<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NUMBER 1-12261
------------------------
SUPERIOR TELECOM INC.
(Exact name of registrant as specified in its charter)
DELAWARE 58-2248978
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1790 BROADWAY 10019-1412
NEW YORK, NEW YORK (Zip code)
(Address of principal executive offices)
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 MAY 12,
CLASS 1999
- ----------------------------------- --------------------------
<S> <C>
Common Stock, $.01 Par Value 19,678,803
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited condensed 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. These financial
statements should be read in conjunction with the summary of significant
accounting policies and the notes to the consolidated financial statements
included in the Company's Annual Report on Form 10-K for the eight month period
ended December 31, 1998.
2
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 16,110 $ 7,686
Accounts receivable (less allowance for doubtful accounts of:
December 1998, $4,984; March 1999, $5,035)....................................... 222,568 269,775
Inventories........................................................................ 346,614 339,283
Other current assets............................................................... 44,661 33,283
------------ ------------
Total current assets............................................................. 629,953 650,027
Property, plant and equipment, net................................................... 513,433 519,261
Long-term investments and other assets............................................... 48,505 40,751
Goodwill (less accumulated amortization; December 1998, $8,893;
March 1999, $13,174)............................................................... 694,665 778,400
------------ ------------
Total assets..................................................................... $1,886,556 $ 1,988,439
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................................... $ 110,737 $ 138,344
Accrued expenses................................................................... 104,107 100,310
Short-term borrowings.............................................................. 120,109 110,584
Current portion of long-term debt.................................................. 62,603 78,276
------------ ------------
Total current liabilities........................................................ 397,556 427,514
Long-term debt, less current portion................................................. 1,215,594 1,196,329
Minority interest in subsidiary...................................................... 64,571 16,426
Other long-term liabilities.......................................................... 117,455 114,061
------------ ------------
Total liabilities................................................................ 1,795,176 1,754,330
------------ ------------
Company-obligated Mandatorily Redeemable Trust Convertible Preferred Securities of
Superior Trust I holding solely convertible debentures (net of discount--Note 5)... -- 133,290
Commitments and contingencies
Stockholders' equity:
Common stock, $.01 par value; authorized 35,000,000 shares; 20,287,274 and
20,298,350 shares issued at December 31, 1998 and March 31, 1999, respectively... 203 203
Capital in excess of par value..................................................... 28,332 28,519
Accumulated other comprehensive deficit............................................ (6,081) (5,102)
Retained earnings.................................................................. 75,043 84,247
------------ ------------
97,497 107,867
Shares of common stock in treasury, at cost; December 1998, 210,875 shares; March
1999, 260,875 shares............................................................. (6,117) (7,048)
------------ ------------
Total stockholders' equity......................................................... 91,380 100,819
------------ ------------
Total liabilities and stockholders' equity....................................... $1,886,556 $ 1,988,439
------------ ------------
------------ ------------
</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
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1998 1999
---------- ----------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
Net sales................................................................................. $ 129,243 $ 506,836
Cost of goods sold........................................................................ 102,686 406,646
---------- ----------
Gross profit............................................................................ 26,557 100,190
Selling, general and administrative expenses.............................................. 5,862 41,712
Amortization of goodwill.................................................................. 427 4,237
Unusual charges........................................................................... -- 2,522
---------- ----------
Operating income........................................................................ 20,268 51,719
Interest expense.......................................................................... (1,654) (29,871)
Other income (expense), net............................................................... (40) 1,035
---------- ----------
Income before income taxes and minority interest........................................ 18,574 22,883
Provision for income taxes................................................................ (7,710) (10,412)
---------- ----------
Income before minority interest......................................................... 10,864 12,471
Minority interest in earnings of subsidiaries............................................. -- (2,012)
---------- ----------
Net income.............................................................................. $ 10,864 $ 10,459
---------- ----------
---------- ----------
Basic net income per share................................................................ $ 0.54 $ 0.52
---------- ----------
---------- ----------
Diluted net income per share.............................................................. $ 0.52 $ 0.51
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK CAPITAL IN OTHER TREASURY STOCK
---------------------- EXCESS COMPREHENSIVE RETAINED ----------------------
SHARES AMOUNT OF PAR DEFICIT EARNINGS SHARES AMOUNT
--------- ----------- ----------- --------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
Balance at December 31, 1998....... 20,287,274 $ 203 $ 28,332 $ (6,081) $ 75,043 (210,875) $ (6,117)
Exercise of stock options.......... 9,063 137
Employee stock purchase plan....... 2,013 50
Purchase of treasury stock......... (50,000) (931)
Cash dividend declared ($0.0625 per
share)........................... (1,255)
Total comprehensive income......... 979 10,459
--------- ----- ----------- ------- ----------- --------- -----------
Balance at March 31, 1999.......... 20,298,350 $ 203 $ 28,519 $ (5,102) $ 84,247 (260,875) $ (7,048)
--------- ----- ----------- ------- ----------- --------- -----------
--------- ----- ----------- ------- ----------- --------- -----------
<CAPTION>
TOTAL
---------
<S> <C>
Balance at December 31, 1998....... $ 91,380
Exercise of stock options.......... 137
Employee stock purchase plan....... 50
Purchase of treasury stock......... (931)
Cash dividend declared ($0.0625 per
share)........................... (1,255)
Total comprehensive income......... 11,438
---------
Balance at March 31, 1999.......... $ 100,819
---------
---------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
(UNAUDITED)
Cash flows from operating activities:
Net income.............................................................................. $ 10,864 $ 10,459
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization......................................................... 2,570 13,328
Amortization of deferred financing costs.............................................. 268 1,214
(Benefit) provision for deferred taxes................................................ (4) (363)
Minority interest in earnings of subsidiary........................................... -- 2,012
Change in assets and liabilities:
Accounts receivable................................................................. (7,248) (46,842)
Inventories......................................................................... 4,942 860
Other current and non current assets................................................ (133) 17,909
Accounts payable and accrued expenses............................................... 10,379 19,201
Other, net.......................................................................... (51) 62
---------- ----------
Cash flows provided by operating activities............................................... 21,587 17,840
---------- ----------
Cash flows from investing activities:
Capital expenditures.................................................................... (5,881) (12,195)
Net proceeds from sale of assets........................................................ 385 67
---------- ----------
Cash flows used for investing activities.................................................. (5,496) (12,128)
---------- ----------
Cash flows from financing activities:
Short-term borrowings................................................................... -- 8,154
Repayment of short-term borrowings...................................................... -- (17,679)
(Repayments) borrowings under revolving credit facilities, net.......................... (11,224) 11,720
Repayments of long-term borrowings...................................................... (33) (14,098)
Dividends on common stock............................................................... (1,011) (1,255)
Purchase of treasury stock.............................................................. -- (931)
Other, net.............................................................................. 403 (47)
---------- ----------
Cash flows used for financing activities.................................................. (11,865) (14,136)
---------- ----------
Net increase (decrease) in cash and cash equivalents...................................... 4,226 (8,424)
Cash and cash equivalents at beginning of period.......................................... 1,794 16,110
---------- ----------
Cash and cash equivalents at end of period................................................ $ 6,020 $ 7,686
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
1998 1999
--------- ----------
<S> <C> <C>
(UNAUDITED)
Supplemental disclosures:
Cash paid for interest.................................................................... $ 1,371 $ 29,444
--------- ----------
--------- ----------
Cash paid for income taxes................................................................ $ 889 $ 2,347
--------- ----------
--------- ----------
Non-cash investing and financing activities:
Issuance of Company-obligated Manditorily Redeemable Trust Convertible Preferred
Securities of Superior Trust I holding solely convertible debentures in exchange for
subsidiary common stock held by minority stockholders net of discount of $33.2
million................................................................................. $ 133,290
----------
----------
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts of Superior TeleCom Inc. and its majority owned
subsidiaries ("Superior TeleCom" or the "Company"). Certain reclassifications
have been made to the prior period presentation to conform to the current period
presentation.
On December 15, 1998, the Company elected to change its year end to December
31 from April 30. This change was made effective December 31, 1998. An eight
month transition period of May 1, 1998 through December 31, 1998 preceded the
start of this current fiscal year. The interim financial statements included
herein are presented on a December 31 fiscal year basis.
2. INVENTORIES
At December 31, 1998 and March 31, 1999, the components of inventories were
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
------------ ----------
<S> <C> <C>
(IN THOUSANDS)
Raw materials...................................................... $ 47,519 $ 43,871
Work in process.................................................... 45,661 44,343
Finished goods..................................................... 254,099 244,994
------------ ----------
347,279 333,208
LIFO reserve....................................................... (665) 6,075
------------ ----------
$ 346,614 $ 339,283
------------ ----------
------------ ----------
</TABLE>
Inventories valued using the LIFO method amounted to $220.9 million and
$222.6 million at December 31, 1998 and March 31, 1999, respectively.
