===========================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM 10-K
------------------
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1996
COMMISSION FILE NO. 1-4474
------------------
OAK INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
<S> <C>
Common Stock, $0.01 par value, together with New York Stock Exchange
Junior Prefered Stock Purchase Rights 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 $380,682,178 on February
19, 1997.
The Registrant had 18,236,272 shares of Common Stock, $0.01 par value,
issued and outstanding on February 19, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement to be filed no later
than March 31, 1997......................Part III, Items 10-13
===========================================================================
<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 operates entirely in one industry segment, the Components
Segment. The Components Segment designs, manufactures and sells active and
passive components for communications networks including cable connectors,
frequency control devices and fiber optic lasers. This segment also
designs, manufactures and sells components for the home gas cooking
appliance industry as well as a broad line of control and sensing devices
for use in testing equipment and industrial applications.
On February 26, 1996, the Company sold its 49% interest in Video 44
(WSNS-TV Channel 44), and received net proceeds of $29.4 million which was
used to reduce debt. The Company recorded a pre-tax gain of $20.5 million
from the sale.
On October 8, 1996, the Company sold its Nordco Inc. ("Nordco")
subsidiary to an affiliate of Banc One Venture Corporation and members of
Nordco management for net cash proceeds of approximately $19.4 million.
Nordco had previously been reported as the "other" segment and as a result
of the sale, the Company has restated prior year consolidated financial
statements to reflect Nordco as a discontinued operation.
On November 1, 1996, the Company purchased the 20% interest in Connector
Holding Company ("Connector") owned by certain affiliates of Bain Capital,
Inc. ("Bain") for approximately $95.0 million in cash, including
transaction expenses. Connector owns 85% of Gilbert Engineering Co., Inc.
("Gilbert"), and as a result of this transaction the Company acquired
Bain's 17% indirect interest in Gilbert. The acquisition was accounted for
as a purchase, and accordingly, the minority interest expense previously
related to Bain is excluded from the Company's consolidated financial
statements subsequent to the date of acquisition. Goodwill of
approximately $72 million resulting from this acquisition is being
amortized over 36 years. The purchase price was financed with the proceeds
from a new $300 million revolving credit facility (as discussed below).
On November 1, 1996, the Company entered into a new credit agreement
with various lenders that provides for a $300 million unsecured revolving
credit facility (the "Facility"). On November 1, 1996, borrowings of $95
million under the Facility were used to purchase the minority interest of
Connector owned by Bain and $21 million was used to refinance existing
indebtedness of the Company. The Company's previously existing credit
agreements were terminated on November 1, 1996. The Company incurred a
non-cash, after tax charge of approximately $0.9 million in 1996 related to
the early extinguishment of the former credit facilities.
On November 15, 1996, the Company agreed to purchase the 15% interest in
Gilbert owned by management of Gilbert. The Company purchased 7.5% of
Gilbert from Gilbert management in the fourth quarter of 1996 at a purchase
price of approximately $30.6 million. The purchase price was financed with
the borrowings under the Facility. This acquisition was accounted for as a
purchase and accordingly the minority interest expense related to the
portion purchased from Gilbert management is excluded from the Company's
consolidated financial statements subsequent to the date of acquisition.
Goodwill of approximately $20 million resulting from this acquisition is
being amortized over 36 years. The Company now owns 92.5% of Gilbert. The
Company intends to purchase the remaining 7.5% interest owned by certain
members of Gilbert management over the next two years at a price that will
be an agreed multiple of Gilbert's earnings before interest and taxes.
These transactions will be financed with working capital and borrowings
under the new Facility.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENT
The Company's operations are conducted in one industry segment, the
Components Segment. For information regarding sales, operating income and
identifiable assets, see Note 10 of the Notes to Consolidated Financial
Statements, which is incorporated herein by reference.
(C) NARRATIVE DESCRIPTION OF BUSINESS
Overview
The Company manufactures coaxial connectors for CATV systems, frequency
control devices for wireless communications, fiber optic components for
communications, controls for home gas cooking appliances, and switches and
encoders for test and measurement and communications.
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.
Communications Components
The Company's communications components include coaxial cable
connectors, microwave connectors, quartz-based crystals, oscillators, fiber
optic laser pumps, transmitters and detectors. These products are used in
a broad range of applications in communications networks. Collectively,
communications components accounted for approximately 70%, 68% and 59% of
the Company's net sales for 1996, 1995 and 1994 respectively.
CATV Connectors. The Company's Gilbert subsidiary is a leading
manufacturer of coaxial connectors for the CATV industry. The Company
manufactures both 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 the major multiple system operators ("MSOs"),
the telephone operating companies, and to leading distributors of CATV
components. 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 and Western Europe. Cabel-Con A/S,
a Danish subsidiary, sells to customers in Western Europe and other
international markets.
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 that 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 trunk and
feeder connectors are used for each mile of coaxial cable in the
distribution network, and approximately 15-20 drop connectors at each
subscriber location.
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 system reliability and
to 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 to facilitate the deliveries of 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 worldwide manufacturer of trunk and feeder
connectors and a major U.S. manufacturer of drop connectors for the cable
television industry. Although the market for these products is highly
competitive with respect to price, quality and delivery, the Company
believes it competes favorably with respect to each of these factors. The
Company's connector products are engineered to meet stringent reliability
requirements. Certain parties are attempting to develop technologies that
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 Gilbert's
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
other than discussed above. Management does not foresee any problems
obtaining the raw materials necessary for the manufacture of 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
wireless, military communications and test and instrumentation markets.
Products are sold through its OFC, Croven Crystals Ltd., McCoy Crystals,
H.E.S. International, Inc. ("H.E.S.") and McCoy International business
units, 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. Vertical
integration provides OFCG with significant cost and technology advantages
in the market place. Precision crystals are the key component used in the
manufacture of oscillators for wireless communications and other
communications and test and instrumentation applications. H.E.S. is a
leading supplier of hermetically sealed packages for the crystal and
oscillator markets.
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 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") paging and
mobile radio 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
precision oscillators deployed in wireless base stations to synchronize the
reception and retransmission of signals for cellular telephone, PCS, paging
and mobile radio networks. OFCG 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").
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 participates in 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 operations growing synthetic quartz for the
world market. The strategic alliance provides the Company a ready supply
of high-quality, low-cost crystal blanks.
Fiber Optic Communications Components. The Company's Lasertron Inc.,
subsidiary ("Lasertron"), which operates in Bedford, 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, higher levels of performance 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 has developed 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 that 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, including large office buildings with high levels of cellular
phone activity.
Lasertron sells both directly and through distributors to its domestic
and export customers which are primarily manufacturers of fiber optic
communications, CATV or wireless communications equipment.
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 that 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
1997 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 licenses to be material to the conduct of its business.
Controls Components
Oak Controls is the market leader for components sold to the United
States gas home cooking 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 gas
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 30%, 32% and 41% of the Company's net sales for 1996, 1995
and 1994, 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.
As the OakGrigsby Inc. ("OakGrigsby") customer base transitions from
traditional analog switch technology toward digital controls, OakGrigsby's
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 line of motion sensors include gas
pump meters, global positioning systems and medical equipment such as MRI
scanners and liquid analyzers.
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. Harper-Wyman's Mexican manufacturing facility
received ISO 9002 certification during 1996.
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.
The market in which Harper-Wyman participates is very competitive in
terms of price, quality and delivery, with significant competitors.
Harper-Wyman believes it is a leading supplier to the market for its
components 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 INVESTMENTS
Wuhan Telecommunications Devices Company. The Company's 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
communications industry.
McCoy (Cayman) Ltd. The Company owns a 50% interest in McCoy (Cayman)
Ltd. which markets synthetic quartz crystal blanks to customers outside of
the United States. McCoy (Cayman) Ltd., in turn, is the sole shareholder
of Industrias McCoy de Venezuela C.A., which manufactures quartz crystal
blanks.
McCoy International. The Company owns a 50% interest in McCoy
International, a Delaware partnership, which markets synthetic quartz
crystal blanks to customers in the United States.
EMPLOYEES
At December 31, 1996, the Company had 2,944 employees, 1,906 of whom
were located in the United States and 1,038 outside the United States. Of
these employees, 161 are members of unions. The Company believes its
relationships with its employees are good.
BACKLOG
The Company's backlog of domestic and foreign orders was $68,532,000 at
December 31, 1996 and $77,597,000 at December 31, 1995.
Substantially all orders in 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.
(D) FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
For information regarding foreign and domestic operations and export
sales, see Note 10 of the Notes to Consolidated Financial Statements, which
is incorporated herein by reference.
<PAGE>
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 1997 Annual Meeting of Stockholders.
<TABLE>
<CAPTION>
Name Age Position
- --------- ------ -----------
<S> <C> <C>
William S. Antle III...... 52 Chairman of the Board since May 1996.
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.......... 53 Senior Vice President, General
Counsel, and 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......... 44 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......... 51 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.
</TABLE>
<PAGE>
ITEM 2. PROPERTIES
The Company believes that its plants and facilities are suitable and
adequate for its business. They are well maintained, in sound operating
condition, and 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 Square Feet)
---------- -------------
<S> <C>
Amboise, France {B,C}.................................. 35,000 (2 buildings)
Aurora, Illinois (lease expires 11/30/99) {B}.......... 18,000
Bedford, Massachusetts (lease expires 4/30/06) {B,C}... 80,000 (2 buildings)
Glendale, Arizona (leases expire 12/31/97, 12/31/98
and 8/31/10) {B,C}................................. 202,820 (5 buildings)
Juarez, Mexico (lease expires 5/16/98) {C.............. 51,000
Kansas City, Kansas {B,C} (lease expires 9/30/02)...... 19,000
Mercersburg, Pennsylvania {C}.......................... 34,000 (2 buildings)
Mt. Holly Springs, Pennsylvania {B,C}.................. 79,000 (2 buildings)
Phoenix, Arizona (leases expire 8/31/06
and 1/31/99) {B,C}................................. 43,000 (2 buildings)
Princeton, Illinois {C}................................ 235,000 (2 buildings)
Sugar Grove, Illinois (leases expire 6/18/97
and 12/14/01) {B,C}................................ 86,000 (2 buildings)
Vordingborg, Denmark {B,C}............................. 31,000
Waltham, Massachusetts (lease expires 7/31/00) {A,B}... 15,000
Whitby, Ontario, Canada {B,C}.......................... 25,000
Zaragosa, Mexico (lease expires 6/30/97) {C}........... 97,000
<FN>
{A} Corporate Headquarters.
{B} Office Space.
{C} Manufacturing Facilities.
</TABLE>
<PAGE>
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 1996, 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 19,
1997, there were approximately 6,245 stockholders of record of common stock
of the Company.
Information regarding the trading price of the Company's common stock as
reported on the New York Stock Exchange 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 1996 or 1995. (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
----------------------------
1996 1995
------ ------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter............... $25 5/8 $18 3/4 $28 3/8 $22 1/2
Second Quarter.............. 31 3/4 23 1/8 30 3/8 25 1/8
Third Quarter............... 33 3/4 27 1/8 32 22 3/8
Fourth Quarter.............. 39 22 30 3/8 16 1/2
</TABLE>
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................ $ 303,536 $ 255,364 $ 230,894 $ 204,417 $ 126,146
Purchased in-process
research and
development expense... -- 80,872 -- -- --
Operating income (loss).. 46,987 (27,897) 44,113 29,815 5,503
Interest expense......... 5,767 6,273 5,906 6,973 520
Income (loss) from
continuing operations
before income taxes,
minority interest and
extraordinary charge. 62,012 (30,926) 41,840 25,246 8,527
Income (loss) from
continuing operations. 31,976 (52,983) 41,041 25,710 10,206
Net income (loss)........ 41,836 (52,124) 42,446 26,660 14,438
Earnings per common share:
Continuing operations. 1.71 (2.87) 2.23 1.42 .58
Net income (loss)..... 2.24 (2.83) 2.31 1.47 .82
Cash dividends per common
share................. -- -- -- -- --
FINANCIAL POSITION
Working capital.......... $ 79,019 $ 73,168 $ 67,544 $ 64,772 $ 50,953
Plant and equipment, net. 65,026 53,074 36,253 33,084 32,290
Total assets............. 374,285 312,544 279,800 231,201 221,013
Long-term debt, net
of current maturities. 138,161 91,570 34,403 57,349 71,486
Stockholders' equity..... 171,723 119,213 167,150 126,919 98,074
GENERAL STATISTICS
Capital expenditures..... $ 23,205 $ 16,942 $ 6,723 $ 6,946 $ 3,996
Depreciation............. $ 10,028 $ 7,694 $ 6,569 $ 6,037 $ 4,290
Amortization of
intangible assets..... $ 3,609 $ 2,760 $ 2,372 $ 2,413 $ 706
Average common shares
outstanding........... 18,684,281 18,423,014 18,384,342 18,100,104 17,666,745
Number of recordholders
(at year-end)......... 6,312 7,144 8,346 9,732 12,146
Number of employees
(at year-end)......... 2,944 2,931 2,776 2,549 2,179
Salaries and wages....... $ 72,054 $ 65,543 $ 59,938 $ 49,833 $ 37,274
</TABLE>
<PAGE>
IITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
1996 Compared to 1995
Sales for 1996 were $303.5 million, an increase of 18.9% over the $255.4
million in 1995 due primarily to incremental sales of Lasertron Inc.,
("Lasertron") purchased in September 1995 and increased sales of controls
components.
The Company reported net income of $41.8 million in 1996 compared to a
net loss of $52.1 million in 1995. Several unusual transactions affected
the results of operations over the past two years. Net income for 1996
reflects a restructuring charge of $3.8 million, a gain of $21.5 million
for the sale of equity investments, a gain of $9.4 million on the sale of a
subsidiary, a $4.2 million charge associated with the write-down of certain
assets and a reserve for potential legal and environmental matters, a $0.9
million charge to cost of goods sold related to the write-up of Gilbert
inventory required by purchase accounting and an extraordinary charge of
$0.9 million net of tax related to the early extinguishment of debt. In
early 1997, the Company discovered that the controller of one of its
divisions, in collusion with two of his assistants, capitalized certain
amounts which should have been expensed in the periods incurred. Because
the irregularities which occurred in 1995 were not material to the 1995
results ($1.1 million pre-tax, $0.7 million after-tax), the 1995 financial
statements were not restated. The irregularities which occurred in 1995
are reflected as an unusual item below in 1996 results. Net income for
1995 reflects non-cash charges of $82.9 million associated with the
acquisition of Lasertron, including an $80.9 million charge for purchased
in-process research and development and a $2.0 million 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.
The Company's results of operations for the past two years can be
summarized as follows (dollars in millions):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Pre-tax income excluding unusual
transactions........................ $ 50.5 $ 51.9
Income taxes........................... (18.4) (11.9)
Minority interest...................... (7.3) (10.9)
------ ------
Net income excluding unusual
transactions........................ 24.8 29.1
Lasertron purchased in-process R and D. -- (80.9)
Gain on sale of equity investments..... 21.5 --
Restructuring charge................... (3.8) --
Asset write-down and other reserves.... (4.2) --
Purchase accounting adjustments........ (0.9) (2.0)
Improperly capitalized expenses........ (1.1) --
Tax impact of unusual transactions
above............................... (4.4) 0.8
Net income from discontinued
operations.......................... 1.4 2.5
Extraordinary charge, early
extinguishment of debt, net of tax.. (0.9) (1.6)
Gain on sale of discontinued operation,
net of tax.......................... 9.4 --
------ ------
Net income (loss) as reported.......... $ 41.8 $(52.1)
====== ======
</TABLE>
The 1996 provision for income taxes excluding unusual transactions
increased $6.5 million over the prior year principally due to an increase
in the effective tax rate for financial reporting purposes. The annual
effective income tax rate for financial reporting purposes increased to 36%
in 1996 as compared to 23% in 1995 reflecting the provision of a full U.S.
statutory rate in 1996.
Minority interest expense excluding unusual transactions decreased $3.6
million due primarily to the result of a tax sharing agreement between the
Company and Gilbert. The minority interest in Gilbert benefited from a
lower tax rate for financial reporting purpose in 1995. The Company also
purchased an additional 24.5% interest in Gilbert in late 1996 which
lowered minority interest expense in 1996.
Pre-tax income before minority interest and unusual transactions
decreased slightly to $50.5 million in 1996 from the prior year level of
$51.9 million. Operating income before unusual transactions increased $0.8
million from 1995 results and it was offset by the combination of decreased
interest income ($1.1 million), decreased equity income ($1.6 million) and
decreased interest expense of $0.5 million.
