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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
COMMISSION FILE NO. 1-4474
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OAK INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 36-1569000
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1000 WINTER STREET
WALTHAM, MASSACHUSETTS 02154
(Address of principal executive offices) (Zip Code)
</TABLE>
(617) 890-0400
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
<S> <C>
Common Stock New York Stock Exchange
Par Value $.01 Pacific Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days: Yes X
No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K [X].
The aggregate market value of Registrant's Common Stock held by
persons who are not affiliates of Registrant was $423,110,052 on February
29, 1996.
The Registrant had 17,721,887 shares of Common Stock, $0.01 par value,
issued and outstanding on February 29, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be filed no later
than March 30, 1996........................Part III, Items 10-13
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<PAGE>
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Oak Industries Inc. (the "Company") was incorporated under the laws of
the State of Delaware in 1960. The predecessor of the Company was
incorporated in 1932 under the laws of the State of Illinois. The present
corporate name was adopted in 1972. The Company's executive offices are
located at 1000 Winter Street, Waltham, Massachusetts 02154, and its
telephone number is (617) 890-0400.
The Company conducts its business through two business segments:
Components and Other. The Components Segment designs, manufactures and
sells active and passive components for telecommunication networks
including cable connectors, frequency control devices and fiber optic
lasers. This segment also designs, manufactures and sells components for
the gas range appliance industry as well as a broad line of control and
sensing devices for use in, testing equipment and industrial applications.
The Other Segment is comprised of a business unit that designs,
manufactures and sells railroad maintenance-of-way equipment.
On September 6, 1995, the Company acquired all of the outstanding common
stock of Lasertron, Inc. ("Lasertron"), a Bedford, Massachusetts
manufacturer of fiber optic components for the telecommunications and cable
television ("CATV") industries for approximately $108.2 million in cash,
including transaction expenses.
On August 30, 1995, the Company entered into a Credit Agreement (the
"Oak Credit Agreement") and the Company's Connector Holding Company
("Connector") and Gilbert Engineering Co., Inc. ("Gilbert") subsidiaries,
entered into a Credit Agreement (the "Gilbert Credit Agreement;" together
with the Oak Credit Agreement, the "Credit Facilities") with various
lenders.
The Oak Credit Agreement provides for a $40.0 million revolving credit
facility, a $60.0 million Tranche A term loan and a $60.0 million Tranche B
term loan. The Tranche A term loan and $20.0 million under the revolving
credit facility were advanced to the Company on September 6, 1995 in
connection with the Company's purchase of the capital stock of Lasertron.
The Tranche B term loan is available solely for the purpose of funding the
Company's purchase of the shares of the capital stock of Connector not
presently owned by the Company (see Note 3 of the Notes to Consolidated
Financial Statements). The Company's previously existing $30.0 million
revolving credit facility was terminated on August 30, 1995.
The Gilbert Credit Agreement provides for an $18.0 million revolving
credit facility and a $22.0 million term loan. The proceeds from the term
loan and $6.6 million of the revolving credit facility were used to
refinance existing indebtedness of Gilbert and Connector. Gilbert's
previously existing credit facility was terminated on August 30, 1995.
(B) FINANCIAL INFORMATION ABOUT THE INDUSTRY SEGMENTS
The Company's businesses are currently classified into the Components
Segment and the Other Segment. For information regarding sales, operating
income and identifiable assets attributable to each industry segment, see
Note 10 of the Notes to Consolidated Financial Statements, which is
incorporated herein by reference.
(C) NARRATIVE DESCRIPTION OF BUSINESS
Overview
The Company's operations are conducted in two industry segments, the
Components Segment and the Other Segment. The Company's Components Segment
manufactures coaxial connectors for CATV systems, frequency control devices
for wireless communications, fiber optic components for telecommunications,
controls for gas appliances, and switches and encoders for test and
measurement and communication. The Other Segment is composed of the
Company's railway maintenance-of-way equipment division.
Business Strategy
The Company's business strategy is to establish and maintain a leading
position in markets with strong underlying growth characteristics. The
Company attempts to achieve this position by providing a broad line of high
quality, low cost products in each of its business lines. Most of the
Company's customers are equipment manufacturers or communications service
providers, and products are sold on an engineer-to-engineer basis,
requiring stringent performance specifications. In many of the Company's
markets, competition is strong. In spite of continual pressure on prices,
the Company has maintained strong margins by introducing lower cost, higher
performance designs, by investing in automation equipment to improve
productivity and by transferring production to low cost locales when
appropriate. The Company is continuously seeking to acquire complementary
product lines that can be integrated into existing businesses as well as
other component manufacturers supplying the CATV, wireless and telephony
industries.
COMPONENTS SEGMENT
The Company operates principally through its Components Segment, which
develops, manufactures and sells Communications Components and Controls
Components.
Communications Components
The Company's Communications Components include coaxial cable
connectors, quartz-based crystals and oscillators and fiber optic lasers
and detectors. These products are used in a broad range of applications in
telecommunications networks. Collectively, Communications Components
accounted for approximately 63%, 55% and 51% of the Company's net sales for
1995, 1994 and 1993 respectively.
CATV Connectors. The Company's Gilbert subsidiary is a leading
manufacturer of coaxial connectors for the CATV industry. The Company
manufactures both three-piece and two-piece trunk and feeder connectors
for use in the broadband distribution network, providing connections to
coaxial cable lines, amplification equipment, power supplies and other
active and passive devices. The Company also manufactures drop connectors
used to link the distribution network to the subscriber's home. Gilbert's
operations are based in Glendale, Arizona; Amboise, France; and
Vordingborg, Denmark.
Gilbert sells directly to all of the major multiple system operators
("MSOs") and to leading distributors of CATV components as well as through
manufacturers' representatives. Gilbert sells to its international
customers from its locations in Arizona, France and Denmark. Gilbert's
wholly owned French subsidiary, Societe d'Appareillages Electroniques, S.A.
("S.A.E."), sells primarily to cable operators in France. Cabel-Con A/S, a
Danish subsidiary, sells to customers in Western Europe and other
international markets. Gilbert's major customers include cable operators
such as Tele-Communications, Inc. ("TCI"), Sammons Communications, Scripps
Howard, Times-Mirror, and Continental, and distributors such as Antec
Corporation. The top ten customers account for approximately 41% of
Gilbert's sales.
The CATV industry provides a service that delivers multiple channels of
video entertainment to subscribers who pay a monthly fee. A cable system
consists of three principal segments. The first is the headend where the
cable system operator receives television signals via satellite,
terrestrial, microwave and other sources. The headend facility organizes,
processes and retransmits those signals through the second segment, the
distribution network, to the subscriber. The distribution network
typically consists of fiber optic and coaxial cables and associated optical
and electronic equipment which take the signals from the headend and then
transmit them throughout the cable system. The third segment is the
subscriber drop which extends from the distribution network to the
subscriber's home and connects either directly to the subscriber's
television set or to a converter box. Connectors are used throughout the
system to connect coaxial cable to electronic equipment such as amplifiers
and at various termination points. In general, approximately 100
connectors are used for each mile of coaxial cable in the distribution
network, and approximately 15-20 connectors at each subscriber.
Industry sources estimate that cable service is available to 95% of
households in the United States and more than 66% of those households are
subscribers. As a result, the Company expects the majority of domestic
revenue growth for Gilbert to come from the upgrade, rebuild and
maintenance of existing cable systems. MSOs are continuing to upgrade
their systems in order to improve signal quality and expand bandwidth to
provide capacity for new services such as Internet access through cable
modems, near video-on-demand and telephony. Cable networks are also being
rebuilt or upgraded in response to new competitive multichannel services
such as direct broadcast satellite and wireless cable. Industry data
indicate that the majority of domestic cable systems have not yet been
upgraded to 550 MHz or above, the minimum bandwidth targeted by MSOs for
comprehensive services. Several of the Regional Bell Operating Companies
and other traditional telephone companies are building broadband networks
to offer video services to compete with the MSOs. Internationally, there
is extensive new cable system construction in Asia, Latin America and
Europe.
Gilbert is the leading U.S. manufacturer of aluminum connectors and a
major U.S. manufacturer of brass connectors for the cable television
industry. Although the market for these products is highly competitive
with respect to quality and delivery, the Company believes it competes
favorably with respect to each of these factors. In particular, the
Company's aluminum connector products are engineered to meet stringent
reliability requirements. Certain parties are attempting to develop
technologies which could compete with those currently employed by Gilbert's
customers. If successful, these developments could have a negative impact
on Gilbert's business.
The primary raw materials used in the manufacture of specialty
connectors are aluminum and brass. Gilbert currently purchases all of its
aluminum requirements from a single supplier. Although the Company
believes several alternative sources of supply of aluminum are available, a
sudden disruption of its supply from this vendor could have a temporary
adverse effect on the manufacture and sale of Gilbert's connector products.
Gilbert is not dependent on any single supplier for its other raw
materials. Management does not foresee any problems obtaining the raw
materials necessary for the manufacture of specialty connectors.
Gilbert owns a number of patents but does not consider any one patent or
group of patents material to the conduct of the business.
Shipments of Gilbert's products are typically made shortly after the
receipt of the order. Accordingly, the Company does not consider Gilbert's
order backlog at any date to be a significant predictor of Gilbert's future
results of operations.
Frequency Control Devices. The Oak Frequency Control Group ("OFCG") is
a leading supplier of quartz-based crystals and oscillators used within the
frequency communications and test and instrumentation markets. Products
are sold through its McCoy, Croven Crystals Ltd., H.E.S. International and
McCoy International divisions which have manufacturing operations located
in Mt. Holly Springs and Mercersburg, Pennsylvania; Whitby, Ontario,
Canada; Kansas City, Kansas; and Charallave, Venezuela.
Crystals and oscillators are highly engineered components that provide
critical timing or frequency references for wireless communications
networks, wired telephony systems, satellite communications and other
applications requiring a high degree of signal precision.
There are four primary classes of crystal oscillators: uncompensated
crystal oscillators ("XO"), temperature compensated crystal oscillators
("TCXO"), voltage controlled crystal oscillators ("VCXO"), and oven
controlled crystal oscillators ("OCXO"). The type used depends on the
performance characteristics required and the environment to which the
oscillator will be exposed. OCXOs, for which the OFCG is a leading
manufacturer, provide the highest level of stability and are used when very
precise timing and accuracy in frequency are required, such as in base
stations for cellular, personal communications systems ("PCS") and paging
networks. Typically there are one or two OCXOs and eight to sixteen TXCOs
and/or VCXOs in a cellular base station. The vast majority of the XO
market is comprised of computer and consumer electronic applications, for
which OFCG is not a participant. These products are characterized by
standard designs and commodity pricing, and are predominantly supplied by
Far Eastern manufacturers.
OFCG has a leadership position in the design and manufacture of
oscillators deployed in wireless base stations to synchronize the reception
and retransmission of signals for cellular telephone, PCS, paging and
mobile radio networks. The Company has strategic partnerships with key
telecommunications equipment manufacturers and has designed products that
can be used with all major technologies used by cellular telephone and PCS
service providers, including Code Division Multiple Access ("CDMA"), Time
Division Multiple Access ("TDMA"), and Global System for Mobile
Communications ("GSM"). Major customers include Motorola, Ericsson Radio
Systems, Glenayre Manufacturing, Alcatel Network Systems, Hewlett Packard,
and Rockwell International. The top ten customers account for
approximately 46% of sales of OFCG.
The Company continues to make significant investments in people and
equipment to meet customer needs by enhancing product performance and
quality while lowering costs. Development efforts are focused on
incorporating advanced integrated designs to meet market demands for
components with higher stability, smaller size and lower power consumption,
OFCG has invested in highly automated production and test systems to
increase capacity and is certified as an ISO 9001 manufacturer.
There are many domestic and foreign suppliers of crystal frequency
control devices. In order to compete effectively in this market, the
Company places a strong emphasis on high quality and sophisticated design
technology. A large percentage of the Company's frequency control products
are manufactured to exacting customer specifications, and the Company
relies to a large extent on its engineering staff to design, manufacture,
deliver and provide post-production support to meet customer needs. Sales
of the Company's frequency control products are made principally through a
direct sales force and manufacturers' representatives.
The Company believes there is ready availability of the raw materials,
principally natural and synthetic quartz, required for the production of
its frequency control products. There are multiple suppliers of such raw
materials, and the Company utilizes many of these suppliers. Moreover, the
Company has entered into a strategic joint venture with Alfa Quartz C.A.
("Alfa"), a subsidiary of Sural C.A. Alfa has made significant capital
investments in its Venezuelan operation in order to become a major supplier
of synthetic quartz crystals on the world market. The strategic alliance
is intended to develop Alfa's finishing capabilities and thereby allow it
to broaden its product offerings as well as ensure the Company of a ready
supply of high-quality, low-cost crystal blanks.
Fiber Optic Communications Components. On September 6, 1995, the
Company acquired 100% of the outstanding stock of Lasertron. Lasertron,
whose operations are currently based in Burlington, Massachusetts, designs,
manufactures and supplies active fiber optic components, including lasers
and detectors, used primarily in long distance fiber optic telephone
networks.
Lasertron's amplification products, 980 nm wavelength pump lasers, are
used in optical amplifiers to regenerate the light, which deteriorates as
it passes through the fiber. Optical amplifiers offer significant cost
reduction over traditional technology as well as increased network
reliability. For these reasons, the major long distance carriers have been
incorporating optical amplifiers in their networks.
Lasertron's transmission components are used to generate or detect
optical signals carried on fiber optic links. Transmission components
continue to be upgraded in long distance networks to meet demands for
increased capacity and higher data rates. Lasertron is developing a line
of high speed transmission products for this market. Regional networks,
long distance access infrastructure and international markets, where
capacity requirements are not as demanding, will continue to use lower
speed components.
Lasertron is a supplier of active components for CATV which are used to
amplify fiber optic signals being transmitted through the fiber optic
portion of the network, allowing fiber optic interconnections between
headends and from headends into the distribution network.
Lasertron also provides products for the wireless communications
industry. Products are being deployed in fiber optic links through remote
antennas to extend wireless coverage in areas with poor reception, such as
in tunnels and subways, and in dense urban areas with high capacity
requirements.
Lasertron sells both directly and through distributors to its domestic
and export customers who are primarily manufacturers of fiber optic
telecommunications, CATV or wireless communications equipment. The top ten
customers account for approximately 88% of Lasertron sales and include AT &
T, Pirelli Cavi spa, Alcatel N.V., and Harmonic Lightwaves, Inc.
Lasertron is a leading independent U.S. manufacturer of fiber optic
modules for the telecommunications industry. Although the market for these
products is highly competitive with respect to quality, price and delivery,
the Company believes that it competes favorably with respect to each of
these factors. While several of Lasertron's customers have captive
operations that make products for their own use and for sale to others that
compete with those of Lasertron, these customers have historically relied
on Lasertron to supply a portion of their product needs.
The components manufactured by Lasertron incorporate semiconductor diode
laser and detector elements which are coupled to an optical fiber and
supplied as compact fiber optic modules. Lasertron purchases some of these
elements, as well as semiconductor wafers used by the Company to produce
these elements, from a sole supplier. An inability to obtain these
elements or wafers would have a material adverse effect on the Company's
operations. Lasertron is currently acquiring the technology and developing
the expertise to manufacture elements from supplied wafers to reduce costs
and to ensure consistent quality and adequate supply. This technology has
been licensed from its sole supplier. If Lasertron is not successful in
developing the expertise to manufacture elements from supplied wafers in
1996 or if the supply of wafers were inadequate to meet projected needs,
the Company's results of operations could be materially adversely affected.
Lasertron licenses a number of patents from third parties and considers
several patents to be material to the conduct of business.
Controls Components
Oak Controls is the market leader for components sold to the United
States gas range appliance industry and a growing supplier of components
for the outdoor grill industry. These components provide solutions for gas
flow regulation, burner and oven control, and ignition and temperature
control. The Company supplies all the major domestic range manufacturers
under the Harper-Wyman brand name. The Company also designs and manufactures
switches and encoders for applications in the test and measurement,
communications, medical and military markets sold under the OakGrigsby
name. Collectively, Controls Components accounted for approximately 29%,
37% and 41% of the Company's net sales for 1995, 1994 and 1993,
respectively.
The Controls Group is aggressively pursuing a strategy to leverage its
strong domestic position to penetrate international markets in South
America and Europe, reducing reliance on the domestic industry. In
addition, the Company is broadening its product line to allow greater
participation in the outdoor gas grill market and address the market for
gas fireplaces.
As the OakGrigsby Inc. ("OakGrigsby") customer base transitions from
traditional analog switch technology toward digital controls, the product
line is moving to sensors and controls. Products all use physical input,
such as motion, to provide electrical or electronic output. Broader
applications for the recently introduced modular line of motion sensors
include automatic teller machines, gas pump meters, global positioning
systems and medical equipment such as MRI scanners.
The Company continued its aggressive investment program to further
automate production at its facilities in Princeton, Illinois and Juarez,
Mexico which will improve product quality, reduce delivery lead times and
lower costs. The Company also has made significant investments in
engineering resources and computer-aided design systems to shorten its new
product development cycle.
The sale of the Company's controls products is conducted primarily
through its direct sales force with assistance from a small number of
manufacturers' representatives, with an increasing amount of product sold
through distributors. Harper-Wyman is dependent on a small number of
customers in the U.S., Mexico and South America, principally the major
original equipment appliance manufacturers. The loss of any one of these
customers could have a material adverse effect on Harper-Wyman's business.
Major customers of the Controls Group include General Electric Corporation,
Raytheon Company (Caloric and Amana), Maytag Corporation (Magic Chef and
Jenn-Air), Brown Stove Works Inc., Fluke, Tektronix, and Tokheim
Corporation.
The market in which Harper-Wyman participates is very competitive in
terms of price, quality and delivery, with three significant competitors.
Harper-Wyman believes it is a leading supplier to the market for its gas
range products in the domestic market. OakGrigsby supplies to a highly
fragmented market and competes primarily on the basis of price, technology,
innovation and distribution.
Harper-Wyman's domestic control products must conform to Underwriters'
Laboratories and American Gas Association specifications. All such
approvals have been obtained and Harper-Wyman's quality assurance team
maintains compliance with these specifications. The Controls Group is not
dependent upon any single supplier for raw materials. The Controls Group
owns a number of patents but does not consider any one patent or group of
patents material to the conduct of business.
OTHER SEGMENT
The Company's Other Segment accounted for approximately 8% of the
Company's net sales for 1995, 1994 and 1993.
Railway Products. Through its Nordco Inc. subsidiary ("Nordco"), the
Company manufactures, sells and leases products used in the construction,
maintenance and repair of railway tracks. Nordco's products fall into
three general categories: tie renewal equipment, rail renewal equipment
and track inspection equipment. A significant portion of Nordco's business
results from sales of replacement parts for these machines.
The sale of Nordco's products is conducted through a direct sales force
and distribution network throughout North America. Although Nordco has
several key competitors, including Fairmont Tamper, the Company believes
that no more than two competitors sell against Nordco in any particular
product line. Management believes it is well-positioned for this
competitive environment. The Company believes Nordco's strong marketing
relationships combined with superior engineering capability, certain
patents, which have remaining lives of 4 to 8 years, and a successful
research and development program, have given Nordco a reputation as a
technological and quality leader in this industry.
Nordco's primary market includes railroads in the United States and
Canada designated as Class I (railroads with revenues in excess of $256
million). Nordco is dependent on a small number of customers and the loss
of any one of these customers could have a material adverse effect on
Nordco's business. Major customers of Nordco include Burlington Northern,
Southern Pacific and consolidated Rail. The top ten customers account for
approximately 88% of Nordco's sales.
Nordco's machines and parts customers have distinct seasonal demands.
Machine shipments are heaviest during early spring when the summer track
maintenance programs commence and parts shipments are heaviest during the
summer work season.
Nordco is primarily an assembler of purchased components from a wide
variety of suppliers, and it is not dependent upon any single supplier.
OTHER INVESTMENTS
Wuhan Telecommunications Devices Company. The Company, through its
Lasertron subsidiary, owns a 50% interest in Wuhan Telecommunications
Devices Company ("WTD"), located in the Peoples Republic of China. A
research facility of the Ministry of Posts and Telecommunications owns the
other 50%. WTD manufactures fiber optic, semiconductor laser components
for the telecommunications industry.
Channel 44. During 1995, the Company owned a 49% interest in Video 44,
a joint venture owning WSNS-TV (Channel 44) which, as a Telemundo
affiliate, broadcasts Spanish language programming in the Chicago
metropolitan area. In 1996, the Company sold its 49% interest in the joint
venture to Telemundo of Chicago, Inc. Cash proceeds from the sale of the
Company's equity interest were approximately $29.0 million and were used to
reduce debt. The Company expects to report a gain related to this
transaction in the first quarter of 1996.
O/E/N India. The Company owns a 45% interest in O/E/N India Ltd.
("O/E/N India"), located in Cochin, Kerala, India. O/E/N India assembles
and markets relays, potentiometers and switches for the Indian market. The
principal markets include communications systems, data processing equipment
and industrial applications. O/E/N India and its subsidiaries' products
also include floppy diskettes, terminals and connectors. In February 1996,
the Company entered into a definitive agreement to sell the Company's 45%
interest in O/E/N India. Cash proceeds from the sale of the Company's
interest are estimated to be approximately $1.2 million. The Company
expects the impact of this transaction to be immaterial to its financial
position and results of operations.
McCoy (Cayman) Ltd. The Company owns a 50% interest in McCoy (Cayman)
Ltd. which markets synthetic quartz crystals to customers outside of the
United States. McCoy (Cayman) Ltd., in turn, is the sole shareholder of
Industrias McCoy de Venezuela C.A., which synthesizes quartz crystals.