3. COMPREHENSIVE INCOME
The components of comprehensive income for the three months ended March 31,
1998 and 1999 were as follows:
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
(IN THOUSANDS)
Net income.............................................................. $ 10,864 $ 10,459
Foreign currency translation adjustment................................. 240 979
--------- ---------
Comprehensive income.................................................... $ 11,104 $ 11,438
--------- ---------
--------- ---------
</TABLE>
4. ACQUISITIONS
ESSEX ACQUISITION
On November 27, 1998, the Company completed a cash tender offer for 81% of
the outstanding common stock of Essex International Inc. ("Essex"), at an
aggregate cash tender value of $770 million (the
8
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
4. ACQUISITIONS (CONTINUED)
"Essex Acquisition"). In connection with the Essex Acquisition, the Company
entered into a $1.15 billion amended and restated credit facility and a $200
million senior subordinated credit facility (the "Credit Facilities"). Proceeds
from the Credit Facilities were used to (i) pay the cash portion of the purchase
price, (ii) repay approximately $275 million of Essex indebtedness, (iii)
refinance the Company's existing outstanding bank debt and (iv) pay related
transaction expenses. On March 31, 1999, the Company acquired the remaining
outstanding common stock of Essex through the issuance of approximately $167
million (face amount) of 8 1/2% Company-obligated Mandatorily Redeemable Trust
Convertible Preferred Securities of Superior Trust I holding solely convertible
debentures (see Note 5).
The Essex Acquisition was accounted for using the purchase method and,
accordingly, the results of operations of Essex have been included in the
consolidated financial statements on a prospective basis from the dates of
acquisition. The purchase price was allocated based upon preliminary assessments
of the fair values of assets and liabilities at the dates of acquisition, which
include accruals for planned consolidations, overhead rationalization and loss
contingencies. The allocation and related accruals are subject to adjustment.
The excess of the purchase price over the net assets acquired is being amortized
on a straight-line basis over 40 years.
CABLES OF ZION AND CVALIM ACQUISITIONS
On May 5, 1998, the Company acquired 51% of the common stock of Cables of
Zion United Works Ltd. ("Cables of Zion"), an Israel-based cable and wire
manufacturer whose common stock is traded on the Tel Aviv Stock Exchange, for
approximately $25 million. The Company has an option through May 5, 2000 to
purchase an additional 19% ownership interest in Cables of Zion at the same
purchase price per share paid for its initial 51% investment (as adjusted for
inflation). This acquisition (the "Cables of Zion Acquisition") was accounted
for using the purchase method and, accordingly, the results of operations of
Cables of Zion are included in the Company's consolidated financial statements
on a prospective basis from the date of acquisition. The purchase price was
allocated based upon the estimated fair values of assets and liabilities at the
date of acquisition and is subject to adjustment. The excess of the purchase
price over the net assets acquired was $2.2 million and is being amortized on a
straight-line basis over 30 years.
On December 31, 1998, Cables of Zion acquired the business and certain
operating assets of Cvalim-The Electric Wire and Cable Company of Israel Ltd.
(the "Cvalim Acquisition") for an adjusted purchase price of $41.2 million. In
connection with the acquisition, Cables of Zion entered into an $83.0 million
credit facility (the "Cables of Zion Credit Facility") consisting of a $53.0
million term loan and $30.0 million revolving line of credit. Proceeds from the
Cables of Zion Credit Facility were used to finance the acquisition, pay related
fees and expenses and provide for working capital requirements. The purchase
price was allocated based upon estimates of the fair value of assets acquired
and is subject to adjustment.
Following the Cvalim Acquisition, Cables of Zion changed its name to
Superior Cables Limited ("Superior Israel").
9
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
4. ACQUISITIONS (CONTINUED)
PRO FORMA FINANCIAL DATA (UNAUDITED)
Unaudited condensed pro forma results of operations for the three months
ended March 31, 1998 and March 31, 1999, which give effect to the Essex
Acquisition, the Cables of Zion Acquisition and the Cvalim Acquisition as if the
transactions had occurred on January 1, 1998, are presented below. The pro forma
amounts reflect acquisition-related purchase accounting adjustments, including
adjustments to depreciation and amortization expense and interest expense on
acquisition debt and certain other adjustments, together with related income tax
effects. The pro forma financial information does not purport to be indicative
of either the results of operations that would have occurred if the transactions
had taken place at the beginning of the period presented or of the future
results of operations.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net sales.......................................................... $ 562,137 $ 506,836
Income before income taxes and minority interest................... 27,760 20,770
Net income applicable to common stock.............................. $ 14,690 $ 10,442
---------- ----------
---------- ----------
Net income per diluted share of common stock....................... $ 0.69 $ 0.52
---------- ----------
---------- ----------
</TABLE>
5. TRUST CONVERTIBLE PREFERRED SECURITIES
On March 31 1999, Superior Trust I (the "Trust"), the Company's wholly-owned
subsidiary trust, issued 3,332,254 shares of 8 1/2% Trust Convertible Preferred
Securities ("Trust Convertible Preferred Securities") with a liquidation value
of $50 per share. The sole assets of the Trust are the Company's 8 1/2%
Convertible Subordinated Debentures ("Convertible Debentures") due 2014 with an
aggregate face amount equivalent to approximately 103% of the liquidation value
of the Trust Convertible Preferred Securities issued. The Company has fully and
unconditionally guaranteed the Trust's obligations under the Trust Convertible
Preferred Securities. After six months from the issuance date, the Trust
Convertible Preferred Securities are convertible into common stock of the
Company at the rate of 1.1161 shares of the Company's common stock for each
Trust Convertible Preferred Security (equivalent to a conversion price of $44.80
per share of common stock). This conversion rate is subject to customary
anti-dilution adjustments. Dividends on the Trust Convertible Preferred
Securities are payable quarterly by the Trust. The Trust Convertible Preferred
Securities are subject to mandatory redemption on March 30, 2014, at a
redemption price of $50 per Trust Convertible Preferred Security. The Trust
Convertible Preferred Securities are not redeemable before April 1, 2003. At any
time on and after that date, the Trust Convertible Preferred Securities may be
redeemed at a per share redemption price of $52.55, periodically declining to
$50.00 in April 2008 and thereafter. In addition, the Company has the option to
call the Trust Convertible Preferred Securities during the one-year period
commencing on March 31, 2002, at a per share cash redemption price of $52.975,
plus accrued and unpaid dividends, if any, provided the average closing price of
the Company's common stock, for any 10 consecutive trading days preceding the
date of the call
10
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
5. TRUST CONVERTIBLE PREFERRED SECURITIES (CONTINUED)
equals or exceeds $72.55 per share. The Company has reserved 3,719,211 shares of
its common stock for possible conversion of the Trust Convertible Preferred
Securities.
The Company may cause the Trust to defer the payment of dividends for
successive periods of up to 20 consecutive quarters. During such periods,
accrued dividends on the Trust Convertible Preferred Securities will compound
quarterly and the Company may not declare or pay dividends on its common stock.
Also during such period, if holders of Trust Convertible Preferred Securities
convert such securities into Company common stock, the holder will not receive
any cash related to the deferred dividends.
The estimated aggregate fair value of the Trust Convertible Preferred
Securities, when issued, was approximately $133.3 million based on average per
share trading values on the New York Stock Exchange. The resulting discount of
$33.3 million will be amortized using the effective interest method over the
term of the Trust Convertible Preferred Securities.
6. EARNINGS PER SHARE
The computation of basic and diluted earnings per share for the three months
ended March 31, 1998 and 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------
1998 1999
--------------------------------- ---------------------------------
NET PER SHARE NET PER SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
--------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Basic earnings per common share.............. $ 10,864 20,211 $ 0.54 $ 10,459 20,085 $ 0.52
--------- ----- --------- -----
--------- ----- --------- -----
Dilutive impact of stock options............. 586 500
--------- ---------
Diluted earnings per common share............ $ 10,864 20,797 $ 0.52 $ 10,459 20,585 $ 0.51
--------- --------- ----- --------- --------- -----
--------- --------- ----- --------- --------- -----
</TABLE>
Superior Israel has certain stock options outstanding pursuant to stock
option plans in existence prior to its acquisition by the Company. At March 31,
1999, the dilutive impact of such stock options to the Company's earnings per
share calculation was immaterial.
7. STOCKHOLDERS' EQUITY
Pursuant to a stockholders' meeting on March 31, 1999, the Company increased
the number of authorized shares of common stock from 25.0 million shares to 35.0
million shares and increased the number of authorized shares of preferred stock
from one million to five million shares. In addition, the Company increased the
number of shares of common stock available for issuance under the Superior
TeleCom Inc. 1996 Stock Option Plan from 1,953,125 shares to 3,078,125 shares.
8. NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This
11
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
8. NEW ACCOUNTING PRONOUNCEMENTS (CONTINUED)
Statement, which will be effective for the Company beginning January 1, 2000,
establishes accounting and reporting standards for derivative instruments and
requires recognition of all derivatives as either assets or liabilities in the
statement of financial position and measurement of those instruments at fair
value. The Company has not yet quantified the impact of adopting SFAS No. 133,
nor the timing of, or method of adoption; however, the Company believes the
effect of adoption will not be material.
