===========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
------------------
For Quarter Ended September 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 November 9, 1999, the Company had outstanding 17,281,515 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 September 30, 1999
--------------------- ---------------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 13,754 $ 8,177
Receivables, less reserves................. 59,968 68,330
Inventories:
Raw materials........................... 28,225 26,364
Work in process......................... 33,699 36,864
Finished goods.......................... 15,397 77,321 10,015 73,243
-------- --------
Deferred income taxes...................... 11,491 10,834
Other current assets....................... 2,902 3,188
--------- ---------
Total current assets................. 165,436 163,772
Plant and equipment, at cost.................. 199,027 209,697
Less - accumulated depreciation............... (100,057) 98,970 (113,557) 96,140
-------- --------
Goodwill and other intangible assets, less
accumulated amortization of
$23,566 and $28,363........................ 196,531 189,813
Investment in affiliates...................... 11,014 10,173
Other assets.................................. 10,486 14,868
--------- ---------
Total Assets......................... $ 482,437 $ 474,766
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.......... $ 2,051 $ 1,897
Accounts payable........................... 20,800 23,782
Accrued liabilities........................ 30,453 25,669
--------- ---------
Total current liabilities............ 53,304 51,348
Other Liabilities............................. 8,603 10,664
Long-Term Debt, Net of Current Portion........ 119,555 108,210
4 7/8% Convertible Subordinated Notes......... 100,000 100,000
Stockholders' Equity:
Common stock............................... 192 198
Additional paid-in capital................. 312,860 330,095
Accumulated deficit........................ (70,617) (46,837)
Accumulated other comprehensive income..... (4,662) (11,674)
Unearned compensation - restricted stock... (995) (1,285)
Treasury stock............................. (35,541) (65,691)
Other...................................... (262) 200,975 (262) 204,544
-------- --------- -------- ---------
Total Liabilities and
Stockholders' Equity............. $ 482,437 $ 474,766
========= =========
</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 Nine Months
Ended September 30, Ended September 30,
---------------------- ---------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales....................................... $ 81,627 $ 108,690 $ 249,503 $ 323,232
Cost of sales................................... (51,455) (70,333) (155,624) (212,574)
-------- --------- --------- ---------
Gross profit.................................... 30,172 38,357 93,879 110,658
Selling, general and administrative expenses.... (16,551) (21,924) (53,335) (63,492)
-------- --------- --------- ---------
Operating income................................ 13,621 16,433 40,544 47,166
Interest expense................................ (2,219) (3,252) (7,084) (10,005)
Interest income................................. 553 156 867 393
Equity in net income (loss)
of affiliated companies...................... 385 (164) 1,820 (824)
-------- --------- --------- ---------
Income before income taxes and minority
interest..................................... 12,340 13,173 36,147 36,730
Income tax provision............................ (4,689) (4,611) (13,736) (12,950)
Minority interest in net income of subsidiaries. (247) -- (599) --
-------- --------- --------- ---------
Net income...................................... $ 7,404 $ 8,562 $ 21,812 $ 23,780
======== ========= ========= =========
Income per share - basic
Net income................................ $ .41 $ .49 $ 1.22 $ 1.35
======== ========= ========= =========
Weighted average number of shares
outstanding - basic.......................... 17,973 17,571 17,870 17,669
======== ========= ========= =========
Income per share - diluted
Net income................................ $ .39 $ .45 $ 1.15 $ 1.26
======== ========= ========= =========
Weighted average number of shares
outstanding - diluted....................... 21,251 20,868 20,625 20,946
======== ========= ========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------------
1998 1999
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM:
Operating Activities:
Net income.................................................. $ 21,812 $ 23,780
Adjustments to reconcile net income to net cash
provided by operations:
Depreciation.......................................... 10,347 14,501
Amortization.......................................... 5,557 6,596
Minority interest..................................... 599 --
Gain on the sale of securities........................ (356) --
Undistributed earnings of affiliated companies........ (923) 824
Changes in assets and liabilities:
Receivables........................................ (4,226) (9,099)
Inventories........................................ (10,184) 2,848
Accounts payable and accrued liabilities........... 5,096 3,711
Other.............................................. 3,180 (3,269)
---------- ---------
Net cash provided by operations................................ 30,902 39,892
---------- ---------
Investing Activities:
Capital expenditures........................................ (12,147) (15,545)
Acquisition of businesses................................... (1,000) (800)
Other....................................................... 319 441
--------- ---------
Net cash used in investing activities.......................... (12,828) (15,904)
--------- ---------
Financing Activities:
Long-term borrowings........................................ 118,234 44,000
Repayment of borrowings..................................... (123,365) (54,538)
Stock repurchases........................................... (13,808) (30,239)
Exercise of stock options................................... 6,104 12,015
Dividends paid to minority stockholders..................... (856) --
Deferred debt issuance costs................................ (3,342) --
Other....................................................... (396) --
--------- ---------
Net cash used in financing activities.......................... (17,429) (28,762)
--------- ---------
Effect of exchange rate changes on cash and cash equivalents... 144 (803)
--------- ---------
Cash and Cash Equivalents:
Net change during the period................................ 789 (5,577)
Balance, beginning of period................................ 8,642 13,754
--------- ---------
Balance, end of period...................................... $ 9,431 $ 8,177
========= =========
</TABLE>
See accompanying notes to consolidated condensed financial statements.