McCoy International. The Company owns a 50% interest in McCoy
International, a Delaware partnership, which markets synthetic quartz
crystals to customers in the United States.
EMPLOYEES
At December 31, 1995, the Company had approximately 3,000 employees,
1,932 of whom were located in the United States and 1,068 outside the
United States. Of these employees, 223 are members of unions. The Company
believes its relationships with its employees are good.
BACKLOG
The Company's backlog of domestic and foreign orders for each industry
segment at the indicated dates was as follows (dollars in thousands):
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December 31, 1995 December 31, 1994
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Components.................... $77,597 $56,245
Other......................... 1,514 884
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Total $79,111 $57,129
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Substantially all orders in each segment's backlog are considered firm
and are expected to be delivered within twelve months of the dates
indicated above. Consistent with practices in the Company's businesses, a
portion of the backlog is unscheduled as to the delivery date. Orders are
normally cancelable subject to payment by the purchaser of charges incurred
by the Company up to the time of cancellation.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the name, age, position and offices of all
executive officers of the Company. The term of office of all executive
officers will expire upon the holding of the first meeting of the Board of
Directors following the 1996 Annual Meeting of Shareholders.
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Name Age Position
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William S. Antle III.... 51 President and Chief Executive Officer since
December 1989. From 1980-1989, Mr. Antle
was at Bain and Company, an international
strategy consulting firm, most recently as
Executive Vice President. From 1973-1980,
Mr. Antle was an executive at Cummins
Engine Company, a manufacturer of diesel
engines, where from 1976-1980, he served as
General Manager of several manufacturing
facilities in the United Kingdom.
Coleman S. Hicks....... 52 Senior Vice President, General Counsel,
Secretary of Oak Industries Inc. and
President, Oak Frequency Control Group
since September 1995. Prior to that time,
Mr. Hicks was a partner at Covington and
Burling, a Washington, D.C. law firm that
he joined in 1972. From February 1979
until 1981, Mr. Hicks served as General
Counsel of the Department of the Navy.
Pamela F. Lenehan...... 43 Senior Vice President, Corporate
Development and Treasurer since February
1995. From 1981 until December 1994, Ms.
Lenehan was at CS First Boston, an
investment banking firm, most recently as
Managing Director-Investment Banking. From
1974-1981, Ms. Lenehan was a lending
officer at the Chase Manhattan Bank where
she was a Vice President in the Corporate
Banking Department.
Francis J. Lunger...... 50 Senior Vice President and Chief Financial
Officer since November 1995. From August
1995 to November 1995, Mr. Lunger was
Acting Chief Executive Officer and from
March 1994 to August 1995, Chief
Administrative Officer of Nashua
Corporation, a manufacturer of office
products. From January 1983 to March 1994,
Mr. Lunger worked at Raychem Corporation, a
specialty materials company, where he most
recently was Vice President and Group
General Manager for the Interconnect
Components and Medical Division, having
previously served as Vice President,
Finance. From July 1976 to January 1983,
Mr. Lunger was employed by Baxter
International in a number of positions
including Vice President, Travenol Home
Health Care, Corporate Controller and Vice
President Finance, Travenol International.
John D. Richardson..... 50 Senior Vice President, Human Resources
since August 1990. From May 1986 to August
1990, Mr. Richardson was at Fidelity
Investments, the nation's largest mutual
fund company, where he served as the
Corporate Vice President of Human
Resources. From August 1983 to May 1986,
Mr. Richardson was Senior Director,
Employee Relations at Motorola's Codex
division. He was also Human Resources
Director at Hallmark Cards, Inc., from
October 1978 to August 1983.
</TABLE>
ITEM 2. PROPERTIES
The Company believes that its plants and facilities are suitable and
adequate for its business. They are well maintained, are in sound
operating condition, and are in regular use. The table below sets forth
the location and general character of important properties of the Company.
Properties without reference to leases are owned by the Company.
<TABLE>
<CAPTION>
Floor Space
(approximate
Location / YEAR LEASE EXPIRES Square Feet)
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<S> <C>
Amboise, France {A,C,D}................................. 34,000 (2 buildings)
Aurora, Illinois (lease expires 11/30/96) {A,C}......... 18,000
Bedford, Massachusetts (lease expires 4/30/06) {A,C,D}.. 80,000 (2 buildings)
Burlington, Massachusetts (month-to-month) {A,C,D}...... 72,000 (2 buildings)
Glendale, Arizona (leases expire 12/31/97, 12/31/98 and.
8/31/10) {A,C,D}............................... 198,000 (5 buildings)
Juarez, Mexico (lease expires 5/16/98) {A,D}............ 51,000
Kansas City, Kansas {A,C,D} (lease expires 9/30/97)..... 19,000
Mercersburg, Pennsylvania {A,D}......................... 34,000 (2 buildings)
Milwaukee, Wisconsin (lease expires 12/31/97) {C,D,E}... 92,000
Mt. Holly Springs, Pennsylvania {A,C,D}................. 79,000 (2 buildings)
Phoenix, Arizona (lease expires 8/31/06) {A,C,D}........ 40,000
Princeton, Illinois {A,D}............................... 235,000 (2 buildings)
Sugar Grove, Illinois (leases expire 3/31/97
and 12/14/01) {A,C,D}.......................... 86,000 (2 buildings)
Vordingborg, Denmark {A,C,D}............................ 31,000
Waltham, Massachusetts (lease expires 7/31/00) {B,C}.... 15,000
Whitby, Ontario, Canada {A,C,D}......................... 25,000
Zaragosa, Mexico (lease expires 6/30/97) {A,D}.......... 97,000
<FN>
{A} Used by the Components Segment.
{B} Corporate Headquarters.
{C} Office Space.
{D} Manufacturing Facilities.
{E} Used by the Other Segment
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
Various pending or threatened legal proceedings by or against the
Company or one or more of its subsidiaries involve alleged breaches of
contract, torts and miscellaneous other causes of action arising in the
ordinary course of business. The Company's management does not consider
any of such proceedings to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1995, no matters were submitted to a vote
of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The markets on which the common stock of the Company is traded are the
New York Stock Exchange and the Pacific Stock Exchange. As of February 29,
1996, there were approximately 7,074 stockholders of record of common stock
of the Company.
Information regarding the trading price of the Company's common stock
for each quarterly period during the last two fiscal years is set forth
below. No dividends on the Company's common stock were paid during 1995 or
1994. (See description of dividend restrictions included in the Revolving
Credit Facility Agreement in Note 5 of the Notes to Consolidated Financial
Statements.)
<TABLE>
<CAPTION>
PRICE OF COMMON STOCK
--------------------------
1994 1993
---------------- ----------------
HIGH LOW HIGH LOW
------ ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter........... $28 3/8 $22 1/2 $20 3/4 $15 5/8
Second Quarter.......... 30 3/8 25 1/8 22 1/4 17
Third Quarter........... 32 22 3/8 29 7/8 19 3/4
Fourth Quarter.......... 30 3/8 16 1/2 28 1/4 22 3/8
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<PAGE>
FINANCIAL RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net sales:
Components.............. $255,364 $228,470 $201,593 $123,375 $108,555
Other................... 21,216 20,534 17,969 19,874 15,811
Net sales from
continuing operations. 276,580 249,004 219,562 143,249 124,366
Purchased in-process
research and development
expense................. 80,872 -- -- -- --
Operating income (loss).... (24,824) 46,347 31,658 6,609 (244)
Interest expense........... 6,273 6,611 7,795 1,405 1,798
Income (loss) from
continuing operations
before income taxes
and minority interest... (27,853) 43,391 26,267 8,748 1,717
Income (loss) from
continuing operations... (50,514) 42,446 26,660 10,388 5,265
Net income (loss).......... (52,124) 42,446 26,660 14,438 5,570
Earnings per common share:
Continuing operations... (2.74) 2.31 1.47 .59 .32
Net income (loss)....... (2.83) 2.31 1.47 .82 .34
Cash dividends per
common share............ -- -- -- -- --
FINANCIAL POSITION
Working capital............ $ 79,942 $ 72,068 $ 69,324 $ 54,829 $ 61,805
Plant and equipment, net... 53,568 36,573 33,429 32,668 24,658
Total assets............... 312,728 281,641 237,727 228,948 124,512
Long-term debt,
net of current
maturities.............. 91,570 34,403 61,549 76,922 11,225
Stockholders' equity....... 119,213 167,150 126,919 98,074 84,182
GENERAL STATISTICS
Capital expenditures....... $ 17,354 $ 6,807 $ 7,018 $ 4,111 $ 4,667
Depreciation............... $ 7,932 $ 6,669 $ 6,142 $ 4,380 $ 4,322
Average common shares
outstanding............. 18,423,014 18,384,342 18,100,104 17,666,745 16,505,446
Number of recordholders
(at year-end)........... 7,144 8,346 9,732 12,146 12,113
Number of employees
(at year-end)........... 3,000 2,847 2,620 2,253 1,620
Salaries and wages......... $ 68,914 $ 63,162 $ 53,016 $ 40,435 $ 38,544
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1995 COMPARED TO 1994
Sales for 1995 reached $276.6 million, an increase of 11.1% over the
$249.0 million in 1994. The 1995 Components Segment sales increased 11.8%
over the prior year to $255.4 million reflecting strong growth in
Communications Components businesses offset by a slow down in the sale of
Controls Components. The Other Segment increased 3.3% to $21.2 million in
1995 attributable to a 17.2% increase in the sales of railroad maintenance-
of-way business offset, in part, by the divestiture of the Carpenter
Emergency Lighting business in November 1994.
<TABLE>
<CAPTION>
1995 1994 % Change
------ ------ --------
<C> <C> <C>
<S>
Net Sales ($ millions):
Components .......................... 255.4 228.5 11.8%
Other................................ 21.2 20.5 3.3%
------ ------
Total.............................. $276.6 $249.0 11.1%
====== ======
</TABLE>
The Company reported a net loss of $52.1 million in 1995 compared to net
income of $42.4 million in 1994. Several unusual transactions affected the
results of operations over the past two years. Net income for 1995
includes non-cash after tax charges of $82.1 million associated with the
acquisition of Lasertron, Inc., comprised of an $80.9 million charge for
purchased in-process research and development and a $1.2 million after tax
charge for the expensing of the write up of purchased inventory. The 1995
results also include an extraordinary charge of $1.6 million net of tax and
minority interest related to the early extinguishment of debt. Net income
for 1994 includes a restructuring charge of $2.0 million, a $0.9 million
tax gain resulting from a state income tax law change and a net tax benefit
of $10.8 million (a $14.0 million tax benefit net of minority interest of
$3.2 million) related to the recognition of tax net operating loss
carryforwards.
The Company's results of operations for the past two years can be
summarized as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------ ------
<C> <C>
<S>
Pre-tax income excluding unusual transactions... $ 55.0 $45.4
Income taxes................................. (12.5) (4.2)
Minority interest............................ (10.9) (8.5)
------ -----
Net income excluding unusual transactions.... 31.6 32.7
Lasertron purchase accounting adjustments.... (82.1) --
Extraordinary charge, early extinguishment
of debt.................................... (1.6) --
Restructuring charge......................... -- (2.0)
Tax gain..................................... -- 0.9
Tax benefit of net operating loss
carryforward, net of minority interest.... -- 10.8
------ -----
Net income (loss) as reported................ $(52.1) $42.4
====== =====
</TABLE>
The 1995 provision for income taxes excluding unusual transactions
increased $8.3 million over the prior year principally due to an increase
in the effective tax rate for financial reporting purposes. Beginning in
the third quarter of 1995, the Company began recording a full tax provision
for financial reporting purposes. The Company had approximately $78.0
million of unused net operating loss carryforwards for tax return purposes
at December 31, 1995 and will, therefore, pay minimal federal income taxes
until these carryforwards are utilized.
Minority interest expense excluding unusual transactions increased $2.4
million due to higher earnings at Gilbert Engineering. As a result of the
tax sharing agreement between the Company and Gilbert, the tax liability
for Gilbert has been calculated free of federal income taxes. Commencing
in the first quarter of 1996, this tax holiday will end and the minority
interest expense will be calculated with a full tax provision.
Pre-tax income before minority interest and unusual transactions
increased 21.1% to $55.0 million in 1995 from the prior year level of $45.4
million.
COMMUNICATIONS COMPONENTS
Communications Components revenues increased 28.5% in 1995. Excluding
the impact of the Lasertron, Inc. acquisition in September 1995, net sales
increased 22.0% over the 1994 period. Communications Components includes
the sales of Gilbert Engineering, a manufacturer of cable connectors,
Lasertron, Inc., a manufacturer of active fiber optic components, and Oak
Frequency Control Group, a manufacturer of quartz-based crystals and
oscillators. These products are generally used in telecommunications
networks covering a broad range of applications, including wired telephony
service, cable television and cellular communications. Sales of
Communications Components are dependent on the rate of network
infrastructure build out and upgrade in both domestic and international
markets. The Company's sales growth in 1995 is attributable to increased
new construction of cable television systems in international markets,
upgrades of domestic cable systems, and expanding applications for products
in cellular, paging and personal communications systems.
CONTROLS COMPONENTS
The sales of Controls Components decreased 12.6% in 1995 to $81.4
million from the prior year level of $93.1 million. Controls Components
consist primarily of flow and temperature control devices for gas
appliances and switches and encoders for equipment used in consumer,
commercial, medical and military applications. Sales of Controls
Components are sensitive to changes in consumer spending. Sales of gas
appliances are particularly susceptible to changes in domestic housing
starts, which were below expectations in the second half of 1995. The sales
of switching devices for military applications also decreased during the
year, offset by an increase in demand from commercial customers.
GROSS PROFIT
The gross profit margin excluding unusual transactions increased to
40.1% in 1995 from 37.5% in 1994. The improvement in profitability has
been driven by cost reductions, productivity improvements and an enhanced
mix of higher margin Communications Components. In aggregate, sales prices
have declined modestly during the year. Material costs were relatively
stable and wage rate increases were moderate.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses excluding unusual
transactions increased $7.8 million, or 17.4%, in 1995 over the prior year
but approximated 19% of sales in both periods. Research and development
spending increased 47.8% to $5.9 million, accounting for $1.9 million of
the change. The acquisition of Cabel-Con in June 1994 accounted for a
portion of the increases.
INTEREST
Interest expense decreased from $6.6 million in 1994 to $6.3 million in
1995. The decrease in interest expense reflected lower average borrowings
during the first three quarters of 1995 as cash generated from operations
was used to pay down debt. However, in September 1995, the Company
borrowed $80.0 million on its new debt facility in connection with the
Lasertron acquisition. Interest expense in the fourth quarter of 1995 was
$2.2 million.
Interest income increased from $1.4 million in 1994 to $1.7 million in
1995 as average cash balances increased. However, in September 1995, the
Company used approximately $20.0 million of cash in conjunction with the
Lasertron acquisition. Interest income in the fourth quarter of 1995 was
$0.2 million.
EQUITY INCOME
Equity in net income of affiliated companies decreased from $2.3 million
in 1994 to $1.6 million in 1995, primarily as a result of start up losses
at McCoy de Venezuela S.A. de C.V., which synthesizes quartz crystals.
Equity income related to Video 44 in 1995 approximated that of the prior
year. The Company previously announced that it had entered into a
definitive agreement to sell its interest in Video 44. The Company
anticipates reporting a gain related to this transaction, which has closed
in the first quarter of 1996. As a result of its acquisition of Lasertron,
the Company has included its proportionate share of the earnings of its 50%
owned Wuhan Telecommunications Devices Company ("WTD"), located in the
Peoples Republic of China.
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
of" ("FAS 121"). The Company believes that the adoption of FAS 121 will
not have a material impact on the Company's financial statements.
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("FAS 123").
The Company has elected to adopt the disclosure requirements of FAS 123 in
1996 and as such will have no impact on the Company's results of operations
or financial position.
1994 COMPARED TO 1993
Sales for 1994 were $249.0 million, an increase of 13.4% over the $219.6
million in 1993. The Components Segment sales increased 13.3% to $228.5
million in 1994 over the prior year reflecting strong growth in
Communications Components businesses and modest growth in Controls
Components businesses. Sales in the Other Segment increased 14.3% to $20.5
million in 1994 attributable to a 19.6% increase in the sales of railroad
maintenance-of-way equipment offset, in part, by the divestiture of the
Carpenter Emergency Lighting business in November 1994.
<TABLE>
<CAPTION>
1994 1993 % Change
------ ------ --------
<C> <C> <C>
<S>
Net Sales ($ millions):
Components ........................... 228.5 201.6 13.3%
Other................................. 20.5 18.0 14.3%
------ ------
Total............................... $249.0 $219.6 13.4%
====== ======
</TABLE>
The Company reported net income of $42.4 million in 1994 compared to
$26.7 million in 1993. Several unusual transactions affected the results
of operations over the past two years. Net income for 1994 includes a
restructuring charge of $2.0 million, a $0.9 million tax gain resulting
from a state income tax law change, and a net tax benefit of $10.8 million
(a $14.0 million tax benefit net of minority interest of $3.2 million)
related to the recognition of tax net operating loss carryforwards. Net
income for 1993 includes a restructuring charge of $2.9 million, a $3.9
million tax gain resulting from the favorable settlement of a tax dispute,
and a net tax benefit of $4.4 million (a $6.0 million tax benefit net of
minority interest of $1.6 million) related to the recognition of tax net
operating loss carryforwards.
The Company's results of operations for 1994 and 1993 can be summarized
as follows (in millions):
<TABLE>
<CAPTION>
1995 1994
------ ------
<C> <C>
<S>
Pre-tax income excluding unusual transactions..... $45.4 $29.2
Income taxes................................... (4.2) (2.1)
Minority interest.............................. (8.5) (5.8)
----- -----
Net income excluding unusual transactions...... 32.7 21.3
Restructuring charge........................... (2.0) (2.9)
Tax gains...................................... 0.9 3.9
Tax benefit of net operating
loss carryforward, net of
minority interest............................ 10.8 4.4
----- -----
Net income as reported......................... $42.4 $26.7
===== =====
</TABLE>
The 1994 provision for income taxes excluding unusual transactions
increased $2.1 million over the prior year principally due to higher pre-
tax income and to a lesser extent to a slightly higher effective tax rate
reflecting increased earnings in countries and states with higher tax
rates.
Minority interest expense excluding unusual transactions increased $2.7
million due to higher earnings at Gilbert.
Pre-tax income before minority interest and unusual transactions
increased 55.5% to $45.4 million in 1994 from the prior year level of $29.2
million.
COMMUNICATIONS COMPONENTS
Communications Components revenues increased 20.3% in 1994.
Communications Components includes the sales of Gilbert Engineering, a
manufacturer of cable connectors, and Oak Frequency Control Group, a
manufacturer of quartz-based crystals and oscillators. These products are
generally used in telecommunications networks including cable television
and cellular communications. Sales of Communications Components are
dependent on the rate of network infrastructure build out and upgrade in
both domestic and international markets. The Company's sales growth in
1994 is attributable to increased construction of cable television systems
in U.S. and international markets, expanding applications for products in
cellular and paging systems, and an increase in the upgrade and maintenance
of existing cable and wireless installations.
CONTROLS COMPONENTS
The sales of Controls Components increased 4.5% in 1994. Controls
Components consist primarily of flow and temperature control devices for
gas appliances and switches and encoders for equipment used in consumer,
commercial, medical and military applications. Sales of appliance controls
increased modestly as the result of industry growth. The sale of switching
devices for military applications decreased during the year, offset by an
increase in demand from commercial customers.
GROSS PROFIT
The gross profit margin excluding unusual transactions increased to
37.5% in 1994 from 34.1% in 1993. The improvement in profitability has
been driven by an enhanced mix of higher margin Communications Components,
cost reductions, and productivity enhancements.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses excluding unusual
transactions increased $4.7 million, or 11.7%, in 1994 over the prior year
but approximated 18% of sales in both periods. The acquisition of Cabel-
Con in June 1994 accounted for a significant portion of the increase.
INTEREST
Interest expense decreased from $7.8 million in 1993 to $6.6 million in
1994 due to lower average borrowing levels as cash generated from
operations was used to pay down debt.
Interest income increased from $0.7 million in 1993 to $1.4 million in
1994 as average cash balances increased.
EQUITY INCOME
Equity in net income of affiliated companies increased to $2.3 million
in 1994 from $1.7 million in 1993 due to improved performance of Video 44,
which owns WSNS-TV in Chicago.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations of $39.3 million in 1995 decreased $8.1
million from the $47.4 million generated in 1994 reflecting an increased
investment in working capital to support new product introductions and
higher sales volumes. The Company also accelerated its rate of capital
spending to $17.4 million in 1995 from the $6.8 million invested in 1994.
The increase in capital expenditures is attributable to automation of
production processes to reduce both cost and manufacturing cycle times,
expanded use of CAD/CAM capability and new prototyping equipment to reduce
development cycle times, expansion of existing production capacity to meet
increased volume requirements and addition of new capabilities generally
related to new products. It is expected that the level of capital spending
will increase to approximately $19.0 million in 1996.
Debt net of cash increased to $89.3 million at December 31, 1995 from
$9.9 million at the prior year end as a direct result of the $108.2 million
of cash expended for the acquisition of Lasertron, Inc. on September 6,
1995. The cash purchase price was funded with $80.0 million of borrowings
under the Oak Credit Agreement (see Note 5 of the Notes to Consolidated
Financial Statements) and $28.2 million from existing cash balances.
Repayment of borrowings was $30.0 million in 1995.
The Oak Credit Agreement consummated with a consortium of lenders on
August 30, 1995, provides for a $40.0 million revolving credit facility, a
$60.0 million term loan used in conjunction with the Lasertron, Inc.
acquisition and a $60.0 million term loan restricted to the funding of the
Company's purchase of a minority partner's interest in Connector Holding
Company (see Note 12 of the Notes to Consolidated Financial Statements).
