<PAGE>
===========================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
------------------
For Quarter Ended March 31, 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 02154
(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 May 11, 1998, the Company had outstanding 18,038,390 shares of Common
Stock, $0.01 par value per share.
===========================================================================
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1998
--------------------- ---------------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................... $ 8,642 $ 3,118
Receivables, less reserves................... 47,036 50,327
Inventories:
Raw materials ............................ 14,153 15,091
Work in process........................... 28,852 30,370
Finished goods............................ 8,292 51,297 11,100 56,561
------- -------
Deferred income taxes........................ 16,143 14,373
Other current assets......................... 2,488 3,996
--------- --------
Total current assets................... 125,606 128,375
Plant and Equipment, at cost.................... 159,351 161,733
Less - Accumulated depreciation................. (89,926) 69,425 (92,895) 68,838
------- -------
Deferred income taxes........................... 775 728
Goodwill and other intangible assets, less
accumulated amortization of
$17,239 and $18,764.......................... 178,577 177,031
Investment in affiliates........................ 8,358 8,538
Other assets.................................... 5,049 9,187
--------- ----------
Total Assets........................... $ 387,790 $ 392,697
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt............ $ 443 $ 434
Accounts payable............................. 11,128 16,781
Accrued liabilities.......................... 29,217 27,196
--------- ---------
Total current liabilities.............. 40,788 44,411
Other Liabilities............................... 8,429 7,867
Long-Term Debt, Less Current Maturities......... 151,465 145,283
Minority Interest............................... 4,954 4,638
Stockholders' Equity:
Common stock................................. 190 190
Additional paid-in capital................... 305,740 306,135
Accumulated deficit.......................... (97,956) (91,464)
Unearned compensation - restricted stock..... (1,754) (1,645)
Treasury stock............................... (22,092) (20,652)
Other........................................ (1,974) 182,154 (2,066) 190,498
------- --------- ------- ----------
Total Liabilities and Stockholders'
Equity.............................. $ 387,790 $ 392,697
========= ==========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1997 1998
-------- --------
<S> <C> <C>
Net sales............................................... $ 73,042 $ 79,214
Cost of sales........................................... (47,956) (49,540)
--------- ---------
Gross profit............................................ 25,086 29,674
Selling, general and administrative expenses............ (15,887) (17,170)
--------- ---------
Operating income........................................ 9,199 12,504
Interest expense........................................ (2,481) (2,565)
Interest income......................................... 76 177
Equity in net income of affiliated companies............ 39 584
--------- ---------
Income before income taxes and minority interest........ 6,833 10,700
Income tax provision.................................... (2,597) (4,066)
Minority interest in net income of subsidiaries......... (209) (142)
--------- ---------
Net income.............................................. $ 4,027 $ 6,492
========= =========
Income per share - basic
Net income........................................ $ .22 $ .37
========= =========
Weighted average number of shares outstanding - basic... 18,227 17,744
========= =========
Income per share - diluted
Net income........................................ $ .22 $ .35
========= =========
Weighted average number of shares outstanding - diluted. 18,549 19,464
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
----------------------
1997 1998
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
Operating Activities:
Net income .......................................... $ 4,027 $ 6,492
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation................................... 3,026 3,427
Amortization................................... 1,699 1,825
Minority interest.............................. 209 142
Gain on the sale of properties................. (253) --
Undistributed earnings of affiliated companies. (39) (584)
Changes in assets and liabilities,
net of effects from acquisition
of businesses:
Receivables................................. (5,355) (3,501)
Inventories................................. 1,912 (5,264)
Accounts payable and accrued liabilities.... (1,864) 3,696
Other....................................... (402) 57
--------- ---------
Net cash provided by operations......................... 2,960 6,290
--------- ---------
Investing Activities:
Capital expenditures................................. (2,324) (3,106)
Acquisition of business.............................. (526) --
Proceeds from the sale of properties................. 1,524 --
Other................................................ 3 24
--------- ---------
Net cash used in investing activities................... (1,323) (3,082)
--------- ---------
Financing Activities:
Long-term borrowings................................. 10,282 104,000
Repayment of borrowings.............................. -- (110,191)
Stock repurchases.................................... (10,132) --
Exercise of stock options............................ 185 1,160
Dividends paid to minority stockholders.............. -- (458)
Deferred debt issuance costs......................... -- (3,213)
--------- --------
Net cash provided by (used in) financing activities..... 335 (8,702)
--------- --------
Effect of exchange rate changes on cash and
cash equivalents.................................... (350) (30)
--------- --------
Cash and Cash Equivalents:
Net change during the period......................... 1,622 (5,524)
Balance, beginning of period......................... 6,116 8,642
--------- ---------
Balance, end of period............................... $ 7,738 $ 3,118
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
<PAGE>
OAK INDUSTRIES INC.
