- --------- ---------
Operating income
Telecommunications wire and cable................... $ 6,429 $ 13,786 $ 19,698 $ 43,759
Data communications electronics..................... 591 (355) 962 (453)
Corporate........................................... (500) (484) (1,500) (l,484)
--------- --------- --------- ---------
Consolidated...................................... 6,520 12,947 19,160 41,822
Interest expense(3)................................... (2,540) (2,354) (7,620) (7,347)
Minority interest(4).................................. (179) (179) (537) (537)
Other income (expense); net........................... (7) (35) 17 (102)
--------- --------- --------- ---------
Income before tax................................. 3,794 10,379 11,020 33,836
Provision for income taxes(5)......................... (1,589) (4,247) (4,623) (13,773)
--------- --------- --------- ---------
Net income........................................ $ 2,205 $ 6,132 $ 6,397 $ 20,063
--------- --------- --------- ---------
--------- --------- --------- ---------
Income per share of common stock(6)................... $ 0.17 $ 0.47 $ 0.50 $ 1.55
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
SUPPLEMENTAL DATA FOR THE SUPERIOR TELECOMMUNICATIONS WIRE AND CABLE SEGMENT:
Copper is a significant raw material component of Superior's finished
products. Fluctuations in the price of copper affect per unit product pricing
and related revenues. However, the cost of copper has not had a material impact
on Superior's profitability due to contractually mandated copper-based price
adjustments contained in Superior's customer sales contracts. The Company
believes that the following supplemental comparative data, which is based upon a
constant copper cost of $1.00 per pound for the
14
<PAGE>
indicated periods provides additional meaningful information concerning
Superior's sales and its gross margin percentage.
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA OPERATING DATA
------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............................................. $ 76,658 $ 93,220 $ 261,423 $ 317,879
Gross profit.......................................... 8,964 16,447 26,649 52,255
Gross margin.......................................... 11.7% 17.6% 10.2% 16.4%
</TABLE>
- ------------------------
NOTES TO UNAUDITED PRO FORMA OPERATING DATA:
(1) For the nine months ended January 1996, net sales, gross profit, selling,
general and administrative expenses and amortization of goodwill have been
increased by $7.5 million, $0.6 million, $33,000 and $14,000, respectively,
to reflect the acquisition of the North American wire and cable operations
of Alcatel N.A. (the "Alcatel Business") as if the acquisition had been
completed on May 1, 1995. This acquisition was actually completed on May 11,
1995.
(2) Reflects estimated additional general and administrative expenses associated
with the Company's status as an independent public company of $2.0 million
on an annualized basis prior to the Offering.
(3) Reflects the Company's estimated interest expense prior to the Offering
assuming that the balance outstanding under the Credit Facility was $110.0
million for the period from August 1, 1996 to the date of the Offering and
$115.0 million for all prior fiscal periods.
(4) Reflects dividends on $11.9 million (face amount) of Superior Preferred
Stock which remained outstanding subsequent to the Reorganization, the
Offering and the exercise of the underwriters overallotment option (see Note
1 to the accompanying unaudited consolidated financial statements).
(5) Income tax expense for periods prior to the Offering has been adjusted to
reflect estimated tax expense as if the Company had filed a separate federal
income tax return for all periods presented.
(6) Income per share of Common Stock for periods prior to the Offering has been
calculated based upon 12,924,048 shares outstanding, which assumes
completion of the Offering and exercise of the Underwriters overallotment
option (see Note 1 to the accompanying unaudited consolidated financial
statements).
SUPERIOR--RESULTS OF OPERATIONS
During the three months ended January 1997, which is traditionally
Superior's slowest seasonal period, Superior continued its trend of revenue
growth as compared to the comparable periods of the prior fiscal year.
For the three months ended January 1997, Superior's net sales were $92.9
million representing an increase of $8.4 million, or 10.0%, as compared to the
same period in fiscal 1996. For the nine months ended January 1997, net sales
were $327.7 million, representing a $38.7 million, or 13.4%, increase over the
nine months ended January 1996. Adjusted for the impact of lower copper prices
in fiscal 1997 (see "Supplemental Data" for the Superior Telecommunication Wire
and Cable Segment), the increase in net sales for the three months and nine
months ended January 1997 would have been $16.6 million (a 21.6% increase) and
$56.5 million (a 21.6% increase), respectively. The increase in net sales for
the three months and nine months ended January 1997 resulted from several
factors, including increased sales volume of Superior's wire and cable products
which was attributable to (1) new multi-year supply agreements entered into in
the latter half of the 1996 fiscal year and (2) the continued increase in demand
for copper wire and cable products due to growth in new copper-based access
lines and increased maintenance spending by
15
<PAGE>
Superior's major telephone company customers. Also contributing to the fiscal
1997 increase in net sales was the impact of price increases instituted in the
latter half of fiscal 1996 and higher prices on incremental sales in fiscal 1997
under new customer supply agreements.
Superior's gross profit increased by $7.5 million, or 83.5%, to $16.4
million for the three months ended January 1997 as compared to the same period
in fiscal 1996. For the nine months ended January 1997, gross profit increased
by $25.6 million, or 96.1%, to $52.3 million as compared to the nine months
ended January 1996. Superior's gross margin, based on actual net sales, was
17.7% and 15.9%, respectively, for the three and nine months ended January 1997,
as compared to 10.6% and 9.2%, respectively, for the three and nine months ended
January 1996 (see "Supplemental Data" for the Superior Telecommunication Wire
and Cable Segment for comparative period-to-period gross margin adjusted to
reflect constant copper prices). Superior's gross margin improvement in the
current fiscal year reflected a continuing trend of steadily improving margins
that began in fiscal 1996 after the completion of Superior's acquisition of the
Alcatel Business. Improvements in gross margin achieved during the 1996 fiscal
year were principally the result of increased selling prices under a majority of
Superior's existing multi-year supply agreements and, to a lesser degree,
production efficiencies resulting from higher production levels and cost savings
from completion of the integration of the Alcatel Business with Superior's other
operations. The continued improvement in gross margin in fiscal 1997 was
primarily due to manufacturing cost reductions and other production efficiencies
(including improved cost absorption resulting from higher production levels)
that have been achieved during the first nine months of fiscal 1997 along with
the impact of higher margin and new customer contract business in fiscal 1997.
Superior's SG&A expense for the three months ended January 1997 was $2.2
million, which was comparable to SG&A expense of $2.1 million for the same
period in fiscal 1996. For the nine months ended January 1997, SG&A expense was
$7.2 million, representing an increase of $1.4 million, or 24.6%, as compared to
the same period in fiscal 1996. The increase in SG&A expense for the nine months
ended January 1997 reflected, among other factors, the incremental sales and
marketing staff required to support the increased level of sales and the
expansion of international and other marketing activities associated with new
product lines and entering new geographic markets.
Superior's operating income for the three months ended January 1997 was
$13.8 million, representing an increase of $7.4 million, or 114.4%, as compared
to the three months ended January 1996. For the nine months ended January 1997,
operating income was $43.8 million, representing an increase of 122.1% as
compared to the nine months ended January 1996. The substantial comparative
increase in operating income in fiscal 1997 was the result of the trend of
higher revenues and higher product margins that began in fiscal 1996 after
completion of the acquisition of the Alcatel Business. During the second half of
fiscal 1996 and in fiscal 1997, Superior increased production capacity to
accommodate rising product demand and increases in market share, lowered costs
throughout its four manufacturing plants, and increased prices on its long-term
customer contractual arrangements, all of which has contributed to Superior's
growth in operating income over this period.
DNE--RESULTS OF OPERATIONS
During fiscal 1997 DNE has experienced declining sales associated with a
slowdown in government procurement of DNE's military electronic products, and a
decline in DNE's contract manufacturing activities which is primarily related to
overall softness in the semiconductor equipment manufacturing sector. As a
result, DNE's net sales for the three months and nine months ended January 1997
declined $2.2 million, or 33.0%, and $1.7, or 9.4%, respectively, as compared to
the corresponding periods of fiscal 1996.
