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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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For Quarter Ended June 30, 1999
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 /X / No / /
Indicate number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
As of August 11, 1999, the Company had outstanding 18,256,652 shares of
Common Stock, $0.01 par value per share.
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PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED CONDENSED BALANCE SHEET
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1998 June 30, 1999
--------------------- ---------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 13,754 $ 7,739
Receivables, less reserves................. 59,968 66,282
Inventories:
Raw materials........................... 28,225 26,262
Work in process......................... 33,699 33,561
Finished goods.......................... 15,397 77,321 11,688 71,511
--------- ---------
Deferred income taxes...................... 11,491 10,930
Other current assets....................... 2,902 4,034
--------- ---------
Total current assets................. 165,436 160,496
Plant and equipment, at cost.................. 199,027 202,681
Less - accumulated depreciation............... (100,057) 98,970 (108,723) 93,958
--------- ---------
Goodwill and other intangible assets, less
accumulated amortization of
$23,566 and $26,547........................ 196,531 191,334
Investment in affiliates...................... 11,014 10,336
Other assets.................................. 10,486 13,926
--------- ---------
Total Assets......................... $ 482,437 $ 470,050
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.......... $ 2,051 $ 1,840
Accounts payable........................... 20,800 23,005
Accrued liabilities........................ 30,453 23,167
--------- ---------
Total current liabilities............ 53,304 48,012
Other Liabilities............................. 8,603 11,041
Long-Term Debt, Net of Current Portion........ 119,555 86,599
4 7/8% Convertible Subordinated Notes......... 100,000 100,000
Stockholders' Equity:
Common stock............................... 192 198
Additional paid-in capital................. 312,860 329,111
Accumulated deficit........................ (70,617) (55,399)
Accumulated other comprehensive income..... (4,662) (12,229)
Unearned compensation - restricted stock... (995) (1,569)
Treasury stock............................. (35,541) (35,452)
Other...................................... (262) 200,975 (262) 224,398
--------- --------- --------- ---------
Total Liabilities and
Stockholders' Equity............... $ 482,437 $ 470,050
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ---------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales....................................... $ 88,662 $ 109,709 $ 167,876 $ 214,542
Cost of sales................................... (54,629) (71,585) (104,169) (142,241)
-------- --------- --------- ---------
Gross profit.................................... 34,033 38,124 63,707 72,301
Selling, general and administrative expenses.... (19,614) (20,592) (36,784) (41,568)
-------- --------- --------- ---------
Operating income................................ 14,419 17,532 26,923 30,733
Interest expense................................ (2,300) (3,226) (4,865) (6,753)
Interest income................................. 137 138 314 237
Equity in net income (loss)
of affiliated companies...................... 851 (301) 1,435 (660)
-------- --------- --------- ---------
Income before income taxes and minority
interest..................................... 13,107 14,143 23,807 23,557
Income tax provision............................ (4,981) (4,949) (9,047) (8,339)
Minority interest in net income of subsidiaries. (210) -- (352) --
-------- --------- --------- ---------
Net income...................................... $ 7,916 $ 9,194 $ 14,408 $ 15,218
======== ========= ========= =========
Income per share - basic
Net income................................ $ .44 $ .51 $ .81 $ .86
======== ========= ========= =========
Weighted average number of shares
outstanding - basic.......................... 17,887 17,895 17,817 17,719
======== ========= ========= =========
Income per share - diluted
Net income................................ $ .41 $ .47 $ .76 $ .80
======== ========= ========= =========
Weighted average number of shares
outstanding - diluted........................ 21,233 21,329 20,346 21,039
======== ========= ========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------
1998 1999
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
Operating Activities:
Net income.................................................. $ 14,408 $ 15,218
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation.......................................... 6,806 9,635
Amortization.......................................... 3,686 4,398
Minority interest..................................... 352 --
Undistributed earnings of affiliated companies........ (537) 660
Changes in assets and liabilities:
Receivables........................................ (5,424) (7,103)
Inventories........................................ (6,403) 4,457
Accounts payable and accrued liabilities........... 4,363 1
Other.............................................. 3,715 (2,589)
---------- ---------
Net cash provided by operations................................ 20,966 24,677
---------- ---------
Investing Activities:
Capital expenditures........................................ (8,511) (8,623)
Acquisition of businesses................................... (1,000) (800)
Other....................................................... 302 136
---------- ---------
Net cash used in investing activities.......................... (9,209) (9,287)
---------- ---------
Financing Activities:
Long-term borrowings........................................ 108,042 13,000
Repayment of borrowings..................................... (118,293) (45,038)
Exercise of stock options................................... 5,178 11,349
Dividends paid to minority stockholders..................... (750) --
Deferred debt issuance costs................................ (3,303) --
Other....................................................... (396) --
---------- ---------
Net cash used in financing activities.......................... (9,522) (20,689)
---------- ---------
Effect of exchange rate changes on cash and cash equivalents (53) (716)
---------- ---------
Cash and Cash Equivalents:
Net change during the period................................ 2,182 (6,015)
Balance, beginning of period................................ 8,642 13,754
---------- ---------
Balance, end of period...................................... $ 10,824 $ 7,739
========== =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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 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 the Company and its
consolidated subsidiaries as of December 31, 1998 and June 30, 1999, and
the results of their operations and cash flows for the three and six month
periods ending June 30, 1998 and 1999 have been included. The results of
operations for such interim periods are not necessarily indicative of the
results for the full year.
2. The Company paid interest on debt for the three months ended June 30,
1998 and 1999 in the amounts of $0.7 million and $1.9 million,
respectively, and for the six months ended June 30, 1998 and 1999 in the
amounts of $3.0 million and $6.2 million, respectively. Income taxes paid
during the three months ended June 30, 1998 and 1999 were $5.8 million and
$3.9 million, respectively, and the six months ended June 30, 1998 and 1999
were $6.9 million and $8.0 million, respectively.