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 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 March 31,
1998, and the results of their operations and cash flows for the three
month periods ending March 31, 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. 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 March 31,
1997 and 1998 in the amounts of $2.4 million and $2.3 million,
respectively. Income taxes paid during the three months ended March 31,
1997 and 1998 were $0.9 million and $1.1 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
Ended March 31,
----------------------
1997 1998
-------- --------
<S> <C> <C>
Basic
Net income................................ $ 4,027 $ 6,492
Weighted average shares outstanding....... 18,227 17,744
Net income per share...................... $ .22 $ .37
========= =========
Diluted
Net income................................ $ 4,027 $ 6,492
Interest expense and amortization of
deferred costs, net of tax,
related to 4 7/8% convertible
subordinated notes..................... -- 320
--------- ---------
Net income as adjusted.................... $ 4,027 $ 6,812
Weighted average shares:
Outstanding............................... 18,227 17,744
Incremental shares related to
4 7/8% convertible subordinated notes.. -- 1,035
Incremental shares related to other
common stock equivalents............... 322 685
--------- ---------
Total shares outstanding, as adjusted..... 18,549 19,464
Net income per share...................... $ .22 $ .35
========= =========
</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 March
31, 1997 and 1998, foreign currency translation adjustments were losses of
$0.8 million and $0.2 million, respectively, and unrealized gains on
available-for-sale securities amounted to $0.1 million for the three months
ended March 31, 1998. There were no unrealized gains or losses on
available-for-sale securities for the three months ended March 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FIRST QUARTER RESULTS OF OPERATIONS
SUMMARY
Net sales increased 8.4% to $79.2 million in the first quarter of 1998
from $73.0 million in the first quarter of 1997. Net income increased to
$6.5 million in the first quarter of 1998 from $4.0 million in the first
quarter of 1997 primarily due to increased operating income in the
communications components group.
SALES
The Company's communications components sales increased 15.2% in the
first quarter of 1998 compared to sales in the same period in 1997. This
growth was primarily the result of increased sales at the Oak Frequency
Control Group. Sales at Gilbert Engineering Co., Inc. ("Gilbert") and
Lasertron, Inc. also increased during the first quarter of 1998 compared to
the first quarter of 1997.
Sales at the controls components group decreased 4.9% during the first
quarter of 1998 versus sales in the comparable prior year period. This
decrease in sales 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 quarter of 1998 was 37.5% compared
to 34.3% during the first quarter of 1997. Gross profit margin improved in
the communications components group as a result of increased production
volumes. In the controls components group gross profit margin also
improved despite lower sales volume, because the mix of products shifted to
higher margin components.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses increased to $17.2 million
during the first quarter of 1998 compared to $15.9 million of such expenses
during the first quarter of 1997. This increase was primarily the result
of increased research and development expenses and increased selling and
marketing expenses. During the first quarter of 1998, the Company received
$0.4 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 quarter of 1997.
INTEREST EXPENSE
Interest expense increased to $2.6 million during the first quarter of
1998 from $2.5 million during the first quarter of 1997. The increase
resulted from higher levels of borrowings during the first quarter of 1998
compared to borrowings during the first quarter of 1997 offset partially by
a lower effective rate of interest. The effective rate of interest for the
first quarter of 1998 was lower than the rate in the first quarter of 1997
mainly as a result of the lower interest rate on the Company's convertible
subordinated notes that were issued on February 25, 1998.