Lower production levels and related unfavorable fixed cost absorption, along
with the impact of a changed product mix, resulted in a decline in DNE's gross
margin to 21.7% during the three months ended January 1997, as compared to 28.7%
during the three months ended January 1996, and to 25.2% for the nine months
ended January 1997, as compared to 29.7% in the nine months ended January 1996.
As a
16
<PAGE>
result of lower net sales and gross margin, DNE incurred an operating loss for
the three months and nine months ended January 1997 of $0.4 million and $0.5
million, respectively.
DNE has taken recent actions to reduce its manufacturing and general and
administrative overhead by approximately $2.0 million (on an annual basis). DNE
has also reallocated engineering resources toward developing enhancements to its
multiplexer product line to provide for broader product application
opportunities. The Company expects that government procurement activity levels
will improve in the future and that the trend of lower sales will be reduced or
reversed, which, when coupled with the aforementioned overhead cost reduction
should result in a near term improvement in DNE's profitability.
CONSOLIDATED RESULTS OF OPERATIONS
The growth in sales of Superior's telecommunications wire and cable
products, slightly offset by the decline in sales of DNE's products, resulted in
comparative consolidated net sales increasing by 6.8% (17.2% if adjusted to a
copper cost of $1.00 per pound) to $97.4 million for the three months ended
January 1997 period. For the nine months ended January 1997 comparative
consolidated net sales increased by 12.1% (19.6% if adjusted to a copper cost of
$1.00 per pound) to $344.1 million. The increase in sales along with an
associated increase in the telecommunications wire and cable product gross
margin, gave rise to a consolidated increase in gross profit of 59.9% and 76.0%,
respectively, for the three months and nine months ended January 1997 as
compared to the corresponding periods of the previous fiscal year.
As a result of the increase in consolidated gross profit, comparative
consolidated operating income increased 98.6%, to $12.9 million for the three
months ended January 1997. For the nine months ended January 1997, comparative
operating income increased 118.3% to $41.8 million.
Consolidated interest expense for the three months ended January 1997 was
$2.4 million, or $0.2 million less than pro forma interest expense for the
comparative period of fiscal 1996. The average balance outstanding under the
Company's Credit Facility for the three months ended January 1997 was $100.8
million. For the nine months ended January 1997, pro forma interest expense was
$7.3 million, or $0.3 million less than pro forma interest expense for the nine
months ended January 1996. As discussed in Note 3 to the "unaudited pro forma
operating data" included elsewhere herein, pro forma interest expense for the
periods prior to the Offering (prior to October 17, 1996) was based on (i) an
assumed outstanding balance under Superior's $150 million revolving credit
facility of $110.0 million for the three months ended October 1996 and $115.0
million for all prior periods, with interest calculated at the current
prevailing interest rate of 7.0%, and after giving effect to the amortization of
deferred loan fees and other bank fees associated with the credit facility, and
(ii) interest expense at contractual rates on other outstanding debt of Superior
and DNE with a principal balance of $9.7 million at January 31, 1997.
Consolidated income tax expense for the periods prior to the Offering was
calculated assuming that the Company filed a combined Federal tax return
(reflecting the combined operations of Superior and DNE). As a result,
consolidated income tax expense reflected an effective tax rate of 40.9% and
40.6% for the three and nine months ended January 1997, respectively, and 41.9%
and 40.6% for the three and nine months ended January 1996.
Consolidated net income for the three months ended January 1997 was $6.1
million (or $0.47 per share), representing an increase of $3.9 million, or
178.1%, over pro forma net income of $2.2 million (or $0.17 per share) for the
three months ended January 1996. For the nine months ended January 1997,
consolidated pro forma net income was $20.1 million (or $1.55 per share),
representing an increase of $13.7 million, or 213.6%, over pro forma net income
of $6.4 million, (or $0.50 per share), for the nine months ended January 1996.
This increase in net income was the result of the increase in operating income
which is more fully described above.
17
<PAGE>
SUPPLEMENTAL COMMENTS ON ACTUAL RESULTS OF OPERATIONS
GENERAL
The following table sets forth, for the periods indicated, supplemental data
reflecting the Company's actual results of operations for the three months ended
January 1997, presented in conjunction with the combined historical results of
operations of the Company's predecessors, Superior and DNE, for periods prior to
October 2, 1996, the date of the Reorganization (see Note 1 to the accompanying
consolidated financial statements). For comparative purposes, the historical
results for the nine months ended January 1997 include the five month period
ended September 1996 combined with the four months ended January 1997.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JANUARY 31, JANUARY 31,
-------------------- --------------------
1996 1997 1996 1997
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales............................................. $ 91,185 $ 97,391 $ 299,585 $ 344,141
Gross profit.......................................... 10,901 17,427 31,444 56,389
Gross margin.......................................... 11.9% 17.9% 10.5% 16.4%
Selling, general and administrative................... 3,484 4,046 10,171 12,437
Operating income...................................... 7,020 12,947 20,112 42,655
Interest expense...................................... (4,227) (2,370) (12,817) (10,350)
Provision for income taxes............................ (1,169) (4,247) (2,799) (12,898)
Net income............................................ 1,617 6,132 4,862 19,047
</TABLE>
The actual and historical combined financial information presented in the
table above for net sales, gross profit, gross margin, selling, general and
administrative, and operating income are the same as the data presented in the
"unaudited pro forma operating data" included elsewhere herein, except for pro
forma adjustments explained in footnotes (1) and (2) to such pro forma operating
data. Accordingly, the comparative changes and trends for the actual and
historical combined amounts referred to above have been addressed in the
discussion accompanying the pro forma operating data included elsewhere herein.
INTEREST EXPENSE
Interest expense for the three months ended January 1997 was $2.4 million,
representing a decrease of $1.9 million, or 43.9%, compared to interest expense
of $4.2 million for the same period in fiscal 1996. For the nine months ended
January 1997, interest expense was $10.4 million, representing a decrease of
$2.5 million, or 19.2%, compared to $12.8 million for the same period in fiscal
1996. The decrease in interest expense resulted from a decline in net debt
outstanding over the comparative periods along with a reduction in the weighted
average costs of such borrowings.
PROVISION FOR INCOME TAXES
For the three and nine months ended January 1997, provision for income taxes
was $4.2 million and $12.9 million, respectively, as compared to a provision for
income taxes of $1.2 million and $2.8 million, respectively, for the three and
nine months ended January 1996. The effective tax rate for the three and nine
months ended January 1997 was 40.9% and 40.4%, respectively, as compared to the
effective tax rate of 41.9% and 36.5%, respectively, for the three and nine
months ended January 1996. The lower effective tax rate for the nine months
ended January 1996 was primarily the result of the availability of certain tax
loss carryforwards to offset a portion of the Federal income tax liability.
NET INCOME
For the three and nine months ended January 1997, net income was $6.1
million and $19.0 million, respectively, as compared to $1.6 million and $4.9
million for the same periods in fiscal 1996. The increase in net income resulted
primarily from the significant increase in operating income as more fully
described in the discussion accompanying the pro forma operating data included
elsewhere herein.
18
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
For the four months ended January 1997, the Company generated $19.9 million
in cash flow from operating activities, consisting of $11.5 million in income
generated from operations (net income plus non-cash charges) plus $8.4 million
in cash flow generated from net working capital changes. Working capital changes
consisted principally of an $18.2 million reduction in accounts receivable
offset by a $9.6 million increase in inventories and a $0.5 million reduction in
accounts payable and accrued expenses. Cash provided by investing activities
amounted to $100.3 million, consisting principally of $101.6 million in net
proceeds from the Offering (see Note 1 to the accompanying consolidated
financial statements). Cash used for financing activities amounted to $108.5
million, including dividends paid by Superior and DNE to Alpine of $117.1
million, the repayment by Superior and DNE of $92.7 million in intercompany
loans due to Alpine and $4.2 million in capitalized financing costs, partially
offset by $115.6 million in net borrowing under the Credit Facility.
