UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 001-12929
COMMSCOPE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 36-4135495
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1375 LENOIR RHYNE BOULEVARD, HICKORY, NORTH CAROLINA 28601
(Address of principal executive offices)
(Zip Code)
(828) 324-2200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes x No
--- ---
As of July 23, 1999 there were 50,737,954 shares of Common Stock
outstanding.
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COMMSCOPE, INC.
FORM 10-Q
JUNE 30, 1999
TABLE OF CONTENTS
Page No.
-------------
Part I-Financial Information (Unaudited):
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Statements of Income 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash 5
Flows
Condensed Consolidated Statement of 6
Stockholders' Equity
Notes to Condensed Consolidated Financial 7 - 9
Statements
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Position 10 - 16
Part II - Other Information
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 4. Submission of Matters to a Vote of Security 16
Holders
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
2
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<TABLE>
COMMSCOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED--IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ----------- -----------
Net Sales $ 186,882 $ 141,886 $ 334,953 $ 275,488
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Operating Costs and Expenses:
Cost of sales 137,022 109,189 248,258 215,223
Selling, general and administrative 17,330 12,935 31,899 25,468
Research and development 1,945 1,449 3,434 3,202
Amortization of goodwill 1,347 1,297 2,594 2,600
---------- ---------- ----------- -----------
Total operating costs and expenses 157,644 124,870 286,185 246,493
---------- ---------- ----------- -----------
Operating Income 29,238 17,016 48,768 28,995
Other income (expense) (17) 7 (7) 2,134
Interest expense (2,567) (4,099) (5,365) (8,296)
Interest income 111 182 250 340
---------- ---------- ----------- -----------
Income before income taxes 26,765 13,106 43,646 23,173
Provision for income taxes (9,673) (4,607) (15,794) (8,342)
---------- ---------- ----------- -----------
Net Income $ 17,092 $ 8,499 $ 27,852 $ 14,831
========== ========== =========== ===========
Net income per share:
Basic $ 0.34 $ 0.17 $ 0.55 $ 0.30
Assuming dilution $ 0.33 $ 0.17 $ 0.54 $ 0.30
Weighted-average shares outstanding:
Basic 50,650 49,177 50,527 49,155
Assuming dilution 51,906 49,588 51,613 49,456
See notes to condensed consolidated financial statements.
</TABLE>
3
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<TABLE>
COMMSCOPE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(unaudited)
June 30, December 31,
1999 1998
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,737 $ 4,129
Accounts receivable, less allowance for doubtful accounts of
$4,919 and $4,126, respectively 124,544 93,627
Inventories 35,878 29,986
Prepaid expenses and other current assets 2,156 3,745
Deferred income taxes 13,369 12,925
----------- -----------
Total current assets 181,684 144,412
Property, plant and equipment, net 150,202 135,082
Goodwill, net of accumulated amortization of
$45,986 and $43,396, respectively 164,882 164,024
Other intangibles, net of accumulated amortization of
$30,684 and $29,314, respectively 18,081 19,451
Investments and other assets 2,332 2,358
----------- -----------
Total Assets $ 517,181 $ 465,327
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable $ 42,180 $ 23,717
Other accrued liabilities 37,003 26,713
----------- -----------
Total current liabilities 79,183 50,430
Long-term debt 172,445 181,800
Deferred income taxes 16,576 17,543
Other non-current liabilities 12,475 11,582
----------- -----------
Total Liabilities 280,679 261,355
Commitments and contingencies
Stockholders' Equity
Preferred stock, $.01 par value; Authorized shares: 20,000,000;
Issued and outstanding shares: None at June 30, 1999 and
December 31, 1998 -- --
Common Stock, $.01 par value; Authorized shares: 300,000,000;
Issued and outstanding shares: 50,732,762 at June 30, 1999;
50,254,467 at December 31, 1998 507 503
Additional paid-in capital 161,706 155,631
Retained earnings 75,690 47,838
Accumulated other comprehensive income (loss) (1,401) --
----------- -----------
Total Stockholders' Equity 236,502 203,972
----------- -----------
Total Liabilities and Stockholders' Equity $ 517,181 $ 465,327
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
4
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<TABLE>
COMMSCOPE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED - IN THOUSANDS)
<CAPTION>
SIX MONTHS ENDED JUNE 30,
-----------------------------
1999 1998
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 27,852 $ 14,831
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 14,077 12,184
Gain on sale of assets of the high temperature
aerospace and industrial cable business -- (1,873)
Gain on sale of other property, plant and equipment (4) --
Changes in assets and liabilities:
Accounts receivable (34,693) (3,775)
Inventories (1,014) 4,341
Prepaid expenses and other current assets 1,588 1,259
Deferred income taxes (1,411) (2,028)
Accounts payable and other accrued liabilities 28,902 25,014
Other non-current liabilities 893 737
Other (145) 67
------------- -------------
Net cash provided by operating activities 36,045 50,757
INVESTING ACTIVITIES:
Additions to property, plant and equipment (15,018) (9,865)
Acquisition of business in Seneffe, Belgium (17,023) --
Sale of assets of the high temperature aerospace and
industrial cable business -- 9,654
Sale of other property, plant and equipment 172 --
Other -- 146
------------- -------------
Net cash used in investing activities (31,869) (65)
FINANCING ACTIVITIES:
Net repayments under revolving credit facility (25,000) (47,000)
Proceeds of term loan facility for acquisition of business
in Seneffe, Belgium 16,353 --
Exercise of stock options 6,060 900
Issuance of stock to outside director 19 --
------------- -------------
Net cash used in financing activities (2,568) (46,100)
Change in cash and cash equivalents 1,608 4,592
Cash and cash equivalents, beginning of period 4,129 3,330
------------- -------------
Cash and cash equivalents, end of period $ 5,737 $ 7,922
============= =============
See notes to condensed consolidated financial statements.
</TABLE>
5
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<TABLE>
COMMSCOPE, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED - IN THOUSANDS, EXCEPT SHARE DATA)
SIX MONTHS ENDED JUNE 30, 1999
<CAPTION>
Accumulated
Number of Other
Common Additional Comprehensive Total
Shares Common Paid-In Retained Income Stockholders'
Outstanding Stock Capital Earnings (Loss) Equity
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 50,254,467 $ 503 $ 155,631 $ 47,838 $ -- $ 203,972
Issuance of shares for stock option exercises 477,295 4 6,056 -- -- 6,060
Issuance of shares to outside director 1,000 -- 19 -- -- 19
Comprehensive income (loss) - currency
translation adjustment -- -- -- -- (1,401) (1,401)
Net income -- -- -- 27,852 -- 27,852
------------ ------------ ------------ ------------ ------------ ------------
Balance June 30, 1999 50,732,762 $ 507 $ 161,706 $ 75,690 $ (1,401) $ 236,502
============ ============ ============ ============ ============ ============
CommScope, Inc. has 20 million authorized shares of preferred stock at $0.01 par value.
No preferred stock is currently issued or outstanding.
See notes to condensed consolidated financial statements.
</TABLE>
6
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COMMSCOPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
1. BACKGROUND AND BASIS OF PRESENTATION
BACKGROUND
CommScope, Inc. ("CommScope" or the "Company") was incorporated in Delaware
in January 1997 and, through its wholly owned subsidiary CommScope, Inc. of
North Carolina ("CommScope NC"), operates in the cable manufacturing
business. The Company designs, manufactures, markets and sells coaxial,
fiber optic and high performance electronic cables primarily used in
communications, local area network and industrial applications. CommScope
is a leading manufacturer and supplier of coaxial cable for cable
television applications and other communications applications in the United
States. CommScope is also a leading supplier of coaxial cable to
international communications markets, primarily the cable television
market.
BASIS OF PRESENTATION
The condensed consolidated balance sheet as of June 30, 1999, the condensed
consolidated statements of income for the three months and the six months
ended June 30, 1999 and 1998, the condensed consolidated statements of cash
flows for the six months ended June 30, 1999 and 1998, and the condensed
consolidated statement of stockholders' equity for the six months ended
June 30, 1999 are unaudited and reflect all adjustments of a normal
recurring nature which are, in the opinion of management, necessary for a
fair presentation of the interim period financial statements. There were no
adjustments of a non-recurring nature recorded during the three months and
the six months ended June 30, 1999 and 1998. The results of operations for
the interim period are not necessarily indicative of the results of
operations to be expected for the full year.
The unaudited interim condensed consolidated financial statements of
CommScope have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted. These interim condensed consolidated financial
statements should be read in conjunction with the Company's December 31,
1998 audited consolidated financial statements and notes thereto included
in the Company's 1998 Annual Report on Form 10-K.
2. SUPPLEMENTAL BALANCE SHEET INFORMATION
Inventories consist of:
June 30, December 31,
1999 31, 1998
------------ --------------
Raw materials $ 15,078 $ 12,379
Work in process 8,769 5,811
Finished goods 12,031 11,796
------------ ------------
$ 35,878 $ 29,986
============ ============
7
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COMMSCOPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
3. NET INCOME PER SHARE
Below is a reconciliation of weighted-average common shares outstanding for
basic net income per share to weighted-average common and common equivalent
shares outstanding for diluted net income per share:
Three Six Three Six
Months Months Months Months
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
1999 1999 1998 1998
---------------------------------------
Average number of common shares
outstanding - for basic net income 50,650 50,527 49,177 49,155
per share
Dilutive effect of stock options 1,256 1,086 411 301
-----------------------------------------
Average number of common and common
equivalent shares outstanding - for
diluted net income per share 51,906 51,613 49,588 49,456
=========================================
4. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
June 30, December 31,
1999 1998
------------ -----------------
<S> <C> <C>
Credit Agreement (as defined below) $ 146,000 $ 171,000
Eurodollar Credit Agreement (as defined below) 15,645 --
Alabama State Industrial Development
Authority Notes 10,800 10,800
----------- -----------------
$ 172,445 $ 181,800
=========== =================
</TABLE>
In July 1997, the Company entered into a $350 million revolving credit
agreement with a group of banks (the "Credit Agreement"). The Company
utilizes the Credit Agreement for, among other things, general working
capital needs, financing strategic acquisitions, and other general
corporate purposes.
In February 1999, the Company entered into a term loan agreement for 15
million Euros (the "Eurodollar Credit Agreement"). The Company utilized the
proceeds of the loan to fund the acquisition costs and working capital
needs of a new manufacturing facility in Seneffe, Belgium.
5. BUSINESS ACQUISITIONS AND DIVESTITURES
In February 1998, the Company sold certain real and personal property and
inventories of its high-temperature aerospace and industrial cables
business to Alcatel for an adjusted price of $13 million. The Company
recognized a pre-tax gain from the sale of $1.9 million ($0.02 per basic
and diluted share, net of tax effect).
8
<PAGE>
COMMSCOPE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, UNLESS OTHERWISE NOTED)
5. BUSINESS ACQUISITIONS AND DIVESTITURES (continued)
Effective January 1, 1999, the Company acquired certain assets and assumed
certain liabilities of Alcatel's coaxial cable business in Seneffe,
Belgium. The acquisition provides the Company with a European base of
operations, access to established distribution channels and complementary
coaxial cable technologies. The operation in Seneffe is the largest CATV
coaxial cable manufacturer in Europe with annual sales by Alcatel of
approximately $35 million in 1998.
The Seneffe acquisition has been accounted for as a purchase business
combination and, accordingly, the acquired assets and assumed liabilities
have been recorded at their estimated fair value at the date of the
acquisition of approximately $20 million. Payment for the acquired business
was not required until March 1999 and was financed primarily by borrowings
under the new Eurodollar Credit Agreement.
6. NEWLY ISSUED ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred
to as derivatives) and for hedging activities. The new standard requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. SFAS No. 133 is effective for the Company beginning with the year
ending December 31, 2001. Management is currently evaluating the effects of
SFAS No. 133 on the Company's financial statements and current disclosures.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL POSITION
The following discussion and analysis is provided to increase the
understanding of, and should be read in conjunction with, the unaudited
condensed consolidated financial statements and accompanying notes included
in this document as well as the audited consolidated financial statements,
related notes thereto and management's discussion and analysis of financial
condition and results of operations for the year ended December 31, 1998
included in the Company's Annual Report on Form 10-K. Unless otherwise
specified, capitalized terms used herein are used as defined in the audited
consolidated financial statements of CommScope for the year ended December
31, 1998 or in the unaudited condensed consolidated financial statements
included in this document.
HIGHLIGHTS
CommScope reported net income of $17 million ($0.34 per basic share and
$0.33 per diluted share) for the quarter ended June 30, 1999, an increase
of $9 million (101%) from the quarter ended June 30, 1998 net income of $8
million ($0.17 per basic and diluted share).
For the six months ended June 30, 1999, CommScope reported net income of
$28 million ($0.55 per basic share and $0.54 per diluted share), an
increase of $13 million (88%) from the six months ended June 30, 1998 net
income of $15 million ($0.30 per basic and diluted share).
Net income for the six months ended June 30, 1998 includes a one-time
pre-tax gain of $1.9 million related to the sale of the Company's
high-temperature aerospace and industrial cables business. Excluding the
gain, net income for the six months ended June 30, 1998 was $14 million
($0.28 per basic and diluted share).
COMPARISON OF RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH
PERIODS ENDED JUNE 30, 1999 WITH THE THREE AND SIX MONTH
PERIODS ENDED JUNE 30, 1998
NET SALES
Net sales for the second quarter and six months ended June 30, 1999
increased $45 million (32%) to $187 million and $60 million (22%) to $335
million, respectively, from the comparable prior year periods. The increase
in net sales is primarily due to strengthening domestic coaxial cable sales
and solid growth in all key product categories.
For the second quarter and six months ended June 30, 1999, international
sales increased 22% and 31%, respectively, compared to the corresponding
periods in 1998, due mainly to the acquisition of the Company's new coaxial
cable business in Seneffe, Belgium and improving Latin American sales.
Net sales to cable television and other video distribution markets
("CATV/Video Products") for the second quarter and six months ended June
30, 1999 increased $31 million (28%) to $143 million and $46 million (21%)
to $262 million, respectively, from comparable prior year periods. The
increase in sales of CATV/Video Products resulted primarily from improving
coaxial cable sales to domestic telecommunications companies and cable
television system operators (MSOs).
Net sales for local area network and other data applications ("LAN
Products") for the second quarter and six months ended June 30, 1999
increased $2 million (11%) to $23 million and decreased $6 million (13%) to
$38 million, respectively, from comparable prior periods. The
year-over-year sales decrease for LAN Products is primarily due to pricing
pressure in the LAN market. However, sales of LAN products made a strong
recovery in the second quarter of 1999, compared to the first quarter of
1999 and the second quarter of 1998, due primarily to the strength of the
underlying market, the ongoing shift to high-performance products, and the
acceptance of CommScope's Isolite TM foamed insulation for Unshielded
Twisted Pair (UTP) cables.
10
<PAGE>
Net sales for wireless and other telecommunications applications ("Wireless
and Other Telecom Products") for the second quarter and six months ended
June 30, 1999 were $21 million and $36 million, respectively, as compared
to $9 million and $16 million for the comparable periods in 1998. These
substantial increases reflect strong sales growth in both Cell Reach for
wireless applications and other telecommunications products for enhanced
communications services.