3. 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,
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
BASIC
Net income..................................... $ 7,916 $ 9,194 $ 14,408 $ 15,218
Weighted average shares outstanding............ 17,887 17,895 17,817 17,719
Net income per share........................... $ .44 $ .51 $ .81 $ .86
======== ======== ========= ========
DILUTED
Net income..................................... $ 7,916 $ 9,194 $ 14,408 $ 15,218
Interest expense and amortization of deferred
costs, net of tax, related to 4 7/8%
convertible subordinated notes.............. 807 846 1,127 1,679
-------- -------- --------- --------
Net income as adjusted......................... $ 8,723 $ 10,040 $ 15,535 $ 16,897
Weighted average shares:
Outstanding................................. 17,887 17,895 17,817 17,719
Incremental shares related to 4 7/8%
convertible subordinated notes............ 2,587 2,587 1,811 2,587
Incremental shares related to other common
stock equivalents......................... 759 847 718 733
-------- -------- --------- --------
Total shares outstanding, as adjusted.......... 21,233 21,329 20,346 21,039
Net income per share........................... $ .41 $ .47 $ .76 $ .80
======== ======== ========= ========
</TABLE>
4. Certain items in the 1998 financial statements have been reclassified
to conform with 1999 presentation.
5. The Company's total comprehensive income was $7.8 million and $7.2
million for the three months ended June 30, 1998 and 1999, respectively.
Total comprehensive income was $14.2 million and $7.7 million for the six
months ended June 30, 1998 and 1999, respectively. The difference between
comprehensive income and net income is due to the inclusion of foreign
currency translation adjustments and unrealized gains on available-for-sale
securities in comprehensive income. For the three months ended June 30,
1998 and 1999, foreign currency translation adjustments were losses of
$0.09 million and $2.0 million, respectively. Foreign currency translation
adjustments were losses of $0.26 million and $7.5 million for the six
months ended June 30, 1998 and 1999, respectively. There were unrealized
gains on available-for-sale securities of $0.01 million and $0.09 million
for the three and six months ended June 30, 1998, respectively. There were
no unrealized gains on available-for-sale securities for the three and six
months ended June 30, 1999.
6. The Company's reportable segments are business units that offer
different products. The Company has four reportable segments: the "Cable
Broadband Products Segment," which manufactures coaxial connector products
used primarily in broadband networks; the "Frequency Control Products
Segment," which manufactures quartz-based crystals and oscillators for
wireless base stations and telecommunications applications; the "Fiber-
Optic Products Segment," which manufactures fiber-optic components
primarily used in wired telephony networks; and the "Controls Products
Segment," which manufactures components for gas ranges, and switches and
encoders used in a variety of applications.
Reported segment income is operating income and equity in net income
(loss) of affiliated companies directly attributable to the segment,
adjusted for minority interest in income before income taxes of
subsidiaries. Operating income is before corporate expenses, interest, and
unusual transactions. Equity in net income (loss) of affiliated companies
is before unusual transactions.
Summarized financial information concerning the Company's reportable
segments is shown in the following table (dollars in thousands):
<TABLE>
<CAPTION>
CABLE FREQUENCY
BROADBAND CONTROL FIBER-OPTIC CONTROLS
PRODUCTS PRODUCTS PRODUCTS PRODUCTS TOTAL
--------- --------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
QUARTER ENDED JUNE 30, 1999
Sales.............................. $ 38,975 $ 25,388 $ 17,472 $ 27,874 $ 109,709
Operating income................... 12,193 150 4,242 3,475 20,060
Equity in net loss of
affiliated companies............ -- -- (301) -- (301)
Minority interest in income before
income taxes of subsidiaries.... -- -- -- -- --
Segment income..................... 12,193 150 3,941 3,475 19,759
QUARTER ENDED JUNE 30, 1998
Sales.............................. 32,110 16,556 14,148 25,848 88,662
Operating income................... 8,765 2,425 3,496 3,217 17,903
Equity in net income of
affiliated companies (1)........ -- 280 571 -- 851
Minority interest in income before
income taxes of subsidiaries.... (354) -- -- -- (354)
Segment income..................... 8,411 2,705 4,067 3,217 18,400
<FN>
(1) Includes gain on sale of an equity investment in the Frequency Control
Products Segment.
</TABLE>
The following is a reconciliation of combined segment income to
consolidated income before income taxes and minority interest:
<TABLE>
<CAPTION>
For the Three Months
Ended June 30,
----------------------
1998 1999
-------- --------
<S> <C> <C>
Total income for reportable segments.................... $ 18,400 $ 19,759
Corporate............................................... (3,484) (2,528)
Interest expense........................................ (2,300) (3,226)
Interest income......................................... 137 138
Minority interest in income before income taxes
of subsidiaries................................... 354 --
--------- ---------
Income before income taxes and minority interest........ $ 13,107 $ 14,143
========= =========
</TABLE>
<TABLE>
<CAPTION>
CABLE FREQUENCY
BROADBAND CONTROL FIBER-OPTIC CONTROLS
PRODUCTS PRODUCTS PRODUCTS PRODUCTS TOTAL
--------- --------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 1999
Sales.............................. $ 73,651 $ 51,382 $ 34,975 $ 54,534 $ 214,542
Operating income (loss)............ 22,203 (1,235) 7,863 6,123 34,954
Equity in net loss of
affiliated companies............ -- -- (660) -- (660)
Minority interest in income before
income taxes of subsidiaries.... -- -- -- -- --
Segment income..................... 22,203 (1,235) 7,203 6,123 34,294
SIX MONTHS ENDED JUNE 30, 1998
Sales.............................. 57,677 33,674 27,256 49,269 167,876
Operating income................... 14,886 5,074 5,791 5,746 31,497
Equity in net income of
affiliated companies (1)........ -- 650 794 -- 1,444
Minority interest in income before
income taxes of subsidiaries.... (606) -- -- -- (606)
Segment income..................... 14,280 5,724 6,585 5,746 32,335
<FN>
(1) Includes gain on sale of an equity investment in the Frequency Control
Products Segment.