The Company's previously existing $30.0 million revolving credit facility
was terminated on August 30, 1995. In conjunction with the Oak Credit
Agreement, the Company completed a financing on behalf of Gilbert
Engineering for an $18.0 million revolving credit facility and a $22.0
million term loan. The proceeds of the term loan and $6.6 million of the
revolving credit facility were used to refinance existing, higher interest
rate debt of Gilbert Engineering. Gilbert's previous credit facility was
terminated on August 30, 1995.
In addition to the $60.0 million term loan which is only available for
purchase of the Connector minority interest, cash, cash equivalents and
unused lines of credit at December 31, 1995 totaled $49.9 million of which
$23.0 million was available only to Gilbert and $26.9 million was available
to the Company for general corporate purposes, including acquisitions.
The Company has entered into a definitive agreement to sell its 49%
interest in Video 44, a joint venture which owns WSNS (Channel 44, Chicago)
for approximately $29.0 million in cash. The transaction has closed in the
first quarter of 1996 with the net proceeds being used to reduce debt.
The Company entered into a definitive agreement to sell its 45% interest
in O/E/N India Ltd. Cash proceeds from the sale of the Company's interest
are estimated to be approximately $1.2 million. The Company expects the
impact of this transaction to be immaterial to its financial position and
results of operations.
Subsequent to December 31, 1995, informal notification was received from
Bain Capital regarding the intention to exercise its right to require the
Company to purchase its 20% minority interest in Connector Holding Company
(see Note 12 of the Notes to Consolidated Financial Statements). The
closing date of this transaction and the ultimate purchase price cannot be
reasonably estimated. However, management believes adequate financial
resources are available to consummate the transaction.
The Company intends to aggressively pursue acquisitions in the
telecommunications sector which will enhance growth and profitability. An
acquisition may require new borrowing arrangements. Currently, the Company
has no commitment, understanding, or arrangement relating to any material
acquisition and there is no assurance that additional transactions will be
completed in 1996.
The Company believes that funds generated by operations, existing cash
balances and its available credit facility will be sufficient to fund the
Company's ongoing operations over the next year.
RISKS AND UNCERTAINTIES
Revenues from telecommunications components will account for a majority
of the Company's future revenues. Although demand for these products has
grown in recent years with the build out of telecommunications networks in
domestic and international markets, a decrease in the rate of
infrastructure construction or upgrade programs could have an adverse
impact on the Company's results of operations.
The telecommunications industry is very competitive and is characterized
by rapid technological change, new product development, product
obsolescence and evolving product specifications. Additionally, price
competition in this market is intense with significant price erosion over
the life cycle of a product. The ability of the Company to compete
successfully depends on the continued introduction of new products and
ongoing manufacturing cost reduction.
Sales of the Company's Controls Components are in large part dependent
on the production level of a few North American appliance manufacturers,
which in turn is sensitive to the strength of the economy, including
housing starts, consumer disposable income and interest rates. Adverse
changes in the economy would have a negative impact on the Company's
financial results.
The Company currently buys a number of raw materials from single
sources. In most cases there are readily available and qualified
alternative sources of supply. Although the Company does not at this time
have a qualified second source for one critical component used in the
production of fiber optic modules, management believes there are other
suppliers that could provide a like quality product on comparable terms. A
change in suppliers for this product could cause a delay in manufacturing
and adversely impact operating results.
The Company must comply with governmental regulations relating to the
environment. The cost of compliance with environmental regulations in 1995
was immaterial and is not expected to have a material effect on capital
expenditures or operating results in 1996.
Various pending or threatened legal proceedings by or against the
Company or one or more of its subsidiaries involve alleged breaches of
contract, torts and miscellaneous other causes of action arising in the
course of business. The Company's management, based upon advice of legal
counsel representing the Company with respect to each of these proceedings,
does not believe any of these proceedings will have a significant impact on
the Company's consolidated financial position.
The Company's international operations and its results could be affected
by changes in policies of foreign governments and in social and economic
conditions outside the U.S. including civil unrest, changing inflation and
foreign exchange rates, and trade restrictions or prohibitions.
Any of the foregoing could have an adverse effect on future results.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
OAK INDUSTRIES INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<C>
<S>
REPORT OF INDEPENDENT ACCOUNTANTS.................................. XX
FINANCIAL STATEMENTS -
Consolidated Balance Sheet at December 31, 1995 and 1994...... XX
Consolidated Statement of Operations for the years
ended December 31, 1995, 1994 and 1993........................ XX
Consolidated Statement of Stockholders' Equity
for the years ended December 31, 1995, 1994 and 1993.......... XX
Consolidated Statement of Cash Flows for the years
ended December 31, 1995, 1994 and 1993........................ XX
Notes to Consolidated Financial Statements.................... XX
SCHEDULES -
VIII - Valuation and Qualifying Accounts.................. XX
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Oak Industries Inc.
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Oak Industries Inc. and its subsidiaries at December 31, 1995
and 1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles. These financial statements
are the responsibility of the Company's management; our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Boston, Massachusetts
January 30, 1996
<PAGE>
OAK INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1995 1994
-------- --------
<C> <C>
<S>
Current Assets:
Cash and cash equivalents...................... $ 16,942 $ 37,648
Receivables, less reserves of $1,578 and
$1,065.................................. 40,631 31,731
Inventories.................................... 52,328 35,638
Deferred income taxes.......................... 19,900 11,600
Other current assets........................... 3,815 2,950
-------- --------
Total current assets..................... 133,616 119,567
-------- --------
Plant and Equipment:
Land........................................... 1,001 1,004
Buildings and leasehold improvements........... 18,493 17,653
Machinery and equipment........................ 98,118 76,681
Furniture and fixtures......................... 7,198 5,114
-------- --------
124,810 100,452
Less - Accumulated depreciation................ (71,242) (63,879)
-------- --------
Total plant and equipment................ 53,568 36,573
-------- --------
Other Assets:
Deferred income taxes.......................... 17,242 31,750
Goodwill and other intangible assets,
less accumulated amortization
of $10,945 and $8,374....................... 79,829 75,960
Investments in affiliates...................... 20,940 10,985
Other assets................................... 7,533 6,806
-------- --------
Total other assets....................... 125,544 125,501
-------- --------
Total Assets............................. $312,728 $281,641
======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
<PAGE>
OAK INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1995 1994
-------- --------
<C> <C>
<S>
Current Liabilities:
Current portion of long-term debt.............. $ 14,691 $ 13,118
Accounts payable............................... 15,822 12,558
Accrued liabilities............................ 23,161 21,823
--------- ---------
Total current liabilities................ 53,674 47,499
--------- ---------
Other Liabilities:
Deferred compensation and pensions............. 5,505 5,595
Other.......................................... 6,123 463
--------- ---------
Total other liabilities.................. 11,628 6,058
--------- ---------
Long-Term Debt, Less Current Maturities........... 91,570 34,403
--------- ---------
Minority Interest................................. 36,643 26,531
--------- ---------
Commitments and Contingent Liabilities (Note 12)
Stockholders' Equity:
Preferred stock, no par value; authorized
5,000,000 shares; none issued............... -- --
Junior preferred stock, no par value;
authorized 500,000 shares; none issued...... -- --
Common stock, par value of $0.01;
authorized 50,000,000 shares;
issued 17,667,788 and 17,479,198 shares..... 177 175
Additional paid-in capital..................... 282,179 278,976
Accumulated deficit............................ (161,528) (109,404)
Cumulative translation adjustment.............. 248 (658)
Treasury stock, 65,672, and 50,182 shares...... (1,316) (895)
Stock purchase loans........................... (547) (1,044)
--------- ---------
Total stockholders' equity............... 119,213 167,150
--------- ---------
Total Liabilities and
Stockholders' Equity.................. $ 312,728 $ 281,641
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
<PAGE>
OAK INDUSTRIES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<C> <C> <C>
<S>
Net Sales....................................... $ 276,580 $ 249,004 $ 219,562
Cost of sales................................... (167,696) (155,638) (144,706)
--------- --------- ---------
Gross profit................................. 108,884 93,366 74,856
Selling, general and administrative expenses.... (52,836) (47,019) (43,198)
Purchased in-process research and development... (80,872) -- --
--------- --------- ---------
Operating income (loss)...................... (24,824) 46,347 31,658
Interest expense................................ (6,273) (6,611) (7,795)
Interest income................................. 1,661 1,351 731
Equity in net income of affiliated companies.... 1,583 2,304 1,673
--------- --------- ---------
Income (loss) from operations
before income taxes, minority interest
and extraordinary charge.................. (27,853) 43,391 26,267
Income tax benefit (provision).................. (11,803) 10,745 7,836
Minority interest in net income of subsidiaries. (10,858) (11,690) (7,443)
--------- --------- ---------
Income (loss) from operations before
extraordinary charge...................... (50,514) 42,446 26,660
Extraordinary charge for early extinguishment
of debt, net of income tax
benefit of $1,506 and minority interest
of $746 ..................................... (1,610) -- --
--------- --------- ---------
Net income (loss)............................... $ (52,124) $ 42,446 $ 26,660
========= ========= =========
Income (loss) per common share:
Before extraordinary charge.................. $ (2.74) $ 2.31 $ 1.47
Extraordinary charge......................... (.09) -- --
--------- --------- ---------
Net income (loss)............................... $ (2.83) $ 2.31 $ 1.47
========= ========= =========
Average number of common shares outstanding..... 18,423 18,384 18,100
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
<PAGE>
OAK INDUSTRIES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL CUMULATIVE STOCK
COMMON PAID-IN ACCUMULATED TRANSLATION TREASURY PURCHASE
STOCK CAPITAL DEFICIT ADJUSTMENT STOCK LOANS TOTAL
------- -------- ----------- ----------- -------- -------- --------
<C> <C> <C> <C> <C> <C> <C>
<S>
Balance, December 31, 1992....... $165 $276,637 $(178,510) $ (23) $ (31) $ (164) $ 98,074
Net income....................... -- -- 26,660 -- -- -- 26,660
Current year translation
adjustment..................... -- -- -- (507) -- -- (507)
Exercise of options and warrants. 7 3,830 -- -- -- -- 3,837
Employee notes receivable........ -- -- -- -- -- (1,305) (1,305)
Other............................ -- -- -- -- (4) 164 160
---- -------- --------- ----- ------- ------- --------
Balance, December 31, 1993....... 172 280,467 (151,850) (530) (35) (1,305) 126,919
Net income....................... -- -- 42,446 -- -- -- 42,446
Current year translation
adjustment..................... -- -- -- (128) -- -- (128)
Exercise of options and warrants. 3 1,546 -- -- (418) -- 1,131
Acquisition of warrants.......... -- (3,061) -- -- -- -- (3,061)
Other............................ -- (24) -- -- (442) 261 (157)
---- -------- --------- ----- ------- ------- --------
Balance, December 31, 1994....... 175 278,976 (109,404) (658) (895) (1,044) 167,150
Net loss......................... -- -- (52,124) -- -- -- (52,124)
Current year translation
adjustment..................... -- -- -- 906 -- -- 906
Exercise of options ............. 2 3,229 -- -- (43) -- 3,188
Other............................ -- (26) -- -- (378) 497 93
---- -------- --------- ----- ------- ------- --------
Balance, December 31, 1995....... $177 $282,179 $(161,528) $ 248 $(1,316) $ (547) $119,213
==== ======== ========= ===== ======= ======= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
<PAGE>
OAK INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<C> <C> <C>
<S>
OPERATING ACTIVITIES:
Net income (loss)..................................... $ (52,124) $ 42,446 $ 26,660
Adjustments to reconcile net income (loss)to net cash
provided by operations:
Purchased in-process research and development....... 80,872 -- --
Extraordinary charge for early
extinguishment of debt............................ 1,610 -- --
Depreciation and amortization....................... 11,665 10,618 10,328
Change in minority interest......................... 10,858 11,690 7,443
Undistributed earnings of affiliated companies...... (723) (1,464) (1,356)
Change in assets and liabilities, net of effects
from acquisition of businesses:
Receivables...................................... (4,689) (2,347) (901)
Inventories...................................... (6,964) (2,392) 1,681
Accounts payable and accrued liabilities......... (5,877) 7,061 (1,464)
Deferred compensation and pensions............... (90) 134 (1,984)
Deferred income taxes............................ 6,292 (14,979) (6,734)
Other............................................ (1,499) (3,389) (2,120)
--------- -------- --------
Net cash provided by operations........................... 39,331 47,378 31,553
--------- -------- --------
INVESTING ACTIVITIES:
Capital expenditures................................... (17,354) (6,807) (7,018)
Acquisition of businesses, net of cash acquired........ (100,019) (8,309) (1,594)
Advances to affiliated companies....................... (300) (308) (251)
Disposition of business................................ -- 2,092 --
Repayments from (loans to) employees................... 497 261 (1,360)
Other.................................................. (116) 110 265
--------- -------- --------
Net cash used in investing activities..................... (117,292) (12,961) (9,958)
--------- -------- --------
FINANCING ACTIVITIES:
Long-term borrowings................................... 114,000 -- --
Repayment of borrowings................................ (30,020) (17,460) (22,655)
Early retirement of debt............................... (28,610) (4,200) --
Reduction in cash restricted for letter of credit...... -- -- 6,000
Exercise of options and warrants....................... 3,188 1,155 3,837
Acquisition of warrants................................ -- (3,061) --
Deferred debt issuance costs........................... (1,805) -- --
Other.................................................. (404) (442) 160
--------- -------- --------
Net cash provided by (used in) financing activities....... 56,349 (24,008) (12,658)
--------- -------- --------
Effect of exchange rate changes on cash................... 906 (128) (507)
--------- -------- --------
Net change during year.................................... (20,706) 10,281 8,430
Balance, beginning of year................................ 37,648 27,367 18,937
--------- -------- --------
Balance, end of year...................................... $ 16,942 $ 37,648 $ 27,367
========= ======== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
<PAGE>
(1) NATURE OF BUSINESS:
Oak Industries conducts its business through two business segments -
Components and Other (see Note 10). The Components Segment develops,
manufactures and sells active and passive components for telecommunications
networks including cable connectors, fiber optic lasers and frequency
control devices. This group also develops, manufactures and sells a broad
line of control and sensing devices both electronic and mechanical for use
in consumer appliances, testing equipment and industrial applications. The
Other Segment is comprised of a business unit which designs, manufactures
and sells railway maintenance-of-way equipment.
(2) STATEMENT OF ACCOUNTING POLICIES:
Following are the significant financial and accounting policies of the
Company:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and all of its majority-owned subsidiaries. All significant
transactions between the Company and its subsidiaries are eliminated.
PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
MINORITY INTEREST
Minority interest represents the minority stockholders' proportionate
share of the equity and the net income of Connector and Gilbert (See Note
12).
INVESTMENTS IN AFFILIATES
The Company's investments in affiliates consist of a 50% interest in
Wuhan Telecommunications Devices Company, a manufacturer of fiber optic
components in Wuhan City, The Peoples Republic of China; a 49% interest in
Video 44, a joint venture which owns TV station WSNS, which broadcasts
Spanish language programming in the Chicago metropolitan area; a 45%
interest in O/E/N India Ltd., a manufacturer of relays and switches in
Cochin, Kerala, India; and, a 50% interest in McCoy (Cayman) Ltd. and McCoy
International that, along with their subsidiaries, synthesize quartz
crystals in Venezuela and market them to customers worldwide. Investments
in these affiliated companies are recorded at cost plus equity in
undistributed earnings. The cumulative amount of these undistributed
earnings included in consolidated accumulated deficit at December 31, 1995
and 1994 was approximately $10,479,000 and $9,756,000, respectively.
Dividends received from these affiliated companies were $860,000, $840,000
and $317,000 for 1995, 1994, and 1993, respectively.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of foreign subsidiaries are translated into U.
S. dollars in accordance with Statement of Financial Accounting Standards
No. 52, "Foreign Currency Translation." Under this statement, balance
sheet accounts are translated at the current exchange rate and income
statement items are translated at the average exchange rate for the year.
Resulting translation adjustments, if any, are made directly to a separate
component of stockholders' equity. Foreign currency transaction gains and
losses are included in net income when realized.
REVENUE RECOGNITION
Revenues from product sales are recognized at the time products are
shipped.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out basis)
or market. Inventory costs, which include material, labor and factory
manufacturing overhead expenses, are as follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------ ------
<C> <C>
<S>
Raw materials....................... $12,308 $ 9,652
Work in process..................... 30,451 18,446
Finished goods...................... 9,569 7,540
------- -------
$52,328 $35,638
======= =======
</TABLE>
PLANT AND EQUIPMENT
Plant and equipment are stated at cost. Replacements and improvements
are capitalized, while repairs and maintenance costs are charged to expense
as incurred. Depreciation is provided under the straight-line method over
the following useful lives:
Buildings.................. 10 to 40 years
Machinery and equipment.... 3 to 15 years
Furniture and fixtures..... 5 to 15 years
The cost and accumulated depreciation of items sold or retired are
removed from the plant and equipment accounts and any resulting profit or
loss is recognized currently.
INTANGIBLE ASSETS
Goodwill and other intangibles, and the related amortization are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
OTHER
GOODWILL INTANGIBLES TOTAL
-------- ----------- -----
<C> <C> <C>
<S>
Balance, December 31, 1993.... $69,297 $ 1,702 $ 70,999
Additions..................... 7,397 99 7,496
Amortization.................. (2,169) (366) (2,535)
------- ------- --------
Balance, December 31, 1994.... 74,525 1,435 75,960
Additions..................... 4,728 2,014 6,742
Amortization.................. (2,415) (458) (2,873)
------- ------- --------
Balance, December 31, 1995.... $76,838 $ 2,991 $ 79,829
======= ======= ========
</TABLE>
Goodwill represents the excess of the cost of acquired businesses over
the fair market value of their net tangible and identified intangible
assets. Goodwill is being amortized on the straight-line method over
periods of 8 to 40 years. Other intangibles, predominantly patents, are
stated at cost and amortized on the straight-line method over periods of 3
to 17 years. Goodwill and other intangibles are reassessed annually to
determine whether any potential impairment exists.
CAPITALIZED DEBT COSTS
The Company capitalizes all costs related to the issuance of debt. The
resulting capitalized debt costs ($1,869,000 and $1,198,000 at December
31, 1995 and 1994, respectively) are classified as "Other assets" on the
consolidated balance sheet, and are amortized to expense under the straight
line method over the life of the related debt issue. During 1995, 1994 and
1993, the Company amortized $567,000, $1,034,000 and $1,318,000,
respectively, of capitalized debt costs. As a result of terminating its
previous debt facilities on August 30, 1995, the Company wrote off
capitalized debt costs of $785,000. These costs are included in the
extraordinary charge for early extinguishment of debt.
INCOME TAXES
The provision for income taxes includes federal, foreign and state
income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities. Deferred tax assets are recognized, utilizing current tax
rates, for deductible temporary differences and operating loss and credit
carryforwards that are more likely than not to be realized. Deferred tax
benefit or expense represents the change in the deferred tax asset or
liability balances.
RESEARCH AND DEVELOPMENT
Research and development costs, which are expensed as incurred, were
$5,857,000, $3,962,000 and $3,345,000 in 1995, 1994 and 1993, respectively.
These costs are included in selling, general and administrative expenses in
the consolidated statement of operations.
EARNINGS PER COMMON SHARE
Earnings per share are based on the weighted average number of shares of
common stock and common stock equivalents outstanding as follows:
18,423,014 in 1995; 18,384,342 in 1994, and; 18,100,104 in 1993. Included
in these weighted average shares figures are common stock equivalents of
902,786 in 1995; 1,102,624 in 1994, and; 1,494,944 in 1993.
CASH EQUIVALENTS
The Company's cash equivalents represent funds invested in a variety of
liquid short-term instruments with original maturities of less than three
months. The carrying amount of these instruments approximates fair value.
INVESTMENTS
During 1994, the Company adopted FAS 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115"). In accordance with
FAS 115, the Company's short-term investments, which include debt
securities, are classified as held to maturity. Equity securities held by
the Company are classified as held for sale. The recorded value of these
investments approximates fair value.
CONSOLIDATED STATEMENT OF CASH FLOWS
Supplementary information for the consolidated statement of cash flows
is as follows (dollars in thousands):
Cash paid during the year for:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<C> <C> <C>
<S>
Interest........................ $ 4,841 $ 5,050 $ 6,280
Income taxes.................... $ 3,414 $ 1,857 $ 4,890
</TABLE>
Details of businesses acquired were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<C> <C> <C>
<S>
Assets acquired................. $ 45,948 $18,269 $ 1,594
Purchased in-process
research and development...... 80,872 -- --
Liabilities assumed............. (18,582) (3,313) --
Debt assumed.................... -- (5,706) --
-------- ------- -------
Cash paid....................... 108,238 9,250 1,594
Cash acquired................... (8,219) (941) --
-------- ------- -------
Net cash paid................... $100,019 $ 8,309 $ 1,594
======== ======= =======
</TABLE>
RECLASSIFICATIONS
Certain items in the 1994 and 1993 financial statements have been
reclassified to conform with the 1995 presentation.
(3) ACQUISITIONS:
LASERTRON
On September 6, 1995, the Company acquired all of the common stock of
Lasertron, Inc. ("Lasertron"), a Bedford, Massachusetts manufacturer of
fiber optic components for the telecommunications and CATV industries for
approximately $108,238,000 cash, including transaction expenses. Lasertron
had cash of $8,219,000 at the time of the acquisition. In addition, the
Company assumed all of the outstanding and unexercised stock options under
Lasertron's existing stock option plans (see Note 7). Upon exercise of
such options, option holders shall receive shares of the Company's common
stock, adjusted to take into account the relative share prices of the
Company and Lasertron at the acquisition date. The Company has recorded a
liability of approximately $6,150,000 related to this obligation.