GROSS PROFIT (NET SALES LESS COST OF SALES)
Gross profit for the second quarter and six months ended June 30, 1999 was
$50 million and $87 million, respectively, compared to $33 million and $60
million for the comparable prior year periods, an increase of 53% and 44%,
respectively. Gross profit margins improved to 26.7% and 25.9% for the
second quarter and six months ended June 30, 1999, respectively, compared
to 23.0% and 21.9% for the comparable prior periods. The primary drivers of
the improvement in gross profit and gross profit margins are the increased
sales volumes and favorable product mix, engineered manufacturing
efficiencies including "value capture" vertical integration, material and
commodity cost improvements, and improving Cell Reach profitability. These
improvements were somewhat offset by lower prices for LAN Products and
sales from the Seneffe facility, which currently has lower than
Company-average margins.
The Company anticipates continued improvement in gross profit margins due
to ongoing cost reduction initiatives. However, these improvements may be
moderated by the pricing environment for LAN Products, the implementation
of a new enterprise information management system and increasing commodity
prices.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative ("SG&A") expense for the second quarter
and six months ended June 30, 1999 was $17 million and $32 million,
respectively, compared to $13 million and $25 million for the comparable
prior periods. As a percentage of net sales, SG&A expense was 9% and 10%,
respectively, for the second quarter and six months ended June 30, 1999,
compared to 9% for both comparable periods of 1998. SG&A expense increased
primarily due to the expansion of sales and marketing efforts to support
developing products and sales growth targets.
RESEARCH AND DEVELOPMENT
Research and development expense as a percentage of net sales remained
steady at 1% during all periods presented. The Company has ongoing programs
to develop new products and market opportunities for its products and core
capabilities and new manufacturing technologies to achieve cost reductions.
OTHER INCOME, NET
In February 1998, the Company sold certain real and personal property and
inventories of its high-temperature aerospace and industrial cables
business to Alcatel for an adjusted price of $13 million. The Company
recognized a pre-tax gain from the sale of $1.9 million ($0.02 per basic
and diluted share, net of tax effect).
INTEREST EXPENSE
Interest expense for the second quarter and six months ended June 30, 1999
was $2.6 million and $5.4 million, respectively, compared to $4.1 million
and $8.3 million for the comparable prior periods. The decrease in interest
costs is due to the reduction in borrowings under the Company's credit
facility from $208 million at the end of the second quarter of 1998 to $146
million at the end of the second quarter of 1999. This reduction in
interest expense was partially offset during the six months ended June 30,
1999 by interest expense on new borrowings of 15 million Euros (equivalent
to $16.4 million at the date of borrowing), which are discussed below under
LIQUIDITY AND CAPITAL RESOURCES.
INCOME TAXES
The effective tax rate was 36% for the six months ended June 30, 1999 and
1998.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operations was $36 million for the six months ended June
30, 1999 compared to $51 million for the comparable period in 1998, a
decrease of $15 million, or 29%. The decrease in cash flow provided by
operations is primarily due to increased accounts receivable resulting from
higher sales volume and moderated somewhat by improved cash collections.
Working capital was $103 million at June 30, 1999, compared to $94 million
at December 31, 1998. Management of the Company believes that working
capital levels are appropriate to support current levels of orders and
backlog.
During the six months ended June 30, 1999, the Company invested $15 million
in equipment and facilities compared to $10 million for the comparable
period in 1998. The capital spending in each period was primarily
attributable to vertical integration projects, capacity expansion, and
equipment upgrades to meet increased current and anticipated future
business demands. The Company utilized an additional $17 million during the
six months ended June 30, 1999 to acquire Alcatel's coaxial cable business
in Seneffe, Belgium. During the six months ended June 30, 1998, the Company
received initial cash proceeds of $10 million related to the sale of its
high temperature aerospace and industrial cables business.
The Company's principal sources of liquidity both on a short-term and
long-term basis are cash flows provided by operations and funds available
under long-term credit facilities. During the six months ended June 30,
1999 the Company repaid $25 million under its revolving credit facility.
Additionally, the Company borrowed 15 million Euros (equivalent to $16.4
million on the date of borrowing) under a new variable rate term loan
agreement (the "Eurodollar Credit Agreement") to fund the acquisition of
the coaxial cable business in Seneffe, Belgium. Based upon its analysis of
the Company's consolidated financial position and the expected results of
its operations in the future, management believes that the Company will
have sufficient cash flows from future operations and the financial
flexibility to attract both short-term and long-term capital on acceptable
terms as may be needed to fund operations, capital expenditures and other
growth objectives. There can be no assurance, however, that future
industry-specific developments, general economic trends or other situations
will not adversely affect the Company's operations or its ability to meet
its cash requirements.
In the normal course of business, CommScope uses various financial
instruments, including derivative financial instruments, for purposes other
than trading. Non-derivative financial instruments include letters of
credit and commitments to extend credit (accounts receivable). The Company
controls its exposures to credit risk associated with its financial
instruments through credit approvals, credit limits and monitoring
procedures. At June 30, 1999, in management's opinion, CommScope did not
have any significant exposure to any individual or customer or
counter-party, nor did CommScope have any significant concentration of
credit risk related to any financial instrument.
Derivative financial instruments utilized by CommScope, which are not
entered into for speculative purposes, include commodity pricing contracts,
foreign currency exchange contracts, and contracts hedging exposure to
interest rates. At June 30, 1999, the Company evaluated its commodity
pricing and foreign currency exchange exposures and concluded that it was
not currently beneficial to use derivative financial instruments to hedge
its current positions with respect to those exposures. However, the
Company's Eurodollar Credit Agreement (which is not a derivative financial
instrument) serves as a hedge against currency exchange exposures related
to the Company's net investment in its coaxial cable business in Seneffe,
Belgium.
As of June 30, 1999 the Company had entered into an interest rate swap
agreement to effectively convert an aggregate amount of $50 million of
outstanding variable-rate borrowings to a fixed-rate basis. The agreement
expires in October 2001. Under the agreement, interest settlement payments
will be made quarterly based upon the spread between the three month LIBOR,
as adjusted quarterly, and the fixed rate of 4.81%.
12
<PAGE>
Also as of June, 30, 1999, the variable rate borrowing under the Eurodollar
Credit Agreement was effectively converted into a fixed rate of 4.53%
through an interest rate swap agreement with terms that are identical to
the Eurodollar Credit Agreement. Net payments or receipts resulting from
the interest rate swap agreements are recorded as adjustments to interest
expense in each quarter.
At June 30, 1999, the weighted average effective interest rate on
outstanding borrowings and associated credit fees under the Credit
Agreement, the Eurodollar Credit Agreement, and the Alabama State
Industrial Development Authority Notes was 5.7%.
NEWLY ISSUED ACCOUNTING STANDARDS
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities", was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred
to as derivatives) and for hedging activities. The new standard requires an
entity to recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair
value. SFAS No. 133 is effective for the Company beginning with the year
ending December 31, 2001. Management is currently evaluating the effects of
SFAS No. 133 on the Company's financial statements and current disclosures.
EUROPEAN MONETARY UNION - EURO
On January 1, 1999, several member countries of the European Union
established fixed conversion rates between their existing sovereign
currencies, and adopted the Euro as their new common legal currency. As of
that date, the Euro began trading on currency exchanges. The legacy
currencies of the participating countries will remain legal tender for a
transition period between January 1, 1999 and January 1, 2002. The Company
conducts business in member countries.
During the transition period, cash-less payments (for example, wire
transfers) can be made in the Euro, and parties to individual transactions
can elect to pay for goods and services using either the Euro or the legacy
currency. Between January 1, 2002 and July 1, 2002, the participating
countries will introduce Euro notes and coins and eventually withdraw all
legacy currencies so that they will no longer be available.
The Company is addressing the issues involved with the introduction of the
Euro. Among the issues facing the company are the assessment and conversion
of information technology ("IT") systems to allow for transactions to take
place in both the legacy currencies and the Euro and the eventual
elimination of legacy currencies. In addition, the Company is reviewing
certain existing contracts for potential modification and assessing its
pricing / marketing strategies in the affected European markets.
Based on current information, CommScope does not expect that the Euro
conversion will have a material adverse effect on its business, results of
operations, cash flows or financial condition.
13
<PAGE>
YEAR 2000
CommScope is currently addressing an issue common to most companies -
ensuring that its existing IT systems and applications and other non-IT
control devices are suitable for continued use into and beyond the Year
2000. Many IT systems and applications and non-IT control devices utilized
by the Company use only two digits to identify a year in the date field -
and accordingly may recognize a date using "00" as the Year 1900 or some
other date rather than the Year 2000. Failure to make appropriate
modifications or upgrades to critical IT systems and applications and
non-IT control devices could result in a system failure or miscalculations
causing significant disruptions to operations. Third parties with whom the
Company interacts also employ various computer systems with similar Year
2000 compliance issues. Failure by third parties to adequately address
their own Year 2000 compliance issues exposes the Company to business risks
such as a reduced demand for the Company's products or the lack of
availability of critical raw materials or services required for
manufacturing the Company's products. The Company's products themselves -
high performance, high bandwidth cables for the telecommunications industry
- - are not affected by the Year 2000 problem. The Year 2000 compliance
discussion below is based on information currently available to the
Company. Readers are cautioned that forward-looking statements contained in
the Year 2000 section should be read in conjunction with the Company's
disclosures under the heading "Forward-Looking Statements".
To address the Year 2000 compliance issue, the Company has appointed a
corporate-wide Year 2000 compliance project team which is responsible for
coordinating the identification, evaluation, and implementation of changes
to IT systems and applications and non-IT control devices necessary to
achieve a Year 2000 date conversion. The Year 2000 compliance project team
is also investigating significant third parties to determine the
effectiveness of their efforts toward achieving Year 2000 compliance.
The Year 2000 compliance project team has designed a systematic methodology
of addressing the Year 2000 compliance issue, which includes: (1)
identification and evaluation of IT systems and applications and non-IT
control devices with Year 2000 compliance issues; (2) implementation of
changes to IT systems and applications and non-IT control devices to
achieve Year 2000 compliance; (3) testing of the corrective actions taken
to ensure Year 2000 compliance for the identified systems; and (4)
development of contingency plans in the event of the failure of third
parties to become Year 2000 compliant.
A database of internal IT systems and applications and non-IT control
devices which rely on date-sensitive computer logic has been developed to
provide a starting framework from which to address the significant issues
related to Year 2000 compliance. Each of these systems, applications and
devices has been classified as a priority A, B, or C issue. Both A and B
priority items are deemed as critical systems which must be modified or
upgraded into Year 2000 compliance. Priority C items are non-critical IT
and non-IT systems which will be upgraded into Year 2000 compliance upon
completion of the modification of A and B priority items.
The Year 2000 compliance project team has also accumulated a database of
significant third parties. Each of these third parties has been contacted
and asked to provide responses which will allow the Company to assess their
ability to achieve Year 2000 compliance. The Company is currently following
up on non-responses and, where necessary, responses received. The Company
has begun evaluating third party compliance through internal testing, where
feasible, to verify that the modifications are effective. Almost all of the
Company's suppliers are still engaged in executing their Year 2000
compliance efforts. As a result, the Company at this time cannot fully
evaluate the Year 2000 risks to its supply of goods and services. The
Company maintains a list of alternative suppliers as part of its
contingency plan in the event current suppliers do not timely complete
their compliance efforts. However, because there are limited sources of
certain materials used in manufacturing the Company's products, the Company
may not be able to develop an alternative source of supply if the
operations of its current suppliers are interrupted as a result of Year
2000 non-compliance. CommScope will continue to monitor the Year 2000
status of its suppliers to minimize this risk and will develop or modify,
as appropriate, contingency plans as the risks become more clear.
14
<PAGE>
Modifications to most written programs for IT systems and applications
(which initially were developed in-house) have been in progress by Company
personnel since early 1997. In addition, certain non-compliant systems and
applications have been or are being replaced with Year 2000 compliant
systems and products. Substantially all IT systems and applications
acquired from external sources are being upgraded to Year 2000 compliant
versions (if they are not already) through system upgrades or through the
purchase of new systems. The Company believes that it has achieved 79% Year
2000 compliance for critical internal IT systems and applications at June
30, 1999, with 100% Year 2000 compliance requirements for such systems and
applications targeted for the end of the third quarter of 1999. Virtually
all the critical non-IT systems (including a variety of equipment control
devices) have been identified and are being evaluated and modified, as
appropriate, for Year 2000 compliance through upgrades to Year 2000
compliant devices.
The Company plans to test the effectiveness of corrective actions taken to
achieve Year 2000 compliance during 1999 and has begun to perform
compliance testing on systems and applications for which Year 2000
modifications have been made. As compliance testing is completed and a full
assessment of the risks from potential Year 2000 systems failures can be
made, the Company plans to develop Year 2000 contingency plans for such
risks. These contingency plans will factor in business and operating
decisions related to the potential failure of significant third parties to
become Year 2000 compliant.
The Company currently does not believe that the costs of addressing Year
2000 compliance issues will be material to the Company's results of
operations, financial condition or cash flows. The Company estimates that,
through June 30, 1999, it has spent $730,000 to address Year 2000
compliance issues for IT systems and applications and $125,000 for non-IT
devices. Future expenditures to address Year 2000 compliance issues are
currently estimated at $245,000 for IT systems and applications and
$275,000 for non-IT devices. The Company expects to finance expenditures
for Year 2000 compliance modifications through cash flows from future
operations.
Due to the Company's dependence upon, and its current uncertainty with, the
Year 2000 compliance of certain third-party suppliers and vendors, the
Company is unable to determine at this time its most reasonably likely
worst case scenario. The Company expects its Year 2000 compliance efforts
to reduce significantly the Company's current level of uncertainty
regarding the impact of these Year 2000 issues.
The Company believes that the corrective actions implemented under the
direction of the Year 2000 compliance project team will be completed on a
timely basis in a cost-effective manner to ensure that the Company's
internal systems will be operational and suitable for continued use in the
Year 2000 and beyond. In addition, the Company believes that significant
third parties will become Year 2000 compliant or that adequate contingency
plans will be developed and implemented to ensure minimal business
interruption to the Company's operations. However, there can be no
guarantee that problems associated with system failure or deficient system
operation due to Year 2000 compliance issues will not result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the
Company's results of operations, liquidity and financial condition.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain statements in this Form 10-Q which are other than historical facts
are intended to be "forward-looking statements" within the meaning of the
Securities Exchange Act of 1934, the Private Securities Litigation Reform
Act of 1995 and other related laws. These forward-looking statements are
identified by their use of such terms and phrases as "intends", "intend",
"intended", "goal", "estimate", "estimates", "expects", "expect",
"expected", "project", "projects", "projected", "projections", "plans",
"anticipates", "anticipated", "should", "designed to", "foreseeable
future", "believe", "believes" and "scheduled" and similar expressions.