9. BUSINESS SEGMENTS
The Company's reportable segments are strategic businesses that offer
different wire and cable products and services to different customers. These
segments are communications, original equipment manufacturer ("OEM") and
electrical. The communications segment includes (i) outside plant ("OSP") wire
and cable for voice and data transmission in the local loop portion of the
telecommunications infrastructure and (ii) datacom or premise wire and cable for
use within homes and offices for local area networks ("LANs"), Internet
connectivity and other applications. The communications segment includes the
Company's North American and Israeli operations. The OEM segment is involved
principally in the production and sale of magnet and automotive wire products.
The electrical segment includes the production and sale of building and
industrial wire and cable products.
The accounting policies of these businesses are the same as those described
in the summary of significant accounting policies included in Note 2 of the
Company's Annual Report on Form 10-K for the eight month transition period ended
December 31, 1998. The Company evaluates segment performance based on a number
of factors, with operating income being the most critical factor. Intersegment
sales are generally recorded at cost, and are not significant.
Operating results for each of the Company's three reportable segments are
presented below. Corporate and other items shown below are provided to reconcile
to the Company's condensed consolidated statements of operations and balance
sheets.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
<S> <C> <C>
1998 1999
---------- ----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Net sales:
Communications...................................................... $ 129,243 $ 194,063
OEM................................................................. -- 164,661
Electrical.......................................................... -- 148,112
---------- ----------
$ 129,243 $ 506,836
---------- ----------
---------- ----------
</TABLE>
12
<PAGE>
SUPERIOR TELECOM INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(UNAUDITED)
9. BUSINESS SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------------
1998 1999
----------------- --------------
<S> <C> <C>
(IN THOUSANDS)
Operating income (loss):
Communications.......................................... $ 21,849 $ 33,738
OEM..................................................... -- 20,636
Electrical.............................................. -- 9,711
Corporate and other..................................... (1,581) (9,844)
Unusual charges......................................... -- (2,522)
----------------- --------------
$ 20,268 $ 51,719
----------------- --------------
----------------- --------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1998 1999
----------------- --------------
<S> <C> <C>
Total assets:
Communications.......................................... $ 407,754 $ 445,283
OEM..................................................... 316,676 320,285
Electrical.............................................. 322,622 316,348
Corporate and other..................................... 839,504 906,523
----------------- --------------
$ 1,886,556 $ 1,988,439
----------------- --------------
----------------- --------------
</TABLE>
Total assets under the caption "corporate and other" include net goodwill
and deferred financing fees totaling $725.3 million and $807.9 million as of
December 31, 1998 and March 31, 1999, respectively.
10. SUBSEQUENT EVENT
On April 22, 1999, the Company signed an agreement with ABB Nork Kabel
("ABB") to acquire the business and certain operating assets of ABB's data
communications cable operations. ABB's data communications cable operations had
revenues of approximately $47 million in 1998. The transaction is expected to be
completed on June 30, 1999 and is subject to governmental approvals and other
customary conditions.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Superior TeleCom Inc ("Superior" or the "Company") manufactures a broad
portfolio of wire and cable products. The Company's operations are conducted
through three operating groups covering the following primary industry segments:
(i) communications, (ii) original equipment manufacturer ("OEM") and (iii)
electrical. The communications segment includes communications wire and cable
products sold to telephone companies, distributors and systems integrators,
principally in North America. In addition, the Company (through its 51% owned
subsidiary, Cables of Zion) manufactures a broad range of wire and cable
products in Israel, including communications cable, power cable and other
industrial and electronic wire and cable products. The OEM segment includes
magnet wire and insulation materials for motors, transformers and electrical
controls sold primarily to OEMs, as well as automotive and specialty wiring
assemblies for automobiles and trucks. The electrical segment includes building
and industrial wire for applications in commercial and residential construction
and industrial facilities.
Prior to the acquisitions of Essex and Cables of Zion (see Note 4 to the
condensed consolidated financial statements), the Company's operations consisted
principally of its North American communications wire and cable business. The
Essex Acquisition, which occurred on November 27, 1998, resulted in the addition
of the OEM and electrical segment product lines as well as incremental sales of
communications wire and cable. The May 1998 acquisition of 51% of Cables of Zion
("COZ") and COZ's December 31, 1998 acquisition of its major Israeli competitor,
Cvalim, resulted in the addition to the Company's operating results of its
Israeli operations ("Superior Israel").
The aforementioned acquisitions were accounted for under the purchase method
of accounting. Accordingly, the operating results for the quarter ended March
31, 1999 include the impact of the acquired Essex and Superior Israel operations
which, on a comparative basis, gave rise to a significant increase in revenues
and operating income in the March 31, 1999 quarter as compared to the March 31,
1998 quarter.
RESULTS OF OPERATIONS
The following provides summary financial information for each business
segment for the quarters ended March 31, 1998 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1998 1999
--------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Net sales:
Communications Group......................................................................... $ 129.2 $ 194.1
OEM Group.................................................................................... -- 164.6
Electrical Group............................................................................. -- 148.1
--------- ---------
$ 129.2 $ 506.8
--------- ---------
--------- ---------
Operating income (loss) before unusual charges:
Communications Group......................................................................... $ 21.9 $ 33.7
OEM Group.................................................................................... -- 20.6
Electrical Group............................................................................. -- 9.7
Corporate and other.......................................................................... (1.6) (9.8)
--------- ---------
$ 20.3 $ 54.2
--------- ---------
--------- ---------
</TABLE>
Copper is one of the principal raw materials used in manufacturing the
Company's wire and cable products. Fluctuations in the price of copper affect
per unit product pricing and related revenues.
14
<PAGE>
However, the cost of copper has not had a material impact on profitability due
to the ability of the Company, in most cases, to adjust prices billed for its
products in order to match the copper cost component of its inventory shipped.
In order to facilitate meaningful period-to-period comparisons, management's
discussion of operating results included herein provides, in certain instances,
references to adjusted sales and adjusted gross margin percentage data that
reflect the cost and selling price of copper on a constant basis.
The following provides supplemental net sales information for each business
segment on an $0.80 per pound constant copper basis for the quarters ended March
31, 1998 and 1999:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
--------------------
<S> <C> <C>
1998 1999
--------- ---------
<CAPTION>
(IN MILLIONS)
<S> <C> <C>
Net sales:
Communications Group......................................................................... $ 123.5 $ 200.5
OEM Group.................................................................................... -- 174.7
Electrical Group............................................................................. -- 164.6
--------- ---------
$ 123.5 $ 539.8
--------- ---------
--------- ---------
</TABLE>
Net sales for the quarter ended March 31, 1999 were $506.8 million,
representing an increase of $377.6 million, or 292%, as compared to net sales of
$129.2 million for the quarter ended March 31, 1998. Adjusted to a constant
copper value of $0.80 per pound, the comparative increase in sales amounted to
$416.3 million, or 337%. The comparative growth in net sales for the quarter
ended March 31, 1999 was largely attributable to the acquisition of Essex and
Superior Israel. The aforementioned acquisitions have also resulted in a more
diversified product offering and customer base with the addition of the OEM
(principally magnet wire) and electrical wire business segments.
In addition to acquisition-related revenue growth, the Company's historical
Communications Group wire and cable business generated a copper adjusted growth
in net sales of approximately 5% in the March 31, 1999 quarter as compared to
the March 31, 1998 quarter. This increase in net sales resulted from continued
strong demand from major local exchange carrier customers (including the
regional Bell operating companies, GTE and Sprint), who continue to experience
strong access line growth in their markets. Many of these customers have
accelerated the commercial deployment of Digital Subscriber Line data products
to upgrade their networks and expand the availability of high-speed voice and
data communications over the existing copper wire line-based infrastructure,
which is a core market for the Communications Group.
Net sales for the Company's OEM Group (which was acquired in the Essex
Acquisition) amounted to $164.6 million for the March 31, 1999 quarter. Sales of
magnet wire, which comprise nearly two-thirds of the OEM Group's revenues,
achieved record shipment levels during the quarter ended March 31, 1999,
reflecting strong demand from major OEM customers.
Net sales for the Company's Electrical Group (which was also acquired in the
Essex Acquisition) amounted to $148.1 million for the quarter ended March 31,
1999. While overall demand levels for electrical wire and cable products was
generally strong during the March 31, 1999 quarter, net sales were negatively
impacted by lower pricing levels resulting from extremely competitive market
conditions.
Gross profit increased by $73.6 million, or 277%, during the quarter ended
March 31, 1999 as compared to the quarter ended March 31, 1998. On a constant
copper basis, the consolidated gross margin percentage declined from 21.5% in
the quarter ended March 31, 1998 to 18.6% in the quarter ended March 31, 1999.
The reduction in gross margin percentage in the March 1999 quarter was
attributable to a significant change in product mix, including the addition of
net sales of lower margin electrical wire and
15
<PAGE>
cable products (which margins were negatively impacted by the aforementioned
competitive pressures) and lower margin product sales of Superior Israel.
