<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
------------------
For Quarter Ended June 30, 1998
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
COMMISSION FILE NO. 1-4474
--------------------------
OAK INDUSTRIES INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 36-1569000
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
1000 WINTER STREET
WALTHAM, MASSACHUSETTS 02451
(Address of principal executive offices)
(781) 890-0400
(Registrant's telephone number)
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 number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
As of August 10, 1998, the Company had outstanding 18,129,880 shares of
Common Stock, $0.01 par value per share.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1997 June 30, 1998
--------------------- ---------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................... $ 8,642 $ 10,824
Receivables, less reserves................. 47,036 52,250
Inventories:
Raw materials........................... 14,153 16,269
Work in process......................... 28,852 30,930
Finished goods.......................... 8,292 51,297 10,501 57,700
--------- --------
Deferred income taxes...................... 16,143 12,634
Other current assets....................... 2,488 2,133
--------- ---------
Total current assets................. 125,606 135,541
Plant and equipment, at cost.................. 159,351 166,620
Less - accumulated depreciation............... (89,926) 69,425 (96,176) 70,444
--------- --------
Deferred income taxes......................... 775 723
Goodwill and other intangible assets, less
accumulated amortization of
$17,239 and $20,268........................ 178,577 175,489
Investment in affiliates...................... 8,358 9,110
Other assets.................................. 5,049 8,780
--------- ---------
Total Assets......................... $ 387,790 $ 400,087
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of long-term debt.......... $ 443 $ 442
Accounts payable........................... 11,128 17,451
Accrued liabilities........................ 29,217 26,193
--------- ---------
Total current liabilities............ 40,788 44,086
Other Liabilities............................. 8,429 7,379
Long-Term Debt, Less Current Maturities....... 151,465 141,215
Minority Interest............................. 4,954 4,556
Stockholders' Equity:
Common stock............................... 190 191
Additional paid-in capital................. 305,740 310,822
Accumulated deficit........................ (97,956) (83,548)
Unearned compensation - restricted stock... (1,754) (1,429)
Treasury stock............................. (22,092) (21,042)
Other...................................... (1,974) 182,154 (2,143) 202,851
--------- --------- -------- ---------
Total Liabilities and
Stockholders' Equity.............. $ 387,790 $ 400,087
--------- ---------
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales....................................... $ 80,306 $ 88,662 $ 153,348 $ 167,876
Cost of sales................................... (49,523) (54,629) (97,479) (104,169)
-------- -------- --------- ---------
Gross profit.................................... 30,783 34,033 55,869 63,707
Selling, general and administrative expenses.... (18,739) (19,614) (34,626) (36,784)
-------- -------- --------- ---------
Operating income................................ 12,044 14,419 21,243 26,923
Interest expense................................ (2,767) (2,300) (5,248) (4,865)
Interest income................................. 63 137 139 314
Equity in net income of affiliated companies.... 5 851 44 1,435
-------- -------- --------- ---------
Income before income taxes and minority
interest..................................... 9,345 13,107 16,178 23,807
Income tax provision............................ (3,645) (4,981) (6,242) (9,047)
Minority interest in net income of subsidiaries. (339) (210) (548) (352)
-------- -------- --------- ---------
Net income...................................... $ 5,361 $ 7,916 $ 9,388 $ 14,408
======== ======== ========= =========
Income per share - basic
Net income................................ $ .30 $ .44 $ .52 $ .81
======== ======== ========= =========
Weighted average number of shares
outstanding - basic.......................... 17,585 17,887 17,906 17,817
======== ======== ========= =========
Income per share - diluted
Net income................................ $ .30 $ .41 $ .52 $ .76
======== ======== ========= =========
Weighted average number of shares
outstanding - diluted........................ 17,894 21,233 18,217 20,346
======== ======== ========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------
1997 1998
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
Operating Activities:
Net Income............................................ $ 9,388 $ 14,408
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation.................................... 6,135 6,806
Amortization.................................... 3,369 3,686
Minority interest............................... 548 352
Gain on the sale of properties.................. (253) --
Undistributed earnings of affiliated companies.. (44) (537)
Changes in assets and liabilities,
net of effects from acquisition
of businesses:
Receivables.................................. (9,763) (5,424)
Inventories.................................. 2,332 (6,403)
Accounts payable and accrued liabilities..... (838) 4,363
Other........................................ 4,479 3,715
-------- ---------
Net cash provided by operations.......................... 15,353 20,966
-------- ---------
Investing Activities:
Capital expenditures.................................. (7,200) (8,511)
Acquisition of business............................... (751) (1,000)
Proceeds from the sale of properties.................. 1,524 --
Other................................................. 185 302
-------- ---------
Net cash used in investing activities.................... (6,242) (9,209)
-------- ---------
+
Financing Activities:
Long-term borrowings.................................. 31,103 108,042
Repayment of borrowings............................... (17,515) (118,293)
Stock repurchases..................................... (20,544) --
Exercise of stock options............................. 1,839 5,178
Dividends paid to minority stockholders............... (825) (750)
Deferred debt issuance costs.......................... -- (3,303)
Other................................................. (175) (396)
-------- ---------
Net cash provided by (used in) financing activities...... (6,117) (9,522)
-------- ---------
Effect of exchange rate changes on cash and
cash equivalents................................... (450) (53)
-------- ---------
Cash and Cash Equivalents:
Net change during the period.......................... 2,544 2,182
Balance, beginning of period.......................... 6,116 8,642
-------- ---------
Balance, end of period................................ $ 8,660 $ 10,824
======== =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. The consolidated condensed financial statements have been prepared by
Oak Industries Inc. (the "Company") without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures made in this report
are adequate to make the information presented not misleading. It is
suggested that these consolidated condensed financial statements be read in
conjunction with the financial statements and the notes thereto included in
the Company's latest annual report on Form 10-K. In the opinion of the
Company, all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position of Oak Industries Inc.
and its consolidated subsidiaries as of December 31, 1997 and June 30,
1998, and the results of their operations and cash flows for the three and
six month periods ending June 30, 1997 and 1998 have been included. The
results of operations for such interim periods are not necessarily
indicative of the results for the full year.
2. On February 25, 1998, the Company issued $100 million of 4 7/8%
convertible subordinated notes due 2008 (the "Notes"). The Notes are
convertible into common stock of the Company at a conversion price of
$38.66 per share. Interest on the Notes is payable semi-annually in
arrears on March 1 and September 1 of each year, commencing September 1,
1998. The net proceeds from the sale of the Notes were used to reduce
borrowings under the Company's $300 million revolving credit facility.