The acquisition was accounted for as a purchase and, accordingly,
operating results of this business subsequent to the date of acquisition
were included in the Company's consolidated financial statements. The
excess purchase price over fair value of the net tangible assets acquired
was $86,705,000 of which $80,872,000 was allocated to purchased in-process
research and development and $5,833,000 was allocated to goodwill and other
intangible assets. The purchased in-process research and development was
charged to operations upon acquisition, and the goodwill and other
intangible assets are being amortized over 3 to 10 years.
The purchase price was financed with (i) the proceeds from a $60,000,000
term loan and $20,000,000 of a $40,000,000 revolving credit facility and
(ii) cash of $28,238,000 held by the Company.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company and Lasertron as if the acquisition
had occurred at the beginning of 1995 and 1994, after giving effect to
certain adjustments, including amortization of intangible assets, increased
interest expense on the acquisition debt, and related income tax effects.
The pro forma summary does not necessarily reflect the results of
operations as they would have been if the Company and Lasertron had
constituted a single entity during such periods.
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
(Unaudited)
-----------------
1995 1994
---- ----
<C> <C>
<S>
Net sales......................................... $299,106 $278,751
Loss from operations before extraordinary charge.. $ 54,267) $(40,487)
Net loss.......................................... $(55,877) $(42,097)
Loss from operations before extraordinary charge
per common share............................... $ (2.94) $ (2.18)
Net loss per common share......................... $ (3.03) $ (2.27)
</TABLE>
CABEL-CON
On June 10, 1994, Gilbert acquired all of the outstanding common stock
of Cabel-Con A/S ("Cabel-Con"), a Danish manufacturer of connectors for
the worldwide cable television markets, for $9,250,000. Cabel-Con had cash
of $941,000 at the time of the acquisition. The acquisition was financed
by borrowing on Gilbert's revolving credit facility. Concurrent with the
acquisition, Gilbert paid off $2,625,000 of Cabel-Con's bank borrowings.
The acquisition was accounted for as a purchase and, accordingly, operating
results of this business subsequent to the date of acquisition were
included in the Company's consolidated statement of operations.
Substantially all of the goodwill resulting from this acquisition,
approximately $7,496,000, is being amortized over 40 years.
SPECTRUM TECHNOLOGY
On January 12, 1993, the Company acquired the assets of the hybrid
oscillator business of Spectrum Technology Inc., a subsidiary of Datum
Inc., for approximately $1,594,000 in cash, including consolidation costs.
The acquisition was accounted for as a purchase and, accordingly, operating
results of the business subsequent to the date of acquisition were included
in the Company's consolidated statement of operations. Goodwill resulting
from this acquisition is being amortized over 15 years.
(4) DIVESTITURES:
In February 1996, the Company entered into a definitive agreement to
sell its 45% interest in O/E/N India Ltd. Cash proceeds from the sale of
the Company's interest are estimated to be approximately $1,200,000. The
Company expects the impact of this transaction to be immaterial to its
financial position and results of operations.
In November 1995, the Company announced that it entered into a
definitive agreement with Telemundo of Chicago, Inc. to sell the Company's
49% interest in Video 44, a joint venture which owns WSNS-TV (Channel 44),
an Hispanic television station located in Chicago. Anticipated cash
proceeds from the sale of the Company's equity interest are estimated at
$29,000,000 and will be used to reduce debt. The Company expects to report
a gain related to this transaction, which has closed in the first quarter
of 1996.
On November 7, 1994, the Company's subsidiary, Oak Crystal Inc.,
completed the sale of the assets of its Carpenter Emergency Lighting
business ("Carpenter") for $2,092,000 in cash. Carpenter manufactures and
sells self-powered emergency lights, exit signs, and portable lights.
Carpenter was sold due to the lack of strategic fit with other Oak
subsidiaries. Carpenter's operations have been insignificant for all years
presented in relation to the Company and, thus, the disposition has not
been recorded as a discontinued operation.
(5) INDEBTEDNESS:
Long-term debt at December 31 is summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<C> <C>
<S>
Corporate Borrowings:
Term Loan A............................... $ 57,500 $ --
Revolving Credit Facility................. 23,000 --
Other..................................... 168 459
Gilbert Engineering borrowings:
New Credit Facility:
Term Loan............................. 20,900 --
Revolving Credit Facility.............. 2,000 --
Old Credit Facility:
Term Loan A............................ -- 35,452
Revolving Credit Facility.............. -- 2,278
Cabel-Con Mortgages....................... 2,693 2,702
Connector Holding Company Senior
Subordinated Notes......................... -- 6,630
-------- -------
106,261 47,521
Less -
Current maturities........................ (14,691) (13,118)
-------- -------
$ 91,570 $ 34,403
======== ========
</TABLE>
On August 30, 1995, the Company entered into a Credit Agreement (the
"Oak Credit Agreement") and the Company's Connector Holding Company
("Connector") and Gilbert subsidiaries, entered into a Credit Agreement
(the "Gilbert Credit Agreement"; together with the Oak Credit Agreement,
the "Credit Facilities") with various lenders.
The Oak Credit Agreement provides for a $40,000,000 revolving credit
facility, a $60,000,000 Tranche A term loan and a $60,000,000 Tranche B
term loan. The Tranche A term loan and $20,000,000 of the revolving credit
facility were advanced to the Company on September 6, 1995 in connection
with the Company's purchase of the capital stock of Lasertron. The Tranche
B term loan is available only to fund the Company's purchase of the shares
of the capital stock of Connector not presently owned by the Company. The
Company's previously existing $30,000,000 revolving credit facility was
terminated on August 30, 1995.
The Gilbert Credit Agreement provides for an $18,000,000 revolving
credit facility and a $22,000,000 term loan. The proceeds from the term
loan and $6,610,000 of the revolving credit facility were used to refinance
existing indebtedness of Gilbert and Connector.
Borrowings under the Credit Facilities bear interest, at the option of
the Company or Gilbert, either (i) at the prime rate (or, if higher, at
1/2% above the federal funds rate) or (ii) at a spread over the reserve-
adjusted 1,2,3 or 6 month LIBOR. The spread is initially 1% and is subject
to reduction when certain financial tests are met. As of December 31,
1995, interest rates on outstanding borrowings under the Credit Facilities
ranged from 6.875% to 8.5%. Commitment fees of 3/8% are payable on unused
borrowings under these agreements. Borrowings under the Credit Facilities
are secured by pledges of certain securities of certain of the Company's
subsidiaries. In addition, certain of the Company's subsidiaries have
guaranteed the obligations under the Credit Facilities. The Company and
Gilbert are required to meet certain financial covenants and are prohibited
from paying dividends. All loans advanced pursuant to the Credit
Facilities mature through September 30, 2000. The $60,000,000 Tranche A
term loan under the Oak Credit Agreement and the $22,000,000 term loan
under the Gilbert Credit Agreement are repayable at the end of each
calendar quarter from December 31, 1995 through September 30, 2000.
In connection with the Cabel-Con acquisition, the Company assumed
mortgages payable through 2009 which bear interest at rates of 7.8% and
8.2%. These mortgages are secured by the related land, building, machinery
and equipment.
Scheduled maturities of long-term debt at December 31, 1995 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------
<C>
<S>
1996............................... $14,691
1997............................... 14,717
1998............................... 17,264
1999............................... 22,272
2000............................... 36,202
Thereafter......................... 1,115
</TABLE>
(6) CAPITAL STOCK:
SHAREHOLDERS' RIGHTS PLAN
On December 7, 1995 the Company's Board of Directors adopted a
shareholder rights plan. The Board declared a distribution of one right
for each share of common stock outstanding on December 18, 1995. Stock
issued after that date will be issued with an attached right. Each right
will entitle the holder, upon the occurrence of certain events, to purchase
1/100th of a share of junior preferred stock at an initial exercise price
of $125. The Board may, at any time, redeem the rights until their
expiration on December 7, 2005, and may amend the rights under certain
circumstances until they become exercisable.
STOCK PURCHASE LOANS
In connection with the secondary offering in December 1993, the Company
lent $1,305,000 to its corporate officers and certain key divisional
managers for the purchase of 90,000 shares of the Company's stock from the
selling shareholders. The principal amount of such loans is repayable in
full in February 1997, with interest on such loans accruing at prime plus
0.5% per annum, payable annually in February of each year beginning in 1995
until maturity. These loans, which are included in stockholders' equity,
are secured by the common stock purchased and certain other amounts owed to
such individuals by the Company. In 1995 and 1994, respectively, principal
of $497,000 and $261,000 and interest of $60,000 and $27,000 was paid to
the Company by the borrowers. The principal balance of these loans at
December 31, 1995 is $547,000.
REVERSE STOCK SPLIT
Effective May 13, 1993, the Company's stockholders approved a one-for-
five reverse stock split of the Company's common stock (the "Reverse
Split"). All share amounts and earnings per share amounts have been
restated to reflect the Reverse Split.
EXCHANGEABLE SHARES
In connection with the Company's 1992 acquisition of Gilbert, the
Company issued options under the 1992 Non-Qualified Stock Option Plan
pursuant to which Gilbert management may, beginning in December 1995 and at
its option, exchange its shares of Gilbert for up to 94,118 shares of the
Company's common stock each year to a maximum of 282,353 shares.
(7) STOCK OPTIONS AND AWARDS:
The Company has stock option plans for directors, officers, employees
and consultants and advisors, which provide for the issuance of
nonqualified and incentive stock options. The Board of Directors
determines the option price (not to be less than fair market value) at the
date of the grant. Options granted generally vest over three to four years
from the date of the grant and expire after ten years. Certain options
granted under the 1995 Stock Option and Restricted Stock plan will become
exercisable prior to the tenth anniversary of their grant date only if the
Company's common stock closes at or above $40 per share for ten consecutive
trading days within the three year period following the grant date.
In connection with the acquisition of Lasertron, the Company assumed all
of the outstanding stock options under Lasertron's 1982 Incentive Stock
Option Plan and 1992 Stock Option Plan (together, the "Plans"). The
exercise price and shares issuable under these plans were adjusted to
approximate the cash paid by the Company for each share of Lasertron common
stock at the acquisition date. No further grants will be made under these
Plans.
STOCK OPTION SUMMARY
<TABLE>
<CAPTION>
Shares Option Price
-------- --------------
<C> <C>
<S>
Outstanding at December 31, 1992........... 1,540,100 $ 3.15 to $ 11.25
Granted................................. 200,665 $16.50 to $ 17.50
Expired or cancelled.................... (88,835) $ 4.06 to $ 11.25
Exercised............................... (137,751) $ 3.15 to $ 11.25
---------
Outstanding at December 31, 1993........... 1,514,179 $ 4.06 to $ 17.50
Granted................................. 313,500 $18.38 to $ 26.63
Expired or cancelled.................... (32,269) $ 4.06 to $ 17.50
Exercised............................... (217,667) $ 4.06 to $ 17.50
---------
Outstanding at December 31, 1994........... 1,577,743 $ 4.06 to $ 26.63
Granted................................. 1,812,003 $ 4.02 to $ 29.38
Expired or cancelled.................... (8,190) $ 4.06 to $ 26.63
Exercised............................... (188,590) $ 4.02 to $ 16.50
---------
Outstanding at December 31, 1995........... 3,192,966 $ 4.02 to $ 29.38
=========
Exercisable at December 31, 1995........... 1,333,555
=========
Available for grant at December 31, 1995... 753,744
=========
</TABLE>
There were 4,229,063 shares of common stock reserved for issuance in
connection with the Company's stock option and award plans at
December 31, 1995. Options issued under all option plans, if not exercised,
expire ten years or ten years and one day from the date of grant.
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("FAS 123"). The Company has elected to adopt FAS 123 in 1996
through disclosure only.
(8) POSTRETIREMENT BENEFITS:
The Company has a number of noncontributory pension plans covering
substantially all of its employees. Benefits under the plans are generally
based on years of service and employees' compensation during the last years
of employment or a specified dollar benefit. It is the Company's policy to
fund at least the minimum amount required by ERISA for each plan.
Net periodic pension cost for all defined benefit plans was comprised of
the following (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<C> <C> <C>
<S>
Service costs - benefits earned during the period... $ 428 $ 535 $ 666
Interest cost on projected benefit obligation....... 2,507 2,521 2,376
Actual return on assets............................. (6,107) 607 (2,700)
Net amortization and deferral....................... 3,470 (2,352) 506
------- ------- ------
Net periodic pension cost........................... $ 298 $ 1,311 $ 848
======= ======= ======
</TABLE>
The following table sets forth the funded status of all defined benefit
plans at December 31, 1995 and 1994 (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
------------------------------ ------------------------------
Assets Exceed Accumulated Assets Exceed Accumulated
Accumulated Benefits Exceed Accumulated Benefits Exceed
Benefits Assets Benefits Assets
------------------------------ ------------------------------
<C> <C> <C> <C>
<S>
Actuarial present value of benefit
obligations:
Vested......................... $ 789 $ 30,970 $ 686 $ 27,264
Nonvested...................... 10 378 8 431
----- -------- ----- --------
Accumulated benefit obligation. $ 799 $ 31,348 $ 694 $ 27,695
===== ======== ===== ========
Fair value of assets................. $ 999 $ 27,557 $ 799 $ 21,850
Less: Projected benefit obligation... 986 31,348 947 30,562
----- -------- ----- --------
Funded (underfunded) plans........... 13 (3,791) (148) (8,712)
Unrecognized transition liability.... 9 -- 9 107
Unrecognized prior service costs..... -- 155 1 457
Unrecognized net loss................ 63 61 225 3,204
Additional liability................. -- (216) -- (565)
----- -------- ----- ---------
Prepaid (accrued) pension cost....... $ 85 $ (3,791) $ 87 $ (5,509)
===== ======== ===== ========
</TABLE>
In 1995, 1994 and 1993, the Company incurred curtailments in several
plans as a result of reduced employment levels and plan amendments. The
impact of these curtailments was a gain of $691,000 in 1995, a loss of
$154,000 in 1994 and a gain of $359,000 in 1993.
The projected benefit obligation was determined using an assumed
discount rate of 7.5% for 1995, 8.5% for 1994 and 7.5% for 1993 and an
assumed rate of compensation increase of 4.5% for 1995, and 5.0% for 1994
and 1993. The expected long-term rate of return on plan assets was 9.0%
for all three years.
The assets of the plans at December 31, 1995 and 1994 consist
principally of common stocks, bonds, cash equivalents and real estate.
The Company has defined contribution plans covering substantially all
full-time employees who meet certain eligibility requirements.
Contributions by the Company and the employees are determined according to
salary-based formulas. The expense recognized by the Company related to
these plans was $1,551,000, $1,636,000 and $861,000 in 1995, 1994 and 1993,
respectively.
In 1993, the Company established a non-qualified supplemental retirement
plan for certain employees. Under the plan, participants may elect to
contribute up to 15% of their annual compensation. The Company is required
to make matching contributions of up to 50% of the participants'
contributions. Upon termination, each participant will receive in cash the
fair value of their account. Contributions by the employees earn a stated
rate of interest. Company matching contributions are valued based on the
current fair value of the Company's stock. The Company recorded expense of
$642,000, $288,000 and $154,000 in 1995, 1994 and 1993, respectively
related to this plan.
In the first quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 106 "Employers' Accounting for Postretirement
Benefits Other than Pensions" ("FAS 106"). This statement changes the past
practice of accounting for the cost of postretirement benefits from a pay-
as-you-go (cash) basis to an accrual basis. Under this statement, the
expected cost of providing those benefits to an employee, the employee's
beneficiaries, and covered dependents will be recognized in the years that
the employee renders the necessary service. The accumulated postretirement
benefit obligation related to those employees for which the Company is
obligated to pay for continuing medical and/or dental coverage as of
January 1, 1993 was $1,096,000. In determining the present value of the
accumulated postretirement benefit obligation, none of which has been
funded, the Company used a 15% health care cost trend rate for 1993,
decreasing 1% per year until 1998, then decreasing 1/2% per year until
leveling off at 5%. A 1% increase in the trend rate would increase the
accumulated postretirement obligation by approximately 12%. The weighted
average discount rate used was 7.5%. The Company has elected to amortize
this transition obligation over 20 years in accordance with the provisions
of FAS 106. The effect of the adoption of this statement has not been
material to the Company's financial position or results of operations.
(9) INCOME TAXES:
Pretax income (loss) from operations for the years ended December 31
consists of the following sources (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<C> <C> <C>
<S>
Domestic................................. $(30,249) $ 41,320 $ 25,284
Foreign.................................. 2,396 2,071 983
-------- -------- --------
$(27,853) $ 43,391 $ 26,267
======== ======== ========
</TABLE>
The income tax benefit (provision) for the years ended December 31 consists
of the following (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<C> <C> <C>
<S>
Current -
Federal (a)............................ $ (1,500) $ (1,000) $ 3,782
Foreign................................ (1,089) (1,037) (255)
State and local (b).................... (2,922) (1,218) (2,156)
-------- -------- --------
(5,511) (3,255) 1,371
Deferred -
Provision for federal and state
taxes payable in future.............. (6,292) -- --
Benefit from change in deferred
tax asset valuation
allowance............................ -- 14,000 6,000
Benefit from federal rate
increase............................. -- -- 465
-------- -------- --------
Total tax benefit (provision).......... $(11,803) $ 10,745 $ 7,836
======== ======== ========
<FN>
(a) The income tax benefit in 1993 includes the receipt of $3,878,000 resulting
from the settlement of an Internal Revenue Service tax dispute relating to periods
prior to the generation of the existing net operating loss carryforwards.
(b) The state and local income tax in 1994 includes a benefit of $900,000 as
a result of a new state income tax law enacted in 1994.
</TABLE>
Deferred income tax assets (liabilities) at December 31 are comprised
of the following (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<C> <C>
<S>
Net operating loss carryforwards....... $ 32,000 $ 45,500
Other.................................. 15,400 16,800
-------- --------
Gross deferred tax assets.............. 47,400 62,300
Gross deferred tax liabilities......... (10,800) (8,000)
Deferred tax asset valuation allowance. -- (11,600)
-------- --------
Net deferred tax asset................. $ 36,600 $ 42,700
======== ========
</TABLE>
During 1994 and 1993, the net deferred income tax asset increased by
$14,000,000 and $6,465,000, respectively, reflecting the increase in the
expected future benefit from the utilization of the Company's net operating
loss carryforwards due to management's improved expectations of future
income and an increase in the federal income tax rate. During 1995,
management determined that the full amount of the asset could be recorded
thereby eliminating the need for a valuation allowance. The decrease in
the asset during 1995 results primarily from the utilization of the
Company's net operating loss carryforwards.
The income tax benefit (provision) differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax
rate to income (loss) from continuing operations before income taxes and
minority interest as a result of the following differences (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------------- ---------------- ----------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<C> <C> <C> <C> <C> <C>
<S>
Computed statutory tax (provision) benefit...... $ 9,749 35.0 $(15,187) (35.0) $(9,194) (35.0)
Increase (decrease) in tax (provision) benefit
resulting from -
Operating loss carryforward which resulted
in current tax benefit.................... 9,947 35.7 14,462 33.3 8,849 33.7
Change in deferred tax asset valuation
allowance................................. -- -- 14,000 32.3 6,000 22.8
State income taxes (net of federal benefit).. (1,900) (6.8) (1,218) (2.8) (2,156) (8.2)
Alternative minimum tax...................... (500) (1.8) (1,000) (2.3) (96) (.4)
Goodwill amortization........................ (800) (2.9) (700) (1.6) (700) (2.7)
Purchased in-process research and
development............................... (28,305) (101.6) -- -- -- --
Foreign sales corporation.................... 900 3.2 -- -- -- --
Resolution of tax issues..................... -- -- -- -- 3,878 14.8
Other........................................ (894) (3.2) 388 .9 1,255 4.8
-------- ------ -------- ------ ------- -----
Income tax (provision) benefit.................. $(11,803) (42.4) $ 10,745 24.8 $ 7,836 29.8
======== ====== ======== ====== ======= =====
</TABLE>
At December 31, 1995, the Company has net operating loss carryforwards
of approximately $78,000,000 for tax reporting purposes, which will, if
unused, expire from 2000 to 2006. The Company has an alternative minimum
tax credit carryforward of approximately $2,330,000 as of December 31,
1995, which may be carried forward indefinitely. The Company has
investment tax credit carryforwards of approximately $3,298,000 at December
31, 1995 which, if unused, will expire from 1996 to 2001. The Company also
has a research and development tax credit carryforward of approximately
$809,000 at December 31, 1995 which will, if unused, expire from 1998 to
2000. Realization of the loss and credit carryforwards is dependent on
generating sufficient taxable income prior to their expiration. Although
realization is not assured, management believes it is more likely than not
that all of the deferred tax asset will be realized. Under federal tax
law, certain potential changes in ownership of the Company, which may not
be within the Company's control, may operate to restrict future utilization
of these carryforwards.