</TABLE>
The following is a reconciliation of combined segment income to
consolidated income before income taxes and minority interest:
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------
1998 1999
-------- --------
<S> <C> <C>
Total income for reportable segments.................... $ 32,335 $ 34,294
Corporate............................................... (4,574) (4,221)
Interest expense........................................ (4,865) (6,753)
Interest income......................................... 314 237
Equity in net loss of affiliated companies.............. (9) --
Minority interest in income before income taxes
of subsidiaries.................................... 606 --
--------- ---------
Income before income taxes and minority interest......... $ 23,807 $ 23,557
========= =========
</TABLE>
7. During the second quarter of 1999, the Company announced that it had
initiated discussions with investment bankers and other advisors about the
possible initial public offering ("IPO") of a minority interest in its
wholly-owned subsidiary, Lasertron, Inc. ("Lasertron"). The Company has
submitted to the Internal Revenue Service ("IRS") a request for a ruling on
the tax-free status of a distribution of the Company's stock in Lasertron
following an IPO of a minority interest in Lasertron. An IPO and spinoff
would be subject to a determination to proceed on the part of the Company's
Board of Directors. Any determination by the Company's Board of Directors
with respect to transactions or activities in the public markets,
including, but not limited to an initial public offering, is dependent on,
and subject to, among other things, market conditions; business conditions
such as demand for products and access to raw materials; general economic
conditions; and other factors external to the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SECOND QUARTER RESULTS OF OPERATIONS
- ------------------------------------
Summary
Net sales increased 24% to $109.7 million in the second quarter of 1999
from $88.7 million in the second quarter of 1998. Each of the Company's
business segments significantly increased sales in the second quarter of
1999 compared to the second quarter of 1998. Net income increased to $9.2
million in the second quarter of 1999 from $7.9 million in the second
quarter of 1998 due in large part to the growth in sales.
Sales
Sales by the Frequency Control Products Segment for the second quarter
of 1999 increased 53% over sales in the second quarter of 1998 primarily as
the result of the addition of sales by Tele Quarz GmbH ("Tele Quarz"),
which was acquired during the fourth quarter of 1998. The Cable Broadband
Products Segment increased its sales for the second quarter of 1999 by 21%
over sales for the second quarter of 1998 mainly as a result of strong
demand from domestic CATV customers. Sales of new products also
contributed to the growth in sales by the Cable Broadband Products Segment.
Sales by the Fiber-Optic Products Segment during the second quarter of 1999
grew by 23% compared to the comparable period in the prior year primarily
due to increased sales of 980 nm pump products, including the sales of
significantly higher volumes of 980 nm pump products with optical power
greater than 150 mW. Sales of high performance DFB lasers and
detector/receiver products also contributed to fiber-optic products sales
growth by the Fiber-Optic Products Segment during the second quarter of
1999. The Controls Products Segment's sales during the second quarter of
1999 increased by 8% compared to the sales levels achieved during the
second quarter of 1998. Within the Controls Products Segment, sales of
both gas range components and switch and encoder products increased.
Gross Profit
The gross profit margin for the second quarter of 1999 was 34.8%
compared to 38.4% during the second quarter of 1998. The decrease in gross
profit margin was mainly the result of reduced gross profit margin in the
Frequency Control Products Segment. The reduced margin in the Frequency
Control Products Segment was caused primarily by the inclusion of the
results of Tele Quarz, which sells products with gross margins lower than
the gross profit margin for the products sold by the Frequency Control
Products Segment during the second quarter of 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $20.6 million
during the second quarter of 1999 compared to $19.6 million of such
expenses during the second quarter of 1998 mainly as a result of the
inclusion of Tele Quarz's expenses. Selling, general and administrative
expenses declined as a percentage of sales to 18.8% in the second quarter
of 1999 compared to 22.1% in the second quarter of 1998.
Interest Expense
Interest expense increased to $3.2 million during the second quarter of
1999 from $2.3 million during the second quarter of 1998. The increase
resulted primarily from incremental borrowings related to the acquisition
of Tele Quarz.
Income Taxes
The effective income tax rate for financial reporting purposes for the
second quarter of 1999 was 35.0%. The tax rate for the comparable prior
year period was 38.0%. The lower effective tax rate during the second
quarter of 1999 resulted primarily from tax savings related to the
financing structure of the Tele Quarz acquisition.
Equity in Net Income (Loss) of Affiliated Companies
Equity in net loss of affiliated companies was $0.3 million for the
second quarter of 1999 compared to equity in net income of $0.9 million in
the comparable prior year period. During the second quarter of 1999, the
Company reported a loss of $0.3 million from its interest in Wuhan
Telecommunication Devices Co. ("WTD"), its Chinese joint venture, compared
to income of $0.6 million during the second quarter of 1998. The loss
resulted from significantly reduced sales volume at WTD in 1999.
Minority Interest in Net Income of Subsidiaries
There was no Minority Interest in Net Income of Subsidiaries during the
second quarter of 1999 as a result of the Company's purchase, on October
30, 1998, of the remaining 3.75% of Gilbert Engineering Co., Inc.
("Gilbert") held by certain minority shareholders. During the second
quarter of 1998, Minority Interest in Net Income of Subsidiaries was $0.2
million.
SIX MONTHS RESULTS OF OPERATIONS
- --------------------------------
Summary
Net sales increased 28% to $214.5 million in the first six months of
1999 from $167.9 million in the first six months of 1998. Each of the
Company's business segments significantly increased sales in the first six
months of 1999 compared to the comparable period in 1998. Net income
increased to $15.2 million in the first six months of 1999 from $14.4
million in the first six months of 1998 primarily due to the growth in
sales.
Sales
Sales by the Frequency Control Products Segment for the first six months
of 1999 increased 53% over sales in the first six months of 1998 primarily
as the result of the addition of sales by Tele Quarz, which was acquired
during the fourth quarter of 1998. The Cable Broadband Products Segment
increased its sales for the first six months of 1999 by 28% over sales for
the first six months of 1998 mainly as a result of strong demand from
domestic CATV customers. The successful introduction of new products and
increased international sales also contributed to the growth in sales by
the Cable Broadband Products Segment. Sales by the Fiber-Optic Products
Segment during the first six months of 1999 grew by 28% compared to the
comparable period in the prior year primarily as the result of increased
sales of 980 nm pump products. The Controls Products Segment's sales
during the first six months of 1999 increased by 11% compared to the sales
levels achieved during the first six months of 1998. Within the Controls
Products Segment, sales of both gas range components and switch and encoder
products increased as the result of market share gains and the introduction
of new products.