The Company's capital structure at January 31, 1997 consisted of $125.4
million in debt, ($113.0 million in debt, net of cash and cash equivalents),
$11.9 million in Superior Preferred Stock (see Note 1 to the accompanying
unaudited consolidated financial statements) and $35.4 million in total
stockholders' equity. Included in the Company's debt balance is $115.6 million
outstanding under the Company's $150.0 million Credit Facility entered into in
conjunction with the Reorganization. Additional availability under the Credit
Facility amounted to $34.4 million at January 31, 1997 . Obligations under the
Credit Facility are guaranteed by each of the Company's domestic subsidiaries
and are secured by substantially all of the assets of the Company and by the
stock of each domestic subsidiary. The Credit Facility contains customary
performance and financial covenants.
Additionally, as discussed in Note 1 to the accompanying consolidated
financial statements, on February 12, 1997, the Company redeemed $11.3 million
face value (of a total of $11.9 million face value) of the Superior Preferred
Stock. Such redemption was funded from cash and cash equivalents on hand at
January 31, 1997 and did not result in an increase in the Company's outstanding
debt. This redemption is expected to be accretive to the Company's future
earnings due to the higher after tax cost of the 6% contractual dividend rate on
the Superior Preferred Stock as compared to the Company's incremental cost of
debt borrowings.
Over the next 12 months, the Company has annual principal debt service
commitments of approximately $0.4 million and expected capital expenditures of
approximately $8.0 to $8.5 million, resulting in total principal debt service
and capital commitments of approximately $8.4 to $8.9 million. The Company does
not expect to incur other material commitments over this period.
On a pro forma basis, Superior Telecom's operations have typically generated
substantial operating cash flows. For the nine months ended January 31, 1997,
the Company generated $48.8 million in pro forma operating cash flows which is
significantly greater than amounts needed to meet its annual principal debt
service and projected capital commitment requirements. Management anticipates
that Superior Telecom will continue to generate more than adequate cash flows
from operating activities to meet the Company's annual commitments. However,
should any shortfall arise due to working capital fluctuations or other factors,
the Company believes that cash and funds available under the Credit Facility
should be sufficient to cover such shortfall.
- ------------------------
Except for the historical information herein, the matters discussed in this Form
10-Q include forward-looking statements that may involve a number of risks and
uncertainties. Actual results may vary significantly based on a number of
factors, including, but not limited to, risks in product and technology
development, market acceptance of new products and continuing product demand,
the impact of competitive products and pricing, and changing economic
conditions, including changes in short term interest rates and other risk
factors detailed in the Company" most recent filings with the Securities and
Exchange Commission.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 3. DEFAULTS ON SENIOR SECURITIES
(a) None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
<S> <C>
10(13) Schedule One to the employment agreement, between Justin F. Deedy, Jr. and Superior Telecommunications
Inc.
10(14) Employment agreement, dated as of October 17, 1996, by and between Superior Telecom and Steven S.
Elbaum.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERIOR TELECOM INC.
Date: March 17, 1997 By: /s/ DAVID S. ALDRIDGE
------------------------------------------
David S. Aldridge
Chief Financial Officer
<PAGE>
EXHIBIT 10(13)
SCHEDULE ONE
TO EMPLOYMENT AGREEMENT BETWEEN
JUSTIN F. DEEDY, JR. AND SUPERIOR TELECOMMUNICATIONS INC.
THE ALPINE GROUP, INC.
SENIOR MANAGEMENT COMPENSATION
AND
INCENTIVE PROGRAM
I. NAME: Justin F. Deedy, Jr.
II. POSITION: President, Superior Telecommunications Inc.
III. ANNUAL CASH BONUS INCENTIVE:
A. Your standard annual cash bonus incentive (as a percentage of your
base salary) is 30%.
B. The actual annual cash bonus incentive paid will be determined based
on your "Weighted Overall Annual Performance" (WOAP). A worksheet for
calculating WOAP is included as Attachment A.
C. WOAP will be based on: (1) quantitative financial performance for the
fiscal year (weighted at 75%), and (2) subjective assessment of job
performance (weighted at 25%).
D. The financial performance component will be based on EBITDA return on
net assets (the "Return Ratio") for FY96.
For FY96 financial performance measurement, the actual Return Ratio
will be measured against: (1) FY96 budget (and weighted 67%), and (2)
FY96 pro forma results (and weighted 33%). Attachment B includes the
Return Ratio for the FY96 budget and the FY95 pro forma results.
Attachment C includes current year performance against budget.
E. The actual annual cash bonus incentive will be calculated by
converting your standard bonus to an actual bonus, based on your WOAP
and the conversion matrix included on Attachment D.
F. As previously discussed with you, a component of your annual cash
bonus incentive award may be paid in shares of Company stock under
terms and conditions previously described to you.
<PAGE>
IV. LONG TERM INCENTIVE AWARD:
A. Long term incentives are intended to be awarded annually; however, any
such awards are totally at the discretion of the Compensation
Committee.
B. Your long term incentive award for FY96 consists of the following:
(i) Basis stock option grant: 31,900 shares
(ii) Standard performance stock option grant 31,900 shares
C. Basis stock option grant - major provisions:
(i) Grant date: November 15, 1995
(ii) Exercise price: $5.25 per share (FMV on Grant Date)
(iii) Vesting provisions: 33% per year
(iv) Vesting start date: May 1, 1995
(v) Term of option: 10 years
D. Performance stock option grant - major provisions:
(i) Standard performance stock option grants are adjusted based
on the actual weighted average 3-year Return Ratio as
compared to the targeted 3-year Return Ratio (see Attachment
E). The number of shares of the standard performance stock
option grant will be adjusted at the end of the 3-year
period (end of FY98) based again on the conversion matrix
included as Attachment D
(ii) Vesting: 3-year cliff
(iii) Exercise price per share: $5.25
(iv) Option term: 10 years
<PAGE>
ATTACHMENT A
THE ALPINE GROUP INC. 11/29/95
ANNUAL CASH BONUS PROGRAM
WORKSHEET FOR CALCULATION OF WEIGHTED OVERALL ANNUAL PERFORMANCE
<TABLE>
<S> <C> <C>
I. FINANCIAL PERFORMANCE %
PERFORMANCE AGAINST PLAN ACHIEVED
EBITDA RETURN ON NET ASSETS (EXPRESSED AS
A PERCENTAGE OF PLAN) 90%
WEIGHTED PERCENTAGE 67%
----
TOTAL WEIGHTED % FROM FINANCIAL
PERFORMANCE AS MEASURED AGAINST PLAN 60%
-----
PERFORMANCE AGAINST PRIOR YEAR
EBITDA RETURN ON NET ASSET (EXPRESSED AS A
PERCENTAGE OF PRIOR YEAR) 106%
WEIGHTING PERCENTAGE 33%
-----
TOTAL WEIGHTED % FROM FINANCIAL
PERFORMANCE AS MEASURED AGAINST
PRIOR YEAR 35%
-----
TOTAL OF FINANCIAL PERFORMANCE 95%
TOTAL WEIGHTING OF FINANCIAL PERFORMANCE
TO TOTAL PERFORMANCE 75%
----- -----
TOTAL WEIGHTED PERFORMANCE % ATTACHED TO
FINANCIAL PERFORMANCE 71%
------
II. INDIVIDUAL PERFORMANCE
INDIVIDUAL PERFORMANCE EVALUATION AGAINST
EXPECTATIONS (100% = EXPECTED PERFORMANCE) 100.0%
TOTAL WEIGHTING OF INDIVIDUAL PERFORMANCE
TO TOTAL PERFORMANCE 25.0%
------ -------
TOTAL WEIGHTED PERFORMANCE % ATTRIBUTED
TO INDIVIDUAL PERFORMANCE 25%
--------
TOTAL WEIGHTED PERFORMANCE % (REFER TO MATRIX
TO CONVERT TO BONUS PERCENTAGE) 96%
-------
-------
</TABLE>
<PAGE>
ATTACHMENT B
THE ALPINE GROUP, INC.