(10) SEGMENT INFORMATION:
The Company's industry and geographic data for continuing operations for
the years ended December 31 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<C> <C> <C>
<S>
INDUSTRY SEGMENTS (a)
SALES
Components (b)..................... $255,364 $228,470 $201,593
Other.............................. 21,216 20,534 17,969
-------- -------- --------
Consolidated sales.............. $276,580 $249,004 $219,562
======== ======== ========
OPERATING INCOME (LOSS)
Components (c)..................... $(19,959) $ 49,897 $ 36,151
Other.............................. 3,073 2,361 1,888
-------- -------- --------
Segment operating income (loss). (16,886) 52,258 38,039
Corporate expense.................. (7,938) (5,911) (6,381)
-------- -------- --------
Operating income (loss)......... (24,824) 46,347 31,658
Interest income (expense), net..... (4,612) (5,260) (7,064)
Equity income...................... 1,583 2,304 1,673
-------- -------- --------
Income (loss) before taxes,
minority interest and
extraordinary item............ $(27,853) $ 43,391 $ 26,267
======== ======== ========
IDENTIFIABLE ASSETS
Components......................... $278,486 $220,771 $192,019
Other.............................. 11,001 11,201 13,104
-------- -------- --------
289,487 231,972 205,123
Corporate assets................... 23,241 49,669 32,604
-------- -------- --------
Consolidated assets............. $312,728 $281,641 $237,727
======== ======== ========
DEPRECIATION AND AMORTIZATION
Components......................... $ 10,950 $ 9,962 $ 9,770
Other.............................. 351 419 309
-------- -------- --------
11,301 10,381 10,079
Corporate.......................... 364 237 249
-------- -------- --------
Consolidated depreciation and
amortization.................. $ 11,665 $ 10,618 $ 10,328
======== ======== ========
CAPITAL EXPENDITURES
Components......................... $ 16,232 $ 6,678 $ 6,905
Other.............................. 412 93 83
-------- -------- --------
16,644 6,771 6,988
Corporate.......................... 710 36 30
-------- -------- --------
Consolidated capital
expenditures.................. $ 17,354 $ 6,807 $ 7,018
======== ======== ========
GEOGRAPHIC AREAS
SALES(d)
United States:
Unaffiliated.................... $251,913 $227,833 $207,410
To foreign affiliates........... 430 396 274
Foreign:
Unaffiliated.................... 24,667 21,171 12,152
To United States affiliates..... 1,751 810 426
Total sales between geographic
areas............................ (2,181) (1,206) (700)
--------- -------- --------
Consolidated sales.............. $276,580 $249,004 $219,562
======== ======== ========
OPERATING INCOME (LOSS)
United States...................... $(21,562) $ 48,868 $ 36,822
Foreign............................ 4,676 3,390 1,217
-------- -------- --------
Segment operating income (loss). $(16,886) $ 52,258 $ 38,039
======== ======== ========
IDENTIFIABLE ASSETS
United States...................... $250,889 $203,382 $192,153
Foreign............................ 38,598 28,590 12,970
-------- -------- --------
Identifiable assets............. $289,487 $231,972 $205,123
======== ======== ========
<FN>
(a) Oak Industries conducts its business through two business segments -
Components and Other. The Components Segment develops, manufactures and
sells active and passive components for telecommunications networks
including cable connectors, fiber optic lasers and frequency control
devices. This group also develops, manufactures and sells a broad line of
control and sensing devices both electronic and mechanical for use in
consumer appliances, testing equipment and industrial applications. The
Other Segment is comprised of a business unit which designs, manufactures
and sells railway maintenance-of-way equipment.
(b) Sales to one customer in the Components Segment amounted to
$28,090,000 and $23,241,000 in 1994 and 1993, respectively.
(c) The Components Segment's 1995 operating loss includes a $80,872,000
charge related to purchased in-process research and development in
connection with the Lasertron acquisition.
The Components Segment's 1994 operating income includes a $2,000,000
restructuring charge to cover writedowns of vacated facilities.
The Components Segment's 1993 operating income includes a $2,900,000
restructuring charge to cover the costs associated with reorganizing its
Mexican manufacturing operations, consolidating certain U.S. operations,
and certain other overhead reductions.
(d) Export sales were $66,365,000, $50,276,000 and $36,440,000 for 1995,
1994, and 1993, respectively. These sales were principally to customers in
Canada, Mexico, South America, Asia and Europe.
</TABLE>
(11) ACCRUED LIABILITIES:
Accrued liabilities at December 31 are summarized as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
------ ------
<C> <C>
<S>
Wages, bonuses, commissions, vacation, and other compensation... $ 7,072 $ 6,167
Income taxes.................................................... 5,306 4,127
Insurance....................................................... 3,725 3,485
Contribution to employees' retirement income plans.............. 1,628 2,404
Other........................................................... 5,430 5,640
-------- --------
$ 23,161 $ 21,823
======== ========
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES:
GILBERT MINORITY INTEREST
On December 23, 1992, the Company and Bain Capital ("Bain"), through a
mutually owned company, Connector Holding Company ("Connector"), acquired
85% of the outstanding stock of Gilbert Engineering Co., Inc. ("Gilbert"),
a Glendale, Arizona and Amboise, France manufacturer and supplier of
specialty connectors to the cable television, high-end specialty microwave
markets. The Company owns 80% of Connector, with Bain owning the other
20%. Bain may at any time after December 22, 1995 require Oak to buy and
Oak may at any time after December 22, 1996 require Bain to sell its
outstanding shares in Connector at a price determined according to the
terms of the stockholders agreement entered into by Oak and Bain at the
time of the acquisition (the "Stockholders Agreement"). The price is the
higher of fair market value as determined by an independent appraisal and a
price based upon certain formulas applied to the earnings of Gilbert in
certain periods. The Stockholders Agreement limits the ability of
Connector or Gilbert to take certain fundamental actions without the prior
consent of the Company and Bain. The agreement prohibits the sale by
either the Company or Bain of its equity interest in Connector. The
Company's shares of Connector have been pledged to Bain to secure the
financial obligations of the Company under the Stockholders Agreement.
Management of Gilbert retained ownership of the remaining 15% of Gilbert.
Gilbert management may, beginning in December 1995 and at its option,
exchange its shares of Gilbert for up to 94,118 shares of the Company's
common stock (see Note 6 - Exchangeable Shares) each year up to a maximum
of 282,353 shares. The Company has the right of first refusal should
Gilbert management wish to sell their shares in Gilbert. Beginning in
December 1998, Gilbert management may require Oak to buy their outstanding
shares in Gilbert. If the parties do not agree on price, Gilbert
management may force the sale of Gilbert to a third party.
OTHER
Rent expense for facilities and office equipment was $4,162,000,
$3,601,000 and $3,249,000 in 1995, 1994, and 1993, respectively. At
December 31, 1995, the Company was committed under non-cancellable
operating leases for minimum annual rentals for the next five years as
follows: 1996 - $4,056,000; 1997 - $3,784,000; 1998 - $2,807,000; 1999 -
$2,461,000; 2000 - $2,282,000; thereafter - $11,627,000.
Various pending or threatened legal proceedings by or against the
Company or one or more of its subsidiaries involve alleged breaches of
contract, torts and miscellaneous other causes of action arising in the
course of business. The Company's management, based upon advice of legal
counsel representing the Company with respect to each of these proceedings,
does not believe any of these proceedings will have a significant impact on
the Company's consolidated financial position.
(13) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following is a summary of the unaudited quarterly results of
operations for 1995 and 1994 (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
Quarter Ended
-------------------------------------------------
March 31 June 30 September 30 December 31 Full Year
---------- ---------- ------------ ----------- ---------
<C> <C> <C> <C> <C>
<S>
1995
Net sales.............................. $71,600 $66,932 $ 65,042 $ 73,006 $276,580
Gross profit........................... $28,515 $26,971 $ 25,537 $ 27,861 $108,884
Income (loss) from continuing
operations........................... $10,815 $10,723 $(76,235) $ 4,183 $(50,514)
Net income (loss)...................... $10,815 $10,723 $(77,845) $ 4,183 $(52,124)
Earnings (loss) per common share:
Continuing operations............... $ .58 $ .58 $ (4.08) $ .23 $ (2.74)
Net income (loss)................... $ .58 $ .58 $ (4.17) $ .23 $ (2.83)
1994
Net sales............................. $61,785 $65,681 $ 58,400 $ 63,138 $249,004
Gross profit.......................... $22,565 $25,009 $ 21,803 $ 23,989 $ 93,366
Income from continuing operations..... $ 7,392 $10,286 $ 7,366 $ 17,402 $ 42,446
Net income............................ $ 7,392 $10,286 $ 7,366 $ 17,402 $ 42,446
Earnings per common share:
Continuing operations.............. $ .40 $ .56 $ .40 $ .94 $ 2.31
Net income......................... $ .40 $ .56 $ .40 $ .94 $ 2.31
</TABLE>
CONTINUING OPERATIONS
Fourth Quarter - 1995
The Company recorded a charge of $1,500,000 related to the expensing of
the purchase accounting write-up of Lasertron inventory. The Company also
recorded an income tax benefit of $585,000 related to this charge.
Third Quarter - 1995
The Company recorded a charge of $80,872,000 related to purchased in-
process research and development in connection with the Lasertron
acquisition.
The Company recorded a charge of $500,000 related to the expensing of
the purchase accounting write-up of Lasertron inventory. The Company also
recorded an income tax benefit of $195,000 related to this charge.
Fourth Quarter - 1994
The Company recognized an income tax benefit of $14,000,000 resulting
from an adjustment to its deferred income tax valuation reserve in
accordance with FAS 109. This benefit caused minority interest in net
income of subsidiaries to increase $3,200,000.
The Company recognized a restructuring charge of $2,000,000 relating
primarily to vacated facilities.
Second Quarter - 1994
The Company recorded a gain of $900,000 resulting from a state income
tax law change.
EXTRAORDINARY CHARGE
Third Quarter - 1995
The Company recorded an extraordinary charge of $1,610,000, net of taxes
and minority interest, related to the early extinguishment of debt at
Gilbert and Connector.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
For information with respect to the executive officers of the
registrant, see "Executive Officers of the Registrant" in Part I of this
report. For information with respect to the Directors of the registrant,
see "Election of Directors" in the Proxy Statement, incorporated herein by
reference, to be filed no later than March 30, 1996 for the Annual Meeting
of Stockholders to be held on May 1, 1996.
Item 11. EXECUTIVE COMPENSATION
The information set forth under the caption "Compensation of Executive
Officers" and "Compensation of Directors" in the Proxy Statement to be
filed no later than March 30, 1996 for the Annual Meeting of Stockholders
to be held on May 1, 1996 is incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Security Ownership of
Certain Beneficial Owners" and "Security Ownership of Management" in the
Proxy Statement to be filed no later than March 30, 1996 for the Annual
Meeting of Shareholders to be held on May 1, 1996 is incorporated herein by
reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Transactions" in the Proxy Statement to be filed no later than March 30,
1996 for the Annual Meeting of Stockholders to be held on May 1, 1996 is
incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of the report:
1. Financial Statements
Consolidated balance sheet at December 31, 1995 and 1994
Consolidated statement of operations for the years ended December
31, 1995, 1994 and 1993
Consolidated statement of stockholders' equity for the years ended
December 31, 1995, 1994 and 1993
Consolidated statement of cash flows for the years ended December
31, 1995, 1994 and 1993
Notes to consolidated financial statements
2. Schedules
VIII - Valuation and qualifying accounts
All other schedules have been omitted since the information is
either not applicable, not required or is included in the financial
statements or notes thereto.
3. Exhibit Index
(2)(a) Stockholders Agreement dated as of December 22, 1992 by and
among Connector Holding Company, Oak Industries Inc., Tyler
Capital Fund, L.P., Tyler Massachusetts, L.P., Tyler
International, L.P.-II, BCIP Associates, BCIP Trust
Associates, and, solely as to Sections 1.5 and 11 thereof,
Bain Venture Capital, a California limited partnership, filed
as Exhibit 2.1 to the Company's Amendment No. 2 to Form S-3
dated December 16, 1993 is incorporated herein by this
reference.
(2)(b) Management Stockholders Agreement dated as of December 23,
1992 by and among Gilbert Engineering Acquisition Co., Inc.,
Connector Holding Company, Connector Acquisition Company, Oak
Industries Inc., and each of Tyler Capital Fund, L.P., Tyler
Massachusetts, L.P., Tyler International, L.P.-II, BCIP
Associates and BCIP Trust Associates, L.P. and each of
Robert A. Spann, the Gullekson Family Trust dated December
27, 1989, Daniel H. Franklin and Robert D. Hayward filed
herewith.
(3)(a) Restated Certificate of Incorporation of Oak Industries Inc.
dated October 28, 1980; Certificate of Amendment of Restated
Certificate of Incorporation dated May 1, 1981; Certificate
of Amendment of Restated Certificate of Incorporation, as
Amended dated August 14, 1985; Certificate of Amendment of
Restated Certificate of Incorporation, as Amended dated
September 30, 1986; Certificate of Amendment of Certificate
of Incorporation, as Amended dated July 15, 1987; Certificate
of Amendment of Certificate of Incorporation, as Amended
dated June 3, 1992; and Certificate of Amendment of Restated
Certificate of Incorporation, as Amended dated May 7, 1993
all filed as Exhibit 3.1 to the Company's Amendment No. 1 to
Form S-3 dated November 24, 1993 are incorporated herein by
this reference.
(3)(b) Certificate of Designation dated December 21, 1995, filed as
Exhibit 2 to the Company's Form 8-K dated December 27, 1995
is incorporated herein by this reference.
(3)(c) Bylaws of Oak Industries Inc. as amended through December 7,
1995, filed herewith.
(4)(a) $3,000,000 Junior Subordinated Note due 2000 issued by
Connector Holding Company to the Company, filed as Exhibit
(4)-2 to the Company's Form 8-K dated January 6, 1993 is
incorporated herein by this reference.
(4)(b) Rights Agreement dated as of December 7, 1995, between Oak
Industries Inc. and Bank of Boston as Rights Agent, filed as
Exhibit 1 to the Company's Form 8-K dated December 27, 1995
is incorporated herein by this reference.
(10)(a) 1982 Incentive Stock Option Plan filed as Exhibit (A) to the
Company's 1982 Proxy Statement is incorporated herein by this
reference.
(10)(b) 1986 Stock Option and Restricted Stock Plan for Executive and
Key Employees of Oak Industries Inc. filed as Annex III to
the Proxy Statement dated February 14, 1986 for a Special
Meeting of Stockholders is incorporated herein by this
reference.
(10)(c) 1988 Stock Option Plan for Non-Employee Directors of Oak
Industries Inc. filed as Exhibit A to the Company's Proxy
Statement in connection with 1988 Annual Meeting of
Stockholders filed with the Commission on April 6, 1988 is
incorporated herein by this reference.
(10)(d) 1992 Stock Option and Restricted Stock Plan filed as Exhibit
A to the Company's Proxy Statement in connection with the
1992 Annual Meeting of Stockholders is incorporated herein by
this reference.
(10)(e) Oak Industries Inc. Non-Qualified Stock Option Plan, filed as
Exhibit 10(e) to the Company's 1992 Annual Report on Form
10-K dated March 15, 1993 is incorporated herein by this
reference.
(10)(f) 1995 Stock Option and Restricted Stock Plan filed as Exhibit A
to the Company's Proxy Statement in connection with the 1995
Annual Meeting of Stockholders is incorporated herein by this
reference.
(10)(g) Lasertron, Inc. 1982 Incentive Stock Option Plan and 1992
Stock Option Plan filed as Exhibit 10.1 and 10.2 to Form S-8
dated September 21, 1995, are incorporated herein by this
reference.
(10)(h) Credit Agreement dated as of August 30, 1995 among Oak
Industries Inc., the Lenders from time to time party thereto
and Chemical Bank, as Administrative Agent, Collateral Agent
and Issuing Bank filed as Exhibit (10)-1 to the Company's Form
8-K dated September 14, 1995 is incorporated herein by this
reference.
(10)(i) Waiver and First Amendment dated as of January 31, 1996 to the
Credit Agreement dated as of August 30, 1995 among Oak
Industries Inc., the lenders from time to time party thereto
and Chemical Bank, as Administrative Agent, Collateral Agent
and Issuing Bank filed herewith.
(10)(j) Credit Agreement dated as of August 30, 1995 among Gilbert
Engineering Co., Inc., the Lenders from time to time party
thereto and Chemical Bank, as Administrative Agent, Collateral
Agent and Issuing Bank filed as Exhibit (10)-2 to the
Company's Form 8-K dated September 14, 1995 is incorporated
herein by this reference.
(11) Statement regarding computation of per share earnings, filed
herewith.
(13) 1995 Annual Report to be provided no later than March 31, 1996
for the information of the Commission and not deemed "filed"
as a part of the filing.
(21) Subsidiaries of the Company, filed herewith.
(27) Financial Data Schedule (Submitted only to the Securities and
Exchange Commission in electronic format for its information
only).
(b) Reports on Form 8-K:
A report on Form 8-K was filed on March 6, 1996 relating to the
divestiture by the Company of its 49% interest in Video 44.
A report on Form 8-K was filed on December 27, 1995 relating to the
Company's Shareholders' Rights Plan.
A report on Form 8-K was filed on September 14, 1995 related to the
acquisition by the Company of Lasertron, Inc. and the new $200 million
credit facilities issued by various lenders. This Form 8-K includes
certain financial statements of Lasertron, Inc. and pro forma financial
information required pursuant to Article II of Regulation S-X.
CONSENT OF INDEPENDENT ACCOUNTANTS TO INCORPORATION
BY REFERENCE INTO FORM S-8 FILING
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File Nos. 33-14708, 2-71969, 33-32104, 2-83639,
33-53012, and 33-58878) of Oak Industries Inc. of our report dated
January 30, 1996 appearing on page 21 of this Form 10-K.
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 20, 1996
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
OAK INDUSTRIES INC.
Dated: March 21, 1996 By WILLIAM S. ANTLE III
(William S. Antle III)
President and
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
COMPANY AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C< <C>
<S>
WILLIAM S. ANTLE III President and March 21, 1996
(William S. Antle III) Chief Executive Officer
FRANCIS J. LUNGER Senior Vice President March 21, 1996
(Francis J. Lunger) and Chief Financial Officer
THE LORD STEVENS OF LUDGATE Chairman of the Board March 21, 1996
(The Lord Stevens of Ludgate)
RODERICK M. HILLS Vice Chairman of the Board March 21, 1996
(Roderick M. Hills)
DANIEL W. DERBES Director March 21, 1996
(Daniel W. Derbes)
GEORGE W. LEISZ Director March 21, 1996
(George W. Leisz)
GILBERT E. MATTHEWS Director March 21, 1996
(Gilbert E. Matthews)
CHRISTOPHER H.B. MILLS Director March 21, 1996
(Christopher H.B. Mills)
ELLIOT L. RICHARDSON Director March 21, 1996
(Elliot L. Richardson)
</TABLE>
<PAGE>
OAK INDUSTRIES INC.
SCHEDULE VIII
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995, 1994 and 1993
(Dollars in thousands)
ALLOWANCE FOR LOSSES IN COLLECTION
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<C> <C> <C>
<S>
Balance, beginning of year............. $ 1,065 $ 901 $ 1,030
Provision charged to selling, general,
and administrative expenses.......... 324 426 312
Recoveries of accounts previously
written off.......................... 20 10 7
Less write-off of uncollectible
accounts............................. (161) (314) (448)
Acquisition of businesses.............. 330 42 --
------- ------ -------
Balance, end of year................... $ 1,578 $1,065 $ 901
======= ====== =======
</TABLE>
OAK INDUSTRIES INC.
EXHIBIT 11 COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<C> <C> <C>
<S>
EARNINGS:
Income (loss) from continuing operations................ $ (50,514) $ 42,446 $ 26,660
Extraordinary charge for early extinguishment of debt... (1,610) -- --
---------- ----------- -----------
Net income (loss)....................................... $ (52,124) $ 42,446 $ 26,660
========== =========== ===========
SHARES:
Weighted average number of common shares outstanding.... 17,520,228 17,281,718 16,605,160
Additional dilutive effect of outstanding options (as
determined by the application of the treasury stock
method).............................................. 902,786 963,652 994,516
Additional dilutive effect of outstanding warrants (as
determined by the application of the treasury
stock method)........................................ -- 138,972 500,428
----------- ----------- -----------
Weighted average number of common shares outstanding
as adjusted.......................................... 18,423,014 18,384,342 18,100,104
=========== =========== ===========
EARNINGS PER COMMON SHARE:
Income (loss) from continuing operations.............. $ (2.74) $ 2.31 $ 1.47
Extraordinary charge for early extinguishment of debt. (.09) -- --
----------- ----------- -----------
Net income (loss)................................... $ (2.83) $ 2.31 $ 1.47
=========== =========== ===========
</TABLE>
1
OAK INDUSTRIES INC.
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction
in which
Incorporated Ownership
or Organized Percentage
------------ ------------
<C> <C>
<S>
Cabel-Con A/S..................................... Denmark 100 (1)
Cabel-Con, Inc. (USA)............................. Arizona 100 (1)
Connector Holding Company......................... Delaware 80
Croven Crystals Ltd............................... Ontario, Canada 100 (2)(3)
Electronic Technologies Inc....................... Delaware 100
Gilbert Engineering Co., Inc...................... Delaware 85 (4)
Gilbert Engineering France, S.A................... France 100 (1)
Harper-Wyman Company.............................. Delaware 100
Harper-Wyman International Inc.................... Delaware 100 (5)
Harper-Mex S.A. de C.V............................ Mexico 100 (6)
H.E.S. International, Inc......................... Kansas 100 (7)
Industrias McCoy de Venezuela S.A. de C.V......... Venezuela 100 (8)
Lasertron, Inc.................................... Massachusetts 100
Lasertron Shanghai Ltd............................ China 100 (19)
McCoy (Cayman) Ltd................................ Cayman Islands 50 (9)
McCoy International Holding Company............... Delaware 100 (10)
National Subscription Television of Chicago Inc... Illinois 100 (11)
Nordco Inc........................................ Delaware 100
Oak Communications Inc............................ Delaware 100
Oak Crystal (Cayman) Ltd.......................... Cayman Islands 100 (12)
Oak Crystal Inc................................... Delaware 100 (13)
Oak Enclosures Inc................................ Delaware 100
Oak Investment Corporation........................ Delaware 100
Oak Omega Inc..................................... Delaware 100 (14)
Oak Overseas Manufacturing Corporation............ Delaware 100
Oak Systems Inc................................... Delaware 100 (15)
OakGrigsby Inc.................................... Delaware 100
SGI de Mexico, S.A. de C.V........................ Mexico 100 (16)
Societe d'Appareillages Electroniques, S.A........ France 100 (17)
Wuhan Telecommunications Devices.................. China 50 (18)
<FN>
(1) Owned by Gilbert Engineering Co., Inc.