Gross Profit
The gross profit margin for the first six months of 1999 was 33.7%
compared to 37.9% during the first six months of 1998. The decrease in
gross profit margin was mainly the result of reduced gross profit margin in
the Frequency Control Products Segment. The reduced margin in the
Frequency Control Products Segment was caused primarily by increased costs
associated with the reorganization of the segment's North American
operations during the first quarter of 1999 and by the inclusion of the
results of Tele Quarz, which sells products with gross margins lower than
the gross profit margin for the products sold by the Frequency Control
Products Segment during the first six months of 1998.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $41.6 million
during the first six months of 1999 compared to $36.8 million of such
expenses during the first six months of 1998. The increase in selling,
general and administrative expenses was mainly the result of the inclusion
of Tele Quarz's expenses. Selling, general and administrative expenses
decreased as a percentage of sales to 19.4% for the first six months of
1999 compared to 21.9% during the first six months of 1998.
Interest Expense
Interest expense increased to $6.8 million during the first six months
of 1999 from $4.9 million during the first six months of 1998. The
increase resulted from incremental borrowings as a result of the
acquisition of Tele Quarz in the fourth quarter of 1998.
Income Taxes
The effective income tax rate for financial reporting purposes for the
first six months of 1999 was 35.4%. The tax rate for the comparable prior
year period was 38.0%. The lower effective tax rate in 1999 is due
primarily to tax savings related to the financing structure of the Tele
Quarz acquisition.
Equity in Net Income (Loss) of Affiliated Companies
Equity in net loss of affiliated companies was $0.7 million for the
first six months of 1999 compared to equity in net income of $1.4 million
in the comparable prior year period. Equity in net income of affiliated
companies in 1998 included a $0.8 million gain from the Company's sale to
its partner of its 50% interest in a joint venture that manufactured quartz
crystal blanks in Venezuela. During the first six months of 1999, the
Company reported a loss of $0.7 million from its interest in WTD, its
Chinese joint venture, compared to income of $0.9 million during the first
six months of 1998. The loss resulted from significantly reduced sales
volume at WTD in 1999.
Minority Interest in Net Income of Subsidiaries
There was no Minority Interest in Net Income of Subsidiaries during the
first six months of 1999 as a result of the Company's purchase, on October
30, 1998, of the remaining 3.75% of Gilbert held by certain minority
shareholders. During the first six months of 1998, Minority Interest in
Net Income of Subsidiaries was $0.4 million.
Recent Developments
On August 11, 1999, the Company announced that one of the largest
customers of the Fiber-Optic Products Segment recently stopped taking 980
nm pumps from consignment inventory for one of that customer's major
programs, and that it is unclear when the customer will need additional
pumps for that program. The Company presently does not expect any
significant volume of sales of high-power pumps by the Fiber-Optic Products
Segment into that program during the third quarter. Sales of such pumps
during the first and second quarters of 1999 averaged over $6.5 million per
quarter. The Company continues to work with the customer in determining
when it will require pumps for the program. In addition, it intends to
expand its sales of pumps to other customers, and to increase its sales of
DFB lasers and other new products.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operations for the first six months of 1999 was
$24.7 million compared to $21.0 million for the first six months of 1998.
This increase was due in large part to increases in operating income before
depreciation and amortization expenses.
Capital expenditures for the first six months of 1999 were $8.6 million
compared to $8.5 million for the first six months of 1998. Capital
expenditures during the first six months of 1999 were mainly for equipment
for capacity expansion and new product introductions.
The Company paid $0.8 million in expenses related to the acquisition of
Tele Quarz during the first six months of 1999.
During the first six months of 1999, the Company made net repayments
under its $300 million unsecured revolving credit facility (the "Facility")
of $27 million, and as of June 30, 1999, the Company had outstanding loans
of $82.0 million under the Facility.
Interest payments related to the Facility and the 4 7/8% Convertible
Subordinated Notes totaled $3.4 million and $2.4 million, respectively,
during the first six months of 1999.
The Board of Directors has authorized a plan to repurchase up to $75.0
million of the Company's common stock on the open market. In August 1999,
the Company repurchased 798,500 shares of its common stock under the stock
repurchase plan at a total cost of $23.6 million. Through August 13, 1999,
the Company has expended $58.7 million under the stock repurchase plan.
The Company believes that its existing cash balances, the funds generated
by its operations and its revolving credit facility will be sufficient to
fund the Company's ongoing operations for the foreseeable future.
IMPACT OF THE EURO CURRENCY
- --------------------------
On January 1, 1999, the members of the European Union established fixed
conversion rates between their existing currencies ("legacy currencies")
and one common currency, the "Euro". As a result, the Euro now trades on
currency exchanges and may be used for business transactions utilizing
electronic fund transfer. Conversion to the Euro has the effect of
eliminating exchange rate risk between member countries, as exchange rates
are now permanent. Beginning in January 2002, new Euro-denominated
currency will be issued, and legacy currency will be removed from
circulation during the first six months of that year. The Company's
subsidiaries that are affected by the Euro conversion have modified
business processes to accommodate Euro denominated transactions. Certain
of the Company's operations expect to implement additional changes to
improve the processing of Euro denominated transactions. The anticipated
future increase in Euro denominated transactions is not expected to have a
material impact on the Company's business or results of operations, and the
Company believes that its currency risk in participating countries may be
reduced as the legacy currencies are converted to the Euro.
YEAR 2000 COMPLIANCE
- --------------------
BACKGROUND
"Year 2000" issues may arise because many existing computer programs use
only the last two of the four digits that identify a year. Therefore,
certain computer programs may not properly recognize a year that begins
with "20" and these programs may not function correctly once dates
beginning with "20" start being used.
The Company is aware of the Year 2000 issue and its potential associated
business and financial risks. The Company completed an initial internal
assessment of the Year 2000 impact on each of its operating facilities
during 1997. As a result of this internal assessment, the Company
initiated corrective actions at several of its operating facilities.
During the second quarter of 1998, qualified external consultants performed
a more detailed assessment of the impact of the Year 2000 on the Company's
major operating facilities. This assessment included a review of existing
corrective action plans and recommendations for additional corrective
actions. The cost of this external assessment was approximately $0.1
million.