INCOME TAXES
The effective income tax rate for financial reporting purposes for the
first quarter of 1998 was 38.0%. The tax rate for the comparable prior
year period was also 38.0%
MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES
Minority interest in net income of subsidiaries during the first quarter
of 1998 decreased to $0.1 million from $0.2 million in the first quarter of
1997 as the result of reduced minority interest ownership of Gilbert.
During the first quarter of 1998, minority stockholders owned 3.75% of
Gilbert compared to 7.5% during the first quarter of 1997.
EQUITY IN NET INCOME OF AFFILIATED COMPANIES
Equity in net income of affiliated companies was $0.58 million for the
first quarter of 1998 compared to $0.04 million in the comparable prior
year period. This increase resulted primarily from increased income from
Wuhan Telecommunication Devices Co., and from a gain of $0.48 million from
the Company's sale to its joint-venture partner of the Company's 50%
interest in a joint venture that manufactured quartz crystal blanks in
Venezuela.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the first quarter of 1998 was $6.3
million compared to $3.0 million for the first quarter of 1997. This
increase was in large part the result of increased net income. Capital
expenditures for the first quarter of 1998 were $3.1 million compared to
$2.3 million for the first quarter of 1997. Capital expenditures during
the first quarter of 1998 were mainly for equipment for capacity expansion
and new product introductions.
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 March 31, 1998,
the Company had outstanding loans of $43.0 million under the Facility.
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. 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 disclosure statement footnote 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.
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 initial assessment of the impact of the
Year 2000 on computers and software 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 has retained
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.
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 February 25, 1998, the Company sold an aggregate of $100 million
principal amount of 4 7/8% convertible subordinated notes due 2008 through
a private offering to qualified institutional buyers and, outside the
United States, to non-U.S. investors. The initial purchasers were
Donaldson, Lufkin and Jenrette Securities Corporation, Lehman Brothers and
Cowen and Company. The aggregate of the discounts and commissions of the
offering was $3 million. The Notes were sold in reliance on Rule 144A
under the Securities Act to "qualified institutional buyers" and Regulation
S under the Securities Act outside the United States to certain persons in
offshore transactions. The Notes are convertible into common stock of the
Company at a conversion price of $38.66 per share subject to adjustment in
certain events at any time at or before maturity, unless previously
redeemed. The Company has filed a Registration Statement on Form S-3 with
the Securities and Exchange Commission under the Securities Act which was
declared effective on May 6, 1998 and which permits the resale, on a
registered basis, of the Notes and of the shares of common stock of the
Company issuable upon conversion of the Notes from time to time by the
securityholders named or to be named therein. The shares of common stock
issuable upon conversion of the Notes have been approved for listing on the
New York Stock Exchange and the Pacific Exchange, Inc. upon official notice
of issuance.
On March 5, 1998, the Company issued a total of 2,201 shares of its
common stock to two departing employees from its Supplemental Retirement
Income Plan (the "SRIP"). These shares represented vested matching
contributions made by the Company to the former employees' SRIP accounts.
These transactions were effected pursuant to exemptions 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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
(10.1) 1995 Stock Option and Restricted Stock Plan, as amended
effective as of April 24, 1998, filed herewith.
(10.2) Third Amendment dated as of February 13, 1998 to 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 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:
On February 12, 1998, the Company filed a report on Form 8-K
regarding a press release issued by the Company concerning an
offering of convertible notes (the "Offering").
On February 20, 1998, the Company filed a report on Form 8-K
regarding a press release issued by the Company discussing the
pricing terms of the Offering.
On February 25, 1998, the Company filed a report on Form 8-K
regarding a press release issued by the Company discussing the
closing of the Offering.