Excluding the impact of the acquisitions of Essex and Superior Israel, the
Company's historical Communications Group wire and cable operations experienced
a copper adjusted increase in gross margin percentage of 2.1% for the quarter
ended March 31, 1999 reflecting continued productivity improvements and improved
manufacturing overhead absorption resulting from increasing production rates.
Selling, general and administrative expenses increased to $41.7 million
during the quarter ended March 31, 1999 as compared to $5.9 million during the
quarter ended March 31, 1998. This increase was directly related to the
acquisition of Essex and, to a lesser degree, Superior Israel. Since the
completion of the Essex Acquisition, the Company has been involved in the
integration of corporate and administrative functions of Essex into Superior. In
that regard, the Company has announced and is implementing a restructuring plan
that will result in annual reductions of approximately $15 million in Essex
corporate and administrative expenses. The major components of this
restructuring plan were implemented in April 1999 and are expected to result in
a reduction in general and administrative expenses beginning in the quarter
ended June 30, 1999, with the full impact of such reductions realized during the
second half of the 1999 calendar year.
Goodwill amortization increased to $4.2 million during the quarter ended
March 31, 1999 as compared to $0.4 million for the quarter ended March 31, 1998.
The comparative increase in goodwill amortization was primarily associated with
the Essex Acquisition.
During the quarter ended March 31, 1999, the Company incurred unusual
charges of $2.5 million ($0.06 per diluted share, after tax) primarily related
to external consulting costs associated with the review and planned
implementation of new information systems at Essex.
Operating income for the quarter ended March 31, 1999 was $51.7 million
($54.2 million before unusual charges), an increase of $31.5 million ($34.0
million before unusual charges) as compared to the quarter ended March 31, 1998.
The increase in operating income included a $3.5 million, or 16%, comparative
increase in operating income associated with Superior's historical operations,
with the remainder of the growth in operating income being attributable to the
impact of the acquisitions of Essex and, to a lesser degree, Superior Israel.
Consolidated interest expense increased from $1.7 million during the quarter
ended March 31, 1998 to $29.9 million during the quarter ended March 31, 1999.
This comparative increase was directly attributable to acquisition-related debt
associated with the acquisition of Essex and, to a lesser degree, Superior
Israel.
A charge for minority interest in earnings of subsidiaries of $2.0 million
was recorded for the quarter ended March 31, 1999. This charge primarily
represents the 19% minority interest in the net income of Essex for the quarter
ended March 31, 1999. The Company acquired the remaining 19% minority interest
ownership of Essex on March 31, 1999 (see Note 4 to the condensed consolidated
financial statements), and, accordingly, the Company will not incur minority
interest charges in future periods for the Essex operations.
Net income for the quarter ended March 31, 1999 was $10.5 million, or $0.51
per diluted share. Excluding the impact of unusual charges, net income was $11.7
million, or $0.57 per diluted share, which represented a comparative increase
(based on per share earnings) of 10% over net income of $10.9 million, or $0.52
per diluted share, recorded in the quarter ended March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
For the quarter ended March 31, 1999, the Company generated $17.8 million in
cash flows from operating activities consisting of $26.6 million in cash flows
generated from operations (net income plus non-cash charges) less $8.8 million
in cash flows used for increases in net working capital. The increase in
16
<PAGE>
net working capital was primarily the result of the December 31, 1998
acquisition of Cvalim by Cables of Zion. Cash used for investing activities
during the quarter ended March 31, 1999 amounted to $12.1 million and consisted
principally of capital expenditures. Cash used for financing activities amounted
to $14.1 million during the quarter ended March 31, 1999 and included the net
repayment of $11.9 million of borrowings, $1.3 million of dividends on common
stock and $0.9 million of treasury stock purchases.
As discussed in Note 4 to the condensed consolidated financial statements,
on March 31, 1999, the Company completed the acquisition of the remaining 19%
common share ownership of Essex through the issuance of $133.3 million ($166.7
million face amount) of Trust Convertible Preferred Securities. The Company's
capital structure at March 31, 1999 consisted of $1,385.2 million in debt,
$133.3 million in Trust Convertible Preferred Securities and $100.8 million in
total stockholders' equity. Included in the Company's debt balance was $77.1
million outstanding under the Company's revolving credit facility. Undrawn
availability under the revolving credit facility amounted to $147.9 million at
March 31, 1999.
The Company's principal debt service commitments for the next 12 months
amount to $78.3 million and capital expenditures are expected to approximate
$70.0--$80.0 million. Management anticipates that the Company will generate
sufficient cash flows from its operating activities to meet its annual principal
debt service and capital expenditure commitments, as well as to fund the
purchase of ABB's data communications cable operations (see Note 10 to the
condensed consolidated financial statements). However, should any shortfall
arise due to working capital fluctuations or other factors, excess funds
available under the Company's revolving credit facility should be sufficient to
cover such shortfall.
YEAR 2000 OVERVIEW
The year 2000 ("Y2K") problem is the result of computer programs having been
written using two digits (rather than four) to define the applicable year, thus
not properly recognizing dates after December 31, 1999. The six-digit date
(YYMMDD) has become the standard for date representations and is embedded in a
multitude of computer programs and computer chips. Information Technology (IT)
hardware, "embedded" technology, such as microprocessors, or software that is
date-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000, which could result in miscalculations or system and mechanical
failures. The Company does not manufacture or sell products with embedded
technology.
During fiscal 1998 and 1997, the Company established project teams
responsible for identifying and resolving Year 2000 issues. These efforts
include identification and review of internal operating systems and
applications, and customer projects and services, as well as discussions with
information providers and other key suppliers to the business. At this time,
based upon the efforts taken to date and those yet to be taken, the Company does
not expect any serious disruptions in its business operations and, therefore,
does not anticipate any material negative effect upon its revenues or earnings
as a result of the Year 2000 issue. Remediation costs for problems identified
thus far are not expected to be material to the Company's consolidated financial
position, liquidity or results of operations. The Company has established a
timetable for resolving Year 2000 issues so as not to interrupt ongoing
operations.
THE COMPANY'S STATE OF READINESS
The Year 2000 project plan, including assessment, improvement, testing and
implementation, has been established. The assessment phase is 95% complete and
should be completed in June 1999 upon receipt of all remaining vendor and
supplier Year 2000 readiness inquiries.
17
<PAGE>
Assessment of the Year 2000 compliance of third parties with whom the
Company has material relationships is in process. The Company's material third
party relationships include the following:
(a) Raw material vendors: The Company's raw material purchases are through
third party raw material vendors. All mission critical raw material
vendors have responded to the Company's Year 2000 readiness inquiry;
(b) Equipment vendors: The response to the Year 2000 readiness inquiries
from equipment vendors, which includes all embedded chip equipment, is at
75%;
(c) Service providers: The response to the Year 2000 readiness inquiries
from third party service providers, which includes utilities, phone
service and all facility related services, is at 90%; and
(d) Software vendors: The Company has upgraded all purchased software to
Year 2000 compliant version and is in the testing phase.
The responses received, thus far, from the Company's third party vendors and
suppliers indicate compliance on or before June 1999.
The preliminary assessment of internal IT and non-IT systems has been
completed. Internal non-compliant items have been identified and prioritization
of internal non-compliant items is in process. A system for tracking remediation
has been established and non-compliant items identified are expected to be
complete by June 1999. Based on the findings of the planning and assessment
phases completed to date, the Company does not believe independent verification
or validation processes will be necessary.
COSTS TO ADDRESS THE COMPANY'S YEAR 2000 ISSUES
The current estimate of the cost of remediation and equipment and software
replacement ranges between $7 million and $7.25 million, of which approximately
50% has been incurred to date, and is summarized below. Approximately one-half
of the remaining $3.5 million is to be paid to external parties for purchases of
new systems and equipment.
<TABLE>
<S> <C>
Code modification and testing: $ 5.95M--$6.16M
Personal computer, software and other upgrades $ 1.05M--$1.09M
</TABLE>
Approximately 12% of the IT budget for 1998 and 1999 has been allocated for
code modification. Such costs are funded through cash flows from operations and
are expensed as incurred. The personal computer and purchased software upgrades
are costs incurred in the ordinary course of business and are, therefore,
typically capitalized costs.
RISKS OF THE COMPANY'S YEAR 2000 ISSUES AND THE COMPANY'S CONTINGENCY PLANS
A most reasonably likely worst case Year 2000 scenario is not known at this
time. This determination will be made after the receipt of the remaining
material third party questionnaires. However, the shipment of product to
customers is expected to continue with minimal interruption and no material loss
of revenues is anticipated. The Year 2000 project has had minimal impact on the
schedule of other major IT projects.
The Company has not completed a contingency plan, however, will by June 1,
1999. Each manufacturing facility will incorporate Year 2000 into their existing
disaster contingency plan. The contingency plan will ensure that: (i) adequate
levels of inventory will be on hand to mitigate the impact of any potential
short-term disruptions in production; (ii) adequate supply of raw materials will
be available from alternate sources; and (iii) the necessary backup measures for
computer processing are identified.
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'S MOST RECENT FILINGS WITH THE SECURITIES AND
EXCHANGE COMMISSION.