(2) Owned by Electronic Technologies Inc.
(3) Doing business as Oak Frequency Control Group.
(4) 85% owned by Connector Holding Company.
(5) Owned by Harper-Wyman Company.
(6) Owned by Harper-Wyman International Inc.
(7) Owned by Oak Enclosures Inc.
(8) Owned by McCoy (Cayman) Ltd.
(9) 50% owned by Oak Crystal (Cayman) Ltd.
(10) 50% owned by Electronic Technologies Inc.
and 50% owned by Oak Crystal Inc.
(11) Owned by Oak Systems Inc.
(12) Owned by Oak Omega Inc.
(13) Doing business as Oak Frequency Control Group,
McCoy, and OFC.
(14) Owned by Oak Crystal Inc.
(15) Owned by Oak Investment Corporation.
(16) Owned by OakGrigsby Inc.
(17) Owned by Gilbert Engineering, France, S.A.
(18) 50% owned by Lasertron, Inc.
(19) Owned by Lasertron, Inc.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<CASH> 16,942
<SECURITIES> 0
<RECEIVABLES> 42,209
<ALLOWANCES> 1,578
<INVENTORY> 52,328
<CURRENT-ASSETS> 133,616
<PP&E> 124,810
<DEPRECIATION> 71,242
<TOTAL-ASSETS> 312,728
<CURRENT-LIABILITIES> 53,674
<BONDS> 0
<COMMON> 177
0
0
<OTHER-SE> 119,036
<TOTAL-LIABILITY-AND-EQUITY> 312,728
<SALES> 276,580
<TOTAL-REVENUES> 276,580
<CGS> 167,696
<TOTAL-COSTS> 167,696
<OTHER-EXPENSES> 80,872
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,273
<INCOME-PRETAX> (27,853)
<INCOME-TAX> 11,803
<INCOME-CONTINUING> (50,514)
<DISCONTINUED> 0
<EXTRAORDINARY> (1,610)
<CHANGES> 0
<NET-INCOME> (52,124)
<EPS-PRIMARY> (2.83)
<EPS-DILUTED> (2.83)
</TABLE>
WAIVER AND FIRST AMENDMENT dated as of January 17, 1996 (this "Amendment")
to the Credit Agreement dated as of August 30, 1995 (the "Credit
Agreement"), among OAK INDUSTRIES INC., a Delaware corporation (the
"Borrower"), the financial institutions listed on Schedule 2.01 thereto
(the "Lenders"), and CHEMICAL BANK, a New York banking corporation, as
agent (in such capacity, the "Administrative Agent") and as collateral
agent (in such capacity, the "Collateral Agent") for the Lenders, and as
issuing bank (in such capacity, the "Issuing Bank").
The Borrower has requested that the Lenders waive the default by the
Borrower in connection with the due observance, with respect to the fiscal
quarter ended as of December 31, 1995, of Section 6.12 of the Credit
Agreement. The Borrower has also requested that the Lenders amend certain
provisions of the Credit Agreement.
The Lenders whose signatures appear below are willing, on the terms,
subject to the conditions and to the extent set forth below, to grant such
waiver and amend such provisions.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms
and subject to the conditions set forth herein, as follows:
SECTION 1. Waiver. The Lenders whose signatures appear below hereby waive
compliance with the provisions of Section 6.12 of the Credit Agreement with
respect to the fiscal quarter ended as of December 31, 1995. The Borrower
explicitly acknowledges that except as set forth in the preceding sentence
and except as amended hereby, such Section 6.12 and each other provision of
the Credit Agreement remains in full force and effect.
SECTION 2. Amendment to Section 1.01. Section 1.01 of the Credit
Agreement is hereby amended by adding the following definition:
"Substitute Interest Coverage Ratio" shall mean the ratio as of the last
day of any fiscal quarter, for the four fiscal quarter period ended as of
such day of (a) EBITDA of Adjusted Oak to (b) Interest Expense of Adjusted
Oak; provided, however, that for purposes of calculating Interest Expense
as of the last day of each of the fiscal quarters ending on March 31, 1996,
and June 30, 1996, the amount determined pursuant to clause (b) above shall
be determined by multiplying Interest Expense for the period commencing
October 1, 1995, and ending as of the end of such fiscal period (i) by 2,
in the case of the fiscal quarter ending March 31, 1996, and (ii) by 4/3,
in the case of the fiscal quarter ending June 30, 1996.
SECTION 3. Amendment to Section 6.12. Section 6.12 of the Credit
Agreement is hereby amended and restated to read in its entirety as
follows:
SECTION 6.12. Interest Coverage Ratio; Substitute Interest Coverage Ratio.
(a) Permit the Interest Coverage Ratio of Consolidated Oak, as of March
31, 1996, or as of the last day of any fiscal quarter thereafter, to be
less than 3.0. to 1.0.
(b) Prior to the Connector Purchase, permit the Substitute Interest
Coverage Ratio of Adjusted Oak to exceed, as of March 31, 1996, or as of
the last day of any fiscal quarter thereafter, which last day occurs in any
period set forth below, to be less than the ratio set forth below for such
period:
Substitute Interest
From and Including: To and Including: Coverage Ratio:
March 31, 1996 June 30, 1996 2.5 to 1.0
September 30, 1996 December 31, 1996 3.0 to 1.0
March 31, 1997 December 31, 1997 3.5 to 1.0
(c) Prior to the Connector Purchase, permit the Interest Coverage Ratio of
Adjusted Oak, as of March 31, 1998, or as of the last day of any fiscal
quarter thereafter, to be less than 3.0 to 1.0.
SECTION 4. Representations and Warranties. The Borrower represents and
warrants to each of the Lenders and the Administrative Agent that:
(a) Before and after giving effect to this Amendment, the representations
and warranties set forth in Section 3 of the Credit Agreement are true and
correct in all material respects with the same effect as if made on the
date hereof, except to the extent such representations and warranties
expressly relate to an earlier date.
(b) Before and after giving effect to this Amendment, no Event of Default
or Default, other than as described above, has occurred and is continuing.
SECTION 5. Condition to Effectiveness. This Amendment shall become
effective as of the date first above written when the Administrative Agent
shall have received counterparts of this Amendment that, when taken
together, bear the signatures of the Borrower and the Required Lenders.
SECTION 6. Credit Agreement. Except as specifically amended hereby, the
provisions of the Credit Agreement are and shall remain in full force and
effect. As used therein, the terms "Agreement", "herein", "hereunder",
"hereinafter", "hereto", "hereof" and words of similar import shall, unless
the context otherwise requires, refer to the Credit Agreement as amended
hereby.
SECTION 7. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 8. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall constitute an original but all of which
when taken together shall constitute but one contract.
SECTION 9. Expenses. The Borrower agrees to reimburse the Administrative
Agent for its reasonable out-of-pocket expenses in connection with this
Amendment, including the reasonable fees, charges and disbursements of
Cravath, Swaine and Moore, counsel for the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed by their respective authorized officers as of the day and
year first written above.
OAK INDUSTRIES INC.,
by
- ---------------------
Name:
Title:
CHEMICAL BANK, individually and as Issuing Bank, Administrative Agent and
Collateral Agent,
by
- ----------------------
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON,
by
- ---------------------
Name:
Title:
MELLON BANK, N.A.,
by
- ---------------------
Name:
Title:
THE CHASE MANHATTAN BANK (National Association),
by
- ---------------------
Name:
Title:
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
by
- ---------------------
Name:
Title:
FLEET BANK OF MASSACHUSETTS, N.A.,
by
- ----------------------
Name:
Title:
LTCB TRUST CO.,
by
- ----------------------
Name:
Title:
NATIONSBANK OF TEXAS, N.A.,
by
- ----------------------
Name:
Title:
THE TORONTO DOMINION BANK,
by
- ---------------------
Name:
Title:
ABN AMRO BANK N.V., Boston Branch,
by
- ---------------------
Name:
Title:
by
- ----------------------
Name:
Title:
BHF-BANK AG,
by
- ----------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND BRANCH,
by
- ---------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH,
by
- -----------------------
Name:
Title:
THE MITSUBISHI BANK, LIMITED, NEW YORK BRANCH,
by
- -----------------------
Name:
Title:
THE ROYAL BANK OF SCOTLAND PLC-NEW YORK BRANCH,
by
- ------------------------
Name:
Title:
NBD BANK,
by
- ------------------------
Name:
Title:
NORWEST BANK ARIZONA, NATIONAL ASSOCIATION,
by
- ------------------------
Name:
Title:
[6700-322(6)/AG02.WPF/6M/4332/1M]
BY-LAWS
OF
OAK INDUSTRIES INC.
(A Delaware Corporation)
(as amended through December 7, 1995)
ARTICLE I
Offices
Section 1. Registered Office. The registered office shall be in the City
of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
Stockholders
Section 1. Place of Meetings. All meetings of the stockholders for the
election of directors shall be held at such place as may be fixed from time
to time by the board of directors. Meetings of stockholders for any other
purpose may be held at such time and place, within and without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of the stockholders shall be
held on the date and at the time fixed from time to time by the directors,
provided each annual meeting shall be held on a date within six months
after the end of each fiscal year or within thirteen months after the date
of the preceding annual meeting, whichever shall be the earlier date.
Section 3. Notice of Annual Meeting. Written notice of the annual meeting
shall be given to each stockholder entitled to vote thereat at least ten
days before the date of the meeting.
Section 4. List of Stockholders. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before
every election of directors, a complete list of the stockholders entitled
to vote at said election, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder, during ordinary business hours, for a period of at least ten
days prior to the election, either at a place within the city, town or
village where the election is to be held and which place shall be specified
in the notice of the meeting, or, if not specified, at the place where said
meeting is to be held, and the list shall be produced and kept at the time
and place of election during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
Section 5. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the chairman of the board.
Section 6. Notice of Special Meetings. Written or printed notice of a
special meeting of stockholders, stating the time, place and object
thereof, shall be given to each stockholder entitled to vote thereat, at
least ten days before the date fixed for the meeting.
Section 7. Business at Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 8. Quorum. The holders of stock having a majority of the voting
power of the issued and outstanding stock entitled to vote thereat, when
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as
otherwise provided by statute or by the certificate of incorporation. If,
however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting
from time to time, without notice other than announcement at the meeting,
until a quorum shall be present or represented. At such adjourned meeting
at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. Necessary Vote. When a quorum is present at any meeting, a
majority of the votes by the stockholders, present in person or represented
by proxy and entitled to vote thereon, shall decide any question brought
before such meeting, unless the question is one upon which by express
provision of the statutes or of the certificate of incorporation or of
these by-laws, a different vote is required in which case such express
provision shall govern and control the decision of such question.
Section 10. Vote, Proxies. Each stockholder shall at every meeting of the
stockholders be entitled to such vote (in person or by proxy) for each
share of the capital stock having voting power held by such stockholder and
entitled to vote at such meeting as shall be fixed by the certificate of
incorporation. No proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period. Except where the transfer
books of the corporation have been closed or a date has been fixed as a
record date for the determination of its stockholders entitled to vote, no
share of stock shall be voted on at any election for directors which has
been transferred on the books of the corporation within twenty days next
preceding such election of directors.
ARTICLE III
Directors
Section 1. Number. The number of directors which constitutes the whole
board of directors shall be fixed from time to time by resolution of the
board of directors provided, however, that such number of directors shall
be not less than six nor more than nine as required by ARTICLE TWELFTH of
the Restated Certificate of Incorporation, as amended. The term of office
of directors is to expire at the first annual meeting of stockholders after
their election or until their respective successors are elected and
qualified. Directors need not be stockholders.
Section 2. Nominations. A nomination with respect to the corporation's
board of directors (other than by a nominating committee of the board of
directors) shall be proposed at least 90 days before the date of the
corporation's annual meeting of stockholders in order for the nominee to be
eligible for election to the corporation's board of directors. Director
nominations other than by a nominating committee of the board of directors
must be made over the signature of at least five stockholders holding an
aggregate of at least 5% of the total number of outstanding stock of the
corporation.
Section 3. Vacancies. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, though less than a quorum, and
the directors so chosen shall hold office until the next annual election of
the class for which each such director has been chosen and until such
director's successor is elected and qualified.
Section 4. Powers. The business of the corporation shall be managed by
its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or
required to be exercised or done by the stockholders.
Section 5. Meetings. The board of directors of the corporation, and any
committee thereof, may hold meetings, both regular and special, either
within or without the State of Delaware. Members of the board of directors
or of any committee of the board of directors may participate in a meeting
of such board or committee by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in such a meeting shall
constitute presence in person at the meeting.
Section 6. Organization Meeting. An organization meeting of the board of
directors shall be held following, and at the same place as, the annual
meeting of stockholders and no notice of such meeting shall be necessary to
the newly elected directors in order legally to constitute the meeting,
provided a quorum shall be present. In the event such meeting of the board
of directors is not held at such time and place, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 7. Regular Meetings. Regular meetings of the board of directors
shall be held without notice at such time and place as shall from time to
time be determined by the board of directors.
Section 8. Special Meetings. Special meetings of the board of directors
may be called by the chairman of the board or the president on two days
notice to each director. Notice shall be deemed sufficiently given if
delivered personally or by mail, telex, telecopier, or overnight courier.
Special meetings shall be called by the chairman of the board, the
president or secretary in like manner and on like notice on the written
request of two directors.
Section 9. Quorum. At all meetings of the board of directors not less
than one-third of the total number of directors, but in any event not less
than two directors, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the board of directors,
except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum shall not be present at any
meeting of the board of directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 10. Action Without Meeting. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting, if prior to such action a
written consent thereto is signed by all members of the board of directors
or of such committee as the case may be, and such written consent is filed
with the minutes of proceedings of the board of directors or committee.
Section 11. Committees of directors. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of
the corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the board
of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors, shall have and may exercise all the
powers and authority of the board of directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation;
and unless the resolution expressly so provides, no such committee shall
have the power or authority to declare a dividend or to authorize the
issuance of stock. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the
board of directors.
Section 12. Reports of Committees. Each committee shall keep regular
minutes of its meetings and report the same to the board of directors when
required.
Section 13. Compensation. The board of directors, by the affirmative vote
of a majority of the directors then in office and irrespective of any
personal interests of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the corporation as
directors, officers or otherwise, and shall have authority to reimburse
directors for their expenses, if any, of attendance at each meeting of the
board of directors. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Directors serving on committees, designated by the board of
directors, may be paid additional compensation for serving on such
committees.
ARTICLE IV
Notices
Section 1. Notices. Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders
at their addresses appearing on the books of the corporation. Notice by
mail shall be deemed received two business days after the same shall have
been mailed. Notice to directors may also be given by telex, telecopier or
overnight courier. Such notices shall be deemed received on the date
delivered, if sent by telex or telecopier, or one business day after being
sent by overnight courier.
Section 2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes or of the certificate of incorporation
or of these by-laws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE V
Officers
Section 1. Designation; Number; Election. The board of directors, at its
first regular meeting after each annual meeting of stockholders, shall
elect the officers of the corporation. Such officers shall be a chairman
of the board, a president, one or more vice presidents (the number thereof
to be determined by the board of directors), a secretary, and a treasurer
and such assistant secretaries and assistant treasurers as the board of
directors may choose. The board of directors may appoint such other
officers and agents as it shall deem necessary, including, but not limited
to a vice chairman of the board, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 2. Compensation. The salaries of all principal officers of the
corporation shall be fixed by the board of directors. The salaries of all
other officers of the corporation shall be fixed by the chairman of the
board or by any other principal officer designated by the chairman of the
board.
Section 3. Term, Removal, Vacancy. The officers of the corporation shall
hold office until their successors are chosen and qualified, except as
hereinafter provided. Any officer may be removed at any time by the
affirmative vote of a majority of the board of directors.
Section 4. Chairman of the board. The chairman of the board shall preside
at all meetings of the stockholders and the board of directors of the
corporation, and may serve as the chief executive officer of the
corporation. The chairman of the board shall be responsible for
presentation of any proposed changes in the major policies of the
corporation to the board of directors for action; shall report to the board
of directors with respect to matters of policy affecting the corporation;
and in general shall discharge all other responsibilities and perform all
other duties usually incident to the office of chairman of the board and
such as are assigned to such officer from time to time by the board. (The
office of chairman of the board shall also be known as chairman and
chairman of the board of directors.)
Section 5. Vice-Chairman of the board. In the event of the absence,
disability or inability to act of the chairman of the board, the vice-
chairman of the board shall perform the duties of the chairman of the board
and when so acting shall also have all the powers of and be subject to all
restrictions upon the chairman of the board. The vice-chairman shall
perform such other duties as from time to time may be prescribed by the
board of directors or delegated by the chairman of the board.
Section 6. Other members of the board. In the event of the absence,
disability or inability to act of the chairman of the board, the vice
chairman of the board, and the president, if a director, the directors in
the order determined by the board of directors, or in the absence of such
determination, in the order each shall have respectively held the office of
director for the longest time shall perform the duties of the chairman of
the board and when so acting shall also have all the powers of and be
subject to all the restrictions upon the chairman of the board.
Section 7. President. Unless the board of directors otherwise provides,
the president shall be the chief operating officer of the corporation and
may serve as the chief executive officer of the corporation. The president
shall in general supervise and manage the day to day business and affairs
of the corporation. The president may sign all deeds, mortgages, notes,
contracts, proxies or other instruments on behalf of the corporation,
except where the signing thereof shall have been expressly delegated by the
board of directors or by these by-laws, or shall be required by law, to be
signed by some other officer. The president shall implement and carry into
effect all orders and resolutions of the board of directors or of the
executive committee and shall submit to the board of directors and the
executive committee, at the regular meetings thereof or, upon their
request, at special meetings thereof, detailed reports of the operations of
the corporation and shall also submit to the board of directors a complete
and detailed report of the operations of the corporation for each fiscal
year. The president shall from time to time report to the board of
directors all matters within such officer's knowledge which the interests
of the corporation may require to be brought to its notice. The president
shall have and exercise such further powers and duties as may be
specifically delegated to or vested in the president from time to time by
these by-laws, or by the board of directors. In the absence of the
chairman and vice-chairman of the board, or in the event of their
disability or inability to act, the president, if also a director of the
corporation, shall assume the responsibilities and perform the duties of
the chairman of the board, and when so acting shall have all the powers of
and be subject to all the restrictions upon the chairman of the board.
Section 8. Vice-Presidents.
(a) In the event of the absence, disability or inability to act of the
president, the vice-presidents in the order determined by the board of
directors, or in the absence of such determination, in the order each shall
have respectively held the office of vice-president for the longest time,
shall perform the duties of the president and when so acting shall also
have all the powers of and be subject to all the restrictions upon the
president.
(b) The vice-presidents shall have such titles as may be designated by the
board of directors. The vice-presidents shall perform such other duties as
from time to time may be prescribed by the board of directors or delegated
by the president or the chairman of the board.
Section 9. Secretary. The secretary shall attend all meetings of the
board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of
directors in books to be kept for that purpose and shall perform like
duties for the committees of directors when required. The secretary shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the board of directors. The secretary shall have
custody of the corporate seal of the corporation and he or she, and any
assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the
secretary's signature or by the signature of such assistant secretary. The
secretary shall perform all duties incident to the office of secretary and
such other duties as from time to time may be prescribed by the board of
directors or delegated by the chairman of the board or the president. The
board of directors may give authority to any other officer to affix the
seal of the corporation and to attest the affixing by the secretary's
signature.
Section 10. Assistant Secretaries. In the absence of the secretary, or in
the event of the secretary's disability, or inability to act or to continue
to act, the assistant secretaries, in the order determined by the board of
directors, shall perform the duties of the secretary and, when so acting,
shall have all the powers of and be subject to all the restrictions upon
the secretary. The assistant secretaries shall perform such other duties
as from time to time may be prescribed by the board of directors or
delegated by the secretary.
Section 11. Treasurer. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit
of the corporation in such depositories as may be designated by the board
of directors. The treasurer shall disburse or cause to be disbursed the
funds of the corporation as may be ordered by the board of directors,
taking proper vouchers for such disbursements, and shall render to the
president and the board of directors, at its regular meetings, or when the
board of directors so requires, an account of any transactions as treasurer
and of the financial condition of the corporation. If required by the
board of directors, the treasurer shall give the corporation a bond (which
shall be renewed every six years) in such sum and with such surety or
sureties as shall be satisfactory to the board of directors for the
faithful performance of the duties of the office of the secretary and for
the restoration to the corporation, in case of the treasurer's death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the treasurer's
possession or under the treasurer's control belonging to the corporation.
He or she shall perform all duties incident to the office of treasurer and
such other duties as from time to time may be prescribed by the board of
directors or delegated by the chairman of the board or the president.
Section 12. Assistant Treasurers. In the absence of the treasurer, or in
the event of the treasurer's disability, or inability to act or continue to
act, the assistant treasurers, in the order determined by the board of
directors, shall perform the duties of the treasurer and, when so acting,
shall have all the powers of and be subject to all the restrictions upon
the treasurer. If required by the board of directors, the assistant
treasurers shall give the corporation bonds (as the treasurer may be
required to do) in such sums and with such surety or sureties as shall be
satisfactory to the board of directors. The assistant treasurers shall
perform such other duties as from time to time may be prescribed by the
board of directors or delegated by the treasurer.