3. The Company paid interest on debt for the three months ended June 30,
1997 and 1998 in the amounts of $2.6 million and $0.7 million,
respectively, and for the six months ended June 30, 1997 and 1998 in the
amounts of $5.0 million and $3.0 million, respectively. Income taxes paid
during the three months ended June 30, 1997 and 1998 were $0.5 million and
$5.8 million, respectively, and the six months ended June 30, 1997 and 1998
were $1.4 million and $6.9 million, respectively.
4. The following represents a reconciliation of the net income and
weighted average number of shares used in the basic and diluted earnings
per share computations (in thousands, except per share data):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
1997 1998 1997 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Basic
Net income..................................... $ 5,361 $ 7,916 $ 9,388 $ 14,408
Weighted average shares outstanding............ 17,585 17,887 17,906 17,817
Net income per share........................... $ .30 $ .44 $ .52 $ .81
======== ======== ======== ========
Diluted
Net income..................................... $ 5,361 $ 7,916 $ 9,388 $ 14,408
Interest expense and amortization of deferred
costs, net of tax, related to 4 7/8%
convertible subordinated notes.............. -- 807 -- 1,127
-------- -------- -------- --------
Net income as adjusted......................... $ 5,361 $ 8,723 $ 9,388 $ 15,535
Weighted average shares:
Outstanding................................. 17,585 17,887 17,906 17,817
Incremental shares related to 4 7/8%
convertible subordinated notes.......... -- 2,587 -- 1,811
Incremental shares related to other common
stock equivalents....................... 309 759 311 718
-------- -------- -------- --------
Total shares outstanding, as adjusted.......... 17,894 21,233 18,217 20,346
Net income per share........................... $ .30 $ .41 $ .52 $ .76
======== ======== ======== ========
</TABLE>
5. Certain items in the 1997 financial statements have been reclassified
to conform with 1998 presentation.
6. In the first quarter of 1998, the Company adopted Statement of
Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting
Comprehensive Income." This statement requires disclosure of comprehensive
income and its components in interim and annual reports. Comprehensive
income includes all changes in stockholders' equity during a period except
those resulting from investments by stockholders and distributions to
stockholders. Accordingly, the components of comprehensive income include
net income, cumulative translation adjustments and unrealized gains and
losses on available-for-sale securities. For the three months ended June
30, 1997 and 1998, foreign currency translation adjustments resulted in
losses of $0.21 million and $0.09 million, respectively, and unrealized
gains on available-for-sale securities equaled $0.01 million for the three
months ended June 30, 1998. For the six months ended June 30, 1997 and
1998, foreign currency translation adjustments resulted in losses of $0.98
million and $0.26 million, respectively, and unrealized gains on available-
for-sale securities equaled $0.09 million for the six months ended June 30,
1998. There were no unrealized gains or losses on available-for-sale
securities for the three and six months ended June 30, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SECOND QUARTER RESULTS OF OPERATIONS
SUMMARY
Net sales increased 10% to $88.7 million in the second quarter of 1998
from $80.3 million in the second quarter of 1997. Net income increased to
$7.9 million in the second quarter of 1998 from $5.4 million in the second
quarter of 1997 due to increased operating income in both the
communications components group and controls components group.
SALES
The Company's communications components sales increased 13% in the
second quarter of 1998 compared to sales in the same period in 1997. This
growth was primarily the result of increased sales at Oak Frequency Control
Group and at Gilbert Engineering Co., Inc. ("Gilbert"). Lasertron, Inc.
also moderately increased its sales during the second quarter of 1998
compared to the second quarter of 1997.
Sales at the controls components group increased 5% during the second
quarter of 1998 versus sales in the comparable prior year period. This
increase in sales was due to a significant increase in sales of gas
controls, which was partially offset by a reduction in sales of components
used in a government postal sorting system.
GROSS PROFIT
The gross profit margin for the second quarter of 1998 was 38.4%
compared to 38.3% during the second quarter of 1997. Gross profit margins
in both the communications components group and the controls components
group for the second quarter of 1998 were about the same as comparable
margins during the second quarter of 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $19.6 million
during the second quarter of 1998 compared to $18.7 million of such
expenses during the second quarter of 1997. Selling, general and
administrative expenses declined as a percentage of sales to 22.1% in the
second quarter of 1998 compared to 23.3% in the second quarter of 1997.
INTEREST EXPENSE
Interest expense decreased to $2.3 million during the second quarter of
1998 from $2.8 million during the second quarter of 1997. The decrease
primarily resulted from a lower effective interest rate on outstanding
borrowings in the second quarter of 1998 compared to the second quarter of
1997, due to the lower interest rate on the Notes.
INCOME TAXES
The effective income tax rate for financial reporting purposes for the
second quarter of 1998 was 38.0%. The tax rate for the comparable prior
year period was 39.0%.
EQUITY IN NET INCOME OF AFFILIATED COMPANIES
Equity in net income of affiliated companies was $0.85 million for the
second quarter of 1998 compared to $0.01 million in the comparable prior
year period. This increase resulted primarily from an increase in net
income of Wuhan Telecommunication Devices Co. ("WTD"), the Company's joint
venture which manufactures fiber-optic components in China, which
experienced a significant increase in sales.
MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES
Minority interest in net income of subsidiaries during the second
quarter of 1998 decreased to $0.2 million from $0.3 million in the second
quarter of 1997. During the second quarter of 1998, minority stockholders
owned 3.75% of Gilbert compared to 7.5% during the second quarter of 1997.
SIX MONTHS RESULTS OF OPERATIONS
SUMMARY
Net sales increased 9% to $167.9 million in the first six months of 1998
from $153.3 million in the first six months of 1997. Net income increased
to $14.4 million in the first six months of 1998 from $9.4 million in the
first six months of 1997 primarily due to increased operating income from
the Company's communications components group.
SALES
The Company's communications components sales increased 14% in the first
six months of 1998 compared to sales in the same period in 1997. This
growth was the result of a significant increase in sales in the Oak
Frequency Control Group together with moderate increases in sales at
Gilbert and Lasertron.
Sales at the controls components group during the first six months of
1998 remained at approximately the same level compared to sales in the
first six months of 1997. This was the net result of a moderate increase
in sales of gas controls offset by a reduction in sales of components used
in a government postal sorting system.