RETURN ON NET ASSETS
<TABLE>
<CAPTION>
FULL
FISCAL 1996
------------------------------------
PLAN
PLAN PRIOR YEAR AVERAGE
EBITDA EBITDA NET ASSETS
-------- ----------- ----------
<S> <C> <C> <C> <C>
Superior $ 32,908 29,421 166,011
% 19.8% 17.7%
BMI France $ 11,215 6,150 58,425
% 19.2% 10.5%
DNE $ 3,408 2,608 11,669
% 29.2% 22.3%
Alpine $ 43,838 35,373 239,841
% 18.3% 14.7%
</TABLE>
<PAGE>
ATTACHMENT C
THE ALPINE GROUP, INC.
RETURN ON NET ASSETS SUMMARY FISCAL 1996
<TABLE>
<CAPTION>
DNE BMI FRANCE SUPERIOR
---------------------------- ------------------------------ ------------------------------
ACTUAL BUDGET ACTUAL BUDGET ACTUAL BUDGET
ADJUSTED ADJUSTED BUDGET ADJUSTED ADJUSTED BUDGET ADJUSTED ADJUSTED BUDGET
NET ASSETS NET ASSETS EBITDA NET ASSETS NET ASSETS EBITDA NET ASSETS NET ASSETS EBITDA
---------- ---------- ------ ---------- ---------- -------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MAY 10,754 11,480 (89) 63,274 64,731 982 136,352 139,309(1) 1,847
JUNE 11,443 11,635 169 65,417 65,274 1,399 164,232 175,206 3,429
JULY 11,906 12,093 324 65,065 64,764 1,023 152,393 173,719 2,722
AUGUST 12,307 12,046 90 66,136 62,299 1,013 151,584 170,155 2,839
SEPTEMBER 12,004 12,867 204 67,284 61,174 1,065 145,660 168,659 3,603
OCTOBER 12,452 12,860 609 69,760 58,532 853 149,666 167,409 2,682
NOVEMBER 11,558 11,821 72 68,249 56,390 959 141,113 169,334 2,193
DECEMBER 0 11,157 171 0 54,666 621 0 170,677 2,131
JANUARY 0 11,700 723 0 52,999 796 0 164,665 2,170
FEBRUARY 0 11,338 426 0 53,456 257 0 163,725 2,760
MARCH 0 10,785 276 0 52,553 923 0 165,113 3,690
APRIL 0 10,242 424 0 53,765 1,324 0 164,164 2,842
-------- ------ ------ ------- -------- ------- ------- ------- ------
AVERAGE
ADJUSTED
NET ASSETS 11,775 11,669 3,408 66,455 58,425 11,215 148,714 166,011 32,908
YTD EBITDA -
ACTUAL 539 6,918 18,977
YTD EBITDA -
BUDGET 1,388 7,294 19,315
ANNUALIZED
EBITDA 924 11,859 32,532
YTD RETURN ON
NET ASSETS -
ACTUAL(2) 7.8% 17.8% 21.9%
YTD RETURN ON
NET ASSETS -
BUDGET(2) 19.6% 20.2% 19.9%
FISCAL 1996 PLAN
RETURN ON NET
ASSETS 29.2% 19.2% 19.8%
<CAPTION>
ALPINE GROUP
--------------------------------
ACTUAL BUDGET
ADJUSTED ADJUSTED BUDGET
NET ASSETS NET ASSETS EBITDA
---------- ---------- -------
<S> <C> <C> <C>
MAY 208,637 213,238 2,432
JUNE 240,230 249,655 4,689
JULY 233,347 253,372 3,761
AUGUST 234,744 247,777 3,643
SEPTEMBER 228,139 246,251 4,564
OCTOBER 228,160 242,610 3,836
NOVEMBER 225,280 242,239 2,916
DECEMBER 0 241,716 2,615
JANUARY 0 234,841 3,381
FEBRUARY 0 234,778 3,135
MARCH 0 235,634 4,581
APRIL 0 235,976 4,285
-------- -------- -------
AVERAGE
ADJUSTED
NET ASSETS 228,362 239,841 43,838
YTD EBITDA -
ACTUAL 23,967
YTD EBITDA -
BUDGET 25,841
ANNUALIZED
EBITDA 41,086
YTD RETURN ON
NET ASSETS -
ACTUAL(2) 18.0%
YTD RETURN ON
NET ASSETS -
BUDGET(2) 18.3%
FISCAL 1996 PLAN
RETURN ON NET
ASSETS 18.3%
</TABLE>
1 WEIGHTED TO REFLECT THE MAY 11, 1995 ACQUISITION OF ALCATEL'S NORTH
AMERICAN WIRE AND CABLE OPERATIONS
2 ANNUALIZED
<PAGE>
ATTACHMENT D
SENIOR MANAGEMENT COMPENSATION PROGRAM
ANNUAL CASH BONUS PROGRAM AND
PERFORMANCE STOCK OPTION GRANTS
STANDARD TO ACTUAL CONVERSION MATRIX
<TABLE>
<CAPTION>
ANNUAL WEIGHTED PERCENT OF
OVERALL PERFORMANCE STANDARD BONUS
- ------------------- ---------------
<S> <C>
less than 70% 0%
70% 50%
85% 75%
100% 100%
115% 125%
130% 150%
</TABLE>
<PAGE>
ATTACHMENT E
THE ALPINE GROUP, INC.
WORKSHEET FOR CALCULATING 3-YEAR OVERALL PERFORMANCE
PERCENTAGE
NOVEMBER 16, 1995
<TABLE>
<CAPTION>
EBITDA RETURN FY96 FY97 FY98
on Net Assets ------ ------ ------
<S> <C> <C> <C>
- Plan (1) (1) (1)
- Actual (A) (A) (A)
------ ------ ------
% of Actual
as compared
to Plan (C) (D) (E)
------ ------ ------
</TABLE>
Overall Performance Percentage = [(C) - (D) - (E)] divided by 3
(1) The Plan EBITDA Return on net assets for Corporate and by division, for
purposes of the above calculation, are as follows:
<TABLE>
3-Year
FY96 FY97 FY98 Average
----- ----- ------ ---------
<S> <C> <C> <C> <C>
Corporate 18.6% 20.9% 23.2% 20.9%
Superior Telecommunications 20.1% 22.6% 25.1% 22.6%
Advance 19.2% 21.6% 24.0% 21.6%
DNE 29.2% 32.9% 36.5% 32.9%
</TABLE>
<PAGE>
EXHIBIT 10(14)
EMPLOYMENT AGREEMENT
This AGREEMENT dated as of the 17th day of October, 1996, between Superior
TeleCom Inc., a Delaware corporation (the "Company"), and Steven S. Elbaum (the
"Executive").
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the future growth and success of the Company is
expected to be substantial. The Executive is willing to commit himself to serve
the Company, on the terms and conditions herein provided.
Moreover, the Board has determined that it is in the best interests of the
Company and its shareholders to assure that the Company will have the dedication
of the Executive, notwithstanding the possibility, threat or occurrence of a
Change of Control (as defined below) of the Company. The Board believes it is
imperative to diminish the inevitable distraction of the Executive by virtue of
the personal uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control, and to provide the Executive with compensation and benefits
arrangements upon a Change of Control which ensure that the compensation and
benefits expectations of the Executive will be satisfied and which are
competitive with those of other corporations.