Section 13. Controller. The controller shall have supervision over all
accounts and account books of the corporation, and establish and maintain
all controls and accounting procedures. The controller shall direct the
keeping of accounts and records, analyze the accounts and records of the
company and prepare and furnish statements and reports to the board of
directors, the president, and the vice president, finance, concerning the
financial condition of the company and establish and maintain accounting
policies. The controller shall direct and supervise the internal auditing
procedures of the company. The controller shall cause the books and
accounts of all officers and agents charged with the receipt and
disbursement of money to be examined as often as practicable, or when
requested by the president or vice president, finance, and shall ascertain
whether or not the cash and vouchers covering the balances are actually on
hand. The controller shall perform all other duties incident to the office
of controller and such other duties as from time to time may be prescribed
by the board of directors or designated by the president or delegated by
the vice president, finance.
Section 14. Other Officers. Such other officers as the board of directors
may choose shall perform such duties and have such powers as from time to
time may be assigned to them by the board of directors. The board of
directors may delegate to any other officer of the corporation the power to
choose such other officers and to prescribe their respective duties and
powers.
ARTICLE VI
Certificates of Stock
Section 1. Form and Execution of Certificates. Every holder of stock in
the corporation shall be entitled to have a certificate signed by, or in
the name of the corporation by, the chairman of the board, the president or
any vice president and the treasurer or an assistant treasurer or the
secretary or an assistant secretary of the corporation, certifying the
number of shares owned by such individual in the corporation. Such
certificates shall be in such form as may be determined by the board of
directors. During the period while more than one class of stock of the
corporation is authorized there will be set forth on the face or back of
the certificate which the corporation shall issue to represent each class
or series of stock, a statement that the corporation will furnish without
charge to each stockholder who so requests, the designations, preferences
and relative, participating, optional or other special rights of each class
of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Where a certificate is
signed by a transfer agent acting on behalf of the corporation and a
registrar, the signature of any such chairman of the board, president, vice
president, treasurer, assistant treasurer, secretary or assistant secretary
may be facsimile. In case any officer or officers who have signed, or
whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of
the corporation, whether because of death, resignation or otherwise, before
such certificate or certificates have been delivered by the corporation,
such certificate or certificates may nevertheless be adopted by the
corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or
officers of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been
lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost or destroyed certificate
or certificates, or such individual's legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation
a bond in such sum as it may direct as indemnity against any claim that may
be made against the corporation with respect to the certificate alleged to
have been lost or destroyed.
Section 3. Transfers of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. Closing of Transfer Books. The board of directors may close
the stock transfer books of the corporation for a period not exceeding
sixty days preceding the date of any meeting of stockholders or the date
for payment of any dividend or the date for the allotment of rights or the
date when any change or conversion or exchange of capital stock shall go
into effect or for a period not exceeding sixty days in connection with
obtaining the consent of stockholders for any purpose. In lieu of closing
the stock transfer books as aforesaid, the board of directors may fix in
advance a date, not exceeding sixty days preceding the date of any meeting
of stockholders, or the date for the payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection
with obtaining such consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting, and
any adjournment thereof, or entitled to receive payment of any such
dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock, or to
give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall
be entitled to such notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such dividend, or to receive
such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be notwithstanding any transfer of any stock on
the books of the corporation after such record date fixed as aforesaid.
ARTICLE VII
Miscellaneous Provisions
Section 1. Contracts. The board of directors may authorize any officer or
officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be advanced to the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by
a resolution of the board of directors. Such authority may be general or
confined to specific instances.
Section 3. Bank Accounts. All funds of the corporation shall be deposited
from time to time to the credit of the corporation in such general or
special bank account or accounts in such banks, trust companies or other
depositories as the board of directors may from time to time designate, and
the board of directors may make such special rules and regulations with
respect thereto as it may deem expedient.
Section 4. Checks, Drafts, Notes. All checks, drafts or other orders for
the payment of money, notes or other evidence of indebtedness issued in the
name of the corporation shall be signed by such officer or officers or such
agent or agents of the corporation as the board of directors may from time
to time designate.
Section 5. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation,
if any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the
certificate of incorporation.
Section 6. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think
conducive to the interest of the corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
Section 7. Proxies. The board of directors may appoint and direct any
officer or officers of any other agent or agents of the corporation to cast
the votes which the corporation may be entitled to cast as a stockholder or
otherwise in any other corporation any of whose stock or other securities
may be held by the corporation at meetings of the holders of the stock or
other securities of such other corporation, or to consent in writing to any
action by such other corporation. Unless otherwise ordered by the board of
directors, the president shall have full power and authority to cast such
votes and to consent to such action as such officer may deem in the best
interests of the corporation.
Section 8. Fiscal Year. The fiscal year of the corporation shall begin on
the first day of January of each year.
Section 9. Seal. The corporate seal shall have inscribed thereon the name
of the corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 10. Amendments. These by-laws may be altered or repealed at any
regular or special meeting of the board of directors.
Section 11. Indemnification and Insurance. The corporation shall, to the
fullest extent to which it is empowered to do so by the General Corporation
Law of Delaware, or any other applicable laws, as from time to time in
effect, indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such individual is or was a director or officer of
the corporation or a division thereof, or is or was serving at the request
of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such individual in
connection with such action, suit or proceeding. This section shall not be
construed as requiring the corporation to indemnify any person by reason of
the fact that such individual is or was a director or officer of a
constituent corporation absorbed in a consolidation or merger in which the
corporation was the resulting or surviving corporation.
The provisions of this section shall be deemed to be a contract between the
corporation and each director or officer who serves in any such capacity at
any time while this section and the relevant provisions of the General
Corporation Law of Delaware or other applicable law, if any, are in effect,
and any repeal or modification of any such law shall not affect any rights
or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such
state of facts.
Persons who are not covered by the foregoing provisions of this section and
(a) who are or were employees or agents of the corporation or a division
thereof, or are or were serving at the request of the corporation as
employees or agents of another corporation, partnership, joint venture,
trust or other enterprise, or (b) are or were directors, officers,
employees or agents of a constituent corporation absorbed in a
consolidation or merger in which the corporation was the resulting or
surviving corporation, or who are or were serving at the request of such
constituent corporation as directors, officers, employees or agents of
another corporation, partnership, joint venture, trust or other enterprise,
may be indemnified to the extent authorized at any time or from time to
time by the board of directors of the corporation.
The indemnification provided or permitted by this section shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled by law or otherwise, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or of a constituent corporation absorbed in a
consolidation or merger in which the corporation was the resulting or
surviving corporation, or is or was serving at the request of the
corporation or of such a constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against and incurred by
such individual in any such capacity, or arising out of such individual's
status as such, whether or not the corporation would have the power to
indemnify such individual against such liability under the provisions of
this section.
MANAGEMENT STOCKHOLDERS AGREEMENT
This Management Stockholders Agreement (the "Agreement") is made as of
December __, 1992 by and among Gilbert Engineering Acquisition Co., Inc., a
Delaware corporation (the "Company"), Connector Holding Company, a Delaware
corporation ("Buyer"), Connector Acquisition Company, a Delaware corporation
("Buyer Sub"), Oak Industries Inc., a Delaware corporation ("Oak"), and each
of Tyler Capital Fund, L.P., Tyler Massachusetts, L.P., Tyler International,
L.P.-II, BCIP Associates and BCIP Trust Associates, L.P. (collectively, the
"Investors") and each of Robert A. Spann, the Gullekson Family Trust dated
December 27, 1989, Daniel H. Franklin and Robert D. Hayward (each a
"Management Stockholder," collectively the "Management Stockholders" and,
together with Buyer, collectively referred to herein as the "Stockholders").
Recitals
1. The Stockholders own all of the issued and outstanding shares of the
Company's Common Stock, $.01 par value (the "Common Stock").
2. Reference is made to a Stock Purchase Agreement dated as of December 22,
1992 (the "Purchase Agreement") among the Company, Gilbert Engineering Co.,
Inc., a Delaware corporation and a wholly-owned subsidiary of the Company
("Gilbert"), Buyer, Buyer Sub and the stockholders of the Company (and as to
which Oak and the Investors have entered into a limited guaranty), pursuant to
which the Buyer and Buyer Sub will purchase from the stockholders of the
Company all of issued and outstanding shares of capital stock and rights to
purchase the same (other than the Retained Shares, as such term is defined in
the Purchase Agreement). Immediately following the closing of such stock
purchase, Buyer Sub and Gilbert will be merged with and into the Company, and
Buyer and the Management Stockholders will hold all of the issued and
outstanding shares of the Common Stock.
3. Reference is also made to a Stockholders Agreement (the "Investors
Stockholders Agreement") among Buyer, Oak and each of the Investors pursuant
to which, among other things, the Investors have been granted a put option to
sell their shares of common stock of Buyer to Oak in accordance with the
provisions contained in Section 3 of the Investors Stockholders Agreement.
4. The parties believe that it is in the best interests of the Company and
the Stockholders (i) to provide for certain rights and obligations of the
Stockholders with respect to the election of directors of the Company, (ii) to
provide for certain rights and obligations of the Stockholders with respect to
the sale of shares of Common Stock and (iii) to set forth their agreements on
certain other matters.
Agreement
Now, therefore, the parties hereto hereby agree as follows:
DEFINITIONS.
"Effective Date" shall mean the date on which the merger of Buyer Sub with and
into the Company is consummated.
"Fair Market Value" shall mean the market value, per share, of the Common
Stock as determined in accordance with Section 4.3.
"Management Majority Holders" shall mean, as of any date, the holders of a
majority of the Management Shares outstanding on such date.
"Management Shares" shall mean all shares of Common Stock originally issued
to, or issued with respect to shares originally issued to, or held by, the
Management Stockholders.
"Management Stock Options" shall mean options to purchase shares of Oak common
stock granted to each Management Stockholder pursuant to a Management Stock
Option Plan.
"Person" shall mean any individual, partnership, corporation, company,
association, trust, joint venture, unincorporated organization, entity or
division, or any government, governmental department or agency or political
subdivision thereof.
"Shares" shall mean all Common Stock held by Buyer and the Management
Stockholders.
"Total Transaction Value" shall mean the aggregate cash purchase price payable
to the holders of the Shares pursuant to an Outside Offer pursuant to Section
4.6.
VOTING AGREEMENT.
Voting. Each holder of Shares hereby agrees to cast all votes to which such
holder is entitled in respect of the Shares, whether at any annual or special
meeting, by written consent or otherwise, as follows:
Number of Directors. To fix the number of directors of the Company at six
(6).
Election of Directors. (i) To elect as directors of the Company five (5)
persons, if any, who shall have been nominated by Buyer in a written notice
delivered to all of the holders of Shares (the "Buyer Directors"), and (ii) to
elect as a director of the Company one person, if any, who shall have been
nominated by the Management Majority Holders in a written notice delivered to
all of the holders of Shares (the "Management Directors").
Successors. No Buyer Director may be removed without the consent of Buyer.
No Management Director may be removed without the consent of the Management
Majority Holders. In the event a director shall cease to serve for any
reason, then, in the case of a Buyer Director, the Buyer shall have the right
to designate a successor, and in the case of the Management Director the
Management Majority Holders shall have the right to designate a successor.
Each holder of Shares shall, upon receipt of a written notice, identifying
such designee, promptly take all action necessary to cause the appointment of
such designee to the Company's board of directors pursuant to the Company's
By-laws and Certificate of Incorporation.
The Company. The Company agrees not to give effect or permit any subsidiary
to give effect to any action by any holder of Shares or any other Person which
is in contravention of this Section 2.
Period. The provisions of this Section 2 shall expire on the later of (i) the
tenth anniversary of the Effective Date and (ii) the date to which the
effectiveness of this Section 2 may have been extended by amendment hereof in
accordance with Section 8.2; provided, however, that such expiration shall not
affect any liability for breach prior to expiration. To the extent permitted
by law, each holder of Shares agrees from time to time, at the request of any
holder of Shares, to amend this Section 2 to extend the effectiveness of this
Section 2 to a date not later than the tenth anniversary of the date of such
request. Notwithstanding the foregoing, the provisions of this Section 2
shall expire on the date on which the Management Stockholders cease to own any
Shares.
TRANSFER RIGHTS.
Transfer of Management Shares. Except as otherwise expressly permitted by
this Agreement, no holder of Management Shares shall sell, pledge, assign,
encumber or otherwise transfer or dispose of any of such Shares to any other
Person, whether directly, indirectly, by operation of law or otherwise;
provided, however, that a Management Stockholder may at any time transfer any
Management Shares to another Management Stockholder; and provided, further,
that a Management Stockholder may pledge his shares to the Senior Lender (as
that term is defined in the Purchase Agreement), it being understood, however,
that the Senior Lender shall in no event (whether as a result of the pledge or
any foreclosure thereunder) acquire or assume any rights or obligations under
this Agreement.
OFFER AND CALL RIGHTS.
Right to Offer Management Shares to Oak. A Management Stockholder, or his
estate, heirs, devisees, executor or representative, as the case may be (the
"Stockholder's Estate"), may, at any time, by 90 days prior written notice
given by such Management Stockholder or Stockholder's Estate, as the case may
be, to Oak (the "Offer Notice"), offer to sell to Oak, and Oak may, at its
option, elect to purchase from such Management Stockholder or the
Stockholder's Estate, as the case may be, at a purchase price per share equal
to Fair Market Value, all of the Management Shares held by such Management
Stockholder or such Stockholder's Estate. If within 30 days after the final
determination of the Fair Market Value of such Management Shares pursuant to
Section 4.3 Oak elects to purchase such Management Shares, then the sale and
purchase shall be consummated in accordance with the terms of Section 4.4. If
a Management Stockholder or the Stockholder's Estate, as the case may be,
offers his Management Shares to Oak pursuant to this Section 4.1 and Oak does
not purchase such Management Shares, such Management Stockholder or the
Stockholder's Estate, as the case may be, may (a) as permitted by Section 3.1
hereof, at any time sell or transfer such Management Shares to another
Management Stockholder, (b) at any time after the date which is three (3)
years after the Effective Date, apply the Management Shares to the exercise of
his Management Stock Option, subject to and in accordance with Section 4.5 or
(c) at any time after the date which is six (6) years after the Effective
Date, exercise his rights under Section 4.6.
Right to "Call" Management Shares. If a Management Stockholder's employment
with the Company is terminated "for cause" (as such term is defined in his
Employment Agreement with the Company) (a "Call Event"), then each other
Management Stockholder who is then employed by the Company (each an
"Interested Management Stockholder" and together "Interested Management
Stockholders") may at his option, by notice to all of the Management
Stockholders and Oak delivered within thirty (30) days after the occurrence of
the Call Event (the "First Call Notice"), elect to purchase from such
Management Stockholder or the Stockholder's Estate, as the case may be, and
such Management Stockholder or such Stockholder's Estate, as the case may be,
hereby agrees to sell to the Interested Management Stockholders, at a purchase
price per share equal to Fair Market Value, any or all of the Shares ("Option
Shares") held by such Management Stockholder or such Stockholder's Estate, as
the case may be. If there is more than one Interested Management Stockholder,
the obligation of the Management Stockholder or such Stockholder's Estate, as
the case may be, to sell the Option Shares, and the obligation of the
Interested Management Stockholders to buy the Option Shares, shall be divided
among the Interested Management Stockholders as the Interested Management
Stockholders may agree among themselves or, if they fail to agree on or before
the Call Closing Date (as defined in Section 4.4.2), pro rata in accordance
with the number of Shares then held by them. If the Interested Management
Stockholders do not elect to purchase all of the Shares of such Management
Stockholder within such thirty (30) day period, then Oak may, by notice to the
Management Stockholder or such Stockholder's Estate, as the case may be,
delivered within sixty (60) days after the occurrence of the Call Event
("Second Call Notice"), elect to purchase from such Management Stockholder or
such Stockholder's Estate, as the case may be, and such Management Stockholder
or such Stockholder's Estate, as the case may be, hereby agrees to sell to Oak
at a purchase price per share equal to the Fair Market Value determined in
connection with the First Call Notice, any or all of the remaining Shares held
by such Management Stockholder.
If the Interested Management Stockholders and Oak do not purchase all of the
Shares of such Management Stockholder, then (a) such Management Stockholder's
non-competition obligation contained in his Employment Agreement with the
Company shall continue for a period of two years following the date upon which
he ceases to, directly or indirectly, own or hold beneficially or of record
any Shares and (b) in the case of a deceased Management Stockholder, such
Stockholder's Estate may exercise such Management Stockholder's Management
Stock Option, subject to and in accordance with Section 4.5.
Determination of the Fair Market Value. At any time at which the Fair Market
Value of the Shares is to be determined pursuant to this Agreement, Oak shall
designate in a written notice (the "First Notice") to each holder of the
Shares a prominent national investment bank to determine the Fair Market Value
of the Shares, unless the parties hereto shall have theretofore agreed in
writing to the Fair Market Value of such Shares in which case such agreed upon
determination of Fair Market Value shall be binding upon the parties hereto.
If the Management Majority Holders do not object to the selection of such
investment bank within fifteen (15) days after receipt of the First Notice,
then the Fair Market Value shall be determined by such investment bank, and
such determination shall be binding upon the parties hereto. If the
Management Majority Holders object, they shall send written notice of such
objection to Oak within fifteen (15) days after receipt of the First Notice,
which notice shall designate a second prominent national investment bank. The
Management Stockholders and Oak shall then direct the investment bank
designated by each of them to select a third prominent national investment
bank to determine Fair Market Value, and the determination of such investment
bank shall be binding on the parties hereto. In each case, the parties shall
direct the investment bank which is making the determination of Fair Market
Value to do so as promptly as possible, and in no event later than sixty (60)
days after the selection of such investment bank.
When determining the Fair Market Value of the Shares, the investment bank
shall value the Shares based on a private sale of the Shares but shall make no
deduction or discount for the minority status of the holder of the Shares.
The investment bank shall also consider, among other factors, the projected
earnings of the Company as an on-going enterprise but as a stand-alone entity
that is, among other things, subject to taxation and shall "back-out" any
intercompany transactions (except that the arm's-length cost of any goods or
services provided to the Company and all debt and equity investments shall be
considered).
Closings.
Closing of Sale Pursuant to Section 4.1. The closing of any sale of
Management Shares pursuant to an Offer Notice given in accordance with Section
4.1 shall take place on a date to be determined by Oak, which date shall be
within ninety (90) days after the final determination of Fair Market Value of
the Management Shares pursuant to Section 4.3, at the principal office of Oak,
or at such other time and location as the parties to such sale may mutually
determine. At the closing, Oak shall pay to the Management Stockholder the
aggregate purchase price for the Management Shares being sold pursuant to such
Offer Notice by wire transfer of immediately available federal funds, and such
Management Stockholder shall deliver to Oak the certificate or certificates
representing the Management Shares being sold, duly endorsed for transfer and
with signature guaranteed, free and clear of any liens or encumbrances.
Closing of Sale Pursuant to Section 4.2. The closing of the sale of any
Management Shares pursuant to Section 4.2 shall take place at the principal
office of the Company at 10:00 a.m. on a date selected by the selling
Management Stockholder or such Stockholder's Estate, which date shall be (i)
in the event of a sale to an Interested Management Stockholder, within ninety
(90) days after the date upon which the Fair Market Value of the Option Shares
is determined pursuant to Section 4.3, and (ii) in the event of a sale to Oak,
within ninety (90) days after the date of the Second Call Notice, or at such
other time and location as the parties to such sale may mutually determine
(the "Call Closing Date"). At the closing, each Interested Management
Stockholder or Oak, as the case may be, shall pay to such Management
Stockholder the aggregate purchase price for the Option Shares being purchased
by such Person by wire transfer of immediately available federal funds. At
such closing, the selling Management Stockholder or such Stockholder's Estate,
as the case may be, shall deliver to the Interested Management Stockholders or
Oak, as the case may be, the certificate or certificates representing the
Option Shares, duly endorsed for transfer, and with signature guaranteed, free
and clear of any liens or encumbrances.
Delivery of Certificates. If at a closing of a sale of Shares to Oak under
Section 4.4.1 or Section 4.4.2 any Management Stockholder fails to deliver to
Oak the certificate or certificates evidencing its Shares, Oak may, at its
option, in addition to all other remedies it may have, deposit the purchase
price for such Shares with The First National Bank of Boston (or any other
commercial bank approved by Oak and the Management Majority Holders), as
escrow agent (the "Escrow Agent"), and thereupon the Company shall cancel on
its books the certificate or certificates representing such Shares and shall
issue, in lieu thereof and in the name of Oak, a new certificate or
certificates representing such Shares, and thereupon all of the Management
Stockholder's rights in and to such Shares shall terminate. Thereafter, upon
delivery to the Company by such Management Stockholder of the certificate or
certificates evidencing such Shares (duly endorsed for transfer, with
signature guaranteed, and free and clear of any liens of encumbrances), the
Company shall instruct the Escrow Agent to deliver the purchase price (without
any interest from the date of deposit of such funds with the Escrow Agent to
the date of delivery of such stock certificates, any such interest to accrue
to Oak) to such Management Stockholder.
The delivery of a certificate or certificates for Shares by any Management
Stockholder to Oak at a closing of the purchase of Shares by Oak under Section
4.4.1 or Section 4.4.2 or to any other Management Stockholder at a closing of
the purchase of Shares by any other Management Stockholder under this
Agreement shall be deemed a representation and warranty by such selling
Management Stockholder that: (a) he has full right, title and interest in and
to such Shares; (b) he has all necessary power and authority and has taken all
necessary action to sell such Shares as contemplated; and (c) such Shares are
free and clear of any and all liens or encumbrances.