Based on the foregoing assessments and ongoing reassessments during the
first six months of 1999, the Company believes that Year 2000 issues at its
operating 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 operating 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.
CORRECTIVE ACTION STATUS
Personal Computers and Local Area Networks:
Each of the Company's domestic and foreign operating facilities uses
personal computers and networking hardware and software. The external
assessment completed during the second quarter of 1998 identified required
upgrades and provided information on the steps necessary to upgrade
hardware and software. Each operating facility is upgrading its hardware
and software, where necessary, to ensure personal computers and local area
networks are Year 2000 compliant. Many of the required upgrades would have
been made to keep pace with technological improvements even were they not
required for Year 2000 compliance, and had been provided for in each
operating facility's annual budget for capital expenditures and selling,
general and administrative expenses. All required upgrades are expected to
be completed by the third quarter of 1999. It is estimated that the total
cost for these upgrades will approximate $0.5 million to $1.0 million.
This figure includes amounts for capital equipment and amounts to be
charged to selling, general and administrative expenses.
Business Systems:
The term "Business Systems" includes the systems used in materials
requirements planning, manufacturing and materials control, general ledger
and other financial systems, order entry and customer activity tracking.
There is a wide variety of hardware and software used in the Company's
Business Systems; some of the Company's operating facilities have Business
Systems that have been developed, in part, "in-house." The systems have
been evaluated at each of the operating facilities and categorized as
follows:
1) Already Year 2000 compliant; no action required;
2) Software and/or hardware upgrade required; make necessary changes
to existing systems; or
3) Software and/or hardware upgrade required; replace existing system
with upgraded Year 2000 compliant system.
For existing systems that are to be revised to be brought into
compliance, Year 2000 program plans are in place and the majority of the
work has been completed. All remaining work is expected to be completed by
the end of the third quarter of 1999. There is no significant incremental
cost to these efforts because the majority of the work is being performed
by internal management information systems personnel. These expenses are
reported as selling, general and administrative expenses as incurred.
At operating facilities where an existing system is being replaced with
a new system, program plans have been or will be established to ensure the
new systems are operational during the third quarter of 1999. These
upgrades are necessary investments for the operating facilities to keep
pace with technology and to enhance operational performance, in addition to
being required to ensure Year 2000 compliance.
The Company has focused the required resources on this area and
anticipates that all systems will be compliant by the end of the third
quarter of 1999. Approximately $3.8 million in capital investment has been
made to date for these systems improvements. The Company has planned an
additional $0.7 million to $1.7 million in capital expenditures for
upgrades still to be completed.
Corporate-Wide Systems:
The Company's corporate-wide electronic mail system and the corporate
financial reporting system are being upgraded to improve operational
performance. The upgraded systems will be Year 2000 compliant. These
upgrades are substantially complete; the remaining conversion activities
will be completed by October, 1999. The total cost for these upgrades is
approximately $1.2 million, including capitalized amounts and selling,
general and administrative expenses.
Other:
The Company has also identified certain corrective actions necessary to
ensure other computer-dependent equipment is Year 2000 compliant. This
equipment includes telephone systems and computer-controlled manufacturing
equipment. The Company believes that only minor efforts are required in
these areas to ensure Year 2000 compliance.
FUNDING FOR REQUIRED CORRECTIVE ACTIONS
The Company believes it has budgeted sufficient funds to ensure all
required corrective actions are completed in time to avoid Year 2000
problems. The Company does not believe that costs required to address its
Year 2000 issues at its operating facilities will have a material financial
impact.
YEAR 2000 COMPLIANCE OF SUPPLIERS AND CUSTOMERS
The Company has surveyed selected suppliers, customers and service
providers that are material to the Company's business to ensure they are
Year 2000 compliant, and is currently reviewing its contingency planning.
Where practicable, the Company will attempt to mitigate its risks with
respect to the failure of suppliers to be Year 2000 compliant. In the
event that certain suppliers indicate that they will not be Year 2000
compliant, and this non-compliance is expected to result in failure to meet
the Company's requirements, the Company will seek alternative suppliers.
However, such failures could temporarily affect the Company's operations.
PRODUCTS
The products produced by the Company do not include date references that
could be affected by the Year 2000 issue, and therefore the Company does
not believe there is a material risk of warranty claims related to the Year
2000 issue.
RISKS
If certain of the Company's systems fail to be brought into Year 2000
compliance, the most likely worst-case scenario would be a temporary
disruption of operations during the implementation of alternative manual
systems. The Company believes the impact of such a temporary disruption
would not be material.
CONTINGENCY PLANS
Because of the rapidly changing Year 2000 situations at the Company and
its suppliers, customers and service providers, the Company has not
developed formal contingency plans to address the possibility that its
planned corrective actions may not achieve Year 2000 compliance. The
Company will consider the need for such contingency plans as it continues
to assess the Year 2000 risk and monitors the progress of its corrective
action plans.
RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
- ------------------------------------------
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 2001. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to a variety of risks, including foreign currency
fluctuations and changes in interest rates on its borrowings. In the
normal course of its business, the Company manages its exposure to these
risks as described below. The Company does not engage in trading market
risk sensitive instruments for speculative purposes.
FOREIGN EXCHANGE
During the first six months of 1999, less than 20% of the Company's
business was transacted in currencies other than the U.S. dollar. From
time to time, the Company enters into forward exchange contracts as a hedge
against the foreign currency exchange risk on transactions denominated in
foreign currencies. The Company has not entered into forward exchange
contracts for speculative or trading purposes. The Company has performed a
sensitivity analysis assuming a hypothetical 10% adverse movement in
foreign exchange rates. As of June 30, 1999, the analysis demonstrated
that such market movements would not have had a material adverse effect on
the Company's consolidated financial position, results of operations or
cash flows. Actual gains and losses in the future may differ materially
from this analysis, however, based on changes in the timing and amount of
foreign currency rate movements and the Company's actual exposures. The
Company believes that its exposure to foreign currency exchange rate risk
at June 30, 1999 was not material. See "Item 2. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Risks and
Uncertainties."