GROSS PROFIT
The gross profit margin for the first six months of 1998 was 37.9%
compared to 36.4% during the first six months of 1997. Gross profit margin
improved in the communications components group due to increased production
volumes and improved productivity. Gross profit margin also improved in
the controls components group as sales of higher margin products increased
in 1998 when compared to sales of those products in the first six months of
1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $36.8 million
during the first six months of 1998 compared to $34.6 million of such
expenses during the first six months of 1997. Selling, general and
administrative expenses decreased as a percentage of sales to 21.9% for the
first six months of 1998 compared to 22.6% during the first six months of
1997. Research and development expenses and selling expenses increased
during the first six months of 1998 versus the comparable prior year
period.
During the first six months of 1998, the Company received $0.5 million
of royalty income related to 1997 activities. The Company reports royalty
income as an offset to selling, general and administrative expenses. No
royalty income was reported during the first six months of 1997.
INTEREST EXPENSE
Interest expense decreased to $4.9 million during the first six months
of 1998 from $5.2 million during the first six months of 1997. The
decrease resulted from a lower effective interest rate on borrowings,
partially offset by increased average borrowings. The lower effective
interest rate is due to the lower rate on the Notes.
INCOME TAXES
The effective income tax rate for financial reporting purposes for the
first six months of 1998 was 38.0%. The tax rate for the comparable prior
year period was 38.6%.
EQUITY IN NET INCOME OF AFFILIATED COMPANIES
Equity in net income of affiliated companies was $1.44 million for the
first six months of 1998 compared to $0.04 million in the comparable prior
year period. This increase resulted from increased income from WTD, and
from a gain during the first quarter of 1998 of $0.48 million from the
Company's sale to its joint-venture partner of the Company's interest in a
joint venture that manufactured quartz crystal blanks in Venezuela.
MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES
Minority interest in net income of subsidiaries during the first six
months of 1998 decreased to $0.4 million from $0.5 million in the first six
months of 1997 because minority ownership of Gilbert was 3.75% during the
first six months of 1998 compared to 7.5% during the first six months of
1997.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the first six months of 1998 was
$21.0 million compared to $15.4 million for the first six months of 1997.
This increase was in large part the result of increased net income.
Capital expenditures for the first six months of 1998 were $8.5 million
compared to $7.2 million for the first six months of 1997. Capital
expenditures during the first six months of 1998 were mainly for equipment
for capacity expansion and new product introductions.
In April of 1998 the Company paid $1.0 million to the former
shareholders of Piezo Crystal Company under the earnout provision of the
1997 acquisition agreement.
The Company has in place a $300 million unsecured revolving credit
facility (the "Facility"). 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 June 30, 1998, the Company had outstanding loans
of $39.0 million under the Facility.
On February 25, 1998 the Company issued the Notes. The Notes are
convertible into common stock of the Company at a conversion price of
$38.66 per share. Interest on the Notes is payable semi-annually in
arrears on March 1 and September 1 of each year, commencing September 1,
1998. The net proceeds from the sale of the Notes were used to reduce
outstanding borrowings on the Facility.
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.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
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. The
Company is required to adopt this statement in the fourth quarter of 1998.
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 statement footnote disclosure impact of SFAS No. 131.
In April 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 132 ("SFAS No. 132"),
"Employer's Disclosures about Pensions and Other Postretirement Benefits."
SFAS No. 132 revises disclosure requirements for pension and other
postretirement benefit plans. The Company is required to adopt this
statement in the fourth quarter of 1998. Implementation of SFAS No. 132
will have no impact on the Company's financial position or results of
operations.
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments
and for Hedging Activities." SFAS No. 133 requires companies to record
derivatives on the balance sheet as assets or liabilities, measured at fair
value. Gains or losses resulting from the changes in the values of those
derivatives would be accounted for depending on the use of the derivatives
and whether they qualify for hedge accounting. This statement is required
to be adopted by the Company in the first quarter of 2000. The Company is
assessing the impact of SFAS No. 133 on its financial position and results
of operations.
RISKS AND UNCERTAINTIES
Statements contained in 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 assessment of the impact of the Year 2000
on computers and software at its operating units. This assessment included
a review of the Company's year 2000 readiness by qualified independent
consultants. The Company has identified a number of potential problems and
corrective actions required. Some of these actions have already been, and
others remain to be, completed. The Company believes that Year 2000 issues
at its facilities should not have a material impact on its financial or
operating performance. However, pending completion 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.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's Annual Report on Form 10-K for the
year ended December 31, 1997.
ITEM 2. CHANGES IN SECURITIES
On May 26, 1998, the Company issued 255 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 exemption from registration under Section 4(2) of
the Securities Act of 1933 as amended and the rules and regulations
thereunder.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
On April 24, 1998 the Company held its Annual Meeting of Stockholders,
at which each of William S. Antle III, Beth L. Bronner, Daniel W. Derbes,
Roderick M. Hills, George W. Leisz, Gilbert E. Matthews, Christopher H. B.
Mills and Elliot L. Richardson were re-elected as directors for an
additional term to expire at the Company's next Annual Meeting of
Stockholders. The directors were re-elected with the following votes: Mr.
Antle, 15,308,571 votes cast for and 257,003 votes withholding authority;
Ms. Bronner, 15,306,583 votes cast for and 258,991 votes withholding
authority; Mr. Derbes, 15,309,587 votes cast for and 255,987 votes
withholding authority; Mr. Hills, 15,315,886 votes cast for and 249,688
votes withholding authority; Mr. Leisz, 15,315,304 votes cast for and
250,270 votes withholding authority; Mr. Matthews, 15,320,193 votes cast
for and 245,381 votes withholding authority; Mr. Mills, 15,312,990 votes
cast for and 252,584 votes withholding authority; and Mr. Richardson,
15,307,519 votes cast for and 258,055 votes withholding authority.
The Company's stockholders also approved a proposal approving amendments
to the Oak Industries Inc. 1995 Stock Option and Restricted Stock Plan (the
"1995 Plan"), including, among other things, an increase in the number of
shares of common stock of the Company available under the 1995 Plan from
2,000,000 to 4,000,000, with 10,305,064 votes cast for such proposal,
2,676,220 votes cast against such proposal, 55,803 votes abstaining with
respect to such proposal, and 2,528,487 broker non-votes with respect to
such proposal.
ITEM 5. OTHER INFORMATION
Written notice of any stockholder proposal to be submitted outside the
processes of Section 240.14a-8 of the Securities Exchange Act of 1934, as
amended, must be received by the Secretary of the Company at 1000 Winter
Street, Waltham, Massachusetts 02451 no later than February 1, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
(10.1) Form of Severance Agreement dated as of May 1, 1998 by
and between the Company and each of William S. Antle III,
Coleman S. Hicks, and Pamela F. Lenehan, filed herewith.