These statements are subject to various risks and uncertainties, many of
which are outside the control of the Company, such as the level of market
demand for the Company's products, competitive pressures, the ability to
achieve reductions in costs and to continue to integrate acquisitions,
price fluctuations of materials and the potential unavailability thereof,
foreign currency fluctuations, technological obsolescence, international
economic and political uncertainties and other specific factors discussed
in Exhibit 99 to the Form 10-Q for the six months ended June 30, 1999. The
information contained in this Form 10-Q represents the Company's best
judgment at the date of this report based on information currently
available. However, the Company does not intend to update this information
to reflect developments or information obtained after the date of this
report and disclaims any legal obligation to do so.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Bi-metallic center conductors are among the major raw materials that
the Company uses in producing coaxial cables. It purchases bi-metallic
center conductors from Copperweld Bimetallic Products Company under a
long-term supply agreement expiring in March 2000. On July 28, 1999,
the Company received from Copperweld a demand for arbitration of a
pricing dispute under the agreement, stating that Copperweld is
entitled to recover from the Company an amount which Copperweld
alleges "could exceed $5,000,000." The Company intends to answer the
demand for arbitration by denying that it owes any amount to
Copperweld and demanding that Copperweld pay the Company a purchase
price rebate exceeding $1,000,000. The Company's management believes
that the Company's position in this matter is meritorious and intends
to pursue vigorously the Company's claim and to defend vigorously
against Copperweld's allegation. No assurance can be given as to the
outcome of this arbitration.
ITEM 2. CHANGES IN SECURITIES
On June 14, 1999, the Company amended its Rights Agreement. A copy of
the amendment has been filed on the Amendment to the Registration
Statement on Form 8-A/A filed June 14, 1999 (file No. 1-12929).
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders (the "Meeting") on
May 7, 1999. Proxies for such meeting were solicited pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended.
A total of 50,509,737 shares of Common Stock with one vote each were
entitled to vote at the Meeting and holders of 44,492,987 shares voted
in person or by proxy, constituting a quorum.
At the Meeting, two of the Company's directors were elected for 3 year
terms ending at the 2002 Annual Meeting of Stockholders by the vote
set forth below:
Name of Director Votes For Votes Withheld
Edward D. Breen 43,689,152 803,835
James M. Whitson 44,031,357 461,630
The Company's other four directors, whose terms of office continue
after the Meeting, are Frank M. Drendel, Duncan M. Faircloth, Boyd L.
George, and George N. Hutton, Jr.
A proposal to ratify the appointment by the board of directors of the
Company of Deloitte & Touche LLP as independent auditors for the
Company for the 1999 fiscal year was approved by 44,401,138 votes cast
in favor, 59,038 votes cast against and 32,811 votes abstaining.
16
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No.
-----------
4.2* Amendment No. 1 to the Rights Agreement, dated as of
June 14, 1999, between CommScope, Inc. and ChaseMellon
Shareholder Services, LLC.
10.8 Amended and Restated CommScope, Inc. 1997 Long Term
Incentive Plan, as amended through June 9, 1999.
10.9.1 Form of Amendment No. 1 to Severance Protection
Agreement between the Company and certain executive
officers.
10.11 CommScope, Inc. Annual Incentive Plan, as amended
through June 9, 1999.
27. Financial Data Schedule.
99. Forward-Looking Information
(b) Reports on Form 8-K filed during the three months ended June 30,
1999:
None
- ------------------
* Incorporated herein by reference from the Amendment to the Registration
Statement on Form 8-A/A filed June 14, 1999 (file No. 1-12929).
17
<PAGE>
SIGNATURE
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.
COMMSCOPE, INC.
July 30, 1999 /s/ Jearld L. Leonhardt
- ------------------------- -----------------------------------------
Date Jearld L. Leonhardt
Executive Vice President and Chief
Financial Officer
Signing both in his capacity as Executive
Vice President on behalf of the Registrant
and as Chief Financial Officer of the
Registrant
18
Exhibit 10.8
AMENDED AND RESTATED
COMMSCOPE, INC.
1997 LONG-TERM INCENTIVE PLAN
(as amended through June 9, 1999)
<PAGE>
TABLE OF CONTENTS
Page
----
1. Establishment, Purpose and Effective Date.................................1
(a) Establishment......................................................1
(b) Purpose............................................................1
(c) Effective Date.....................................................1
2. Definitions...............................................................1
3. Scope of the Plan.........................................................7
(a) Number of Shares Available Under the Plan..........................7
(b) Reduction in the Available Shares in Connection with Award
Grants.................................................................7
(c) Effect of the Expiration or Termination of Awards..................8
4. Administration............................................................8
(a) Committee Administration...........................................8
(b) Board Reservation and Delegation...................................8
(c) Committee Authority................................................8
(d) Committee Determinations Final.....................................9
5. Eligibility..............................................................10
6. Conditions to Grants.....................................................10
(a) General Conditions................................................10
(b) Grant of Options and Option Price.................................10
(c) Grant of Incentive Stock Options..................................11
(d) Grant of Shares of Restricted Stock...............................12
(e) Grant of Performance Units and Performance Shares.................14
(f) Grant of Phantom Stock............................................16
(g) Grant of Director's Shares........................................16
(h) Tandem Awards.....................................................16
7. Non-transferability......................................................16
8. Exercise.................................................................17
(a) Exercise of Options...............................................17
(b) Exercise of Performance Units.....................................17
(c) Payment of Performance Shares.....................................19
(d) Payment of Phantom Stock Awards...................................19
(e) Exercise, Cancellation, Expiration or Forfeiture of Tandem
Awards............................................................19
<PAGE>
9. Spin-off and Substitute Options..........................................19
10. Effect of Certain Transactions..........................................20
11. Mandatory Withholding Taxes.............................................20
12. Termination of Employment...............................................20
13. Securities Law Matters..................................................21
14. No Funding Required.....................................................21
15. No Employment Rights....................................................21
16. Rights as a Stockholder.................................................21
17. Nature of Payments......................................................22
18. Non-Uniform Determinations..............................................22
19. Adjustments.............................................................22
20. Amendment of the Plan...................................................23
21. Termination of the Plan.................................................23
22. No Illegal Transactions.................................................23
23. Governing Law...........................................................23
24. Severability............................................................23
<PAGE>
1. Establishment, Purpose and Effective Date.
(a) Establishment. The Company hereby establishes the Amended
and Restated CommScope, Inc. 1997 Long-Term Incentive Plan (as set forth
herein and from time to time amended, the "Plan").
(b) Purpose. The primary purpose of the Plan is to provide a
means by which key employees and directors of the Company and its
Subsidiaries can acquire and maintain stock ownership, thereby
strengthening their commitment to the success of the Company and its
Subsidiaries and their desire to remain employed by the Company and its
Subsidiaries, focusing their attention on managing the Company as an equity
owner, and aligning their interests with those of the Company's
stockholders. The Plan also is intended to attract and retain key employees
and to provide such employees with additional incentive and reward
opportunities designed to encourage them to enhance the profitable growth
of the Company and its Subsidiaries.
(c) Effective Date. The Plan shall become effective upon its
adoption by the Board.
2. Definitions.
As used in the Plan, terms defined parenthetically immediately after
their use shall have the respective meanings provided by such definitions
and the terms set forth below shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of
the terms defined):
(a) "Award" means Options, shares of restricted Stock,
performance units, performance shares or Director's
Shares granted under the Plan.
(b) "Award Agreement" means the written agreement by which an
Award is evidenced.
(c) "Beneficial Owner," "Beneficially Owned" and
"Beneficially Owning" shall have the meanings applicable
under Rule 13d-3 promulgated under the 1934 Act.
(d) "Board" means the board of directors of the Company.
(e) "Change in Capitalization" means any increase or
reduction in the number of shares of Stock, or any change
in the shares of Stock or exchange of shares of Stock for
a different number or kind of shares or other securities
by reason of a stock dividend, extraordinary dividend,
stock split, reverse stock split, share combination,
reclassification, recapitalization, merger,
consolidation, spin-off, split-up, reorganization,
issuance of warrants or rights, liquidation, exchange of
shares, repurchase of shares, change in corporate
structure, or similar event, of or by the Company.
(f) "Change of Control" means, any of the following:
(i) the acquisition by any Person of Beneficial Ownership
of Voting Securities which, when added to the Voting Securities
then Beneficially Owned by such Person, would result in such
Person Beneficially Owning 33% or more of the combined Voting
Power of the Company's then outstanding Voting Securities;
provided, however, that for purposes of this paragraph (i), a
Person shall not be deemed to have made an acquisition of
Voting Securities if such Person: (1) acquires Voting
Securities as a result of a stock split, stock dividend or
other corporate restructuring in which all stockholders of the
class of such Voting Securities are treated on a pro rata
basis; (2) acquires the Voting Securities directly from the
Company; (3) becomes the Beneficial Owner of 33% or more of the
combined Voting Power of the Company's then outstanding Voting
Securities solely as a result of the acquisition of Voting
Securities by the Company or any Subsidiary which, by reducing
the number of Voting Securities outstanding, increases the
proportional number of shares Beneficially Owned by such
Person, provided that if (x) a Person would own at least such
percentage as a result of the acquisition by the Company or any
Subsidiary and (y) after such acquisition by the Company or any
Subsidiary, such Person acquires Voting Securities, then an
acquisition of Voting Securities shall have occurred; (4) is
the Company or any corporation or other Person of which a
majority of its voting power or its equity securities or equity
interest is owned directly or indirectly by the Company (a
"Controlled Entity"); or (5) acquires Voting Securities in
connection with a "Non-Control Transaction" (as defined in
paragraph (iii) below); or
(ii) the individuals who, as of the Effective Date, are
members of the Board (the "Incumbent Board") cease for any
reason to constitute at least two-thirds of the Board;
provided, however, that if either the election of any new
director or the nomination for election of any new director by
the Company's stockholders was approved by a vote of at least
two-thirds of the Incumbent Board prior to such election or
nomination, such new director shall be considered as a member
of the Incumbent Board; provided further, however, that no
individual shall be considered a member of the Incumbent Board
if such individual initially assumed office as a result of
either an actual or threatened "Election Contest" (as described
in Rule 14a-11 promulgated under the 1934 Act) or other actual
or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board (a "Proxy Contest")
including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest; or
(iii) approval by stockholders of the Company of:
(A) a merger, consolidation or reorganization
involving the Company (a "Business Combination"), unless
(1) the stockholders of the Company,
immediately before the Business Combination, own,
directly or indirectly immediately following the
Business Combination, at least a majority of the
combined voting power of the outstanding voting
securities of the corporation resulting from the
Business Combination (the "Surviving Corporation")
in substantially the same proportion as their
ownership of the Voting Securities immediately
before the Business Combination, and
(2) the individuals who were members of the
Incumbent Board immediately prior to the execution
of the agreement providing for the Business
Combination constitute at least a majority of the
members of the Board of Directors of the Surviving
Corporation, and
(3) no Person (other than the Company or any
Controlled Entity, a trustee or other fiduciary
holding securities under one or more employee
benefit plans or arrangements (or any trust forming
a part thereof) maintained by the Company, the
Surviving Corporation or any Controlled Entity, or
any Person who, immediately prior to the Business
Combination, had Beneficial Ownership of 33% or
more of the then outstanding Voting Securities) has
Beneficial Ownership of 33% or more of the combined
voting power of the Surviving Corporation's then
outstanding voting securities (a Business
Combination satisfying the conditions of clauses
(1), (2) and (3) of this subparagraph (A) shall be
referred to as a "Non-Control Transaction");
(B) a complete liquidation or dissolution of the
Company; or
(C) the sale or other disposition of all or
substantially all of the assets of the Company (other
than a transfer to a Controlled Entity).
<PAGE>
Notwithstanding the foregoing, a Change of Control shall not be
deemed to occur solely because 33% or more of the then outstanding Voting
Securities is Beneficially Owned by (x) a trustee or other fiduciary
holding securities under one or more employee benefit plans or arrangements
(or any trust forming a part thereof) maintained by the Company or any
Controlled Entity or (y) any corporation which, immediately prior to its
acquisition of such interest, is owned directly or indirectly by the
stockholders of the Company in the same proportion as their ownership of
stock in the Company immediately prior to such acquisition.
(g) "Committee" means the committee of the Board appointed
pursuant to Article 4.
(h) "Company" means CommScope, Inc., a Delaware corporation.
(i) "Director's Shares" means the shares of Stock awarded to
a nonemployee director of the Company pursuant to Article
6(h).
(j) "Disability" means a mental or physical condition which,
in the opinion of the Committee, renders a Grantee unable
or incompetent to carry out the job responsibilities
which such Grantee held or the duties to which such
Grantee was assigned at the time the disability was
incurred, and which is expected to be permanent or for an
indefinite duration.
(k) "Effective Date" means the date that the Plan is adopted
by the Board.
(l) "Fair Market Value" of any security of the Company or any
other issuer means, as of any applicable date:
(i) if the security is listed for trading on the New York
Stock Exchange, the closing price, regular way, of the security
as reported on the New York Stock Exchange Composite Tape, or
if no such reported sale of the security shall have occurred on
such date, on the next preceding date on which there was such a
reported sale, or
(ii) if the security is not so listed, but is listed on
another national securities exchange or authorized for
quotation on the National Association of Securities Dealers
Inc.'s NASDAQ National Market System ("NASDAQ/NMS"), the
closing price, regular way, of the security on such exchange or
NASDAQ/NMS, as the case may be, or if no such reported sale of
the security shall have occurred on such date, on the next
preceding date on which there was such a reported sale, or
(iii) if the security is not listed for trading on a
national securities exchange or authorized for quotation on
NASDAQ/NMS, the average of the closing bid and asked prices as
reported by the National Association of Securities Dealers
Automated Quotation System ("NASDAQ") or, if no such prices
shall have been so reported for such date, on the next
preceding date for which such prices were so reported, or
(iv) if the security is not listed for trading on a
national securities exchange or is not authorized for quotation
on NASDAQ/NMS or NASDAQ, the fair market value of the security
as determined in good faith by the Committee.
(m) "Grant Date" means the date of grant of an Award
determined in accordance with Article 6.
(n) "Grantee" means an individual who has been granted an
Award.
(o) "Incentive Stock Option" means an Option satisfying the
requirements of Section 422 of the Internal Revenue Code
and designated by the Committee as an Incentive Stock
Option.
(p) "Internal Revenue Code" means the Internal Revenue Code
of 1986, as amended, and regulations and rulings
thereunder. References to a particular Section of the
Internal Revenue Code shall include references to
successor provisions.
(q) "Measuring Period" has the meaning specified in Article
6(f)(ii)(B).
(r) "Minimum Consideration" means the $.0l par value per
share of Stock or such larger amount determined pursuant
to resolution of the Board to be capital within the
meaning of Section 154 of the Delaware General
Corporation Law.
<PAGE>
(s) "1934 Act" means the Securities Exchange Act of 1934, as
amended.
(t) "Nonqualified Stock Option" means an Option which is not
an Incentive Stock Option or other type of statutory
stock option under the Internal Revenue Code.
(u) "Option" means an option to purchase Stock granted or
issued under the Plan, including Substitute and Spin-off
Options.