INTEREST RATES
As of June 30, 1999, the Company had outstanding borrowings that were
subject to a floating interest rate. The Company entered into interest
rate swap agreements to manage its exposure to interest rate fluctuations
on a portion of these borrowings. These swap agreements provide for the
exchange of floating rate for fixed interest payments periodically over the
life of the agreements without any change to the underlying notional
amounts.
The Company has performed a sensitivity analysis assuming a hypothetical
10% adverse movement in the floating interest rate on the borrowings
described above. As of June 30, 1999, the analysis demonstrated that such
movement would not have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
Actual gains and losses in the future may differ materially from that
analysis, however, based on changes in the timing and amount of interest
rate movements and the Company's actual exposures. The Company believes
that it has minimal exposure to interest rate risk. See "Item 2.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Risks and Uncertainties."
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, 1998.
ITEM 2. CHANGES IN SECURITIES
On June 23, 1999, the Company released a total of 449 shares of its
common stock from its Supplemental Retirement Income Plan ("SRIP") to a
departing employee. These shares represented vested matching contributions
made by the Company to the former employee's SRIP account. The 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 23, 1999 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, Gilbert E. Matthews 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, 14,956,440 votes cast for and 52,514 votes
withholding authority; Ms. Bronner, 14,958,651 votes cast for and 50,303
votes withholding authority; Mr. Derbes, 14,958,953 votes cast for and
50,001 votes withholding authority; Mr. Hills, 14,959,499 votes cast for
and 49,455 votes withholding authority; Mr. Matthews, 14,958,549 votes cast
for and 50,405 votes withholding authority; and Mr. Richardson, 14,956,012
votes cast for and 52,942 votes withholding authority.
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
(10) 1999 Lasertron Restricted Stock and Option 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:
None.
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 16, 1999 /s/ Coleman S. Hicks
Coleman S. Hicks
Senior Vice President and
Chief Financial Officer
LASERTRON, INC.
1999 RESTRICTED STOCK AND OPTION PLAN
1. Purpose and Eligibility
The purpose of this 1999 Restricted Stock and Option Plan (the "Plan")
of Lasertron, Inc. (the "Company") is to provide restricted stock, options
and other equity interests in the Company (each an "Award") to employees,
officers, directors, consultants and advisors of the Company and its
Related Companies, all of whom are eligible to receive Awards under the
Plan. Any person to whom an Award has been granted under the Plan is
called a "Participant". Terms not otherwise defined herein take the
meanings ascribed to them under Section 8.
2. Administration
a. Administration by Board of Directors. The Plan will be
administered by the Board of Directors of the Company (the "Board"). The
Board, in its sole discretion, shall have the authority to grant and amend
Awards, to adopt, amend and repeal rules relating to the Plan and to
interpret and correct the provisions of the Plan and any Award. All
decisions by the Board shall be final and binding on all interested
persons. Neither the Company nor any member of the Board shall be liable
for any action or determination relating to the Plan.
b. Appointment of Committees. To the extent permitted by applicable
law, the Board may delegate any or all of its powers under the Plan to one
or more committees or subcommittees of the Board (a "Committee"). All
references in the Plan to the "Board" shall mean such Committee or the
Board.
c. Delegation to Executive Officers. To the extent permitted by
applicable law, the Board may delegate to one or more executive officers of
the Company the power to grant Awards and exercise such other powers under
the Plan as the Board may determine, provided that the Board shall fix the
maximum number of Awards to be granted and the maximum number of shares
issuable to any one Participant pursuant to Awards granted by such
executive officers.
3. Stock Available for Awards
a. Number of Shares. Subject to adjustment under Section 3(c), the
aggregate number of shares of Common Stock of the Company (the "Common
Stock") that may be issued pursuant to the Plan is 5,000,000 shares. If
any Award expires, or is terminated, surrendered or forfeited, in whole or
in part, the unissued Common Stock covered by such Award shall again be
available for the grant of Awards under the Plan. If shares of Common
Stock issued pursuant to the Plan are repurchased by, or are surrendered or
forfeited to, the Company, such shares of Common Stock shall again be
available for the grant of Awards under the Plan; provided, however, that
the cumulative number of such shares that may be so reissued under the Plan
will not exceed 5,000,000 shares. Shares issued under the Plan may consist
in whole or in part of authorized but unissued shares or treasury shares.
b. Per-Participant Limit. Subject to adjustment under Section 3(c),
no Participant may be granted Awards during any one fiscal year to purchase
more than 2,500,000 shares of Common Stock.
c. Adjustment to Common Stock. In the event of any stock split, stock
dividend, extraordinary cash dividend, recapitalization, reorganization,
merger, consolidation, combination, exchange of shares, liquidation, spin-
off, split-up, or other similar change in capitalization or event, (i) the
number and class of securities available for Awards under the Plan and the
per-Participant share limit, (ii) the number and class of securities,
vesting schedule and exercise price per share subject to each outstanding
Option, (iii) the repurchase price per security subject to repurchase, and
(iv) the terms of each other outstanding stock-based Award shall be
adjusted by the Company (or substituted Awards may be made) to the extent
the Board shall determine, in good faith, that such an adjustment (or
substitution) is appropriate. If Section 7(e)(i) applies for any event,
this Section 3(c) shall not be applicable.