Accordingly, in consideration of the premises and the respective covenants
and agreements of the parties herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to serve the Company, on the terms and conditions
set forth herein.
2. TERM.
(a) The employment of the Executive by the Company hereunder will
commence upon completion of the initial public offering (the "IPO") of the
Company's Common Stock (the "Commencement Date") and will continue in effect (i)
until either party gives notice to the other, as provided in Section 8(d), that
it does not wish to continue the Executive's employment hereunder or (ii) unless
terminated as provided in Sections 8(a), (b), (c) or (d). The "Term" shall be
the period commencing on the Commencement Date and ending on the earlier to
occur of the events specified in clause (i) or (ii) of the preceding sentence.
<PAGE>
(b) Notwithstanding paragraph (a) above or the provisions of Section
8(d), the Company hereby agrees to continue the Executive in its employ, and the
Executive hereby agrees to remain in the employ of the Company subject to the
terms and conditions of this Agreement, during any Transition Period. For
purposes of this Agreement, the Term shall, unless otherwise specified, include
any Transition Period.
3. CERTAIN DEFINITIONS. (a) A "COC Transition Date" shall mean a date
during the Term (as defined in Section 2) on which a Change of Control (as
defined in Section 4) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Executive's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Executive that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "COC Transition Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) A "Transition Period" is a period commencing on a COC Transition
Date and ending on the third anniversary of such date. If a subsequent COC
Transition Date is determined to occur during a Transition Period, then such
Transition Period shall continue until the third anniversary of such subsequent
COC Transition Date. If a subsequent COC Transition Date occurs after the
expiration of a Transition Period, a new Transition Period will commence on such
date and end on the third anniversary thereof.
(c) Notwithstanding anything to the contrary in this Agreement, for
purposes of calculating payments under Section 13(f), "Applicable Bonus" means
the higher of (i) the Highest Recent Bonus (as defined in Section 13(b)(i)) and
(ii) the Annual Bonus (as defined in Section 6(b)) paid or payable, including
any bonus or portion thereof which has been earned but deferred (and annualized
for any fiscal year consisting of less than twelve full months or during which
the Executive was employed for less than twelve full months), for the most
recently completed fiscal year during the Term, if any (the "Recent Annual
Bonus") (such higher amount being referred to as the "Highest Annual Bonus").
For purposes of calculating payments under all sections of this Agreement other
than Section 13(f), Applicable Bonus means the Recent Annual Bonus.
(d) A "Stock Option" is an option to purchase a number of shares of
stock of the Company at a fixed exercise price granted to the Executive by the
Company, whether or not exercisable.
2
<PAGE>
4. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean the occurance of any of the following events at a time when
or as a result of which The Alpine Group Inc. ("Alpine") owns less than 20% of
the Outstanding Company Voting Securities (as defined below):
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), other than Alpine (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act)
of voting securities of the Company where such acquisition causes such Person to
own more than 20% or more of the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not be
deemed to result in a Change of Control: (i) any acquisition directly from the
Company, (ii) any acquisition by the Company, (iii) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by the Company
or any corporation controlled by the Company or (iv) any acquisition by any
corporation pursuant to a transaction that complies with clauses (i), (ii) and
(iii) of subsection (c) below; and provided, further, that if any Person's
beneficial ownership of the Outstanding Company Voting Securities reaches or
exceeds more than 20% as a result of a transaction described in clause (i) or
(ii) above, and such Person subsequently acquires beneficial ownership of
additional voting securities of the Company, such subsequent acquisition shall
be treated as an acquisition that causes such Person to own more than 20% or
more of the Outstanding Company Voting Securities; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) The consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of assets of another corporation ("Business
Combination"); excluding, however, such a Business Combination pursuant to which
(i)
3
<PAGE>
all or substantially all of the individuals and entities who were the beneficial
owners of the Outstanding Company Voting Securities immediately prior to such
Business Combination beneficially own, directly or indirectly, more than 50% of,
respectively, the then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation that as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Voting
Securities, (ii) no Person (excluding any employee benefit plan (or related
trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, more than 20% or more
of, respectively, the then outstanding shares of common stock of the corporation
resulting from such Business Combination or the combined voting power of the
then outstanding voting securities of such corporation except to the extent that
such ownership existed prior to the Business Combination and (iii) at least a
majority of the members of the board of directors of the corporation resulting
from such Business Combination were members of the Incumbent Board at the time
of the execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
5. POSITION AND DUTIES.
(a) The Executive shall serve as President, Chief Executive Officer
and Chairman of the Board of Directors of the Company with the responsibility
and authority to manage and supervise the Company's operations in the ordinary
course of its business and shall have such responsibilities, duties and
authority as are generally associated with each such position and as may from
time to time be assigned to the Executive by the Board that are consistent with
such responsibilities, duties and authority, provided, that the Executive shall
at all times be senior to every other employee and director of the Company and
its affiliates. The Executive's services shall be performed primarily at the
Company's headquarters office in the New York City metropolitan area.
(b) The parties acknowledge that the Executive is the Chief Executive
Officer and Chairman of the Board of Directors of Alpine and that he will
allocate his time and efforts between the Company and Alpine as he sees fit in
his good faith business judgment. Subject to the foregoing, during the Term,
and excluding any periods of vacation and sick leave
4
<PAGE>
to which the Executive is entitled, the Executive agrees to devote reasonable
attention and time during normal business hours to the business and affairs of
the Company and, to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder, to use the Executive's reasonable best
efforts to perform faithfully and efficiently such responsibilities. During the
Term it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions, (C)
manage personal investments, and (D) serve as Chief Executive Officer and
Chairman of the Board of Directors of Alpine (and in any other positions with
Alpine and its affiliates as Executive deems appropriate) so long as such
activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement and are not directly competitive with the operating businesses of
the Company's subsidiaries. The Company shall continue to nominate the
Executive as a director of the Company during the term hereof consistent with
the Company's By-Laws.
6. COMPENSATION AND RELATED MATTERS.
(a) SALARY. (i) During the Term, the Company shall pay to the
Executive an annual base salary (the "Annual Base Salary") at a rate not less
than $175,000 or such higher rate as may from time to time be determined by the
Board, such salary to be paid in substantially equal installments in accordance
with the normal payroll practice of the Company. The Executive's salary will be
reviewed at least annually and shall be increased pursuant to such review by a
percentage no less than the percentage increase in the consumer price index, as
published by the Bureau of Labor Statistics of the U.S. Department of Labor, for
the calendar year immediately preceding such review (the "CPI Percentage"). Any
increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased.
(b) ANNUAL BONUS. In addition to the Annual Base Salary, the Company
will pay the Executive an annual cash bonus (the "Annual Bonus") within 90 days
following the last day of the Company's fiscal year for which the Annual Bonus
is awarded in an amount, if any, determined in the discretion of the Company's
Board of Directors.
(c) STOCK OPTIONS. On the Commencement Date, the Company shall grant
the Executive Stock Options (the "Initial options") to purchase 250,000 shares
of common stock of the Company (the "Company Stock") having exercise prices per
share equal to IPO price per share to the public becoming exercisable
5
<PAGE>
in three equal installments on each of the first, second and third anniversaries
of the Commencement Date. Such Initial Options are intended to be "incentive
stock options" and are granted under the Company's 1996 Stock Option Plan and
are evidenced by the Company's standard stock option agreement.
In the event of termination of employment (i) by the Executive other
than because of death, disability or for Good Reason, prior to the third
anniversary of the Commencement Date or (ii) by the Company for Cause, all Stock
Options (including, without limitation, the Initial Options) not theretofore
exercisable will lapse and be forfeited. In the event the Executive's
employment is terminated for any other reason prior to the third anniversary of
the Commencement Date all Stock options (including, without limitation, the
Initial Options) not theretofore exercisable will thereupon become exercisable.