(v) "Option Price" means the per share purchase price of (i)
Stock subject to an Option or (ii) restricted Stock
subject to an Option.
(w) "Performance-Based Compensation" means any Option or
Award that is intended to constitute "performance based
compensation" within the meaning of Section 162(m)(4)(C)
of the Code and the regulations promulgated thereunder.
(x) "Performance Percentage" has the meaning specified in
Article 6(f)(ii)(C).
(y) "Person" means a person within the meaning of Sections
13(d) and 14(d) of the 1934 Act.
(z) "Plan" has the meaning set forth in Article 1(a).
(aa) "SEC" means the Securities and Exchange Commission.
(bb) "Section 16 Grantee" means a person subject to potential
liability with respect to equity securities of the
Company under Section 16(b) of the 1934 Act.
(cc) "Spin-off Option" means an Option that has been issued
under this Plan to certain named persons pursuant to the
Employee Benefits Allocation Agreement between General
Semiconductor, Inc. ("GS"), CommScope, Inc. and the
Company, dated June 25, 1997, as amended, modified, or
otherwise supplemented (the "Benefits Agreement").
(dd) "Stock" means common stock, par value $.01 per share, of
the Company.
(ee) "Subsidiary" means a corporation as [defined in Section
424(f) of the Internal Revenue Code, with the Company
being treated as the employer corporation for purposes of
this definition].
(ff) "Substitute Option" means an Option that has been issued
under this Plan to certain persons pursuant to the
Benefits Agreement.
(gg) "10% Owner" means a person who owns stock (including
stock treated as owned under Section 424(d) of the
Internal Revenue Code) possessing more than 10% of the
Voting Power of the Company.
(hh) "Termination of Employment" occurs the first day on which
an individual is for any reason no longer employed by the
Company or any of its Subsidiaries, or with respect to an
individual who is an employee of a Subsidiary, the first
day on which the Company no longer owns Voting Securities
possessing at least 50% of the Voting Power of such
Subsidiary.
(ii) "Voting Power" means the combined voting power of the
then outstanding Voting Securities.
(jj) "Voting Securities" means, with respect to the Company or
any Subsidiary, any securities issued by the Company or
such Subsidiary, respectively, which generally entitle
the holder thereof to vote for the election of directors
of the Company.
<PAGE>
3. Scope of the Plan.
(a) Number of Shares Available Under the Plan. The maximum
number of shares of Stock that may be made the subject of Awards granted
under the Plan is 4,600,000 plus the number of shares of Stock that are
covered by Substitute Options and Spin-off Options (or the number and kind
of shares of Stock or other securities to which such shares of Stock are
adjusted upon a Change in Capitalization pursuant to Article 18); provided,
however, that in the aggregate, not more than 200,000 shares of Stock may
be made the subject of Awards other than Options. The maximum number of
shares of Stock that may be the subject of Options (other than Substitute
Options and Spin-off Options) and Awards granted to any individual pursuant
to the Plan in any three (3) calendar year period may not exceed 500,000.
The maximum dollar amount of cash or the Fair Market Value of Stock that
any individual may receive in any calendar year in respect of performance
units denominated in dollars may not exceed $1,000,000. The Company shall
reserve for the purpose of the Plan, out of its authorized but unissued
shares of Stock or out of shares held in the Company's treasury, or partly
out of each, such number of shares as shall be determined by the Board. The
Board shall have the authority to cause the Company to purchase from time
to time shares of Stock to be held as treasury shares and used for or in
connection with Awards. The issuance of Substitute Options and Spin-off
Options shall not reduce the shares available for grants under the Plan or
to a Grantee in any calendar year.
(b) Reduction in the Available Shares in Connection with Award
Grants. Upon the grant of an Award, the number of shares of Stock available
under Article 3(a) for the granting of further Awards shall be reduced as
follows:
(i) Performance Units Denominated in Dollars. In
connection with the granting of each performance unit
denominated in dollars, the number of shares of Stock available
under Article 3(a) for the granting of further Awards shall be
reduced by the quotient of (x) the dollar amount represented by
the performance unit divided by (y) the Fair Market Value of a
share of Stock on the date immediately preceding the Grant Date
of the performance unit.
(ii) Other Awards. In connection with the granting of
each Award, other than a performance unit denominated in
dollars, the number of shares of Stock available under Article
3(a) for the granting of further Awards shall be reduced by a
number of shares equal to the number of shares of Stock in
respect of which the Award is granted or denominated; provided,
however, that if any Award is exercised by tendering shares of
Stock, either actually or by attestation, to the Company as
full or partial payment of the exercise price, the maximum
number of shares of Stock available under Section 3(a) shall be
increased by the number of shares of Stock so tendered.
Notwithstanding the foregoing, where two or more Awards are granted
with respect to the same shares of Stock, such shares shall be taken into
account only once for purposes of this Article 3(b).
(c) Effect of the Expiration or Termination of Awards. If and
to the extent an Option or Award (including a Substitute Option or a
Spin-off Option) expires, terminates or is canceled, settled in cash
(including the settlement of tax withholding obligations using shares of
Stock) or forfeited for any reason without having been exercised in full
(including, without limitation, a cancellation of an Option pursuant to
Article 4(c)(vi)), the shares of Stock associated with the expired,
terminated, canceled, settled or forfeited portion of the Award (to the
extent the number of shares available for the granting of Awards was
reduced pursuant to Article 3(b)) shall again become available for Awards
under the Plan.
4. Administration.
(a) Committee Administration. Subject to Article 4(b), the Plan
shall be administered by the Committee, which shall consist of not less
than two "non-employee directors" within the meaning of Rule 16b-3, and to
the extent necessary for any Award intended to qualify as Performance-Based
Compensation to so qualify, each member of the Committee shall be an
"outside director" within the meaning of Section 162(m) of the Internal
Revenue Code.
<PAGE>
(b) Board Reservation and Delegation. The Board may, in its
discretion, reserve to itself or exercise any or all of the authority and
responsibility of the Committee hereunder. It may also delegate to another
committee of the Board any or all of the authority and responsibility of
the Committee with respect to Awards to Grantees who are not Section 16
Grantees at the time any such delegated authority or responsibility is
exercised. Such other committee may consist of one or more directors who
may, but need not be, officers or employees of the Company or of any of its
Subsidiaries. To the extent that the Board has reserved to itself, or
exercised the authority and responsibility of the Committee, or delegated
the authority and responsibility of the Committee to such other committee,
all references to the Committee in the Plan shall be to the Board or to
such other committee.
(c) Committee Authority. The Committee shall have full and
final authority, in its discretion, but subject to the express provisions
of the Plan, as follows:
(i) to grant Awards,
(ii) to determine (A) when Awards may be granted, and (B)
whether or not specific Awards shall be identified with other
specific Awards, and if so, whether they shall be exercisable
cumulatively with, or alternatively to, such other specific
Awards,
(iii) to issue Substitute Options and Spin-off Options,
(iv) to interpret the Plan and to make all determinations
necessary or advisable for the administration of the Plan,
(v) to prescribe, amend, and rescind rules and
regulations relating to the Plan, including, without
limitation, rules with respect to the exercisability and
nonforfeitability of Awards upon the Termination of Employment
of a Grantee,
(vi) to determine the terms and provisions of the Award
Agreements, which need not be identical and, with the consent
of the Grantee, to modify any such Award Agreement at any time,
(vii) to cancel, with the consent of the Grantee,
outstanding Awards,
(viii) to accelerate the exercisability of, and to
accelerate or waive any or all of the restrictions and
conditions applicable to, any Award,
(ix) to make such adjustments or modifications to Awards
to Grantees working outside the United States as are necessary
and advisable to fulfill the purposes of the Plan,
(x) to authorize any action of or make any determination
by the Company as the Committee shall deem necessary or
advisable for carrying out the purposes of the Plan, and
(xi) to impose such additional conditions, restrictions,
and limitations upon the grant, exercise or retention of Awards
as the Committee may, before or concurrently with the grant
thereof, deem appropriate, including, without limitation,
requiring simultaneous exercise of related identified Awards,
and limiting the percentage of Awards which may from time to
time be exercised by a Grantee.
(d) Committee Determinations Final. The determination of the
Committee on all matters relating to the Plan or any Award Agreement shall
be conclusive and final. No member of the Committee shall be liable for any
action or determination made in good faith with respect to the Plan or any
Award.
5. Eligibility.
Awards may be granted to any employee of the Company or any of its
Subsidiaries. In selecting the individuals to whom Awards may be granted,
as well as in determining the number of shares of Stock subject to, and the
other terms and conditions applicable to, each Award, the Committee shall
take into consideration such factors as it deems relevant in promoting the
purposes of the Plan. In addition, Nonqualified Stock Options will be
granted to nonemployee directors of the Company, as set forth in Article
6(b)(ii), and Director's Shares will be issued to nonemployee directors of
the Company pursuant to Article 6(h).
<PAGE>
6. Conditions to Grants.
(a) General Conditions.
(i) The Grant Date of an Award shall be the date on which
the Committee grants the Award or such later date as specified
in advance by the Committee.
(ii) The term of each Award (subject to Article 6(c) with
respect to Incentive Stock Options) shall be a period of not
more than ten years from the Grant Date and shall be subject to
earlier termination as provided herein or in the applicable
Award Agreement; provided, however, that the Committee may
provide that an Option (other than an Incentive Stock Option)
may, upon the death of the Grantee, be exercised for up to one
year following the date of the Grantee's death even if such
period extends beyond ten years from the date the Option is
granted.
(iii) A Grantee may, if otherwise eligible, be granted
additional Awards in any combination.
(iv) The Committee may grant Awards with terms and
conditions which differ among the Grantees thereof. To the
extent not set forth in the Plan, the terms and conditions of
each Award shall be set forth in an Award Agreement.
(b) Grant of Options and Option Price. The Committee may, in
its discretion, and shall as provided in Article 6(b)(ii), grant Options as
follows:
(i) Employee Options. Options to acquire unrestricted
Stock or restricted Stock may be granted to any employee
eligible under Article 5 to receive Awards. No later than the
Grant Date of any Option, the Committee shall determine the
Option Price which shall not be less than 100% of the Fair
Market Value of the Stock on the Grant Date.
(ii) Nonemployee Director Options. Nonqualified Stock
Options with respect to 20,000 shares of unrestricted Stock
shall be granted to each nonemployee director of the Company
(other than a nonemployee director who is a general partner of
any of the Forstmann Little Companies or any of their
affiliates) upon his or her initial election to the Board and
every three years thereafter on the anniversary of such
nonemployee director's initial election to the Board as long as
such nonemployee director is then still serving on the Board,
at an Option Price equal to 100% of the Fair Market Value of
the Stock on the Grant Date; provided, however, that the Grant
Date of the first grants of Nonqualified Stock Options to
nonemployee directors under this Plan shall be the fifth
trading day after the NextLevel Systems Distribution Date (as
defined in the Benefits Agreement). Each Nonqualified Stock
Option granted to a nonemployee director will become
exercisable with respect to one-third of the underlying shares
on each of the first, second and third anniversaries of the
Grant Date, and will have a term of ten years. If a nonemployee
director ceases to serve as a director of the Company for any
reason, any Nonqualified Stock Option granted to such
nonemployee director shall be exercisable during its remaining
term, to the extent that such Nonqualified Stock Option was
exercisable on the date such nonemployee director ceased to be
a director.
(c) Grant of Incentive Stock Options. At the time of the grant
of any Option, the Committee may designate that such Option shall be an
Incentive Stock Option. Any Option designated as an Incentive Stock Option:
(i) shall have an Option Price of (A) not less than 100%
of the Fair Market Value of the Stock on the Grant Date or (B)
in the case of a 10% Owner, not less than 110% of the Fair
Market Value of the Stock on the Grant Date;
(ii) shall have a term of not more than ten years (five
years, in the case of a 10% Owner) from the Grant Date, and
shall be subject to earlier termination as provided herein or
in the applicable Award Agreement;
<PAGE>
(iii) shall, if, with respect to any grant, the aggregate
Fair Market Value of Stock (determined on the Grant Date) of
all Incentive Stock Options granted under the Plan and
"incentive stock options" (within the meaning of Section 422 of
the Code) granted under any other stock option plan of the
Grantee's employer or any parent or subsidiary thereof (in
either case determined without regard to this Article 6(c)) are
exercisable for the first time during any calendar year exceeds
$100,000, be treated as Nonqualified Stock Options. For
purposes of the foregoing sentence, Incentive Stock Options
shall be treated as Nonqualified Stock Options according to the
order in which they were granted such that the most recently
granted Incentive Stock Options are first treated as
Nonqualified Stock Options.
(iv) shall be granted within ten years from the earlier
of the date the Plan is adopted by the Board or the date the
Plan is approved by the stockholders of the Company; and
(v) shall require the Grantee to notify the Committee of
any disposition of any Stock issued pursuant to the exercise of
the Incentive Stock Option under the circumstances described in
Section 421(b) of the Internal Revenue Code (relating to
certain disqualifying dispositions), within ten days of such
disposition.
(d) Grant of Shares of Restricted Stock.
(i) The Committee may, in its discretion, grant shares of
restricted Stock to any employee eligible under Article 5 to
receive Awards.
(ii) Before the grant of any shares of restricted Stock,
the Committee shall determine, in its discretion:
(A) whether the certificates for such shares shall
be delivered to the Grantee or held (together with a
stock power executed in blank by the Grantee) in escrow
by the Secretary of the Company until such shares become
nonforfeitable or are forfeited;
(B) the per share purchase price of such shares,
which may be zero; provided, however, that the per share
purchase price of all such shares (other than treasury
shares) shall not be less than the Minimum Consideration
for each such share;
(C) the restrictions applicable to such grant and
the time or times upon which any applicable restrictions
on the restricted Stock shall lapse; provided, however,
that except in the case of shares of restricted Stock
issued in full or partial settlement of another Award or
other earned compensation, or in the event of the
Grantee's termination of employment, as determined by the
Committee and set forth in an Award Agreement, such
restrictions shall not lapse prior to the third
anniversary of the Grant Date of the restricted Stock;
and
(D) whether the payment to the Grantee of
dividends, or a specified portion thereof, declared or
paid on such shares by the Company shall be deferred
until the lapsing of the restrictions imposed upon such
shares and shall be held by the Company for the account
of the Grantee, whether such dividends shall be
reinvested in additional shares of restricted Stock (to
the extent shares are available under Article 3) subject
to the same restrictions and other terms as apply to the
shares with respect to which such dividends are issued or
otherwise reinvested in Stock or held in escrow, whether
interest will be credited to the account of the Grantee
with respect to any dividends which are not reinvested in
restricted or unrestricted Stock, and whether any Stock
dividends issued with respect to the restricted Stock to
be granted shall be treated as additional shares of
restricted Stock.
