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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
COMMISSION FILE NO. 1-4474
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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>
(781) 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 Preferred Stock Purchase Rights Pacific Exchange, Inc.
</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 No X
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 $531,076,188 on January
28, 1998.
The Registrant had 17,841,959 shares of Common Stock, $0.01 par value,
issued and outstanding on January 28, 1998.
Documents Incorporated by Reference
Proxy Statement to be filed no later
than March 31, 1998 Part III, Items 10-13
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<PAGE>
PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
Oak Industries Inc. (the "Company," or the "Registrant") 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 (781) 890-0400. Unless
the context otherwise requires, the references herein to "Company" refer to
Oak Industries Inc. and its consolidated subsidiaries.
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 gas range appliance
industry as well as a broad line of control and sensing devices for use in
testing equipment and industrial applications.
On September 30, 1997, the Company purchased 100% of the outstanding
capital stock of Piezo Crystal Company ("Piezo"), a Pennsylvania
manufacturer of frequency control products for the satellite and wireless
communications industries. The aggregate purchase price was approximately
$20.2 million in cash, including transaction expenses. In addition,
Piezo's selling shareholders will receive additional consideration of $1.0
million based upon Piezo's fourth quarter 1997 performance and may receive
additional consideration of up to $4.9 million, depending upon Piezo's
operating performance in 1998.
On October 31, 1997, the Company purchased 3.75% of Gilbert Engineering
Co., Inc. ("Gilbert") stock held by current and former members of Gilbert
management for a purchase price of approximately $8.8 million. The Company
owned 96.25% of Gilbert at December 31, 1997.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY 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 is a leading manufacturer of highly engineered components
that it designs and sells to manufacturers and service providers in the
communications and selected other industries. The Company's communications
components consist primarily of connectors for the CATV industry, frequency
control devices used in base stations for wireless communications, and
fiber-optic components for the wired telephony infrastructure. The
Company's controls components include components for gas ranges, and
switches and encoders, which are used in a wide range of applications.
Business Strategy
The Company's objective 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 products
that meets the quality and price/performance targets of its customers. The
key elements of the Company's strategy include the following:
Maintain Technology Leadership. The Company believes that its strong
competitive position is attributable in large part to its engineering
capabilities. The Company believes that its investment in engineering
resources enables it to maintain technological leadership and will enable
it to increase its customer base by developing products that meet its
customers' specific technical requirements.
Develop New Products and Increase Market Share. The Company plans to
continue to increase sales by developing additional products that can be
sold to existing customers and by expanding its customer base. For
example, the Company's subsidiary Lasertron, Inc. ("Lasertron") recently
introduced advanced transmission products that will be marketed to the same
customer base that purchases Lasertron's pump lasers for amplification of
fiber-optic signals. In addition, the Oak Frequency Control Group ("OFCG")
has recently introduced a voltage controlled oscillator product line,
expanding its customer base to include manufacturers of switching and
transmission equipment in addition to OFCG's traditional customer base of
manufacturers of wireless base stations and military and satellite
equipment.
Expand International Presence. The Company intends to continue to
increase its international presence, primarily by expanding its sales
force. The Company currently has manufacturing facilities in Canada,
China, Denmark, France and Mexico, and it participates in a manufacturing
joint venture in China. Sales made directly by the Company and its
subsidiaries to international customers accounted for approximately 36% of
the Company's sales for the year ended December 31, 1997, an increase from
34% for the year ended December 31, 1996.
Reduce Manufacturing Costs. The Company aggressively pursues a strategy
of improving its manufacturing efficiencies to reduce the cost and increase
the quality of its products. The Company engineers its products for volume
manufacturing and continues to evaluate and redesign its products in order
to reduce manufacturing costs. The Company has also invested significantly
in the automation of its manufacturing facilities. The Company intends to
continue to invest in enhancing its manufacturing capabilities with the
objectives of meeting the quality and price/performance targets of
customers while maintaining strong operating margins.
Grow Through Strategic Acquisitions. The Company's sales have increased
in part through acquisitions, including Gilbert in 1992, Cabel-Con A/S
("Cabel-Con") in 1994, Lasertron in 1995 and Piezo in 1997. The Company
also has divested non-strategic businesses in order to make more effective
use of available capital. The Company plans to continue pursuing strategic
acquisitions that complement its existing businesses. The Company believes
that the benefits of such acquisitions include expanding the product lines
of the Company and increasing its customer base.
Communications Components
The Company is a leading manufacturer of highly engineered components
that it designs and sells to manufacturers and service providers in the
communications industry. The Company's communications components consist
primarily of connectors for the CATV industry, frequency control devices
used for wireless communications, and fiber-optic components for the wired
telephony infrastructure. The Company's communications components group
consists of Gilbert, OFCG and Lasertron. Collectively, communications
components accounted for approximately 68%, 70% and 69% of the Company's
net sales for 1995, 1996 and 1997, respectively.
CATV and Specialty Connectors. Gilbert is a leading worldwide
manufacturer of coaxial connectors for the CATV industry. Gilbert
manufactures connectors for the trunk and feeder portion of the broadband
distribution network. These connectors are used whenever a coaxial cable
is cut or spliced, such as at connection points for amplifiers, power
supplies, and other active and passive devices. Gilbert also manufactures
drop connectors that connect the subscriber's television to the cable
network. Many of Gilbert's customers have different specifications for
their connectors. Gilbert offers over 1,700 different types of connectors
in its catalogue. Connectors are complex components; for example, trunk
and feeder connectors may have as many as 20 parts, many of which are
individually machined prior to assembly of the connector.
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
organizes, processes and retransmits those signals through the second
segment, the distribution network, to the subscriber. The distribution
network typically consists of coaxial and fiber-optic cables and associated
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 where coaxial
cable connects to electronic equipment such as amplifiers and at various
distribution and termination points.
Cable operators continue to upgrade the technological capabilities of
their systems in order to provide subscribers with improved signal quality
and increased channel capacity that allows a broader range of pay-per-view
movies, Internet access through cable modems, and telephony. Cable
networks are also being upgraded in response to new competitive
multichannel services such as direct broadcast satellite and wireless
cable. Industry data indicate that a large portion of domestic cable
systems have not yet been upgraded to the minimum bandwidth targeted by
CATV operators to facilitate the delivery of comprehensive services. The
Company also anticipates continued growth in the cable industry
internationally, where cable penetration rates typically are still low.
The Company believes that opportunities for increased revenues at Gilbert
will arise in connection with the anticipated upgrading of domestic cable
systems and continued expansion of the cable industry internationally.
Gilbert regularly introduces new products to expand its presence in
existing markets. Gilbert has recently introduced a new line of high-end
drop connectors that are designed to provide a strong barrier to moisture
and a highly effective shield from radio frequency interference. Cabel-
Con, Gilbert's Danish subsidiary, has developed a connector for use in
wireless base stations. In addition to CATV connectors, Gilbert
manufactures a line of microwave connectors that are used primarily in high
reliability applications in satellites and other systems.
Gilbert sells directly to major multiple system operators, telephone
operating companies and leading distributors of CATV components. Gilbert's
manufacturing operations are based in Glendale, Arizona; Vordingborg,
Denmark; and Amboise, France.
Gilbert is a 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 Gilbert competes favorably with respect to each of these factors.
Gilbert'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 receives its aluminum
requirements from two different manufacturing facilities of a single
supplier. Although the Company believes several alternative sources of
supply of aluminum are available, a sudden disruption of Gilbert's 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 significant raw material requirements. The
Company believes it will be able to obtain the raw materials necessary to
manufacture connectors.
Gilbert owns a number of patents but the Company does not consider any
one patent or group of patents material to the conduct of its business.
Frequency Control Devices. OFCG is a leading supplier of quartz-based
crystals and oscillators for use in wireless, wired telephony, military,
satellite, and other communications applications. 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 electronic applications requiring a high
degree of signal precision. OFCG also manufactures glass-to-metal
hermetically sealed packages used primarily in the frequency control
industry.
There are four primary classes of crystal oscillators: (i)
uncompensated crystal oscillators or "XOs", (ii) temperature compensated
crystal oscillators or "TCXOs", (iii) voltage controlled crystal
oscillators ("VCXOs"), and (iv) oven controlled crystal oscillators
("OCXOs"). The type used depends on the performance characteristics
required and the environment to which the oscillator will be exposed. OFCG
has designed products that can be used with all major analog and digital
technologies used by cellular telephone and Personal Communications
Systems, or "PCS" service providers, including Code Division Multiple
Access, or "CDMA," Time Division Multiple Access, or "TDMA," and Global
Systems for Mobile Communications, or "GSM."
OFCG's development efforts are focused on addressing market demands for
components with higher stability, smaller size and lower power consumption.
It has also invested in highly automated production and test systems to
increase capacity. OFCG has focused on OCXOs for the high end of the
market. In 1996 OFCG introduced a line of VCXOs that are used in less
demanding applications in telephone and network switches and base stations.
OFCG recently introduced a line of OCXOs in a surface mount package to meet
increasing industry demand for such products
OFCG's sales growth has been driven primarily by the growth of wireless
infrastructure spending. The Company expects continued growth in wireless
infrastructure spending in the United States as cellular providers upgrade
from analog to digital technology, and as new PCS networks are built. In
emerging markets abroad, wireless is increasingly viewed as a potential
substitute for wired telephony. Internationally, growth in wireless
infrastructure remains strong.
OFCG sells frequency control products using a direct sales force and
manufacturers' representatives. OFCG supplies oscillators and crystals to
leading manufacturers of wireless base stations, as well as manufacturers
of test and instrumentation and other equipment. OFCG also sells to a
large number of smaller communications companies. The market in which OFCG
participates is very competitive in terms of price, quality and delivery.
The Company believes it competes favorably with respect to each of these
factors.
There are many domestic and foreign suppliers of crystal frequency
control devices. In order to compete effectively in this market, OFCG
places a strong emphasis on high quality and sophisticated design
technology. A large percentage of OFCG's frequency control products are
manufactured to exacting customer specifications, and OFCG relies to a
great extent on its engineering staff to design and provide post-production
support to meet customer needs.
OFCG has several divisions: Croven Crystals, Ltd. and McCoy Crystals,
which cut, polish and mount crystals; H.E.S. International, Inc., which
manufactures bases for crystals and oscillators; Oak Frequency Control,
which manufactures oscillators using the crystals and bases from other
divisions and suppliers; and Piezo, a manufacturer of crystals and
oscillators. Manufacturing facilities for OFCG's frequency control
products are located in Mt. Holly Springs, Carlisle, and Mercersburg,
Pennsylvania; Whitby, Ontario, Canada; and Kansas City, Kansas. OFCG has
recently opened a manufacturing facility in Shanghai, China to manufacture
VCXOs.
The Company believes the raw materials required for the production of
its frequency control products are readily available. There are multiple
suppliers of such raw materials, and OFCG utilizes many of these suppliers.
Fiber-Optic Communications Components. Lasertron, based in Bedford,
Massachusetts, designs, manufactures and sells active fiber-optic
components, including lasers and detectors used in long distance fiber-
optic telephone and other networks. Lasertron is a leading semiconductor
laser manufacturer for telecommunications applications.
Lasertron's amplification products (pump lasers) are critical components
of optical amplifiers, which increase the power of light signals. Optical
amplifiers are placed at intervals in the network or at the source of the
light signal. Lasertron's amplification products are deployed in the major
domestic long distance networks and in rings connecting headends in the
CATV market. Lasertron also designs and manufactures transmission
components that are used to generate or detect optical signals carried on
fiber-optic links. Lasertron has developed a line of advanced transmission
products, known as distributed feedback lasers ("DFBs") for applications in
the long distance network. These advanced transmission products generate
fiber-optic signals at the rate of 2.5 gigabits per second. Lasertron also
manufactures standard transmission products for the local loop, such as
laser sources and detectors, which operate at lower speeds.
Telephone service providers are experiencing significant increases in
both voice and data traffic. Data transmissions now account for a
substantial portion of traffic on many networks and the volume of data
being transmitted is growing rapidly. The increase in voice and data
traffic results primarily from the growing number of Internet users, home
offices, and additional telephone lines, and the increased use of
electronic mail and wireless calls that terminate on the wired network.
The Company believes that telephone service providers will continue to
upgrade existing networks to increase capacity.
Lasertron sells both directly and through distributors to its domestic
and export customers, which are primarily manufacturers of fiber-optic
communications and CATV communications equipment.
Lasertron owns a 50% interest in Wuhan Telecommunication Devices Co.
("WTD") located in Wuhan, China. WTD is a manufacturer of fiber-optic,
semiconductor laser components for the communications industry. A research
division of the Chinese Ministry of Posts and Telecommunications, Wuhan
Optical Communication Technology Company, owns the other 50% interest of
WTD.
Although the market for Lasertron's 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 products manufactured by Lasertron incorporate semiconductor diode
laser and detector "chips" that are coupled to an optical fiber and
supplied as compact fiber-optic modules. One high volume chip is purchased
from a sole supplier, although Lasertron now produces this chip internally
in addition to sourcing it externally. Internal production of this chip
currently requires purchasing wafer raw material from a limited number of
external suppliers, although Lasertron is developing the capability to
produce this raw material internally in addition to sourcing it externally.
An inability to obtain these chips or wafers externally in sufficient
quantities to meet projected needs could have a material adverse effect on
Lasertron's operations.
Lasertron licenses a number of patents from third parties and the
Company considers several licenses to be material to the conduct of
Lasertron's business.
Controls Components
The Company's controls components group includes Harper-Wyman Company
("Harper-Wyman") and OakGrigsby Inc. ("OakGrigsby"). Harper-Wyman is a
leading supplier of components to the original equipment manufacturers of
gas range appliances and also supplies components for outdoor gas grills.
OakGrigsby manufactures optical, rotary and appliance switches and encoders
for applications in the test and measurement, communications, medical,
military and other markets. Collectively, controls components accounted
for approximately 32%, 30% and 31% of the Company's net sales for 1995,
1996 and 1997, respectively.
Appliance Components. Harper-Wyman manufactures a broad line of
components and replacement parts for gas ranges for sale to original
equipment manufacturers. These components control the flow of gas to, and
the ignition and temperature of, burners and ovens. Harper-Wyman supplies
components to the major domestic gas range manufacturers, as well as gas
range manufacturers in Canada, Mexico, and Latin America. Harper-Wyman's
Harpco division supplies service parts for gas ranges. In February 1997,
Harper-Wyman acquired a small competing gas-regulator business and moved
the manufacturing of this new product line to its facility in Mexico.
Harper-Wyman has made significant investments in engineering resources
and computer-aided design capabilities to shorten its new product
development cycle. New products introduced by Harper-Wyman include
ignition systems, a sealed supply system, and gas flow controls for outdoor
grills. Harper-Wyman plans to continue to develop new products for its
existing customers. Harper-Wyman also plans to pursue aggressively the
penetration of international markets.
Harper-Wyman sells its products primarily through a direct sales force
with assistance from a small number of manufacturers' representatives.
Harper-Wyman has highly automated manufacturing facilities in Princeton,
Illinois and Juarez, Mexico.