Communications Components
Communications Components revenues increased 21.6% in 1996. Excluding
the impact of the acquisition of Lasertron which, because it was acquired
in September 1995, is not included in all of 1995 results, net sales
increased 4.0% over the 1995 period. Communications Components includes
the sales of Gilbert Engineering, a manufacturer of cable connectors,
Lasertron, 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 communications 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 buildout and
upgrade in both domestic and international markets. Excluding Lasertron,
the Company's sales growth in 1996 is attributable to increased
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. A significant
contract between Gilbert and one of its customers expires by its terms on
December 31, 1997. The impact, if any, on this portion of the Company's
business cannot be determined at this time.
Controls Components
The sales of Controls Components increased 13.0% in 1996 to $91.9
million from the prior year level of $81.4 million. Controls Components
consist primarily of flow and temperature control devices for gas cooking
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
Controls Components increased principally as the result of increased demand
for sensing devices combined with modest sales growth of components for gas
cooking.
Gross Profit
The gross profit margin excluding unusual transactions decreased to
39.1% in 1996 from 40.4% in 1995 due primarily to higher volume sales of
lower margin controls 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 $14.9 million, or 31%, in 1996 over the prior year
due to an increase in research and development expenditures related to the
acceleration of product prototyping activities for wireless communications
and wired telephony applications. Most of the increase was attributable to
Lasertron which was acquired in September 1995 and therefore not included
in full year 1995 results. Annual amortization expense of approximately
$2.5 million relating to the goodwill from the purchase of 24.5% interest
in Gilbert in November 1996, will be reflected in selling, general, and
administrative expense.
Interest
Interest expense decreased slightly from $6.3 million in 1995 to $5.8
million in 1996. The decrease in interest expense reflected lower average
borrowings during 1996.
Interest income decreased from $1.7 million in 1995 to $0.5 million in
1996 as average cash balances decreased.
Equity Income (Loss)
Equity in net income of affiliated companies excluding unusual
transactions related to the write-down of certain joint ventures, decreased
from $1.6 million in 1995 to a loss of $0.01 million in 1996. During 1996,
the Company sold its 49% interest in Video 44 (WSNS-TV Channel 44), and
received net proceeds of $29.4 million. The Company recorded a pre-tax
gain of $20.5 million from the sale. Due to this transaction, the
Company's proportionate share of Video 44's earnings was included in 1995
results but not in 1996 results subsequent to the sale. In addition, as a
result of its acquisition of Lasertron, the Company has included in equity
income its proportionate share of the earnings or losses of its 50% owned
Wuhan Telecommunications Devices Company ("WTD"), located in the People's
Republic of China in 1996 results.
1995 Compared to 1994
Sales for 1995 reached $255.4 million, an increase of 10.6% over the
$230.9 million in 1994 reflecting strong growth in Communications
Components businesses offset by a slow down in the sale of Controls
Components.
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 these two years. Net income for 1995 includes
non-cash after tax charges of $82.1 million associated with the acquisition
of Lasertron, 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 these two years is summarized as
follows (dollars in millions):
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Pre-tax income excluding unusual
transactions........................... $ 51.9 $ 43.9
Income taxes.............................. (11.9) (4.1)
Minority interest......................... (10.9) (8.5)
------ ------
Net income excluding unusual transactions. 29.1 31.3
Lasertron purchase accounting adjustments. (82.1) --
Extraordinary charge, early
extinguishment of debt................. (1.6) --
Income from discontinued operations....... 2.5 1.4
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 $7.8 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.
Pre-tax income before minority interest and unusual transactions
increased 18.2% to $51.9 million in 1995 from the prior year level of $43.9
million.
Communications Components
Communications Components revenues increased 28.5% in 1995. Excluding
the impact of the Lasertron 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 communications 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 buildout 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 cooking
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
cooking 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
40.4% in 1995 from 37.6% 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 $5.5 million, or 12.8%, in 1995 over the prior year
but approximated 18% of sales in both periods. Research and development
spending increased 53.7% to $4.7 million, accounting for $1.6 million of
the change. The acquisition of Cabel-Con in June 1994 accounted for a
portion of the increases.
Interest
Interest expense increased from $5.9 million in 1994 to $6.3 million in
1995. The increase in interest expense reflected higher average borrowings
during the first three quarters of 1995. 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 $1.3 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 manufactures quartz crystal
blanks. Equity income related to Video 44 in 1995 approximated that of the
prior year. As a result of its acquisition of Lasertron, the Company has
included its proportionate share of the earnings and losses of its 50%
owned Wuhan Telecommunications Devices Company ("WTD"), located in the
Peoples Republic of China in 1995 results.
Liquidity and Capital Resources
Cash flow from operations increased to $47.2 million in 1996 from $37.0
million in 1995, reflecting an increase in income from operations excluding
unusual transactions, combined with a decrease in the level of working
capital. The Company increased its capital spending to $23.2 million in
1996 from $16.9 million in 1995 due to: bringing on line new capacity to
support higher production volumes and new products; automation of
production processes to reduce both cost and manufacturing cycle time; and
expanded use of CAD capabilities and new prototyping equipment to reduce
development cycle times.
On November 1, 1996, the Company entered into a new credit agreement
with various lenders which provides for a $300 million unsecured revolving
credit facility (the "Facility"). On November 1, 1996, borrowings of $95
million under the Facility were used to purchase the minority interest of
Connector held by Bain and $21 million was used to refinance existing
indebtedness of the Company. The Company's previous credit agreements were
terminated on November 1, 1996. The Facility will be reduced by $50
million on each of November 1, 1999 and November 1, 2000 and matures on
December 31, 2001.
On November 15, 1996, the Company agreed to purchase the 15% interest in
Gilbert owned by certain members of the management of Gilbert. The Company
purchased from Gilbert management 7.5% of Gilbert in the fourth quarter of
1996 at a purchase price of approximately $30.6 million. The Company will
purchase the remaining 7.5% over the next two years at a price that will be
an agreed multiple of Gilbert's earnings before interest and taxes. These
transactions will be financed with working capital and borrowings under the
Facility.
In October 1996, the Company sold Nordco to an affiliate of Banc One
Venture Corporation and members of Nordco management for net cash proceeds
of $19.4 million.
As a result of the transactions above, debt net of cash increased to
$132.3 million at December 31, 1996 from $89.4 million at December 31,
1995. Cash proceeds of $29.4 million from the sale of the Company's 49%
interest in Video 44 (WSNS-TV Channel 44), and cash proceeds of $19.4
million from the sale of Nordco were used to reduce debt. In addition, the
Company repaid $44.0 of debt in 1996 from cash generated from operations.
In January 1997, the Company's Board of Directors authorized the
repurchase of up to $75.0 million of the Company's common stock contingent
on bank approval. The repurchased stock is to be held by the Company and
used to meet the Company's obligations under its existing stock incentive
plans and for other corporate purposes.
The Company intends to pursue acquisitions in the communications 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 any transactions will be completed in 1997.
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 sales of communications components will account for a
majority of the Company's future revenues. Although demand for these
products has grown in recent years with the buildout of communications
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 communications 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. The Company believes that it will continue to see varying
degrees of price pressure across all product lines. These price pressures,
if not offset by cost reductions, could result in lower average gross
margins.
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 could 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 external
alternative sources of supply. Although the Company does not at this time
have a qualified second external 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 1996
was immaterial and is not expected to have a material effect on capital
expenditures or operating results in 1997.
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
------
<S> <C>
REPORT OF INDEPENDENT ACCOUNTANTS............................ xx
FINANCIAL STATEMENTS -
Consolidated Balance Sheet at December 31, 1996 and 1995.. xx
Consolidated Statement of Operations for the years
ended December 31, 1996, 1995 and 1994................. xx
Consolidated Statement of Stockholders' Equity for
the years ended December 31, 1996, 1995 and 1994....... xx
Consolidated Statement of Cash Flows for the years
ended December 31, 1996, 1995 and 1994................. xx
Notes to Consolidated Financial Statements................ xx
SCHEDULE -
II - 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, 1996
and 1995, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1996, 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 31, 1997
<PAGE>
OAK INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1996 1995
--------- --------
<C> <C>
<S>
Current Assets:
Cash and cash equivalents.......................... $ 6,116 $ 16,842
Receivables, less reserves of $2,330 and $1,573.... 40,202 38,314
Inventories........................................ 53,355 48,514
Deferred income taxes.............................. 22,210 19,900
Other current assets............................... 2,641 3,088
--------- ---------
Total current assets......................... 124,524 126,658
--------- ---------
Plant and Equipment:
Land............................................... 931 1,001
Buildings and leasehold improvements............... 23,584 18,036
Machinery and equipment............................ 111,082 97,559
Furniture and fixtures............................. 7,803 6,487
--------- ---------
143,400 123,083
Less _ Accumulated depreciation.................... (78,374) (70,009)
--------- ---------
Total plant and equipment.................... 65,026 53,074
--------- ---------
Other Assets:
Deferred income taxes.............................. 4,348 17,242
Goodwill and other intangible assets,
less accumulated amortization of $11,451
and $9,518....................................... 166,498 79,094
Investment in affiliates........................... 8,315 20,940
Net assets of discontinued operations.............. -- 8,438
Other assets....................................... 5,574 7,098
--------- ---------
Total other assets........................... 184,735 132,812
--------- ---------
Total Assets.............................. $ 374,285 $ 312,544
========= =========
</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>
1996 1995
-------- --------
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt.............. $ 290 $ 14,691
Accounts payable............................... 16,162 15,103
Accrued liabilities............................ 29,053 23,696
--------- ---------
Total current liabilities................... 45,505 53,490
--------- ---------
Other Liabilities:
Deferred compensation and pensions............. 4,717 5,505
Other.......................................... 3,256 6,123
--------- ---------
Total other liabilities..................... 7,973 11,628
--------- ---------
Long-Term Debt, Less Current Maturities........... 138,161 91,570
--------- ---------
Minority Interest................................. 10,923 36,643
--------- ---------
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
18,482,069 and 17,667,788 shares........... 184 177
Additional paid-in capital..................... 296,185 282,179
Accumulated deficit............................ (119,692) (161,528)
Cumulative translation adjustment.............. (378) 248
Unearned compensation - restricted stock....... (2,945) --
Treasury stock, 64,487, and 65,672 shares...... (1,369) (1,316)
Stock purchase loans........................... (262) (547)
--------- --------
Total stockholders' equity.................. 171,723 119,213
--------- --------
Total Liabilities and
Stockholders'Equity................... $ 374,285 $ 312,544
========= =========
</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>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net Sales............................................ $ 303,536 $ 255,364 $ 230,894
Cost of sales........................................ (189,410) (154,281) (144,145)
--------- --------- ---------
Gross profit...................................... 114,126 101,083 86,749
Selling, general and administrative expenses......... (67,139) (48,108) (42,636)
Purchased in-process research and development........ -- (80,872) --
--------- --------- ---------
Operating income (loss)........................... 46,987 (27,897) 44,113
Interest expense..................................... (5,767) (6,273) (5,906)
Interest income...................................... 541 1,661 1,329
Gain on sales of equity investments.................. 21,502 -- --
Equity in net income (loss) of affiliated companies.. (1,251) 1,583 2,304
--------- --------- ---------
Income (loss) from continuing operations before
income taxes,minority interest and
extraordinary charge.......................... 62,012 (30,926) 41,840
Income tax benefit (provision)....................... (22,764) (11,199) 10,891
Minority interest in net income of subsidiaries...... (7,272) (10,858) (11,690)
--------- --------- ---------
Income (loss) from continuing operations.......... 31,976 (52,983) 41,041
Income from discontinued operations,net of tax....... 1,442 2,469 1,405
Gain on sale of discontinued operations, net of tax.. 9,367 -- --
--------- --------- ---------
Net income (loss) before extraordinary charge..... 42,785 (50,514) 42,446
Extraordinary charge for early extinguishment of
debt, net of tax benefit of $582
and $1,506 in 1996 and 1995 respectively;
and minority interest of $746 in 1995........... (949) (1,610) --
--------- --------- ---------
Net income (loss).................................... $ 41,836 $ (52,124) $ 42,446
========= ========= =========
Income (loss) per common share:
Continuing operations............................. $ 1.71 $ (2.87) $ 2.23
Discontinued operations........................... .08 .13 .08
Gain on sale of discontinued operation............ .50 -- --
--------- --------- ---------
Net income (loss) before extraordinary charge..... 2.29 (2.74) 2.31
Extraordinary charge.............................. (.05) (.09) --
--------- --------- ---------
Net income (loss).................................... $ 2.24 $ (2.83) $ 2.31
========= ========= =========
Average number of common shares outstanding.......... 18,684 18,423 18,384
========= ========= =========
</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 Unearned Treasury Purchase
Stock Capital Deficit Adjustment Compensation Stock Loans Total
----- --------- ----------- --------- ------------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net income.............. -- -- 41,836 -- -- -- -- 41,836
Current year translation
adjustment............ -- -- -- (626) -- -- -- (626)
Exercise of options..... 6 8,762 -- -- -- (133) -- 8,635
Tax benefit from stock
options............... -- 2,300 -- -- -- -- -- 2,300
Issuance of restricted
stock................. 1 2,944 -- -- (2,945) -- -- --
Other................... -- -- -- -- -- 80 285 365
----- --------- --------- ------ -------- ------- ------- --------
Balance,
December 31, 1996..... $ 184 $ 296,185 $(119,692) $ (378) $ (2,945) $(1,369) $ (262) $171,723
===== ========= ========= ====== ======== ======= ======= ========
</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>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income (loss) from continuing operations.............. $ 31,976 $ (52,983) $ 41,041
Adjustments to reconcile income (loss) from
continuing operations to net cash provided
by operations:
Purchased in-process research and development...... -- 80,872 --
Depreciation and amortization...................... 13,998 11,314 10,360
Change in minority interest........................ 7,273 10,858 11,690
Gain on sales of equity investments................ (21,502) -- --
Undistributed earnings of affiliated companies..... 1,263 (723) (1,464)
Change in assets and liabilities, net
of effects from acquisition of businesses:
Receivables..................................... (582) (4,119) (2,615)
Inventories..................................... (4,036) (6,923) (2,624)
Accounts payable and accrued liabilities........ 5,204 (5,618) 6,371
Deferred compensation and pensions.............. (172) (90) 134
Deferred income taxes .......................... 14,690 6,292 (14,979)
Other........................................... (920) (1,831) (3,240)
-------- --------- --------
Net cash provided by operations.......................... 47,192 37,049 44,674
-------- --------- --------
Investing Activities:
Capital expenditures.................................. (23,205) (16,942) (6,723)
Acquisition of businesses, net of cash acquired....... (125,600) (100,019) (8,309)
Proceeds from the sale of equity investment........... 30,871 -- --
Advances to affiliated companies...................... -- (300) (308)
Disposition of business............................... -- -- 2,092
Repayments from employees............................. 285 497 261
Other................................................. (12) (116) 101
-------- --------- --------
Net cash used in investing activities.................... (117,661) (116,880) (12,886)
-------- --------- --------
Financing Activities:
Long-term borrowings.................................. 146,000 114,000 --
Repayment of borrowings............................... (92,810) (30,020) (11,860)
Early retirement of debt.............................. (21,000) (28,610) (4,200)
Exercise of options and warrants...................... 8,635 3,188 1,155
Acquisition of warrants............................... -- -- (3,061)
Deferred debt issuance costs.......................... (720) (1,805) --
Other................................................. -- (404) (442)
-------- --------- --------
Net cash provided by (used in) financing activities...... 40,105 56,349 (18,408)
-------- --------- --------
Effect of exchange rate changes on cash.................. (333) 906 (128)
-------- --------- --------
Net cash provided by (used in) discontinued operations... 19,971 1,870 (2,971)
-------- --------- --------
Net change during year................................... (10,726) (20,706) 10,281
Balance, beginning of year............................... 16,842 37,548 27,267
-------- --------- --------
Balance, end of year..................................... $ 6,116 $ 16,842 $ 37,548
======== ========= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an
integral part of these consolidated statements.
<PAGE>
(1) NATURE OF BUSINESS:
Oak Industries Inc. (the "Company") manufactures and sells active and
passive components for communications networks including cable connectors,
fiber optic lasers and frequency control devices. The Company 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.
(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, The Peoples Republic of China and a 50% interest in
McCoy (Cayman) Ltd. and McCoy International that, along with Industrias
McCoy de Venezuela S.A. de C.V. manufacture quartz crystal blanks in
Venezuela and market them to customers worldwide. Investments in these
affiliated companies are recorded at cost plus equity in undistributed
earnings. Dividends received from affiliated companies were $1,985,000,
$860,000 and $840,000 for 1996, 1995, and 1994, 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 and are insignificant.