Except as provided in Section 11 each Stock Option will expire 10 years after it
is granted.
(d) EXPENSES. During the term of the Executive's employment
hereunder, the Executive shall be entitled to receive prompt reimbursement for
all reasonable and customary expenses incurred by the Executive in performing
services hereunder, including (i) all expenses of travel and living expenses
while away from home or business or at the request of and in the service of the
Company and (ii) if and to the extent not provided to the Executive by Alpine,
an automobile and a driver, plus all expenses of maintaining and operating the
automobile, provided that all such expenses are accounted for in accordance with
the policies and procedures established by the Company, or a monthly cash
allowance in lieu thereof.
(e) WELFARE BENEFITS. During the Term, the Executive and/or the
Executive's family, as the case may be, shall, except to the extent Alpine
provides comparable benefits to the Executive, be eligible for participation in
and shall receive all benefits under welfare benefit plans, practices, policies
and programs provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel accident
insurance plans and programs) to the extent applicable generally to the most
senior executives of the Company and its affiliated companies, but in no event
shall such plans, practices, policies and programs provide the Executive with
benefits which are materially less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive as of the date hereof or, if more favorable to the Executive, those
provided generally at any time to any other executives of the Company and its
affiliated companies. As used in this Agreement, the term "affiliated
companies" shall include any company controlled by, controlling or under common
control with the Company.
6
<PAGE>
(f) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the Term, the
Executive shall be entitled to participate in all incentive, savings and
retirement plans, practices, policies and programs applicable generally to the
most senior executives of the Company and its affiliated companies.
(g) FRINGE BENEFITS. During the Term, except to the extent Alpine
provides comparable benefits to the Executive:
(i) The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in undergoing an annual physical examination
by a licensed physician.
(ii) The Company shall reimburse the Executive for membership fees,
dues and special assessments incurred by the Executive in connection with his
membership in a country club.
(iii) The Company shall reimburse the Executive for the reasonable
expenses incurred by the Executive in connection with obtaining professional tax
and financial planning advice.
(h) VACATION. During the Term, the Executive shall be entitled to
paid vacation of four weeks per year, any unused portion of which shall be
forfeited as of the end of each year.
(i) DISABILITY OFFSET. Payments made to the Executive pursuant to
this Section 6 shall be reduced by the sum of the amounts, if any, payable to
the Executive at or prior to the time of any such payment under disability
benefit plans of the Company or under the Social Security disability insurance
program, and which amounts were not previously applied to reduce any such
payments.
7. OFFICES. Subject to Section 5, the Executive agrees to serve without
additional compensation, if elected or appointed thereto, as a director of the
Company and any of its subsidiaries and in one or more executive offices of any
of the Company's subsidiaries, provided that the Executive is indemnified for
serving in any and all such capacities.
8. TERMINATION. The Executive's employment hereunder may be terminated
only under the following circumstances:
(a) DEATH OR DISABILITY. The Executive's employment shall terminate
automatically upon the Executive's death during the Term. If the Company
determines in good faith that Disability of the Executive has occurred during
the Term (pursuant to the definition of Disability set forth below), it may give
to the Executive written notice in accordance with Section 18 of this Agreement
of its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt,
7
<PAGE>
the Executive shall not have returned to full-time performance of the
Executive's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Executive from the Executive's duties with the Company on a full-
time basis for 180 consecutive business days (or such shorter period as will
suffice for the Executive to qualify for full disability benefits under the
applicable disability insurance policy or policies of the Company) as a result
of incapacity due to mental or physical illness which is determined to be total
and permanent by a physician selected by the Company or its insurers and
reasonably acceptable to the Executive or the Executive's legal representative.
(b) CAUSE. The Company may terminate the Executive's employment
during the Term for Cause. For purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties pursuant to this Agreement (other than
any such failure resulting from incapacity due to physical or mental
illness), after a written demand for substantial performance is delivered
to the Executive by the Board which specifically identifies the manner in
which the Board believes that the Executive has not substantially performed
the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or
gross misconduct which is materially and demonstrably injurious to the
Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of counsel for the Company shall
be conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. The cessation of
employment of the Executive shall not be deemed to be for Cause unless and until
there shall have been delivered to the Executive a copy of a resolution duly
adopted by the affirmative vote of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for such
purpose (after reasonable notice is provided to the Executive and the Executive
is given an opportunity, together with counsel, to be heard before the Board),
finding that, in the good faith opinion of the Board, the Executive is guilty of
the conduct described in subparagraph (i) or (ii) above, and specifying the
particulars thereof in detail.
8
<PAGE>
(c) TERMINATION BY THE EXECUTIVE FOR GOOD REASON. The Executive's
employment may be terminated by the Executive for Good Reason. For purposes of
this Agreement, "Good Reason" shall mean:
a. the assignment to the Executive of any duties inconsistent with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as the President,
Chairman of the Board and Chief Executive Officer of the Company as
contemplated by Section 5(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties
or responsibilities, excluding for this purpose isolated, insubstantial and
inadvertent action(s) not taken in bad faith and remedied by the Company
promptly after receipt of notice thereof given by the Executive;
b. any failure by the Company to comply with any of the provisions
of Section 6 or Section 13(a) or (b) of this Agreement, other than
isolated, insubstantial and inadvertent failure(s) not occurring in bad
faith and remedied by the Company promptly after receipt of notice thereof
given by the Executive;
c. the Company's requiring the Executive to be based at any office
or location other than as provided in Section 5(a) hereof;
d. any termination by the Company of the Executive's employment
otherwise than as expressly permitted by this Agreement; or
e. any failure by the Company to comply with and satisfy Section
17(a) of this Agreement.
For purposes of this Section 8(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive.
(d) TERMINATION ELECTION. Subject to the provisions of Section 2(b):
(i) A notice to Executive by the Company will constitute an election
by the Company to terminate the Executive's employment pursuant to Section 2(a)
60 days following the date of delivery of the notice;
(ii) A notice to the Company by the Executive will constitute an
election by the Executive to terminate Executive's employment pursuant to
Section 2(a) 90 days following the date of delivery of the notice;
(iii) In no event, however, shall the Term of the Executive's
employment hereunder extend beyond the end of the
9
<PAGE>
month in which the Executive's sixty-fifth (65th) birthday occurs.
(e) NOTICE OF TERMINATION. Any termination of the Executive's
employment by the Company or by the Executive (other than termination by reason
of the Executive's death) shall be communicated by written Notice of Termination
to the other party hereto in accordance with Section 18 hereof. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon (ii)
to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated and (iii) if the Date of Termination
(as defined below) is other than the date of receipt of such notice, specifies
the termination date. The good faith failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(f) DATE OF TERMINATION. "Date of Termination" shall mean (i) if the
Executive's employment is terminated by reason of death or Disability, the date
of death of the Executive or the Disability Effective Date, as the case may be,
(ii) if the Executive's employment is terminated for Cause, the date specified
in the Notice of Termination, and (iii) if the Executive's employment is
terminated by either of the elections pursuant to Section 8(d) above, the
applicable date of termination determined under Section 8(d) above, and (iv) if
the Executive's employment is terminated for any other reason, the date on which
a Notice of Termination is given; provided, however, that, if within thirty (30)
days after any Notice of Termination is given the party receiving such Notice of
Termination notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the dispute is
finally determined, either by mutual written agreement of the parties, by a
binding and final arbitration award or by a final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having expired
and no appeal having been perfected).
9. COMPENSATION UPON TERMINATION.
(a) DISABILITY. If the Executive's employment is terminated by
reason of the Executive's Disability during the Term, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations (as defined in Section 13(f)(i)a.) and the timely payment
or provision of Other Benefits (as defined in Section 13(f)(iv)). Accrued
Obligations shall be paid to the
10
<PAGE>
Executive in a lump sum in cash within 30 days of the Date of Termination.