The market in which Harper-Wyman participates is very competitive in
terms of price, quality and delivery. The Company believes it competes
favorably with respect to each of these factors. Harper-Wyman is a leading
supplier to the market for its components in the domestic market. 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.
Switch Devices. OakGrigsby designs and manufactures optical, rotary and
appliance switches and encoders for applications in the test and
measurement, communications, medical, military and other markets. Such
products include low-power open frame, enclosed and encoded rotary
switches, as well as solenoids, lighted push-button switches and appliance
switches. To keep pace with the transition of its customer base from
traditional analog switch technology to digital controls, OakGrigsby has
also developed sensors and controls that eliminate many of the mechanical
aspects of rotary switches. These products translate an input, such as
motion, into electronic output. OakGrigsby recently introduced sensors
used in gas pump meters, global positioning systems, medical equipment and
automated teller machines.
OakGrigsby's manufacturing operations are located in Juarez, Mexico.
The market in which OakGrigsby participates is very competitive in terms of
price, quality and delivery. The Company believes it competes favorably
with respect to each of these factors. OakGrigsby primarily uses
manufacturers' representatives to sell to a large number of customers
located principally in the U.S.
The controls components group is not dependent upon any single supplier
for raw materials.
The controls components group owns a number of patents but the Company
does not consider any one patent or group of patents material to the
conduct of business.
Employees
At December 31, 1997, the Company had 3,373 employees, 2,124 of whom
worked at locations in the United States and 1,249 at locations outside the
United States. Of these employees, 187 are members of unions. The Company
believes that its relationships with its employees are good.
Backlog
The Company's backlog of domestic and foreign orders was $67.8 million
at December 31, 1996 and $73.5 million at December 31, 1997.
The Company believes that substantially all orders in backlog are firm
and expects shipment within twelve months of the date indicated above.
Consistent with practices in the Company's businesses, a portion of the
backlog is unscheduled as to the delivery date. Orders normally may be
cancelled 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 Registrant. The term of office of all executive
officers will expire upon the holding of the first meeting of the Board of
Directors following the Registrant's 1998 Annual Meeting of Stockholders.
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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 to
1989, Mr. Antle was at Bain and
Company, an international strategy
consulting firm, most recently as
Executive Vice President. From 1973
to 1980, Mr. Antle was an executive
at Cummins Engine Company, a
manufacturer of diesel engines, where
from 1976 to 1980, he served as
General Manager of several
manufacturing facilities in the
United Kingdom.
Coleman S. Hicks.......... 54 Senior Vice President and Chief
Financial Officer since June 1997 and
Senior Vice President, General
Counsel and Secretary from September
1995 until June 1997. Mr. Hicks also
served as President, Oak Frequency
Control Group from September 1995
until October 1997. Prior to joining
the Company, 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......... 45 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 to 1981, Ms. Lenehan was a
lending officer at the Chase
Manhattan Bank where she was a Vice
President in the Corporate Banking
Department.
Paul A. LeBlanc........... 41 Vice President and Controller since
June 1997. Mr. LeBlanc served as
Vice President of Finance of
Lasertron from April 1996 to June
1997. Prior to joining Lasertron, he
was employed by M/A-Com, Inc. (now a
division of AMP Inc.) as a division
controller from June 1993 to April
1996 and as Director of Corporate
Financial Planning and Analysis from
January 1991 to June 1993. Prior to
joining M/A Com, Inc., Mr. LeBlanc
was employed for ten years by Digital
Equipment Corporation in a number of
financial positions.
</TABLE>
<PAGE>
ITEM 2. PROPERTIES
The Company believes that its 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)
Carlisle, Pennsylvania {B,C}........................... 30,000
Glendale, Arizona (leases expire 12/31/98, 12/31/02,
and 8/31/10) {B,C}................................... 203,000 (5 buildings)
Juarez, Mexico (leases expire 5/16/98
and 6/30/02){B,C}.................................... 148,000 (2 buildings)
Kansas City, Kansas {B,C} (lease expires 9/30/02)...... 19,000
Mercersburg, Pennsylvania {B,C}........................ 24,000
Mt. Holly Springs, Pennsylvania {B,C}.................. 79,000 (2 buildings)
Phoenix, Arizona (leases expire 1/31/99
and 8/31/06) {B,C}................................... 43,000 (2 buildings)
Princeton, Illinois {B,C}.............................. 235,000 (2 buildings)
Shanghai, China (lease expires 6/30/07) {B,C}.......... 13,600
Sugar Grove, Illinois (lease expires 12/14/01) {B}..... 45,000
Vordingborg, Denmark {B,C}............................. 44,650
Waltham, Massachusetts (lease expires 7/31/00) {A,B}... 15,000
Whitby, Ontario, Canada {B,C}.......................... 25,000
<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. The Company does
not consider any of such proceedings to be material to the Company's
financial position, results of operations, or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1997, 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 Registrant is traded are
the New York Stock Exchange and the Pacific Exchange, Inc. As of January
28, 1998, there were 5,672 stockholders of record of common stock of the
Registrant.
Information regarding the trading price of the Registrant'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
Registrant's common stock were paid during 1996 or 1997. (See description
of dividend restrictions in Note 5 of the Notes to Consolidated Financial
Statements.)
<TABLE>
<CAPTION>
Price of Common Stock
----------------------------
1996 1997
------ ------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
First Quarter.............. $25 5/8 $18 3/4 $22 7/8 $16 1/4
Second Quarter............. 31 3/4 23 1/8 29 18 1/8
Third Quarter.............. 33 3/4 27 1/8 32 1/4 25 3/4
Fourth Quarter............. 39 22 29 3/4 24 1/4
</TABLE>
On December 31, 1997, the Company issued 444 shares of its common stock
to a departing employee from its Supplemental Retirement Income Plan (the
"SRIP"). These shares represented vested matching contributions made by
the Company to the former employee's SRIP account. This transaction was
effected pursuant to an exception from registration under Section 4(2) of
the Securities Act of 1933, as amended and the rules and regulations
thereunder.
ITEM 6. SELECTED FINANCIAL DATA
FINANCIAL RESULTS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
--------------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 204,417 $ 230,894 $ 255,364 $ 303,536 $ 314,388
Purchased in-process research and
development expense............. -- -- 80,872 -- --
Operating income (loss)............ 29,815 44,113 (27,897) 46,987 47,232
Interest expense................... 6,973 5,906 6,273 5,767 10,973
Income (loss) from continuing
operations before income
taxes, minority interest
and extraordinary charge........ 25,246 41,840 (30,926) 62,012 36,685
Income (loss) from continuing
operations...................... 25,710 41,041 (52,983) 31,976 21,736
Net income (loss).................. 26,660 42,446 (52,124) 41,836 21,736
Earnings per share - basic
Income (loss) from continuing
operations................... 1.55 2.37 (3.02) 1.77 1.22
Net income (loss)............... 1.61 2.46 (2.98) 2.32 1.22
Earnings per share - diluted
Income (loss) from continuing
operations................... 1.42 2.23 (3.02) 1.71 1.20
Net income (loss)............... 1.47 2.31 (2.98) 2.24 1.20
Cash dividends per share........... -- -- -- -- --
FINANCIAL POSITION
Working capital.................... $ 64,772 $ 67,544 $ 73,168 $ 79,019 $ 84,818
Plant and equipment, net........... 33,084 36,253 53,074 65,026 69,425
Total assets....................... 231,201 279,800 312,544 374,285 387,790
Long-term debt, net of current
maturities...................... 57,349 34,403 91,570 138,161 151,465
Total stockholders' equity......... 126,919 167,150 119,213 171,723 182,154
GENERAL STATISTICS
Capital expenditures............... $ 6,946 $ 6,723 $ 16,942 $ 23,205 $ 14,697
Depreciation....................... $ 6,037 $ 6,569 $ 7,694 $ 10,028 $ 12,287
Amortization of intangible assets.. $ 2,413 $ 2,372 $ 2,760 $ 3,609 $ 5,835
Weighted average shares
outstanding (000s):
Basic........................... 16,605 17,282 17,520 18,043 17,837
Diluted......................... 18,100 18,371 17,520 18,684 18,108
Number of holders of record
(at year-end).................... 9,732 8,346 7,144 6,312 5,717
Number of employees (at year-end)... 2,549 2,776 2,931 2,944 3,373
Salaries and wages.................. $ 49,833 $ 59,938 $ 65,543 $ 72,054 $ 78,209
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Certain unusual transactions affected the Company's results during 1995,
1996, and 1997. These unusual transactions are listed in the following
table (dollars in millions):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Income before income taxes, interest,
minority interest and unusual
transactions........................... $ 56.5 $ 55.7 $ 47.9
Net interest.............................. (4.6) (5.2) (10.6)
Income taxes.............................. (11.9) (18.4) (14.1)
Minority interest......................... (10.9) (7.3) (1.1)
-------- -------- --------
Net income excluding unusual
transactions........................... 29.1 24.8 22.1
-------- -------- --------
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........... (2.0) (0.9) (0.6)
Improperly capitalized expenses........... -- (1.1) --
Tax impact of unusual transactions above.. 0.8 (4.4) 0.2
Net income from discontinued operations... 2.5 1.4 --
Extraordinary charge, early
extinguishment of debt, net of tax..... (1.6) (0.9) --
Gain on sale of discontinued operation,
net of tax............................. -- 9.4 --
-------- -------- --------
Subtotal of unusual transactions.......... (81.2) 17.0 (0.4)
-------- -------- --------
Net income (loss) as reported............. $ (52.1) $ 41.8 $ 21.7
======== ======== ========
</TABLE>
Description of certain unusual transactions
1995
Net income 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 to
cost of goods sold related to the acquisition accounting for 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.
1996
Unusual transactions included a gain of $21.5 million from the sale of
equity investments, a restructuring charge of $3.8 million, 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 acquisition accounting for inventory at Gilbert,
an extraordinary charge of $0.9 million net of tax related to the early
extinguishment of debt and a gain of $9.4 million, net of tax, on the sale
of a subsidiary.
In early 1997, the Company discovered that the controller of one of its
divisions capitalized certain amounts that should have been expensed in the
periods incurred. Because the 1995 errors were not material to the 1995
results ($1.1 million before tax, $0.7 million after tax), the 1995
financial statements were not restated and the correction of improperly
capitalized expenses of $1.1 million was reported as an unusual item in
1996.
1997
Results include a $0.6 million charge to cost of goods sold related to
the acquisition accounting for Piezo.
Comparison of Year Ended December 31, 1997 to Year Ended December 31, 1996
Net Sales. The Company's net sales for 1997 were $314.4 million, an
increase of 3.6% over 1996. The increase in net sales resulted from
increased sales in both the communications components business and in the
controls components business. Communications components 1997 sales, which
consist of sales of Gilbert, Lasertron and OFCG, increased 3.0% over 1996
to $218.1 million. During 1997, the combined sales of Lasertron and OFCG
grew substantially and more than offset a decline in Gilbert's sales.
Demand for Lasertron and OFCG products was driven by increased
infrastructure investments for long distance fiber-optic networks and for
cellular and personal communications systems. OFCG sales for 1997 include
$4.1 million of sales by Piezo, which was acquired at the end of the third
quarter of 1997. In October 1996, Gilbert's then largest customer
announced a moratorium on purchases. This CATV customer purchased
significantly less from Gilbert than it did in 1996. Gilbert's sales
volume declined from 1996 to 1997 as a result of lower sales to this
customer, as well as lower sales to customers in certain international
markets. Gilbert's sales to other CATV customers and sales to its
microwave products customers increased significantly from 1996 to 1997.
Controls components sales, which consist of sales of Harper-Wyman and
OakGrigsby, increased 4.8% in 1997 to $96.3 million, principally as the
result of growth of sales of components for gas ranges.
Gross Profit. The Company's gross profit margin, excluding unusual
transactions, decreased to 37.2% in 1997 from 39.1% in 1996 primarily as a
result of the adverse impact of lower production volumes at Gilbert and
increased sales of lower margin controls components. These gross margin
reductions were partially offset by significant margin improvements at
Lasertron and OFCG. In general, prices of the Company's products declined
during the year, while material costs remained relatively stable, wages
increased moderately, and productivity improved.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses excluding unusual transactions increased $6.2
million, or 9.8%, in 1997 over those expensed in the prior year. This
included an increase in research and development and sales and marketing
expenses over 1996 levels, with the most significant increases occurring in
the communications businesses. Amortization expense relating to intangible
assets increased by $2.2 million in 1997 to $5.8 million, versus $3.6
million in 1996. This increase was the result primarily of increased
amortization expense related to the November 1996 and October 1997
purchases of additional equity interests in Gilbert. Royalty income
(reported as an offset against selling, general and administrative
expenses) was $1.0 million during 1997, and included $0.6 million for
royalties related to 1996 that had previously been disputed by the licensee
of certain technology. The Company reported no royalty income for 1996.
Interest Expense. Interest expense increased from $5.8 million in 1996
to $11.0 million in 1997. The increase reflects the Company's additional
borrowings to finance the purchase of additional equity interests in
Gilbert, the repurchase of the Company's stock under the Company's stock
repurchase program, and the acquisition of Piezo.
Interest Income. Interest income decreased from $0.5 million in 1996 to
$0.4 million in 1997 as a result of lower average cash balances.
Equity in Net Income (Loss) of Affiliated Companies. The Company reported
equity in net income (loss) of affiliated companies, excluding unusual
transactions, of a loss of $0.01 million in 1996 and income of $0.03
million during 1997.
Income Taxes. The 1997 provision for income taxes excluding unusual
transactions decreased by $4.3 million principally due to reduced taxable
income. The effective income tax rate excluding unusual transactions
increased from 36.4% in 1996 to 37.8% in 1997 primarily because non-tax
deductible amortization expense increased as a result of the acquisition of
additional equity interests in Gilbert in November 1996 and October 1997.
Minority Interest in Net Income of Subsidiaries. Minority interest
expense excluding unusual transactions decreased by $6.2 million to $1.1
million in 1997 from $7.3 million in 1996. The decrease resulted from
purchases of additional equity interests in Gilbert in November 1996 and
October 1997.
Net Income. Net income excluding unusual transactions was $22.1 million
in 1997 compared to $24.8 million in 1996. The decrease was the net result
of the factors described above.
Comparison of Year Ended December 31, 1996 to Year Ended December 31, 1995
Net Sales. The Company's net sales for 1996 were $303.5 million, an
increase of 18.9% over the $255.4 million of sales in 1995. Communications
components 1996 sales increased 21.6% over 1995 to $211.6 million.
Communications components sales consist of sales of Gilbert, Lasertron and
OFCG. Excluding the impact of the acquisition of Lasertron, which because
it occurred in September 1995 is only included in 1995 results for four
months, net sales of communications components increased 4.0% over the 1995
period. Excluding Lasertron, sales growth in 1996 was 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.
The sales of controls components increased 13.0% in 1996 to $91.9
million from the prior year level of $81.4 million. Sales of controls
components increased principally as the result of increased demand for
sensing devices combined with modest sales growth of components for gas
range appliances.
Gross Profit. The Company's 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 components. In general, prices of
the Company's products declined during the year, while material costs
remained relatively stable, wages increased moderately, and productivity
improved.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses excluding unusual transactions increased $14.9
million, or 30.9%, in 1996 over those expensed in the prior year primarily
because Lasertron was included in results for the full year during 1996.