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,
-----------------
1996 1995
------- ------
<C> <C>
<S>
Raw materials....................... $ 13,134 $ 12,308
Work in process..................... 28,182 29,679
Finished goods...................... 12,039 6,527
------- --------
$ 53,355 $ 48,514
======== ========
</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 and leasehold improvements........ 5 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, 1994.... $ 74,525 $ 587 $ 75,112
Additions..................... 4,728 2,014 6,742
Amortization.................. (2,415) (345) (2,760)
--------- ------- ---------
Balance, December 31, 1995.... 76,838 2,256 79,094
Additions..................... 90,543 470 91,013
Amortization.................. (3,060) (549) (3,609)
--------- ------- ---------
Balance, December 31, 1996.... $ 164,321 $ 2,177 $ 166,498
========= ======= =========
</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 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. The Company assesses annually the potential
impairment of goodwill and other identified intangible assets based on
anticipated undiscounted cash flows from operations and its knowledge of
the industry.
CAPITALIZED DEBT COSTS
The Company capitalizes all costs related to the issuance of debt. The
resulting capitalized debt costs ($698,000 and $1,869,000 at December 31,
1996 and 1995, 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 1996,
1995 and 1994, the Company amortized $361,000, $567,000 and $1,034,000,
respectively, of capitalized debt costs. As a result of terminating its
previous debt facilities the Company wrote off capitalized debt costs of
$1,531,000 and $785,000 in 1996 and 1995 respectively, which 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
$10,510,000, $4,737,000 and $3,082,000 in 1996, 1995 and 1994,
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:
18,684,281 in 1996; 18,423,014 in 1995, and; 18,384,342 in 1994. Included
in these weighted-average shares figures are common stock equivalents of
786,905 in 1996; 902,786 in 1995, and; 1,102,624 in 1994.
CASH EQUIVALENTS
The Company's cash equivalents represent funds invested in a variety of
liquid short-term instruments with maturities of less than three months at
time of purchase. 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 cash and cash equivalents, which include debt
securities, are classified as held to maturity. The recorded value of
these investments approximates fair value.
INTEREST RATE SWAP AGREEMENTS
The Company enters into interest rate swap agreements in order to manage
its exposure to interest rate fluctuations. The swap agreements are
contracts to exchange floating rate for fixed interest payments
periodically over the life of the agreements without the exchange of the
underlying notional amounts. The notional amounts of interest rate
agreements are used to measure interest to be paid or received and do not
represent the amount of exposure to credit loss. In the unlikely event
that a counterparty fails to meet the terms of an interest rate swap
agreement, the Company's exposure is limited to the interest rate
differential on the notional amount. The Company does not anticipate non-
performance by any of the counterparties. Net interest differentials to be
paid or received related to interest rate swap agreements are accrued and
ultimately recognized as an adjustment to interest expense over the life of
the agreements. The fair values of interest rate swap agreements are the
estimated amounts that the Company would receive or pay to terminate the
agreements at the reporting date, taking into account current interest
rates and the current credit worthiness of the counterparties.
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>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Interest........................ $ 4,696 $ 4,841 $ 4,418
Income taxes.................... 6,171 3,255 1,751
</TABLE>
Details of businesses acquired were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<C> <C> <C>
<S>
Assets acquired................. $ 92,607 $ 45,948 $ 18,269
Minority interest elimination... 32,993 -- --
Purchased in-process research
and development............. -- 80,872 --
Liabilities assumed............. -- (18,582) (3,313)
Debt assumed.................... -- -- (5,706)
--------- --------- --------
Cash paid....................... 125,600 108,238 9,250
Cash acquired................... -- (8,219) (941)
--------- --------- --------
Net cash paid................... $ 125,600 $ 100,019 $ 8,309
========= ========= ========
</TABLE>
RECLASSIFICATIONS
Certain items in the 1995 and 1994 financial statements have been
reclassified to conform with the 1996 presentation.
(3) ACQUISITIONS:
CONNECTOR AND GILBERT MINORITY INTEREST
On November 1, 1996, the Company purchased the 20% interest in Connector
Holding Company ("Connector") owned by certain affiliates of Bain Capital,
Inc. ("Bain") for approximately $95,000,000 in cash, including transaction
expenses. Connector owned 85% of Gilbert Engineering Co., Inc.
("Gilbert"), and as a result of this transaction the Company acquired
Bain's 17% indirect interest in Gilbert. The acquisition was accounted for
as a purchase and accordingly the minority interest expense previously
related to Bain is excluded from the Company's consolidated financial
statements subsequent to the date of acquisition. Goodwill of
approximately $72,000,000 resulting from this acquisition is being
amortized over 36 years which is consistent with the remaining period
relating to goodwill resulting from the purchase of an 80% equity interest
in Connector during 1992. The purchase price was financed with the
borrowings from a new $300,000,000 revolving credit facility.
The following unaudited pro forma summary combines the consolidated
results of operations of the Company as if the acquisition of the Bain
interest had occurred at the beginning of 1996 and 1995, after giving
effect to certain adjustments, including amortization of intangible assets,
increased interest expense 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 had acquired the Bain interest during such
periods.
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended
December 31,
(Unaudited)
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
Net sales....................... $ 303,536 $ 255,364
Income (Loss) from operations
before extraordinary charge... $ 41,676 $ (52,234)
Net income (loss)............... $ 40,727 $ (53,844)
Income (Loss) from operations
before extraordinary charge
per common share.............. $ 2.23 $ (2.83)
Net income (loss) per common
share......................... $ 2.18 $ (2.92)
</TABLE>
On November 15, 1996, the Company agreed to purchase the 15% interest in
Gilbert that was owned by certain members of the management of Gilbert.
The Company purchased 7.5% of Gilbert from Gilbert management in the fourth
quarter of 1996 at a purchase price of approximately $30,600,000. This
acquisition was accounted for as a purchase and accordingly, the minority
interest expense previously related to the portion purchased from Gilbert
management is excluded from the Company's consolidated financial statements
subsequent to the date of acquisition. Goodwill of approximately
$20,000,000 resulting from this acquisition is being amortized over 36
years. The Company now owns 92.5% of Gilbert. The Company will purchase
the remaining 7.5% interest owned by Gilbert management over the next two
years at a price that will be a multiple of Gilbert's earnings before
interest and taxes. These transactions will be financed with working
capital and the borrowings from the new $300,000,000 revolving credit
facility. Pro-forma results of operations have not been presented for the
7.5% acquisition of Gilbert because the effects of the acquisition were not
significant.
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 communications 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. At the date of acquisition,
the Company 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 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
------------ ----------
<S> <C> <C>
Net sales............................ $ 277,890 $ 260,641
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 under 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.
(4) DIVESTITURES:
During 1996, the Company sold its 49% interest in Video 44 (WSNS-TV
Channel 44), and received net proceeds of $29,400,000. The Company
recorded a pre-tax gain of $20,550,000 from the sale.
During 1996, the Company completed the sale of its 45% interest in O/E/N
India Ltd. for $1,471,000 in cash. As a result of this sale the Company
reported a pre-tax gain of $952,000.
During 1996, the Company sold its Nordco Inc. ("Nordco") subsidiary to
an affiliate of Banc One Venture Corporation and members of Nordco
management for net cash proceeds of approximately $19,381,000. The Company
reported a gain of $9,367,000 from the sale in 1996. Because the tax basis
of Nordco is greater than the sales price, the Company will not pay income
taxes or record an income tax provision related to this transaction.
As a result of the sale of Nordco, the Company has restated its prior
year consolidated financial statements to reflect Nordco as a discontinued
operation. The results of the discontinued operations reflected in the
consolidated statements of operations are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales......................... $ 16,715 $ 21,216 $ 18,110
======== ======== ========
Gross profit...................... $ 5,780 $ 7,801 $ 6,617
======== ======== ========
Earnings before income taxes...... $ 2,325 $ 3,073 $ 1,551
Income taxes...................... (883) (604) (146)
-------- -------- --------
Net earnings from discontinued
operations.................... $ 1,442 $ 2,469 $ 1,405
======== ======== ========
</TABLE>
The components of net assets of discontinued operations included in the
Consolidated Balance Sheet at December 31, 1995 were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
December 31, 1995
-------------------
<S> <C>
Inventories............................... $ 3,814
Receivables, less reserve................. 2,317
Other current assets...................... 827
PP and E, net............................. 494
Intangibles, net.......................... 699
Other..................................... 1,742
Current liabilities....................... (1,455)
-------
Net assets of discontinued operations..... $ 8,438
=======
</TABLE>
(5) INDEBTEDNESS:
Long-term debt at December 31 is summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Corporate Borrowings:
Term Loan A............................... $ -- $ 57,500
Revolving Credit Facility................. 136,000 23,000
Other..................................... 144 168
Gilbert Engineering borrowings:
Term Loan................................. -- 20,900
Revolving Credit Facility................. -- 2,000
Cabel-Con Mortgages....................... 2,307 2,693
-------- ---------
138,451 106,261
Less _
Current maturities........................ (290) (14,691)
-------- ---------
$138,161 $ 91,570
======== =========
</TABLE>
On November 1, 1996, the Company entered into a new credit agreement
with various lenders which provides for a $300,000,000 revolving credit
facility (the "Facility"). During 1996, proceeds of $125,000,000 from the
Facility were used to purchase the minority interest of Gilbert and
$21,000,000 was used to refinance existing indebtedness of the Company.
The Company's previously existing $200,000,000 credit agreements were
terminated on November 1, 1996. As a result, the Company recorded a non-
cash, after tax charge of $949,000 related to the early extinguishment of
the former credit facilities.
Borrowings under the Facility bear interest, at the option of the
Company, either (i) at the prime rate (or, if higher, at 1/2% above the
federal funds rate) or (ii) at a spread of (1/2% to 1%) over the reserve-
adjusted 1, 2, 3 or 6 month LIBOR rate. The spread is initially 3/4% and
is subject to adjustment based on certain financial tests. As of December
31, 1996, interest rates on outstanding borrowings under the Facility
ranged from 6.25% to 6.375%. Commitment fees of .25% are payable on unused
borrowings under these agreements. Certain of the Company's subsidiaries
have guaranteed the obligations under the Facility. Pursuant to the
Facility's terms, the Company is required to meet certain financial
covenants and is prohibited from paying dividends. The Facility will be
reduced by $50,000,000 on each of November 1, 1999 and November 1, 2000 and
matures on December 31, 2001.
Cabel-Con mortgages payable through 2009, 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, 1996 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31
--------------
<S> <C>
1997................ 290
1998................ 321
1999................ 347
2000................ 375
2001................ 136,072
Thereafter.......... 1,046
</TABLE>
As of December 31, 1996 the Company had exchanged its floating rate
obligation on a (i) a $20 million notional principal amount for a fixed
rate payment obligation of 4.95% (plus a spread of 1/2% to 1%) per annum
through February 23, 1998; (ii) a $25 million notional principal amount for
a fixed rate payment obligation of 6.02% (plus a spread of 1/2% to 1%) per
annum through December 24, 1999; (iii) a $25 million notional principal
amount for a fixed rate payment obligation of 6.02% (plus a spread of 1/2%
to 1%) per annum through December 27, 2000. The Company charged $72,000 to
interest expense related to these agreements for 1996. As of December 31,
1996 the Company estimates it would have received $293,000 to terminate the
agreements.
(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 is issued with an attached right. Each right
entitles 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 a secondary offering of its stock 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 the remaining
loan is repayable in full on January 1, 2000. Interest on the loan is
calculated quarterly, based on the interest rate applicable to the
Company's outstanding debt, and is payable annually until maturity. The
loan, which is included in stockholders' equity, is secured by the common
stock purchased and certain other amounts owed to such individual by the
Company. In 1996 and 1995, respectively, principal of $285,000 and
$497,000 and interest of $55,000 and $60,000 was paid to the Company by the
borrowers. The principal balance of the remaining loan at December 31,
1996 was $262,000.
STOCK REPURCHASE
In January 1997, the Board of Directors authorized the repurchase of up
to $75.0 million of the Company's common stock contingent on bank approval.
The repurchased stock is to be held by the Company and used to meet the
Company's obligations under its existing stock incentive plans and for
other corporate purposes.
(7) STOCK OPTIONS AND AWARDS:
The Company has award plans for directors, officers, employees and
consultants and advisors, which provide for, among other things, the
issuance of stock options and restricted stock. With respect to stock
options, the Compensation Committee of the Company's Board of Directors
determines the option price (not to be less than fair market value) at the
date of the grant. Options granted pursuant to the Company's award plans
generally vest over three to four years from the date of the grant and
expire after ten years or ten years and one day. Certain options granted
under the 1995 Stock Option and Restricted Stock plan were originally
exercisable prior to the tenth anniversary of their grant date only if the
Company's common stock closed at or above 150% of the grant date price for
ten consecutive trading days within the three year period following the
grant date. On December 4, 1996, the Board of Directors approved the
amendment of the exercisability terms of these options. As a result,
options for the purchase of 550,000 of the Company's shares were amended in
order to provide for their exercisability over a period of 3 years from
their original grant date.
During December 1996, the Company granted 124,000 shares of restricted
stock from the 1995 Stock Option and Restricted Stock Plan to certain of
its officers and employees. These shares will vest on January 1, 2000
provided that the recipient is still employed by the Company. The market
value of these shares awarded totaled $2,945,000 and has been recorded as
restricted stock as a separate component of stockholders' equity. Unearned
compensation is being amortized to expense over the three year vesting
period.
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.
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and related
Interpretations in accounting for its employee stock options because the
alternative fair value accounting provided for under FASB Statement No.
123, "Accounting for Stock-Based Compensation," ("FAS 123") requires use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, because the exercise price of the Company's
employee stock options equals the market price of the underlying stock on
the date of grant, no compensation expense is recognized. The Company has
adopted the disclosure-only provisions of FAS 123.
STOCK OPTION SUMMARY
<TABLE>
<CAPTION>
Weighted-Average
Shares Option Price Exercise Price
--------- ----------------- -------------------
<S> <C> <C> <C>
Outstanding at December 31, 1993........... 1,514,179 $ 4.06 to $ 17.50 $ 7.29
Granted................................. 313,500 $18.38 to $ 26.63 $ 25.15
Expired or cancelled.................... (32,269) $ 4.06 to $ 17.50 $ 10.36
Exercised............................... (217,667) $ 4.06 to $ 17.50 $ 5.45
---------
Outstanding at December 31, 1994........... 1,577,743 $ 4.06 to $ 26.63 $ 13.52
Granted................................. 1,812,003 $ 4.02 to $ 29.38 $ 23.54
Expired or cancelled.................... (8,190) $ 4.06 to $ 26.63 $ 5.87
Exercised............................... (188,590) $ 4.02 to $ 16.50 $ 5.42
---------
Outstanding at December 31, 1995........... 3,192,966 $ 4.02 to $ 29.38 $ 17.13
Granted................................. 894,000 $19.25 to $ 33.50 $ 25.16
Expired or cancelled.................... (935,199) $ 4.02 to $ 33.50 $ 12.02
Exercised............................... (690,281) $ 4.02 to $ 26.63 $ 8.14
---------
Outstanding at December 31, 1996........... 2,461,486 $ 4.02 to $ 33.50 $ 20.20
=========
Exercisable at December 31, 1996........... 1,382,063 $ 17.10
=========
Available for grant at December 31, 1996... 579,665
=========
</TABLE>
There were 3,041,151 shares of Common Stock reserved for issuance in
connection with the Company's stock option and award plans at December 31,
1996. Options issued under all option plans, if not exercised, expire ten
years or ten years and one day from the date of grant.
The following table summarizes information about stock options
outstanding at December 31, 1996.
<TABLE>
<CAPTION>
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range Of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
----------------- ------------ ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 4.38 - 5.63 154,722 4 $ 5.26 154,722 $ 5.26
4.02 - 4.06 180,560 5 4.05 180,560 4.05
6.25 - 8.75 204,061 6 8.20 198,486 8.20
14.07 - 26.63 885,443 8 23.98 568,776 24.34
23.00 - 26.38 746,700 9 24.13 271,959 24.06
$ 23.64 - 33.50 290,000 10 24.89 7,560 24.53
---------------- --------- ---------
$ 4.02 - $33.50 2,461,486 1,382,063
</TABLE>
Pro Forma information regarding net income and earnings per share is
required by FAS 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of
that Statement. The fair value for these options was estimated at the date
of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1996 and 1995, respectively: risk-free
interest rates in the range of 5.4% to 7.9% in 1996 and 1995; volatility
factors of the expected market price of the Company's common stock of .72;
and a weighted-average expected life of the option of 6 years. The
weighted-average fair value of options granted were $18.40 and $16.83 for
1996 and 1995 respectively.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows (in thousands except for earnings
per share information):
<TABLE>
<CAPTION>
1996 1995
-------- ---------
<S> <C> <C>
Pro forma net income (loss)............ $ 35,590 $ (53,595)
Pro forma earnings per share........... $ 1.90 $ (2.91)
</TABLE>
(8) POSTRETIREMENT BENEFITS:
The Company has a number of noncontributory pension plans covering a
small group 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>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service costs - benefits earned
during the period..................... $ 146 $ 357 $ 461
Interest cost on projected benefit
obligation............................ 2,640 2,427 2,451
Actual return on assets..................... (3,990) (5,898) 588
Net amortization and deferral............... 1,214 3,262 (2,329)
------- ------- -------
Net periodic pension cost................... $ 10 $ 148 $ 1,171
======= ======= =======
</TABLE>
The following table sets forth the funded status of all defined benefit
plans at December 31, 1996 and 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
------------------------------ ------------------------------
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......................... $ 753 $ 34,019 $ 789 $ 29,869
Nonvested......................... 20 351 10 335
------- -------- ------ --------
Accumulated benefit obligation.... $ 773 $ 34,370 $ 799 $ 30,204
======= ======== ====== ========
Fair value of assets................. $ 1,060 $ 33,609 $ 999 $ 26,695
Less: Projected benefit obligation... 773 34,370 986 30,204
------- -------- ------ --------
Funded (underfunded) plans........... 287 (761) 13 (3,509)
Unrecognized transition liability.... -- 467 9 --
Unrecognized prior service costs..... -- 753 -- --
Unrecognized net loss (gain)......... (48) (2,365) 63 --
Additional liability................. -- -- -- --
------- -------- ------ --------
Prepaid (accrued) pension cost....... $ 239 $ (1,906) $ 85 $ (3,509)
======= ======== ====== ========
</TABLE>
In 1996, 1995 and 1994, 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 $139,000 in 1996, a gain of
$691,000 in 1995, and a loss of $154,000 in 1994.
