UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
Mark one
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended OCTOBER 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
OPTICAL COATING LABORATORY, INC.
(Exact name of registrant as specified in its charter)
COMMISSION FILE NUMBER 0-2537
DELAWARE 68-0164244
(State or other jurisdiction of (IRS Identification No.)
incorporation or organization)
2789 NORTHPOINT PARKWAY, SANTA ROSA CALIFORNIA 95407-7397
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (707) 545-6440
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(Title of each class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
At December 31, 1997, the aggregate market value of the registrant's
common stock (based upon the closing price of these shares on the NASDAQ
National Market System) held by non-affiliates, which excludes shares held
by officers and directors and the Employee Stock Ownership Plan of the
registrant (not all of whom claim to be affiliates), was approximately
$109.8 million.
At December 31, 1997, there were 10,631,712 shares of the registrant's
common stock, $.01 par value, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the Company's Annual
Meeting of Stockholders to be held March 31, 1998 are incorporated by
reference into Part III of this Form 10-K.
The Exhibit index appears on Pages 47-49.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
PART I
Item 1. Business......................................................... 3
Item 2. Properties....................................................... 11
Item 3. Legal Proceedings................................................ 12
Item 4. Submission of Matters to a Vote of Security Holders.............. 13
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters...................................... 16
Item 6. Selected Financial Data.......................................... 16
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 17
Item 8. Consolidated Financial Statements and
Supplemental Financial Information............................... 23
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure....................................................... 46
PART III
Item 10. Directors and Executive Officers of the Registrant............... 46
Item 11. Executive Compensation........................................... 46
Item 12. Security Ownership of Certain Beneficial Owners and Management... 46
Item 13. Certain Relationships and Related Transactions................... 46
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.......................................... 47
THE INFORMATION CONTAINED IN THIS REPORT INCLUDES FORWARD LOOKING
STATEMENTS WHICH ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES,"
"BELIEVES," "EXPECTS," "INTENDS," "FORECASTS," "PLANS," "FUTURE,"
"STRATEGY," OR WORDS OF SIMILAR IMPORT. VARIOUS IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE
FORWARD LOOKING STATEMENTS ARE IDENTIFIED BELOW AND IN PART II, ITEM 7 OF
THIS REPORT. ACTUAL RESULTS MAY VARY SIGNIFICANTLY BASED ON A NUMBER OF
FACTORS INCLUDING, BUT NOT LIMITED TO, PRODUCT DEVELOPMENT,
COMMERCIALIZATION AND TECHNOLOGICAL DIFFICULTIES; MANUFACTURING COSTS AND
YIELD ISSUES ASSOCIATED WITH INITIATING PRODUCTION AT NEW FACILITIES; THE
IMPACT OF COMPETITIVE PRODUCTS AND PRICING; CHANGING CUSTOMER REQUIREMENTS;
AND THE CHANGE IN ECONOMIC CONDITIONS OF THE VARIOUS MARKETS THE COMPANY
SERVES.
PART I
ITEM 1. BUSINESS
GENERAL
Optical Coating Laboratory, Inc., together with its consolidated
subsidiaries (the "Company"or "OCLI"), is the world's largest independent
manufacturer of optical thin film coated components used to manage light.
At its Company-owned and leased facilities located in Santa Rosa,
California, Goslar, Germany, Hillend, Scotland and Isehara, Japan, OCLI
designs, develops and manufactures multi-layer thin film coatings which
control and enhance light by altering the transmission, reflection and
absorption of its various wavelengths to achieve a desired effect such as
anti-reflection, anti-glare, electromagnetic shielding, electrical
conductivity and abrasion resistance. OCLI markets and distributes
components to original equipment manufacturers ("OEMs") of optical and
electro-optical systems and sells its Glare/Guard brand ergonomic computer
display products through resellers and office retailers. OCLI's products
are found in many applications including computer monitors, flat panel
displays, telecommunication systems, photocopiers, fax machines,
medical/analytical equipment and instruments, projection imaging systems,
satellite power systems and aerospace and defense systems. The Company also
manufactures precision injection molded plastic optical components that are
used in a variety of applications such as inkjet printers, point-of-sale
scanners and sunglasses. Precision molded plastic optics allow for the
production of aspheric surfaces, have significant cost advantages over
similar products made with glass, improve impact resistance and offer a
substantial weight advantage over glass components.