4. Stock Options
a. General. The Board may grant options to purchase Common Stock
(each, an "Option") and determine the number of shares of Common Stock to
be covered by each Option, the exercise price of each Option and the
conditions and limitations applicable to the exercise of each Option and
the Common Stock issued upon the exercise of each Option, including vesting
provisions, repurchase provisions and restrictions relating to applicable
federal or state securities laws, as it considers advisable.
b. Incentive Stock Options. An Option that the Board intends to be an
"incentive stock option" as defined in Section 422 of the Code (an
"Incentive Stock Option") shall be granted only to employees of the Company
and shall be subject to and shall be construed consistently with the
requirements of Section 422 of the Code. The Board and the Company shall
have no liability if an Option or any part thereof that is intended to be
an Incentive Stock Option does not qualify as such. An Option or any part
thereof that does not qualify as an Incentive Stock Option is referred to
herein as a "Nonstatutory Stock Option".
c. Exercise Price. The Board shall establish the exercise price (or
determine the method by which the exercise price shall be determined) at
the time each Option is granted and specify it in the applicable option
agreement.
d. Duration of Options. Each Option shall be exercisable at such
times and subject to such terms and conditions as the Board may specify in
the applicable option agreement.
e. Exercise of Option. Options may be exercised only by delivery to
the Company of a written notice of exercise signed by the proper person
together with payment in full as specified in Section 4(f) for the number
of shares for which the Option is exercised.
f. Payment Upon Exercise. Common Stock purchased upon the exercise of
an Option shall be paid for by one or any combination of the following
forms of payment:
(i) by check payable to the order of the Company;
(ii) except as otherwise explicitly provided in the applicable
option agreement, and only if the Common Stock is then publicly traded,
delivery of an irrevocable and unconditional undertaking by a creditworthy
broker to deliver promptly to the Company sufficient funds to pay the
exercise price, or delivery by the Participant to the Company of a copy of
irrevocable and unconditional instructions to a creditworthy broker to
deliver promptly to the Company cash or a check sufficient to pay the
exercise price; or
(iii) to the extent explicitly provided in the applicable option
agreement, by (x) delivery of shares of Common Stock owned by the
Participant valued at fair market value (as determined by the Board or as
determined pursuant to the applicable option agreement), provided that if
acquired from the Company, such shares shall have been held for at least
six months, (y) delivery of a promissory note of the Participant to the
Company (and delivery to the Company by the Participant of a check in an
amount equal to the par value of the shares purchased), or (z) payment of
such other lawful consideration as the Board may determine.
5. Restricted Stock
a. Grants. The Board may grant Awards entitling recipients to acquire
shares of Common Stock, subject to (i) either (x) delivery to the Company
by the Participant of a check in an amount at least equal to the par value
of the shares purchased or (y) a determination by the Board that the grant
is in consideration of past services, and (ii) the right of the Company to
repurchase all or part of such shares at their issue price or other stated
or formula price from the Participant in the event that conditions
specified by the Board in the applicable Award are not satisfied prior to
the end of the applicable restriction period or periods established by the
Board for such Award (each, a "Restricted Stock Award").
b. Terms and Conditions. The Board shall determine the terms and
conditions of any such Restricted Stock Award. Any stock certificates
issued in respect of a Restricted Stock Award shall be registered in the
name of the Participant and, unless otherwise determined by the Board, held
by the Company or its designee in book entry form. After the expiration of
the applicable restriction periods, the Company (or such designee) shall
deliver the certificates no longer subject to such restrictions to the
Participant or, if the Participant has died, to the beneficiary designated
by a Participant, in a manner determined by the Board, to receive amounts
due or exercise rights of the Participant in the event of the Participant's
death (the "Designated Beneficiary"). In the absence of an effective
designation by a Participant, Designated Beneficiary shall mean the
Participant's estate.
6. Other Stock-Based Awards
The Board shall have the right to grant other Awards based upon the
Common Stock having such terms and conditions as the Board may determine,
including, without limitation, the grant of shares based upon certain
conditions, the grant of securities convertible into Common Stock and the
grant of stock appreciation rights, phantom stock awards or stock units.
7. General Provisions Applicable to Awards
a. Transferability of Awards. Except as the Board may otherwise
determine or provide in an Award, Awards shall not be sold, assigned,
transferred, pledged or otherwise encumbered by the person to whom they are
granted, either voluntarily or by operation of law, except by will or the
laws of descent and distribution, and, during the life of the Participant,
shall be exercisable only by the Participant. References to a Participant,
to the extent relevant in the context, shall include references to
authorized transferees.
b. Documentation. Each Award under the Plan shall be evidenced by a
written instrument in such form as the Board shall determine or as executed
by an officer of the Company pursuant to authority delegated by the Board.
Each Award may contain terms and conditions in addition to those set forth
in the Plan provided that such terms and conditions do not contravene the
provisions of the Plan.
c. Board Discretion. The terms of each type of Award need not be
identical, and the Board need not treat Participants uniformly.
d. Termination of Status. The Board shall determine the effect on an
Award of the disability, death, retirement, authorized leave of absence or
other change in the employment or other status of a Participant and the
extent to which, and the period during which, the Participant, or the
Participant's legal representative, conservator, guardian or Designated
Beneficiary, may exercise rights under the Award.
e. Acquisition of the Company
(i) Consequences of an Acquisition. Upon the occurrence of an
Acquisition: (x) all outstanding Options shall become exercisable in full
immediately prior to the consummation of the Acquisition; if the shares of
Common Stock subject to such Options are subject to repurchase provisions,
then such repurchase restrictions shall lapse upon the consummation of the
Acquisition; and all outstanding Options shall remain the obligation of the
Company or be assumed by the surviving or acquiring entity and there shall
be automatically substituted for the shares of Common Stock then subject to
such Options the consideration payable with respect to the outstanding
shares of Common Stock in connection with the Acquisition; and (y) all
Restricted Stock Awards then outstanding shall become immediately free of
all repurchase provisions upon the consummation of the Acquisition; and (z)
all other stock-based Awards shall become immediately exercisable,
realizable or vested in full, or shall be immediately free of all
repurchase provisions, as the case may be, upon the consummation of the
Acquisition.
(ii) Assumption of Options Upon Certain Events. In connection with
a merger or consolidation of an entity with the Company or the acquisition
by the Company of property or stock of an entity, the Board may grant
Awards under the Plan in substitution for stock and stock-based awards
issued by such entity or an affiliate thereof. The substitute Awards shall
be granted on such terms and conditions as the Board considers appropriate
in the circumstances.
(iii) Parachute Awards. Notwithstanding the provisions of Section
7(e)(i) or any other provision of the Plan, if, in connection with an
Acquisition described therein, a tax under Section 4999 of the Code would
be imposed on the Participant (after taking into account the exceptions set
forth in Sections 280G(b)(4) and 280G(b)(5) of the Code), then the number
of Awards which shall become exercisable, realizable or vested as provided
in such section shall be reduced (or delayed), to the minimum extent
necessary, so that no such tax would be imposed on the Participant (the
Awards not becoming so accelerated, realizable or vested, the "Parachute
Awards"); provided, however, that if the "aggregate present value," of the
Parachute Awards would exceed the tax that, but for this sentence, would be
imposed on the Participant under Section 4999 of the Code in connection
with the Acquisition, then the Awards shall become immediately exercisable,
realizable and vested without regard to the provisions of this sentence.