18
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
10.1* Superior TeleCom Inc. Stock Compensation Plan for Non-Employee
Directors
27* Financial Data Schedule
(B) REPORTS ON FORM 8-K
During the first quarter of 1999, the Company filed the following reports on
Form 8-K:
1. Report filed January 15, 1999 with respect to Item 2;
2. Report filed February 10, 1999, as amended March 12, 1999, with respect
to Item 7, which incorporated by reference certain financial statements
of Essex and included the required pro forma financial information
relating to the Essex Acquisition; and
3. Report filed March 1, 1999 with respect to Item 5.
- ------------------------
* Filed herewith
19
<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.
<TABLE>
<S> <C> <C>
SUPERIOR TELECOM INC.
Date: May 17, 1999 By: /s/ DAVID S. ALDRIDGE
------------------------------------
David S. Aldridge
CHIEF FINANCIAL OFFICER
</TABLE>
20
<PAGE>
Exhibit 10.1
SUPERIOR TELECOM INC.
STOCK COMPENSATION PLAN FOR
NON-EMPLOYEE DIRECTORS
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C> <C>
ARTICLE I. PURPOSE..............................................................1
ARTICLE II. DEFINITIONS..........................................................1
ARTICLE III. ADMINISTRATION.......................................................3
ARTICLE IV. SHARES; ADJUSTMENT UPON CERTAIN EVENTS...............................4
ARTICLE V. ELECTIONS............................................................5
ARTICLE VI. RESTRICTED STOCK.....................................................7
ARTICLE VII. STOCK OPTIONS........................................................8
ARTICLE VIII. TERMINATION OF DIRECTORSHIP.........................................10
ARTICLE IX. NON-TRANSFERABILITY.................................................11
ARTICLE X. CHANGE IN CONTROL PROVISIONS........................................11
ARTICLE XI. TERMINATION OR AMENDMENT OF THE PLAN................................13
ARTICLE XII. UNFUNDED PLAN.......................................................13
ARTICLE XIII. GENERAL PROVISIONS..................................................13
ARTICLE XIV. TERM OF PLAN........................................................16
</TABLE>
<PAGE>
SUPERIOR TELECOM INC.
STOCK COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
ARTICLE I
PURPOSE
The purpose of the Plan is to enhance the profitability and value of
the Company for the benefit of its stockholders by enabling the Company to: (i)
require Non-Employee Directors to elect either shares of Restricted Stock or
Stock Options with respect to 50% of their Retainer Fees; and (ii) permit
Non-Employee Directors to elect either shares of Restricted Stock or Stock
Options, in lieu of cash payment of their Retainer Fees or Meeting Fees, thereby
attracting, retaining and rewarding Non-Employee Directors and strengthening the
mutuality of interests between Non-Employee Directors and the Company's
stockholders.
ARTICLE II
DEFINITIONS
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "AWARD" shall mean any award under this Plan of any: (i) Restricted
Stock; or (ii) Stock Option.
2.2 "BOARD" shall mean the Board of Directors of the Company.
2.3 "CAUSE" shall mean an act or failure to act that constitutes
"cause" for removal of a director under applicable Delaware law.
2.4 "CHANGE IN CONTROL" shall have the meaning set forth Section 10.2.
2.5 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
Any reference to any section of the Code shall also be a reference to any
successor provision
2.6 "COMMON STOCK" shall mean common stock, $.01 par value per share,
of the Company.
2.7 "COMPANY" shall mean Superior TeleCom Inc. or any successor
corporation by merger, consolidation or transfer of assets substantially as a
whole.
<PAGE>
2.8 "EFFECTIVE DATE" shall mean January 1, 1999.
2.9 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.
2.10 "FAIR MARKET VALUE" shall mean for purposes of this Plan, unless
otherwise required by any applicable provision of the Code or any regulations
issued thereunder, as of any date, the last sales price reported for the Common
Stock on the applicable date: (i) as reported by the principal national
securities exchange in the United States on which it is then traded or the
Nasdaq Stock Market, Inc.; or (ii) if not traded on any such national securities
exchange or the Nasdaq Stock Market, Inc., as quoted on an automated quotation
system sponsored by the National Association of Securities Dealers. If the
Common Stock is not readily tradable on a national securities exchange, the
Nasdaq Stock Market, Inc. or any system sponsored by the National Association of
Securities Dealers, its Fair Market Value shall be set in good faith by the
Board on the advice of a registered investment adviser (as defined under the
Investment Advisers Act of 1940). Notwithstanding anything herein to the
contrary, if selected by the Board, "Fair Market Value" means the price for
Common Stock set by the Board in good faith based on reasonable methods set
forth under Section 422 of the Code and the regulations thereunder including,
without limitation, a method utilizing the average of prices of the Common Stock
reported on the principal national securities exchange on which it is then
traded during a reasonable period designated by the Board.
2.11 "MEETING FEE(S)" shall mean any fees to which a Non-Employee
Director is entitled for attending Board meetings (including by telephonic
means) or for attending the meetings of any Board committee (including by
telephonic means) of which the Non-Employee Director is a member. Meeting Fees
shall not include expense reimbursements, amounts realized upon the exercise of
a Stock Option, Restricted Stock or any other amounts paid to the Non-Employee
Director.
2.12 "NON-EMPLOYEE DIRECTOR" shall mean any non-employee director of
the Company who is not an employee of the Company. Any director who acts on
behalf of the Company as an officer but who does not receive any compensation
for such services shall be treated as a non-employee for purposes of eligibility
hereunder.
2.13 "PLAN" shall mean the Superior TeleCom Inc. Stock Compensation
Plan for Non-Employee Directors, as may be amended from time to time.
2.14 "RESTRICTED STOCK" shall mean an Award of shares of Common Stock
under this Plan that is subject to the restrictions under Article VI.
2.15 "RETAINER FEE(S)" shall mean the fee to which a Non-Employee
Director is entitled for service on the Board as a director during a fiscal year
of the Company. Retainer Fees shall not include expense reimbursements, amounts
realized upon the exercise of a Stock Option, Restricted Stock or any other
amounts paid to the Non-Employee Director.
-2-
<PAGE>
2.16 "RETIREMENT" shall mean the failure to stand for reelection or the
failure to be reelected after a Non-Employee Director has attained age
sixty-five (65).
2.17 "RULE 16B-3" shall mean Rule 16b-3 under Section 16(b) of the
Exchange Act as then in effect or any successor provisions.
2.18 "STOCK OPTION" shall mean an option to purchase shares of Common
Stock granted to Non-Employee Directors pursuant to this Plan. No Stock Option
awarded under this Plan is intended to be an "incentive stock option" within the
meaning of Section 422 of the Code.
2.19 "TERMINATION OF DIRECTORSHIP" shall mean that the Non-Employee
Director has ceased to be a director (whether as a non-employee director or an
employee director) of the Company.
2.20 "TRANSFER" or "TRANSFERRED" shall mean anticipate, alienate,
attach, sell, assign, pledge, encumber, charge or otherwise transfer.
ARTICLE III
ADMINISTRATION
3.1 THE BOARD. The Plan shall be administered and interpreted by the
Board.
3.2 DUTIES OF THE BOARD. The Board shall have full authority to
interpret the Plan and to decide any questions and settle all controversies and
disputes that may arise in connection with the Plan; to establish, amend and
rescind rules for carrying out the Plan; to administer the Plan, subject to its
provisions; to prescribe the form or forms of instruments evidencing Awards and
any other instruments required under the Plan and to change such forms from time
to time; and to make all other determinations and to take all such steps in
connection with the Plan and the Awards as the Board, in its sole discretion,
deems necessary or desirable.
3.3 ADVISORS. The Company or the Board may employ such legal counsel,
consul tants and agents as it may deem desirable for the administration of the
Plan, and may rely upon any advice or opinion received from any such counsel or
consultant and any computation received from any such consultant or agent.
Expenses incurred for the engagement of such counsel, consultant or agent shall
be paid by the Company.
3.4 DECISIONS FINAL. Any decision, interpretation or other action made
or taken in good faith by or at the direction of the Company or the Board (or
any of its members) arising out of or in connection with the Plan shall be
within the absolute discretion of the Company or the Board, as the case may be,
and shall be final, binding and conclusive on the Company and all Non-Employee
-3-
<PAGE>
Directors and their respective heirs, executors, administrators, successors and
assigns.
ARTICLE IV
SHARES; ADJUSTMENT UPON CERTAIN EVENTS
4.1 SHARES TO BE DELIVERED. Shares to be issued under the Plan shall be
made available only from issued shares of Common Stock reacquired by the Company
and held in treasury.
4.2 ADJUSTMENTS UPON CERTAIN EVENTS.
(a) ADJUSTMENTS. The existence of the Plan and any Award
granted hereunder shall not affect in any way the right or power of the
Board or the stockholders of the Company to make or authorize any
adjustment, recapitalization, reorganization or other change in the
Company's capital structure or its business, any merger or
consolidation of the Company, any issue of bonds, debentures, preferred
or prior preference stocks ahead of or affecting Common Stock, the
dissolution or liquidation of the Company or any sale or transfer of
all or part of the assets or business of the Company, or any other
corporate act or proceeding.