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 September 30, 1999,
the results of their operations for the three and nine month periods ending
September 30, 1998 and 1999 and changes in cash flows for the nine month
periods ending September 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 September
30, 1998 and 1999 in the amounts of $3.2 million and $3.9 million,
respectively, and for the nine months ended September 30, 1998 and 1999 in
the amounts of $6.2 million and $10.1 million, respectively. Income taxes
paid during the three months ended September 30, 1998 and 1999 were $1.7
million and $3.1 million, respectively, and during the nine months ended
September 30, 1998 and 1999 were $8.6 million and $11.1 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 Nine Months
Ended September 30, Ended September 30,
1998 1999 1998 1999
------ ------ ------ ------
<S> <C> <C> <C> <C>
BASIC
Net income..................................... $ 7,404 $ 8,562 $ 21,812 $ 23,780
Weighted average shares outstanding............ 17,973 17,571 17,870 17,669
Net income per share........................... $ .41 $ .49 $ 1.22 $ 1.35
======== ======== ========= ========
DILUTED
Net income..................................... $ 7,404 $ 8,562 $ 21,812 $ 23,780
Interest expense and amortization of deferred
costs, net of tax, related to 4 7/8%
convertible subordinated notes.............. 807 846 1,934 2,525
-------- -------- --------- --------
Net income as adjusted......................... $ 8,211 $ 9,408 $ 23,746 $ 26,305
Weighted average shares:
Outstanding................................. 17,973 17,571 17,870 17,669
Incremental shares related to 4 7/8%
convertible subordinated notes........... 2,587 2,587 2,070 2,587
Incremental shares related to other common
stock equivalents........................ 691 710 685 690
-------- -------- --------- --------
Total shares outstanding, as adjusted.......... 21,251 20,868 20,625 20,946
Net income per share........................... $ .39 $ .45 $ 1.15 $ 1.26
======== ======== ========= ========
</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 $8.0 million and $9.2
million for the three months ended September 30, 1998 and 1999,
respectively. Total comprehensive income was $22.1 million and $16.8
million for the nine months ended September 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.
Foreign currency translation adjustments were gains of $0.6 million for
both the three month periods ended September 30, 1998 and 1999. Foreign
currency translation adjustments were a gain of $0.3 million and a loss of
$7.0 million for the nine months ended September 30, 1998 and 1999,
respectively. There were no unrealized gains on available-for-sale
securities for the three and nine months ended September 30, 1998 and 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>
THREE MONTHS ENDED SEPTEMBER 30, 1999
Sales.............................. $ 46,024 $ 24,696 $ 13,499 $ 24,471 $ 108,690
Operating income................... 14,492 204 2,222 2,726 19,644
Equity in net loss of
affiliated companies............ -- -- (164) -- (164)
Minority interest in income before
income taxes of subsidiaries.... -- -- -- -- --
Segment income..................... 14,492 204 2,058 2,726 19,480
THREE MONTHS ENDED SEPTEMBER 30, 1998
Sales.............................. 33,306 16,257 10,235 21,829 81,627
Operating income................... 10,462 2,232 504 1,653 14,851
Equity in net income of
affiliated companies ........... -- (1) 387 -- 386
Minority interest in income before
income taxes of subsidiaries.... (413) -- -- -- (413)
Segment income..................... 10,049 2,231 891 1,653 14,824
</TABLE>
<TABLE>
<CAPTION>
CABLE FREQUENCY
BROADBAND CONTROL FIBER-OPTIC CONTROLS
PRODUCTS PRODUCTS PRODUCTS PRODUCTS TOTAL
--------- --------- ----------- -------- -----
<S> <C> <C> <C> <C> <C>
NINE MONTHS ENDED SEPTEMBER 30, 1999
Sales.............................. $ 119,675 $ 76,078 $ 48,474 $ 79,005 $ 323,232
Operating income .................. 36,695 (1,031) 10,085 8,849 54,598
Equity in net loss of
affiliated companies............ -- -- (824) -- (824)
Minority interest in income before
income taxes of subsidiaries.... -- -- -- -- --
Segment income..................... 36,695 (1,031) 9,261 8,849 53,774
NINE MONTHS ENDED SEPTEMBER 30, 1998
Sales.............................. 90,983 49,931 37,491 71,098 249,503
Operating income................... 25,348 7,306 6,295 7,399 46,348
Equity in net income of
affiliated companies (1)........ -- 649 1,181 -- 1,830
Minority interest in income before
income taxes of subsidiaries.... (1,019) -- -- -- (1,019)
Segment income..................... 24,329 7,955 7,476 7,399 47,159
<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 For the Nine Months
Ended September 30, Ended September 30,
---------------------- ----------------------
1998 1999 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total income for reportable segments......... $ 14,824 $ 19,480 $ 47,159 $ 53,774
Corporate.................................... (1,230) (3,211) (5,804) (7,432)
Interest expense............................. (2,219) (3,252) (7,084) (10,005)
Interest income.............................. 553 156 867 393
Equity in net loss of affiliated companies... (1) -- (10) --
Minority interest in income before income
taxes of subsidiaries................... 413 -- 1,019 --
--------- --------- --------- ---------
Income before income taxes and minority
interest................................ $ 12,340 $ 13,173 $ 36,147 $ 36,730
========= ========= ========= =========
</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"). On October 8, 1999
the Company received notice from the Internal Revenue Service that a
distribution of the Company's stock in Lasertron following an initial
public offering of a minority interest in Lasertron would be a tax-free
transaction, if the Company's Board of Directors determines to proceed with
an IPO and later decides to carry out the spin-off as described in the
Company's request for the ruling. 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
THIRD QUARTER RESULTS OF OPERATIONS
- -----------------------------------
Summary
Net sales increased 33 percent to $108.7 million in the third quarter of
1999 from $81.6 million in the third quarter of 1998. Each of the
Company's business segments significantly increased sales in the third
quarter of 1999 compared to sales in the third quarter of 1998. Net income
increased to $8.6 million in the third quarter of 1999 from $7.4 million in
the third quarter of 1998, due in large part to the growth in sales.
Sales
Sales by the Frequency Control Products Segment for the third quarter of
1999 increased 52 percent over sales in the third quarter of 1998,
primarily as a result of the addition of sales by Tele Quarz GmbH and Co.