The Company has developed many of its thin film coating processes and has
designed and fabricated most of the coating equipment used to manufacture
its products. The Company believes its ability to design and build this
specialized equipment has been an important factor in its ability to
compete successfully. The Company maintains an extensive array of thin
film coating equipment, glass fabrication equipment, precision injection
molding equipment and support facilities to satisfy its customers'
requirements for thin film coated products, fabricated glass components and
precision injection molded plastic optics components.
Flex Products, Inc. ("Flex" or "Flex Products"), of which the Company
holds a controlling 60% interest, is a manufacturer of thin film coatings
on plastic film produced by a proprietary vacuum deposition technology on
large-scale, high-speed roll coating equipment developed by OCLI in
the 1980's. Flex's principal product, optically variable pigment ("OVP"),
was also invented by the Company and is used primarily in currency
printing as a security and anti-counterfeiting measure. SICPA Holding S.A.,
a Swiss company that is OCLI's 40% partner in Flex Products, is the
largest manufacturer of printing inks in the world and is currently
Flex Products' largest customer. Flex Products also manufactures and
sells energy efficient window film used for residential, commercial
and automotive energy conservation; printing plates used in offset
color printing; photoreceptor ground planes used in copiers; and pigment
used in automotive paint.
Through its OCLI/MMG Division in Goslar, Germany and its principal
manufacturing facility in Santa Rosa, California, the Company operates
fully integrated precision glass fabrication operations with capability for
sawing, machining, heat-treating, chemical-treating, silk screening and
etching glass products to customer specifications. Fabricated glass
product lines include mirrors, platens, filters, panels and an array of
optics and components made of glass for use in copiers, cameras and other
electro-optical devices and instruments.
The Company also operates a fully integrated coating facility with
additional optical fabrication capability at its wholly-owned subsidiary in
Hillend, Scotland. From this platform, the Company markets a broad array
of coated products with applications in commercial, scientific and military
markets and performs research and development under scientific and U.K.
Ministry of Defense sponsorships.
Through a contractual joint venture alliance with JDS FITEL Inc. ("JDS"), a
publicly held Canadian high technology company, OCLI produces optical
filters for use in dense wavelength division multiplexing ("WDM") products
that are marketed and distributed by JDS. WDM is the simultaneous
transmission of information on different wavelengths along the same optical
fiber and is one of the alternative technologies available to
telecommunications network providers to satisfy the demand for increased
transmission capacity resulting from the growing use of new services such
as the Internet, video and other forms of data transmission. WDM
components are the key elements in fiber optic systems that facilitate
transmission using different wavelengths. Precision thin film optical
filters are one of the key elements in a WDM component that permit
wavelength discrimination.
Through its joint venture company in Japan, Hakuto-OCLI, Ltd., which is
doing business as "OCLI Asia," the Company provides fabrication and
applications engineering support for front surface mirrors, anti-reflection
panels, optical filters for satellites, dichroic filters, among other
products for Asian markets. OCLI Asia was formed in 1997, as a joint
venture with Hakuto Co., Ltd. Hakuto has been a major customer and long-
term distributor and fabricator of OCLI's products in Japan and several
other Asian countries and is an approximate 9% stockholder of the Company.
OCLI Asia is consolidated into the Company's results of operations and
financial position as the Company has operating control over the joint
venture.
The Company has significant investments in Germany, Scotland and Japan.
Changes in the value of those countries' currencies relative to the U.S.
dollar are recorded as direct charges or credits to equity. The Company
also has manufacturing operations in Germany, Scotland and Japan and sales
presence in other European and Asian countries. A significant weakening of
the currencies in Europe or Asia in relation to the U.S. dollar could
reduce the reported results of those operations. In addition, a
significant amount of the Company's sales are export sales which could be
subject to competitive price pressures if the U.S. dollar was to strengthen
compared to the currency of foreign competitors
MARKETS AND PRODUCTS
DISPLAY. The Company is a leading supplier of anti-reflection coatings to
OEMs for use on computer terminals and other cathode ray tube ("CRT")
displays, flat panel displays, liquid crystal displays ("LCDs") and touch
panel displays (among other applications) to improve the readability of the
information displayed by reducing glare from reflected light while
optimizing the transmission of light from the display. The coatings are
produced in several configurations to meet varied customer requirements,
including as laminates with conductive qualities to reduce electromagnetic
and electrostatic discharge.