(b) CAPITAL STRUCTURE. In the event of (i) any such change in
the capital structure or business of the Company by reason of any stock
dividend or distribution, stock split or reverse stock split,
recapitalization, reorganization, merger, consolidation, split-up,
combination or exchange of shares, distribution with respect to its
outstanding Common Stock or capital stock other than Common Stock, sale
or transfer of all or part of its assets or business, reclassification
of its capital stock, or any similar change affecting the Company's
capital structure or business and (ii) the Board determines an
adjustment is appropriate under the Plan, then the aggregate number and
kind of shares which thereafter may be issued under this Plan, the
number and kind of shares to be issued upon exercise of an outstanding
Stock Option granted under this Plan and the purchase price thereof
shall be appropriately adjusted consistent with such change in such
manner as the Board may deem equitable to prevent substantial dilution
or enlargement of the rights granted to, or available for, Non-Employee
Directors under this Plan or as otherwise necessary to reflect the
change, and any such adjustment determined by the Board shall be
binding and conclusive on the Company and all Non-Employee Directors
and employees and their respective heirs, executors, administrators,
successors and assigns.
(c) FRACTIONAL SHARES. Fractional shares of Common Stock
resulting from any adjustment in Awards pursuant to Section 4.2(a) or
(b) shall be aggregated until, and eliminated at, the time of exercise
by rounding-down for fractions less than one-half (1/2) and rounding-up
for fractions equal to or greater than one-half (1/2). No cash
settlements shall be made with respect to fractional shares eliminated
by rounding. Notice of any adjustment shall be given by
-4-
<PAGE>
the Board to each Non-Employee Director whose Award has been adjusted
and such adjustment (whether or not such notice is given) shall be
effective and binding for all purposes of the Plan.
(d) ACQUISITION EVENTS. If the Company shall not be the
surviving corporation in any merger or consolidation, or if the Company
is to be dissolved or liquidated, then, unless the surviving
corporation assumes the Stock Options or substitutes new Stock Options
which are determined by the Board in its sole discretion to be
substantially similar in nature and equivalent in terms and value for
Stock Options then outstanding, upon the effective date of such merger,
consolidation, liquidation or dissolution, any unexercised Stock
Options shall expire without additional compensation to the holder
thereof; provided, that, the Board shall deliver notice to each
non-employee director at least twenty days prior to the date of
consummation of such merger, consolidation, dissolution or liquidation
which would result in the expiration of the Stock Options and during
the period from the date on which such notice of termination is
delivered to the consummation of the merger, consolidation, dissolution
or liquidation, such Non-Employee Director shall have the right to
exercise in full effective as of such consummation all Stock Options
that are then outstanding (without regard to limitations on exercise
otherwise contained in the Stock Options) but contingent on occurrence
of the merger, consolidation, dissolution or liquidation, and, provided
that, if the contemplated transaction does not take place within a
ninety day period after giving such notice for any reason whatsoever,
the notice, accelerated vesting and exercise shall be null and void
and, if and when appropriate, new notice shall be given as aforesaid.
ARTICLE V
ELECTIONS
5.1 NON-EMPLOYEE DIRECTOR ELECTIONS.
(a) The Company shall pay 50% of a Non-Employee Director's
Retainer Fees in the form of Restricted Stock or Stock Options, as
elected by the Non-Employee Director in accordance with Section 5.2
below.
(b) Each Non-Employee Director may also elect, in accordance
with Section 5.2 below, to receive Awards of Restricted Stock or Stock
Options in lieu of receiving (i) a cash payment of all or a portion of
Retainer Fees not covered by Section 5.1(a); or (ii) a cash payment of
all or a portion of Meeting Fees.
5.2 TIMING AND MANNER OF ELECTION.
(a) METHOD OF ELECTION. Any election to receive Restricted
Stock or Stock
-5-
<PAGE>
Options as payment of Retainer Fees or Meeting Fees shall be made in
writing to the Board (on a form prescribed by the Board) prior to the
first day of the Company's fiscal year during which the Retainer Fees
or Meeting Fees are earned; provided, however, that with respect to the
1999 fiscal year, any election under Section 5.1 shall be made in
writing to the Board prior to the first regularly scheduled meeting of
the Board, but in no event later than January 31, 1999. Each election,
which shall be made in a manner as determined by the Board in its sole
and absolute discretion, shall designate (i) whether the election
applies to Retainer Fees or Meeting Fees; (ii) whether the Retainer
Fees or Meeting Fees, as applicable, are to be awarded in cash,
Restricted Stock or Stock Options; and (iii) the applicable percentage
of Retainer Fees or Meeting Fees to be awarded in cash, Restricted
Stock or Stock Options.
(b) IRREVOCABLE ELECTION. An election under this Article V is
irrevocable and, except with respect to the 1999 fiscal year, is valid
only for the Company's fiscal year commencing immediately following the
date of the election.
(c) DEFAULT ELECTIONS. If no election is made or if a new
election is not made with respect to any subsequent fiscal year
pursuant to Section 5.1(a), the Non-Employee Director shall be deemed
to have made an election to receive an Award of Restricted Stock for
purposes of Section 5.1(a). If no election is made or if a new election
is not made with respect to any subsequent fiscal year pursuant to
Section 5.1(b), the Non-Employee Director shall be deemed to have made
an election to receive all Retainer Fees not covered by Section 5.1(a)
and all Meeting Fees in cash.
(d) MID-YEAR PARTICIPATION. An individual who becomes a
Non-Employee Director after the date by which an election would
otherwise be required to be made hereunder with respect to a fiscal
year may elect to receive an Award during that fiscal year by making an
election, in the form required hereunder, within thirty days after the
individual becomes a Non-Employee Director and such election shall
become effective the first day of the month following the date of the
election.
5.3 DATE OF GRANT. Awards that are attributable to Retainer Fees shall
be made as of the first business day of each quarter of the Company's fiscal
year, which shall be treated as the dates of grant for such Awards. Awards that
are attributable to Meeting Fees shall be made as of the dates of the Board
meetings and/or committee meetings with respect to which such Awards relate,
which shall be treated as the dates of grant for such Awards. Unless the Board
decides to take specific action at grant with respect to an Award (provided that
it is consistent with the Plan's terms), any grant of an Award hereunder shall
be automatic after giving effect to the election made by an Non-Employee
Director pursuant to Section 5.1 hereof without further action by the Board or
the stockholders of the Company.
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<PAGE>
ARTICLE VI
RESTRICTED STOCK
6.1 RESTRICTED STOCK. As of each date of grant, as determined in
accordance with Section 5.3 above, each Non-Employee Director shall receive that
number of shares of Restricted Stock determined by dividing (a) the amount of
Retainer Fees or Meeting Fees that the Non-Employee Director elected to receive
in Restricted Stock, by (b) the lesser of: (i) 100% of the Fair Market Value of
the Common Stock on the first business day of the Company's fiscal year and (ii)
100% of the Fair Market Value of the Common Stock at the time of grant of the
Restricted Stock. Any fractional shares of Restricted Stock resulting from the
division of (a) by (b) shall be eliminated by rounding-down for fractions less
than one-half (1/2) and rounding-up for fractions equal to or greater than
one-half (1/2). No cash settlements shall be made with respect to fractional
shares eliminated by rounding.
6.2 AWARDS OF RESTRICTED STOCK. Restricted Stock granted under this
Article VI shall be subject to the following terms and conditions:
(a) PURCHASE PRICE. The purchase price of shares of Restricted
Stock shall be their par value or, to the extent permitted by
applicable law, zero.
(b) AGREEMENT. Awards of Restricted Stock shall be evidenced
by an agreement entered into between the Company and the Non-Employee
Director. In the event that the Non-Employee Director is required to
pay the purchase price for Restricted Stock in accordance with Section
6.2(a), such agreement must be accepted within a period of ninety days
(or such shorter period as the Board may specify at grant) after the
Award date by executing a Restricted Stock Award agreement and by
paying the purchase price, if any.
(c) VESTING. Except as otherwise provided in Article VIII or
X, shares of Restricted Stock granted to a Non-Employee Director shall
be fully vested as of the third anniversary of the date the Award is
granted (the "Restriction Period").
(d) LEGEND. Each Non-Employee Director receiving shares of
Restricted Stock granted under this Article VI shall be issued a stock
certificate in respect of such shares of Restricted Stock, unless the
Board elects to use another system, such as book entries by the
transfer agent, as evidencing ownership of shares of Restricted Stock.
Such certificate shall be registered in the name of the Non-Employee
Director and shall bear an appropriate legend, to the extent required
by applicable law, as the Company may determine, referring to the
terms, conditions and restrictions applicable to such Award,
substantially in the following form:
"The anticipation, alienation, attachment, sale, transfer,
assignment, pledge, encumbrance or charge of the shares of
stock represented
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<PAGE>
hereby are subject to the terms and conditions (including
forfeiture) of the Superior TeleCom Inc. (the "Company") Stock
Compensation Plan for Non-Employee Directors (the "Plan") and
an Agreement entered into between the registered owner and the
Company dated . Copies of such Plan and Agreement
are on file at the principal office of the Company."