Notwithstanding the foregoing, the Company shall maintain, at the Company's sole
expense, in full force and effect, for the continued benefit of the Executive
for twelve months following the Disability Effective Date, all employee welfare
benefit plans and programs in which the Executive was entitled to participate
immediately prior to the Disability Effective Date provided that the Executive's
continued participation is possible under the general terms and provisions of
such plans and programs. In the event that the Executive's participation in any
such plan or program is barred, the Company shall arrange to provide the
Executive with benefits substantially similar to those which the Executive would
otherwise have been entitled to receive under such plans and programs from which
his continued participation is barred.
(b) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Term, this Agreement shall terminate without
further obligations to the Executive's legal representatives under this
Agreement, other than for (i) payment of Accrued Obligations (as defined in
Section 13(f)(i)a.), calculated as if the Executive's employment had continued
for a period of 12 months following the date of death; and (ii) the timely
payment or provision of Other Benefits (as defined in Section 13(f)(iv)).
Accrued Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
(c) CAUSE. If the Executive's employment shall be terminated for
Cause during the Term, this Agreement shall terminate without further
obligations to the Executive other than the obligation to pay to the Executive
(x) his Annual Base Salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Executive, and (z) Other Benefits,
in each case to the extent theretofore unpaid.
(d) VOLUNTARY TERMINATION. If the Executive voluntarily terminates
employment during the Term, excluding a termination for Good Reason, this
Agreement shall terminate without further obligations to the Executive, other
than for Accrued Obligations and the timely payment or provision of Other
Benefits. In such case, all Accrued Obligations shall be paid to the Executive
in a lump sum in cash within 30 days of the Date of Termination.
(e) TERMINATION ELECTION BY COMPANY; TERMINATION BY EXECUTIVE FOR
GOOD REASON. If the Executive's employment is terminated by the Company under
Section 8(d)(i) hereof or by the Executive under Section 8(c) hereof the Company
shall pay to the Executive a lump sum in cash within ten days of the Date of
Termination in an amount equal to the sum of (x) the product of the sum of the
Annual Base Salary in effect immediately prior to termination plus the
Applicable Bonus times either (A)
11
<PAGE>
two, if the Termination Date occurs prior to the fifth anniversary of the
Commencement Date or (B) one and one-half, if the Termination Date occurs on or
after the fifth anniversary of the Commencement Date plus (y) the Accrued
Obligations (as defined in Section 13(f)(i)a.).
10. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 22, shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
11. STOCK OPTIONS AND COMPANY STOCK.
(a) In the event of the Executive's death, whether his death occurs
during or after the Term of this Agreement, all unexercised and exercisable
Stock Options will be assigned to his Estate.
(b) In the event of the termination of the employment of the
Executive for any reason, all unexercised and exercisable Stock Options must be
exercised by him, or his estate (or heir(s)) as the case may be, before the
second anniversary of the termination of his employment, but in no event after
the tenth anniversary of the date of grant thereof, any such Stock Options not
exercised by that date will lapse immediately thereafter.
(c) In the Event of any change in the number of issued shares of
Company Stock resulting from a subdivision or consolidation of shares or other
capital adjustment, or the payment of a stock dividend, or other increase or
decrease in such shares, then appropriate adjustments in the terms of any
unexercised Stock Options shall be made by the Company.
12. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement. Unless the
Executive's Ter-
12
<PAGE>
mination of employment gives rise to a right to payments and benefits described
in Section 13, if the Executive secures other employment, any benefits the
Company is required to provide to the Executive following termination of the
Executive's employment shall be secondary to those provided by another employer
(if any). However, if the Executive's employment is terminated such that the
Executive has a right to payments and benefits under Section 13, such amounts
shall not be reduced whether or not the Executive obtains other employment.
13. CHANGE OF CONTROL PROVISIONS. The following provisions of this
Section 13 shall apply notwithstanding any contrary or inconsistent provision in
any other section of this Agreement, and all other provisions of this Agreement,
to the extent they may be contrary to or inconsistent with the provisions of
this Section 13, are hereby made subject to the provisions of this Section 13,
which shall be paramount in all respects, PROVIDED, however, that the provisions
of Section 3(c) shall apply, where applicable.
(a) POSITION AND DUTIES. During any Transition Period, the
Executive's position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of those held,
exercised and assigned at any time during the 120-day period immediately
preceding the latest COC Transition Date, and the Executive's services shall be
performed at the location or locations where or in the manner in which the
Executive was employed immediately preceding a COC Transition Date or at the
Company's headquarters in the New York City metropolitan area.
(b) COMPENSATION AND RELATED MATTERS.
(i) ANNUAL BONUS. For each fiscal year ending during any Transition
Period, the Company shall pay to the Executive an Annual Bonus in cash at least
equal to the Executive's highest cash bonus under the Company's annual cash
bonus program, or any comparable cash bonus under any predecessor or successor
plan, for the last three full fiscal years prior to the latest COC Transition
Date (the "Highest Recent Bonus"). Each such Annual Bonus shall be paid no
later than 60 days following the commencement of the fiscal year next following
the fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of such Annual Bonus.
(ii) WELFARE BENEFITS. During any Transition Period, the benefits to
which the Executive and/or the Executive's family are entitled to pursuant to
Section 6(e) shall be no less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the latest
COC Transition Date or, if
13
<PAGE>
more favorable to the Executive, those provided generally at any time after the
latest COC Transition Date to any other executive of the Company and its
affiliated companies.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During any Transition
Period, the plans, practices, policies and programs in which the Executive is
entitled to participate pursuant to Section 6(f) shall provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, at least as favorable, in the aggregate, as the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as of the date hereof or if more
favorable to the Executive, those provided generally at any time to any other
executive of the Company and its affiliated companies.
(iv) FRINGE BENEFITS. During any Transition Period, the Executive
shall be entitled to fringe benefits, including, without limitation, the
benefits described in Section 6(g), in accordance with the most favorable plans,
practices, programs and policies of the Company and its affiliated companies in
effect for the Executive at any time during the 120-day period immediately
preceding the latest COC Transition Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to any other
executive of the Company and its affiliated companies.
(v) OFFICE AND SUPPORT STAFF. During any Transition Period, the
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the latest COC Transition Date or, if
more favorable to the Executive, as provided generally at any time thereafter
with respect to any other executive of the Company and its affiliated companies.
(vi) VACATION. During any Transition Period, the Executive shall be
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the latest COC Transition Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to any other executive of
the Company and its affiliated companies.
(c) GOOD REASON. Anything in this Agreement to the contrary
notwithstanding, a termination by the Executive for
14
<PAGE>
any reason during the 30-day period immediately following the date which is six
months after any COC Transition Date shall be deemed to be a termination for
Good Reason for all purposes of this Agreement. For purposes of this Section
13(c) and Section 8(c), in the event a Business Combination takes place, "Chief
Executive Officer of the Company" shall refer to the Executive's position as
Chief Executive Officer of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries).
(d) COMPENSATION UPON TERMINATION FOR DISABILITY. If the Executive's
employment is terminated by reason of the Executive's Disability during any
Transition Period, then with respect to the provision of Other Benefits, the
term Other Benefits as utilized in Section 9(a) shall include, and the Executive
shall be entitled after the Disability Effective Date to receive, disability and
other benefits at least equal to the most favorable of those generally provided
by the Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to any other
executives and their families at any time during the 120-day period immediately
preceding the latest COC Transition Date or, if more favorable to the Executive
and/or the Executive's family, as in effect at any time thereafter generally
with respect to any other executive of the Company and its affiliated companies
and their families.