KG ("Tele Quarz"), which the Company acquired during the fourth quarter of
1998. The Cable Broadband Products Segment increased its sales for the
third quarter of 1999 by 38 percent over sales in the third 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 third quarter of 1999 grew by 32 percent compared to sales in
the comparable period in the prior year. Increased sales of 980 nm pump
products, high performance DFB lasers and detector/receiver products all
contributed to the sales growth. During the third quarter of 1999, the
Company sold only $0.6 million of 980 nm pumps to a key customer for a
major program that had average sales of $6.5 million in the prior two
quarters of 1999. The Controls Products Segment's sales during the third
quarter of 1999 increased by 12 percent compared to sales during the third
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 third quarter of 1999 was 35.3 percent
compared to 37.0 percent during the third quarter of 1998. The decrease in
gross profit margin was mainly a result of reduced gross profit margin in
the Frequency Control Products Segment. The reduced margin in the
Frequency Control Products Segment resulted primarily from the inclusion of
the results of Tele Quarz, which sells products at average gross profit
margins lower than typical gross profit margins on other sales by the
Frequency Control Products Segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $21.9 million
during the third quarter of 1999 compared to $16.6 million of such expenses
during the third quarter of 1998, mainly as a result of the inclusion of
Tele Quarz's expenses. Selling, general and administrative expense as a
percentage of sales was 20.2 percent in the third quarter of 1999 compared
to 20.3 percent in the third quarter of 1998.
Interest Expense
Interest expense increased to $3.3 million during the third quarter of
1999 from $2.2 million during the third quarter of 1998. The increase
resulted primarily from incremental borrowings related to the acquisition
of Tele Quarz in the fourth quarter of 1998 and borrowings to repurchase
shares of the Company's common stock in the third quarter of 1999.
Income Taxes
The effective income tax rate for financial reporting purposes for the
third quarter of 1999 was 35.0 percent. The effective tax rate for the
comparable prior year period was 38.0 percent. The lower effective tax
rate during the third 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 $0.2 million for the
third quarter of 1999 compared to equity in net income of $0.4 million in
the comparable prior year period. The loss in the third quarter of 1999
resulted from reduced sales at Wuhan Telecommunication Devices Co. ("WTD"),
the Company's joint venture in China.
Minority Interest in Net Income of Subsidiaries
There was no Minority Interest in Net Income of Subsidiaries during the
third quarter of 1999, as a result of the Company's purchase on October 30,
1998 of the remaining 3.75 percent of Gilbert Engineering Co., Inc.
("Gilbert") held by certain minority shareholders. During the third
quarter of 1998, Minority Interest in Net Income of Subsidiaries was $0.2
million.
NINE MONTHS RESULTS OF OPERATIONS
- ---------------------------------
Summary
Net sales increased 30 percent to $323.2 million in the first nine
months of 1999 from $249.5 million in the first nine months of 1998. Each
of the Company's business segments significantly increased sales in the
first nine months of 1999 compared to sales in the comparable period in
1998. Net income increased to $23.8 million in the first nine months of
1999 from $21.8 million in the first nine months of 1998, primarily due to
the growth in sales.
Sales
Sales by the Frequency Control Products Segment for the first nine
months of 1999 increased 53 percent over sales in the first nine months of
1998, as a result of the addition of sales by Tele Quarz, which the Company
acquired during the fourth quarter of 1998. The Cable Broadband Products
Segment increased its sales for the first nine months of 1999 by 32 percent
over sales for the first nine 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 nine months of 1999 grew by 29 percent
compared to sales in the comparable period in the prior year, mainly as a
result of increased sales of 980 nm pump products. The Controls Products
Segment's sales during the first nine months of 1999 increased by 11
percent compared to sales during the first nine 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 nine months of 1999 was 34.2
percent compared to 37.6 percent for the first nine months of 1998. The
decrease in gross profit margin was mainly a 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 for the nine months ended September 30, 1999. Tele
Quarz sells products at average gross profit margins lower than typical
gross profit margins on other sales by the Frequency Control Products
Segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $63.5 million
during the first nine months of 1999 compared to $53.3 million of such
expenses during the first nine 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 expense as a
percentage of sales decreased to 19.6 percent for the first nine months of
1999 compared to 21.4 percent during the first nine months of 1998.
Interest Expense
Interest expense increased to $10.0 million during the first nine months
of 1999 from $7.1 million during the first nine months of 1998. The
increase resulted primarily from incremental borrowings as a result of the
acquisition of Tele Quarz in the fourth quarter of 1998 as well as
borrowings to repurchase shares of the Company's common stock in the third
quarter of 1999.
Income Taxes
The effective income tax rate for financial reporting purposes for the
first nine months of 1999 was 35.3 percent. The effective tax rate for the
comparable prior year period was 38.0 percent. The lower effective tax
rate in 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 $0.8 million for the
first nine months of 1999 compared to equity in net income of $1.8 million
for 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 percent interest in a joint venture that manufactured
quartz crystal blanks in Venezuela. During the first nine months of 1999,
the Company reported a loss of $0.8 million from its interest in WTD, its
joint venture in China, compared to income of $1.2 million from its
interest in WTD during the first nine 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 nine months of 1999, as a result of the Company's purchase on October
30, 1998 of the remaining 3.75 percent of Gilbert held by certain minority
shareholders. During the first nine months of 1998, Minority Interest in
Net Income of Subsidiaries was $0.6 million.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Net cash provided by operations for the first nine months of 1999 was
$39.9 million compared to $30.9 million for the first nine months of 1998.
This increase was due in large part to increases in operating income before
depreciation and amortization expenses.
Capital expenditures in the first nine months of 1999 were $15.5 million
compared to $12.1 million for capital expenditures in the first nine months
of 1998. Capital expenditures during the first nine months of 1999 were
mainly for equipment to expand manufacturing capacity and for new product
introductions.
The Company paid $0.8 million in expenses related to the acquisition of
Tele Quarz during the first nine months of 1999.