The Company also produces ergonomic enhancement products which are sold in
the computer end-user market under its Glare/Guard brand and on a private
label basis. The filters provide viewing comfort and health and safety
protection for computer users by improving the visibility of the
information displayed on computer display monitors. Several models are also
capable of minimizing electrical and magnetic field radiation and static
charge buildup of display devices.
The Company also manufactures a variety of components used in projection
display products, such as front surface mirrors used in large screen
projection televisions and dichroic color filters used in LCD and digital
light processing projector systems.
TELECOMMUNICATIONS. OCLI produces state-of-the-art optical bandpass filters
for use in wavelength division multiplexing ("WDM") products that allow
simultaneous transmission of many telephone signals on a single optical
fiber. WDM is one of the alternative technologies available to
telecommunications network providers to satisfy the demand for increased
transmission capacity resulting from the growing use of new services such
as the Internet, video and other forms of data transmission. WDM
components are the key elements in fiber optic systems that facilitate
transmission using different wavelengths. Precision thin film optical
filters are one of the key elements in WDM components that permit
wavelength discrimination. OCLI's filters are marketed and distributed
through a contractual joint venture arrangement with JDS FITEL Inc.
OCLI also serves the telecommunications market through the production of
glass solar cell covers and thermal control mirrors for use on satellites.
The thin glass solar cell covers are coated to provide enhanced
performance, reduced temperature and protection for the photovoltaic cells.
These covers range from the simplest single layer products that improve
solar transmission to complex multi-layer designs that reflect ultraviolet
and infrared solar energy. The thermal control mirrors are used to control
the temperature of satellites. These highly efficient mirrors are used to
reflect solar energy from sensitive instrument areas and to control antenna
temperature and performance using proprietary designs on flexible
substrates.
OFFICE AUTOMATION. The Company manufactures a complete line of high
quality products for office automation OEMs, including front surface
mirrors for photocopiers, document scanners, overhead projectors, facsimile
machines and laser beam printers; platen glass and photoreceptors for
photocopiers; hot and cold mirrors used in micrographic readers and
overhead projectors; color separation filters for desktop document
scanners; and precision molded plastic components used in inkjet printers.
SECURITY PRODUCTS. Through Flex Products, Inc., the Company manufactures
and markets optically variable pigment ("OVP") used in currency printing as
an anti-counterfeiting measure. Flex's largest customer for OVP, and OCLI's
partner in Flex's ownership, is SICPA Holding S.A., one of the world's
leading manufacturers of printing inks. Currently, over 50 countries,
including the United States, have adopted the use of ink made with
optically variable pigment in the printing of currencies and other valued
documents. Sales of this product constituted greater than 10% of the
Company's consolidated sales in 1997 and 1996. See "Marketing" discussion.
OTHER MARKETS. The Company manufactures a wide array of filters, reflectors
and optical components for use in medical, biochemical, scientific and
analytical instruments, manufacturing process control instruments, barcode
scanners, point-of-sale scanners, focus devices in cameras and slide
projectors, instruments used to monitor blood glucose levels and
instruments used to measure color in paint pigment as well as
sophisticated, high-precision coated products and optical components to
meet the specific performance requirements of advanced scientific, space
and defense systems and products for a variety of specialty applications,
including dichroic filters for specialty stage lighting; energy control
window film for architectural applications; optically variable pigment used
in automotive paint; precision molded plastic optics for sunglasses and
anti-reflection linear polarizers for viewcams.
MANUFACTURING
The Company's initial growth came from the development of high precision
coated products for use primarily in defense and aerospace applications and
in sophisticated analytical equipment. These types of coated products are
produced by relatively costly batch processes and continue to represent a
portion of the Company's revenues. From this base, the Company has
expanded into commercial markets by designing and fabricating continuous
coating equipment capable of producing a high volume of relatively less
complex products at lower unit costs. This large-scale equipment has
enabled the Company to serve broad commercial markets with many of its
products.