(e) CUSTODY. The Board may require that any stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed and that, as a condition to the
grant of such Award of Restricted Stock, the Non-Employee Director
shall have delivered a duly signed stock power, endorsed in blank,
relating to the Common Stock covered by such Award.
6.3 OWNERSHIP. Except to the extent otherwise set forth in the
Restricted Stock agreement, the Non-Employee Director shall possess all
incidents of ownership of such shares of Common Stock, subject to this Article
VI, including the right to receive dividends with respect to such shares of
Common Stock, the right to vote such shares of Common Stock, and, subject to and
conditioned upon the full vesting of Restricted Stock, the right to tender such
shares of Common Stock. Any stock dividend that is issued on Restricted Stock or
if Restricted Stock is split or any other shares, securities, moneys or property
representing a dividend is issued on Restricted Stock (other than regular cash
dividends which will be paid when any such cash dividends are distributed to the
Company's stockholders) or represents a distribution or return of capital upon
or in respect of Restricted Stock or any part thereof, or results from a
split-up, reclassification or other like changes of Restricted Stock, or
otherwise is issued in exchange therefor, and any warrants, rights or options
issued in respect of Restricted Stock shall be subject to the same restrictions,
including that of this Article VI, as Restricted Stock with regard to which they
are issued and shall herein be encompassed within the term "Restricted Stock."
6.4 LAPSE OF RESTRICTIONS. If and when the Restriction Period expires
without a prior forfeiture of the Restricted Stock subject to such Restriction
Period, the certificates for such shares shall be delivered to the Non-Employee
Director. All legends shall be removed from said certificates at the time of
delivery to the Non-Employee Director except as otherwise required by applicable
law.
ARTICLE VII
STOCK OPTIONS
7.1 STOCK OPTIONS. As of each date of grant, as determined in
accordance with Section 5.3 above, each Non-Employee Director shall receive that
number of Stock Options determined by dividing (i) the amount of Retainer Fees
or Meeting Fees that the Non-Employee Director elected to receive in the form of
Stock Options, by (ii) the value of one Stock Option on the date of grant as
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<PAGE>
determined in good faith by the Board, based on the purchase price per share of
Common Stock determined in accordance with Section 7.2(a) and a Black-Scholes
Option pricing model (calculated by an accounting, investment banking or
appraisal firm selected by the Board) and such other factors as the Board deems
appropriate. Any fractional number of Stock Options resulting from the division
of (i) by (ii) shall be eliminated by rounding-down for fractions less than
one-half (1/2) and rounding-up for fractions equal to or greater than one-half
(1/2). No cash settlements shall be made with respect to fractional shares
eliminated by rounding.
7.2 TERMS OF STOCK OPTIONS. Stock Options granted under this Article
VII shall be subject to the following terms and conditions and shall be in such
form and contain such additional terms and conditions, not inconsistent with
terms of this Plan, as the Board shall deem desirable:
(a) STOCK OPTION PRICE. The purchase price per share of Common
Stock deliverable upon the exercise of a Stock Option granted pursuant
to Section 7.1 shall be the lesser of: (i) 100% of the Fair Market
Value of such Common Stock on the first business day of the Company's
fiscal year; and (ii) 100% of the Fair Market Value of such Common
Stock at the time of the grant of the Stock Option.
(b) AGREEMENT. Awards of Stock Options shall be evidenced by
an agreement entered into between the Company and the Non-Employee
Director.
(c) OPTION TERM. If not previously exercised each Stock Option
shall expire upon the tenth anniversary of the date of the grant
thereof.
(d) EXERCISABILITY. Except as otherwise provided in Article
VIII or X, any Stock Option granted under this Article VII shall vest
and become fully exercisable as of the third anniversary of the date
the Award is granted.
(e) METHOD FOR EXERCISE. Subject to the vesting provisions of
Section 7.2(d), Stock Options may be exercised in whole or in part at
any time during the Stock Option term, by giving written notice of
exercise to the Company specifying the number of shares to be
purchased. Such notice shall be accompanied by payment in full of the
purchase price in cash, in the form of Common Stock owned by the
Non-Employee Director for at least 6 months (and for which the
Non-Employee Director has good title free and clear of any liens and
encumbrances) based on the Fair Market Value of the Common Stock on the
payment date, in a combination thereof or such other arrangement for
the satisfaction of the purchase price, as the Board may accept. No
shares of Common Stock shall be issued until payment, as provided
herein, therefor has been made or provided for.
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<PAGE>
ARTICLE VIII
TERMINATION OF DIRECTORSHIP
8.1 TERMINATION OF DIRECTORSHIP BY REASON OF DEATH. If a Non-Employee
Director's Termination of Directorship is by reason of death, upon such
Termination of Directorship (i) all Restricted Stock held by such Non-Employee
Director and still subject to restrictions shall become fully vested and the
restrictions thereon shall lapse; and (ii) all Stock Options held by such
Non-Employee Director and not previously exercisable shall become fully vested
and exercisable. All Stock Options shall remain exercisable by the Non-Employee
Director's estate or by the person given authority to exercise such Stock
Options by his or her will or by operation of law, for the remainder of the
stated term of such Stock Option.
8.2 TERMINATION OF DIRECTORSHIP FOR CAUSE. If a Non-Employee Director's
Termination of Directorship is for Cause or if the Company obtains or discovers
information after Termination of Directorship that such Non-Employee Director
had engaged in conduct that would have justified a removal for Cause during such
directorship, (i) all Restricted Stock subject to restriction held by such
Non-Employee Director shall be forfeited; and (ii) all Stock Options held by
such Non-Employee Director shall thereupon terminate and expire as of the date
of such Termination of Directorship or the date the Company obtains or discovers
such information.
8.3 TERMINATION OF DIRECTORSHIP BY REASON OTHER THAN DEATH OR FOR
CAUSE.
(a) GENERAL RULE. If a Non-Employee Director's Termination of
Directorship is by any reason other than death or for Cause, including,
without limitation, Retirement, disability, resignation, or failure to
stand for reelection (i) all Restricted Stock subject to restriction
held by such Non-Employee Director shall be forfeited; and (ii) all
Stock Options held by such Non-Employee Director may be exercised, to
the extent exercisable at the Non-Employee Director's Termination of
Directorship, by the Non-Employee Director for the remainder of the
stated term of such Stock Option.
(b) SPECIAL RETIREMENT RULE. Notwithstanding the foregoing, if
a Non-Employee Director's Termination of Directorship is by reason of
Retirement, the Board may, in its sole and absolute discretion,
determine that: (i) all or a portion of the Restricted Stock held by
such Non-Employee Director and still subject to restrictions shall
become fully vested and the restrictions thereon shall lapse; and (ii)
all or portion of the Stock Options held by such Non-Employee Director
and not previously exercisable shall become fully vested and
exercisable and remain exercisable by the Non-Employee Director for the
remainder of the stated term of the Stock Option; provided, however,
that if the Non-Employee Director dies before the end of the stated
term of the Stock Option, any unexercised Stock Option held by the
Non-Employee Director shall thereafter be exercisable by the
Non-Employee Director's
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<PAGE>
estate or by the person given authority to exercise such Stock Option
by his or her will or by operation of law, to the extent to which it
was exercisable at the time of death, for the remainder of the stated
term of such Stock Option.
8.4 CANCELLATION OF STOCK OPTIONS. Subject to Section 8.3(b), no Stock
Options that were not vested during the period such person serves as a director
shall thereafter become exercisable upon a Termination of Directorship for any
reason or no reason whatsoever, and such Stock Options shall terminate and
become null and void upon a Termination of Directorship.
8.5 FORFEITURE. A Non-Employee Director shall be entitled to no
compensation upon the forfeiture of rights to Restricted Stock, other than
repayment of par value paid for such Restricted Stock, if any.
ARTICLE IX
NON-TRANSFERABILITY
No Stock Option shall be Transferable by the Non-Employee Director
otherwise than by will or by the laws of descent and distribution. All Stock
Options shall be exercisable, during the Non-Employee Director's lifetime, only
by the Non-Employee Director. Shares of Restricted Stock under Article VI may
not be Transferred prior to the date on which such shares are issued, or, if
later, the date on which the Restriction Period lapses. No Award shall, except
as otherwise specifically provided by law or herein, be Transferable in any
manner, and any attempt to Transfer any such Award shall be void, and no such
Award shall in any manner be liable for or subject to the debts, contracts,
liabilities, engagements or torts of any person who shall be entitled to such
Award nor shall it be subject to attachment or legal process for or against such
person. Notwithstanding the foregoing, the Board may determine at the time of
grant or thereafter, that a Stock Option granted pursuant to Article VII that is
otherwise not Transferable pursuant to this Article IX is Transferable in whole
or part and in such circumstances, and under such conditions, as specified by
the Board.