During the first nine months of 1999 the Company made net repayments
under its $300 million unsecured revolving credit facility (the "Facility")
of $5.0 million, and as of September 30, 1999, the Company had outstanding
borrowings of $104.0 million under the Facility.
Interest payments related to the Facility and the 4 7/8% Convertible
Subordinated Notes totaled $4.8 million and $4.9 million, respectively,
during the first nine months of 1999.
The Board of Directors has authorized a plan for the Company to
repurchase on the open market up to $75.0 million of its common stock. In
the third quarter of 1999 the Company repurchased 1,019,400 shares of its
common stock under the stock repurchase plan at a total cost of $30.2
million. Through September 30, 1999 the Company has expended a total of
$65.4 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
for the currencies of those members are now fixed. 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 foreign exchange 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, the
Company believes that Year 2000 issues at its operating facilities should
not have a material impact on its financial or operating performance. 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 has upgraded 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 have been
completed. The estimated total cost for these upgrades was approximately
$1.0 million. This figure includes amounts for capital equipment and
amounts 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.
For existing systems that were revised to be brought into compliance,
Year 2000 upgrades have been substantially completed. Only one location
requires additional upgrade work and this work will be completed by the end
of November, 1999. There was no significant incremental cost to these
efforts because the majority of the work was performed by internal
management information systems personnel. These expenses are reported as
selling, general and administrative expenses.
At operating facilities where an existing system was being replaced with
a new system, these new systems are operational. These upgrades were
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. Approximately $5.2 million in
capital investment has been made to date for these systems improvements.
Corporate-Wide Systems:
The Company's corporate-wide electronic mail system and the corporate
financial reporting system have been upgraded to improve operational
performance. The upgraded systems are Year 2000 compliant. The total cost
for these upgrades was approximately $1.2 million, including capitalized
amounts and selling, general and administrative expenses.
Other:
The Company has also completed certain corrective actions necessary to
ensure other computer-dependent equipment is Year 2000 compliant. This
equipment includes telephone systems and computer-controlled manufacturing
equipment.
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. Based on the results of these surveys, the Company
does not believe that Year 2000 related problems among its supplier base
will have a material impact on its operations, although temporary
disruptions may occur.
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 fully Year 2000
compliant, the most likely worst-case scenario would be a temporary
disruption of operations while corrective action is taken. The Company
believes the impact of such a temporary disruption would not be material.
CONTINGENCY PLANS
The Company has not developed formal contingency plans to address the
possibility that its corrective actions may not achieve Year 2000
compliance. As it continues to monitor the Year 2000 situation, the
Company may develop contingency plans to address specific issues.
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
has taken the corrective actions required. The Company believes that Year
2000 issues at its facilities should not have a material impact on its
financial or operating performance. However, it is not possible for the
Company to ascertain completely 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 nine months of 1999, less than 20 percent 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
percent adverse movement in foreign exchange rates. As of September 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 September 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 September 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 percent adverse movement in the floating interest rate on the borrowings
described above. As of September 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 August 16, 1999, the Company released a total of 1,745 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
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit Index
(3) Bylaws of Oak Industries Inc. as amended through October
27, 1999, 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: November 12, 1999 /s/ Coleman S. Hicks
Coleman S. Hicks
Senior Vice President and
Chief Financial Officer
BY-LAWS
OF
OAK INDUSTRIES INC.
(A Delaware Corporation)
(as amended through October 27, 1999)
ARTICLE I
Offices
-------
Section 1. Registered Office. The registered office shall be in the City
of Wilmington, County of New Castle, State of Delaware.
Section 2. Other Offices. The corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the
corporation may require.
ARTICLE II
Stockholders
------------
Section 1. Place of Meetings. All meetings of the stockholders for the
election of directors shall be held at such place as may be fixed from time
to time by the board of directors. Meetings of stockholders for any other
purpose may be held at such time and place, within and without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
Section 2. Annual Meetings. Annual meetings of the stockholders shall be
held on the date and at the time fixed from time to time by the directors,
provided each annual meeting shall be held on a date within six months
after the end of each fiscal year or within thirteen months after the date
of the preceding annual meeting, whichever shall be the earlier date.
Section 3. Notice of Annual Meeting. Written notice of the annual
meeting shall be given to each stockholder entitled to vote thereat at
least ten days before the date of the meeting.
Section 4. List of Stockholders. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before
every election of directors, a complete list of the stockholders entitled
to vote at said election, arranged in alphabetical order, showing the
address of and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any
stockholder, during ordinary business hours, for a period of at least ten
days prior to the election, either at a place within the city, town or
village where the election is to be held and which place shall be specified
in the notice of the meeting, or, if not specified, at the place where said
meeting is to be held, and the list shall be produced and kept at the time
and place of election during the whole time thereof, and subject to the
inspection of any stockholder who may be present.
Section 5. Special Meetings. Special meetings of the stockholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the chairman of the board.
Section 6. Notice of Special Meetings. Written or printed notice of a
special meeting of stockholders, stating the time, place and object
thereof, shall be given to each stockholder entitled to vote thereat, at
least ten days before the date fixed for the meeting.
Section 7. Business at Special Meetings. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 8. Quorum. The holders of stock having a majority of the voting
power of the issued and outstanding stock entitled to vote thereat, when
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business except as
otherwise provided by statute or by the certificate of incorporation. If,
however, such quorum shall not be present or represented at any meeting of
the stockholders, the stockholders entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting
from time to time, without notice other than announcement at the meeting,
until a quorum shall be present or represented. At such adjourned meeting
at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 9. Necessary Vote. When a quorum is present at any meeting, a
majority of the votes by the stockholders, present in person or represented
by proxy and entitled to vote thereon, shall decide any question brought
before such meeting, unless the question is one upon which by express
provision of the statutes or of the certificate of incorporation or of
these by-laws, a different vote is required in which case such express
provision shall govern and control the decision of such question.