(10.2) Oak Industries Inc. Severance Plan, 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 second quarter ended
June 30, 1998.
<PAGE>
OAK INDUSTRIES INC.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
OAK INDUSTRIES INC.
Date: August 12, 1998 /s/ Coleman S. Hicks
Coleman S. Hicks
Senior Vice President and
Chief Financial Officer
<PAGE>
OAK INDUSTRIES INC.
SEVERANCE AGREEMENT
This is an AGREEMENT entered into between Oak Industries Inc. (the
"Company") and -------------- ("Executive") effective as of the first day
of May, 1998.
Executive is a key executive of the Company and a vital part of its
management. In consideration of Executive's continued employment with the
Company, the parties agree as follows:
1. Term; Window Period. The term during which this Agreement (the
"Agreement") will be in effect (the "Term of the Agreement") will be the
three-year period beginning on May 1, 1998 (the "Effective Date").
However, as of May 1, 2001, and as of May 1 of each third year thereafter,
the Term of the Agreement will be automatically extended for a period of
three additonal years unless either party delivers to the other written
notice to the contrary no later than 90 days prior to such May 1. If a
Change of Control (as defined in Exhibit A) occurs during the Term of the
Agreement, the Agreement will remain in effect until all obligations
hereunder have been discharged. The period starting on the date of such a
Change of Control and ending on the third anniversary of the Change of
Control will be a "Window Period" during which special provisions of this
Agreement will apply.
2. Positions and Duties. Subject to the provisions of the Agreement:
2.1 Executive will serve as ------------------- of the Company with
responsibilities consistent with these positions. [Executive will also be
a member of the Board of Directors of the Company (the "Board").]
2.2 Executive will be a full-time employee of the Company and, except for
reasonable work-related travel, will perform his duties at the Company's
headquarters, which shall be no more than 50 miles from Waltham,
Massachusetts.
2.3 Executive will devote his entire business time and attention and his
best efforts to the duties and services of his positions. However,
Executive may serve on boards of directors of other businesses and attend
to personal investments and community and charitable service, provided that
such activities are not competitive with the business of the Company and do
not interfere with the performance of Executive's duties to the Company.
3. Compensation and Benefits. During the Term of the Agreement, the
Company will provide compensation and benefits to Executive as follows:
3.1 Base Salary. The Company will review Executive's base salary
annually, and Executive will receive such increases in base salary, if any,
for each succeeding year as the Board determines in its sole discretion.
(Executive's base salary as so increased will be referred to as "Base
Salary"). Executive's Base Salary will not be decreased during the Term of
the Agreement except as part of a general reduction in which the base
salaries of all executives at or above the senior vice president level have
been decreased and will not be decreased during a Window Period without
Executive's prior written agreement.
3.2 Performance Bonus. Executive will be eligible for an annual
performance bonus based on achievement of objective performance goals
established by the Compensation Committee of the Board. Executive's bonus
for any year ending during a Window Period will not be less than 100
percent of his bonus for the completed year immediately preceding the
Change of Control.
3.3 Plans, Policies and Arrangements. Executive will be entitled to
participate in the following plans, policies and arrangements (or in any
successor or supplemental plans, policies or arrangements) in each case at
a level appropriate to Executive's position and in each case in accordance
with the terms of the pertinent plan, policy or arrangement:
(i) the Oak Industries Salaried Pension Plan, the Oak
Industries Vantage Savings Plan and the Oak Industries
Supplemental Retirement Income Plan (the "SRIP");
(ii) the Company's group medical plan, Supplemental Executive
Medical Plan, long-term disability plan and Executive
Supplemental Long-Term Disability Plan;
(iii) life insurance arrangements provided to executive-level
employees of the Company;
(iv) all Company stock option and restricted stock plans in
which executives participate;
(v) the Company's normal expense reimbursement policies;
(vi) the automobile allowance arrangement for Company
executives; and
(vii) vacation and sick leave in accordance with the
Company's policies.
[3.4 Additional Term Life Insurance. The Company will purchase and keep
in effect (or will reimburse Executive the cost of purchasing and keeping
in effect) term life insurance on Executive's life in an amount of not less
than $1 million (with the death benefit payable to Executive's designated
beneficiary).]
4. Termination of Employment; Severance Benefits.
4.1 Terminability of Employment. Either the Company or Executive may at
any time terminate Executive's employment with the Company after giving 30
days' written notice to the other party. However, if Executive's
employment terminates during the Term of the Agreement, the parties will
be required to discharge the applicable obligations described in this
Section 4 and elsewhere in this Agreement. If Executive's employment
terminates at any time other than during the Term of the Agreement,
Executive will have no rights under the Agreement.
4.2 Termination upon Death or Disability. If Executive ceases to be an
employee of the Company as a result of death or disability, the Company
will have no further obligation or liability to Executive hereunder other
than for Base Salary earned and unpaid at the date of termination, a pro-
rata portion of his target bonus (provided for in Section 3.2 above) for
the year of termination and compensation for accrued vacation. The Term of
the Agreement will end when those amounts are paid. However, nothing in
this Agreement is intended to interfere with the rights of Executive and
his family or beneficiaries under other applicable plans, policies or
arrangements of the Company. For purposes of this Section 4.2, the Company
may terminate Executive's employment for "disability" if, because of
physical or mental incapacity, Executive is unable for a period of ------
consecutive days to perform the material duties of his position and it is
determined by a qualified physician chosen by the Company (and, if during a
Window Period, approved by the Executive or his conservator) to be probable
that such incapacity will continue for an additional ------ consecutive
days.
4.3 Termination by the Company for Cause or by Executive Without Good
Reason. If the Company terminates Executive's employment for Cause (as
defined in this Section 4.3) or if Executive terminates his employment
other than for Good Reason (as defined in Section 4.4), the Company will
have no further obligation or liability to Executive hereunder other than
for Base Salary earned and unpaid at the date of termination and
compensation for accrued vacation, and the Term of the Agreement will end
when those amounts are paid.
"Cause" means (a) willful malfeasance or gross negligence in the
performance by Executive of his duties, resulting in harm to the Company,
(b) fraud or dishonesty by Executive with respect to the Company, or (c)
Executive's conviction of a felony.