(iii) Payment of the purchase price (if greater than
zero) for shares of restricted Stock shall be made in full by
the Grantee before the delivery of such shares and, in any
event, no later than ten days after the Grant Date for such
shares. Such payment may be made, as determined by the
Committee in its discretion, in any one or any combination of
the following:
<PAGE>
(A) cash; or
(B) with the prior approval of the Committee,
shares of restricted or unrestricted Stock owned by the
Grantee prior to such grant and valued at its Fair Market
Value on the business day immediately preceding the date
of payment;
provided, however, that, in the case of payment in shares of
restricted or unrestricted Stock, if the purchase price for
restricted Stock ("New Restricted Stock") is paid with shares
of restricted Stock ("Old Restricted Stock"), the restrictions
applicable to the New Restricted Stock shall be the same as if
the Grantee had paid for the New Restricted Stock in cash
unless, in the judgment of the Committee, the Old Restricted
Stock was subject to a greater risk of forfeiture, in which
case a number of shares of New Restricted Stock equal to the
number of shares of Old Restricted Stock tendered in payment
for New Restricted Stock shall be subject to the same
restrictions as the Old Restricted Stock, determined
immediately before such payment.
(iv) The Committee may, but need not, provide that all or
any portion of a Grantee's Award of restricted Stock shall be
forfeited:
(A) except as otherwise specified in the Award
Agreement, upon the Grantee's Termination of Employment
within a specified time period after the Grant Date; or
(B) if the Company or the Grantee does not achieve
specified performance goals within a specified time
period after the Grant Date and before the Grantee's
Termination of Employment; or
(C) upon failure to satisfy such other restrictions
as the Committee may specify in the Award Agreement:
(v) If a share of restricted Stock is forfeited, then:
(A) the Grantee shall be deemed to have resold such
share of restricted Stock to the Company at the lesser of
(1) the purchase price paid by the Grantee (such purchase
price shall be deemed to be zero dollars ($0) if no
purchase price was paid) or (2) the Fair Market Value of
a share of Stock on the date of such forfeiture;
(B) the Company shall pay to the Grantee the amount
determined under clause (A) of this sentence, if not
zero, as soon as is administratively practicable, but in
any case within 90 days after forfeiture; and
(C) such share of restricted Stock shall cease to
be outstanding, and shall no longer confer on the Grantee
thereof any rights as a stockholder of the Company, from
and after the date of the Company's tender of the payment
specified in clause (B) of this sentence, whether or not
such tender is accepted by the Grantee, or the date the
restricted Stock is forfeited if no purchase price was
paid for the restricted Stock.
(vi) Any share of restricted Stock shall bear an
appropriate legend specifying that such share is
non-transferable and subject to the restrictions set forth in
the Plan and the Award Agreement. If any shares of restricted
Stock become nonforfeitable, the Company shall cause
certificates for such shares to be issued or reissued without
such legend and delivered to the Grantee or, at the request of
the Grantee, shall cause such shares to be credited to a
brokerage account specified by the Grantee.
(e) Grant of Performance Units and Performance Shares.
(i) The Committee may, in its discretion, grant
performance units or performance shares to any employee
eligible under Article 5 to receive Awards.
(ii) Before the grant of any performance unit or
performance share, the Committee shall:
<PAGE>
(A) designate a period, of not less than one year
nor more than five years, for the measurement of the
extent to which performance goals are attained (the
"Measuring Period");
(B) determine performance goals applicable to such
grant; provided, however, that the performance goals with
respect to a Measuring Period shall be established in
writing by the Committee by the earlier of (x) the date
on which a quarter of the Measuring Period has elapsed or
(y) the date which is ninety (90) days after the
commencement of the Measuring Period, and in any event
while the performance relating to the performance goals
remain substantially uncertain; and
(C) assign a "Performance Percentage" to each level
of attainment of performance goals during the Measuring
Period, with the percentage applicable to minimum
attainment being zero percent (0%) and the percentage
applicable to optimum attainment to be determined by the
Committee from time to time.
(iii) The performance goals applicable to performance
units or performance shares shall, in the discretion of the
Committee, be based on stock price, earnings per share,
operating income, return on equity or assets, cash flow, EBITDA
or any combination of the foregoing. Such performance goals may
be absolute or relative (to prior performance or to the
performance of one or more other entities or external indices)
and may be expressed in terms of a progression within a
specified range. At the time of the granting of performance
units or performance shares, or at any time thereafter, in
either case to the extent permitted under Section 162(m) of the
Code and the regulations thereunder without adversely affecting
the treatment of the performance unit or performance share as
Performance-Based Compensation, the Committee may provide for
the manner in which performance will be measured against the
performance goals (or may adjust the performance goals) to
reflect the impact of specified corporate transactions, special
charges, foreign currency effects, accounting or tax law
changes and other extraordinary or nonrecurring events.
(iv) Prior to the vesting, payment, settlement or
lapsing of any restrictions with respect to any performance
unit or performance share that is intended to constitute
Performance-Based Compensation made to a Grantee who is subject
to Section 162(m) of the Code, the Committee shall certify in
writing that the applicable performance goals have been
satisfied.
(v) Unless otherwise expressly stated in the relevant
Award Agreement, each performance unit and performance share
granted under the Plan is intended to be Performance-Based
Compensation and the Committee shall interpret and administer
the applicable provisions of the Plan in a manner consistent
therewith. Any provisions inconsistent with such treatment
shall be inoperative and shall not adversely affect the
treatment of performance units or performance shares granted
hereunder as Performance-Based Compensation. The Committee
shall not be entitled to exercise any discretion otherwise
authorized hereunder with respect to such performance unit or
performance share if the ability to exercise such discretion or
the exercise of such discretion itself would cause the
compensation attributable to such performance unit or
performance share to fail to qualify as Performance-Based
Compensation.
(f) Grant of Phantom Stock. The Committee may, in its
discretion, grant shares of phantom stock to any employee who is eligible
under Article 5 to receive Awards. Such phantom stock shall be subject to
the terms and conditions established by the Committee and set forth in the
applicable Award Agreement.
(g) Grant of Director's Shares. There shall be granted
Director's Shares with respect to 1,000 shares of Stock to each nonemployee
director of the Company (other than a nonemployee director who is a general
partner of any of the Forstmann Little Companies or any of their
affiliates) upon his or her initial election to the Board. Director's
Shares shall be fully vested and transferable upon issuance.
(h) Tandem Awards. The Committee may grant and identify any
Award with any other Award granted under the Plan ("Tandem Award"), other
than a Substitute Option or a Spin-off Option, on terms and conditions
determined by the Committee.
<PAGE>
7. Non-transferability.
Unless set forth in the applicable Award Agreement, no Award (other
than an Award of restricted Stock) granted hereunder shall by its terms be
assignable or transferable except by will or the laws of descent and
distribution or, in the case of an Option other than an Incentive Stock
Option, pursuant to a domestic relations order (within the meaning of Rule
16a-12 promulgated under the Exchange Act). An Option may be exercised
during the lifetime of a Grantee only by the Grantee or his or her guardian
or legal representatives. Notwithstanding the foregoing, the Committee may
set forth in the Award Agreement evidencing an Award (other than an
Incentive Stock Option) at the time of grant or thereafter, that the Award
may be transferred to members of the Grantee's immediate family, to trusts
solely for the benefit of such immediate family members and to partnerships
in which such family members and/or trusts are the only partners, and for
purposes of this Plan, a transferee of an Award shall be deemed to be the
Grantee. For this purpose, immediate family means the Grantee's spouse,
parents, children, stepchildren and grandchildren and the spouses of such
parents, children, stepchildren and grandchildren. The terms of an Award
shall be final, binding and conclusive upon the beneficiaries, executors,
administrators, heirs and successors of the Grantee. Each share of
restricted Stock shall be non-transferable until such share becomes
nonforfeitable.
8. Exercise.
(a) Exercise of Options. Subject to Articles 4(c)(vii), 12 and
13 and such terms and conditions as the Committee may impose, each Option
shall be exercisable in one or more installments commencing not earlier
than the first anniversary of the Grant Date of such Option; provided,
however, that all Options held by each Grantee shall become fully (100%)
exercisable upon the occurrence of a Change of Control regardless of
whether the acceleration of the exercisability of such Options would cause
such Options to lose their eligibility for treatment as Incentive Stock
Options. Notwithstanding the foregoing, Options may not be exercised by a
Grantee for twelve months following a hardship distribution to the Grantee,
to the extent such exercise is prohibited under Treasury Regulation
ss.1.401(k)-1(d)(2)(iv)(B)(4). Each Option shall be exercised by delivery
to the Company of written notice of intent to purchase a specific number of
shares of Stock subject to the Option. The Option Price of any shares of
Stock as to which an Option shall be exercised shall be paid in full at the
time of the exercise. Payment may be made, as determined by the Committee
in its discretion with respect to Options granted to eligible employees and
in all cases with respect to Options granted to nonemployee directors
pursuant to Article 6(b)(ii), in any one or any combination of the
following:
(i) cash,
(ii) shares of unrestricted Stock held by the Grantee for
at least six months (or such lesser period as may be permitted
by the Committee) prior to the exercise of the Option, and
valued at its Fair Market Value on the last business day
immediately preceding the date of exercise, or
(iii) through simultaneous sale through a broker of
shares of unrestricted Stock acquired on exercise, as permitted
under Regulation T of the Federal Reserve Board.
Shares of unrestricted Stock acquired by a Grantee on exercise of an
Option shall be delivered to the Grantee or, at the request of the Grantee,
shall be credited directly to a brokerage account specified by the Grantee.
(b) Exercise of Performance Units.
(i) Subject to Articles 4(c)(vii), 12 and 13 and such
terms and conditions as the Committee may impose, and unless
otherwise provided in the applicable Award Agreement, if, with
respect to any performance unit, the Committee has determined
in accordance with Article 6(f)(iv) that the minimum
performance goals have been achieved during the applicable
Measuring Period, then such performance unit shall be deemed
exercised on the date on which it first becomes exercisable.
(ii) The benefit for each performance unit exercised
shall be an amount equal to the product of
<PAGE>
(A) the Unit Value (as defined below), multiplied
by
(B) the Performance Percentage attained during the
Measuring Period for such performance unit.
(iii) The Unit Value shall be, as specified by the
Committee,
(A) a dollar amount,
(B) an amount equal to the Fair Market Value of a
share of Stock on the Grant Date,
(C) an amount equal to the Fair Market Value of a
share of Stock on the exercise date of the performance
unit, plus, if so provided in the Award Agreement, an
amount ("Dividend Equivalent Amount") equal to the Fair
Market Value of the number of shares of Stock that would
have been purchased if each dividend paid on a share of
Stock on or after the Grant Date and on or before the
exercise date were invested in shares of Stock at a
purchase price equal to its Fair Market Value on the
respective dividend payment date, or
(D) an amount equal to the Fair Market Value of a
share of Stock on the exercise date of the performance
unit (plus, if so specified in the Award Agreement, a
Dividend Equivalent Amount), reduced by the Fair Market
Value of a share of Stock on the Grant Date of the
performance unit.
(iv) The benefit upon the exercise of a performance unit
shall be payable as soon as is administratively practicable
(but in any event within 90 days) after the later of (A) the
date the Grantee is deemed to exercise such performance unit,
or (B) the date (or dates in the event of installment payments)
as provided in the applicable Award Agreement. Such benefit
shall be payable in cash, except that the Committee, with
respect to any particular exercise, may, in its discretion, pay
benefits wholly or partly in Stock delivered to the Grantee or
credited to a brokerage account specified by the Grantee. The
number of shares of Stock payable in lieu of cash shall be
determined by valuing the Stock at its Fair Market Value on the
business day next preceding the date such benefit is to be
paid.
(c) Payment of Performance Shares. Subject to Articles
4(c)(vii), 12 and 13 and such terms and conditions as the Committee may
impose, and unless otherwise provided in the applicable Award Agreement, if
the Committee has determined in accordance with Article 6(f)(iv) that the
minimum performance goals with respect to an Award of performance shares
have been achieved during the applicable Measuring Period, then the Company
shall pay to the Grantee of such Award (or, at the request of the Grantee,
deliver to a brokerage account specified by the Grantee) shares of Stock
equal in number to the product of the number of performance shares
specified in the applicable Award Agreement multiplied by the Performance
Percentage achieved during such Measuring Period, except to the extent that
the Committee in its discretion determines that cash be paid in lieu of
some or all of such shares of Stock. The amount of cash payable in lieu of
a share of Stock shall be determined by valuing such share at its Fair
Market Value on the business day next preceding the date such cash is to be
paid. Payments pursuant to this Article 8(d) shall be made as soon as
administratively practicable (but in any event within 90 days) after the
end of the applicable Measuring Period. Any performance shares with respect
to which the performance goals have not been achieved by the end of the
applicable Measuring Period shall expire.
(d) Payment of Phantom Stock Awards. Upon the vesting of a
phantom stock Award, the Grantee shall be entitled to receive a cash
payment in respect of each share of phantom stock which shall be equal to
the Fair Market Value of a share of Stock as of the date the phantom stock
Award was granted, or such other date as determined by the Committee at the
time the phantom stock Award was granted. The Committee may, at the time a
phantom stock Award is granted, provide a limitation on the amount payable
in respect of each share of phantom stock. In lieu of a cash payment, the
Committee may settle phantom stock Awards with shares of Stock having a
Fair Market Value equal to the cash payment to which the Grantee has become
entitled.
(e) Exercise, Cancellation, Expiration or Forfeiture of Tandem
Awards. Upon the exercise, cancellation, expiration, forfeiture or payment
in respect of any Award which is identified with any Tandem Award pursuant
to Article 6(i), the Tandem Award shall automatically terminate to the
extent of the number of shares in respect of which the Award is so
exercised, cancelled, expired, forfeited or paid, unless otherwise provided
by the Committee at the time of grant of the Tandem Award or thereafter.
<PAGE>
9. Spin-off and Substitute Options.
Spin-off Options and Substitute Options shall be issued under this
Plan pursuant to and in accordance with the terms of the Benefits
Agreement. Spin-off Options and Substitute Options shall be governed by the
terms of the Plan to the extent that the terms of the Plan do not conflict
with the terms of the agreements evidencing the Spin-off Options and
Substitute Options.
10. Effect of Certain Transactions.
With respect to any Award which relates to Stock, in the event of (i)
the liquidation or dissolution of the Company or (ii) a merger or
consolidation of the Company (a "Transaction"), the Plan and the Awards
issued hereunder shall continue in effect in accordance with their
respective terms and each Grantee shall be entitled to receive in respect
of each share of Stock subject to any outstanding Awards, upon the vesting,
payment or exercise of the Award (as the case may be), the same number and
kind of stock, securities, cash, property, or other consideration that each
holder of a share of Stock was entitled to receive in the Transaction in
respect of a share of Stock.
11. Mandatory Withholding Taxes.
The Company shall have the right to deduct from any distribution of
cash to any Grantee an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to any Award. If a Grantee is to
experience a taxable event in connection with the receipt of shares
pursuant to an Option exercise or the vesting or payment of another type of
Award (a "Taxable Event"), the Grantee shall pay the Withholding Taxes to
the Company prior to the issuance, or release from escrow, of such shares
or payment of such Award. Payment of the applicable Withholding Taxes may
be made, as determined by the Committee in its discretion, in any one or
any combination of (i) cash, (ii) shares of restricted or unrestricted
Stock owned by the Grantee prior to the Taxable Event and valued at its
Fair Market Value on the business day immediately preceding the date of
exercise, or (iii) by making a Tax Election (as described below). For
purposes of this Article 11, the Committee may provide in the Award
Agreement at the time of grant, or at any time thereafter, that the
Grantee, in satisfaction of the obligation to pay Withholding Taxes to the
Company, may elect to have withheld a portion of the shares then issuable
to him or her having an aggregate Fair Market Value equal to the
Withholding Taxes.