Management Stock Options. If a Management Stockholder delivers an Offer
Notice to Oak after the date which is three (3) years after the Effective Date
and Oak declines to purchase the Management Shares which are subject to such
Offer Notice in accordance with Section 4.1, or a Stockholder's Estate elects
to exercise its rights under clause (b) of the last paragraph of Section 4.2,
such Management Stockholder or Stockholder's Estate, as the case may be, shall
have the right to exercise the Management Stock Option granted to him to
purchase shares of the common stock, $.01 par value, of Oak ("Oak Shares") by
surrender of such Management Stockholder's Management Shares in payment of the
exercise price of such Management Stock Option. For purposes of this Section
4.5 and the Management Stock Option, the Management Shares shall be valued at
$533.33 per share. The exercise price under the Management Stock Option shall
be the closing price of Oak Shares as quoted on the New York Stock Exchange on
December 23, 1992, and the total number of Oak Shares issuable to each
Management Stockholder upon exercise of his Management Stock Option shall
equal $750,000 divided by such closing price of Oak Shares. The amount of Oak
Shares issuable upon exercise of a Management Stock Option shall be
appropriately adjusted for any increase or decrease in the number of Oak
Shares outstanding as a result of a stock split, subdivision or combination
pursuant to the provisions of the Management Stock Option Plan. Oak covenants
and agrees to maintain registered under the Securities Act of 1933 on a Form
S-8 a sufficient number of Oak Shares to be issued upon exercise of the
Management Stock Options.
Exercise of Management Stock Options. A Management Stock Option shall be
exercised in accordance with the terms and provisions of the Management Stock
Option Plan pursuant to which it was granted. Additionally, a Management
Stockholder shall give thirty (30) days notice to the Company and to all other
Management Stockholders prior to exercising his Management Stock Option, which
notice shall set forth the exercise date.
Limitation on Exercise of Management Stock Options. The total number of Oak
Shares that may be issued to all Management Stockholders as a group upon
exercise of their Management Stock Options shall not exceed: (a) during the
one-year period commencing on the date that is three (3) years after the
Effective Date, 470,588 Oak Shares; and (b) during the one-year period
commencing on the date that is four (4) years after the Effective Date,
941,176 Oak Shares, plus such number of Oak Shares that were issuable in the
preceding one-year period that were not so issued. There shall be no
limitation on the number of Oak Shares issuable upon exercise of the
Management Stock Options after the date which is five (5) years after the
Effective Date. A Management Stockholder shall have the right to exercise his
Management Stock Option not more than three times during any twelve month
period. If at any time when the number of Oak Shares issuable upon exercise
of the Management Stock Options is limited pursuant to this Section 4.5.2 and
more than one Management Stockholder elects to exercise his Management Stock
Option pursuant to the provisions of Section 4.5, then the number of Oak
Shares issuable under clauses (a) and (b) of this Section 4.5.2 shall be
allocated among such electing Management Stockholders pro rata in accordance
with the number of Shares then held by them.
Right of Forced Sale. If a Management Stockholder delivers to Oak an Offer
Notice exercising his rights under Section 4.1 to offer his Management Shares
to Oak after the date which is six (6) years after the Effective Date and Oak
does not purchase such Management Shares in accordance with Section 4.1, then
such Management Stockholder shall have the right to offer such Management
Shares to the Investors upon the same terms and conditions as offered to Oak;
provided that the Investors then hold an equity interest in Buyer. The
Investors may, at their option, elect to purchase such Management Shares, in
which case the purchase and sale shall be consummated in accordance with the
provisions of Sections 4.1 and 4.4 (treating the Investors as Oak for such
purposes). If neither Oak nor the Investors elects to purchase such
Management Shares, then upon the vote of 75% of the then outstanding
Management Shares, the Management Stockholders shall have the right to seek a
purchaser of all the Shares or of all or substantially all of the assets of
the Company. If the Management Stockholders receive a bona fide, offer (an
"Outside Offer") from a third party (the "Proposed Purchaser") within a six
(6) month period after the date of the Offer Notice that is not contingent
upon the Proposed Purchaser obtaining financing, to purchase all of the Shares
or all or substantially all of the assets of the Company for cash, then,
subject to the provisions of this Section 4.6, all of the holders of Shares
agree to sell their Shares or consent to a sale of all or substantially all of
the assets of the Company to the Proposed Purchaser, in the manner and subject
to the terms set forth in the Outside Offer. The Outside Offer must
acknowledge the rights of Oak and the Investors (if the Investors then hold an
equity interest in Buyer) to purchase the Management Shares and terminate the
Outside Offer pursuant to this Section 4.6. If the Management Stockholders do
not receive an Outside Offer within such six (6) month period, then Buyer, Oak
and the Investors will not be obligated to sell any such Shares or consent to
any such sale of all or substantially all of the assets of the Company under
this Section 4.6; provided that nothing herein shall be deemed to limit the
rights of the Management Stockholders to thereafter submit additional Offer
Notices to Oak pursuant to this first paragraph of Section 4.6.
Offer to Oak. Promptly upon receipt of an Outside Offer, a written notice
(the "First Purchase Notice") shall be delivered by the Management
Stockholders to Oak and the Investors (the "Offerees"). The First Purchase
Notice shall contain the following:
(a) a true, fully-executed copy of the Outside Offer from the Proposed
Purchaser;
(b) a written offer by each Management Stockholder to sell all but not less
than all of the Management Shares to Oak in accordance with the terms of this
Agreement, for a purchase price per share equal to the purchase price per
share set forth in the Outside Offer plus, in the event the price per share
set forth in the Outside Offer equals or exceeds the Fair Market Value of the
Shares at the date on which the Offer Notice was delivered to Oak pursuant to
Section 4.1, 3% of the Total Transaction Value; and
(c) a date and time for closing the sale to Oak if all the Management Shares
are accepted for purchase by Oak, which date shall not be fewer than 60 nor
more than 90 days after the date of delivery to Oak of the First Purchase
Notice.
Offer to the Investors. If Oak does not elect to purchase the Management
Shares within 30 days after the date of the First Purchase Notice and the
Investors then hold an equity interest in Buyer, the Management Stockholders
shall send the Investors a written notice (the "Second Purchase Notice")
containing the following:
(a) a statement that the Shares have been offered to but have not been
accepted for purchase by Oak;
(b) a written offer by the Management Stockholders to sell all but not less
than all of the Management Shares to the Investors upon the same terms as
offered to Oak pursuant to the First Purchase Notice; and
(c) a date and time for closing the sale to the Investors if all the Shares
are accepted for purchase by the Investors, which date shall not be fewer than
45 nor more than 60 days from the date of delivery to the Investors of the
Second Purchase Notice.
Exercise by Oak or the Investors. Oak shall have the right to accept the
offer contained in the First Purchase Notice with respect to all (but not less
than all) of the Management Shares for a period of 30 days after the date of
delivery of the First Purchase Notice. If Oak does not accept such offer, the
Investors shall have the right to accept such offer (as modified by the Second
Purchase Notice) with respect to all (but not less than all) of the Management
Shares for a period of 30 days after the date of delivery of the Second
Purchase Notice. If Oak or the Investors elects to purchase the Management
Shares, the Outside Offer shall terminate and Oak, the Investors, Buyer, the
Company and the Management Stockholders shall have no obligation or liability
thereunder. Oak or the Investors, as the case may be, shall exercise its
rights to purchase the Management Shares by mailing a written notice to the
Management Stockholders, with a copy to the other Offeree (the Offeree who has
agreed to purchase the Shares being referred to in this Section 4.6 as an
"Accepting Offeree"). The closing of a sale of the Management Shares to the
Accepting Offeree shall take place at the principal office of the Company at
the time designated in the First Purchase Notice or the Second Purchase
Notice, as the case may be.
Closing. At the closing of any purchase and sale of Management Shares
pursuant this Section 4.6, the Management Stockholders shall deliver to the
Accepting Offeree a certificate or certificates representing the Management
Shares, duly endorsed for transfer with signature guaranteed, free and clear
of any lien or encumbrance, with any necessary stock transfer tax stamps
affixed, and the Accepting Offeree shall pay to the Management Stockholders by
certified or bank check the purchase price of the Management Shares being
purchased by the Accepting Offeree. If any Management Stockholder fails to
deliver to the Accepting Offeree the certificate or certificates evidencing
its Shares, the Accepting Offeree may, at its option, in addition to all other
remedies it may have, deposit the purchase price for such Shares with the
Escrow Agent and shall furnish satisfactory evidence of such deposit to the
Company and thereupon the Company shall cancel on its books the certificate or
certificates representing such Shares and shall issue, in lieu thereof and in
the name of the Accepting Offeree, a new certificate or certificates
representing such Shares, and thereupon all of the Management Stockholder's
rights in and to such Shares shall terminate. Thereafter, upon delivery to
the Company by such Management Stockholder of the certificate or certificates
evidencing such Shares (duly endorsed for transfer, with signature guaranteed,
and free and clear of any liens or encumbrances), the Company shall instruct
the Escrow Agent to deliver the purchase price (without any interest from the
date of the closing to the date of such delivery, any such interest to accrue
to the Accepting Offeree) to such Management Stockholder. The delivery of
certificate or certificates for Shares by any Management Stockholder shall be
deemed a representation and warranty by such Management Stockholder that: (a)
he has full right, title and interest in and to such Shares; (b) he has all
necessary power and authority and has taken all necessary action to sell such
Shares as contemplated; and (c) such Shares are free and clear of any and all
liens or encumbrances.
Continued Applicability of this Agreement. If the Offerees fail to exercise
their respective purchase rights within the specified periods, then, for 60
days after the termination of the 30-day period referred to in Section 4.6.2
hereof relating to the Second Purchase Notice or if no Second Purchase Notice
is given, for 60 days after the termination of the 30-day period referred to
in Section 4.6.1 hereof relating to the First Purchase Notice, Oak and the
Investors agree to cause the Buyer to sell all of its Shares or consent to the
sale of all or substantially all of the assets of the Company and the
Management Stockholders shall sell all but not less than all of their Shares
or consent to the sale of all or substantially all of the assets of the
Company to the Proposed Purchaser in strict accordance with the Outside Offer.
If such sale is not so consummated within such 60-day period, then Buyer, Oak
and the Investors will not be obligated to sell any such Shares or consent to
any such sale of all or substantially all of the assets of the Company under
this Section 4.6; provided that nothing herein shall be deemed to limit the
rights of the Management Stockholders to thereafter submit additional Offer
Notices to Oak pursuant to the first paragraph of this Section 4.6.
CERTAIN TRANSACTIONS.
Go Along Rights. If Buyer shall propose to sell, in any single transaction or
any series of related transactions, all or substantially all of the Shares
held by Buyer (a "Go Along Sale"), then Buyer shall give each Management
Stockholder written notice of such Go Along Sale at least fifteen (15)
business days prior to the consummation of such Go Along Sale ("Go Along Sale
Notice"). Each Management Stockholder may, by written notice to Buyer within
ten (10) business days after receipt of the Go Along Sale Notice, sell in such
Go Along Sale the same proportion of the Management Shares then held by him as
the proportion of Shares to be sold by Buyer in such Go Along Sale bears to
the total number of Shares held by Buyer. The sale of such Management Shares
shall be at the same per share sale price (including the time and manner of
payment and type of consideration) and on other terms in substance similar to
those received by Buyer for its Shares in the Go Along Sale.
Take Along Rights. If a holder of Management Shares does not elect to sell
his Shares in a Go Along Sale pursuant to Section 5.1, then the Buyer shall
have the right, by notice to such holder at least three (3) days prior to
consummation of the Go Along Sale, to cause such holder, and upon receipt of
such notice each such holder agrees, to sell to the purchaser of Shares in
such Go Along Sale, substantially contemporaneously with the closing of such
Go Along Sale, such portion of such holder's Shares as the proportion of
Shares to be sold by Buyer in such Go Along Sale bears to the total number of
Shares held by Buyer. The sale of such Management Shares shall be at the same
per share sale price (including the time and manner of payment and type of
consideration) and on other terms (including representations, warranties and
indemnities) in substance similar to those received by Buyer for its Shares in
the Go Along Sale. Each Management Stockholder shall take such actions and
execute such documents and instruments as shall be reasonably necessary to
expeditiously consummate such Go Along Sale. Except as may be otherwise
provided in the Company's certificate of incorporation or by-laws, the consent
of the holders of the Management Shares or the Management Stockholders shall
not be required to a Go Along Sale or any other sale, transfer or disposition
of any Shares by Buyer.
Rights of Second Refusal in Stock of Buyer held by the Investors. If Oak is
unable to purchase the shares of common stock of the Buyer held by the
Investors ("Buyer Shares") in accordance with Section 3.1 of the Investor
Stockholders Agreement, then the Management Stockholders shall have the right
to purchase such Buyer Shares on the same terms offered to Oak; provided,
however, that (a) within thirty (30) days after being notified of Oak's
inability to purchase the Buyer Shares, the Management Stockholders shall
notify the Investors of their intention to purchase such Buyer Shares and (b)
within sixty (60) days after such notice (i) the Management Stockholders
purchase such Buyer Shares or (ii) the Management Stockholders provide the
Investors with binding commitments necessary to accomplish the purchase of
such Buyer Shares within thirty (30) days thereafter and the Management
Stockholders purchase such Buyer Shares within such thirty (30) day period.
Piggyback Registration Rights. Whenever the Company proposes to register any
shares of Common Stock for its own or others' account under the Securities Act
of 1933 for a public offering for cash, other than a registration relating to
employee benefit plans, the Company shall give each holder of Management
Shares prompt written notice of its intent to do so. Upon the written request
of any such holder given within 30 days after receipt of such notice, the
Company will use its best efforts to cause to be included in such registration
all of the Management Shares which such holder requests. If the Company is
advised in writing in good faith by any managing underwriter of the securities
being offered pursuant to any registration statement under this Section 5.4
that the number of shares to be sold by persons other than the Company is
greater than the number of such shares which can be offered without adversely
affecting the offering, the Company may reduce pro rata (based upon the number
of shares requested to be included and the number of shares proposed to be
registered by the Company) the number of shares offered for the accounts of
such persons and for the account of the Company to a number of shares deemed
satisfactory by such managing underwriter. Management Stockholders
participating in any such public offering shall take all such actions and
execute all such documents and instruments that are reasonably necessary to
effect the sale of their Shares in such public offering and shall be parties
to the underwriting agreement entered into by the Company in connection
therewith, and the representations and warranties by, and the other agreements
(including indemnifications and "lock-up" agreements) on the part of, the
Company to and for the benefit of the underwriters in such underwriting
agreement shall also be made by such Management Stockholders.
Dividends. All dividends payable on the Common Stock shall be payable pro
rata to each holder of shares of the Common Stock in accordance with the
number of shares held by such holder. It is understood and agreed that the
term "dividends" as used in this Section 5.5 shall not include any payments
under the Tax-Sharing Agreement (as such term is defined in the Purchase
Agreement), management fees and expenses, expenses of shareholders and board
of directors and loan repayments.
REMEDIES.
Generally. Buyer, Oak, the Investors and each holder of Shares shall have all
remedies available at law, in equity or otherwise in the event of any breach
or violation of this Agreement or any default hereunder by the Company, any
subsidiary or any holder of Shares. The parties acknowledge and agree that in
the event of any breach of this Agreement, in addition to any other remedies
which may be available, each of the parties hereto shall be entitled to
specific performance of the obligations of the other parties hereto and, in
addition, to such appropriate injunctive relief as may be granted by a court
of competent jurisdiction.
LEGENDS. Each certificate representing Shares shall have the following legend
endorsed conspicuously thereupon:
The shares of stock represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be sold, assigned,
pledged or otherwise transferred in the absence of an effective registration
statement under said Act covering the transfer or an opinion of counsel
satisfactory to the issuer that registration under said Act is not required.
The voting of the shares of stock represented by this certificate, and the
sale, encumbrance or other disposition thereof, are subject to the provisions
of a Stockholders Agreement to which the issuer and certain of its
stockholders are party, a copy of which may be inspected at the principal
office of the issuer or obtained from the issuer without charge.
Any person who acquires Shares which are not subject to all or part of the
terms of this Agreement shall have the right to have such legend (or the
applicable portion thereof) removed from certificates representing such
Shares.
AMENDMENT, TERMINATION, ETC.
Oral Modifications. This Agreement may not be orally amended, modified,
extended or terminated, nor shall any oral waiver of any of its terms be
effective.
Written Modifications. This Agreement may be amended, modified, extended or
terminated, and the provisions hereof may be waived, by an agreement in
writing signed by the Investors, Oak, Buyer, Company and the Management
Majority Holders. Each such amendment, modification, extension, termination
and waiver shall be binding upon each party hereto and each holder of Shares
subject hereto. In addition, each party hereto and each holder of Shares
subject hereto may waive any right hereunder by an instrument in writing
signed by such party or holder.
EFFECTIVENESS.
Effective Date. This Agreement shall become effective and binding upon the
parties hereto only upon the consummation of the merger of Buyer Sub with and
into the Company.
MISCELLANEOUS.
Authority; Effect. Each party hereto represents and warrants to and agrees
with each other party that the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized on behalf of such party and do not violate any agreement or other
instrument applicable to such party or by which its assets are bound. This
Agreement does not, and shall not be construed to, give rise to the creation
of a partnership among any of the parties hereto, or to constitute any of such
parties members of a joint venture or other association.
Notices. Notices and other communications provided for in this Agreement
shall be in writing and shall be effective (i) when one day shall have elapsed
(exclusive of Saturdays, Sundays and banking holidays in the City of Boston)
from their deposit for overnight delivery with Federal Express or other bonded
courier, addressed to the party or parties sought to be charged with notice of
the same at the respective addresses set forth or referred to below, subject
to written notice of change of address given by any party to each other party,
or (ii) if earlier, upon receipt.
If to Oak, to it at:
Oak Industries, Inc.
1000 Winter Street
Waltham, Massachusetts 02154
Attention: William Antle III
with a copy to:
Oak Industries, Inc.
1000 Winter Street
Waltham, Massachusetts 02154
Attention: Paul J. Halas, Esq.
If to the Investors, to them at:
Bain Capital
Two Copley Place, 7th Floor
Boston, Massachusetts 02117
Attention: Geoffrey S. Rehnert
with a copy to:
Ropes and Gray
One International Place
Boston, Massachusetts 02110
Attention: R. Bradford Malt, Esq.
If to Buyer, to it at:
c/o Oak Industries, Inc.
1000 Winter Street
Waltham, Massachusetts 02154
Attention: William Antle III
with a copy to:
c/o Oak Industries, Inc.
1000 Winter Street
Waltham, Massachusetts 02154
Attention: Paul J. Halas, Esq.
If to the Company, to it at:
c/o Oak Industries, Inc.
1000 Winter Street
Waltham, Massachusetts 02154
Attention: William Antle III
with a copy to:
c/o Oak Industries, Inc.
1000 Winter Street
Waltham, Massachusetts 02154
Attention: Paul J. Halas, Esq.
If to a Management Stockholder, to him at the address set forth in the stock
record book of the Company.
with a copy to:
Quarles and Brady
One East Camelback Road
Suite 400
Phoenix, AZ 85012-1659
Attention: P. Robert Moya, Esq.
Notice to the holder of record of any shares of capital stock shall be deemed
to be notice to the holder of such shares for all purposes hereof.
Binding Effect, etc. This Agreement constitutes the entire agreement of the
parties with respect to its subject matter, supersedes all prior or
contemporaneous oral or written agreements or discussions with respect to such
subject matter, and shall be binding upon and inure to the benefit of the
parties hereto and their respective Stockholders Estate, successors and
assigns, as the case may be.
Gender and Number. With respect to words used in this Agreement, the singular
form shall include the plural form, the neuter gender shall include the
feminine or masculine gender, and vice versa, as the context requires.
Descriptive Headings. The descriptive headings of this Agreement are for
convenience of reference only, are not to be considered a part hereof and
shall not be construed to define or limit any of the terms or provisions
hereof.
Counterparts. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one instrument.
Severability. If in any judicial proceedings a court shall refuse to enforce
any provision of this Agreement, then such unenforceable provision shall be
deemed eliminated from this Agreement for the purpose of such proceedings to
the extent necessary to permit the remaining provisions to be enforced. To
the full extent, however, that the provisions of any applicable law may be
waived, they are hereby waived to the end that this Agreement be deemed to be
valid and binding agreement enforceable in accordance with its terms, and in
the event that any provision hereof shall be found to be invalid or
unenforceable, such provision shall be construed by limiting it so as to be
valid and enforceable to the maximum extent consistent with and possible under
applicable law.
Governing Law. This Agreement shall be construed under and its validity
determined by the domestic substantive laws of The Commonwealth of
Massachusetts without giving effect to any choice or conflict of laws
provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement under
seal as of the day and year first above written.
GILBERT ENGINEERING ACQUISITION CO., INC.
By:________________________________
Title:
CONNECTOR HOLDING COMPANY
By:________________________________
Title:
CONNECTOR ACQUISITION COMPANY
By:________________________________
Title:
OAK INDUSTRIES INC.
By:________________________________
Title:
INVESTORS:
TYLER CAPITAL FUND, L.P.
By: Bain Venture Capital, a
California Limited Partnership,
its general partner
By:________________________________
Title:
TYLER MASSACHUSETTS, L.P.
By: Bain Venture Capital, a
California Limited Partnership,
its general partner
By:________________________________
Title:
TYLER INTERNATIONAL, L.P.-II
By: Bain Venture Capital, a
California Limited Partnership,
its general partner
By:________________________________
Title:
BCIP ASSOCIATES
By: Bain Venture Capital, a
California Limited Partnership,
its general partner
By:________________________________
Title:
BCIP TRUST ASSOCIATES, L.P.
By: Bain Venture Capital, a
California Limited Partnership,
its general partner
By:________________________________
Title:
MANAGEMENT STOCKHOLDERS:
___________________________________
Robert A. Spann, individually
Gullekson Family Trust
dated December 27, 1989
By:________________________________
, Trustee
___________________________________
Daniel H. Franklin, individually
___________________________________
Robert D. Hayward, individually
JCWKAG8.BC