Selling and research and development expenses accounted for the majority of
the increase.
Interest Expense. 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. Interest income decreased from $1.7 million in 1995 to
$0.5 million in 1996 as average cash balances decreased.
Equity in Net Income (Loss) of Affiliated Companies. Equity in net
income of affiliated companies, excluding unusual transactions related to
the write-down of interests in 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 49.0% interest in Video 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 included in equity income its proportionate share of
the earnings or losses of Lasertron's 50% owned WTD in 1996 results.
Income Taxes. The 1996 provision for income taxes excluding unusual
transactions increased $6.4 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 excluding unusual transactions
increased to 36.4% in 1996 as compared to 23.1% in 1995 reflecting the use
of full statutory rates in 1996.
Minority Interest in Net Income of Subsidiaries. Minority interest
expense, excluding unusual transactions, decreased $3.6 million, to $7.3
million from $10.9 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 purposes in
1995. The Company's purchase of an additional 24.5% interest in Gilbert in
late 1996 also contributed to lower minority interest expense in 1996.
Net Income. Net income excluding unusual transactions was $24.8 million
for 1996 versus $29.1 million during 1995. This decrease was the net
result of the factors described above.
Liquidity and Capital Resources
Cash flow from operations was $47.7 million for 1997, representing an
increase of $0.5 million from cash flow generated during 1996. Capital
expenditures during 1997 decreased by $8.5 million to $14.7 million versus
$23.2 million during 1996. Capital expenditures during 1996 included
investments to increase capacity at Gilbert and for leasehold improvements
at a new facility for Lasertron.
The Company has in place a $300 million unsecured revolving credit
facility (the "Facility"). Effective as of January 1, 1998 borrowings
under the Facility bear interest, at the option of the Company, either (i)
at the prime rate (or, if higher, at 0.5% above the federal funds rate) or
(ii) at a spread ranging from 0.5% to 1.25% over the reserve-adjusted 1, 2,
3 or 6 month LIBOR. Certain of the Company's subsidiaries have guaranteed
the obligations under the Facility. The Facility requires the Company to
meet certain periodic financial tests and prohibits the Company from paying
dividends to its stockholders. Borrowing capacity under the Facility will
be reduced by $50.0 million on each of November 1, 1999 and November 1,
2000. The Facility expires on December 31, 2001. As of December 31, 1997,
the Company had outstanding loans of $149.0 million under the Facility.
In January 1997, the Company was authorized to repurchase shares of its
stock in an aggregate amount not to exceed $50.0 million. As of December
31, 1997, the Company had spent $20.5 million to repurchase 1,057,300
shares of its common stock.
On September 30, 1997, the Company acquired all of the outstanding stock
of Piezo. The aggregate purchase price was approximately $20.2 in cash,
including transaction expenses. Piezo's selling shareholders will receive
additional consideration of $1.0 million based on Piezo's fourth quarter
1997 performance, and may receive additional consideration of up to $4.9
million, depending on Piezo's operating performance in 1998.
On October 31, 1997, the Company purchased an additional 3.75% equity
interest in Gilbert for approximately $8.8 million in cash. Current and
former members of Gilbert management (the "Selling Stockholders") currently
own 3.75% of Gilbert. The Company intends to purchase the remainder of
Gilbert no later than October 30, 1998 at a price equaling a multiple of
Gilbert's earnings before interest, taxes, and amortization expense for the
twelve-month period immediately preceding the closing date of the purchase.
Until such time as the Selling Stockholders no longer hold interests in
Gilbert, pursuant to the provisions of an Amended and Restated Management
Stockholders Agreement, Gilbert is obligated to pay such Selling
Stockholders a dividend equal to each Selling Stockholder's share of
Gilbert's excess cash flow.
The Company intends to finance future repurchases of its stock, any
additional payments to Piezo's selling shareholders and the purchase of the
remainder of Gilbert with cash generated by operations and borrowings under
the Facility.
The Company intends to continue to pursue acquisitions of complementary
businesses that will enhance growth and profitability. The Company
currently has no commitment, understanding or arrangement relating to any
material acquisition.
The Company believes that funds generated by operations and from its
existing cash balances and the Facility will be sufficient to fund the
Company's ongoing operations for the foreseeable future. The Company may,
however, require new borrowing arrangements to finance future acquisitions.
Year 2000 Issues
The Company has completed an initial assessment of "Year 2000" issues at
each of its operating units and has identified a number of potential
problems and corrective actions required. Some of these actions have
already been, and others remain to be, completed. Based on this initial
assessment the Company concluded that Year 2000 issues at its facilities
should not have a material impact on its financial or operating
performance. Nonetheless, the Company is retaining qualified independent
consultants to review the Company's assessment and the corrective action
plans at the Company's operating units.
Recently Enacted Accounting Pronouncements
Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income" requires that all components of
comprehensive income and total comprehensive income be reported on one of
the following: (1) the statement of operations, (2) the statement of
stockholders' equity, or (3) a separate statement of comprehensive income.
Comprehensive income is comprised of net income and all changes to
stockholders' equity, except those due to investments by owners (changes in
paid-in capital) and distributions to owners (dividends). This statement
is effective for fiscal years beginning after December 15, 1997. The
implementation of SFAS No. 130 will have no impact on the Company's
financial position or results of operations.
Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosure About Segments of an Enterprise and Related Information"
requires public companies to report certain information about their
operating segments in their annual financial statements and quarterly
reports issued to stockholders. It also requires public companies to
report certain information about their products and services, the
geographic areas in which they operate, and their major customers. This
statement is effective for fiscal years beginning after December 15, 1997.
Implementation of SFAS No. 131 will have no effect on the Company's
financial position or results of operations. The Company is assessing the
financial disclosure statement footnote impact of SFAS No. 131.
Risks and Uncertainties
Statements contained in the Management's Discussion and Analysis of
Financial Condition and Results of Operations that are not statements of
historical fact may include forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995, including, without
limitation, statements as to expectations, beliefs and strategies regarding
the future. It is important to note that actual results could differ
materially from such forward looking statements due to a number of factors,
including, among other things, the factors set forth below. The forward
looking statements should be considered in light of these factors.
A significant portion of the Company's revenues is attributable to sales
of components for building, maintaining and expanding the communications
infrastructure. These components are used primarily in cable, wireless and
wired telephony systems in the United States and internationally. The
amount of capital spending in these industries is affected by a variety of
factors, including general economic conditions, availability of financing,
government regulation, demand for the products and services offered by the
Company's customers and technological developments. A decrease in capital
spending for communications infrastructure could have a material adverse
effect on the Company's business, financial condition and 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.
Certain of the Company's business units sell products to a concentrated
group of customers. The loss of, or reduced demand for products from, any
of the Company's major customers could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's international operations are subject to a variety of
risks, including changes in policy by foreign governments, social
conditions such as civil unrest, and economic conditions including high
levels of inflation, fluctuation in the value of foreign currencies and
currency exchange rates and trade restrictions or prohibitions. Such
factors could adversely affect the Company's international operations and
have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, although the Company's
direct sales to customers in Asia have historically been a small percentage
of total sales, the Company sells to customers that do business worldwide
and cannot predict how the businesses of these customers may be affected by
economic conditions in Asia or elsewhere.
The Company's subsidiaries currently buy a number of raw materials from
single sources. The failure of the subsidiaries to obtain sufficient raw
materials or components as required, or to develop alternative sources if
and as required in the future, could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company has completed an initial assessment of Year 2000 issues at
each of its operating units and has identified a number of potential
problems and corrective actions required. Some of these actions have
already been, and others remain to be, completed. Based on this initial
assessment the Company concluded that Year 2000 issues at its facilities
should not have a material impact on its financial or operating
performance. Nonetheless, the Company is retaining qualified independent
consultants to review the Company's assessment and the corrective action
plans at the Company's operating units. Pending completion of this
additional review, and of all necessary corrective actions, it is not
possible for the Company to determine the extent of any difficulty it might
experience at its facilities as a result of Year 2000 issues. Such
problems, or similar problems at the Company's customers or suppliers,
could temporarily affect the Company's performance adversely.
The Company's operations are subject to a variety of laws, regulations
and licensing requirements, including governmental regulations relating to
the environment. In addition, 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. The Company does not currently believe that its compliance with
applicable regulations or any litigation against the Company will have a
material adverse effect on the Company. However, there can be no assurance
that future compliance efforts or litigation will not have a material
adverse effect on the Company's business, financial condition and results
of operations.
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 1997.. xx
Consolidated Statement of Operations for the years
ended December 31, 1995, 1996 and 1997................ xx
Consolidated Statement of Stockholders' Equity
for the years ended December 31, 1995, 1996 and 1997.. xx
Consolidated Statement of Cash Flows for the years
ended December 31, 1995, 1996 and 1997................ 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 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997, 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 21, 1998
OAK INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1996 1997
--------- --------
<C> <C>
<S>
Current Assets:
Cash and cash equivalents.......................... $ 6,116 $ 8,642
Receivables, less reserves of $2,330 and $2,582.... 40,202 47,036
Inventories........................................ 53,355 51,297
Deferred income taxes.............................. 22,210 16,143
Other current assets............................... 2,641 2,488
--------- ---------
Total current assets......................... 124,524 125,606
--------- ---------
Plant and Equipment:
Land............................................... 931 960
Buildings and leasehold improvements............... 23,584 26,004
Machinery and equipment............................ 111,082 124,076
Furniture and fixtures............................. 7,803 8,311
--------- ---------
143,400 159,351
Less _ Accumulated depreciation.................... (78,374) (89,926)
--------- ---------
Total plant and equipment.................... 65,026 69,425
--------- ---------
Other Assets:
Deferred income taxes.............................. 4,348 775
Goodwill and other intangible assets, less
accumulated amortization of $11,451 and $17,239. 166,498 178,577
Investment in affiliates........................... 8,315 8,358
Other assets....................................... 5,574 5,049
--------- ---------
Total other assets........................... 184,735 192,759
--------- ---------
Total Assets................................. $ 374,285 $ 387,790
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
OAK INDUSTRIES INC.
CONSOLIDATED BALANCE SHEET
AT DECEMBER 31
(DOLLARS IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Current Liabilities:
Current portion of long-term debt.............. $ 290 $ 443
Accounts payable............................... 16,162 11,128
Accrued liabilities............................ 29,053 29,217
--------- ---------
Total current liabilities................... 45,505 40,788
--------- ---------
Other Liabilities:
Deferred compensation and pensions............. 4,717 5,737
Other.......................................... 3,256 2,692
--------- ---------
Total other liabilities..................... 7,973 8,429
--------- ---------
Long-Term Debt, Less Current Maturities........... 138,161 151,465
--------- ---------
Minority Interest................................. 10,923 4,954
--------- ---------
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 18,953,980 shares....................... 184 190
Additional paid-in capital..................... 296,185 305,740
Accumulated deficit............................ (119,692) (97,956)
Cumulative translation adjustment.............. (378) (1,898)
Unearned compensation - restricted stock....... (2,945) (1,754)
Treasury stock, 64,487 and 1,127,014 shares.... (1,369) (22,092)
Stock purchase loans........................... (262) (262)
Unrealized gains on available-for-sale
securities.................................. -- 186
--------- ---------
Total stockholders' equity.................. 171,723 182,154
--------- ---------
Total Liabilities and
Stockholders' Equity.................. $ 374,285 $ 387,790
========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
OAK INDUSTRIES INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales......................................... $ 255,364 $ 303,536 $ 314,388
Cost of sales..................................... (154,281) (189,410) (197,974)
--------- --------- ---------
Gross profit................................... 101,083 114,126 116,414
Selling, general and administrative expenses...... (48,108) (67,139) (69,182)
Purchased in-process research and development..... (80,872) -- --
--------- --------- ---------
Operating income (loss)........................ (27,897) 46,987 47,232
Interest expense.................................. (6,273) (5,767) (10,973)
Interest income................................... 1,661 541 393
Gain on sales of equity investments............... -- 21,502 --
Equity in net income (loss) of affiliated
companies....................................... 1,583 (1,251) 33
--------- --------- ---------
Income (loss) from continuing operations
before income taxes, minority interest
and extraordinary charge..................... (30,926) 62,012 36,685
Income tax provision.............................. (11,199) (22,764) (13,861)
Minority interest in net income of subsidiaries... (10,858) (7,272) (1,088)
--------- --------- ---------
Income (loss) from continuing operations....... (52,983) 31,976 21,736
Income from discontinued operations, net of tax... 2,469 1,442 --
Gain on sale of discontinued operations,
net of tax...................................... -- 9,367 --
--------- --------- ---------
Net income (loss) before extraordinary charge.. (50,514) 42,785 21,736
Extraordinary charge for early extinguishment
of debt, net of tax benefit of $1,506 and
$582 in 1995 and 1996, respectively;
and minority interest of $746 in 1995........... (1,610) (949) --
--------- --------- ---------
Net income (loss)................................. $ (52,124) $ 41,836 $ 21,736
========= ========= =========
Income (loss) per share - basic
Continuing operations.......................... $ (3.02) $ 1.77 $ 1.22
Discontinued operations........................ .14 .08 --
Gain on sale of discontinued operation......... -- .52 --
--------- --------- ---------
Net income (loss) before extraordinary charge.. (2.88) 2.37 1.22
Extraordinary charge........................... (.10) (.05) --
--------- --------- ---------
Net income (loss)................................. $ (2.98) $ 2.32 $ 1.22
========= ========= =========
Weighted average shares outstanding - basic....... 17,520 18,043 17,837
========= ========= =========
Income (loss) per share - diluted
Continuing operations.......................... $ (3.02) $ 1.71 $ 1.20
Discontinued operations........................ .14 .08 --
Gain on sale of discontinued operation......... -- .50 --
--------- --------- ---------
Net income (loss) before extraordinary charge.. (2.88) 2.29 1.20
Extraordinary charge........................... (.10) (.05) --
--------- --------- ---------
Net income (loss)................................. $ (2.98) $ 2.24 $ 1.20
========= ========= =========
Weighted average shares outstanding - diluted..... 17,520 18,684 18,108
========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
<TABLE>
<CAPTION>
OAK INDUSTRIES INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS)
Additional Cumulative Unearned Stock Un-
Common Paid-In Accumulated Translation Compen- Treasury Purchase realized
Stock Capital Deficit Adjustment sation Stock Loans Gains Total
------ ---------- ----------- ----------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
Net income...... -- -- 21,736 -- -- -- -- -- 21,736
Current year
translation
adjustment..... -- -- -- (1,520) -- -- -- -- (1,520)
Exercise of
options....... 6 7,779 -- -- -- -- -- -- 7,785
Tax benefit
from stock
options....... -- 2,162 -- -- -- -- -- -- 2,162
Issuance of
restricted
stock......... -- 208 -- -- (208) -- -- -- --
Amortization
of restricted
stock......... -- -- -- -- 805 -- -- -- 805
Cancellation of
restricted
stock......... -- (594) -- -- 594 -- -- -- --
Treasury stock
repurchase.... -- -- -- -- -- (20,544) -- -- (20,544)
Other........... -- -- -- -- -- (179) -- 186 7
---- -------- --------- ------ ------- --------- ------- ---- --------
Balance,
December 31,
1997.......... $190 $305,740 $ (97,956) $(1,898) $(1,754) $(22,092) $ (262) $186 $182,154
==== ======== ========= ======= ======= ======== ======= ==== ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
OAK INDUSTRIES INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Income(loss)from continuing operations................ $ (52,983) $ 31,976 $ 21,736
Adjustments to reconcile income (loss)
from continuing operations to net cash
provided by operations:
Purchased in-process research and development... 80,872 -- --
Depreciation.................................... 7,694 10,028 12,287
Amortization.................................... 3,620 3,970 6,792
Minority interest............................... 10,858 7,273 1,088
Gain on the sale of properties.................. -- -- (253)
Gain on the sale of equity investments.......... -- (21,502) --
Undistributed earnings of affiliated companies.. (723) 1,263 135
Change in assets and liabilities,
net of effects from acquisition of businesses:
Receivables.................................. (4,119) (582) (4,087)
Inventories.................................. (6,923) (4,036) 6,797
Accounts payable and accrued liabilities..... (5,618) 5,204 (6,563)
Deferred compensation and pensions........... (90) (172) 1,020
Deferred income taxes........................ 6,292 14,690 10,639
Other........................................ (1,831) (920) (1,915)
---------- --------- --------
Net cash provided by operations.......................... 37,049 47,192 47,676
---------- --------- --------
INVESTING ACTIVITIES:
Capital expenditures.................................. (16,942) (23,205) (14,697)
Acquisition of businesses, net of cash acquired....... (100,019) (125,600) (29,941)
Proceeds from the sale of properties.................. -- -- 1,924
Proceeds from the sale of equity investments.......... -- 30,871 --
Advances to affiliated companies...................... (300) -- --
Repayments from employees............................. 497 285 --
Other................................................. (116) (12) (47)
---------- --------- --------
Net cash used in investing activities.................... (116,880) (117,661) (42,761)
---------- --------- --------
FINANCING ACTIVITIES:
Long-term borrowings.................................. 114,000 146,000 58,052
Repayment of borrowings............................... (30,020) (92,810) (44,595)
Early retirement of debt.............................. (28,610) (21,000) --
Stock repurchases..................................... -- -- (20,544)
Exercise of options and warrants...................... 3,188 8,635 7,785
Dividends paid to minority stockholders............... -- -- (2,196)
Deferred debt issuance costs.......................... (1,805) (720) --
Other................................................. (404) -- (179)
---------- --------- --------
Net cash provided by (used in) financing activities...... 56,349 40,105 (1,677)
---------- --------- --------
Effect of exchange rate changes on cash and
cash equivalents........................................ 906 (333) (712)
---------- --------- --------
Net cash and cash equivalents provided by
discontinued operations................................. 1,870 19,971 --
---------- --------- --------
Net change during year................................... (20,706) (10,726) 2,526
Balance, beginning of year............................... 37,548 16,842 6,116
---------- --------- --------
Balance, end of year..................................... $ 16,842 $ 6,116 $ 8,642
========== ========= ========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral
part of these consolidated statements.