4.4 By the Company Without Cause or By Executive for Good Reason.
(a) Entitlement to Severance Benefits. If, during the Term of the
Agreement, the Company terminates Executive's employment without
Cause, or if Executive terminates his employment for Good Reason, the
Company will, subject to Section 5 below, provide severance benefits
to Executive as set forth below in this Section 4.4.
"Good Reason" means (i) failure by the Company to maintain Executive
in the positions described in Section 2 or assignment to Executive of
duties materially inconsistent with such positions, (ii) failure by
the Company to provide Executive with the compensation and benefits
described in Section 3, or (iii) relocation of Executive's principal
place of work to a location more than 50 miles from its location
immediately prior to the Change of Control.
(b) Normal Severance Benefits. Except as provided in paragraph
(c), the Company will provide severance benefits as follows:
(i) The Company will pay to Executive within 30 days of the
termination a lump-sum cash amount equal to -----% of the sum
of (A) Executive's annual Base Salary in effect immediately
prior to the termination (or, if his Base Salary has been
reduced within 60 days of the termination, his Base Salary in
effect prior to the reduction), plus (B) the average of the
bonuses earned by Executive for the period of two years
completed immediately prior to the termination (for this
purpose, annualizing bonuses paid for less than a full year's
employment).
(ii) The Company will also pay to Executive within 30 days of
the termination a pro-rata portion of his target bonus
(provided for in Section 3.2 above) for the year of
termination.
(iii) The Company will continue for a period of ------- years
from the date of termination to provide Executive with the
benefits set forth in paragraphs (ii) and (iii) of Section 3.3
above. To the extent that the Company is unable to provide
such benefits to Executive under its existing plans and
arrangements, it will pay Executive cash amounts equal to
Executive's cost of obtaining such benefits.
(iv) For the ------ year period following termination of
employment, stock options held by Executive will become
exercisable and restricted stock held by Executive will become
vested according to their original schedules as though
Executive had remained employed by the Company.
(c) Severance Benefits Following a Change of Control. If the
termination occurs during a Window Period, the Company will, instead
of the benefits prescribed in paragraph (b), provide severance
benefits to Executive as follows:
(i) The Company will pay to Executive within 30 days of the
termination a lump-sum cash amount equal to 300% of the sum of
(A) Executive's annual Base Salary in effect immediately prior
to the termination (or, if his Base Salary has been reduced
within 60 days of the termination or at any time after the
Change of Control, his Base Salary in effect prior to the
reduction), plus (B) the average of the bonuses earned by
Executive for the period of two years completed immediately
prior to the termination or immediately prior to the Change of
Control, whichever is higher (for this purpose, annualizing
bonuses paid for less than a full year's employment).
(ii) The Company will also pay to Executive within 30 days of
the termination a pro-rata portion of his target bonus
(provided for in Section 3.2 above) for the year of
termination.
(iii) The Company will continue for a period of three years
from the date of termination to provide Executive with the
benefits set forth in paragraphs (ii), (iii) and (vi) of
Section 3.3 above. To the extent the Company is unable to
provide such benefits to Executive under its existing plans and
arrangements, it will either arrange to provide Executive with
substantially similar benefits upon comparable terms or pay
Executive cash amounts equal to Executive's cost of obtaining
such benefits.
(iv) Notwithstanding any contrary provision of the plans or
arrangements under which they are granted, (A) all options to
purchase Company stock held by Executive will immediately
become exercisable and will not terminate prior to the time
they would have terminated had Executive remained in the employ
of the Company and (B) all restricted stock held by Executive
under restricted stock plans and arrangements of the Company
will immediately become fully vested.
(v) Executive's benefits under the SRIP will immediately
become fully vested.
5. Limitations on Severance Benefits.
5.1 Except as provided in Section 5.2 below, the payments and benefits to
which Executive will be entitled under Section 4 of this Agreement will be
reduced to the extent necessary to prevent Executive from becoming liable
for the excise tax levied on certain "excess parachute payments" under
section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"). If a reduction is made under this Section 5.1, Executive will
have the right to determine which payments and benefits will be reduced.
5.2 The limitations of Section 5.1 will not apply if --
(i) the present value, net of all federal, state, and other
income and excise taxes, of all payments and benefits to which
Executive is entitled hereunder without such limitations,
exceeds
(ii) the present value, net of all federal, state, and other
income and excise taxes, of all payments and benefits to which
Executive would be entitled hereunder if such limitations
applied.
5.3 Determinations under this Section 5 will be made by the firm of
certified public accountants then serving as the Company's auditor unless
Executive has reasonable objections to the use of that firm, in which case
the determinations will be made by a comparable firm chosen by Executive
after consultation with the Company. The determinations of such firm will
be binding upon the Company and Executive.
6. Withholding. All payments required to be made by the Company to
Executive under this Agreement will be subject to the withholding of such
amounts, if any, relating to tax and other payroll deductions as may be
required by law.
7. Fees and Expenses. In the event of Executive's termination of
employment during a Window Period, the Company will pay any and all fees
and expenses (including legal fees and other costs of arbitration or
litigation) that may be incurred by Executive in enforcing his rights under
this Agreement. If the termination of employment does not occur during a
Window Period, the Company will pay that amount of such fees and expenses
that bears the same ratio to the total fees and expenses as the dollar
amount of payments and benefits determined to be payable to Executive bears
to the total dollar amount of payments and benefits in dispute.
8. No Duty to Mitigate. Benefits payable under this Agreement as a
result of termination of Executive's employment will be considered
severance pay in consideration of his past service and his continued
service from the Effective Date, and his entitlement thereto will neither
be governed by any duty to mitigate his damages by seeking further
employment nor offset by any compensation that he may receive from other
employment.
9. Confidentiality and Exclusivity. Executive agrees to maintain the
confidentiality of the Company's (and its related entities and projects)
books, records, financial information, technical information, business
plans and/or strategies, and other confidential matters unless required to
make disclosure in the performance of his duties for the Company or as a
result of a legal proceeding or other legally mandated cause. In the event
of termination without Good Reason by Executive, other than such a
termination occurring during a Window Period, Executive will not for two
years following termination act as an executive-level employee with any
company that directly competes against the Company. The parties recognize
and agree that should the Company be required to pursue a claim against
Executive under this Section 9, the Company will likely be required to seek
injunctive relief as well as damages at law. Accordingly, Section 11,
Arbitration, will not apply to any action by the Company against Executive
for violation of this Section 9. Executive agrees for purposes of any
disputes arising under this Section 9 to submit to the exclusive
jurisdiction of the federal and state courts in the Commonwealth of
Massachusetts.