Section 10. Vote, Proxies. Each stockholder shall at every meeting of
the stockholders be entitled to such vote (in person or by proxy) for each
share of the capital stock having voting power held by such stockholder and
entitled to vote at such meeting as shall be fixed by the certificate of
incorporation. No proxy shall be voted on after three years from its date,
unless the proxy provides for a longer period. Except where the transfer
books of the corporation have been closed or a date has been fixed as a
record date for the determination of its stockholders entitled to vote, no
share of stock shall be voted on at any election for directors which has
been transferred on the books of the corporation within twenty days next
preceding such election of directors.
Section 11. Stockholder Proposals. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an
annual meeting, business must be:
(A) specified in the notice of meeting (or any supplement thereto) given by
or at the direction of the board of directors, (B) otherwise properly
brought before the meeting by or at the direction of the board of
directors, or (C) otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the secretary of the corporation. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal
executive offices of the corporation not less than one hundred twenty (120)
calendar days in advance of the month and day in the current year
corresponding to the date that the corporation's proxy statement released
to stockholders in connection with the previous year's annual meeting of
stockholders was mailed to such stockholders; provided, however, that in
the event that no annual meeting was held in the previous year or the date
of the annual meeting has been changed by more than thirty (30) days from
the date contemplated at the time of the previous year's proxy statement,
notice by the stockholder to be timely must be so received not later than
the close of business on the later of one hundred twenty (120) calendar
days in advance of such annual meeting or ten (10) calendar days following
the date on which public announcement of the date of the meeting is first
made. A stockholder's notice to the secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and address, as they appear on the corporation's books, of
the stockholder proposing such business, (iii) the class and number of
shares of the corporation which are beneficially owned by the stockholder,
(iv) any material interest of the stockholder in such business, and (v) any
other information that is required to be provided by the stockholder
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "1934 Act"), in his capacity as a proponent to a stockholder
proposal. Notwithstanding the foregoing, in order to include information
with respect to a stockholder proposal in the proxy statement and form of
proxy for a stockholder's meeting, stockholders must provide notice as
required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these by-laws to the contrary, no business
shall be conducted at any annual meeting except in accordance with the
procedures set forth in this paragraph (b). The chairman of the annual
meeting shall, if the facts warrant, determine and declare at the meeting
that business was not properly brought before the meeting and in accordance
with the provisions of this paragraph (b), and, if he should so determine,
he shall so declare at the meeting that any such business not properly
brought before the meeting shall not be transacted.
ARTICLE III
Directors
---------
Section 1. Number. The number of directors which constitutes the whole
board of directors shall be fixed from time to time by resolution of the
board of directors provided, however, that such number of directors shall
be not less than six nor more than nine as required by ARTICLE TWELFTH of
the Restated Certificate of Incorporation, as amended. The term of office
of directors is to expire at the first annual meeting of stockholders after
their election or until their respective successors are elected and
qualified. Directors need not be stockholders.
Section 2. Nominations. Only persons who are nominated in accordance
with the procedures set forth in this Article III, Section 2 shall be
eligible for election as directors. Nominations of persons for election to
the board of directors of the corporation may be made at a meeting of
stockholders by or at the direction of the board of directors or by
stockholders of the corporation entitled to vote in the election of
directors at the meeting who comply with the notice procedures and other
requirements set forth in this Article III, Section 2. Such nominations,
other than those made by or at the direction of the board of directors,
shall be made pursuant to timely notice in writing to the secretary of the
corporation in accordance with the provisions Article II, Section 11 of
these by-laws and may only be made over the signature of at least five
stockholders holding an aggregate of at least 5% of the total number of
shares of outstanding stock of the corporation. Such stockholders' notice
shall set forth (i) as to each person, if any, whom the stockholders
propose to nominate for election or re-election as a director: (A) the
name, age, business address and residence address of such person, (B) the
principal occupation or employment of such person, (C) the class and number
of shares of the corporation which are beneficially owned by such person,
(D) a description of all arrangements or understandings between the
stockholders and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nominations are to be made by the
stockholders, and (E) any other information relating to such person that is
required to be disclosed in solicitations of proxies for elections of
directors, or is otherwise required, in each case pursuant to Regulation
14A under the 1934 Act (including without limitation such person's written
consent to being named in the proxy statement, if any, as a nominee and to
serving as a director if elected); and (ii) as to such stockholders giving
notice, the information required to be provided pursuant to Article II,
Section 11. At the request of the board of directors, any person nominated
by stockholders for election as a director shall furnish to the secretary
of the corporation that information required to be set forth in the
stockholders' notice of nomination that pertains to the nominee. No person
shall be eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth in this Article III,
Section 2. The chairman of the meeting shall, if the facts warrants,
determine and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by these by-laws, and if he
should so determine, he shall so declare at the meeting, and the defective
nomination shall be disregarded.
Section 3. Vacancies. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be
filled by a majority of the directors then in office, though less than a
quorum, and the directors so chosen shall hold office until the next annual
election of the class for which each such director has been chosen and
until such director's successor is elected and qualified.
Section 4. Powers. The business of the corporation shall be managed by
its board of directors which may exercise all such powers of the
corporation and do all such lawful acts and things as are not by statute or
by the certificate of incorporation or by these by-laws directed or
required to be exercised or done by the stockholders.
Section 5. Meetings. The board of directors of the corporation, and any
committee thereof, may hold meetings, both regular and special, either
within or without the State of Delaware. Members of the board of directors
or of any committee of the board of directors may participate in a meeting
of such board or committee by conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in such a meeting shall
constitute presence in person at the meeting.
Section 6. Organization Meeting. An organization meeting of the board of
directors shall be held following, and at the same place as, the annual
meeting of stockholders and no notice of such meeting shall be necessary to
the newly elected directors in order legally to constitute the meeting,
provided a quorum shall be present. In the event such meeting of the board
of directors is not held at such time and place, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the board of directors, or as shall be
specified in a written waiver signed by all of the directors.