(1) NATURE OF BUSINESS:
Oak Industries Inc., together with its consolidated subsidiaries (the
"Company"), is a leading manufacturer of highly engineered components that
it designs and sells to manufacturers and service providers in the
communications and selected other industries. The Company's communications
components consist primarily of connectors for the CATV industry, frequency
control devices used in base stations for wireless communications, and
fiber-optic components for the wired telephony infrastructure. The
Company's controls components include components for gas ranges, and
switches and encoders, which are used in a wide range of 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 Holding Company
("Connector") and Gilbert Engineering Co., Inc. ("Gilbert") (see Note 3).
Investments in Affiliates
The Company's investments in affiliates consist of a 50% interest in
Wuhan Telecommunication Devices Co., a manufacturer of fiber-optic
components in Wuhan, China and a 50% interest in McCoy (Cayman) Ltd. and
McCoy International as part of a joint venture to manufacture quartz
crystal blanks in Venezuela. The Company is discussing with its Venezuelan
joint-venture partner possible terms upon which the Company would divest
its interest in these operations. Investments in these affiliated
companies are recorded at cost plus equity in undistributed earnings.
Dividends received from affiliated companies were $860,000 and $1,985,000
for 1995 and 1996, respectively. No such dividends were received in 1997.
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." 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 1997
------- ------
<C> <C>
<S>
Raw materials....................... $ 13,134 $ 14,153
Work in process..................... 28,182 28,852
Finished goods...................... 12,039 8,292
-------- --------
$ 53,355 $ 51,297
======== ========
</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. The Company expenses depreciation using the straight-line
method over the following useful lives:
<TABLE>
<CAPTION>
<S> <C>
Buildings and leasehold improvements........ 5 to 40 years
Machinery and equipment..................... 3 to 15 years
Furniture and fixtures...................... 5 to 15 years
</TABLE>
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, 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
Additions..................... 17,752 162 17,914
Amortization.................. (5,442) (393) (5,835)
---------- --------- ---------
Balance, December 31, 1997.... $ 176,631 $ 1,946 $ 178,577
========= ========= =========
</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 using the straight-line method over
periods of 8 to 40 years. Other intangibles are stated at cost and
amortized using the straight-line method over periods of 3 to 17 years.
Goodwill and other intangibles are assessed regularly to determine whether
any potential impairment exists. The Company assesses the potential
impairment of goodwill and other identified intangible assets based on
anticipated undiscounted cash flows from operations.
Capitalized Debt Costs
The Company capitalizes all costs related to the issuance of debt. The
resulting capitalized debt costs ($698,000 and $746,000 at December 31,
1996 and 1997, respectively) are classified as "Other assets" on the
consolidated balance sheet, and are amortized to expense using the
straight-line method over the life of the related debt issue. During 1995,
1996 and 1997, the Company amortized $567,000, $361,000 and $152,000,
respectively, of capitalized debt costs. As a result of terminating its
previous debt facilities, the Company wrote off capitalized debt costs of
$785,000 and $1,531,000 in 1995 and 1996, 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
$5,137,000, $11,138,000 and $12,844,000 in 1995, 1996 and 1997,
respectively. These costs are included in selling, general and
administrative expenses in the consolidated statement of operations.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"), "Earnings per Share" which establishes standards for computing and
presenting earnings per share. The new standard replaces the presentation
of primary earnings per share prescribed by Accounting Principles Board
Opinion No. 15 ("APB 15"), "Earnings per Share" with a presentation of
basic earnings per share and also requires dual presentation of basic and
diluted earnings per share on the face of the statement of operations for
all entities with complex capital structures. Basic earnings per share
excludes dilution and is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding
for the period. Diluted earnings per share is computed similarly to fully-
diluted earnings per share pursuant to APB 15. The Company adopted SFAS
No. 128 in the fourth quarter of fiscal 1997 and has restated all prior
periods in its financial statements.
Basic earnings per share are based on the weighted-average number of
shares of common stock outstanding at year end, which were as follows:
17,520,228 in 1995, 18,042,561 in 1996 and 17,836,793 in 1997.
Diluted earnings per share are based on the weighted-average number of
shares of common stock and common stock equivalents outstanding at year
end, which were as follows: 17,520,228 in 1995, 18,684,281 in 1996 and
18,108,164 in 1997. Weighted-average share figures for 1996 and 1997
include common stock equivalents of 641,720 and 271,371, respectively.
Common stock equivalents have been excluded from weighted-average shares
for 1995 as inclusion would be anti-dilutive. Options to purchase 50,000
and 1,743,900 shares of common stock in 1996 and 1997, respectively, were
outstanding at year end but were not included in the computation of diluted
earnings per share because the exercise prices of the options were greater
than the average market price of the common stock for the respective
period.
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
In accordance with Statement of Financial Accounting Standards No. 115
("SFAS No. 115"), "Accounting for Certain Investments in Debt and Equity
Securities", the Company has classified certain debt securities, which are
included in cash and cash equivalents, as held-to-maturity and certain debt
and equity securities, which are included in other assets, as available-
for-sale. Held-to-maturity securities are stated at cost, which
approximates fair value, and associated interest is included in interest
income. Available-for-sale securities are carried at fair value, with the
unrealized gains and losses, net of tax, reported as a separate component
of stockholders' equity. Realized gains and losses and interest and
dividends on available-for-sale securities are included in interest income.
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 provide
for the exchange of floating rate for fixed interest payments periodically
over the life of the agreements without any change to the underlying
notional amounts. The interest rate swap 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 would be left
with its original floating interest rate rather than the fixed rate it had
anticipated. 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 counterparty.
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Interest........................ $ 4,841 $ 4,696 $ 11,569
Income taxes.................... 3,255 6,171 3,470
</TABLE>
Details of businesses acquired are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
-------- ------- -------
<S> <C> <C> <C>
Assets acquired................... $ 45,948 $ 92,607 $ 27,935
Minority interest elimination..... -- 32,993 4,861
Purchased in-process research
and development................. 80,872 -- --
Liabilities assumed............... (18,582) -- (2,855)
--------- --------- ---------
Cash paid......................... 108,238 125,600 29,941
Cash acquired..................... (8,219) -- --
--------- --------- ---------
Net cash paid .................... $ 100,019 $ 125,600 $ 29,941
========= ========= =========
</TABLE>
Reclassifications
Certain items in the 1995 and 1996 financial statements have been
reclassified to conform with the 1997 presentation.
(3) ACQUISITIONS:
PIEZO CRYSTAL COMPANY
On September 30, 1997, the Company acquired all of the outstanding
capital stock of Piezo Crystal Company ("Piezo"), a Carlisle, Pennsylvania
manufacturer of frequency control products for the satellite and wireless
communications industries. The Company paid approximately $20,200,000 in
cash, including transaction expenses. The purchase price was financed with
borrowings from the Company's credit facility. The acquisition was
accounted for as a purchase. During the fourth quarter of 1997, the
Company charged $615,000 to cost of goods sold related to the write-up of
Piezo's inventory required by purchase accounting. Piezo's selling
shareholders will receive additional consideration of $1,000,000 based on
Piezo's fourth quarter 1997 performance, and may receive additional
consideration of up to $4,900,000, depending on Piezo's operating
performance in 1998. The additional $1,000,000 earned by Piezo's selling
shareholders was recorded by the Company as of December 31, 1997 and is
included in goodwill and accrued liabilities. The Company recorded
approximately $13,700,000 of goodwill that is being amortized over 40
years. Pro forma results of operations have not been presented because the
effects of the acquisition were not significant.
CONNECTOR AND GILBERT MINORITY INTEREST
On November 1, 1996, the Company purchased the 20% interest in 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, and as a result of the acquisition, 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 was financed with the
borrowings from the Company's 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 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.
<TABLE>
<CAPTION>
Year Ended
December 31,
(Unaudited)
-------------------------
1995 1996
--------- ---------
<S> <C> <C>
Net sales............................ $ 255,364 $ 303,536
Income (loss) from operations before
extraordinary charge............ $ (52,234) $ 41,676
Net income (loss).................... $ (53,844) $ 40,727
Income (loss) from operations
before extraordinary charge
per share - basic.............. $ (2.98) $ 2.31
Net income (loss) per
share - basic................... $ (3.07) $ 2.26
Income (loss) from operations
before extraordinary charge
per share - diluted............ $ (2.98) $ 2.23
Net income (loss) per
share - diluted................. $ (3.07) $ 2.18
</TABLE>
On November 15, 1996, the Company agreed to purchase the 15% equity
interest in Gilbert owned by certain members of the management of Gilbert
(the "Selling Stockholders"). The Company purchased 7.5% of Gilbert from
the Selling Stockholders in the fourth quarter of 1996 at a purchase price
of approximately $30,600,000. The purchase was financed with borrowings
from the Company's credit facility. This acquisition was accounted for as
a purchase and accordingly, the minority interest expense previously
related to the portion purchased from the Selling Stockholders 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. Pro forma results of
operations have not been presented for the acquisition of 7.5% of Gilbert
because the effects of the acquisition were not significant.
On October 31, 1997, the Company purchased 3.75% of Gilbert held by the
Selling Stockholders. The Company paid approximately $8,800,000 in cash.
The purchase price was financed with borrowings from the Company's credit
facility and with cash generated from operations. This acquisition was
accounted for as a purchase and the Company recorded approximately
$4,000,000 of goodwill that will be amortized over 35 years. The Company
owned 96.25% of Gilbert at December 31, 1997. Pro forma results of the
3.75% acquisition are not presented because the effects of the acquisition
were not significant.
The Company intends to purchase the remainder of Gilbert no later than
October 30, 1998 at a price equaling a multiple of Gilbert's earnings
before interest, taxes, and amortization expense for the twelve-month
period immediately preceding the closing date of the purchase.
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 in 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 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, 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 period.
<TABLE>
<CAPTION>
Year Ended
December 31, 1995
(Unaudited)
-------------------
<S> <C>
Net sales.............................. $ 277,890
Loss from operations before
extraordinary charge.................. $ (54,267)
Net loss............................... $ (55,877)
Loss from operations before
extraordinary charge per
share - basic......................... $ (3.10)
Net loss per share - basic............. $ (3.19)
Loss from operations before
extraordinary charge per
share - diluted....................... $ (3.10)
Net loss per share - diluted........... $ (3.19)
</TABLE>
(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 was greater than the sales price, the Company did 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>
1995 1996
------ ------
<S> <C> <C>
Net sales.......................... $ 21,216 $ 16,715
========== ==========
Gross profit....................... $ 7,801 $ 5,780
========== ==========
Earnings before income taxes....... $ 3,073 $ 2,325
Income taxes....................... (604) (883)
---------- ----------
Net earnings from discontinued
operations........................ $ 2,469 $ 1,442
========== ==========
</TABLE>
(5) INDEBTEDNESS:
Long-term debt at December 31 is summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Corporate borrowings:
Revolving credit facility.................... $ 136,000 $ 149,000
Other........................................ 144 144
Gilbert borrowings:
Cabel-Con notes.............................. 2,307 2,764
---------- ----------
138,451 151,908
Less _
Current maturities........................... (290) (443)
---------- ----------
$ 138,161 $ 151,465
========== ==========
</TABLE>
On November 1, 1996, the Company entered into a credit agreement with
various lenders that 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. During 1997, the
Facility was used for the repurchase of Company stock, the Piezo
acquisition, and the purchase of additional interests in Gilbert.
The Company's previously existing $30,000,000 and $200,000,000 credit
agreements were terminated on August 30, 1995 and November 1, 1996,
respectively. As a result, the Company recorded non-cash, after tax , and
other minority interest charges of $1,610,000 and $949,000 in 1995 and
1996, respectively, related to the early extinguishment of the former
credit facilities.
Effective January 1, 1998 borrowings under the Facility bear interest,
at the option of the Company, either (i) at the prime rate (or, if higher,
at 0.5% above the federal funds rate) or (ii) at a spread ranging from 0.5%
to 1.25% over the reserve-adjusted 1, 2, 3, or 6 month LIBOR. The spread
is subject to adjustment based on certain financial tests. As of December
31, 1997, interest rates on outstanding borrowings under the Facility
ranged from 6.69% to 8.5%. Commitment fees ranging from 0.175% to 0.35%
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, Oak Industries Inc. 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 notes are payable through 2007 and bear interest at rates of
6.4% and 8.2%. These notes are secured by the related land, building,
machinery and equipment.