10. Indemnification. To the extent permitted by law, the Company will
defend, indemnify and hold Executive harmless from and against any and all
losses, liabilities, damages, expenses (including attorneys' fees and
costs), actions, causes of action or proceedings arising directly or
indirectly from Executive's performance of this Agreement or services as an
employee of the Company. Executive may retain his own counsel to defend
himself in such actions, and the Company will pay for the reasonable costs
and expense of such counsel. This indemnification is in addition to any
right of indemnification to which Executive may be entitled under the
Company's Articles of Incorporation and By-laws and any insurance policies
that may be maintained by the Company.
11. Arbitration. Except as otherwise provided in Section 9, any dispute
or controversy between the parties involving the construction or
application of any terms, covenants or conditions of this Agreement, or any
claim arising out of or relating to this Agreement, or any claim arising
out of or relating to Executive's employment by the Company that is not
resolved within ten days by the parties will be settled by arbitration in
Boston, Massachusetts, in accordance with the rules of the American
Arbitration Association then in effect, and judgment upon the award
rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. The Company and Executive agree that the
arbitrator(s) will have no authority to award punitive or exemplary damages
or so-called consequential or remote damages such as damages for emotional
distress. Any decision of the arbitrator(s) will be final and binding upon
the parties. Upon request the arbitrator(s) shall submit written findings
of fact and conclusions of law. The parties agree and understand that they
hereby waive their rights to a jury trial of any dispute or controversy
relating to the matters specified above in this Section 11.
12. Rights of Survivors If Executive dies after becoming entitled to
benefits under Section 4 following termination of employment but before all
such benefits have been provided, (a) all unpaid cash amounts will be paid
to the beneficiary that has been designated by Executive in writing (the
"beneficiary"), or if none, to Executive's estate, (b) all applicable
insurance coverage will be provided to Executive's family as though
Executive had continued to live, and (c) any stock options that become
exercisable under Section 4.4(b)(iii) or Section 4.4(c)(iv) will be
exercisable by the beneficiary, or if none, the estate.
13. Successors. This Agreement will inure to and be binding upon the
Company's successors. The Company will require any successor to all or
substantially all of the business and/or assets of the Company by sale,
merger or consolidation (where the Company is not the surviving
corporation), lease or otherwise, by agreement in form and substance
satisfactory to Executive, to assume this Agreement expressly. This
Agreement is not otherwise assignable by the Company.
14. Subsidiaries. For purposes of this Agreement, employment by a
corporation or other entity that is controlled directly or indirectly by
the Company will be deemed to be employment by the Company. Thus,
references in the Agreement to "Company" include such corporations or other
entities where appropriate in the context.
15. Amendment or Modification; Waiver. Except as provided in clause (1)
of Exhibit A, this Agreement may not be amended unless agreed to in writing
by Executive and the Company. No waiver by either party of any breach of
this Agreement will be deemed a waiver of a subsequent breach.
16. Severability. In the event that any provision of this Agreement is
determined to be invalid or unenforceable, the remaining provisions shall
remain in full force and effect to the fullest extent permitted by law.
17. Controlling Law. This Agreement will be controlled and interpreted
pursuant to Massachusetts law.
18. Superseded Agreement. This Agreement supersedes in its entirety the
Employment Agreement between Executive and the Company dated May 1, 1996.
19. Notices. Any notices required or permitted to be sent under this
Agreement are to be delivered by hand or mailed by registered or certified
mail, return receipt requested, and addressed as follows:
If to the Company:
Oak Industries Inc.
1000 Winter Street, South Entrance
Waltham, MA 02154
If to Executive:
----------------------
----------------------
----------------------
Either party may change its address for receiving notices by giving notice
to the other party.
In witness whereof, the parties hereto have executed this Agreement as of
the date first set forth above.
-----------------------
[EXECUTIVE]
OAK INDUSTRIES INC.
By:---------------------
Exhibit A
"Change of Control" means the occurrence of any of the following events:
(1) any Person becomes the owner of 20% or more of the Company's
Common Stock; provided, however, that the Board of Directors of the
Company may unilaterally amend this clause (1) to increase the 20%
threshold to any percentage up to, but not exceeding, 50%; or
(2) individuals who, as of the Effective Date, constitute the Board
of Directors of the Company (the "Continuing Directors") cease for
any reason to constitute at least a majority of such Board; provided,
however, that any individual becoming a director after the Effective
Date whose election or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the
Continuing Directors will be deemed to be a Continuing Director, but
excluding for this purpose any such individual whose initial
assumption of office occurs as a result of either an actual or
threatened election contest (as such terms are used in Rule 14a-11 of
Regulation 14A promulgated under the Securities and Exchange Act of
1934 (the "Exchange Act")) or other actual or threatened solicitation
of proxies or consents by or on behalf of a Person other than the
Board; or
(3) approval by the shareholders of the Company of a reorganization,
merger, consolidation or other transaction that will result in the
transfer of ownership of more than 50% of the Company's Common Stock;
or
(4) liquidation or dissolution of the Company or sale of
substantially all of the Company's assets.
In addition, for purposes of this definition the following terms have the
meanings set forth below:
"Common Stock" means the then outstanding Common Stock of the Company plus,
for purposes of determining the stock ownership of any Person, the number
of unissued shares of Common Stock which such Person has the right to
acquire (whether such right is exercisable immediately or only after the
passage of time) upon the exercise of conversion rights, exchange rights,
warrants or options or otherwise. Notwithstanding the foregoing, the term
Common Stock does not include shares of preferred stock or convertible debt
or options or warrants to acquire shares of Common Stock (including any
shares of Common Stock issued or issuable upon the conversion or exercise
thereof) to the extent that the Board expressly so determines in any future
transaction or transactions.
A Person will be deemed to be the "owner" of any Common Stock of which such
Person would be the "beneficial owner," as such term is defined in Rule
13d-3 promulgated by the Securities and Exchange Commission under the
Exchange Act.
"Person" has the meaning used in Section 13(d) of the Exchange Act, except
that "Person" does not include (i) the Executive, an Executive Related
Party, or any group of which the Executive or Executive Related Party is a
member, or (ii) the Company or a wholly owned subsidiary of the Company or
an employee benefit plan (or related trust) of the Company or of a wholly
owned subsidiary.