12. Termination of Employment.
The Award Agreement pertaining to each Award shall set forth the
terms and conditions applicable to such Award upon a Termination of
Employment of the Grantee by the Company, a Subsidiary or an operating
division or unit, which, except for Options granted to nonemployee
directors pursuant to Article 6(b)(ii), shall be as the Committee may, in
its discretion, determine at the time the Award is granted or thereafter.
13. Securities Law Matters.
(a) If the Committee deems it necessary to comply with the
Securities Act of 1933, the Committee may require a written investment
intent representation by the Grantee and may require that a restrictive
legend be affixed to certificates for shares of Stock.
(b) If, based upon the opinion of counsel for the Company, the
Committee determines that the exercise or nonforfeitability of, or delivery
of benefits pursuant to, any Award would violate any applicable provision
of (i) federal or state securities law or (ii) the listing requirements of
any national securities exchange on which are listed any of the Company's
equity securities, then the Committee may postpone any such exercise,
nonforfeitability or delivery, as the case may be, but the Company shall
use its best efforts to cause such exercise, nonforfeitability or delivery
to comply with all such provisions at the earliest practicable date.
(c) Notwithstanding any provision of the Plan or any Award
Agreement to the contrary, no shares of Stock shall be issued to any
Grantee in respect of any Award prior to the time a registration statement
under the Securities Act of 1933 is effective with respect to such shares.
<PAGE>
14. No Funding Required.
Benefits payable under the Plan to any person shall be paid directly
by the Company. The Company shall not be required to fund, or otherwise
segregate assets to be used for payment of, benefits under the Plan.
15. No Employment Rights.
Neither the establishment of the Plan, nor the granting of any Award
shall be construed to (a) give any Grantee the right to remain employed by
the Company or any of its Subsidiaries or to any benefits not specifically
provided by the Plan or (b) in any manner modify the right of the Company
or any of its Subsidiaries to modify, amend, or terminate any of its
employee benefit plans.
16. Rights as a Stockholder.
A Grantee shall not, by reason of any Award (other than restricted
Stock), have any right as a stockholder of the Company with respect to the
shares of Stock which may be deliverable upon exercise or payment of such
Award until such shares have been delivered to him. Shares of restricted
Stock held by a Grantee or held in escrow by the Secretary of the Company
shall confer on the Grantee all rights of a stockholder of the Company,
except as otherwise provided in the Plan.
17. Nature of Payments.
Any and all grants, payments of cash, or deliveries of shares of
Stock hereunder shall constitute special incentive payments to the Grantee
and shall not be taken into account in computing the amount of salary or
compensation of the Grantee for the purposes of determining any pension,
retirement, death or other benefits under (a) any pension, retirement,
profit-sharing, bonus, life insurance or other employee benefit plan of the
Company or any of its Subsidiaries or (b) any agreement between the Company
or any Subsidiary, on the one hand, and the Grantee, on the other hand,
except as such plan or agreement shall otherwise expressly provide.
18. Non-Uniform Determinations.
Neither the Committee's nor the Board's determinations under the Plan
need be uniform and may be made by the Committee or the Board selectively
among persons who receive, or are eligible to receive, Awards (whether or
not such persons are similarly situated). Without limiting the generality
of the foregoing, the Committee shall be entitled, among other things, to
make non-uniform and selective determinations, to enter into non-uniform
and selective Award Agreements as to (a) the identity of the Grantees, (b)
the terms and provisions of Awards, and (c) the treatment of Terminations
of Employment.
19. Adjustments.
In the event of Change in Capitalization, the Committee shall, in its
sole discretion, make equitable adjustment of
(a) the aggregate number and class of shares of Stock or
other stock or securities available under Article 3,
(b) the number and class of shares of Stock or other stock or
securities covered by an Award and to be covered by
Options granted to nonemployee directors pursuant to
Article 6(b)(ii),
(c) the Option Price applicable to outstanding Options,
(d) the terms of performance unit and performance share
grants (to the extent permitted under Section 162(m)) of
the Code and the regulations thereunder without adversely
affecting the treatment of the performance unit or
performance share as Performance-Based Compensation,
(e) the Fair Market Value of Stock to be used to determine
the amount of the benefit payable upon exercise of
performance units, performance shares or phantom stock,
(f) the maximum number and class of shares of Stock or other
securities with respect to which Awards may be granted to
any individual in any three calendar year period, and
(g) the number and class of shares of Stock or other
securities with respect to which Director Shares are to
be granted under Article 6(h).
<PAGE>
20. Amendment of the Plan.
The Board may from time to time in its discretion amend or modify the
Plan without the approval of the stockholders of the Company, except as
such stockholder approval may be required (a) to retain Incentive Stock
Option treatment under Section 422 of the Internal Revenue Code, (b) to
permit transactions in Stock pursuant to the Plan to be exempt from
potential liability under Section 16(b) of the 1934 Act or (c) under the
listing requirements of any securities exchange on which any of the
Company's equity securities are listed.
21. Termination of the Plan.
The Plan shall terminate on the tenth (10th) anniversary of the
Effective Date or at such earlier time as the Board may determine. Any
termination, whether in whole or in part, shall not affect any Award then
outstanding under the Plan.
22. No Illegal Transactions.
The Plan and all Awards granted pursuant to it are subject to all
laws and regulations of any governmental authority which may be applicable
thereto; and notwithstanding any provision of the Plan or any Award,
Grantees shall not be entitled to exercise Awards or receive the benefits
thereof and the Company shall not be obligated to deliver any Stock or pay
any benefits to a Grantee if such exercise, delivery, receipt or payment of
benefits would constitute a violation by the Grantee or the Company of any
provision of any such law or regulation.
23. Governing Law.
Except where preempted by federal law, the law of the State of
Delaware shall be controlling in all matters relating to the Plan, without
giving effect to the conflicts of law principles thereof.
24. Severability.
If all or any part of the Plan is declared by any court or
governmental authority to be unlawful or invalid, such unlawfulness or
invalidity shall not serve to invalidate any portion of the Plan not
declared to be unlawful or invalid. Any Article or part of an Article so
declared to be unlawful or invalid shall, if possible, be construed in a
manner which will give effect to the terms of such Article or part of an
Article to the fullest extent possible while remaining lawful and valid.
Exhibit 10.9.1
FORM OF
AMENDMENT No. 1
to the
SEVERANCE PROTECTION AGREEMENT
THIS AMENDMENT, dated as of the __ day of ____, 1999 (the
"Amendment"), between CommScope, Inc. a Delaware corporation (the
"Company"), and ____________ (the "Executive"), hereby amends the Severance
Protection Agreement, dated as of August 1, 1997 between the Company and
the Executive (the "Severance Agreement") in the manner set forth herein.
WHEREAS, the Company and the Executive desire to amend the Severance
Agreement to exclude from the definition of Change in Control contained in
Section 13.7 thereof all references to Forstmann Little & Co. and/or any of
their affiliates:
WHEREAS, pursuant to Section 8 of the Severance Agreement, the
Severance Agreement may by modified, amended, suspended or terminated by a
written instrument executed by the parties thereto.
NOW, THEREFORE, the parties hereto agree as follows:
1. Section 13.7 of the Severance Agreement is hereby deleted and
replaced in its entirety with the following:
"Change of Control" means, any of the following:
(i) the acquisition by any Person of Beneficial Ownership of
Voting Securities which, when added to the Voting Securities then
Beneficially Owned by such Person, would result in such Person
Beneficially Owning 33% or more of the combined Voting Power of
the Company's then outstanding Voting Securities; provided,
however, that for purposes of this paragraph (i), a Person shall
not be deemed to have made an acquisition of Voting Securities if
such Person: (1) acquires Voting Securities as a result of a
stock split, stock dividend or other corporate restructuring in
which all stockholders of the class of such Voting Securities are
treated on a pro rata basis; (2) acquires the Voting Securities
directly from the Company; (3) becomes the Beneficial Owner of
33% or more of the combined Voting Power of the Company's then
outstanding Voting Securities solely as a result of the
acquisition of Voting Securities by the Company or any Subsidiary
which, by reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially Owned by
such Person, provided that if (x) a Person would own at least
such percentage as a result of the acquisition by the Company or
any Subsidiary and (y) after such acquisition by the Company or
any Subsidiary, such Person acquires Voting Securities, then an
acquisition of Voting Securities shall have occurred; (4) is the
Company or any corporation or other Person of which a majority of
its voting power or its equity securities or equity interest is
owned directly or indirectly by the Company (a "Controlled
Entity"); or (5) acquires Voting Securities in connection with a
"Non-Control Transaction" (as defined in paragraph (iii) below);
or
<PAGE>
(ii) the individuals who, as of the Effective Date, are
members of the Board (the "Incumbent Board") cease for any reason
to constitute at least two-thirds of the Board; provided,
however, that if either the election of any new director or the
nomination for election of any new director by the Company's
stockholders was approved by a vote of at least two-thirds of the
Incumbent Board prior to such election or nomination, such new
director shall be considered as a member of the Incumbent Board;
provided further, however, that no individual shall be considered
a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened
"Election Contest" (as described in Rule 14a-11 promulgated under
the 1934 Act) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the
Board (a "Proxy Contest") including by reason of any agreement
intended to avoid or settle any Election Contest or Proxy
Contest; or
(iii) approval by stockholders of the Company of:
(A) a merger, consolidation or reorganization involving
the Company (a "Business Combination"), unless
(1) the stockholders of the Company, immediately
before the Business Combination, own, directly or
indirectly immediately following the Business
Combination, at least a majority of the combined voting
power of the outstanding voting securities of the
corporation resulting from the Business Combination
(the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting Securities
immediately before the Business Combination, and
(2) the individuals who were members of the
Incumbent Board immediately prior to the execution of
the agreement providing for the Business Combination
constitute at least a majority of the members of the
Board of Directors of the Surviving Corporation, and
(3) no Person (other than the Company or any
Controlled Entity, a trustee or other fiduciary holding
securities under one or more employee benefit plans or
arrangements (or any trust forming a part thereof)
maintained by the Company, the Surviving Corporation or
any Controlled Entity, or any Person who, immediately
prior to the Business Combination, had Beneficial
Ownership of 33% or more of the then outstanding Voting
Securities) has Beneficial Ownership of 33% or more of
the combined voting power of the Surviving
Corporation's then outstanding voting securities (a
Business Combination satisfying the conditions of
clauses (1), (2) and (3) of this subparagraph (A) shall
be referred to as a "Non-Control Transaction");
(B) a complete liquidation or dissolution of the
Company; or
(C) the sale or other disposition of all or
substantially all of the assets of the Company (other than a
transfer to a Controlled Entity).
Notwithstanding the foregoing, a Change of Control shall not be deemed
to occur solely because 33% or more of the then outstanding Voting
Securities is Beneficially Owned by (x) a trustee or other fiduciary
holding securities under one or more employee benefit plans or arrangements
(or any trust forming a part thereof) maintained by the Company or any
Controlled Entity or (y) any corporation which, immediately prior to its
acquisition of such interest, is owned directly or indirectly by the
stockholders of the Company in the same proportion as their ownership of
stock in the Company immediately prior to such acquisition.
2. Except as expressly set forth herein, the Severance Agreement shall
remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereby has executed this
Amendment as of the date first above written.
COMMSCOPE, INC. EXECUTIVE
-------------------------------- --------------------------------
By: [ ]
Title:
Exhibit 10.11
COMMSCOPE, INC.
ANNUAL INCENTIVE PLAN
---------------------
(as amended through June 9, 1999)
1. Purpose
-------
The purpose of the Annual Incentive Plan is to enhance CommScope,
Inc.'s ability to attract, motivate, reward and retain employees, to
strengthen their commitment to the success of the Company and to align
their interests with those of the Company's stockholders by providing
additional compensation to designated employees of the Company based on the
achievement of performance objectives. To this end, the Annual Incentive
Plan provides a means of annually rewarding participants primarily based on
the performance of the Company and its Operating Units and secondarily
based on the achievement of personal performance objectives. The adoption
of this Plan as it relates to the CEO is subject to the approval of the
stockholders of the Company.
2. Definitions
-----------
(a) "Award" shall mean the incentive award earned by a
Participant under the Plan for any Performance Period.
(b) "Base Salary" shall mean the Participant's annual base salary
actually paid by the Company and received by the Participant during the
applicable Performance Period. Annual base salary does not include (i)
Awards under the Plan, (ii) long-term incentive awards, (iii) signing
bonuses or any similar bonuses, (iv) cash payments received pursuant to the
Company's Profit Sharing and Savings Plan, (v) imputed income from such
programs as executive life insurance, or (vi) nonrecurring earnings such as
moving expenses, and is based on salary earnings before reductions for such
items as contributions under Section 401(k) of the Internal Revenue Code of
1986, as amended.
(c) "Beneficial Owner", "Beneficially Owned" and "Beneficially
Owning" shall have the meanings applicable under Rule 13d-3 promulgated
under the 1934 Act.
(d) "Board" shall mean the Board of Directors of the Company.
(e) "CEO" shall mean the Chief Executive Officer of the Company.