Scheduled maturities of long-term debt at December 31, 1997 are as
follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31
--------------
<S> <C>
1998................ 443
1999................ 463
2000................ 483
2001................ 149,211
2002................ 211
Thereafter.......... 1,097
</TABLE>
As of December 31, 1997, the Company had exchanged its floating rate
obligation on (i) a $20,000,000 notional principal amount for a fixed rate
payment obligation of 4.95% (plus a spread of 0.5% to 1.0%) per annum
through February 23, 1998; (ii) a $25,000,000 notional principal amount for
a fixed rate payment obligation of 6.02% (plus a spread of 0.5% to 1.0%;
effective January 1, 1998 the spread changed to 0.5% to 1.25%) per annum
through December 24, 1999; and (iii) a $25,000,000 notional principal
amount for a fixed rate payment obligation of 6.02% (plus a spread of 0.5%
to 1.0%; effective January 1, 1998 the spread changed to 0.5% to 1.25%) per
annum through December 27, 2000. The Company charged $72,000 and $26,000
to interest expense related to these agreements for 1996 and 1997,
respectively. As of December 31, 1997, the Company estimates that the cost
to terminate the agreements would have been $218,000.
(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 corporate officers and certain key
divisional managers to finance their purchase of 90,000 shares of the
Company's stock from selling shareholders. The principal amount of the
remaining loan is repayable in full on January 1, 2000. Interest on this
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 that was purchased and certain other amounts owed to such individual
by the Company. In 1996, principal of $285,000 was paid to the Company by
the borrowers. In 1995, 1996 and 1997, respectively, interest of $60,000,
$55,000 and $20,000 was paid to the Company by the borrowers. The
principal balance of the remaining loan at December 31, 1996 and 1997 was
$262,000.
STOCK REPURCHASE
During the Company's 1997 first quarter, the Company received
authorization from its Board of Directors and its banks to expend up to
$50,000,000 to repurchase shares of its common stock. The Company will use
the repurchased stock for its stock plans and for other corporate purposes.
During 1997, the Company repurchased 1,057,300 shares at a total cost of
$20,500,000.
(7) STOCK OPTIONS AND AWARDS:
The Company has award plans for directors, officers, employees,
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 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 an amendment to 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 1996 and 1997, the Company granted 124,000, and 5,000 shares,
respectively, of restricted stock from the 1995 Stock Option and Restricted
Stock Plan to certain of its officers and employees. These shares will
vest after three years from the date of grant provided that the recipient
is still employed by the Company. During 1997, 25,000 shares of the
restricted stock were forfeited. The market value of the restricted stock
awarded to certain officers and employees totaled $2,945,000 and $133,000
in 1996 and 1997, respectively, and these amounts have been recorded 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 the Plans were adjusted to
approximate the cash paid by the Company for each share of Lasertron common
stock on the acquisition date. No further grants will be made under the
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. 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 Statement of Financial Accounting Standards
No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation."
<TABLE>
<CAPTION>
Weighted-Average
Shares Option Price Exercise Price
--------- ----------------- -------------------
<S> <C> <C> <C>
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
Granted................................. 999,000 $18.50 to $ 28.50 $ 25.57
Expired or cancelled.................... (189,035) $18.38 to $ 27.00 $ 24.37
Exercised............................... (491,911) $ 4.02 to $ 26.63 $ 14.30
---------
Outstanding at December 31, 1997........... 2,779,540 $ 4.02 to $ 33.50 $ 22.89
=========
Exercisable at December 31, 1997........... 1,339,402 $ 20.84
=========
Available for grant at December 31, 1997... 733,700
=========
</TABLE>
There were 3,513,240 shares of common stock reserved for issuance in
connection with the Company's stock option and award plans at December 31,
1997.
The following table summarizes information about stock options
outstanding at December 31, 1997.
<TABLE>
<CAPTION>
Weighted-
Average Weighted- Weighted-
Number Remaining Average Number Average
Range Of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Life Price at 12/31/97 Price
----------------- ------------ ----------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C>
$ 4.38 - 5.63 106,222 3 $ 5.62 106,222 $ 5.62
4.02 - 4.06 132,960 4 4.06 130,478 4.06
6.25 - 8.75 56,600 5 8.35 53,116 8.37
14.07 - 26.63 689,910 7 24.54 608,114 25.28
23.00 - 26.38 742,348 8 25.03 412,772 24.12
23.64 - 33.50 1,051,500 10 25.81 28,700 27.18
---------------- --------- ---------
$ 4.02 - 33.50 2,779,540 1,339,402
</TABLE>
Pro forma information regarding net income and earnings per share is
required by SFAS No. 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: risk-free interest rates in the range of
5.4% to 7.9% and 4.8% to 6.9% in 1996 and 1997, respectively; volatility
factors of the expected market price of the Company's common stock of .72
and .56 in 1996 and 1997, respectively; and an expected life of the option
of 6 years. The weighted-average fair values of options granted were
$18.40 and $15.23 per share in 1996 and 1997, 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>
1995 1996 1997
-------- --------- --------
<S> <C> <C> <C>
Pro forma net income (loss)................. $ (53,595) $ 35,590 $ 12,957
Pro forma earnings per share - basic........ (3.06) 1.97 0.73
Pro forma earnings per share - diluted...... (3.06) 1.96 0.73
</TABLE>
(8) POSTRETIREMENT BENEFITS:
The Company has a number of noncontributory pension plans covering
certain 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 the Employee Retirement Income
Security Act of 1974, as amended for each plan.
Net periodic pension cost for all defined benefit plans is as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Service costs - benefits earned
during the period............................. $ 357 $ 153 $ 193
Interest cost on projected benefit obligation....... 2,427 2,728 2,831
Actual return on assets............................. (5,898) (4,354) (5,266)
Net amortization and deferral....................... 3,262 1,380 2,192
------- ------- -------
Net periodic pension cost (income).................. $ 148 $ (93) $ (50)
======= ======= =======
</TABLE>
The following table sets forth the funded status of all defined benefit
plans at December 31, 1996 and 1997 (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
------------------------------ ------------------------------
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.............................. $ 3,209 $ 32,639 $ 34,906 $ 4,263
Nonvested........................... 21 346 252 12
------- -------- -------- -------
Accumulated benefit obligation...... $ 3,230 $ 32,985 $ 35,158 $ 4,275
======= ======== ======== =======
Fair value of assets................... $ 4,577 $ 32,397 $ 36,122 $ 3,494
Less: Projected benefit obligation..... 3,619 32,985 35,629 4,275
------- -------- -------- -------
Funded (underfunded) plans............. 958 (588) 493 (781)
Unrecognized transition liability...... (146) 341 (129) 306
Unrecognized prior service costs....... -- 549 -- 628
Unrecognized net loss (gain)........... (552) (2,281) (2,007) 169
------- -------- -------- -------
Prepaid (accrued) pension cost......... $ 260 $ (1,979) $ (1,643) $ 322
======= ======== ======== =======
</TABLE>
In 1995 and 1996, the Company incurred curtailments in several plans as
a result of reduced employment levels and plan amendments. These
curtailments resulted in gains of $691,000 and $139,000 in 1995 and 1996,
respectively.
The projected benefit obligation was determined using an assumed
discount rate of 7.5% for 1995, 7.75% for 1996, and 7.25% for 1997. It
assumed a 4.5% increase in rate of compensation for 1995 and no increase in
rate of compensation for 1996 and 1997. The expected long-term rate of
return on plan assets was 9% for 1995 and 1996 and 10% for 1997.
The assets of the plans at December 31, 1996 and 1997 consist
principally of common stocks, bonds and cash equivalents.
The Company has defined contribution plans covering substantially all
full-time employees who meet certain eligibility requirements.
Contributions by the Company and the employees are determined according to
salary-based formulas. The expense recognized by the Company related to
these plans was $1,439,000, $2,422,000 and $2,453,000 in 1995, 1996 and
1997, 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 salary and bonus. The Company is
required to make matching contributions in the form of shares of the
Company's common stock having a value equal to 50% of participants'
contributions. Upon termination of employment, participants receive the
fair value of their account for the employee contribution portion in cash
and shares of the Company's common stock for the vested portion of the
Company's matching contribution. Contributions by the employees earn
interest at the prime rate, adjusted annually. The Company recorded
expense of $632,000, $407,000 and $376,000 in 1995, 1996 and 1997,
respectively, related to this plan.
(9) INCOME TAXES:
Pretax income (loss) from operations for the years ended December 31
consists of the following sources (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Domestic...................................... $ (33,322) $ 58,295 $ 31,555
Foreign....................................... 2,396 3,717 5,130
---------- --------- ---------
$ (30,926) $ 62,012 $ 36,685
========== ========= =========
</TABLE>
The income tax provision for the years ended December 31 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- ------ ------
<S> <C> <C> <C>
Current _
Federal.................................. $ (1,500) $ (1,800) $ (902)
Foreign.................................. (1,089) (1,526) (1,304)
State and local.......................... (2,724) (2,429) (1,016)
---------- --------- ---------
$ (5,313) $ (5,755) $ (3,222)
Deferred _
Provision for federal and state
taxes payable in future................ (5,886) (17,009) (10,639)
---------- --------- ---------
Total tax provision...................... $ (11,199) $ (22,764) $ (13,861)
========== ========= =========
</TABLE>
Deferred income tax assets (liabilities) at December 31 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
------ ------
<S> <C> <C>
Net operating loss carryforwards............ $ 13,700 $ 4,550
Other....................................... 20,000 16,950
--------- ---------
Gross deferred tax assets................... 33,700 21,500
Gross deferred tax liabilities.............. (8,000) (5,870)
--------- ---------
Net deferred tax asset..................... $ 25,700 $ 15,630
========= =========
</TABLE>
In connection with the acquisition of Piezo (see Note 3) in September
1997, the Company recorded net deferred tax assets in the amount of
approximately $670,000.
The decrease in the asset during 1996 and 1997 results primarily from
the utilization of the Company's net operating loss carryforwards.
The income tax provision differs from the amount of income tax
determined by applying the applicable U.S. statutory federal income tax
rate to income (loss) from continuing operations before income taxes and
minority interest as a result of the following differences (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------------------- ------------------ -----------------
Amount Percent Amount Percent Amount Percent
------- ------- -------- -------- ------- -------
<C> <C> <C> <C> <C> <C>
<S>
Computed statutory tax (provision) benefit.... $ 10,824 35.0 $ (21,704) (35.0) $(12,840) (35.0)
Increase (decrease) in tax (provision)
benefit resulting from _
Operating loss carryforward which
resulted in current tax benefit............ 9,376 30.3 -- -- -- --
State income taxes (net of
federal benefit)........................... (1,800) (5.8) (1,580) (2.5) (660) (1.8)
Alternative minimum tax.................... (500) (1.6) (1,150) (1.9) -- --
Goodwill amortization...................... (800) (2.6) (1,034) (1.7) (1,798) (4.9)
Purchased in-process research
and development.......................... (28,305) (91.5) -- -- -- --
Foreign sales corporation.................. 900 2.9 1,200 1.9 1,030 2.8
Resolution of tax issues................... -- -- 800 1.3 324 0.9
Other...................................... (894) (2.9) 704 1.2 83 0.2
-------- ----- --------- ----- -------- -----
Income tax provision.......................... $(11,199) (36.2) $ (22,764) (36.7) $(13,861) (37.8)
======== ===== ========= ===== ======== =====
</TABLE>
At December 31, 1997, the Company had no net operating loss
carryforwards for federal tax reporting purposes. The Company had an
alternative minimum tax credit carryforward of approximately $3,400,000 as
of December 31, 1997, which may be carried forward indefinitely. The
Company had investment tax credit carryforwards of approximately $1,000,000
at December 31, 1997 which, if unused, will expire from 1998 to 2001. The
Company had a research and development tax credit carryforward of
approximately $1,000,000 at December 31, 1997 which will, if unused, expire
from 1998 to 2012. The Company had foreign tax credit carryforwards of
approximately $900,000 at December 31, 1997 which, if unused, will expire
from 2000 to 2001. Realization of the credit carryforwards is dependent on
generating sufficient taxable income prior to the expiration of the
credits. Although realization is not assured, the Company believes it is
more likely than not that all of the deferred tax asset will be realized.
(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 range 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>
1995 1996 1997
------------ ---------- ---------
<S> <C> <C> <C>
GEOGRAPHIC AREAS
SALES
United States:
Unaffiliated....................... $ 230,697 $ 276,057 $ 286,096
To foreign affiliates.............. 430 668 2,256
Foreign:
Unaffiliated....................... 24,667 27,479 28,292
To United States affiliates........ 1,751 1,961 2,839
Total sales between affiliates........ (2,181) (2,629) (5,095)
--------- --------- ---------
Consolidated sales................. $ 255,364 $ 303,536 $ 314,388
========= ========= =========
OPERATING INCOME (LOSS)
United States......................... $ (32,573) $ 42,156 $ 41,746
Foreign............................... 4,676 4,831 5,486
--------- --------- ---------
Operating income (loss)............ $ (27,897) $ 46,987 $ 47,232
========= ========= =========
IDENTIFIABLE ASSETS
United States......................... $ 273,946 $ 332,005 $ 347,653
Foreign............................... 38,598 42,280 40,137
--------- --------- ---------
Identifiable assets................ $ 312,544 $ 374,285 $ 387,790
========= ========= =========
</TABLE>
Unaffiliated export sales were $63,815,000, $85,328,000 and $93,283,000
for 1995, 1996 and 1997, respectively. These sales were principally to
customers in Canada, Mexico, South America, Asia and Europe.
(11) ACCRUED LIABILITIES:
Accrued liabilities at December 31 are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Wages, bonuses, commissions, vacation,
and other compensation.................... $ 8,598 $ 10,481
Income taxes.................................. 7,534 5,049
Insurance..................................... 2,592 2,718
Other......................................... 10,329 10,969
-------- ---------
$ 29,053 $ 29,217
======== =========
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES:
In November 1996, the Company entered into an Amended and Restated
Management Stockholders Agreement with Gilbert's Selling Stockholders.
Pursuant to the terms of this Agreement, the Company purchased 7.5% of
Gilbert from the Selling Stockholders in November of 1996 for approximately
$30,600,000 and 3.75% of Gilbert for approximately $8,800,000 in October of
1997. The Company will purchase the remainder of Gilbert no later than
October 30, 1998 at a price equaling a multiple of Gilbert's earnings
before interest, taxes, and amortization expense for the twelve-month
period immediately preceding the closing date of the purchase. This
transaction will be financed with cash from operations and borrowings from
the Company's credit facility.
Rent expense for facilities and office equipment was $3,827,000,
$4,601,000 and $3,970,000 in 1995, 1996 and 1997, respectively. At
December 31, 1997, the Company was committed under non-cancellable
operating leases for minimum annual rentals for the next five years as
follows: 1998 - $3,458,000; 1999 - $3,212,000; 2000 - $3,004,000; 2001 -
$2,420,000, 2002 - $1,955,000; thereafter - $8,306,000.