(e) COMPENSATION UPON TERMINATION BY DEATH. If the Executive's death
occurs during any Transition Period, then with respect to the provision of other
Benefits, the term Other Benefits as utilized in Section 9(b) shall include,
without limitation, and the Executive's estate and/or beneficiaries shall be
entitled to receive, benefits at least equal to the most favorable benefits
provided by the Company and its affiliated companies to the estates and
beneficiaries of the most senior executives of the Company and its affiliated
companies under such plans, programs, practices and policies relating to death
benefits, if any, as in effect with respect to any other executive and their
beneficiaries at any time during the 120-day period immediately preceding the
latest COC Transition Date or, if more favorable to the Executive's estate
and/or the Executive's beneficiaries, as in effect on the date of the
Executive's death with respect to any other executive of the Company and its
affiliated companies and their beneficiaries.
(f) COMPENSATION UPON TERMINATION BY THE COMPANY WITHOUT CAUSE OR FOR
GOOD REASON. If, during any Transition Period, the Company shall terminate the
Executive's employment
15
<PAGE>
other than for Cause or Disability or the Executive shall terminate employment
for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination the aggregate of the following
amounts:
a. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid,
(2) the product of (x) the Applicable Bonus and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid
(the sum of the amounts described in clauses (1), (2), and (3) shall
be referred to in this Agreement as the "Accrued Obligations"); and
b. the amount equal to the product of (1) three and (2)
the sum of (x) the Executive's Annual Base Salary and (y) the Highest
Annual Bonus; and
c. an amount equal to the excess of (a) the actuarial
equivalent of the benefit under the Company's defined benefit
retirement plans, including any excess or supplemental retirement plan
in which the Executive participates (together, the "Retirement Plans")
(utilizing actuarial assumptions no less favorable to the Executive
than those in effect under the Retirement Plans immediately prior to
the latest COC Transition Date), which the Executive would receive if
the Executive's employment continued for three years after the Date of
Termination assuming for this purpose that all accrued benefits are
fully vested, and, assuming that the Executive's compensation in each
of the three years is that required by Section 6(a) and Section 6(b),
over (b) the actuarial equivalent of the Executive's actual benefit
(paid or payable), if any, under the Retirement Plans as of the Date
of Termination;
(ii) for three years after the Executive's Date of Termination, or
such longer period as may be provided by the terms of the appropriate plan,
program, practice or policy, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs,
practices and policies described in Section 6(h) of this Agreement if the
Executive's employment had not been terminated or, if more favorable to the
Executive, as in effect generally at any time
16
<PAGE>
thereafter with respect to any other executive of the Company and its
affiliated companies and their families, provided, however, that if the
Executive becomes reemployed with another employer and is eligible to
receive medical or other welfare benefits under another employer provided
plan, the medical and other welfare benefits described herein shall be
secondary to those provided under such other plan during such applicable
period of eligibility. For purposes of determining eligibility (but not
the time of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until two years after the
Date of Termination and to have retired on the last day of such period;
(iii) the Company shall, at its sole expense as incurred, provide the
Executive with outplacement services the scope and provider of which shall
be selected by the Executive in his sole discretion, and which shall
include the provision of reasonable office space and secretarial
assistance;
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided or which the Executive is eligible to
receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other amounts
and benefits shall be referred to in this Agreement as the "Other
Benefits"); and
(v) the Company shall cause all Stock Options and Company Stock held
by or for the benefit of the Executive to become immediately fully vested
and/or exercisable.
14. LEGAL FEES.
(a) Following any termination of the Executive's employment that
gives rise to a right to payments and benefits under Section 13, the Company
shall pay as incurred, to the full extent permitted by law, all legal fees and
expenses which the Executive may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company, the Executive or others of
the validity or enforceability of, or liability under, any provision of this
Agreement or any guarantee of performance thereof (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement), plus in each case interest on any delayed payment at the applicable
Federal rate provided for in Section 7872(f)(2)(A) of the Code.
(b) Following any termination of the Executive's employment other
than a termination of employment described in
17
<PAGE>
paragraph (a), above, the Company shall promptly reimburse the Executive, to the
extent permitted by law, for all reasonable legal fees and expenses reasonably
incurred by the Executive as a result of any contest by the Company or the
Executive of the validity or enforceability of, or liability under, any
provisions of this Agreement or any guarantee of performance thereof (including
as a result of any contest by the Executive about the amount of any payment
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Code, provided, that such reimbursement shall be limited to fees and expenses
incurred in connection with the contest of issues on which the Executive
substantially prevails.
15. CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding and
except as set forth below, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
required under this Section 15) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 15(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed
110% of the greatest amount (the "Reduced Amount") that could be paid to the
Executive such that the receipt of Payments would not give rise to any Excise
Tax, then no Gross-Up Payment shall be made to the Executive and the Payments,
in the aggregate, shall be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 15(c), all determinations
required to be made under this Section 15, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Arthur
Andersen LLP or such other certified public accounting firm as may be designated
by the Executive (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days
18
<PAGE>
of the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 15, shall be paid by the Company to the Executive within five days of
the receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 15(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment by
the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
19
<PAGE>
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 15(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(c) If, after the receipt by the Executive of an amount advanced by
the Company pursuant to Section 15(c), the Executive becomes entitled to receive
any refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 15(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by the Executive
of an amount advanced by the Company pursuant to Section 15(c), a determination
is made that the Executive shall not be entitled to any refund with respect to
such claim and the Company does not notify the Executive in writing of its
intent to contest such denial of refund prior to the expiration of 30 days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance
20
<PAGE>
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
16. NONCOMPETITION.
(a) So long as the Executive is employed by the Company under this
Agreement and unless this Agreement is terminated for any reason, the Executive
agrees not to enter into competitive endeavors, provided, however, that any
endeavors entered into by Executive in connection with his employment by Alpine
shall be deemed not to be competitive endeavors for purposes of this Section
16(a).
(b) During the Term and any period thereafter during which or in
respect of which the Executive receives payments from the Company under Section
9 or Section 13, the Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 16 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under Section 13 of this Agreement.
17. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive, to expressly assume and agree
to perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
Failure of the Company to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of the Agreement and
shall entitle the Executive to compensation from the Company in the same amount
and on the same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall be
deemed the Date of Termination. As used in the Agreement, "Company" shall mean
the Company as herein before defined and any successor to its business and/or
assets as aforesaid which
21
<PAGE>
executes and delivers the agreement provided for in this Section 17 or which
otherwise becomes bound by all the terms and provisions of this Agreement by
operation of law.
(b) This Agreement and all rights of the Executive hereunder shall
inure to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees. If the Executive should die while any amounts would still
be payable to him hereunder if he had continued to live, all such amounts unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to the Executive's devise, legatee, or other designee or, if there be
no such designee, to the Executive's estate.
18. NOTICE. For the purposes of this Agreement, notices, demands and all
other communications provided for in this Agreement shall be in writing and
shall be deemed to have been duly given when delivered or (unless otherwise
specified) mailed by United States certified or registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Mr. Steven S. Elbaum
136 Fells Road
Essex Fells, NJ 07021
If to the Company:
Superior TeleCom Inc.
1790 Broadway
15th Floor
New York, NY 10019-1412
Attention: Chief Financial Officer
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
19. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by the Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not set forth expressly in this
22
<PAGE>
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of New York without regard to its
conflicts of law principles.
20. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in full force and
effect.
21. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
22. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of
the parties hereto in respect of the subject matter contained herein and
supersedes all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written, by any
officer, employee or representative of any party hereto and any prior agreement
of the parties hereto in respect of the subject matter contained herein is
hereby terminated and cancelled, provided, however, that this Agreement should
not supersede any existing benefit or agreement which provides such benefit,
including, without limitation, life or disability insurance agreements and
retirement plans currently in effect.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
SUPERIOR TELECOM INC.
By: /s/ Stewart H. Wahrsager
------------------------
Name: Stewart H. Wahrsager
Title: Secretary
EXECUTIVE
/s/ Steven S. Elbaum
--------------------
Steven S. Elbaum
23
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