(f) "Change of Control" shall mean any of the following:
(i) the acquisition by any Person of Beneficial Ownership of
Voting Securities which, when added to the Voting Securities then
Beneficially Owned by such Person, would result in such Person Beneficially
Owning 33% or more of the combined Voting Power of the Company's then
outstanding Voting Securities; provided, however, that for purposes of this
paragraph (i), a Person shall not be deemed to have made an acquisition of
Voting Securities if such Person: (1) acquires Voting Securities as a
result of a stock split, stock dividend or other corporate restructuring in
which all stockholders of the class of such Voting Securities are treated
on a pro rata basis; (2) acquires the Voting Securities directly from the
Company; (3) becomes the Beneficial Owner of 33% or more of the combined
Voting Power of the Company's then outstanding Voting Securities solely as
a result of the acquisition of Voting Securities by the Company or any
Subsidiary which, by reducing the number of Voting Securities outstanding,
increases the proportional number of shares Beneficially Owned by such
Person, provided that if (x) a Person would own at least such percentage as
a result of the acquisition by the Company or any Subsidiary and (y) after
such acquisition by the Company or any Subsidiary, such Person acquires
Voting Securities, then an acquisition of Voting Securities shall have
occurred; (4) is the Company or any corporation or other Person of which a
majority of its voting power or its equity securities or equity interest is
owned directly or indirectly by the Company (a "Controlled Entity"); or (5)
acquires Voting Securities in connection with a "Non-Control Transaction"
(as defined in paragraph (iii) below); or
(ii) the individuals who, as of the Effective Date, are
members of the Board (the "Incumbent Board") cease for any reason to
constitute at least two-thirds of the Board; provided, however, that if
either the election of any new director or the nomination for election of
any new director by the Company's stockholders was approved by a vote of at
least two-thirds of the Incumbent Board prior to such election or
nomination, such new director shall be considered as a member of the
Incumbent Board; provided further, however, that no individual shall be
considered a member of the Incumbent Board if such individual initially
assumed office as a result of either an actual or threatened "Election
Contest" (as described in Rule l4a-11 promulgated under the 1934 Act) or
other actual or threatened solicitation of proxies or consents by or on
behalf of a Person other than the Board (a "Proxy Contest") including by
reason of any agreement intended to avoid or settle any Election Contest or
Proxy Contest; or
(iii) approval by stockholders of the Company of:
(A) a merger, consolidation or reorganization involving
the Company (a "Business Combination"), unless
(1) the stockholders of the Company, immediately
before the Business Combination, own, directly or indirectly immediately
following the Business Combination, at least a majority of the combined
voting power of the outstanding voting securities of the corporation
resulting from the Business Combination (the "Surviving Corporation") in
substantially the same proportion as their ownership of the Voting
Securities immediately before the Business Combination, and
(2) the individuals who were members of the
Incumbent Board immediately prior to the execution of the agreement
providing for the Business Combination constitute at least a majority of
the members of the Board of Directors of the Surviving Corporation, and
(3) no Person (other than the Company or any
Controlled Entity, a trustee or other fiduciary holding securities under
one or more employee benefit plans or arrangements (or any trust forming a
part thereof) maintained by the Company, the Surviving Corporation or any
Controlled Entity, or any Person who, immediately prior to the Business
Combination, had Beneficial Ownership of 33% or more of the then
outstanding Voting Securities) has Beneficial Ownership of 33% or more of
the combined voting power of the Surviving Corporation's then outstanding
voting securities (a Business Combination satisfying the conditions of
clauses (1), (2) and (3) of this subparagraph (A) shall be referred to as a
"Non-Control Transaction");
(B) a complete liquidation or dissolution of the
Company; or
(C) the sale or other disposition of all or
substantially all of the assets of the Company (other than a transfer to a
Controlled Entity).
Notwithstanding the foregoing, a Change of Control shall not be
deemed to occur solely because 33% or more of the then outstanding Voting
Securities is Beneficially Owned by (x) a trustee or other fiduciary
holding securities under one or more employee benefit plans or arrangements
(or any trust forming a part thereof) maintained by the Company or any
Controlled Entity or (y) any corporation which, immediately prior to its
acquisition of such interest, is owned directly or indirectly by the
stockholders of the Company in the same proportion as their ownership of
stock in the Company immediately prior to such acquisition.
(g) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(h) "Committee" shall mean the Compensation Committee of the
Board.
(i) "Company" shall mean CommScope, Inc., its successors and
assigns.
(j) "Disability" shall mean permanent disability, as provided in
the Company's long-term disability plan.
(k) "Effective Date" shall mean the date that the Plan is adopted
by the Board.
(l) "Employee" shall mean any person (including an officer)
employed by the Company or any of its subsidiaries on a full-time salaried
basis.
(m) "Financial Target", for any Performance Period, shall mean
the one or more of the financial performance goals of the Company, or an
Operating Unit, if applicable, as determined in accordance with Section 5.
Financial Targets may be expressed in terms of (i) earnings per share, (ii)
operating income, (iii) return on equity or assets, (iv) cash flow, (v)
EBITDA or (vi) any combination of the foregoing. Financial Targets may be
expressed as a combination of Company and/or Operating Unit performance
goals and may be absolute or relative (to prior performance or to the
performance of one or more other entities or external indices) and may be
expressed in terms of a progression within a specified range.
(n) "Financial Target Award Earned", for any Performance Period,
shall mean the percentage of Target Awards earned based on the Company's
and/or, if applicable, an Operating Unit's achievement of Financial
Target(s) for that Performance Period.
(o) "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
(p) "Operating Unit", for any Performance Period, shall mean a
division, Subsidiary, group, product line or product line grouping for
which an income statement reflecting sales and operating income is
produced.
(q) "Participant", for any Performance Period, shall mean an
Employee selected to participate in the Plan for such Performance Period.
(r) "Performance-Based Compensation" shall mean any Award that is
intended to constitute "performance based compensation" within the meaning
of Section 162(m)(4)(C) of the Code and the regulations promulgated
thereunder.
(s) "Performance Period" shall mean the fiscal year of the
Company.
(t) "Person" shall mean a person within the meaning of Sections
13(d) and 14(d) of the 1934 Act.
(u) "Personal Performance Percentage", with respect to
Participants (other than the CEO) for any Performance Period, shall mean
the percentage based on the Participant's personal performance, as
determined in accordance with Section 5(e) of the Plan.
(v) "Plan" shall mean this CommScope, Inc. Annual Incentive Plan,
as from time to time amended and in effect.
(w) "Retirement" shall mean retirement at or after age 65 or
early retirement with the prior written approval of the Company.
(x) "Schedules" for any Performance Period, shall mean the
schedules described in Section 5(a) of the Plan.
(y) "Subsidiary" shall mean a corporation as defined in Section
424(f) of the Internal Revenue Code of 1986, as amended, with the Company
being treated as the employer corporation for purposes of this definition.
(z) "Target Award", for any Participant with respect to any
Performance Period, shall mean the Participant's Base Salary multiplied by
his or her Target Award Percentage.
(aa) "Target Award Percentage" for any Participant with respect
to any Performance Period, shall mean the percentage of the Participant's
Base Salary that the Participant would earn as an Award for that
Performance Period if each of the Financial Target Award Earned and
Personal Performance Percentage (if applicable) for that Performance Period
is 100%, and shall be determined by the Committee with respect to
Participants who are officers and the CEO with respect to all other
Participants, based on the Participant's responsibility level or the
position or positions held during the Performance Period; provided,
however, that if any Participant held more than one position during the
Performance Period, then the Committee or CEO, as applicable, may designate
different Target Award Percentages with respect to each position and the
Award will be pro-rated to reflect the number of days during which such
Participant had each Target Award Percentage.
(bb) "Voting Power" shall mean the combined voting power of the
then outstanding Voting Securities.
(cc) "Voting Securities" shall mean, with respect to the Company
or any Subsidiary, any securities issued by the Company or such Subsidiary,
respectively, which generally entitle the holder thereof to vote for the
election of directors of the Company or such Subsidiary, respectively.
3. Eligibility
-----------
Generally, all Employees are eligible to participate in the Plan
for any Performance Period. However, participation may be limited to those
Employees who, because of their significant impact on the current and
future success of the Company, the Committee or CEO selects, in accordance
with Section 5 of this Plan, to participate in the Plan for that
Performance Period. Notwithstanding the foregoing, the CEO shall
participate in the Plan in every Performance Period.
To be eligible to participate in the Plan in any Performance
Period an Employee shall have had at least three months active tenure
during such Performance Period and be actively employed by the Company on
the Award payment date. The CEO may approve, for Participants other than
the CEO and in accordance with Sections 7 and 8 of this Plan, exceptions
for special circumstances.
If an Employee becomes a Participant during a Performance Period,
such Participant's Award will be pro-rated based on the number of days that
he or she is a Participant, unless, with respect to Employees other than
the CEO, the Committee otherwise determines.
4. Administration
--------------
The administration of the Plan shall be consistent with the
purpose and the terms of the Plan. The Plan shall be administered by the
Committee with respect to Participants who are officers and by the CEO with
respect to all other Participants. Each member of the Committee shall be an
"outside director" within the meaning of Treasury Regulations promulgated
under Section 162(m) of the Code. The Committee and the CEO, as the case
may be, shall have full authority to establish the rules and regulations
relating to the Plan, to interpret the Plan and those rules and
regulations, to select Participants in the Plan, to determine the Company's
and, if applicable, each Operating Unit's Financial Target(s) and each
Participant's Target Award Percentage for each Performance Period, to
approve all the Awards, to decide the facts in any case arising under the
Plan and to make all other determinations and to take all other actions
necessary or appropriate for the proper administration of the Plan,
including the delegation of such authority or power, where appropriate;
provided, however, that the Committee shall not be authorized to increase
the amount of the Award payable to the CEO that would otherwise be payable
pursuant to the terms of the Plan but may in its sole discretion decrease
the amount of an Award that would otherwise be payable to the CEO pursuant
to the terms of the Plan, and provided, further, that the Committee shall
only exercise such discretion over the Plan and the Awards granted
thereunder, to the extent permitted under Section 162(m) of the Code and
the regulations thereunder without adversely affecting the treatment of the
CEO's Award as Performance-Based Compensation.
The Committee's and the CEO's administration of the Plan,
including all such rules and regulations, interpretations, selections,
determinations, approvals, decisions, delegations, amendments, terminations
and other actions, shall be final and binding on the Company, the
Subsidiaries, their respective stockholders and all employees of the
Company and the Subsidiaries, including the Participants and their
respective beneficiaries.
5. Determination of Awards
-----------------------
(a) Prior to, or as soon as practicable following, the
commencement of each Performance Period, the Committee with respect to
officers and the CEO with respect to all other Employees shall determine
the Employees who shall be Participants during that Performance Period and
determine each Participant's Target Award Percentage. The Committee shall
also establish the Financial Target(s) for that Performance Period (which
shall be established in writing by the earlier of (1) the date on which
one-quarter of the Performance Period has elapsed or (2) the date which is
90 days after the commencement of the Performance Period, and in any event
while the performance relating to the Financial Target(s) remains
substantially uncertain). The Participants, each Participant's Target Award
Percentage and the Financial Targets for each Performance Period shall be
set forth on a Schedule. The Company shall notify each Participant of his
or her Target Award Percentage and the applicable Financial Targets for the
Performance Period.
(b) Generally, a Participant earns an Award for a Performance
Period based on the Company's and/or his or her Operating Unit's
achievement of applicable Financial Target(s). In addition, the Award for
any Participant (other than the CEO) may be adjusted based on the
Participant's Personal Performance Percentage. The Committee may determine
that different Financial Targets are applicable to different Participants,
groups of Participants, Operating Units or groups of Operating Units with
respect to a specific Performance Period. The Committee may also establish
minimum threshold of Company or Operating Unit performance which must be
achieved in order for any portion of an Award to be earned for that
Performance Period, provided such threshold is established by the earlier
of (1) the date on which one-quarter of the Performance Period has elapsed
or (2) the date which is 90 days after the commencement of the Performance
Period, and in any event while the performance relating to the Financial
Target(s) remains substantially uncertain. Notwithstanding the foregoing,
if in any Performance Period a minimum threshold of Company and/or
Operating Unit performance is established and the Company's and/or any
Operating Unit's actual performance as measured against that minimum
threshold would otherwise preclude the earning of Awards for that
Performance Period, the Committee may upon consideration of the events of
the Performance Period, determine that Awards may be earned by Participants
(other than the CEO) for that Performance Period.
(c) The maximum Award any Participant (other than the CEO) may
receive for any Performance Period is 150% of the Participant's Target
Award for that Performance Period. The maximum award the CEO may receive
for any Performance Period is $1.5 million.
(d) Awards shall be earned by Participants in accordance with the
following formula:
Personal
Performance
Target Financial Percentage
Award x Base x Target x (other
Percentage Salary Award Earned than the CEO)
Where:
o Target Award Percentage is as defined in Section 2(aa) of
the Plan.
o Base Salary is as defined in Section 2(b) of the Plan.
o Financial Target Award Earned is as defined in Section 2(n)
of the Plan and is determined based on the Company's and/or,
if applicable an Operating Unit's performance as measured
against the applicable Financial Target(s).
o Personal Performance Percentage ranges from 0 to 120 percent
and is determined, in accordance with subsection (e) below.
(e) Personal Performance Percentage. The CEO is not eligible
for an adjustment based on personal performance. Each other Participant's
performance shall be evaluated and a Personal Performance Percentage for
such Participant shall be recommended for approval by the CEO. The Personal
Performance Percentage may range from 0 to 120 percent to reflect the
Participant's personal performance during the Performance Period; provided,
however, that the application of this Section 5(f) shall not result in (i)
the Participant's Award exceeding 150% of his or her or Target Award for
the Performance Period; or (ii) an increase in the aggregate dollar amount
of all Awards earned by all Participants for that Performance Period.
6. Changes to the Target Award Percentage
--------------------------------------
The Committee, with respect to Participants who are officers, and
the CEO, with respect to all other Participants, may at any time prior to
the final determination of Awards change the Target Award Percentage of any
Participant (other than the CEO) or assign a different Target Award
Percentage to a Participant (other than the CEO) to reflect any change in
the Participant's responsibility level or position during the course of the
Performance Period.
The Committee, with respect to Participants who are officers, and
the CEO, with respect to all other Participants, may at the time Financial
Target(s) are determined for a Performance Period, or at any time prior to
the final determination of Awards in respect of that Performance Period to
the extent permitted under Section 162(m) of the Code and the regulations
promulgated thereunder without adversely affecting the treatment of the
Award as Performance-Based Compensation, provide for the manner in which
performance will be measured against the Financial Target(s) (or to the
extent permitted under Section 162(m) of the Code and the regulations
promulgated thereunder without adversely affecting the treatment of an
Award as Performance-Based Compensation, may adjust the Financial
Target(s)) to reflect the impact of specified corporate transactions (such
as a stock-split or stock dividend), special charges, foreign currency
effects, accounting or tax law changes and other extraordinary or
nonrecurring events.
7. Payment of Awards
-----------------
As soon as practicable after the close of a Performance Period
and prior to the payment of any Award that is intended to constitute
Performance-Based Compensation, the Committee, with respect to Participants
who are officers, and the CEO, with respect to all other Participants,
shall review each Participant's Award and certify in writing that the
applicable Financial Targets have been satisfied. Subject to the provisions
of Section 8 of the Plan, each Award to the extent earned shall be paid in
a single lump sum cash payment, as soon as practicable following the
Performance Period, but in no event later than 120 days following the
Performance Period. The Committee shall certify in writing the amount of
the CEO's Award prior to payment thereof.
If a Change of Control occurs, the Company shall, within 60 days
thereafter, pay to each Participant in the Plan immediately prior to the
Change of Control (regardless of whether the Participant remains employed
after the Change of Control) an Award which is calculated assuming that all
performance percentages are 100 percent, and such Award shall be prorated
to the date of the Change of Control based on the number of days that have
elapsed during the Performance Period through the date of the Change of
Control.
8. Limitations on Rights to Payment of Awards
------------------------------------------
No Participant shall have any right to receive payment of an
Award under the Plan for a Performance Period unless the Participant
remains in the employ of the Company through the payment date of the Award
for such Performance Period, except as provided in the last paragraph of
Section 7 of the Plan. However, if the Participant has active service with
the Company or the Subsidiary for at least three months during any
Performance Period, but, prior to payment of the Award for such Performance
Period, a Participant's employment with the Company terminates due to the
Participant's death, Disability or, except in the case of the CEO,
Retirement or such other special circumstances as determined by the CEO on
a case by case basis, the Participant (or, in the event of the
Participant's death, the Participant's estate, beneficiary or beneficiaries
as determined under Section 9 of the Plan) shall remain eligible to receive
a prorated portion of any earned Award, based on the number of days that
the Participant was actively employed and performed services during such
Performance Period.