Section 7. Regular Meetings. Regular meetings of the board of directors
shall be held without notice at such time and place as shall from time to
time be determined by the board of directors.
Section 8. Special Meetings. Special meetings of the board of directors
may be called by the chairman of the board or the president on at least
twenty four (24) hours' prior notice to each director. Notice shall be
deemed to be sufficiently given if delivered personally or by mail,
telephone, telex, telecopier, or overnight courier. Special meetings shall
be called by the chairman of the board, the president or secretary in like
manner and on like notice on the written request of two directors. Notice
of a special meeting need not be given to any director who participates in
the meeting without protesting prior thereto or at its commencement the
lack of notice given to him or her.
Section 9. Quorum. At all meetings of the board of directors not less
than one-third of the total number of directors, but in any event not less
than two directors, shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting
at which there is a quorum shall be the act of the board of directors,
except as may be otherwise specifically provided by statute or by the
certificate of incorporation. If a quorum shall not be present at any
meeting of the board of directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 10. Action Without Meeting. Unless otherwise restricted by the
certificate of incorporation or these by-laws, any action required or
permitted to be taken at any meeting of the board of directors or of any
committee thereof may be taken without a meeting, if prior to such action a
written consent thereto is signed by all members of the board of directors
or of such committee as the case may be, and such written consent is filed
with the minutes of proceedings of the board of directors or committee.
Section 11. Committees of directors. The board of directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of
the corporation. The board may designate one or more directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the board
of directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors, shall have and may exercise all the
powers and authority of the board of directors in the management of the
business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange
of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the by-laws of the corporation;
and unless the resolution expressly so provides, no such committee shall
have the power or authority to declare a dividend or to authorize the
issuance of stock. Such committee or committees shall have such name or
names as may be determined from time to time by resolution adopted by the
board of directors.
Section 12. Reports of Committees. Each committee shall keep regular
minutes of its meetings and report the same to the board of directors when
required.
Section 13. Compensation. The board of directors, by the affirmative
vote of a majority of the directors then in office and irrespective of any
personal interests of any of its members, shall have authority to establish
reasonable compensation of all directors for services to the corporation as
directors, officers or otherwise, and shall have authority to reimburse
directors for their expenses, if any, of attendance at each meeting of the
board of directors. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor. Directors serving on committees, designated by the board of
directors, may be paid additional compensation for serving on such
committees.
ARTICLE IV
Notices
-------
Section 1. Notices. Notices to directors and stockholders shall be in
writing and delivered personally or mailed to the directors or stockholders
at their addresses appearing on the books of the corporation. Notice by
mail shall be deemed received two business days after the same shall have
been mailed. Notice to directors may also be given by telex, telecopier or
overnight courier. Such notices shall be deemed received on the date
delivered, if sent by telex or telecopier, or one business day after being
sent by overnight courier.
Section 2. Waiver of Notice. Whenever any notice is required to be given
under the provisions of the statutes or of the certificate of incorporation
or of these by-laws, a waiver thereof in writing, signed by the person or
persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
ARTICLE V
Officers
--------
Section 1. Designation; Number; Election. The board of directors, at its
first regular meeting after each annual meeting of stockholders, shall
elect the officers of the corporation. Such officers shall be a chairman
of the board, a president, one or more vice presidents (the number thereof
to be determined by the board of directors), a secretary, and a treasurer
and such assistant secretaries and assistant treasurers as the board of
directors may choose. The board of directors may appoint such other
officers and agents as it shall deem necessary, including, but not limited
to a vice chairman of the board, who shall hold their offices for such
terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
Section 2. Compensation. The salaries of all principal officers of the
corporation shall be fixed by the board of directors. The salaries of all
other officers of the corporation shall be fixed by the chairman of the
board or by any other principal officer designated by the chairman of the
board.
Section 3. Term, Removal, Vacancy. The officers of the corporation shall
hold office until their successors are chosen and qualified, except as
hereinafter provided. Any officer may be removed at any time by the
affirmative vote of a majority of the board of directors.
Section 4. Chairman of the board. The chairman of the board shall
preside at all meetings of the stockholders and the board of directors of
the corporation, and may serve as the chief executive officer of the
corporation. The chairman of the board shall be responsible for
presentation of any proposed changes in the major policies of the
corporation to the board of directors for action; shall report to the board
of directors with respect to matters of policy affecting the corporation;
and in general shall discharge all other responsibilities and perform all
other duties usually incident to the office of chairman of the board and
such as are assigned to such officer from time to time by the board. (The
office of chairman of the board shall also be known as chairman and
chairman of the board of directors.)
Section 5. Vice-Chairman of the board. In the event of the absence,
disability or inability to act of the chairman of the board, the vice-
chairman of the board shall perform the duties of the chairman of the board
and when so acting shall also have all the powers of and be subject to all
restrictions upon the chairman of the board. The vice-chairman shall
perform such other duties as from time to time may be prescribed by the
board of directors or delegated by the chairman of the board.
Section 6. Other members of the board. In the event of the absence,
disability or inability to act of the chairman of the board, the vice
chairman of the board, and the president, if a director, the directors in
the order determined by the board of directors, or in the absence of such
determination, in the order each shall have respectively held the office of
director for the longest time shall perform the duties of the chairman of
the board and when so acting shall also have all the powers of and be
subject to all the restrictions upon the chairman of the board.