The projected benefit obligation was determined using an assumed
discount rate of 7.75% for 1996, 7.5% for 1995, and 8.5% for 1994 and
assumed no increase in rate of compensation for 1996, an increase of 4.5%
for 1995, and 5.0% for 1994. 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, 1996 and 1995 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 $2,422,000, $1,439,000, and $1,530,000 in 1996, 1995 and
1994, 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 in the form of the Company's common shares
of up to 50% of the participants' contributions. Upon termination, each
participant will receive in cash the fair value of their account for the
employee contribution portion and shares of the Company's common stock for
the Company's matching contribution portion. Contributions by the
employees earn a stated rate of interest. The Company recorded expense of
$407,000, $632,000 and , $282,000 in 1996, 1995 and 1994, 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>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Domestic................................. $ 58,295 $ (33,322) $ 39,769
Foreign.................................. 3,717 2,396 2,071
-------- --------- --------
$ 62,012 $ (30,926) $ 41,840
======== ========= ========
</TABLE>
The income tax benefit (provision) for the years ended December 31
consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Current --
Federal.................................. $ (1,800) $ (1,500) $ (1,000)
Foreign.................................. (1,526) (1,089) (1,037)
State and local (a)...................... (2,429) (2,724) (1,072)
--------- --------- --------
$ (5,755) $ (5,313) $ (3,109)
Deferred --
Provision for federal and state
taxes payable in future................ (17,009) (5,886) --
Benefit from change in deferred
tax asset valuation allowance.......... -- -- 14,000
--------- --------- --------
Total tax benefit (provision)............ $ (22,764) $ (11,199) $ 10,891
========= ========= ========
<FN>
(a) 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>
1996 1995
------- -------
<S> <C> <C>
Net operating loss carryforwards......... $ 13,700 $ 32,000
Other.................................... 20,000 15,400
--------- ---------
Gross deferred tax assets................ 33,700 47,400
Gross deferred tax liabilities........... (8,000) (10,800)
--------- ---------
Net deferred tax asset................... $ 25,700 $ 36,600
========= =========
</TABLE>
During 1994, the net deferred income tax asset increased by $14,000,000,
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 1996 and 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>
1996 1995 1994
------------------- ------------------ -----------------
Amount Percent Amount Percent Amount Percent
------- ------- -------- -------- ------- -------
<C> <C> <C> <C> <C> <C>
<S>
Computed statutory tax (provision) benefit...... $ (21,704) (35.0) $ 10,824 35.0 $(14,644) (35.0)
Increase (decrease) in tax (provision) benefit
resulting from _
Operating loss carryforward which resulted
in current tax benefit..................... -- -- 9,376 30.3 13,919 33.3
Change in deferred tax asset valuation
allowance................................. -- -- -- -- 14,000 33.5
State income taxes (net of federal benefit).. (1,580) (2.5) (1,800) (5.8) (1,180) (2.8)
Alternative minimum tax...................... (1,150) (1.9) (500) (1.6) (1,000) (2.4)
Goodwill amortization........................ (1,034) (1.7) (800) (2.6) (700) (1.7)
Purchased in-process research and
development............................... -- -- (28,305) (91.5) -- --
Foreign sales corporation.................... 1,200 1.9 900 2.9 -- --
Resolution of tax issues..................... 800 1.3 -- -- -- --
Other........................................ 704 1.2 (894) (2.9) 496 1.1
--------- ----- -------- ----- -------- -----
Income tax (provision) benefit.................. $ (22,764) (36.7) $(11,199) (36.2) $ 10,891 26.0
========= ===== ========= ===== ======== =====
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards
of approximately $27,500,000 for tax reporting purposes, which will, if
unused, expire from 2000 to 2006. The Company has an alternative minimum
tax credit carryforward of approximately $3,700,000 as of December 31,
1996, which may be carried forward indefinitely. The Company has
investment tax credit carryforwards of approximately $2,200,000 at December
31, 1996 which, if unused, will expire from 1997 to 2001. The Company has
a research and development tax credit carryforward of approximately
$800,000 at December 31, 1996 which will, if unused, expire from 1998 to
1999. The Company has foreign tax credit carryforwards of approximately
$900,000 at December 31, 1996 which, if unused, will expire from 2000 to
2001. 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) GEOGRAPHIC INFORMATION:
The Company operates entirely in one industry segment, the Components
Segment. The Components Segment designs, manufactures and sells active and
passive components for communications networks including cable connectors,
frequency control devices and fiber optic lasers. This segment also
designs, manufactures and sells components for the home gas cooking
appliance industry as well as a broad line of control and sensing devices
for use in testing equipment and industrial applications.
The Company's geographic data for continuing operations for the years
ended December 31 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Sales
---------------------------------------
1996 1995 1994
------------ ---------- ---------
<S> <C> <C> <C>
GEOGRAPHIC AREAS
SALES
United States:
Unaffiliated....................... $ 276,057 $ 230,697 $ 209,723
To foreign affiliates.............. 668 430 396
Foreign:
Unaffiliated....................... 27,479 24,667 21,171
To United States affiliates........ 1,961 1,751 810
Total sales between geographic areas.... (2,629) (2,181) (1,206)
--------- --------- ---------
Consolidated sales................. $ 303,536 $ 255,364 $ 230,894
========= ========= =========
OPERATING INCOME (LOSS)
United States......................... $ 42,156 $ (32,573) $ 40,723
Foreign............................... 4,831 4,676 3,390
--------- --------- ---------
Operating income (loss)............ $ 46,987 $ (27,897) $ 44,113
========= ========= =========
IDENTIFIABLE ASSETS
United States......................... $ 332,005 $ 273,946 $ 251,210
Foreign............................... 42,280 38,598 28,590
--------- --------- ---------
Identifiable assets................ $ 374,285 $ 312,544 $ 279,800
========= ========= =========
<FN>
(a) Sales to one customer amounted to $28,090,000 in 1994.
(b) The 1996 operating income includes a $3,820,000 charge for
restructuring related to the discontinuance of certain product lines; a
$900,000 charge related to the write-up of Gilbert inventory required by
purchase accounting; a $2,940,000 reserve for potential legal,
environmental matters and other reserves, and a $1,139,000 charge for
improperly capitalized expenses relating to 1995.
The 1995 operating loss includes a $80,872,000 charge related to
purchased in-process research and development and a $2,000,000 charge
related to the write-up of Lasertron inventory in connection with the
Lasertron acquisition.
The 1994 operating income includes a $2,000,000 restructuring charge
to cover write-downs of vacated facilities.
(c) Unaffiliated export sales were $85,328,000, $63,815,000 and
$48,528,000 for 1996, 1995, and 1994, 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>
1996 1995
-------- --------
<S> <C> <C>
Wages, bonuses, commissions, vacation,
and other compensation.................... $ 8,598 $ 6,473
Income taxes.................................. 7,534 5,306
Insurance..................................... 2,592 3,725
Other......................................... 10,329 8,192
-------- --------
$ 29,053 $ 23,696
======== ========
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES:
In November 1996, the Company entered into an Amended and Restated
Management Stockholders Agreement with Gilbert management. Pursuant to the
terms of this Agreement, the Company purchased 7.5% of Gilbert's interest
owned by Gilbert management in the fourth quarter of 1996 at a purchase
price of approximately $30,600,000 and will purchase the remaining 7.5%
interest over the next two years at a price that will be an agreed multiple
of Gilbert's earnings before interest and taxes. These transactions will
be financed with working capital and borrowings from the Company's credit
facility.
Rent expense for facilities and office equipment was $4,601,000,
$3,827,000 and $3,205,000 in 1996, 1995, and 1994, respectively. At
December 31, 1996, the Company was committed under non-cancellable
operating leases for minimum annual rentals for the next five years as
follows: 1997 - $3,544,000; 1998 - $3,026,000; 1999 - $2,883,000; 2000 -
$2,542,000; 2001 - $2,177,000; thereafter - $10,268,000.
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):
In early 1997, the Company discovered that the controller of one of its
divisions, in collusion with two of his assistants, capitalized certain
amounts which should have been expensed in the periods incurred. The
amounts involved, which totaled $3,518,000 ($2,181,000 after taxes), or
$0.12 per share, relate to portions of 1995 and 1996. Because the
irregularities which relate to 1995 were not material to 1995 results, the
1995 financial statements were not restated; the first, second, and third
quarters of 1996 have been restated, and the cumulative effect of the 1995
misstatements is reflected in the restated financial statements for the
three months ended March 31, 1996. In response to this employee
misconduct, the Company conducted an investigation of this matter involving
outside legal counsel and the Company's independent accountants, terminated
the employment of the individuals involved, and executed a review of the
internal control system at the division. In addition, as a result of the
sale of the Company's Nordco subsidiary, the Company has also restated 1996
and 1995 consolidated financial statements to reflect Nordco as a
discontinued operation.
The following is a summary of the unuadited quarterly results of
operations for 1996 and 1995 (dollars in thousands, except per share date):
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------
March 31 June 30 September 30
---------- --------- ------------
<S> <C> <C> <C>
1996 (Previously Reported)
Net sales.......................... $78,737 $ 80,590 $ 74,086
Gross Profit....................... $31,580 $ 32,724 $ 29,283
Income from continuing operations.. $17,991 $ 6,968 $ 7,912
Net income......................... $18,421 $ 7,622 $ 8,270
Earnings per common share:
Continuing operations........... $ .98 $ .37 $ .42
Net Income...................... $ 1.00 $ .41 $ .44
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------
(As Restated) (As Restated) (As Restated)
March 31 June 30 September 30 December 31 Full Year
------------- ------------- ------------ ------------ ---------
<C> <C> <C> <C> <C>
<S>
1996 (As Restated)
Net sales.......................... $78,737 $80,590 $ 74,086 $ 70,123 $303,536
Gross profit....................... $30,151 $32,113 $ 28,670 $ 23,192 $114,126
Income from continuing operations.. $16,829 $ 6,454 $ 7,407 $ 1,286 $ 31,976
Net income......................... $17,259 $ 7,108 $ 7,765 $ 9,704 $ 41,836
Earnings per common share:
Continuing operations........... $ .92 $ .34 $ .39 $ .07 $ 1.71
Net income...................... $ .94 $ .38 $ .41 $ .52 $ 2.24
1995
Net sales.......................... $65,592 $60,860 $ 59,886 $ 69,026 $255,364
Gross profit....................... $26,438 $24,659 $ 23,451 $ 26,535 $101,083
Income (loss) from continuing
operations...................... $10,022 $ 9,720 $(76,773) $ 4,048 $(52,983)
Net income (loss).................. $10,815 $10,723 $(77,845) $ 4,183 $(52,124)
Earnings (loss) per common share:
Continuing operations........... $ .54 $ .53 $ (4.11) $ .22 $ (2.87)
Net income (loss)............... $ .58 $ .58 $ (4.17) $ .23 $ (2.83)
</TABLE>
CONTINUING OPERATIONS
Fourth Quarter - 1996
The Company recorded a charge of $900,000 related to the expensing of
the purchase accounting write-up of Gilbert inventory. The Company also
recorded an income tax benefit of $342,000 related to this charge.
The Company recognized a restructuring charge of $2,368,000, net of tax,
relating primarily to the write-off of inventory for exiting product lines.
The Company recorded a $1,414,000 charge, net of tax, for asset write-
downs and other reserves.
Third Quarter - 1996
The Company recorded a $590,000 gain, net of tax, on its sale of its 45%
interest in O/E/N India Ltd.
First Quarter - 1996
The Company recorded an after-tax charge of $706,000 for certain amounts
capitalized which should have been expensed in 1995.
The Company recorded a $12,741,000, net of tax, gain on its sale of 49%
interest in Video 44 (WSNS-TV Channel 44).
The Company recorded a $1,178,000 charge, net of tax, for asset write-
downs and other reserves.
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.
DISCONTINUED OPERATIONS
Fourth Quarter - 1996
The Company recorded a gain of $9,367,000 on the sale of Nordco.
EXTRAORDINARY CHARGE
Fourth Quarter - 1996
The Company recorded an extraordinary charge of $949,000, net of taxes,
related to the early extinguishment of debt.
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 31, 1997 for the Annual Meeting
of Stockholders to be held on April 16, 1997.
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 31, 1997 for the Annual Meeting of Stockholders
to be held on April 16, 1997 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 31, 1997 for the Annual Meeting
of Stockholders to be held on April 16, 1997 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 31, 1997 for the Annual
Meeting of Stockholders to be held on April 16, 1997 is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Relationships and
Related Transactions" in the Proxy Statement to be filed no later than
March 31, 1997 for the Annual Meeting of Stockholders to be held on April
16, 1997 is incorporated herein by reference.
<PAGE>
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, 1996 and 1995
Consolidated statement of operations for the years ended December 31,
1996, 1995 and 1994
Consolidated statement of stockholders' equity for the years ended
December 31, 1996, 1995 and 1994
Consolidated statement of cash flows for the years ended December 31,
1996, 1995 and 1994
Notes to consolidated financial statements
2. Schedule
II -- 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) Amended and Restated Management Stockholders Agreement dated as
of November 15, 1996 by and among Gilbert Engineering Co., Inc.,
Connector Holding Company, and each of Robert A. Spann, Bruce B.
Gullekson, Daniel H. Franklin and Robert D. Hayward, filed as
Exhibit 2.1 to the Company's Form 8-K dated November 22, 1996,
is incorporated herein by this reference.
(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 as Exhibit 3 to the Company's Form 10-K dated March
21, 1996 is incorporated herein by this reference.
(4)(a) 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 herin 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, as amended
effective as of December 5, 1996, filed herewith.
(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, as amended
effective as of December 5, 1996, filed herewith.
(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 November 1, 1996 among Oak
Industries Inc., the lenders from time to time party thereto and
the Chase Manhattan Bank, as administrative agent and issuing
bank, filed as Exhibit 10 to Form 10-Q dated November 14, 1996,
is incorporated herein by this reference.
(10)(i) Form of Severance Agreement dated as of May 1, 1996 by and
between the Company and each of William S. Antle III, Francis J.
Lunger, Coleman S. Hicks and Pamela F. Lenehan, filed as Exhibit
10.1 to the Company's Form 10-Q dated July 19, 1996, is
incorporated herein by this reference.
(10)(j) Oak Industries Inc. Severance Plan dated as of May 1, 1996,
filed as Exhibit 10.2 to the Company's Form 10-Q dated July 19,
1996, is incorporated herein by this reference.
(10)(k) Agreement to Purchase NST Venture Interest and Capital Stock by
and among the Stockholders of Harriscope of Chicago, Inc., and
National Subscription Television of Chicago Inc. as the Sellers
and Telemundo of Chicago, Inc. as Buyer dated as of November 8,
1995 and filed as Exhibit 1.1 to Form 8-K dated March 6, 1996,
is incorporated herein by this reference.
(10)(l) Stock Purchase Agreement by and among Harper-Wyman Company, as
Seller, Oak Industries Inc., NHC Corp. as Buyer, and Nordco Inc.
dated as of October 9, 1996 and filed as Exhibit 1.1 to Form 8-K
dated October 16, 1996, is incorporated herein by this
reference.
(11) Statement regarding computation of per share earnings, filed
herewith.
(13) 1996 Annual Report to be provided no later than March 31, 1997
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 October 16, 1996 regarding the
Company's sale of Nordco.