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. The Company does
not consider any of such proceedings to be material to the Company's
financial position, results of operations, or liquidity.
(13) QUARTERLY RESULTS OF OPERATIONS (UNAUDITED):
The following is a summary of the unaudited quarterly results of
operations for 1996 and 1997 (dollars in thousands, except per share date):
<TABLE>
<CAPTION>
Quarter Ended
--------------------------------------------------------
March 31 June 30 September 30 December 31 Full Year
------------- ------------- ------------ ------------ ---------
<C> <C> <C> <C> <C>
<S>
1996
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 share - basic
Income from continuing
operations.................... $ .95 $ .36 $ .41 $ .07 $ 1.77
Net income...................... $ .98 $ .40 $ .43 $ .53 $ 2.32
Earnings per share - diluted
Income from continuing
operations.................... $ .92 $ .34 $ .39 $ .07 $ 1.71
Net income...................... $ .94 $ .38 $ .41 $ .52 $ 2.24
1997
Net sales.......................... $ 73,042 $ 80,306 $ 76,975 $ 84,065 $314,388
Gross profit....................... $ 25,086 $ 30,783 $ 28,602 $ 31,943 $116,414
Income from continuing operations.. $ 4,027 $ 5,361 $ 5,824 $ 6,524 $ 21,736
Net income......................... $ 4,027 $ 5,361 $ 5,824 $ 6,524 $ 21,736
Earnings per share - basic
Income from continuing
operations.................... $ .22 $ .30 $ .33 $ .37 $ 1.22
Net income...................... $ .22 $ .30 $ .33 $ .37 $ 1.22
Earnings per share - diluted
Income from continuing
operations.................... $ .22 $ .30 $ .32 $ .36 $ 1.20
Net income...................... $ .22 $ .30 $ .32 $ .36 $ 1.20
</TABLE>
CONTINUING OPERATIONS
Fourth Quarter - 1997
The Company recorded a charge of $375,000, net of tax, related to the
expensing of the purchase accounting write-up of Piezo inventory.
The Company received $957,000 of royalty income that included
approximately $600,000 relating to 1996. Royalty income is reported as an
offset to selling, general, and administrative expenses.
Fourth Quarter - 1996
The Company recorded a charge of $558,000, net of tax, related to the
expensing of the purchase accounting write-up of Gilbert inventory.
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 that should have been expensed in 1995.
The Company recorded a $12,741,000 gain, net of tax, on its sale of its
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.
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.
RESTATEMENT OF QUARTERLY RESULTS
In January 1997 the Company discovered that a controller at one of its
divisions had improperly capitalized expenses that should have been
expensed during the periods in which they were incurred. The Company filed
amended Form 10-Qs for the first three quarters of 1996 during February
1997 to correct these errors and the quarterly results shown above reflect
the amended quarterly results. The Company is voluntarily cooperating with
the Securities and Exchange Commission (the "SEC") on an informal basis
with respect to inquiries by the SEC concerning these matters.
.
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, 1998 for the Annual Meeting
of Stockholders to be held on April 24, 1998.
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, 1998 for the Annual Meeting of Stockholders
to be held on April 24, 1998 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 Directors and
Executive Officers" in the Proxy Statement to be filed no later than March
31, 1998 for the Annual Meeting of Stockholders to be held on April 24,
1998 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, 1998 for the Annual Meeting of Stockholders to be held on April
24, 1998 is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL SCHEDULES AND REPORTS ON FORM 8-K
(a) List of documents filed as part of the report:
1. Financial Statements
Consolidated balance sheet at December 31, 1996 and 1997
Consolidated statement of operations for the years ended
December 31, 1995, 1996 and 1997
Consolidated statement of stockholders' equity for the years
ended December 31, 1995, 1996 and 1997
Consolidated statement of cash flows for the years ended
December 31, 1995, 1996 and 1997
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 herewith.
(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) 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)(b) 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)(c) 1992 Stock Option and Restricted Stock Plan, as amended
effective as of December 17, 1997, filed herewith.
(10)(d) Oak Industries Inc. Non-Qualified Stock Option Plan, as amended
effective as of December 17, 1997, filed herewith.
(10)(e) 1995 Stock Option and Restricted Stock Plan, as amended
effective as of December 17, 1997, filed herewith.
(10)(f) 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)(g) Credit Agreement (the "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)(h) Amendment No. 1 dated as of December 13, 1996 to the Credit
Agreement, filed as Exhibit 10 to the Form 10-Q dated May 14,
1997, is incorporated herein by this reference.
(10)(i) Second Amendment dated as of October 6, 1997 to the Credit
Agreement, filed as Exhibit 10 to the Form 10-Q dated November
12, 1997, is incorporated herein by this reference.
(10)(j) Form of Severance Agreement dated as of May 1, 1996 by and
between the Company and each of William S. Antle III, 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)(k) 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)(l) 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)(m) 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) 1997 Annual Report to be provided no later than March 31, 1998
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:
No reports on Form 8-K were filed during the fourth quarter ended
December 31, 1997.
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (File Nos. 33-14708, 33-62817, 33-59073, 33-32104, 2-
83639, 33-53012, and 33-58878) of Oak Industries Inc. of our report dated
January 21, 1998 appearing in this Form 10-K.
Price Waterhouse LLP
Boston, Massachusetts
February 10, 1998
<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 11, 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 February 11, 1997
(William S. Antle III) Chief Executive Officer
(Principal Executive Officer)
COLEMAN S. HICKS Senior Vice President February 11, 1998
(Coleman S. Hicks) and Chief Financial Officer
(Principal Financial Officer)
RODERICK M. HILLS Vice Chairman of February 5, 1998
(Roderick M. Hills) the Board
BETH BRONNER Director February 5, 1998
(Beth Bronner)
DANIEL W. DERBES Director February 5, 1998
(Daniel W. Derbes)
GEORGE W. LEISZ Director February 5, 1998
(George W. Leisz)
GILBERT E. MATTHEWS Director February 5, 1998
(Gilbert E. Matthews)
CHRISTOPHER H. B. MILLS Director February 5, 1998
(Christopher H. B. Mills)
ELLIOT L. RICHARDSON Director February 5, 1998
(Elliot L. Richardson)
</TABLE>
<PAGE>
OAK INDUSTRIES INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31, 1995, 1996 and 1997
(Dollars in thousands)
ALLOWANCE FOR LOSSES IN COLLECTION
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<C> <C> <C>
<S>
Balance, beginning of year.................. $ 1,056 $ 1,573 $ 2,330
Provision charged to selling,
general, and administrative expenses....... 324 812 335
Recoveries of accounts previously
written off................................ 20 3 11
Less write-off of uncollectible
accounts................................... (157) (58) (194)
Acquisition of businesses................... 330 -- 100
------- ------- ---------
Balance, end of year........................ $ 1,573 $ 2,330 $ 2,582
======= ======= =========
</TABLE>
<PAGE>
BY-LAWS
OF
OAK INDUSTRIES INC.
(A Delaware Corporation)
(as amended through December 7, 1995)
ARTICLE I
Offices
Section 1. Registered Office. The registered office shall be in the City
of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
Stockholders
Section 1. Place of Meetings. All meetings of the stockholders for the
election of directors shall be held at such place as may be fixed from time
to time by the board of directors. Meetings of stockholders for any other
purpose may be held at such time and place, within and without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of the stockholders shall be
held on the date and at the time fixed from time to time by the directors,
provided each annual meeting shall be held on a date within six months
after the end of each fiscal year or within thirteen months after the date
of the preceding annual meeting, whichever shall be the earlier date.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting shall be given to each stockholder entitled to vote thereat at
least ten days before the date of the meeting.
Section 4. List of Stockholders. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before
every election of directors, a complete list of the stockholders entitled
to vote at said election, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder, during ordinary business hours, for a period of at least ten
days prior to the election, either at a place within the city, town or
village where the election is to be held and which place shall be specified
in the notice of the meeting, or, if not specified, at the place where said
meeting is to be held, and the list shall be produced and kept at the time
and place of election during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
Section 5. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the chairman of the board.
Section 6. Notice of Special Meetings. Written or printed notice of a
special meeting of stockholders, stating the time, place and object
thereof, shall be given to each stockholder entitled to vote thereat, at
least ten days before the date fixed for the meeting.
Section 7. Business at Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 8. Quorum. The holders of stock having a majority of the voting
power of the issued and outstanding stock entitled to vote thereat, when
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as
otherwise provided by statute or by the certificate of incorporation. If,
however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting
from time to time, without notice other than announcement at the meeting,
until a quorum shall be present or represented. At such adjourned meeting
at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. Necessary Vote. When a quorum is present at any meeting, a
majority of the votes by the stockholders, present in person or represented
by proxy and entitled to vote thereon, shall decide any question brought
before such meeting, unless the question is one upon which by express
provision of the statutes or of the certificate of incorporation or of
these by-laws, a different vote is required in which case such express
provision shall govern and control the decision of such question.
Section 10. Vote, Proxies. Each stockholder shall at every meeting of
the stockholders be entitled to such vote (in person or by proxy) for each
share of the capital stock having voting power held by such stockholder and
entitled to vote at such meeting as shall be fixed by the certificate of
incorporation. No proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period. Except where the transfer
books of the corporation have been closed or a date has been fixed as a
record date for the determination of its stockholders entitled to vote, no
share of stock shall be voted on at any election for directors which has
been transferred on the books of the corporation within twenty days next
preceding such election of directors.
ARTICLE III
Directors
Section 1. Number. The number of directors which constitutes the whole
board of directors shall be fixed from time to time by resolution of the
board of directors provided, however, that such number of directors shall
be not less than six nor more than nine as required by ARTICLE TWELFTH of
the Restated Certificate of Incorporation, as amended. The term of office
of directors is to expire at the first annual meeting of stockholders after
their election or until their respective successors are elected and
qualified. Directors need not be stockholders.
Section 2. Nominations. A nomination with respect to the corporation's
board of directors (other than by a nominating committee of the board of
directors) shall be proposed at least 90 days before the date of the
corporation's annual meeting of stockholders in order for the nominee to be
eligible for election to the corporation's board of directors. Director
nominations other than by a nominating committee of the board of directors
must be made over the signature of at least five stockholders holding an
aggregate of at least 5% of the total number of shares of outstanding stock
of the corporation.
Section 3. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, though less than a
quorum, and the directors so chosen shall hold office until the next annual
election of the class for which each such director has been chosen and
until such director's successor is elected and qualified.
Section 4. Powers. The business of the corporation shall be managed by
its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or
required to be exercised or done by the stockholders.
Section 5. Meetings. The board of directors of the corporation, and any
committee thereof, may hold meetings, both regular and special, either
within or without the State of Delaware. Members of the board of directors
or of any committee of the board of directors may participate in a meeting
of such board or committee by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in such a meeting shall
constitute presence in person at the meeting.
Section 6. Organization Meeting. An organization meeting of the board of
directors shall be held following, and at the same place as, the annual
meeting of stockholders and no notice of such meeting shall be necessary to
the newly elected directors in order legally to constitute the meeting,
provided a quorum shall be present. In the event such meeting of the board
of directors is not held at such time and place, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 7. Regular Meetings. Regular meetings of the board of directors
shall be held without notice at such time and place as shall from time to
time be determined by the board of directors.
Section 8. Special Meetings. Special meetings of the board of directors
may be called by the chairman of the board or the president on two days
notice to each director. Notice shall be deemed sufficiently given if
delivered personally or by mail, telex, telecopier, or overnight courier.
Special meetings shall be called by the chairman of the board, the
president or secretary in like manner and on like notice on the written
request of two directors.
Section 9. Quorum. At all meetings of the board of directors not less
than one-third of the total number of directors, but in any event not less
than two directors, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the board of directors,
except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum shall not be present at any
meeting of the board of directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 10. Action Without Meeting. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting, if prior to such action a
written consent thereto is signed by all members of the board of directors
or of such committee as the case may be, and such written consent is filed
with the minutes of proceedings of the board of directors or committee.
Section 11. Committees of directors. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of
the corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the board
of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors, shall have and may exercise all the
powers and authority of the board of directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation;
and unless the resolution expressly so provides, no such committee shall
have the power or authority to declare a dividend or to authorize the
issuance of stock. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the
board of directors.
Section 12. Reports of Committees. Each committee shall keep regular
minutes of its meetings and report the same to the board of directors when
required.
Section 13. Compensation. The board of directors, by the affirmative
vote of a majority of the directors then in office and irrespective of any
personal interests of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the corporation as
directors, officers or otherwise, and shall have authority to reimburse
directors for their expenses, if any, of attendance at each meeting of the
board of directors. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Directors serving on committees, designated by the board of
directors, may be paid additional compensation for serving on such
committees.
ARTICLE IV
Notices
Section 1. Notices. Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders
at their addresses appearing on the books of the corporation. Notice by
mail shall be deemed received two business days after the same shall have
been mailed. Notice to directors may also be given by telex, telecopier or
overnight courier. Such notices shall be deemed received on the date
delivered, if sent by telex or telecopier, or one business day after being
sent by overnight courier.
Section 2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes or of the certificate of incorporation
or of these by-laws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE V
Officers
Section 1. Designation; Number; Election. The board of directors, at its
first regular meeting after each annual meeting of stockholders, shall
elect the officers of the corporation. Such officers shall be a chairman
of the board, a president, one or more vice presidents (the number thereof
to be determined by the board of directors), a secretary, and a treasurer
and such assistant secretaries and assistant treasurers as the board of
directors may choose. The board of directors may appoint such other
officers and agents as it shall deem necessary, including, but not limited
to a vice chairman of the board, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 2. Compensation. The salaries of all principal officers of the
corporation shall be fixed by the board of directors. The salaries of all
other officers of the corporation shall be fixed by the chairman of the
board or by any other principal officer designated by the chairman of the
board.
Section 3. Term, Removal, Vacancy. The officers of the corporation shall
hold office until their successors are chosen and qualified, except as
hereinafter provided. Any officer may be removed at any time by the
affirmative vote of a majority of the board of directors.
Section 4. Chairman of the board. The chairman of the board shall
preside at all meetings of the stockholders and the board of directors of
the corporation, and may serve as the chief executive officer of the
corporation. The chairman of the board shall be responsible for
presentation of any proposed changes in the major policies of the
corporation to the board of directors for action; shall report to the board
of directors with respect to matters of policy affecting the corporation;
and in general shall discharge all other responsibilities and perform all
other duties usually incident to the office of chairman of the board and
such as are assigned to such officer from time to time by the board. (The
office of chairman of the board shall also be known as chairman and
chairman of the board of directors.)
Section 5. Vice-Chairman of the board. In the event of the absence,
disability or inability to act of the chairman of the board, the vice-
chairman of the board shall perform the duties of the chairman of the board
and when so acting shall also have all the powers of and be subject to all
restrictions upon the chairman of the board. The vice-chairman shall
perform such other duties as from time to time may be prescribed by the
board of directors or delegated by the chairman of the board.