An "Executive Related Party" means any affiliate or associate of the
Executive other than the Company or a subsidiary of the Company. The terms
"affiliate" and "associate" have the meanings given in Rule 12b-2 under the
Exchange Act; the term "registrant" in the definition of "associate" means,
in this case, the Company.
<PAGE>
OAK INDUSTRIES INC.
SEVERANCE PLAN
The purpose of this Plan is to induce those key executives of Oak
Industries Inc. (the "Company") who are chosen to participate in the Plan
("Executives") to continue their employment with the Company
notwithstanding any threatened or actual change of control of the Company.
1. Term. The term during which this Plan (the "Plan") will be in effect
(the "Term of the Plan") will begin on May 1, 1998 (the "Effective Date")
and, except as provided below, will end at such time as the Plan is
terminated in accordance with Section 13. If a Change of Control (as
defined in Schedule A) occurs during the Term of the Plan, the Plan will
remain in effect until all obligations hereunder have been discharged.
2. Participation. The Compensation Committee of the Board of Directors
of the Company (the "Committee") will select Executives to participate in
the Plan upon recommendation of the Chief Executive Officer of the Company.
The Executives whose names or positions are set forth in attached
Schedules B and C will become participants on the Effective Date. If and
when participants are added or deleted, the Schedules will be appropriately
amended.
3. Termination of Employment; Severance Benefits.
3.1 Window Period. If an Executive's employment terminates during that
Executive's "Window Period," the Company and such Executive will be
required to discharge the applicable obligations described in this Section
3 and elsewhere in the Plan. The Window Period of an Executive will begin
on the date of any Change of Control that occurs during the Term of the
Plan and will end, in the case of an Executive whose name or position is
listed on Schedule B (a "Schedule B Executive"), on the second anniversary
of the Change of Control and, in the case of an Executive whose name or
position is listed on Schedule C (a "Schedule C Executive"), on the first
anniversary of the Change of Control. If an Executive's employment
terminates at any time other than during his or her Window Period, the
Executive will have no rights under this Plan, and the Plan will cease to
be effective as to that person.
3.2 Termination upon Death or Disability. If an Executive ceases to be
an employee of the Company as a result of death or disability, the Company
will have no further obligation or liability to the Executive under this
Plan, but nothing in the Plan is intended to interfere with the rights of
the Executive and his or her family or beneficiaries under other applicable
plans, policies or arrangements of the Company. For purposes of this
Section 3.2, the Company may terminate an Executive's employment for
"disability" if, because of physical or mental incapacity, the Executive is
unable for a period of 30 consecutive days to perform each of the material
duties of his or her position, and it is determined by a qualified
physician chosen by the Company and approved by the Executive or his or her
conservator to be probable that such incapacity will continue for an
additional 60 consecutive days.
3.3 Termination by the Company for Cause or by an Executive Without Good
Reason. If the Company terminates an Executive's employment for Cause (as
defined in this Section 3.3) or if an Executive terminates his or her
employment other than for Good Reason (as defined in Section 3.4), the
Company will have no further obligation or liability to the Executive under
this Plan.
"Cause" means (a) willful malfeasance or gross negligence in the
performance by the Executive of his or her duties, resulting in harm to the
Company, (b) fraud or dishonesty by the Executive with respect to the
Company, or (c) the Executive's conviction of a felony.
3.4 By the Company Without Cause or By the Executive for Good Reason.
(a) Entitlement to Severance Benefits. If, during an Executive's Window
Period, the Company terminates the Executive's employment without Cause, or
if the Executive terminates his or her employment for Good Reason, the
Company will, subject to Section 4, provide severance benefits to the
Executive as set forth below in paragraph (b).
"Good Reason" means (i) reduction of the Executive's base salary below the
level in effect immediately prior to the Change of Control without the
Executive's prior written consent, or (ii) relocation of the Executive's
principal place of work to a location more than 50 miles from its location
immediately prior to the Change of Control.
(b) Severance Benefits. The benefits to be provided to the Executive
under this Section 3.4 are as follows:
(i) The Company will pay to the Executive within 30 days of the
termination of employment a lump-sum cash amount equal to the applicable
percentage of the sum of (A) the Executive's annual base salary in effect
immediately prior to the termination (or, if his or her base salary has
been reduced after the Change of Control, the base salary in effect prior
to the reduction), plus (B) the average of the bonuses earned by the
Executive for the period of three years (or such fewer number of years as
the Executive has been employed by the Company) completed immediately prior
to the termination or immediately prior to the Change of Control, whichever
is higher (for this purpose, annualizing bonuses paid for less than a full
year's employment). An Executive's "applicable percentage" will be 200% in
the case of Schedule B Executives, and 100% in the case of Schedule C
Executives.
(ii) The Company will also pay to the Executive within 30 days of the
termination of employment a pro-rata portion of his or her target bonus for
the year of termination.
(iii) The Company will continue for the applicable period to provide the
Executive with family medical, disability and life insurance coverage and
automobile allowance at the level in effect immediately prior to the Change
of Control. To the extent the Company is unable to provide such benefits
to an Executive under its existing plans and arrangements, it will either
arrange to provide the Executive with substantially similar benefits upon
comparable terms or pay the Executive cash amounts equal to the Executive's
cost of obtaining such benefits. An Executive's "applicable period" will
be two years in the case of a Schedule B Executive and one year in the case
of a Schedule C Executive.
(iv) Notwithstanding any contrary provision of the plans or arrangements
under which they are granted, (A) all options to purchase Company stock
held by Executive will immediately become exercisable and will not
terminate prior to the time they would have terminated had Executive
remained in the employ of the Company and (B) all restricted stock held by
Executive under restricted stock plans and arrangements of the Company will
immediately become fully vested.
(v) The Executive's benefits under the Company's Supplemental Retirement
Income Plan will immediately become fully vested.
4. Limitation of Benefits.
4.1 The payments and benefits to which an Executive will be entitled
under Section 3 of this Plan will be reduced to the extent necessary to
prevent the Executive from becoming liable for the excise tax levied on
certain "excess parachute payments" under section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"). If a reduction is made
under this Section 4.1, the Executive will have the right to determine
which payments and benefits will be reduced.
4.2 Determinations under this Section 4 will be made by the firm of
certified public accountants then serving as the Company's auditor unless
the Executive has reasonable objections to the use of that firm, in which
case the determinations will be made by a comparable firm chosen by the
Executive after consultation with the Company. The determinations of such
firm will be binding upon the Company and the Executive.
5. Withholding. All payments required to be made by the Company under
this Plan will be subject to the withholding of such amounts, if any,
relating to tax and other payroll deductions as may be required by law.