A report on Form 8-K was filed on November 15, 1996 related to the
Company's purchase of 20% of the outstanding common stock of Connector
Holding Company ("Connector") pursuant to the terms of a Stockholders
Agreement dated December 22, 1992 by and among the Company, Connector,
and each of Tyler Capital Fund, L.P., Tyler Massachusetts L.P., Tyler
International, L.P. - II, BCIP Associates, BCIP Trust Associates, L.P.
and Bain Venture Capital. As a result of the purchase, Connector is
now a wholly-owned subsidiary of the Company. This Form 8-K includes
certain pro forma financial information required pursuant to Article 11
of Regulation S-X.
A report on Form 8-K was filed on November 22, 1996 in connection with
the purchase made by Connector of one-half of the shares of Gilbert
Engineering Co., Inc. ("Gilbert"), held by members of Gilbert
management.
<PAGE>
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 31,
1997 appearing on page 21 of this Form 10-K.
PRICE WATERHOUSE LLP
Boston, Massachusetts
March 5, 1997
<PAGE>
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: February 28, 1997 By WILLIAM S. ANTLE III
(William S. Antle III)
Chairman of the Board,
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 Februry 28, 1997
(William S. Antle III) Chief Executive Officer
(Principal Executive Officer)
FRANCIS J. LUNGER Senior Vice President February 28, 1997
(Francis J. Lunger) and Chief Financial Officer
(Principal Financial Officer)
RODERICK M. HILLS Vice Chairman of February 28, 1997
(Roderick M. Hills) the Board
DANIEL W. DERBES Director February 28, 1997
(Daniel W. Derbes)
GEORGE W. LEISZ Director February 28, 1997
(George W. Leisz)
GILBERT E. MATTHEWS Director February 28, 1997
(Gilbert E. Matthews)
CHRISTOPHER H.B. MILLS Director February 28, 1997
(Christopher H.B. Mills)
ELLIOT L. RICHARDSON Director February 28, 1997
(Elliot L. Richardson)
BETH BRONNER Director February 28, 1997
(Beth Bronner)
</TABLE>
<PAGE>
OAK INDUSTRIES INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
ALLOWANCE FOR LOSSES IN COLLECTION
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<C> <C> <C>
<S>
Balance, beginning of year............. $ 1,573 $ 1,056 $ 892
Provision charged to selling,
general, and administrative
expenses......................... 812 324 426
Recoveries of accounts previously
written off...................... 3 20 10
Less write-off of uncollectible
accounts......................... (58) (157) (314)
Acquisition of businesses............. -- 330 42
------- ------- -------
Balance, end of year.................. $ 2,330 $ 1,573 $ 1,056
======= ======= =======
</TABLE>
<PAGE>
OAK INDUSTRIES INC.
EXHIBIT 11 COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<C> <C> <C>
<S>
EARNINGS:
Income (loss) from continuing operations................ $ 31,976 $ (52,983) $ 41,041
Income from discontinued opeations, net of tax.......... 1,442 2,469 1,405
Gain on sale of discontinued operations, net of tax..... 9,367 -- --
----------- ----------- -----------
Net income (loss) before extraordinary charge........... 42,785 (50,514) 42,446
Extraordinary charge for early extinguishment of debt... (949) (1,610) --
----------- ----------- -----------
Net income (loss)....................................... $ 41,836 $ (52,124) $ 42,446
=========== =========== ===========
SHARES:
Weighted average number of common shares outstanding.... 18,042,561 17,520,228 17,281,718
Additional dilutive effect of outstanding options (as
determined by the application of the treasury stock
method).............................................. 786,905 902,786 963,652
Windfall tax benefit on non-qualified options........... (145,185) -- --
Additional dilutive effect of outstanding warrants (as
determined by the application of the treasury
stock method)........................................ -- -- 138,972
----------- ----------- -----------
Weighted average number of common shares outstanding
as adjusted.......................................... 18,684,281 18,423,014 18,384,342
=========== =========== ===========
EARNINGS PER COMMON SHARE:
Income (loss) per common share:
Continuing operations................................ $ 1.71 $ (2.87) $ 2.23
Discontinued operations.............................. .08 .13 .08
Gain on sale of discontinued operation............... .50 -- --
------------ ----------- -----------
Net income (loss) before extraordinary charge........ 2.29 (2.74) 2.31
Extraordinary charge................................. (.05) (.09) --
------------ ----------- -----------
Net income (loss)...................................... $ 2.24 $ (2.83) $ 2.31
============ =========== ===========
</TABLE>
1
<PAGE>
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 100
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 (16)
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)
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 (16)
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) 92.5% 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>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Dec-31-1996
<CASH> 6,116
<SECURITIES> 0
<RECEIVABLES> 42,532
<ALLOWANCES> 2,330
<INVENTORY> 53,355
<CURRENT-ASSETS> 124,524
<PP&E> 143,400
<DEPRECIATION> 78,374
<TOTAL-ASSETS> 374,285
<CURRENT-LIABILITIES> 45,505
<BONDS> 0
<COMMON> 184
0
0
<OTHER-SE> 171,539
<TOTAL-LIABILITY-AND-EQUITY> 374,285
<SALES> 303,536
<TOTAL-REVENUES> 303,536
<CGS> 189,410
<TOTAL-COSTS> 189,410
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,767
<INCOME-PRETAX> 62,012
<INCOME-TAX> 22,764
<INCOME-CONTINUING> 31,976
<DISCONTINUED> 10,809
<EXTRAORDINARY> (949)
<CHANGES> 0
<NET-INCOME> 41,836
<EPS-PRIMARY> 2.24
<EPS-DILUTED> 2.24
<PAGE>
</TABLE>
OAK INDUSTRIES INC.
1995 STOCK OPTION AND RESTRICTED STOCK PLAN
As amended through December 5, 1996
OAK INDUSTRIES INC., a corporation organized under the laws of the State
of Delaware, hereby adopts this 1995 Stock Option and Restricted Stock
Plan. The purposes of this Plan are as follows:
1. To further the growth, development and financial success of the
Company by providing additional incentives to certain of its executive and
other key Employees who have been or will be given responsibility for the
management or administration of the Company's business affairs, and to its
non-employee Directors by assisting them to become owners of capital stock
of the Company and thus to benefit directly from its growth, development
and financial success; and
2. To enable the Company to obtain and retain the services of the type
of individuals considered essential to the long-range success of the
Company by providing and offering them an opportunity to become owners of
capital stock of the Company.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter and
the singular shall include the plural, where the context so indicates.
Section 1.1 - Board
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
"Committee" shall mean the Compensation Committee of the Board, appointed
as provided in Section 9.1. "Committee" shall also mean the Chief
Executive Officer of the Company, so long as such individual is also a
Director, solely in connection with grants, from time to time, of Options
to purchase not more than 10,000 shares each of the Company's Stock, to
Employees who are not executive officers for the purpose of Section 16 of
the Securities Exchange Act of 1934, as amended.
Section 1.4 - Company
"Company" shall mean Oak Industries Inc. In addition, "Company" shall
mean any corporation assuming, or issuing new employee stock options in
substitution for, Options outstanding under the Plan, in a transaction to
which Section 424(a) of the Code applies.
Section 1.5 - Director
"Director" shall mean a member of the Board.
Section 1.6 - Employee
"Employee" shall mean any employee (as defined in accordance with the
Regulations and Revenue Rulings then applicable under Section 3401(c) of
the Code) of the Company, or of any corporation which is then a Parent
Corporation or a Subsidiary, whether such employee is so employed at the
time this Plan is adopted or becomes so employed subsequent to the adoption
of this Plan.
Section 1.7 - Fair Market Value
"Fair Market Value" of a share of the Stock for purposes of the Plan, of
a given date, shall be: (i) the closing price of a share of the Stock on
the principal exchange on which shares of the Stock are then trading, if
any, on such date, or, if shares were not traded on such date, then on the
next preceding trading day during which a sale occurred; (ii) if such Stock
is not traded on an exchange but is quoted on NASDAQ or a successor
quotation system, (1) the last sales price (if the Stock is then listed as
a National Market Issue under the NASD National Market System), or (2) the
mean between the closing representative bid and asked prices (in all other
cases) for the Stock on such date as reported by NASDAQ or such successor
quotation system; or (iii) if such Stock is not publicly traded on an
exchange and not quoted on NASDAQ or a successor quotation system, the mean
between the closing bid and asked prices for the Stock on such date as
determined in good faith by the Committee; or (iv) if the Stock is not
publicly traded, the fair market value established by the Committee acting
in good faith.
Section 1.8 - Incentive Stock Option
"Incentive Stock Option" shall mean an Option which qualifies under
Section 422 of the Code and which is designated as an Incentive Stock
Option by the Committee. In the event that an Option is not designated by
the Committee, it shall be an Incentive Stock Option.
Section 1.9 - Non-Qualified Option
"Non-Qualified Option" shall mean an Option which is not an Incentive
Stock Option and which is designated as a Non-Qualified Option by the
Committee.
Section 1.10 - Officer
"Officer" shall mean an officer of the Company, any Parent Corporation or
any Subsidiary.
Section 1.11 - Option
"Option" shall mean an option to purchase Stock of the Company, granted
under the Plan. "Option" includes both Incentive Stock Options and Non-
Qualified Options.
Section 1.12 - Optionee
"Optionee" shall mean an Employee or a Director to whom an Option is
granted under the Plan.
Section 1.13 - Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
Section 1.14 - Plan
"Plan" shall mean this 1995 Stock Option and Restricted Stock Plan of Oak
Industries Inc.
Section 1.15 - Restricted Stock
"Restricted Stock" shall mean Stock of the Company issued pursuant to
Article VII of the Plan.
Section 1.16 - Restricted Stockholder
"Restricted Stockholder" shall mean an Employee or a Director to whom
Restricted Stock has been issued under the Plan.
Section 1.17 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.18 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.19 - Stock
"Stock" shall mean shares of the Company's common stock, $.01 par value.
Section 1.20 - Stock Appreciation Right
"Stock Appreciation Right" shall mean a stock appreciation right granted
under the Plan.
Section 1.21 - Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing
50 percent or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
Section 1.22 - Termination of Employment
"Termination of Employment" shall mean the time when the employee-
employer relationship between the Employee and the Company, a Parent
Corporation or a Subsidiary is terminated for any reason, including, but
not by way of limitation, a termination by resignation, discharge, death or
retirement, but excluding terminations where there is a simultaneous
reemployment by the Company, a Parent Corporation or a Subsidiary. Without
limiting its discretion under Section 9.2, the Committee shall determine
the effect of all other matters and questions relating to Termination of
Employment resulted from a discharge for good cause, and all questions of
whether particular leaves of absence constitute Terminations of Employment;
provided, however, that, with respect to Incentive Stock Options, a leave
of absence shall constitute a Termination of Employment if, and to the
extent that, such leave of absence interrupts employment for the purposes
of Section 422(a)(2) of the Code and the then applicable regulations and
revenue rulings under said Section.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
The shares of stock which may be awarded under the Plan shall be shares
of the Company's $0.01 par value common stock. Shares delivered under the
Plan shall be authorized but unissued Stock or, if the Committee so decides
in its sole discretion, previously issued Stock acquired by the Company and
held in its treasury. The aggregate number of such shares which may be
delivered pursuant to the Plan shall not exceed 2,000,000. The aggregate
number of shares which may be awarded as Restricted Stock under the Plan
shall not exceed 200,000.
The maximum number of shares for which Options may be granted to any
individual over the life of the Plan shall be 1,000,000. The maximum
number of shares subject to Stock Appreciation Rights granted to any
individual over the life of the plan shall likewise be 1,000,000. The per-
individual limitations described in this paragraph shall be construed and
applied consistent with the rules and regulations under Section 162(m) of
the Code.
Section 2.2 - Unexercised Options
If any Option expires or is canceled without having been fully exercised,
the number of shares subject to such Option but as to which such Option was
not exercised prior to its expiration or cancellation may again be optioned
hereunder, subject to the limitations of Section 2.1.
Section 2.3 - Exercised Stock Appreciation Rights
To the extent that a Stock Appreciation Right shall have been exercised
for cash, the number of shares subject to the related Option, or portion
thereof, may again be optioned hereunder, subject to the limitations of
Section 2.1. To the extent that a Stock Appreciation Right shall have been
exercised for Stock, the number of shares actually issued shall be counted
against the maximum number of shares which may be delivered pursuant to the
Plan and the balance of the shares subject to the related Option, or
portion thereof, may again be optioned hereunder, subject to the
limitations of Section 2.1.
Section 2.4 - Forfeited Restricted Stock
Any shares of Restricted Stock forfeited to the Company pursuant to the
restrictions thereon may again be optioned or issued as Restricted Stock
hereunder, subject to the limitations of Section 2.1.
Section 2.5 - Changes in Company's Shares
In the event that the outstanding shares of Stock are hereafter changed
into or exchanged for a different number or kind of shares or other
securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, stock dividend or combination of shares, appropriate
adjustments shall be made by the Committee in the number and kind of shares
subject to Options, Stock Appreciation Rights and Restricted Stock then
outstanding or subsequently granted under the Plan, including but not
limited to adjustments of the limitations in Section 2.1 on the maximum
number and kind of shares which may be issued under the Plan.
ARTICLE III
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Any non-employee Director of the Company, or any executive or other key
Employee of the Company or of any corporation which is then a Parent
Corporation or a Subsidiary shall be eligible to be granted Options,
subject to Section 3.2.
Section 3.2 - Qualification of Incentive Stock Option
Incentive Stock Options shall be granted only to Employees.
Section 3.3 - Granting of Options to Executive or Key Employees
(a) The Committee shall from time to time, in its absolute discretion:
(i) Determine which Employees are executive or key employees and
select from among the executive or key employees (including those to whom
Options and/or Stock Appreciation Rights have been previously granted
and/or Restricted Stock has previously been issued under the Plan) such of
them as in its opinion should be granted Options; and
(ii) Determine the number of shares to be subject to such Options
granted to such selected executive or key Employees, and determine whether
such Options are to be Incentive Stock Options or Non-Qualified Options;
and
(iii) Determine the terms and conditions of such Options, consistent
with the Plan.
(b) Upon the selection of an Employee to be granted an Option, the
Committee shall instruct the Secretary to issue such Option and may impose
such conditions on the grant of such Option as it deems appropriate.
Without limiting the generality of the preceding sentence, the Committee
may, in its discretion and on such terms as it deems appropriate, require
as a condition on the grant of an Option to an Employee that the Employee
surrender for cancellation some or all of the unexercised Options which
have been previously granted to such Optionee. An Option the grant of
which is conditioned upon such surrender may have an option price lower (or
higher) than the option price of the surrendered Option, may cover the same
number of shares (or fewer or greater) as the surrendered Option, may
contain such other terms as the Committee deems appropriate and shall be
exercisable in accordance with its terms, without regard to the number of
shares, price, option period or any other term or condition of the
surrendered Option.
Section 3.4 - Granting of Options to Non-Employee Directors
Each Director who is not an employee shall be granted Options under the
following formula:
(a) (i) Each current Director shall be granted an Option as of the date
of the approval of the Plan by the Board, and shall be granted additional
Options on the first and second anniversaries of such date (or on the next
preceding business day in the event either of such anniversaries is not a
business day). Each such Option shall permit such Director to acquire
2,500 shares at an exercise price equal to the Fair Market Value per share
on the date of such grant and shall become exercisable in three
installments: 34 percent on the first anniversary of such grant, 33 percent
on the second anniversary and 33 percent on the third anniversary. (ii)
Each current Director shall also be granted an Option as of the date of the
approval of the Plan by the Committee pursuant to which such Director may
acquire 10,000 shares at an exercise price equal to the Fair Market Value
per share on such date, such option to become exercisable in three
installments: 34 percent on the first anniversary of such grant, 33
percent on the second anniversary and 33 percent on the third anniversary.
(b) (i) Each Director newly elected after the approval of the Plan by
the Company's shareholders and who is not an Employee shall be granted an
Option on the first business day following such Director's election, and
shall be granted additional Options on the first and second anniversaries
of such date (or on the next preceding business day in the case either of
such anniversaries is not a business day). Each such Option shall permit
such Director to acquire 2,500 shares at an exercise price equal to the
Fair Market Value per share on the date of each such grant and shall become
exercisable in three installments: 34 percent on the first anniversary of
such grant,
33 percent on the second anniversary and 33 percent on the third
anniversary. (ii) Each such newly elected Director shall also be granted
an Option as of the first business day following such Director's election
pursuant to which such Director may acquire 10,000 shares at an exercise
price equal to Fair Market Value as of the date of such grant, such Option
to become exercisable in three installments: 34 percent on the first
anniversary of such grant, 33 percent on the second anniversary and 33
percent on the third anniversary.
ARTICLE IV
TERMS OF OPTIONS
Section 4.1 - Option Agreement
Each Option shall be evidenced by a written stock option agreement, which
shall be executed by the Optionee and an authorized Officer of the Company
and which shall contain such terms and conditions as the Committee shall
determine, consistent with the Plan. Stock option agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to qualify such Options as "incentive stock options" under
Section 422 of the Code.