9. Designation of Beneficiary
--------------------------
A Participant may designate a beneficiary or beneficiaries who,
in the event of the Participant's death prior to full payment of any Award
hereunder, shall receive payment of any Award due under the Plan. Such
designation shall be made by the Participant on a form prescribed by the
Committee. The Participant may, at any time, change or revoke such
designation. A beneficiary designation, or revocation of a prior
beneficiary designation, will be effective only if it is made in writing on
a form provided by the Company, signed by the Participant and received by
the Secretary of the Company. If the Participant does not designate a
beneficiary or the beneficiary dies prior to receiving any payment of an
Award, Awards payable under the Plan shall be paid to the Participant's
estate.
10. Amendments
----------
The Committee may at any time amend (in whole or in part) this
Plan. No such amendment which adversely affects any Participant's rights to
or interest in an Award earned prior to the date of the amendment shall be
effective unless the Participant shall have agreed thereto.
11. Termination
-----------
The Committee may terminate this Plan (in whole or in part) at
any time. In the case of such termination of the Plan, the following
provisions of this Section 11 shall apply notwithstanding any other
provisions of the Plan to the contrary:
(i) The Committee shall promulgate administrative rules
applicable to Plan termination, pursuant to which each affected
Participant (other than the CEO) shall receive, with respect to
each Performance Period which has commenced on or prior to the
effective date of the Plan termination (the "Termination Date")
and for which the Award has not yet been paid, the amount
described in such rules and the CEO shall receive an amount equal
to the amount his Award would have been had the Plan not been
terminated (prorated for the Performance Period in which the
Termination Date occurred), subject to reduction in the
discretion of the Committee.
(ii) Each Award payable under this Section 11 shall be paid
as soon as practicable, but in no event later than 120 days after
the Termination Date.
12. Miscellaneous Provisions
------------------------
(a) This Plan is not a contract between the Company and the
Employees or the Participants. Neither the establishment of this Plan, nor
any action taken hereunder, shall be construed as giving any Employee or
any Participant any right to be retained in the employ of the Company or
any of its Subsidiaries. Neither, the Company nor any of its Subsidiaries
is under any obligation to continue the Plan.
(b) A Participant's right and interest under the Plan may not be
assigned or transferred, except as provided in Section 9 of the Plan, and
any attempted assignment or transfer shall be null and void and shall
extinguish, in the Company's sole discretion, the Company's obligation
under the Plan to pay Awards with respect to the Participant.
(c) The Plan shall be unfunded. The Company shall not be required
to establish any special or separate fund, or to make any other segregation
of assets, to assure payment of Awards.
(d) The Company shall have the right to deduct from Awards paid
and any interest thereon, any taxes or other amounts required by law to be
withheld.
(e) Nothing contained in the Plan shall limit or affect in any
manner or degree the normal and usual powers of management, exercised by
the officers and the Board of Directors or committees thereof, to change
the duties or the character of employment of any employee of the Company or
any of its Subsidiaries or to remove the individual from the employment of
the Company or any of its Subsidiaries at any time, all of which rights and
powers are expressly reserved.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
CommScope, Inc. condensed consolidated financial statements as of and for
the six months ended June 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0001035884
<NAME> CommScope, Inc.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
<CASH> 5,737
<SECURITIES> 0
<RECEIVABLES> 124,544
<ALLOWANCES> 4,919
<INVENTORY> 35,878
<CURRENT-ASSETS> 181,684
<PP&E> 240,237
<DEPRECIATION> 90,035
<TOTAL-ASSETS> 517,181
<CURRENT-LIABILITIES> 79,183
<BONDS> 0
0
0
<COMMON> 507
<OTHER-SE> 235,995
<TOTAL-LIABILITY-AND-EQUITY> 517,181
<SALES> 334,953
<TOTAL-REVENUES> 334,953
<CGS> 248,258
<TOTAL-COSTS> 248,258
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,365
<INCOME-PRETAX> 43,646
<INCOME-TAX> 15,794
<INCOME-CONTINUING> 27,852
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,852
<EPS-BASIC> 0.55
<EPS-DILUTED> 0.54
</TABLE>
EXHIBIT 99
COMMSCOPE, INC.
EXHIBIT 99 - FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. The Company's Form 10-K for the
year ended December 31, 1998, the Company's Annual Report to Stockholders,
any Form 10-Q or Form 8-K of the Company, or any other oral or written
statements made by or on behalf of the Company, may include forward-looking
statements which reflect the Company's current views with respect to future
events and financial performance. These forward-looking statements are
identified by their use of such terms and phrases as "intends," "intend,"
"intended," "goal," "estimate," "estimates," "expects," "expect,"
"expected," "project," "projects," "projected," "projections," "plans,"
"anticipates," "anticipated," "should," "think", "designed to,"
"foreseeable future," "believe," "believes" and "scheduled" and similar
expressions. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the statement
was made. The Company undertakes no obligation to publicly update or revise
any forward-looking statements, whether as a result of new information,
future events or otherwise.
The actual results of the Company may differ significantly from the
results discussed in forward-looking statements. Factors that might cause
such a difference include, but are not limited to, (a) the general
political, economic and competitive conditions in the United States and
other markets where the Company operates; (b) changes in capital
availability or costs, such as changes in interest rates, market
perceptions of the industry in which the Company operates, or security
ratings; (c) employee workforce factors; (d) authoritative generally
accepted accounting principles or policy changes from such standard-setting
bodies as the Financial Accounting Standards Board and the Securities and
Exchange Commission; (e) potential disruption from the "Year 2000" problem,
and the factors set forth below.
LEVERAGE; CERTAIN RESTRICTIONS UNDER CREDIT FACILITIES
The Company is substantially leveraged. The degree to which the Company
is leveraged could have important consequences, including the following:
(i) the Company's ability to obtain additional financing in the future for
working capital, capital expenditures, product development, acquisitions,
general corporate purposes or other purposes may be impaired; (ii) a
portion of the Company's and its subsidiaries' cash flow from operations
must be dedicated to the payment of the principal of and interest on its
indebtedness; (iii) the Credit Agreement, dated as of July 23, 1997, among
CommScope, Inc. of North Carolina, a wholly owned subsidiary of the
Company, certain banks, and The Chase Manhattan Bank, as Administrative
Agent, contains certain restrictive financial and operating covenants,
including, among others, requirements that the Company satisfy certain
financial ratios; (iv) a significant portion of the Company's borrowings
are at floating rates of interest, causing the Company to be vulnerable to
increases in interest rates; (v) the Company's degree of leverage may make
it more vulnerable to a downturn in general economic conditions; and (vi)
the Company's degree of leverage may limit its flexibility in responding to
changing business and economic conditions.
DEPENDENCE OF THE COMPANY ON THE CABLE TELEVISION INDUSTRY AND CABLE
TELEVISION CAPITAL SPENDING
The majority of the Company's revenues come from sales to the cable
television industry. Demand for the Company's products depends primarily on
capital spending by cable television operators for constructing, rebuilding
or upgrading their systems. The amount of this capital spending, and,
therefore, the Company's sales and profitability will be affected by a
variety of factors, including general economic conditions, acquisitions of
cable television operators by non-cable television operators, cable system
consolidation within the industry, the financial condition of domestic
cable television operators and their access to financing, competition from
satellite and wireless television providers and telephone companies,
technological developments and new legislation and regulation of cable
television operators. There can be no assurance that cable television
capital spending will increase from historical levels or that existing
levels of cable television capital spending will be maintained.
In recent years, cable television capital spending has also been
affected by new legislation and regulation, on the federal, state and local
level, and many aspects of such regulation are currently the subject of
judicial proceedings and administrative or legislative proposals. During
1993 and 1994, the Federal Communications Commission (the "FCC") adopted
rules under the Cable Television Consumer Protection and Competition Act of
1992 (the "1992 Cable Act"), regulating rates that cable television
operators may charge for lower tiers of service and generally not
regulating the rates for higher tiers of service. In 1996, the
Telecommunications Act of 1996 (the "Telecom Act") was enacted to eliminate
certain governmental barriers to competition among local and long distance
telephone, cable television, broadcasting and wireless services. The FCC is
continuing its implementation of the Telecom Act which, when fully
implemented, may significantly impact the communications industry and alter
federal, state and local laws and regulations regarding the provision of
cable and telephony services. Among other things, the Telecom Act
eliminates substantially all restrictions on the entry of telephone
companies and certain public utilities into the cable television business.
Telephone companies may now enter the cable television business as
traditional cable operators, as common carrier conduits for programming
supplied by others, as operators of wireless distribution systems, or as
hybrid common carrier/cable operator providers of programming on so-called
"open video systems." The economic impact of the 1992 Cable Act, the
Telecom Act and the rules thereunder on the cable television industry and
the Company is still uncertain.
Although the domestic cable television industry is comprised of
thousands of cable systems, a small number of cable television operators
own a majority of cable television systems and account for a majority of
the capital expenditures made by cable television operators. The loss of
some or all of the Company's principal cable television customers could
have a material adverse effect on the business of the Company.
TELECOMMUNICATIONS INDUSTRY COMPETITION AND TECHNOLOGICAL CHANGES AFFECTING
THE COMPANY
Many of the markets that the Company serves are characterized by
advances in information processing and communications capabilities which
require increased transmission speeds and greater capacity ("bandwidth")
for carrying information. These advances require ongoing improvements in
the capabilities of wire and cable products. The Company believes that its
future success will depend in part upon its ability to enhance existing
products and to develop and manufacture new products that meet or
anticipate such changes. The failure to introduce successful new or
enhanced products on a timely and cost-competitive basis could have an
adverse impact on the Company's operations and financial condition.
Fiber optic technology presents a potential substitute for the products
that comprise the majority of the Company's sales. To date, fiber optic
cables have penetrated the cable television and local area network ("LAN")
markets served by the Company in high-bandwidth point-to-point and trunking
applications. Fiber optic cables have not, to date, significantly
penetrated the local distribution and residential application markets
served by the Company because of the high relative cost of electro-optic
interfaces and the high cost of fiber termination and connection. At the
same time, advances in data transmission equipment and copper cable
technologies have increased the relative performance of copper-based cables
which are the Company's principal product offerings. However, a significant
decrease in the cost of fiber optic systems could make such systems
superior on a price/performance basis to copper systems. While the Company
is a fiber optic cable manufacturer and supplier to a small portion of the
cable television market and certain specialty markets, such a significant
decrease in the cost of fiber optic systems would likely have an adverse
effect on the Company.
COMPETITION
The Company's coaxial, fiber optic and electronic cable products compete
with those of a substantial number of foreign and domestic companies, some
with greater resources, financial or otherwise, than the Company, and the
rapid technological changes occurring in the telecommunications industry
could lead to the entry of new competitors. Existing competitors' actions
and new entrants may have an adverse impact on the Company's sales and
profitability. The Company believes that it enjoys a strong competitive
position in the coaxial cable market because of its position as a low-cost,
high-volume coaxial cable producer and its reputation as a high-quality
provider of state-of-the-art cables, along with its strong orientation
toward customer service. However, there can be no assurance that the
Company will continue to compete successfully with its existing competitors
or that it will be able to compete successfully with new competitors.
IMPACT OF PRICE FLUCTUATIONS OF RAW MATERIALS ON THE COMPANY; SOURCES OF RAW
MATERIALS
Fabricated aluminum, plastics, bi-metals, copper and optical fiber are
the principal raw materials purchased by the Company, and the Company's
profitability may be affected by changes in the market price of these
materials (which are linked to the commodity markets). Although the Company
has generally been able to pass on increases in the price of these
materials to its customers, there can be no assurance that the Company will
be able to do so in the future. Additionally, significant increases in the
price of the Company's products due to increases in the cost of raw
materials could have a negative effect on demand for the Company's
products.
A significant portion of the Company's raw material purchases are
bi-metallic center conductors for coaxial cables, nearly all of which are
purchased from Copperweld Corporation under a long-term supply arrangement
expiring in March 2000. If the Company becomes unable to continue to
purchase bi-metallic center conductors from this supplier, either before or
after expiration of this arrangement, the Company may be unable to obtain
these raw materials on commercially acceptable terms from another source.
The Company recently acquired the clad wire fabrication equipment and
technology of Texas Instruments Incorporated for manufacturing copper-clad
aluminum wire and copper-clad steel wire. The Company anticipates beginning
production in late 1999. At full capacity, this acquisition will give the
Company the ability to produce a significant portion of the bi-metal center
conductors used by the Company. In addition to bi-metallic wires, fine
aluminum wire, which is a smaller raw material purchase than bi-metallic
wire, is purchased primarily from a single source. However, the Company
also intends to pursue fine wire drawing to produce braid wires for
flexible coaxial cables. Neither of these major raw materials could be
readily replaced in sufficient quantities if all supplies from the
respective primary sources were disrupted for an extended period and the
Company was unable to vertically integrate the production of these
products. In such event, there could be a materially adverse impact on the
Company's financial results. Additionally, fluorinated-ethylene-propylene
(FEP) is the primary raw material used throughout the industry for
producing flame-retarding cables for LAN applications. There are few
worldwide producers of FEP and market supplies have been periodically
limited over the past several years. Availability of adequate supplies of
FEP will be critical to future LAN cable sales growth.
INTERNATIONAL OPERATIONS
Management remains guarded about the near-term outlook for international
sales. During 1998, international sales decreased by approximately 30%, or
$60.6 million, compared to 1997, due to monetary crises in key overseas
markets, including the Pacific Rim and South America. Excluding the Seneffe
acquisition, management expects 1999 international sales to be relatively
unchanged compared to 1998. The Seneffe operation is expected to provide
approximately 5% growth in total Company sales in 1999, compared to 1998.
In the long run, the Company's management believes that continued growth in
international markets, including the developing markets in Asia, the Middle
East and Latin America, and the expected privatization of the
telecommunications structure in many European countries, represent
significant future opportunities. However, the Company cannot predict with
certainty the outlook for international sales in 1999 and beyond due to
unpredictable political and economic uncertainties.
International operations are subject to the usual risks inherent in
sales abroad, including risks with respect to currency exchange rates,
economic and political destabilization, restrictive actions by foreign
governments, nationalizations, the laws and policies of the United States
affecting trade, foreign investment and loans, and foreign tax laws.
ENVIRONMENT
The Company is subject to various federal, state, local and foreign laws
and regulations governing the use, discharge and disposal of hazardous
materials. The Company's manufacturing facilities are believed to be in
substantial compliance with current laws and regulations. Compliance with
current laws and regulations has not had and is not expected to have a
material adverse effect on the Company's financial condition.
The Company's present and past facilities have been in operation for
many years, and over that time in the course of those operations, such
facilities have used substances which are or might be considered hazardous,
and the Company has generated and disposed of wastes which are or might be
considered hazardous. Therefore, it is possible that additional
environmental issues may arise in the future which the Company cannot now
predict.