Section 7. President. Unless the board of directors otherwise provides,
the president shall be the chief operating officer of the corporation and
may serve as the chief executive officer of the corporation. The president
shall in general supervise and manage the day to day business and affairs
of the corporation. The president may sign all deeds, mortgages, notes,
contracts, proxies or other instruments on behalf of the corporation,
except where the signing thereof shall have been expressly delegated by the
board of directors or by these by-laws, or shall be required by law, to be
signed by some other officer. The president shall implement and carry into
effect all orders and resolutions of the board of directors or of the
executive committee and shall submit to the board of directors and the
executive committee, at the regular meetings thereof or, upon their
request, at special meetings thereof, detailed reports of the operations of
the corporation and shall also submit to the board of directors a complete
and detailed report of the operations of the corporation for each fiscal
year. The president shall from time to time report to the board of
directors all matters within such officer's knowledge which the interests
of the corporation may require to be brought to its notice. The president
shall have and exercise such further powers and duties as may be
specifically delegated to or vested in the president from time to time by
these by-laws, or by the board of directors. In the absence of the
chairman and vice-chairman of the board, or in the event of their
disability or inability to act, the president, if also a director of the
corporation, shall assume the responsibilities and perform the duties of
the chairman of the board, and when so acting shall have all the powers of
and be subject to all the restrictions upon the chairman of the board.
Section 8. Vice-Presidents.
(a) In the event of the absence, disability or inability to act of the
president, the vice-presidents in the order determined by the board of
directors, or in the absence of such determination, in the order each shall
have respectively held the office of vice-president for the longest time,
shall perform the duties of the president and when so acting shall also
have all the powers of and be subject to all the restrictions upon the
president.
(b) The vice-presidents shall have such titles as may be designated by the
board of directors. The vice-presidents shall perform such other duties as
from time to time may be prescribed by the board of directors or delegated
by the president or the chairman of the board.
Section 9. Secretary. The secretary shall attend all meetings of the
board of directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the board of
directors in books to be kept for that purpose and shall perform like
duties for the committees of directors when required. The secretary shall
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the board of directors. The secretary shall have
custody of the corporate seal of the corporation and he or she, and any
assistant secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the
secretary's signature or by the signature of such assistant secretary. The
secretary shall perform all duties incident to the office of secretary and
such other duties as from time to time may be prescribed by the board of
directors or delegated by the chairman of the board or the president. The
board of directors may give authority to any other officer to affix the
seal of the corporation and to attest the affixing by the secretary's
signature.
Section 10. Assistant Secretaries. In the absence of the secretary, or
in the event of the secretary's disability, or inability to act or to
continue to act, the assistant secretaries, in the order determined by the
board of directors, shall perform the duties of the secretary and, when so
acting, shall have all the powers of and be subject to all the restrictions
upon the secretary. The assistant secretaries shall perform such other
duties as from time to time may be prescribed by the board of directors or
delegated by the secretary.
Section 11. Treasurer. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys and other valuable effects in the name and to the credit
of the corporation in such depositories as may be designated by the board
of directors. The treasurer shall disburse or cause to be disbursed the
funds of the corporation as may be ordered by the board of directors,
taking proper vouchers for such disbursements, and shall render to the
president and the board of directors, at its regular meetings, or when the
board of directors so requires, an account of any transactions as treasurer
and of the financial condition of the corporation. If required by the
board of directors, the treasurer shall give the corporation a bond (which
shall be renewed every six years) in such sum and with such surety or
sureties as shall be satisfactory to the board of directors for the
faithful performance of the duties of the office of the secretary and for
the restoration to the corporation, in case of the treasurer's death,
resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in the treasurer's
possession or under the treasurer's control belonging to the corporation.
He or she shall perform all duties incident to the office of treasurer and
such other duties as from time to time may be prescribed by the board of
directors or delegated by the chairman of the board or the president.
Section 12. Assistant Treasurers. In the absence of the treasurer, or in
the event of the treasurer's disability, or inability to act or continue to
act, the assistant treasurers, in the order determined by the board of
directors, shall perform the duties of the treasurer and, when so acting,
shall have all the powers of and be subject to all the restrictions upon
the treasurer. If required by the board of directors, the assistant
treasurers shall give the corporation bonds (as the treasurer may be
required to do) in such sums and with such surety or sureties as shall be
satisfactory to the board of directors. The assistant treasurers shall
perform such other duties as from time to time may be prescribed by the
board of directors or delegated by the treasurer.
Section 13. Controller. The controller shall have supervision over all
accounts and account books of the corporation, and establish and maintain
all controls and accounting procedures. The controller shall direct the
keeping of accounts and records, analyze the accounts and records of the
company and prepare and furnish statements and reports to the board of
directors, the president, and the vice president, finance, concerning the
financial condition of the company and establish and maintain accounting
policies. The controller shall direct and supervise the internal auditing
procedures of the company. The controller shall cause the books and
accounts of all officers and agents charged with the receipt and
disbursement of money to be examined as often as practicable, or when
requested by the president or vice president, finance, and shall ascertain
whether or not the cash and vouchers covering the balances are actually on
hand. The controller shall perform all other duties incident to the office
of controller and such other duties as from time to time may be prescribed
by the board of directors or designated by the president or delegated by
the vice president, finance.
Section 14. Other Officers. Such other officers as the board of
directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the board of directors. The board
of directors may delegate to any other officer of the corporation the power
to choose such other officers and to prescribe their respective duties and
powers.
ARTICLE VI
Certificates of Stock
---------------------
Section 1. Form and Execution of Certificates. Every holder of stock in
the corporation shall be entitled to have a certificate signed by, or in
the name of the corporation by, the chairman of the board, the president or
any vice president and the treasurer or an assistant treasurer or the
secretary or an assistant secretary of the corporation, certifying the
number of shares owned by such individual in the corporation. Such
certificates shall be in such form as may be determined by the board of
directors. During the period while more than one class of stock of the
corporation is authorized there will be set forth on the face or back of
the certificate which the corporation shall issue to represent each class
or series of stock, a statement that the corporation will furnish without
charge to each stockholder who so requests, the designations, preferences
and relative, participating, optional or other special rights of each class
of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Where a certificate is
signed by a transfer agent acting on behalf of the corporation and a
registrar, the signature of any such chairman of the board, president, vice
president, treasurer, assistant treasurer, secretary or assistant secretary
may be facsimile. In case any officer or officers who have signed, or
whose facsimile signature or signatures have been used on, any such
certificate or certificates shall cease to be such officer or officers of
the corporation, whether because of death, resignation or otherwise, before
such certificate or certificates have been delivered by the corporation,
such certificate or certificates may nevertheless be adopted by the
corporation and be issued and delivered as though the person or persons who
signed such certificate or certificates or whose facsimile signature or
signatures have been used thereon had not ceased to be such officer or
officers of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been
lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost or destroyed certificate
or certificates, or such individual's legal representative, to advertise
the same in such manner as it shall require and/or to give the corporation
a bond in such sum as it may direct as indemnity against any claim that may
be made against the corporation with respect to the certificate alleged to
have been lost or destroyed.