Section 4.2 - Option Price
The price of the shares subject to each Option shall be set by the
Committee; provided, however, that the price per share shall not be less
than 100 percent of the Fair Market Value of such shares on the date such
Option is granted; provided, further, that, in the case of an Incentive
Stock Option, the price per share shall not be less than 110 percent of the
Fair Market Value of such shares on the date such Option is granted in the
case of an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10 percent of the total combined voting power of all
classes of stock of the Company, any Subsidiary or any Parent Corporation.
Section 4.3 - Commencement of Exercisability
Options shall become exercisable at such times and in such installments
(which may be cumulative) as the Committee shall provide in the terms of
each individual Option; provided, however, that by a resolution adopted
after an Option is granted the Committee may, on such terms and conditions
as it may determine to be appropriate accelerate the time at which such
Option or any portion thereof may be exercised.
Section 4.4 - Expiration of Options
The Committee shall provide, either at the time of the grant or any time
thereafter, in the terms of each individual Option, when such Option
expires and becomes unexercisable; and (without limiting the generality of
the foregoing) the Committee may provide in the terms of individual Options
that said Options expire immediately upon a Termination of Employment for
any reason.
Section 4.5 - Employment
Nothing in this Plan or in any stock option agreement hereunder shall
confer upon any Optionee any right to continue in the employ of the
Company, any Parent Corporation or any Subsidiary or shall interfere with
or restrict in any way the rights of the Company, its Parent Corporations
and its Subsidiaries, which are hereby expressly reserved, to discharge any
Optionee at any time for any reason whatsoever, with or without cause.
Section 4.6 - Merger, Consolidation, Acquisition, Liquidation or
Dissolution
In the event of the merger or consolidation of the Company with or into
another corporation as a result of which the Company's stock is no longer
outstanding, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 50 percent or more of the
Company's then outstanding voting stock, or the liquidation or dissolution
of the Company, all outstanding Options shall become immediately
exercisable on the 45th day prior to the proposed effective date of any
such merger, consolidation, acquisition, liquidation or dissolution. Upon
the consummation of such merger, consolidation or sale of assets all
outstanding Options shall terminate unless the Committee shall have
arranged that the surviving or acquiring corporation or an affiliate of
that corporation grant to participants replacement Options, which in the
case of incentive options shall satisfy, in the determination of the
Committee, the requirements of Section 424(a) of the Code.
ARTICLE V
EXERCISE OF OPTIONS
Section 5.1 - Person Eligible to Exercise
During the lifetime of the Optionee, only the Optionee may exercise an
Option granted to such Optionee, or any portion thereof. After the death
of the Optionee, any exercisable portion of any Option may, prior to the
time when such portion becomes unexercisable, be exercised by his personal
representative or by any person empowered to do so under the deceased
Optionee's will or under the then applicable laws of descent and
distribution.
Section 5.2 - Partial Exercise
At any time and from time to time prior to the time when any exercisable
Option or exercisable portion thereof becomes unexercisable, such Option or
portion thereof may be exercised in whole or in part; provided, however,
that the Company shall not be required to issue fractional shares and the
Committee may, by the terms of the Option, require any partial exercise to
be with respect to a specified minimum number of shares.
Section 5.3 - Manner of Exercise
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or the Secretary's office of
all of the following prior to the time when such Option or such portion
becomes unexercisable under Section 4.4:
(a) Notice in writing signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that such Option or
portion is exercised, such notice complying with all applicable rules
established by the Committee; and
(b) Full payment:
(i) (in cash or by check) for the shares with respect to which such
Option or portion is thereby exercised; or
(ii) With the consent of the Committee, shares of the Stock owned by
the Optionee (which in the case of Stock acquired from the Company, shall
have been held for at least six months) duly endorsed for transfer to the
Company with a Fair Market Value (as determined under Section 4.2), on the
date of delivery equal to the aggregate Option price of the shares with
respect to which such Option or portion is thereby exercised; or
(iii) With the consent of the Committee, a full recourse promissory
note bearing interest (at a rate at least sufficient to preclude the
imputation of interest under the Code or any successor provision) and
payable upon such terms as may be prescribed by the Committee. The
Committee may also prescribe the form of such note and the security to be
given for such note. No Option may, however, be exercised by delivery of a
promissory note or by a loan from the Company when or where such loan or
other extension of credit is prohibited by law; or
(iv) Any combination of the consideration provided in the foregoing
subsections (i), (ii) and (iii); provided, that if the Stock delivered upon
exercise of the Option is an original issue of authorized Stock, at least
so much of the exercise price as represents the par value of such Stock
shall be paid other than with a personal check or promissory note of the
person exercising the option; or
(v) By delivery of an unconditional and irrevocable undertaking by a
broker to deliver promptly to the Company sufficient funds to pay the
exercise price; and
(c) Such representations and documents as the Committee, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute
discretion, also take whatever additional actions it deems appropriate to
effect such compliance including, without limitation, placing legends on
share certificates and issuing stop-transfer orders to transfer agents and
registrars; and
(d) In the event that the Option or portion thereof shall be exercised
pursuant to Section 5.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option or portion thereof.
Section 5.4 - Conditions to Issuance of Stock Certificates
The Company shall not be required to issue or deliver any certificate or
certificates for shares of Stock purchased upon the exercise of any Option
or portion thereof prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which the Stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations
of the Securities and Exchange Commission or any other governmental
regulatory body, which the Committee shall, in its absolute discretion,
deem necessary or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company of all amounts which it, any Parent
Corporation or any Subsidiary is required to withhold under federal, state
or local law in connection with the exercise of the Option. If permitted
by the Committee, either at the time of the grant of the Option or at the
time of exercise, the participant may elect at such time and in such manner
as the Committee may prescribe, to satisfy such withholding obligation by
(i) delivering to the Company Stock owned by such individual having a Fair
Market Value equal to such withholding obligation, or (ii) requesting that
the Company withhold from the shares of Stock to be delivered upon exercise
of such Option a number of shares of Stock having a Fair Market Value equal
to such withholding obligation; and
(e) The lapse of such reasonable period of time following the exercise
of the Option as the Committee may establish from time to time for reasons
of administrative convenience.
Section 5.5 - Rights as Shareholders
The holders of Options shall not be, nor have any of the rights or
privileges of, shareholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to
such holders.
Section 5.6 - Transfer Restrictions
Except as expressly provided therein, an Option granted under the Plan is
personal to the Optionee, is not transferable by the Optionee in any manner
other than by will or the laws of descent and distribution. The Committee,
in its absolute discretion, may impose such other restrictions on the
transferability of the shares purchasable upon the exercise of an Option as
it deems appropriate. Any such restriction shall be set forth in the
respective stock option agreement and may be referred to on the
certificates evidencing such shares. The Committee may require the
Employee to give the Company prompt notice of any disposition of shares of
Stock, acquired by exercise of an Incentive Stock Option, within two years
from the date of granting such Option or one year after the transfer of
such shares to such Employee. The Committee may direct that the
certificates evidencing shares acquired by exercise of an Option refer to
such requirement to give prompt notice of disposition.
ARTICLE VI
STOCK APPRECIATION RIGHTS
Section 6.1 - Grant of Stock Appreciation Rights
A Stock Appreciation Right may be granted to any Employee who receives a
grant of an Option under the Plan. A Stock Appreciation Right may be
granted in connection and simultaneously with the grant of an Option or
with respect to a previously granted Option. A Stock Appreciation Right
shall be subject to such terms and conditions not inconsistent with the
Plan as the Committee shall impose, including the following:
(a) A Stock Appreciation Right shall be related to a particular Option
and shall be exercisable only to the extent the related Option is
exercisable.
(b) A Stock Appreciation Right shall be granted to the Optionee to the
maximum extent of 100 percent of the number of shares subject to the
simultaneously or previously granted Option.
(c) A Stock Appreciation Right shall entitle the Optionee (or other
person entitled to exercise the Option pursuant to Section 5.1) to
surrender unexercised a portion of the Option to which the Stock
Appreciation Right relates to the Company and to receive from the Company
in exchange therefor an amount payable in cash or, in the discretion of the
Committee, shares of the Stock, determined by multiplying the lesser of (i)
the difference obtained by subtracting the Option exercise price per share
of the Stock subject to the related Option from the Fair Market Value (as
determinable under Section 4.2) of a share of the Stock on the date of
exercise of the Stock Appreciation Right, or (ii) twice the Option exercise
price per share of the Stock subject to the related Option, by the number
of shares of Stock subject to the related Option with respect to which the
Stock Appreciation Right shall have been exercised.
ARTICLE VII
ISSUANCE OF RESTRICTED STOCK
Section 7.1 - Eligibility
Any executive or other key Employee of the Company or of any corporation
which is then a Parent Corporation or a Subsidiary shall be eligible to be
issued Restricted Stock.
Section 7.2 - Issuance of Restricted Stock
(a) The Committee shall from time to time, in its absolute discretion:
(i) Determine which Employees are executive or key Employees and
select from among the executive or key Employees (including those to whom
Options and/or Stock Appreciation Rights have been previously granted
and/or Restricted Stock has been previously issued) such of them as in its
opinion should be issued Restricted Stock; and
(ii) Determine the number of shares of Restricted Stock to be issued
to such selected executive or key Employees, and
(iii) Determine the terms and conditions applicable to such Restricted
Stock, consistent with the Plan.
(b) Shares issued as Restricted Stock may be either previously
authorized but unissued shares or issued shares which have been reacquired
by the Company. Legal consideration, but no cash payment, will be required
for each issuance of Restricted Stock.
(c) Upon the selection of an executive or key Employee to be issued
Restricted Stock, the Committee shall instruct the Secretary to issue such
Restricted Stock and may impose such conditions on the issue of such
Restricted Stock as it deems appropriate. Restricted Stock may not be
issued by the Committee to executive or key Employees who are then
Directors or Officers of the Company unless such issuance has been
recommended by the Committee. Such recommendation shall be in writing and
shall specify the Directors or Officers to whom such issuance is
recommended and the recommended number of shares of Restricted Stock to be
issued.
ARTICLE VIII
TERMS OF RESTRICTED STOCK
Section 8.1 - Restricted Stock Agreement
Restricted Stock shall be issued only pursuant to a written restricted
stock agreement, which shall be executed by the Restricted Stockholder and
an authorized Officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with the Plan.
Section 8.2 - Employment
Nothing in this Plan or in any Restricted Stock Agreement hereunder shall
confer upon any Restricted Stockholder any right to continue in the employ
of the Company, any Parent Corporation or any Subsidiary or shall interfere
with or restrict in any way the rights of the Company, its Parent
Corporations and its Subsidiaries, which are hereby expressly reserved, to
discharge any Restricted Stockholder at any time for any reason whatsoever,
with or without cause.
Section 8.3 - Rights as Shareholders
Upon delivery of the shares of Restricted Stock to the escrow holder
pursuant to Section 8.7, the Restricted Stockholder shall have all the
rights of a stockholder with respect to said shares, subject to the
restrictions in such Restricted Shareholder's restricted stock agreement,
including the right to vote the shares and to receive all dividends or
other distributions paid or made with respect to the shares.
Section 8.4 - Restrictions
All shares of Restricted Stock issued under this Plan (including any
shares received by holders thereof as a result of stock dividends, stock
splits or any other forms of recapitalization) shall be subject to such
restrictions as the Committee shall provide in the terms of each individual
Restricted Stock Agreement; provided, however, that by a resolution adopted
after the Restricted Stock is issued, the Committee may, on such terms and
conditions as it may determine to be appropriate and subject to Section
10.3, remove any or all of the restrictions imposed by the terms of the
Restricted Stock Agreement. All restrictions imposed pursuant to this
Section 8.4 shall expire within ten years of the date of issuance.
Restricted Stock may not be sold or encumbered until all restrictions are
terminated or expire.
Section 8.5 - Forfeiture of Restricted Stock
The Committee shall provide in the terms of each individual restricted
stock agreement that the Restricted Stock then subject to restrictions
under the restricted stock agreement be forfeited by the Restricted
Stockholder back to the Company immediately upon a Termination of
Employment for any reason; provided, however, that provision may be made
that no such forfeiture shall occur in the event of a Termination of
Employment because of the Employee's normal retirement, death, total
disability or early retirement with the consent of the Committee.
Section 8.6 - Merger, Consolidation, Acquisition, Liquidation or
Dissolution
Upon the merger or consolidation of the Company with or into another
corporation, as a result of which the Company's stock is no longer
outstanding, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 50 percent or more of the
Company's then outstanding voting stock, or the liquidation or dissolution
of the Company, the Committee may determine, at its sole discretion, that
the restrictions imposed under the Restricted Stock Agreement on some or
all shares of Restricted Stock shall immediately expire and/or that some or
all of such shares shall cease to be subject to forfeiture under Section
8.5.
Section 8.7 - Escrow
The Secretary or such other escrow holder as the Committee may appoint
shall retain physical custody of the certificates representing Restricted
Stock until all of the restrictions imposed under the Restricted Stock
Agreement expire or shall have been removed; provided, however, that in no
event shall any Restricted Stockholder retain physical custody of any
certificates representing Restricted Stock issued to such Restricted
Shareholder.
Section 8.8 - Legend
In order to enforce the restrictions imposed upon shares of Restricted
Stock hereunder, the Committee shall cause a legend or legends to be placed
on certificates representing all shares of Restricted Stock that are still
subject to restrictions under restricted stock agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
ARTICLE IX
ADMINISTRATION
Section 9.1 - Committee
The Committee shall consist of at least two Directors, provided that the
Committee shall consist of one Director solely when it is the Chief
Executive Officer of the Company acting pursuant to such individual's
authority to grant Options not to exceed 10,000 shares each of the
Company's Stock to Employees who are not executive officers for the
purposes of Section 16 of the Securities Exchange Act of 1934, as amended.
Section 9.2 - Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The
Committee shall have the power to interpret the Plan, the Options, the
Stock Appreciation Rights and the Restricted Stock and to adopt such rules
for the administration, interpretation and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such rules. Any
such interpretations and rules in regard to Incentive Stock Options shall
be consistent with the basic purpose of the Plan to grant "incentive stock
options" within the meaning of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any
and all rights and duties of the Committee under the Plan.
Section 9.3 - Majority Rule
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
Section 9.4 - Compensation; Professional Assistance; Good Faith Actions
Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities incurred by members of the Committee in connection with the
administration of the Plan shall be borne by the Company. The Committee
may, with the approval of the Board, employ attorneys, consultants,
accountants, appraisers, brokers or other persons. The Committee, the
Company, Officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith
shall be final and binding upon all Optionees, holders of Stock
Appreciation Rights and Restricted Stockholders, the Company and all other
interested persons. No member of the Committee shall be personally liable
for any action, determination or interpretation made in good faith with
respect to the Plan, the Options, the Stock Appreciation Rights or the
Restricted Stock and all members of the Committee shall be fully protected
by the Company in respect to any such action, determination or
interpretation.
ARTICLE X
OTHER PROVISIONS
Section 10.1 - Options, Stock Appreciation Rights and Restricted Stock Not
Transferable
No Option, Stock Appreciation Right or Restricted Stock or interest or
right therein or part thereof shall be liable for the debts, contracts or
engagements of the Optionee or the Restricted Stockholder, as the case may
be, or his or her successors in interest, or shall be subject to
disposition by transfer, alienation, anticipation, pledge, encumbrance,
assignment or any other means whether such disposition be voluntary or
involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including
bankruptcy), and any attempted disposition thereof shall be null and void
and of no effect; provided, however, that nothing in this Section 10.1
shall prevent transfers by will or by the applicable laws of descent and
distribution.
Section 10.2 - Amendment, Suspension or Termination of the Plan
The Committee may at any time discontinue making grants under the Plan.
With the consent of the holder, the Committee may at any time cancel an
existing grant in whole or in part and grant another award for such number
of shares as the Committee specifies. The Committee may at any time or
times amend the Plan or any outstanding grant for the purpose of satisfying
the requirements of Section 422 of the Code or of any changes in applicable
laws or regulations or for any other purpose that may at the time be
permitted by law, or may at any time terminate the Plan as to further
grants, but no such amendment shall adversely affect the rights of any
holder (without such person's consent) of any Option, Stock Appreciation
Right or Restricted Stock previously granted. No Option or Stock
Appreciation Right may be granted and no Restricted Stock may be issued
during any period of suspension nor after termination of the Plan, and in
no event may any Option or Stock Appreciation Right be granted or any
Restricted Stock issued under this Plan after the first to occur of the
following events:
(a) The expiration of ten years from the date the Plan is adopted; or
(b) The expiration of ten years from the date the Plan is approved by
the Company's shareholders under Section 10.3.