Section 6. Other members of the board. In the event of the absence,
disability or inability to act of the chairman of the board, the vice
chairman of the board, and the president, if a director, the directors in
the order determined by the board of directors, or in the absence of such
determination, in the order each shall have respectively held the office of
director for the longest time shall perform the duties of the chairman of
the board and when so acting shall also have all the powers of and be
subject to all the restrictions upon the chairman of the board.
Section 7. President. Unless the board of directors otherwise provides,
the president shall be the chief operating officer of the corporation and
may serve as the chief executive officer of the corporation. The president
shall in general supervise and manage the day to day business and affairs
of the corporation. The president may sign all deeds, mortgages, notes,
contracts, proxies or other instruments on behalf of the corporation,
except where the signing thereof shall have been expressly delegated by the
board of directors or by these by-laws, or shall be required by law, to be
signed by some other officer. The president shall implement and carry into
effect all orders and resolutions of the board of directors or of the
executive committee and shall submit to the board of directors and the
executive committee, at the regular meetings thereof or, upon their
request, at special meetings thereof, detailed reports of the operations of
the corporation and shall also submit to the board of directors a complete
and detailed report of the operations of the corporation for each fiscal
year. The president shall from time to time report to the board of
directors all matters within such officer's knowledge which the interests
of the corporation may require to be brought to its notice. The president
shall have and exercise such further powers and duties as may be
specifically delegated to or vested in the president from time to time by
these by-laws, or by the board of directors. In the absence of the
chairman and vice-chairman of the board, or in the event of their
disability or inability to act, the president, if also a director of the
corporation, shall assume the responsibilities and perform the duties of
the chairman of the board, and when so acting shall have all the powers of
and be subject to all the restrictions upon the chairman of the board.
Section 8. Vice-Presidents.
(a) In the event of the absence, disability or inability to act of the
president, the vice-presidents in the order determined by the board of
directors, or in the absence of such determination, in the order each shall
have respectively held the office of vice-president for the longest time,
shall perform the duties of the president and when so acting shall also
have all the powers of and be subject to all the restrictions upon the
president.
(b) The vice-presidents shall have such titles as may be designated by the
board of directors. The vice-presidents shall perform such other duties as
from time to time may be prescribed by the board of directors or delegated
by the president or the chairman of the board.
Section 9. Secretary. The secretary shall attend all meetings of the
board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of
directors in books to be kept for that purpose and shall perform like
duties for the committees of directors when required. The secretary shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the board of directors. The secretary shall have
custody of the corporate seal of the corporation and he or she, and any
assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the
secretary's signature or by the signature of such assistant secretary. The
secretary shall perform all duties incident to the office of secretary and
such other duties as from time to time may be prescribed by the board of
directors or delegated by the chairman of the board or the president. The
board of directors may give authority to any other officer to affix the
seal of the corporation and to attest the affixing by the secretary's
signature.
Section 10. Assistant Secretaries. In the absence of the secretary, or
in the event of the secretary's disability, or inability to act or to
continue to act, the assistant secretaries, in the order determined by the
board of directors, shall perform the duties of the secretary and, when so
acting, shall have all the powers of and be subject to all the restrictions
upon the secretary. The assistant secretaries shall perform such other
duties as from time to time may be prescribed by the board of directors or
delegated by the secretary.
Section 11. Treasurer. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit
of the corporation in such depositories as may be designated by the board
of directors. The treasurer shall disburse or cause to be disbursed the
funds of the corporation as may be ordered by the board of directors,
taking proper vouchers for such disbursements, and shall render to the
president and the board of directors, at its regular meetings, or when the
board of directors so requires, an account of any transactions as treasurer
and of the financial condition of the corporation. If required by the
board of directors, the treasurer shall give the corporation a bond (which
shall be renewed every six years) in such sum and with such surety or
sureties as shall be satisfactory to the board of directors for the
faithful performance of the duties of the office of the secretary and for
the restoration to the corporation, in case of the treasurer's death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the treasurer's
possession or under the treasurer's control belonging to the corporation.
He or she shall perform all duties incident to the office of treasurer and
such other duties as from time to time may be prescribed by the board of
directors or delegated by the chairman of the board or the president.
Section 12. Assistant Treasurers. In the absence of the treasurer, or in
the event of the treasurer's disability, or inability to act or continue to
act, the assistant treasurers, in the order determined by the board of
directors, shall perform the duties of the treasurer and, when so acting,
shall have all the powers of and be subject to all the restrictions upon
the treasurer. If required by the board of directors, the assistant
treasurers shall give the corporation bonds (as the treasurer may be
required to do) in such sums and with such surety or sureties as shall be
satisfactory to the board of directors. The assistant treasurers shall
perform such other duties as from time to time may be prescribed by the
board of directors or delegated by the treasurer.
Section 13. Controller. The controller shall have supervision over all
accounts and account books of the corporation, and establish and maintain
all controls and accounting procedures. The controller shall direct the
keeping of accounts and records, analyze the accounts and records of the
company and prepare and furnish statements and reports to the board of
directors, the president, and the vice president, finance, concerning the
financial condition of the company and establish and maintain accounting
policies. The controller shall direct and supervise the internal auditing
procedures of the company. The controller shall cause the books and
accounts of all officers and agents charged with the receipt and
disbursement of money to be examined as often as practicable, or when
requested by the president or vice president, finance, and shall ascertain
whether or not the cash and vouchers covering the balances are actually on
hand. The controller shall perform all other duties incident to the office
of controller and such other duties as from time to time may be prescribed
by the board of directors or designated by the president or delegated by
the vice president, finance.
Section 14. Other Officers. Such other officers as the board of
directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the board of directors. The board
of directors may delegate to any other officer of the corporation the power
to choose such other officers and to prescribe their respective duties and
powers.
ARTICLE VI
Certificates of Stock
Section 1. Form and Execution of Certificates. Every holder of stock in
the corporation shall be entitled to have a certificate signed by, or in
the name of the corporation by, the chairman of the board, the president or
any vice president and the treasurer or an assistant treasurer or the
secretary or an assistant secretary of the corporation, certifying the
number of shares owned by such individual in the corporation. Such
certificates shall be in such form as may be determined by the board of
directors. During the period while more than one class of stock of the
corporation is authorized there will be set forth on the face or back of
the certificate which the corporation shall issue to represent each class
or series of stock, a statement that the corporation will furnish without
charge to each stockholder who so requests, the designations, preferences
and relative, participating, optional or other special rights of each class
of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Where a certificate is
signed by a transfer agent acting on behalf of the corporation and a
registrar, the signature of any such chairman of the board, president, vice
president, treasurer, assistant treasurer, secretary or assistant secretary
may be facsimile. In case any officer or officers who have signed, or
whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of
the corporation, whether because of death, resignation or otherwise, before
such certificate or certificates have been delivered by the corporation,
such certificate or certificates may nevertheless be adopted by the
corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or
officers of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been
lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost or destroyed certificate
or certificates, or such individual's legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation
a bond in such sum as it may direct as indemnity against any claim that may
be made against the corporation with respect to the certificate alleged to
have been lost or destroyed.
Section 3. Transfers of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. Closing of Transfer Books. The board of directors may close
the stock transfer books of the corporation for a period not exceeding
sixty days preceding the date of any meeting of stockholders or the date
for payment of any dividend or the date for the allotment of rights or the
date when any change or conversion or exchange of capital stock shall go
into effect or for a period not exceeding sixty days in connection with
obtaining the consent of stockholders for any purpose. In lieu of closing
the stock transfer books as aforesaid, the board of directors may fix in
advance a date, not exceeding sixty days preceding the date of any meeting
of stockholders, or the date for the payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection
with obtaining such consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting, and
any adjournment thereof, or entitled to receive payment of any such
dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock, or to
give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall
be entitled to such notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such dividend, or to receive
such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be notwithstanding any transfer of any stock on
the books of the corporation after such record date fixed as aforesaid.
ARTICLE VII
Miscellaneous Provisions
Section 1. Contracts. The board of directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be advanced to the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by
a resolution of the board of directors. Such authority may be general or
confined to specific instances.
Section 3. Bank Accounts. All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such
general or special bank account or accounts in such banks, trust companies
or other depositories as the board of directors may from time to time
designate, and the board of directors may make such special rules and
regulations with respect thereto as it may deem expedient.
Section 4. Checks, Drafts, Notes. All checks, drafts or other orders for
the payment of money, notes or other evidence of indebtedness issued in the
name of the corporation shall be signed by such officer or officers or such
agent or agents of the corporation as the board of directors may from time
to time designate.
Section 5. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation,
if any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the
certificate of incorporation.
Section 6. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think
conducive to the interest of the corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
Section 7. Proxies. The board of directors may appoint and direct any
officer or officers of any other agent or agents of the corporation to cast
the votes which the corporation may be entitled to cast as a stockholder or
otherwise in any other corporation any of whose stock or other securities
may be held by the corporation at meetings of the holders of the stock or
other securities of such other corporation, or to consent in writing to any
action by such other corporation. Unless otherwise ordered by the board of
directors, the president shall have full power and authority to cast such
votes and to consent to such action as such officer may deem in the best
interests of the corporation.
Section 8. Fiscal Year. The fiscal year of the corporation shall begin
on the first day of January of each year.
Section 9. Seal. The corporate seal shall have inscribed thereon the
name of the corporation and the words "Corporate Seal, Delaware." The seal
may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
Section 10. Amendments. These by-laws may be altered or repealed at any
regular or special meeting of the board of directors.
Section 11. Indemnification and Insurance. The corporation shall, to the
fullest extent to which it is empowered to do so by the General Corporation
Law of Delaware, or any other applicable laws, as from time to time in
effect, indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such individual is or was a director or officer of
the corporation or a division thereof, or is or was serving at the request
of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such individual in
connection with such action, suit or proceeding. This section shall not be
construed as requiring the corporation to indemnify any person by reason of
the fact that such individual is or was a director or officer of a
constituent corporation absorbed in a consolidation or merger in which the
corporation was the resulting or surviving corporation.
The provisions of this section shall be deemed to be a contract between the
corporation and each director or officer who serves in any such capacity at
any time while this section and the relevant provisions of the General
Corporation Law of Delaware or other applicable law, if any, are in effect,
and any repeal or modification of any such law shall not affect any rights
or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such
state of facts.
Persons who are not covered by the foregoing provisions of this section and
(a) who are or were employees or agents of the corporation or a division
thereof, or are or were serving at the request of the corporation as
employees or agents of another corporation, partnership, joint venture,
trust or other enterprise, or (b) are or were directors, officers,
employees or agents of a constituent corporation absorbed in a
consolidation or merger in which the corporation was the resulting or
surviving corporation, or who are or were serving at the request of such
constituent corporation as directors, officers, employees or agents of
another corporation, partnership, joint venture, trust or other enterprise,
may be indemnified to the extent authorized at any time or from time to
time by the board of directors of the corporation.
The indemnification provided or permitted by this section shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled by law or otherwise, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or of a constituent corporation absorbed in a
consolidation or merger in which the corporation was the resulting or
surviving corporation, or is or was serving at the request of the
corporation or of such a constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against and incurred by
such individual in any such capacity, or arising out of such individual's
status as such, whether or not the corporation would have the power to
indemnify such individual against such liability under the provisions of
this section.
<PAGE>
OAK INDUSTRIES INC.
1992 STOCK OPTION AND RESTRICTED STOCK PLAN
As amended through December 17, 1997
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 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, which
shall consist of at least two Directors; provided, however that the Chief
Executive Officer of the Company, so long as such individual is also a
Director, shall have the authority to make awards under this Plan for 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, 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 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; 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 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 that qualifies under
Section 422 of the Code and that is designated as an Incentive Stock Option
by the Committee. In the event that an Option is not designated as either
an Incentive Stock Option or a Non-Qualified Stock Option by the Committee,
it shall be an Incentive Stock Option.
Section 1.9 - Non-Qualified Option
"Non-Qualified Option" shall mean an Option that is not an Incentive
Stock Option and that 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% 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 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
per share.
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% 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 termination of the employee-
employer relationship between the Employee and the Company, a Parent
Corporation or a Subsidiary 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 9.1, the Committee shall determine the effect of
all other matters and questions relating to Termination of Employment and
all questions of whether particular leaves of absence constitute
Terminations of Employment.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
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 1,000,000.
Section 2.2 - Unexercised Options
If any Option expires or is canceled without having been fully
exercised, the number of shares of Stock subject to such Option but as to
which such Option was not exercised prior to its expiration or cancellation
may again be awarded hereunder, subject to the limitation 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 of Stock subject to the related Option, or
portion thereof, may again be awarded hereunder, subject to the limitation
of Section 2.1. To the extent that a Stock Appreciation Right shall have
been exercised for Stock, the number of shares of Stock actually issued
shall be counted against the maximum number of shares of Stock which may be
delivered pursuant to the Plan and the balance of the shares of Stock
subject to the related Option, or portion thereof, may again be awarded
hereunder, subject to the limitation 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 awarded hereunder, subject to the
limitation 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 limitation 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 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
The Committee shall from time to time, in its absolute discretion:
(a) Determine which executive or key Employees should be granted
Options; and
(b) Determine the number of shares of Stock to be subject to such
Options and determine whether such Options are to be Incentive Stock
Options or Non-Qualified Options; and
(c) Determine the terms and conditions of such Options, consistent
with the Plan.
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% 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% 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% 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 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 Stock is no longer
outstanding, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 50% 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. Immediately prior
to 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 assume the Options or grant to participants replacement
Options.
ARTICLE V
EXERCISE OF OPTIONS
Section 5.1 - Person Eligible to Exercise
During the lifetime of the Optionee, only the Optionee or the Optionee's
permitted transferees 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 the Optionee's 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:
(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 for the shares with respect to which such Option
or portion is thereby exercised by:
(i) cash or check; or
(ii) shares of 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
on the day immediately prior to the date of delivery equal to the aggregate
Option price; 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) delivery of an unconditional and irrevocable undertaking by
a broker to deliver promptly to the Company sufficient funds to pay the
exercise price; or
(v) any combination of the consideration provided in the
foregoing subsections (i), (ii), (iii), and (iv); 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 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 on the date immediately prior to the date of delivery 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 on the date
immediately prior to the date of delivery 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 the Committee may otherwise provide, an Option granted under
the Plan is personal to the Optionee and 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% 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 the terms thereof) 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 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 of a
share of 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 executive or key Employees 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 Stockholder'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, 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% or more of the Company's
then outstanding voting stock, or the liquidation or dissolution of the
Company, the Committee may determine, in 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
Stockholder.
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 - 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 9.2 - 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 9.3 - Good Faith Actions
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 - 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 2.5, 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 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 or extend the limit imposed in this Section
10.1 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, adversely affect any rights of any holder of any Option or
Stock Appreciation Right 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 10.2.
Section 10.2 - Approval of Plan by Shareholders
This Plan was approved by the Company's shareholders on June 3, 1992.
Section 10.3 - 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 10.4 - 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.