ARTICLE X
CHANGE IN CONTROL PROVISIONS
10.1 BENEFITS. Upon a Change in Control of the Company (as defined
below): (i) Stock Options granted and not previously exercisable shall vest and
become fully exercisable; and (ii) shares of Restricted Stock shall fully vest
and the restrictions thereon shall lapse.
10.2 CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred:
(a) upon any "person" as such term is used in Sections 13(d)
and 14(d) of the
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<PAGE>
Exchange Act (other than the Company, any trustee or other fiduciary
holding securities under any employee benefit plan of the Company, any
company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
Common Stock of the Company, as a group or individually by Steven S.
Elbaum or The Alpine Group, Inc.), becoming the owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of
securities of the Company representing twenty-five percent (25%) or
more of the combined voting power of the Company's then outstanding
securities (including, without limitation, securities owned at the time
of any increase in ownership);
(b) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board, and any new
director (other than a director designated by a person who has entered
into an agreement with the Company to effect a transaction described in
paragraph (a), (c), or (d) of this section) or a director whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents by or on behalf of a
person other than the Board whose election by the Board or nomination
for election by the Company's stockholders was approved by a vote of at
least two-thirds of the directors then still in office who either were
directors at the beginning of the two-year period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute at least a majority of the Board.
(c) upon the merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into voting securities of the surviving entity)
more than fifty percent (50%) of the combined voting power of the
voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation; provided, however, that
a merger or consolidation effected to implement a recapitalization of
the Company (or similar transaction) in which no person (other than
those covered by the exceptions in (a) above) acquires more than
twenty-five percent (25%) of the combined voting power of the Company's
then outstanding securities shall not constitute a Change in Control of
the Company; or
(d) upon the stockholder's of the Company approval of a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets other than the sale of all or substantially all of the assets of
the Company to a person or persons who beneficially own, directly or
indirectly, at least fifty percent (50%) or more of the combined voting
power of the outstanding voting securities of the Company at the time
of the sale.
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<PAGE>
ARTICLE XI
TERMINATION OR AMENDMENT OF THE PLAN
Notwithstanding any other provision of this Plan, the Board may at any
time, and from time to time, amend, in whole or in part, any or all of the
provisions of the Plan, or suspend or terminate it entirely, retroactively or
otherwise; provided, however, that, unless otherwise required by law or
specifically provided herein, the rights of a Non-Employee Director with respect
to Awards granted prior to such amendment, suspension or termination, may not be
impaired without the consent of such Non-Employee Director.
The Board may amend the terms of any Award granted, prospectively or
retroactively, but, subject to Articles VIII and X above or as otherwise
specifically provided herein, no such amendment or other action by the Board
shall impair the rights of any Non-Employee Director without the Non-Employee
Director's consent.
ARTICLE XII
UNFUNDED PLAN
This Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments as to which a Non-Employee Director
has a fixed and vested interest but which are not yet made to a Non-Employee
Director by the Company, nothing contained herein shall give any such
Non-Employee Director any rights that are greater than those of a general
creditor of the Company.
ARTICLE XIII
GENERAL PROVISIONS
13.1 REPRESENTATION AND LEGEND. The Board may require each person
receiving shares pursuant to the exercise of an Award under the Plan to
represent to and agree with the Company in writing that the Non-Employee
Director is acquiring the shares without a view to distribution thereof. In
addition to any legend required by this Plan, the certificates for such shares
may include any legend which the Board deems appropriate to reflect any
restrictions on Transfer.
All certificates for shares of Common Stock delivered under the Plan
shall be subject to such stock transfer orders and other restrictions as the
Board may deem advisable under the rules, regulations and other requirements of
the Securities and Exchange Commission, any stock exchange upon which the Common
Stock is then listed or any national securities association system upon whose
system the Common Stock is then quoted, any applicable Federal or state
securities law, and any
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<PAGE>
applicable corporate law, and the Board may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.
13.2 OTHER PLANS. Nothing contained in this Plan shall prevent the
Board from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases.
13.3 NO RIGHT TO DIRECTORSHIP. Neither this Plan nor the grant of any
Award hereunder shall impose any obligations on the Company to retain any
Non-Employee Director as a director nor shall it impose on the part of any
Non-Employee Director any obligation to remain as a director of the Company.
13.4 WITHHOLDING OF TAXES. The Company shall have the right to deduct
from any payment to be made to a Non-Employee Director, or to otherwise require,
prior to the issuance or delivery of any shares of Common Stock or the payment
of any cash hereunder, payment by the Non-Employee Director, of, any Federal,
state or local taxes required by law to be withheld.
The Board may permit any such withholding obligation with regard to any
Non-Employee Director to be satisfied by reducing the number of shares of Common
Stock otherwise deliverable or by delivering shares of Common Stock already
owned. Any fraction of a share of Common Stock required to satisfy such tax
obligations shall be disregarded and the amount due shall be paid instead in
cash by the Non-Employee Director.
Notwithstanding anything hereunder to the contrary, to the extent
permitted under the Code or other applicable law, the Company may, in its sole
and absolute discretion, reduce the number of shares of Common Stock otherwise
deliverable to a Non-Employee Director in an amount that would be withheld if
taxes were required to be withheld and, if the Company so reduces the shares
otherwise deliverable, the Company shall remit such amount to any such
applicable Federal, state or local taxing authority.
13.5 LISTING AND OTHER CONDITIONS.
(a) As long as the Common Stock is listed on a national
securities exchange or system sponsored by a national securities
association, the issue of any shares of Common Stock pursuant to the
exercise of an Award shall be conditioned upon such shares being listed
on such exchange or system. The Company shall have no obligation to
issue such shares unless and until such shares are so listed, and the
right to exercise any Stock Option with respect to such shares shall be
suspended until such listing has been effected.
(b) If at any time counsel to the Company shall be of the
opinion that any sale or delivery of shares of Common Stock pursuant to
an Award is or may in the circumstances be
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<PAGE>
unlawful or result in the imposition of excise taxes on the Company
under the statutes, rules or regulations of any applicable
jurisdiction, the Company shall have no obligation to make such sale or
delivery, or to make any application or to effect or to maintain any
qualification or registration under the Securities Act of 1933, as
amended, or otherwise with respect to shares of Common Stock or Awards
and the right to exercise any Stock Option shall be suspended until, in
the opinion of said counsel, such sale or delivery shall be lawful or
will not result in the imposition of excise taxes on the Company.
(c) Upon termination of any period of suspension under this
Section 13.5, any Award affected by such suspension which shall not
then have expired or terminated shall be reinstated as to all shares
available before such suspension and as to shares which would otherwise
have become available during the period of such suspension, but no such
suspension shall extend the term of any Stock Option.
13.6 GOVERNING LAW. This Plan shall be governed and construed in
accordance with the laws of the State of Delaware (regardless of the law that
might otherwise govern under applicable Delaware principles of conflict of
laws).
13.7 CONSTRUCTION. Wherever any words are used in this Plan in the
masculine gender they shall be construed as though they were also used in the
feminine gender in all cases where they would so apply, and wherever any words
are used herein in the singular form they shall be construed as though they were
also used in the plural form in all cases where they would so apply.
13.8 OTHER BENEFITS. No Award payment under this Plan shall be deemed
compensation for purposes of computing benefits under any retirement plan of the
Company or its subsidiaries nor affect any benefits under any other benefit plan
now or subsequently in effect under which the availability or amount of benefits
is related to the level of compensation.
13.9 COSTS. The Company shall bear all expenses included in
administering this Plan, including expenses of issuing Common Stock pursuant to
any Award hereunder.
13.10 NO RIGHT TO SAME BENEFITS. The provisions of Awards need not be
the same with respect to each Non-Employee Director, and such Awards granted to
individual Non-Employee Directors need not be the same in subsequent years.
13.11 DEATH/DISABILITY. The Board may in its discretion require the
transferee of a Non-Employee Director to supply it with written notice of the
Non-Employee Director's death or disability and to supply it with a copy of the
will (in the case of a Non-Employee Director's death) or such other evidence as
the Board deems necessary to establish the validity of the transfer of an Award.
The Board may also require that the agreement of the transferee to be bound by
all of the terms and conditions of the Plan.
13.12 SECTION 16(b) OF THE EXCHANGE ACT. All elections and transactions
under the Plan by persons subject to Section 16 of the Exchange Act involving
shares of Common Stock are intended to comply with any applicable condition
under Rule 16b-3. The Board may establish and adopt written
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<PAGE>
administrative guidelines, designed to facilitate compliance with Section 16(b)
of the Exchange Act, as it may deem necessary or proper for the administration
and operation of the Plan and the transaction of business thereunder.
13.13 SEVERABILITY OF PROVISIONS. If any provision of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provisions had not been included.
13.14 HEADINGS AND CAPTIONS. The headings and captions herein are
provided for reference and convenience only, shall not be considered part of the
Plan, and shall not be employed in the construction of the Plan.
ARTICLE XIV
TERM OF PLAN
No Award shall be granted pursuant to the Plan on or after the tenth
anniversary of the Effective Date, but Awards granted prior to such tenth
anniversary may extend beyond that date.
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