Section 10.3 - Approval of Plan by Shareholders
This Plan will be submitted for approval of the Company's shareholders
within 12 months after the date of the Board's initial adoption of the
Plan. Options and Stock Appreciation Rights may be granted and Restricted
Stock may be issued prior to such shareholder approval; provided, however,
that such Options and Stock Appreciation Rights shall not be exercisable
prior to the time when the Plan is approved by the shareholders; provided,
further, that if such approval has not been obtained at the end of said 12-
month period, all Options and Stock Appreciation Rights previously granted
and all Restricted Stock previously issued under the Plan shall thereupon
be canceled and become null and void.
Section 10.4 - Effect of Plan Upon Other Option and Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of
the Company, any Parent Corporation or any Subsidiary (a) to establish any
other forms of incentives or compensation for employees of the Company, any
Parent Corporation or any Subsidiary, or (b) to grant or assume options or
to issue Restricted Stock otherwise than under this Plan in connection with
any proper corporate purpose, including, but not by way of limitation, the
grant or assumption of Options or the issuance of Restricted Stock in
connection with the acquisition, by purchase, lease, merger, consolidation
or otherwise, of the business, stock or assets of any corporation, firm of
association.
Section 10.5 - Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.
<PAGE>
OAK INDUSTRIES INC.
1992 STOCK OPTION AND RESTRICTED STOCK PLAN
As amended through December 5, 1996
OAK INDUSTRIES INC., a corporation organized under the laws of the State of
Delaware, hereby adopts this 1992 Stock Option and Restricted Stock Plan.
The purposes of this Plan are as follows:
1. To further the growth, development and financial success of the Company
by providing additional incentives to certain of its executive and other key
Employees who have been or will be given responsibility for the management
or administration of the Company's business affairs, and to its non-employee
Directors by assisting them to become owners of capital stock of the Company
and thus to benefit directly from its growth, development and financial
success; and
2. To enable the Company to obtain and retain the services of the type of
individuals considered essential to the long-range success of the Company by
providing and offering them an opportunity to become owners of capital stock
of the Company.
ARTICLE I
DEFINITIONS
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter and
the singular shall include the plural, where the context so indicates.
Section 1.1 - Board
"Board" shall mean the Board of Directors of the Company.
Section 1.2 - Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3 - Committee
"Committee" shall mean the Compensation Committee of the Board, appointed
as provided in Section 9.1. "Committee" shall also mean the Chief Executive
Officer of the Company, so long as such individual is also a Director, in
connection with grants from time to time of Options to purchase not more
than 10,000 shares each of the Company's Stock, to Employees who are not
executive officers for the purposes of Section 16 of the Securities Exchange
Act of 1934, as amended.
Section 1.4 - Company
"Company" shall mean Oak Industries Inc. In addition, "Company" shall
mean any corporation assuming, or issuing new employee stock options in
substitution for, Incentive Stock Options, outstanding under the Plan, in a
transaction to which Section 424(a) of the Code applies.
Section 1.5 - Director
"Director" shall mean a member of the Board.
Section 1.6 - Employee
"Employee" shall mean any employee (as defined in accordance with the
Regulations and Revenue Rulings then applicable under Section 3401(c) of the
Code) of the Company, or of any corporation which is then a Parent
Corporation or a Subsidiary, whether such employee is so employed at the
time this Plan is adopted or becomes so employed subsequent to the adoption
of this Plan.
Section 1.7 - Fair Market Value
"Fair Market Value" of a share of the Company's stock for purposes of the
Plan, of a given date, shall be: (i) the closing price of a share of the
Company's stock on the principal exchange on which shares of the Company's
stock are then trading, if any, on such date, or, if shares were not traded
on such date, then on the next preceding trading day during which a sale
occurred; or (ii) if such stock is not traded on an exchange but is quoted
on NASDAQ or a successor quotation system, (1) the last sales price (if the
stock is then listed as a National Market Issue under the NASD National
Market System), or (2) the mean between the closing representative bid and
asked prices (in all other cases) for the stock on such date as reported by
NASDAQ or such successor quotation system; or (iii) if such stock is not
publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the mean between the closing bid and asked prices for the
stock on such date as determined in good faith by the Committee; or (iv) if
the Company's stock is not publicly traded, the fair market value
established by the Committee acting in good faith.
Section 1.8 - Incentive Stock Option
"Incentive Stock Option" shall mean an Option which qualifies under
Section 422 of the Code and which is designated as an Incentive Stock Option
by the Committee.
Section 1.9 - Non-Qualified Option
"Non-Qualified Option" shall mean an Option which is not an Incentive
Stock Option and which is designated as a Non-Qualified Option by the
Committee.
Section 1.10 - Officer
"Officer" shall mean an officer of the Company, any Parent Corporation or
any Subsidiary.
Section 1.11 - Option
"Option" shall mean an option to purchase capital stock of the Company,
granted under the Plan. "Option" includes both Incentive Stock Options and
Non-Qualified Options.
Section 1.12 - Optionee
"Optionee" shall mean an Employee or a Director to whom an Option is
granted under the Plan.
Section 1.13 - Parent Corporation
"Parent Corporation" shall mean any corporation in an unbroken chain of
corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing 50 percent or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
Section 1.14 - Plan
"Plan" shall mean this 1992 Stock Option and Restricted Stock Plan of Oak
Industries Inc.
Section 1.15 - Restricted Stock
"Restricted Stock" shall mean capital stock of the Company issued pursuant
to Article VII of the Plan.
Section 1.16 - Restricted Stockholder
"Restricted Stockholder" shall mean an Employee or a Director to whom
Restricted Stock has been issued under the Plan.
Section 1.17 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.18 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.19 - Stock
"Stock" shall mean shares of the Company's Common Stock
Section 1.20 - Stock Appreciation Right
"Stock Appreciation Right" shall mean a stock appreciation right granted
under the Plan.
Section 1.21 - Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other
than the last corporation in the unbroken chain then owns stock possessing
50 percent or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
Section 1.22 - Termination of Employment
"Termination of Employment" shall mean the time when the employee-employer
relationship between the Optionee and the Company, a Parent Corporation or a
Subsidiary is terminated for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death or retirement,
but excluding terminations where there is a simultaneous reemployment by the
Company, a Parent Corporation or a Subsidiary. The Committee, in its
absolute discretion, shall determine the effect of all other matters and
questions relating to Termination of Employment, including, but not by way
of limitation, the question of whether a Termination of Employment resulted
from a discharge for good cause, and all questions of whether particular
leaves of absence constitute Terminations of Employment; provided, however,
that, with respect to Incentive Stock Options, a leave of absence shall
constitute a Termination of Employment if, and to the extent that, such
leave of absence interrupts employment for the purposes of Section 422(a)(2)
of the Code and the then applicable Regulations and Revenue Rulings under
said Section.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
The shares of stock which may be awarded under the Plan shall be shares of
the Company's $.01 par value common stock. Shares delivered under the Plan
shall be authorized but unissued common stock or, of the Committee so
decides in its sole discretion, previously issued common stock acquired by
the Company and held in its treasury. The aggregate number of such shares
which may be delivered upon exercise of Options shall not exceed 1,000,000.
Section 2.2 - Unexercised Options
If any Option expires or is canceled without having been fully exercised,
the number of shares subject to such Option but as to which such Option was
not exercised prior to its expiration or cancellation may again be optioned
hereunder, subject to the limitations of Section 2.1.
Section 2.3 - Exercised Stock Appreciation Rights
To the extent that a Stock Appreciation Right shall have been exercised,
the number of shares subject to the related Option, or portion thereof, may
again be optioned hereunder, subject to the limitations of Section 2.1.
Section 2.4 - Forfeited Restricted Stock
Any shares of Restricted Stock forfeited to the Company pursuant to the
restrictions thereon may again be optioned or issued as Restricted Stock
hereunder, subject to the limitations of Section 2.1, provided that such
Restricted Stock may not be reissued if the person who forfeited such stock
received economic benefit of such stock.
Section 2.5 - Changes in Company's Shares
In the event that the outstanding shares of Common Stock of the Company
are hereafter changed into or exchanged for a different number or kind of
shares or other securities of the Company, or of another corporation, by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend or combination of shares,
appropriate adjustments shall be made by the Committee in the number and
kind of shares for the purchase of which Options may be granted and in the
number and kind of shares of Restricted Stock which may be issued, including
adjustments of the limitations in Section 2.1 on the maximum number and kind
of shares which may be issued under the Plan on exercise of Options or as
Restricted Stock.
ARTICLE III
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Any non-employee Director of the Company, or any executive or other key
Employee of the Company or of any corporation which is then a Parent
Corporation or a Subsidiary shall be eligible to be granted Options, except
as provided in Sections 3.3, and 3.4.
Section 3.2 - Qualification of Incentive Stock Option
No Incentive Stock Option shall be granted unless such Option, when
granted, qualifies as an "incentive stock option" under Section 422 of the
Code.
Section 3.3 - Granting of Options to Executive or Key Employees
(a) The Committee shall from time to time, in its absolute discretion:
(i) Determine which Employees are executive or key Employees and select
from among the executive or key Employees (including those to whom Options
and/or Stock Appreciation Rights have been previously granted and/or
Restricted Stock has previously been issued under the Plan) such of them as
in its opinion should be granted Options; and
(ii) Determine the number of shares to be subject to such Options
granted to such selected executive or key Employees, and determine whether
such Options are to be Incentive Stock Options or Non-Qualified Options; and
(iii) Determine the terms and conditions of such Options, consistent
with the Plan.
(b) Upon the selection of an executive or key Employee to be granted an
Option, the Committee shall instruct the Secretary to issue such Option and
may impose such conditions on the grant of such Option as it deems
appropriate. Without limiting the generality of the preceding sentence, the
Committee may, in its discretion and on such terms as it deems appropriate,
require as a condition on the grant of an Option to an Employee that the
Employee surrender for cancellation some or all of the unexercised Options
which have been previously granted to him. An Option the grant of which is
conditioned upon such surrender may have an option price lower (or higher)
than the option price of the surrendered Option, may cover the same (or a
less or greater) number of shares as the surrendered Option, may contain
such other terms as the Committee deems appropriate and shall be exercisable
in accordance with its terms, without regard to the number of shares, price,
option period or any other term or condition of the surrendered Option.
Section 3.4 - Granting of Options to Non-Employee Directors
Each current Director who is not an Employee shall be granted an Option
pursuant to a formula which equals 4,000 shares of the Company's Common
Stock multiplied by the number of fiscal quarters the director has served up
to a maximum of 16,000 shares. Such grant shall be effective as of the date
of the approval of the Plan by the Board of Directors and shall be
exercisable for a period of ten years and one day from the date of the
grant. Such options shall become exercisable in three installments, 34
percent on the first anniversary of the grant, 33 percent on the second
anniversary and 33 percent on the third anniversary. A newly elected or
appointed Director who is not an Employee shall be granted an Option with
respect to 4,000 shares on the first business day following his election or
appointment and shall be granted an option to acquire 4,000 shares on the
first business day of each quarter of the Company's fiscal year until each
director reaches a maximum of 16,000 shares. These options shall become
exercisable as described above. The above provisions with respect to grants
to non-employee directors shall not be amended more than once in any six-
month period.
ARTICLE IV
TERMS OF OPTIONS
Section 4.1 - Option Agreement
Each Option shall be evidenced by a written Stock Option Agreement, which
shall be executed by the Optionee and an authorized Officer of the Company
and which shall contain such terms and conditions as the Committee shall
determine, consistent with the Plan. Stock Option Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to qualify such Options as "incentive stock options" under Section
422 of the Code.
Section 4.2 - Option Price
The price of the shares subject to each Option shall be set by the
Committee; provided, however, that the price per share shall be not less
than 100 percent of the fair market value of such shares on the date such
Option is granted; provided, further, that, in the case of an Incentive
Stock Option, the price per share shall not be less than 110 percent of the
fair market value of such shares on the date such Option is granted in the
case of an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10 percent of the total combined voting power of all
classes of stock of the Company, any Subsidiary or any Parent Corporation.
Section 4.3 - Commencement of Exercisability
(a) Except as the Committee may otherwise provide, no Option may be
exercised in whole or in part during the first year after such Option is
granted.
(b) Subject to the provisions of Sections 4.3(a) and 4.3(c), Options
shall become exercisable at such times and in such installments (which may
be cumulative) as the Committee shall provide in the terms of each
individual Option; provided, however, that by a resolution adopted after an
Option is granted the Committee may, on such terms and conditions as it may
determine to be appropriate and subject to Sections 4.3(a) and 4.3(c),
accelerate the time at which such Option or any portion thereof may be
exercised.
(c) No portion of an Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 4.4 - Expiration of Options
(a) No Incentive Stock Option may be exercised to any extent by anyone
after the first to occur of the following events:
(i) The expiration of ten years from the date the Option was granted;
or
(ii) In the case of an Optionee owning (within the meaning of Section
424(d) of the Code), at the time the Option was granted, more than 10
percent of the total combined voting power of all classes of stock of the
Company, any Subsidiary or any Parent Corporation, the expiration of five
years from the date the Option was granted; or
(iii) Except in the case of any Optionee who is disabled (within the
meaning of Section 22(e)(3) of the Code), the expiration of three months
from the date of the Optionee's Termination of Employment for any reason
other than such Optionee's death unless the Optionee dies within said three-
month period; or
(iv) In the case of an Optionee who is disabled (within the meaning of
Section 22(e)(3) of the Code), the expiration of one year from the date of
the Optionee's Termination of Employment for any reason other than such
Optionee's death unless the Optionee dies within said one-year period; or
(v) The expiration of one year from the date of the Optionee's death.
No Non-Qualified Option may be exercised to any extent by anyone after
the expiration of ten years and one day from the date the Option was
granted.
(b) Subject to the provisions of Section 4.5(a), the Committee shall
provide, in the terms of each individual Option, when such Option expires
and becomes unexercisable; and (without limiting the generality of the
foregoing) the Committee may provide in the terms of individual Options that
said Options expire immediately upon a Termination of Employment for any
reason.
Section 4.5 - Employment
Nothing in this Plan or in any Stock Option Agreement hereunder shall
confer upon any Optionee any right to continue in the employ of the Company,
any Parent Corporation or any Subsidiary or shall interfere with or restrict
in any way the rights of the Company, its Parent Corporations and its
Subsidiaries, which are hereby expressly reserved, to discharge any Optionee
at any time for any reason whatsoever, with or without cause.
Section 4.6 - Adjustments in Outstanding Options
In the event that the outstanding shares of the stock subject to Options
are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split-up, stock
dividend or combination of shares, the Committee shall make an appropriate
and equitable adjustment in the number and kind of shares as to which all
outstanding Options, or portions thereof then unexercised, shall be
exercisable, to the end that after such event the Optionee's proportionate
interest shall be maintained as before the occurrence of such event. Such
adjustment in an outstanding Option shall be made without change in the
total price applicable to the Option or the unexercised portion of the
Option (except for any change in the aggregate price resulting from
rounding-off of share quantities or prices) and with any necessary
corresponding adjustment in Option price per share; provided, however, that,
in the case of Incentive Stock Options, each such adjustment shall be made
in such manner as not to constitute a "modification" within the meaning of
Section 424(h)(3) of the Code. Any such adjustment made by the Committee
shall be final and binding upon all Optionees, the Company and all other
interested persons.
Section 4.7 - Merger, Consolidation, Acquisition, Liquidation or Dissolution
In its absolute discretion, and on such terms and conditions as it deems
appropriate, the Committee may provide by the terms of any Option that such
Option cannot be exercised after the merger or consolidation of the Company
with or into another corporation, the acquisition by another corporation or
person of all or substantially all of the Company's assets or 80 percent or
more of the Company's then outstanding voting stock or the liquidation or
dissolution of the Company; and if the Committee so provides, it may, in its
absolute discretion and on such terms and conditions as it deems
appropriate, also provide, either by the terms of such Option or by a
resolution adopted prior to the occurrence of such merger, consolidation,
acquisition, liquidation or dissolution, that, for some period of time prior
to such event, such Option shall be exercisable as to all shares covered
thereby, notwithstanding anything to the contrary in Section 4.3(a), Section
4.3(b) and/or any installment provisions of such Option, but subject to
Section 4.3(d). This provision shall not apply to options granted to Non-
Employee Directors unless the Committee determines that such application
would not cause the awards to Non-Employee Directors to fail the tests set
forth in Section 16b-3(c)(2)(ii) of the Securities Exchange Act of 1934.
ARTICLE V
EXERCISE OF OPTIONS
Section 5.1 - Person Eligible to Exercise
During the lifetime of the Optionee, only he may exercise an Option
granted to him, or any portion thereof. After the death of the Optionee,
any exercisable portion of any Option may, prior to the time when such
portion becomes unexercisable under Section 4.5 or Section 4.8, be exercised
by his personal representative or by any person empowered to do so under the
deceased Optionee's will or under the then applicable laws of descent and
distribution.