Section 3. Transfers of Stock. Upon surrender to the corporation or the
transfer agent of the corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
Section 4. Closing of Transfer Books. The board of directors may close
the stock transfer books of the corporation for a period not exceeding
sixty days preceding the date of any meeting of stockholders or the date
for payment of any dividend or the date for the allotment of rights or the
date when any change or conversion or exchange of capital stock shall go
into effect or for a period not exceeding sixty days in connection with
obtaining the consent of stockholders for any purpose. In lieu of closing
the stock transfer books as aforesaid, the board of directors may fix in
advance a date, not exceeding sixty days preceding the date of any meeting
of stockholders, or the date for the payment of any dividend, or the date
for the allotment of rights, or the date when any change or conversion or
exchange of capital stock shall go into effect, or a date in connection
with obtaining such consent, as a record date for the determination of the
stockholders entitled to notice of, and to vote at, any such meeting, and
any adjournment thereof, or entitled to receive payment of any such
dividend, or to any such allotment of rights, or to exercise the rights in
respect of any such change, conversion or exchange of capital stock, or to
give such consent, and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall
be entitled to such notice of, and to vote at, such meeting and any
adjournment thereof, or to receive payment of such dividend, or to receive
such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be notwithstanding any transfer of any stock on
the books of the corporation after such record date fixed as aforesaid.
ARTICLE VII
Miscellaneous Provisions
------------------------
Section 1. Contracts. The board of directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be advanced to the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by
a resolution of the board of directors. Such authority may be general or
confined to specific instances.
Section 3. Bank Accounts. All funds of the corporation shall be
deposited from time to time to the credit of the corporation in such
general or special bank account or accounts in such banks, trust companies
or other depositories as the board of directors may from time to time
designate, and the board of directors may make such special rules and
regulations with respect thereto as it may deem expedient.
Section 4. Checks, Drafts, Notes. All checks, drafts or other orders for
the payment of money, notes or other evidence of indebtedness issued in the
name of the corporation shall be signed by such officer or officers or such
agent or agents of the corporation as the board of directors may from time
to time designate.
Section 5. Dividends. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation,
if any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the
certificate of incorporation.
Section 6. Reserves. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think
conducive to the interest of the corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
Section 7. Proxies. The board of directors may appoint and direct any
officer or officers of any other agent or agents of the corporation to cast
the votes which the corporation may be entitled to cast as a stockholder or
otherwise in any other corporation any of whose stock or other securities
may be held by the corporation at meetings of the holders of the stock or
other securities of such other corporation, or to consent in writing to any
action by such other corporation. Unless otherwise ordered by the board of
directors, the president shall have full power and authority to cast such
votes and to consent to such action as such officer may deem in the best
interests of the corporation.
Section 8. Fiscal Year. The fiscal year of the corporation shall begin
on the first day of January of each year.
Section 9. Seal. The corporate seal shall have inscribed thereon the
name of the corporation and the words "Corporate Seal, Delaware." The seal
may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
Section 10. Amendments. These by-laws may be altered or repealed at any
regular or special meeting of the board of directors.
Section 11. Indemnification and Insurance. The corporation shall, to the
fullest extent to which it is empowered to do so by the General Corporation
Law of Delaware, or any other applicable laws, as from time to time in
effect, indemnify any person who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that such individual is or was a director or officer of
the corporation or a division thereof, or is or was serving at the request
of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, against all expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by such individual in
connection with such action, suit or proceeding. This section shall not be
construed as requiring the corporation to indemnify any person by reason of
the fact that such individual is or was a director or officer of a
constituent corporation absorbed in a consolidation or merger in which the
corporation was the resulting or surviving corporation.
The provisions of this section shall be deemed to be a contract between the
corporation and each director or officer who serves in any such capacity at
any time while this section and the relevant provisions of the General
Corporation Law of Delaware or other applicable law, if any, are in effect,
and any repeal or modification of any such law shall not affect any rights
or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or
thereafter brought or threatened based in whole or in part upon any such
state of facts.
Persons who are not covered by the foregoing provisions of this section and
(a) who are or were employees or agents of the corporation or a division
thereof, or are or were serving at the request of the corporation as
employees or agents of another corporation, partnership, joint venture,
trust or other enterprise, or (b) are or were directors, officers,
employees or agents of a constituent corporation absorbed in a
consolidation or merger in which the corporation was the resulting or
surviving corporation, or who are or were serving at the request of such
constituent corporation as directors, officers, employees or agents of
another corporation, partnership, joint venture, trust or other enterprise,
may be indemnified to the extent authorized at any time or from time to
time by the board of directors of the corporation.
The indemnification provided or permitted by this section shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled by law or otherwise, and shall continue as to a person who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the heirs, executors and administrators of such person.
The corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent
of the corporation, or of a constituent corporation absorbed in a
consolidation or merger in which the corporation was the resulting or
surviving corporation, or is or was serving at the request of the
corporation or of such a constituent corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against and incurred by
such individual in any such capacity, or arising out of such individual's
status as such, whether or not the corporation would have the power to
indemnify such individual against such liability under the provisions of
this section.
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