For purposes of the preceding sentence, the "aggregate present value" of an
Award shall be calculated on an after-tax basis (other than taxes imposed
by Section 4999 of the Code) and shall be based on economic principles
rather than the principles set forth under Section 280G of the Code and the
regulations promulgated thereunder. All determinations required to be made
under this Section 7(e)(iii) shall be made by the Company.
f. Withholding. Each Participant shall pay to the Company, or make
provisions satisfactory to the Company for payment of, any taxes required
by law to be withheld in connection with Awards to such Participant no
later than the date of the event creating the tax liability. The Board may
allow Participants to satisfy such tax obligations in whole or in part by
transferring shares of Common Stock, including shares retained from the
Award creating the tax obligation, valued at their fair market value (as
determined by the Board or as determined pursuant to the applicable option
agreement). The Company may, to the extent permitted by law, deduct any
such tax obligations from any payment of any kind otherwise due to a
Participant.
g. Amendment of Awards. The Board may amend, modify or terminate any
outstanding Award including, but not limited to, substituting therefor
another Award of the same or a different type, changing the date of
exercise or realization, and converting an Incentive Stock Option to a
Nonstatutory Stock Option, provided that, except as otherwise provided in
Section 7(e)(ii), the Participant's consent to such action shall be
required unless the Board determines that the action, taking into account
any related action, would not materially and adversely affect the
Participant.
h. Conditions on Delivery of Stock. The Company will not be obligated
to deliver any shares of Common Stock pursuant to the Plan or to remove
restrictions from shares previously delivered under the Plan until (i) all
conditions of the Award have been met or removed to the satisfaction of the
Company, (ii) in the opinion of the Company's counsel, all other legal
matters in connection with the issuance and delivery of such shares have
been satisfied, including any applicable securities laws and any applicable
stock exchange or stock market rules and regulations, and (iii) the
Participant has executed and delivered to the Company such representations
or agreements as the Company may consider appropriate to satisfy the
requirements of any applicable laws, rules or regulations.
i. Acceleration. The Board may at any time provide that any Options
shall become immediately exercisable in full or in part, that any
Restricted Stock Awards shall be free of some or all restrictions, or that
any other stock-based Awards may become exercisable in full or in part or
free of some or all restrictions or conditions, or otherwise realizable in
full or in part, as the case may be, despite the fact that the foregoing
actions may (i) cause the application of Sections 280G and 4999 of the Code
if a change in control of the Company occurs, or (ii) disqualify all or
part of the Option as an Incentive Stock Option.
8. Miscellaneous
a. Definitions.
(i) "Acquisition." An "Acquisition" shall mean: (x) any merger or
consolidation after which the voting securities of the Company outstanding
immediately prior thereto represent (either by remaining outstanding or by
being converted into voting securities of the surviving or acquiring
entity) less than 50% of the combined voting power of the voting securities
of the Company or such surviving or acquiring entity outstanding
immediately after such event; or (y) any sale of all or substantially all
of the assets or capital stock of the Company (other than in a spin-off or
similar transaction) or (z) any other acquisition of the business of the
Company, as determined by the Board.
(ii) "Company," for purposes of eligibility under the Plan, shall
include any present or future subsidiary corporations of Lasertron, Inc.,
as defined in Section 424(f) of the Code (a "Subsidiary"), any present or
future parent corporation of Lasertron, Inc., as defined in Section 424(e)
of the Code (a "Parent"), and any subsidiary of a Parent (a "Related
Subsidiary"). For purposes of Awards other than Incentive Stock Options,
the term "Company" shall include any other business venture in which the
Company has a direct or indirect significant interest, as determined by the
Board in its sole discretion.
(iii) "Code" means the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder.
(iv) "employee" for purposes of eligibility under the Plan shall
include a person to whom an offer of employment has been extended by the
Company.
(v) "fair market value" for purposes of any Award under the Plan
shall be determined as follows: (i) the closing price of a share of the
Common Stock on the principal exchange on which shares of the Common 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 Common Stock is not traded on an exchange but is
quoted on NASDAQ or a successor quotation system, (1) the last sales price
(if the Common 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 Common
Stock on such date as reported by NASDAQ or such successor quotation
system; or (iii) if such Common 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 Common Stock on such date as
determined in good faith by the Committee; or (iv) if the Common Stock is
not publicly traded, the fair market value established by the Committee
acting in good faith.
(vi) "Related Company" means, collectively, any Subsidiary, Parent
and/or Related Subsidiary.
b. No Right To Employment or Other Status. No person shall have any
claim or right to be granted an Award, and the grant of an Award shall not
be construed as giving a Participant the right to continued employment or
any other relationship with the Company. The Company expressly reserves
the right at any time to dismiss or otherwise terminate its relationship
with a Participant free from any liability or claim under the Plan.
c. No Rights As Stockholder. Subject to the provisions of the
applicable Award, no Participant or Designated Beneficiary shall have any
rights as a stockholder with respect to any shares of Common Stock to be
distributed with respect to an Award until becoming the record holder
thereof.
d. Effective Date and Term of Plan. The Plan shall become effective
on the date on which it is adopted by the Board. No Awards shall be
granted under the Plan after the completion of ten years from the date on
which the Plan was adopted by the Board, but Awards previously granted may
extend beyond that date.
e. Amendment of Plan. The Board may amend, suspend or terminate the
Plan or any portion thereof at any time.
f. Governing Law. The provisions of the Plan and all Awards made
hereunder shall be governed by and interpreted in accordance with the laws
of Massachusetts, without regard to any applicable conflicts of law.
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 7,739
<SECURITIES> 0
<RECEIVABLES> 66,282
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<INVENTORY> 71,511
<CURRENT-ASSETS> 160,496
<PP&E> 202,681
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0
0
<OTHER-SE> 224,200
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<SALES> 214,542
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