Section 5.2 - Partial Exercise
At any time and from time to time prior to the time when any exercisable
Option or exercisable portion thereof becomes unexercisable under Section
4.4, such Option or portion thereof may be exercised in whole or in part;
provided, however, that the Company shall not be required to issue
fractional shares and the Committee may, by the terms of the Option, require
any partial exercise to be with respect to a specified minimum number of
shares.
Section 5.3 - Manner of Exercise
An exercisable Option, or any exercisable portion thereof, may be
exercised solely by delivery to the Secretary or his office of all of the
following prior to the time when such Option or such portion becomes
unexercisable under Section 4.4:
(a) Notice in writing signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that such Option or
portion is exercised, such notice complying with all applicable rules
established by the Committee; and
(b) (i) Full payment (in cash or by check) for the shares with respect
to which such Option or portion is thereby exercised; or
(ii) With the consent of the committee, shares of the Company's Common
Stock owned by the Optionee(which in the case of stock acquired from the
Company, shall have been held for at least six months) duly endorsed for
transfer to the Company with a fair market value (as determinable under
Section 4.2(b)) on the date of delivery equal to the aggregate Option price
of the shares with respect to which such Option or portion is thereby
exercised; or
(iii) With the consent of the Committee, a full recourse promissory
note bearing interest (at least such rate as shall then preclude the
imputation of interest under the Code or any successor provision) and
payable upon such terms as may be prescribed by the Committee. The
Committee may also prescribe the form of such note and the security to be
given for such note. No Option may, however, be exercised by delivery of a
promissory note or by a loan from the Company when or where such loan or
other extension of credit is prohibited by law; or
(iv) Any combination of the consideration provided in the foregoing
subsections (i), (ii) and (iii); provided, that if the stock delivered upon
exercise of the option is an original issue of authorized stock, at least so
much of the exercise price as represents the par value of such stock shall
be paid other than with a personal check or promissory note of the person
exercising the option;
(v) By delivery of an unconditional and irrevocable undertaking by a
broker to deliver promptly to the Company sufficient funds to pay the
exercise price; and
(c) Such representations and documents as the Committee, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act and any other federal or state
securities laws or regulations. The Committee may, in its absolute
discretion, also take whatever additional actions it deems appropriate to
effect such compliance including, without limitation, placing legends on
share certificates and issuing stop-transfer orders to transfer agents and
registrars; and
(d) In the event that the Option or portion thereof shall be exercised
pursuant to Section 5.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the
Option or portion thereof.
Section 5.4 - Conditions to Issuance of Stock Certificates
The shares of stock issuable and deliverable upon the exercise of an
Option, or any portion thereof, may be either previously authorized but
unissued shares or issued shares which have then been reacquired by the
Company. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise
of any Option or portion thereof prior to fulfillment of all of the
following conditions:
(a) The admission of such shares to listing on all stock exchanges on
which such class of stock is then listed; and
(b) The completion of any registration or other qualification of such
shares under any state or federal law or under the rulings or regulations of
the Securities and Exchange Commission or any other governmental regulatory
body, which the Committee shall, in its absolute discretion, deem necessary
or advisable; and
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable; and
(d) The payment to the Company of all amounts which it, any Parent
Corporation or any Subsidiary is required to withhold under federal, state
or local law in connection with the exercise of the Option. If permitted by
the Committee, either at the time of the grant of the option or at the time
of exercise, the participant may elect at such time and in such manner as
the Committee may prescribe, to satisfy such withholding obligation by (i)
delivering to the Company stock owned by such individual having a market
value equal to such withholding obligation, or (ii) requesting that the
Company withhold from the shares of Stock to be delivered upon exercise of
such option a number of shares of Stock having a fair market value equal to
such withholding obligation; and
(e) The lapse of such reasonable period of time following the exercise of
the Option as the Committee may establish from time to time for reasons of
administrative convenience.
Section 5.5 - Rights as Shareholders
The holders of Options shall not be, nor have any of the rights or
privileges of, shareholders of the Company in respect of any shares
purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to
such holders.
Section 5.6 - Transfer Restrictions
Except as expressly provided therein, an option granted under the Plan is
personal to the Optionee, is not transferable by the Optionee in any manner
other than by will, the laws of descent and distribution or pursuant to a
qualified domestic relations order as defined by the Code of Title I of the
Employee Retirement Income Security Act, or the rules promulgated
thereunder. The Committee, in its absolute discretion, may impose such
other restrictions on the transferability of the shares purchasable upon the
exercise of an Option as it deems appropriate. Any such restriction shall
be set forth in the respective Stock Option Agreement and may be referred to
on the certificates evidencing such shares. The Committee may require the
Employee to give the Company prompt notice of any disposition of shares of
stock, acquired by exercise of an Incentive Stock Option, within two years
from the date of granting such Option or one year after the transfer of such
shares to such Employee. The Committee may direct that the certificates
evidencing shares acquired by exercise of an Option refer to such
requirement to give prompt notice of disposition.
ARTICLE VI
STOCK APPRECIATION RIGHTS
Section 6.1 - Grant of Stock Appreciation Rights
A Stock Appreciation Right may be granted to any Employee who receives a
grant of an Option under the Plan. A Stock Appreciation Right may be
granted in connection and simultaneously with the grant of an Option or with
respect to a previously granted Option. A Stock Appreciation Right shall be
subject to such terms and conditions not inconsistent with the Plan as the
Committee shall impose, including the following:
(a) A Stock Appreciation Right shall be related to a particular Option
and shall be exercisable only to the extent the related Option is
exercisable.
(b) A Stock Appreciation Right shall be granted to the Optionee to the
maximum extent of 100 percent of the number of shares subject to the
simultaneously or previously granted Option.
(c) A Stock Appreciation Right shall entitle the Optionee (or other
person entitled to exercise the Option pursuant to Section 5.1) to surrender
unexercised a portion of the Option to which the Stock Appreciation Right
relates to the Company and to receive from the Company in exchange therefor
an amount payable in cash or, in the discretion of the Committee, shares of
the Company's Common Stock, determined by multiplying the lesser of (i) the
difference obtained by subtracting the Option exercise price per share of
the Company's Common Stock subject to the related Option from the fair
market value (as determinable under Section 4.2(b)) of a share of the
Company's Common Stock on the date of exercise of the Stock Appreciation
Right, or (ii) twice the Option exercise price per share of the Company's
Common Stock subject to the related Option, by the number of shares of stock
subject to the related Option with respect to which the Stock Appreciation
Right shall have been exercised.
ARTICLE VII
ISSUANCE OF RESTRICTED STOCK
Section 7.1 - Eligibility
Any executive or other key Employee of the Company or of any corporation
which is then a Parent Corporation or a Subsidiary shall be eligible to be
issued Restricted Stock.
Section 7.2 - Issuance of Restricted Stock
(a) The Committee shall from time to time, in its absolute discretion:
(i) Determine which Employees are executive or key Employees and select
from among the executive or key Employees (including those to whom Options
and/or Stock Appreciation Rights have been previously granted and/or
Restricted Stock has been previously issued) such of them as in its opinion
should be issued Restricted Stock; and
(ii) Determine the number of shares of Restricted Stock to be issued to
such selected executive or key Employees; and
(iii) Determine the terms and conditions applicable to such Restricted
Stock, consistent with the Plan.
(b) Shares issued as Restricted Stock may be either previously authorized
but unissued shares or issued shares which have been reacquired by the
Company. Legal consideration, but no cash payment, will be required for
each issuance of Restricted Stock.
(c) Upon the selection of an executive or key Employee to be issued
Restricted Stock, the Committee shall instruct the Secretary to issue such
Restricted Stock and may impose such conditions on the issue of such
Restricted Stock as it deems appropriate. Restricted Stock may not be
issued by the Committee to executive or key Employees who are then Directors
or Officers of the company unless such issuance has been recommended by the
Committee. Such recommendation shall be in writing and shall specify the
Directors or Officers to whom such issuance is recommended and the
recommended number of shares of Restricted Stock to be issued.
ARTICLE VIII
TERMS OF RESTRICTED STOCK
Section 8.1 - Restricted Stock Agreement
Restricted Stock shall be issued only pursuant to a written Restricted
Stock Agreement, which shall be executed by the Restricted Stockholder and
an authorized Officer of the Company and which shall contain such terms and
conditions as the Committee shall determine, consistent with the Plan.
Section 8.2 - Employment
Nothing in this Plan or in any Restricted Stock Agreement hereunder
shall confer upon any Restricted Stockholder any right to continue in the
employ of the Company, any Parent Corporation or any Subsidiary or shall
interfere with or restrict in any way the rights of the Company, its Parent
Corporations and its Subsidiaries, which are hereby expressly reserved, to
discharge any Restricted Stockholder at any time for any reason whatsoever,
with our without cause.
Section 8.3 - Rights as Shareholders
Upon delivery of the shares of Restricted Stock to the escrow holder
pursuant to Section 8.7, the Restricted Stockholder shall have all the
rights of a stockholder with respect to said shares, subject to the
restrictions in his Restricted Stock Agreement, including the right to vote
the shares and to receive all dividends or other distributions paid or made
with respect to the shares.
Section 8.4 - Restrictions
All shares of Restricted Stock issued under this Plan (including any
shares received by holders thereof as a result of stock dividends, stock
splits or any other forms of recapitalization) shall be subject to such
restrictions as the Committee shall provide in the terms of each individual
Restricted Stock Agreement; provided, however, that by a resolution adopted
after the Restricted Stock is issued, the Committee may, on such terms and
conditions as it may determine to be appropriate and subject to Section
10.3, remove any or all of the restrictions imposed by the terms of the
Restricted Stock Agreement. All restrictions imposed pursuant to this
Section 8.3 shall expire within ten years of the date of issuance.
Restricted Stock may not be sold or encumbered until all restrictions are
terminated or expire.
Section 8.5 - Forfeiture of Restricted Stock
The Committee shall provide in the terms of each individual Restricted
Stock Agreement that the Restricted Stock then subject to restrictions under
the Restricted Stock Agreement be forfeited by the Restricted Stockholder
back to the Company immediately upon a Termination of Employment for any
reason; provided, however, that provision may be made that no such
forfeiture shall occur in the event of a Termination of Employment because
of the Employee's normal retirement, death, total disability or early
retirement with the consent of the Board.
Section 8.6 - Merger, Consolidation, Acquisition, Liquidation or Dissolution
Upon the merger or consolidation of the Company with or into another
corporation, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 80 percent or more of the
Company's then outstanding voting stock or the liquidation or dissolution of
the Company, the Committee may determine, at its sole discretion, that the
restrictions imposed under the Restricted Stock Agreement on some or all
shares of Restricted Stock shall immediately expire and/or that some or all
of such shares shall cease to be subject to forfeiture under Section 8.5.
Section 8.7 - Escrow
The Secretary or such other escrow holder as the Committee may appoint
shall retain physical custody of the certificates representing Restricted
Stock until all of the restrictions imposed under the Restricted Stock
Agreement expire or shall have been removed; provided, however, that in no
event shall any Restricted Stockholder retain physical custody of any
certificates representing Restricted Stock issued to him.
Section 8.8 - Legend
In order to enforce the restrictions imposed upon shares of Restricted
Stock hereunder, the Committee shall cause a legend or legends to be placed
on certificates representing all shares of Restricted Stock that are still
subject to restrictions under Restricted Stock Agreements, which legend or
legends shall make appropriate reference to the conditions imposed thereby.
ARTICLE IX
ADMINISTRATION
Section 9.1 - Committee
The Committee shall consist of at least two directors, provided that the
Committee shall consist of one Director when it is the Chief Executive
Officer of the Company acting pursuant to such individual's authority to
grant Options not to exceed 10,000 shares each of the Company's Stock to
Employees who are not executive officers of the Company for the purposes of
Section 16 of the Securities Exchange Act of 1934, as amended.
Section 9.2 - Duties and Powers of Committee
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan, the Options, the Stock
Appreciation Rights and the Restricted Stock and to adopt such rules for the
administration, interpretation and application of the Plan as are consistent
therewith and to interpret, amend or revoke any such rules. Any such
interpretations and rules in regard to Incentive Stock Options shall be
consistent with the basic purpose of the Plan to grant "incentive stock
options" within the meaning of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and
all rights and duties of the Committee under the Plan.
Section 9.3 - Majority Rule
The Committee shall act by a majority of its members in office. The
Committee may act either by vote at a meeting or by a memorandum or other
written instrument signed by a majority of the Committee.
Section 9.4 - Compensation; Professional Assistance; Good Faith Actions
Members of the Committee shall receive such compensation for their
services as members as may be determined by the Board. All expenses and
liabilities incurred by members of the Committee in connection with the
administration of the Plan shall be borne by the Company. The Committee
may, with the approval of the Board, employ attorneys, consultants,
accountants, appraisers, brokers or other persons. The Committee, the
Company, Officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good faith shall
be final and binding upon all Optionees, Restricted Stockholders, the
Company and all other interested persons. No member of the Committee shall
be personally liable for any action, determination or interpretation made in
good faith with respect to the Plan, the Options, the Stock Appreciation
Rights or the Restricted Stock and all members of the Committee shall be
fully protected by the Company in respect to any such action, determination
or interpretation.
ARTICLE X
OTHER PROVISIONS
Section 10.1 - Options, Stock Appreciation Rights and Restricted Stock Not
Transferable
No Option, Stock Appreciation Right or Restricted Stock or interest or
right therein or part thereof shall be liable for the debts, contracts or
engagements of the Optionee or the Restricted Stockholder, as the case may
be, or his successors in interest or shall be subject to disposition by
transfer, alienation, anticipation, pledge, encumbrance, assignment or any
other means whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any other
legal or equitable proceedings (including bankruptcy), and any attempted
disposition thereof shall be null and void and of no effect; provided,
however, that nothing in this Section 10.1 shall prevent transfers by will,
by the applicable laws of descent and distribution, or pursuant to a
qualified domestic relations order as defined by the Code of Title I of the
Employee Retirement Income Security Act, or the rules promulgated
thereunder.
Section 10.2 - Amendment, Suspension or Termination of the Plan
The Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time or from time to time by the Board or the
Committee. However, without approval of the Company's shareholders given
within 12 months before or after the action by the Board or the Committee,
no action of the Committee or Board may, except as provided in Section 2.4,
increase any limit imposed in Section 2.1 on the maximum number of shares
which may be issued on exercise of Options or as Restricted Stock, modify
the eligibility requirements of Section 3.1, amend Section 3.3(c) or Section
7.2(c) to permit the grant of Options or the issuance of Restricted Stock to
Officers or Directors of the Company other than upon the written
recommendation of the Committee, reduce the minimum option price
requirements of Section 4.2(a) or extend the limit imposed in this Section
10.2 on the period during which Options or Stock Appreciation Rights may be
granted or Restricted Stock may be issued. Neither the amendment,
suspension nor termination of the Plan shall, without the consent of the
holder of the Option or Stock Appreciation Right or the Restricted
Stockholder, alter or impair any rights or obligations under any Option or
Stock Appreciation theretofore granted or Restricted Stock theretofore
issued. No Option or Stock Appreciation Right may be granted and no
Restricted Stock may be issued during any period of suspension nor after
termination of the Plan, and in no event may any Option or Stock
Appreciation Right be granted or any Restricted Stock issued under this Plan
after the first to occur of the following events:
(a) The expiration of ten years from the date the Plan is adopted; or
(b) The expiration of ten years from the date the Plan is approved by the
Company's shareholders under Section 10.3.
Section 10.3 - Approval of Plan by Shareholders
This Plan will be submitted for approval of the Company's shareholders
within 12 months after the date of the Board's initial adoption of the Plan.
Options and Stock Appreciation Rights may be granted and Restricted Stock
may be issued prior to such shareholder approval; provided, however, that
such Options and Stock Appreciation Rights shall not be exercisable prior to
the time when the Plan is approved by the shareholders; provided, further,
that if such approval has not been obtained at the end of said 12-month
period, all Options and Stock Appreciation Rights previously granted and all
Restricted Stock previously issued under the Plan shall thereupon be
canceled and become null and void.
Section 10.4 - Effect of Plan Upon Other Option and Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company, any Parent Corporation or any
Subsidiary. Nothing in this Plan shall be construed to limit the right of
the Company, any Parent Corporation or any Subsidiary (a) to establish any
other forms of incentives or compensation for employees of the Company, any
Parent Corporation or any Subsidiary, or (b) to grant or assume options or
to issue restricted stock otherwise than under this Plan in connection with
any proper corporate purpose, including, but not by way of limitation, the
grant or assumption of options or the issuance of restricted stock in
connection with the acquisition, by purchase, lease, merger, consolidation
or otherwise, of the business, stock or assets of any corporation, firm or
association.
Section 10.5 - Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of the Plan.