<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: May 12, 1998 /s/ Coleman S. Hicks
Coleman S. Hicks
Senior Vice President and
Chief Financial Officer
<PAGE>
THIRD AMENDMENT dated as of February 13, 1998 (this "Third
Amendment"), to the Credit Agreement referred to below among OAK INDUSTRIES
INC., a Delaware corporation (the "Borrower"), the lenders party hereto and
THE CHASE MANHATTAN BANK, a New York banking corporation, as administrative
agent for the Lenders (in such capacity, the "Administrative Agent").
A. The parties hereto have entered into a Credit Agreement dated as
of November 1, 1996 (as amended, the "Credit Agreement").
B. The Borrower has requested that certain terms of the Credit
Agreement be amended to the extent necessary to allow the Borrower to issue
certain subordinated notes, and the Required Lenders are willing, on the
terms and subject to the conditions set forth below, to agree to amend the
Credit Agreement as provided herein.
C. Capitalized terms used and not otherwise defined herein shall
have the meanings assigned to them in the Credit Agreement.
In consideration of the premises and the agreements, provisions and
covenants herein contained, the parties hereto hereby agree, on the terms
and subject to the conditions set forth herein, as follows:
SECTION 1. Amendment of Article I. (a) Article I of the Credit
Agreement is hereby amended by inserting therein the following definitions
in the proper alphabetical order:
"Third Amendment Effective Date" shall mean the date on which all
conditions to effectiveness set forth in Section 3 of the Third Amendment
dated as of February 13, 1998 to the Credit Agreement have been satisfied.
(b) The definition of "Subordinated Notes" in Article I of the Credit
Agreement is hereby restated in its entirety as follows:
"Subordinated Notes" shall mean up to $110 million in aggregate
principal amount of subordinated notes (and up to an additional $16.5
million of such subordinated notes issued in connection with the exercise
by the Underwriters of an over-allotment option) issued by the Borrower and
subordinated in right of payment to the Obligations pursuant to
documentation containing interest rates, payment terms, maturities,
amortization schedules, covenants, defaults, remedies, subordination
provisions, overallocation provisions and other material terms in form and
substance satisfactory to the Required Lenders and the Administrative
Agent.
SECTION 2. Representations and Warranties. The Borrower represents
and warrants to each of the Lenders and the Administrative Agent that:
(i) Before and after giving effect to this Third Amendment, the
representations and warranties set forth in Article III of the Credit
Agreement are true and correct in all material respects with the same
effect as if made on the date hereof, except to the extent such
representations and warranties expressly relate to an earlier date.
(ii) Before and after giving effect to this Third Amendment, no
Event of Default or Default has occurred and is continuing.
SECTION 3. Conditions to Effectiveness. This Third Amendment shall
become effective upon the Third Amendment Effective Date when the
Administrative Agent shall have received counterparts of this Third
Amendment that, when taken together, bear the signatures of the Borrower,
the Guarantors and the Required Lenders.
SECTION 4. Receipt of Documents; Consent to Terms of Subordinated
Notes. Each of the Administrative Agent and each Lender (a) acknowledges
receipt of (i) the draft dated 2/10/98 of the Indenture relating to
$100,000,000 of the Borrower's Convertible Subordinated Notes and (ii) the
draft dated 2/10/98 of the offering memorandum relating to such
Subordinated Notes and (b) consents to the terms of such Subordinated
Notes; provided; that the final terms of the Subordinated Notes are
consistent in all material respects with the terms set forth in such
drafts..
SECTION 5. Credit Agreement. Except as specifically stated herein,
the provisions of the Credit Agreement are and shall remain in full force
and effect.
SECTION 6. Applicable Law. THIS THIRD AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 7. Counterparts. This Third Amendment may be executed in
two or more counterparts, each of which shall constitute an original but
all of which when taken together shall constitute but one contract.
SECTION 8. Expenses. The Borrower agrees to reimburse the
Administrative Agent for its out-of-pocket expenses in connection with this
Third Amendment, including the reasonable fees, charges and disbursements
of Cravath, Swaine and Moore, counsel for the Administrative Agent.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be duly executed by their respective authorized officers as of
the day and year first written above.