6. Fees and Expenses. The Company will pay any and all fees and expenses
(including legal fees and other costs of arbitration or litigation) that
may be incurred by an Executive in enforcing his or her rights under this
Plan.
7. No Duty to Mitigate. Benefits payable under this Plan as a result of
termination of an Executive's employment will be considered severance pay
in consideration of his or her past service and continued service from the
Effective Date, and the Executive's entitlement thereto will neither be
governed by any duty to mitigate damages by seeking further employment nor
offset by any compensation received from other employment.
8. Confidentiality and Exclusivity. Each Executive (by participation in
the Plan) agrees to maintain the confidentiality of the Company's (and its
related entities and projects) books, records, financial information,
technical information, business plans and/or strategies, and other
confidential matters unless required to make disclosure in the performance
of his or her duties for the Company or as a result of a legal proceeding
or other legally mandated cause. Should the Company be required to pursue
a claim against an Executive under this Section 8, the Company will likely
be required to seek injunctive relief as well as damages at law.
Accordingly, Section 9, Arbitration, will not apply to any action by the
Company against an Executive for violation of this Section 8. Each
Executive (by participation in the Plan) agrees for purposes of any
disputes arising under this Section 8 to submit to the exclusive
jurisdiction of the federal and state courts in the Commonwealth of
Massachusetts.
9. Arbitration. Except as otherwise provided in Section 8, any dispute
or controversy between the Company and an Executive involving the
construction or application of any terms, covenants or conditions of this
Plan, or any claim arising out of this Plan, that is not resolved within
ten days by the parties will be settled by arbitration in Boston,
Massachusetts, in accordance with the rules of the American Arbitration
Association then in effect, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction thereof. The
Company and all Executives (by participation in this Plan) agree that the
arbitrator(s) will have no authority to award punitive or exemplary damages
or so-called consequential or remote damages such as damages for emotional
distress. Any decision of the arbitrator(s) will be final and binding upon
the parties. Either party may request that the arbitrator(s) submit
written findings of fact and conclusions of law. The Company and all
Executives (by participation in this Plan) agree and understand that they
are waiving their rights to a jury trial of any dispute or controversy
relating to the matters specified above in this Section 9.
10. Rights of Survivors. If an Executive dies after becoming entitled to
benefits under Section 3 following termination of employment but before all
such benefits have been provided, (a) all unpaid cash amounts will be paid
to the beneficiary that has been designated by the Executive in writing
(the "beneficiary"), or if none, to the Executive's estate, (b) all
applicable insurance coverage will be provided to the Executive's family as
though the Executive had continued to live, and (c) any stock options that
became exercisable under Section 3.4(b)(iv) will be exercisable by the
beneficiary, or if none, the estate.
11. Successors. This Plan will inure to and be binding upon the
Company's successors. The Company will require any successor to all or
substantially all of the business and/or assets of the Company by sale,
merger or consolidation (where the Company is not the surviving
corporation), lease or otherwise, to adopt this Plan expressly.
Obligations under this Plan are not otherwise assignable by the Company.
12. Subsidiaries. For purposes of this Plan, employment by a corporation
or other entity that is controlled directly or indirectly by the Company
will be deemed to be employment by the Company. Thus, references in the
Plan to "Company" include such corporations or other entities where
appropriate in the context.
13. Amendment or Termination. This Plan may be amended or terminated by
the Company at any time prior to a Change of Control. Following a Change
of Control the Plan may not be amended or terminated with respect to any
Executive unless agreed to in writing by such Executive and the Company.
14. Severability. In the event that any provision of this Plan is
determined to be invalid or unenforceable, the remaining provisions are
intended to remain in full force and effect to the fullest extent permitted
by law.
15. Controlling Law. This Plan will be controlled and interpreted
pursuant to Massachusetts law.
OAK INDUSTRIES INC.
By: __________________________________
Schedule A
----------
"Change of Control" means the occurrence of any of the following events:
(1) any Person becomes the owner of 20% or more of the Company's Common
Stock; or
(2) individuals who, as of the Effective Date, constitute the Board of
Directors of the Company (the "Continuing Directors") cease for any reason
to constitute at least a majority of such Board; provided, however, that
any individual becoming a director after the Effective Date whose election
or nomination for election by the Company's shareholders, was approved by a
vote of at least a majority of the Continuing Directors will be deemed to
be a Continuing Director, but excluding for this purpose any such
individual whose initial assumption of office occurs as a result of either
an actual or threatened election contest (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the Securities and Exchange Act
of 1934 (the "Exchange Act")) or other actual or threatened solicitation of
proxies or consents by or on behalf of a Person other than the Board; or
(3) approval by the shareholders of the Company of a reorganization,
merger, consolidation or other transaction that will result in the transfer
of ownership of more than 50% of the Company's Common Stock; or
(4) liquidation or dissolution of the Company or sale of substantially all
of the Company's assets.
In addition, for purposes of this definition the following terms have the
meanings set forth below:
"Common Stock" means the then outstanding Common Stock of the Company plus,
for purposes of determining the stock ownership of any Person, the number
of unissued shares of Common Stock which such Person has the right to
acquire (whether such right is exercisable immediately or only after the
passage of time) upon the exercise of conversion rights, exchange rights,
warrants or options or otherwise. Notwithstanding the foregoing, the term
Common Stock does not include shares of preferred stock or convertible debt
or options or warrants to acquire shares of Common Stock (including any
shares of Common Stock issued or issuable upon the conversion or exercise
thereof) to the extent that the Board expressly so determines in any future
transaction or transactions.
A Person will be deemed to be the "owner" of any Common Stock of which such
Person would be the "beneficial owner," as such term is defined in Rule
13d-3 promulgated by the Securities and Exchange Commission under the
Exchange Act.
"Person" has the meaning used in Section 13(d) of the Exchange Act, except
that "Person" does not include (i) the Executive with respect to whom the
Plan is being applied, an Executive Related Party, or any group of which
the Executive or Executive Related Party is a member, or (ii) the Company
or a wholly owned subsidiary of the Company or an employee benefit plan (or
related trust) of the Company or of a wholly owned subsidiary.
An "Executive Related Party" means any affiliate or associate of the
Executive with respect to whom the Plan is being applied other than the
Company or a subsidiary of the Company. The terms "affiliate" and
"associate" have the meanings given in Rule 12b-2 under the Exchange Act;
the term "registrant" in the definition of "associate" means, in this case,
the Company.
<PAGE>
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