NON-QUALIFIED STOCK OPTION PLAN
As amended through December 17, 1997
OAK INDUSTRIES INC. (the "Company"), a corporation organized under the
laws of the State of Delaware, hereby adopts this Non-Qualified Stock
Option Plan. The purpose of this Plan is to advance the interests of the
Company by enhancing the ability of the Company to attract and retain
employees, consultants or advisors who are in a position to make
significant contributions to the success of the Company; to reward such
individuals for their contributions; and to encourage such individuals to
take into account the long-term interests of the Company through interests
in shares of the Company's common stock.
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, which
shall consist of at least two Directors; provided, however that the Chief
Executive Officer of the Company, so long as such individual is also a
Director, shall have the authority to make awards under this Plan for 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 - 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 1.6 - Fair Market Value
"Fair Market Value" of a share of 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; 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 Stock is not
publicly traded, the fair market value established by the Committee acting
in good faith.
Section 1.7 - Non-Qualified Option
"Non-Qualified Option" shall mean an Option that is not an "incentive
stock option" as defined in the Code.
Section 1.8 - Officer
"Officer" shall mean an officer of the Company, any Parent Corporation
or any Subsidiary.
Section 1.9 - Option
"Option" shall mean an option to purchase Stock, granted under the Plan.
All Options granted under this Plan shall be Non-Qualified Options.
Section 1.10 - 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% or more of the total combined
voting power of all classes of stock in one of the other corporations in
such chain.
Section 1.11 - Participant
"Participant" shall mean any Employee, consultant or adviser designated
to participate in the Plan.
Section 1.12 - Plan
"Plan" shall mean this Non-Qualified Stock Option Plan of Oak Industries
Inc.
Section 1.13 - Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.14 - Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.15 - Stock
"Stock" shall mean shares of the Company's common stock, $.01 par value
per share.
Section 1.16 - Subsidiary
"Subsidiary" shall mean any corporation (other than the Company) 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% or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
Section 1.17 - Termination of Service
"Termination of Service" shall mean terminaton of the employee-employer
or business relationship between the Participant and the Company, a parent
Corporation or a Subsidiary 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,
or establishment of a business relationship with, the Company, a Parent
Corporation or a Subsidiary. In the case of a Participant who is not an
Employee, the effective date of a Termination of Service shall be the date
specified by the Committee. The Committee, in its absolute discretion,
shall determine the effect of all other matters and questions relating to
Termination of Service and all questions of whether particular leaves of
absence constitute Terminations of Service.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
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 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 of Stock subject to such Option but as to
which such Option was not exercised prior to its expiration or cancellation
may again be awarded hereunder, subject to the limitation of Section 2.1.
Section 2.3 - 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 then outstanding or subsequently granted under the Plan,
including but not limited to adjustments of the limitation in Section 2.1
on the maximum number and kind of shares which may be issued under the Plan
on exercise of Options.
ARTICLE III
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Persons eligible to receive awards under the Plan shall be those
Participants who, in the opinion of the Committee, are in a position to
make a significant contribution to the success of the Company. No awards
under this Plan may be made to Officers or directors who hold such position
with the Company at the time of such award.
Section 3.2 - Granting of Options to Participants
The Committee shall from time to time, in its absolute discretion:
(a) Determine to whom Options should be granted; and
(b) Determine the number of shares of Stock to be subject to
such Options granted to such selected Participants; and
(c) Determine the terms and conditions of such Options,
consistent with the Plan.
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 Participant 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 4.2 - Option Price
The price of the shares subject to each Option shall be set by the
Committee.
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 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 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 Service for any
reason.
Section 4.5 - Employment/Business Relationship
Nothing in this Plan or in any stock option agreement hereunder shall
confer upon any Participant any right to continue in the employ of, or
maintain a business relationship with, 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 (subject to applicable agreements specifically to
the contrary), to discharge any Participant, or terminate at such
relationship, 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 Stock is no longer
outstanding, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 50% 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. Immediately prior
to 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 assume the Options or grant to Participants replacement
Options.
ARTICLE V
EXERCISE OF OPTIONS
Section 5.1 - Person Eligible to Exercise
During the lifetime of the Participant, only the Participant or the
Participant's permitted transferees may exercise an Option granted to such
Participant, or any portion thereof. After the death of the Participant,
any exercisable portion of any Option may, prior to the time when such
portion becomes unexercisable, be exercised by the Participant's personal
representative or by any person empowered to do so under the deceased
Participant'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:
(a) Notice in writing signed by the Participant 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 for the shares of Stock with respect to
which such Option or portion is thereby exercised by:
(i) cash or by check; or
(ii) shares of Stock owned by the Participant (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 on the date immediately prior to the date of delivery equal to
the aggregate Option price; 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) delivery of an unconditional and irrevocable
undertaking by a broker to deliver promptly to the Company sufficient funds
to pay the exercise price; or
(v) any combination of the consideration provided in
the foregoing subsections (i), (ii), (iii), and (iv); 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 by any person or persons other than the Participant, 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 on the day immediately prior to the date of
delivery 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 on the
date immediately prior to the date of delivery 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 the Committee may otherwise provide, an Option granted under
the Plan is personal to the Participant and is not transferable by the
Participant 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,
as well as any requirement to notify the Committee of the disposition of
such shares, shall be set forth in the respective stock option agreement
and may be referred to on the certificates evidencing such shares.
ARTICLE VI
ADMINISTRATION
Section 6.1 - 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 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.
Section 6.2 - 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 6.3 - Good Faith Actions
All actions taken and all interpretations and determinations made by the
Committee in good faith shall be final and binding upon all Participants,
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 or the Options and all members
of the Committee shall be fully protected by the Company in respect to any
such action, determination or interpretation.
ARTICLE VII
OTHER PROVISIONS
Section 7.1 - 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. Neither the amendment, suspension nor termination of the
Plan shall, without the consent of the holder of the Option, alter or
impair any rights or obligations under any Option theretofore granted. No
Option may be granted during any period of suspension nor after termination
of the Plan, and in no event may any Option be granted under this Plan
after the expiration of ten years from the date the Plan is adopted.
Section 7.2 - 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 7.3 - 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.
1995 STOCK OPTION AND RESTRICTED STOCK PLAN
As amended through December 17, 1997
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, which
shall consist of at least two Directors; provided, however that the Chief
Executive Officer of the Company, so long as such individual is also a
Director, shall have the authority to make awards under this Plan for 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 that qualifies under
Section 422 of the Code and that is designated as an Incentive Stock Option
by the Committee. In the event that an Option is not designated as either
an Incentive Stock Option or a Non-Qualified Stock Option by the Committee,
it shall be an Incentive Stock Option.
Section 1.9 - Non-Qualified Option
"Non-Qualified Option" shall mean an Option that is not an Incentive
Stock Option and that 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% 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
per share.
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% 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 termination of the employee-
employer relationship between the Employee and the Company, a Parent
Corporation or a Subsidiary 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 9.1, the Committee shall determine the effect of
all other matters and questions relating to Termination of Employment, and
all questions of whether particular leaves of absence constitute
Terminations of Employment.
ARTICLE II
SHARES SUBJECT TO PLAN
Section 2.1 - Shares Subject to Plan
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 of Stock subject to such Option but as to
which such Option was not exercised prior to its expiration or cancellation
may again be awarded 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 of Stock subject to the related Option, or
portion thereof, may again be awarded 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 of Stock actually issued
shall be counted against the maximum number of shares of Stock which may be
delivered pursuant to the Plan and the balance of the shares of Stock
subject to the related Option, or portion thereof, may again be awarded
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 awarded 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 and
adjustments to the formulas set forth in Section 3.4.
ARTICLE III
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Any 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
The Committee shall from time to time, in its absolute discretion:
(a) Determine which executive and key Employees should be granted
Options; and
(b) Determine the number of shares of Stock to be subject to such Options
and determine whether such Options are to be Incentive Stock Options or
Non-Qualified Options; and
(c) Determine the terms and conditions of such Options, consistent with
the Plan.
Section 3.4 - Granting of Options to Non-Employee Directors
(a) Each non-Employee Director newly elected after the initial approval of
the Plan by the Company's shareholders shall be granted an Option on the
first business day following such 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 non-Employee 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% on the first anniversary of such grant, 33% on the
second anniversary and 33% on the third anniversary.
(b) Each such newly elected non-Employee Director shall also be granted an
Option as of the first business day following such non-Employee Director's
election pursuant to which he or she 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% on the first
anniversary of such grant, 33% on the second anniversary and 33% 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% 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% 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% 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 Stock is no longer
outstanding, the acquisition by another corporation or person of all or
substantially all of the Company's assets or 50% 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. Immediately prior
to 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 assume the Options or grant to participants replacement
Options.
ARTICLE V
EXERCISE OF OPTIONS
Section 5.1 - Person Eligible to Exercise Options
During the lifetime of the Optionee, only the Optionee or the Optionee's
permitted transferees 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 the Optionee's 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:
(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 for the shares of Stock with respect to which such
Option or portion is thereby exercised by:
(i) cash or check; or
(ii) shares of 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
on the day immediately prior to the date of delivery equal to the aggregate
Option price; 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) delivery of an unconditional and irrevocable undertaking by
a broker to deliver promptly to the Company sufficient funds to pay the
exercise price; or
(v) any combination of the consideration provided in the foregoing
subsections (i), (ii), (iii), and (iv); 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 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 Optionee 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 on the date immediately prior to the date of
delivery 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 on the
date immediately prior to the date of delivery 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 the Committee may otherwise provide, an Option granted under
the Plan is personal to the Optionee and 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% 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 the terms thereof)
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 Stock subject to the related Option from the Fair Market Value of a
share of 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 executive or key Employees 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, 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% 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 - 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 9.2 - 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 9.3 - Good Faith Actions
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 - 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 10.2.
Section 10.2 - Approval of Plan by Shareholders
This Plan was initially approved by the shareholders on May 3, 1995.
Section 10.3 - 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 10.4 - Titles
Titles are provided herein for convenience only and are not to serve as
a basis for interpretation or construction of the Plan.
CHRONOLOGY OF PLAN
1. Plan adopted by the Board of Directors on December 8, 1994 and
approved by the Shareholders on May 3, 1995.
2. Amended by the Board of Directors on December 5, 1996. Affected
Sections:
Section 1.3 amended.
Section 3.4(a)(ii) deleted and replaced.
Section 3.4(b) deleted and replaced.
Section 4.6 amended.
Section 9.1 deleted and replaced.
3. Amended by the Board of Directors on December 17, 1997. Affected
Sections:
Section 1.3 amended.
Section 1.8 amended.
Section 1.9 amended.
Section 1.22 amended.
Section 2.2 amended.
Section 2.3 amended.
Section 2.4 amended.
Section 2.5 amended.
Section 3.3 amended.
Section 3.4 amended.
Section 4.6 amended.
Section 5.1 amended.
Section 5.3 amended.
Section 5.6 amended.
Section 6.1 amended.
Section 8.6 amended.
Prior Section 9.1 deleted.
Prior Section 10.1 deleted.
<PAGE>
OAK INDUSTRIES INC.
EXHIBIT 11
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<C> <C> <C>
<S>
EARNINGS:
Income (loss) from continuing operations................ $ (52,983) $ 31,976 $ 21,736
Income from discontinued operations, net of tax......... 2,469 1,442 --
Gain on sale of discontinued operations, net of tax..... -- 9,367 --
----------- ----------- -----------
Net income (loss) before extraordinary charge........... (50,514) 42,785 21,736
=========== =========== ===========
Extraordinary charge for early extinguishment of debt... (1,610) (949) --
----------- ----------- -----------
Net income (loss)....................................... $ (52,124) $ 41,836 $ 21,736
SHARES - BASIC:
Weighted average shares outstanding..................... 17,520,228 18,042,561 17,836,793
EARNINGS PER SHARE - BASIC:
Income (loss) per share:
Continuing operations................................ $ (3.02) $ 1.77 $ 1.22
Discontinued operations.............................. .14 .08 --
Gain on sale of discontinued operation............... -- .52 --
----------- ----------- -----------
Net income (loss) before extraordinary charge........ (2.88) 2.37 1.22
Extraordinary charge................................. (.10) (.05) --
----------- ----------- -----------
Net income (loss)....................................... $ (2.98) $ 2.32 $ 1.22
=========== =========== ===========
SHARES - DILUTED:
Weighted average shares outstanding..................... 17,520,228 18,042,561 17,836,793
Additional dilutive effect of outstanding options (as
determined by the application of the treasury stock
method).............................................. -- 786,905 418,552
Windfall tax benefit on non-qualified options........... -- (145,185) (147,181)
Additional dilutive effect of outstanding warrants (as
determined by the application of the treasury
stock method)........................................ -- -- --
----------- ----------- -----------
Weighted average shares outstanding
as adjusted.......................................... 17,520,228 18,684,281 18,108,164
=========== =========== ===========
EARNINGS PER SHARE - DILUTED:
Income (loss) per share:
Continuing operations................................ $ (3.02) $ 1.71 $ 1.20
Discontinued operations.............................. .14 .08 --
Gain on sale of discontinued operation............... -- .50 --
----------- ----------- -----------
Net income (loss) before extraordinary charge........ (2.88) 2.29 1.20
Extraordinary charge................................. (.10) (.05) --
----------- ----------- -----------
Net income (loss)....................................... $ (2.98) $ 2.24 $ 1.20
=========== =========== ===========
</TABLE>
<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 96.25 (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, C.A...................... Venezuela 100 (8)
Lasertron, Inc.......................................... Massachusetts 100
Lasertron International (UK) Limited.................... United Kingdom 100 (21)
Lasertron Worldwide Inc................................. Delaware 100 (22)
McCoy (Cayman) Ltd...................................... Cayman Islands 50 (9)
McCoy International Holding Company..................... Delaware 100 (10)
National Subscription Television of Chicago Inc......... Illinois 100 (11)
Oak China Inc........................................... Delaware 100 (20)
Oak Com Inc............................................. Delaware 100
Oak Communications Components (Shanghai) Ltd............ China 100 (20)
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 Systems Inc......................................... Delaware 100 (15)
OakGrigsby Inc.......................................... Delaware 100
Piezo Crystal Company................................... Pennsylvania 100
SGI de Mexico, S.A. de C.V.............................. Mexico 100 (16)
Societe d'Appareillages Electroniques, S.A.............. France 100 (17)
Wuhan Telecommunication Devices Co...................... 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) 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.
(20) Owned by Oak Communications Inc.
(21) Owned by Lasertron Worldwide Inc.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 8,642
<SECURITIES> 0
<RECEIVABLES> 49,618
<ALLOWANCES> 2,582
<INVENTORY> 51,297
<CURRENT-ASSETS> 125,606
<PP&E> 159,351
<DEPRECIATION> 89,926
<TOTAL-ASSETS> 387,790
<CURRENT-LIABILITIES> 40,788
<BONDS> 0
<COMMON> 190
0
0
<OTHER-SE> 181,964
<TOTAL-LIABILITY-AND-EQUITY> 387,790
<SALES> 314,388
<TOTAL-REVENUES> 314,388
<CGS> 197,974
<TOTAL-COSTS> 197,974
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,973
<INCOME-PRETAX> 36,685
<INCOME-TAX> 13,861
<INCOME-CONTINUING> 21,736
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,736
<EPS-PRIMARY> 1.22
<EPS-DILUTED> 1.20
</TABLE>