OAK INDUSTRIES INC.,
by
____________________________
Name:
Title:
THE CHASE MANHATTAN BANK, individually and as
Administrative Agent,
by
____________________________
Name:
Title:
ABN AMRO BANK N.V., Boston Branch,
by: ABN AMRO North America, Inc., as Agent
by
____________________________
Name:
Title:
by
____________________________
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NATIONSBANK OF TEXAS, N.A.,
by
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LTCB TRUST CO.,
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THE ROYAL BANK OF SCOTLAND PLC - NEW YORK
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FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
by
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Name:
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FLEET NATIONAL BANK,
by
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Name:
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CREDIT LYONNAIS NEW YORK BRANCH,
by
____________________________
Name:
Title:
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OAK INDUSTRIES INC.
1995 STOCK OPTION AND RESTRICTED STOCK PLAN
As amended through April 24, 1998
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.
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 4,000,000. 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 2,000,000. The maximum
number of shares subject to Stock Appreciation Rights granted to any
individual over the life of the Plan shall likewise be 2,000,000. 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.
An Option that is exercised using shares of Stock to pay the Option price
shall be treated, for purposes of this Section 2.3 only, as the exercise
of a Stock Appreciation Right for Stock.
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 - Shares used to Satisfy Tax Withholding
Any shares of Stock that are used to satisfy tax withholding
consequences of an Option exercise or the grant or vesting of an Award
shall become available for award under the Plan.
Section 2.6 - Changes in Company's Shares
In the event that the outstanding shares of Stock are hereafter
changed into or exchanged for a different number or kind of shares or
other securities of the Company, or of another corporation, by reason of
reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, stock dividend or combination of
shares, appropriate adjustments shall be made by the Committee in the
number and kind of shares subject to Options, Stock Appreciation Rights
and Restricted Stock then outstanding or subsequently granted under the
Plan, including but not limited to adjustments of the limitations in
Section 2.1 on the maximum number and kind of shares which may be issued
under the Plan.
ARTICLE III
GRANTING OF OPTIONS
Section 3.1 - Eligibility
Any 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
The Committee shall from time to time, in its absolute discretion:
(a) Determine which non-Employee Directors and 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.
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 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.
Section 4.7 - Cancellation of Options
The Committee shall not, without shareholder approval, cancel an
outstanding Option in consideration for the grant to the Optionee of a
replacement Option at a lower exercise price.
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 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 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; provided further, however, that the Committee
shall not, without shareholder approval, remove any restrictions relating
to the vesting of a grant of Restricted Stock if such removal would
result in the vesting of such grant over a period of less than three
years, except in the case of vesting restrictions tied to performance, in
which case the Committee shall not, without shareholder approval, remove
such restrictions if such removal would result in the vesting of such
grant over a period of less than one year. Notwithstanding anything to
the contrary in this Plan, the Committee shall be permitted to provide
for the vesting of Restricted Stock, or for the removal of vesting
restrictions (i) upon death or disability of the holder (ii) upon the
merger, consolidation, acquisition, liquidation or dissolution of the
Company pursuant to Section 8.6 hereof or (iii) pursuant to severance
arrangements that have been approved by the Board. Vesting restrictions
imposed pursuant to this Section 8.4 shall expire over a period ending no
earlier than the third anniversary of the Restricted Stock's grant date,
except in the case of vesting restrictions tied to performance, in which
case such vesting restrictions shall expire over a period ending no
earlier than the first anniversary of such Restricted Stock's grant date.
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
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 Committee may at any time discontinue making grants under the
Plan. 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 December 7, 2004.
Section 10.2 - Approval of Plan by Shareholders
This Plan was initially approved by the shareholders on May 3, 1995.
On February 5, 1998, the Board approved amendments to (a) Section 2.1 of
the Plan increasing (i) the aggregate number of shares of Stock which may
be delivered pursuant to the Plan from 2,000,000 to 4,000,000 shares and
(ii) the per-individual limitations on the number of shares of Stock for
which Options and Stock Appreciation Rights may be granted, and (b)
Section 3.3 of the Plan to permit discretionary grants of Options to non-
Employee Directors of the Company. Such amendments were approved by the
shareholders on April 24, 1998.
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.
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