The Company has developed many of its thin film coating processes and has
designed, fabricated or significantly customized most of the coating
equipment used in production, including its continuous coaters, batch
coaters and high speed roll-to-roll coaters. The Company believes its
ability to design and build this specialized equipment, and its ability to
develop proprietary process technologies, has been an important factor in
enabling it to compete successfully. Consequently, the Company maintains an
extensive array of thin film coating equipment, glass fabrication equipment
and metrology equipment to meet customer requirements for coated products
and fabricated glass components.
The Company employs various coating processes which it has developed and
established over many years including batch coating by evaporation as its
historic coating process and batch coating by reactive metal mode
sputtering as a proprietary, patented process. The Company employs similar
evaporation and sputtering processes in its continuous in-line coating
systems. The Company's Flex Products subsidiary also employs proprietary
evaporation processes and sputtering in its high-speed, roll-to-roll
coating systems. The Company and its subsidiary operations have extensive
auxiliary material preparation and glass fabrication equipment in place
which allow the Company to produce a broad array of coated glass and
plastic components and coated products for a wide variety of applications.
The Company has developed and procured extensive state-of-the-art metrology
and test equipment to allow testing and verification of technological and
performance characteristics of its products. This capability, including
the expertise of the Company's scientific and technical staff to develop
and design specific thin film coatings to meet a customer's application
requirements, is frequently an integral aspect sought by customers in
selecting the Company as a supplier.
RESEARCH AND DEVELOPMENT
The Company devotes substantial resources to research and development in
order to develop new and improve existing thin film products, processes and
manufacturing equipment. As a result, the Company has developed a
technological leadership position in the thin film coatings industry, and
customers rely on the Company's thin film integration services expertise
and its products.
In cooperation with its joint venture partner, JDS FITEL Inc., the Company
is developing new wavelength division multiplexing ("WDM") products and
processes to expand the information carrying capability of fiber optic
telecommunication networks. The emerging opportunities in this rapidly
growing market require extremely high precision interference coating
deposition technology combined with advanced fiber optic assembly and
testing technology.
The Company's ongoing research and development commitments also include
techniques to improve coating uniformity on plastic substrates for flat
panel display applications; automation of the Company's coating equipment
to improve product and increase equipment productivity; development of new
and improved product configurations for the Glare/Guard market; and
reduction and eventual elimination of coating and cleaning materials that
may be hazardous to the environment.
Flex Products' major research and development effort has been toward the
development and integration of state-of-the-art coating processes for use
in new coating machines, which the subsidiary installed during fiscal 1996,
and for the qualification of new products, primarily new color shifts for
OVP and pigment used for automotive paint.
Company funded research and development expenditures totaled $14.9 million,
$11.7 million and $8.4 million, or 6.8%, 6.2% and 5.0% of revenues, during
fiscal years 1997, 1996 and 1995. In addition to the research and
development funded by the Company, many of the Company's customer contracts
involve state-of-the-art coating applications requiring substantial amounts
of development in support of specific customer applications.
PATENTS AND LICENSES
The Company believes its proprietary technology, its trade secrets and its
patents to be of considerable value to its business. The Company believes
that its patents demonstrate and support its technological leadership
position, safeguard its competitive position and support existing and
potential sales volume.
The Company has 48 patents and 63 patent applications in the United States
which cover materials, processes, products and production equipment. The
Company also has patents and patent applications pending in various foreign
countries covering the same technology. Expiration dates for the Company's
various patents range from 1998 to 2016. Flex Products currently has 107
patents and 83 new patent applications pending that are separate from the
Company's patents. Expiration dates for Flex Products' patents range from
1998 to 2014. Flex Products also has patents and patent applications
pending in various foreign countries covering the same technology. (See
Item 3., "Legal Proceedings", for a discussion of the Company's patent
infringement lawsuit with BASF Corporation and BASF AG.)
In 1988, at the formation of Flex Products as a joint venture, the Company
and Flex Products entered into a License Agreement under which certain of
the Company's patents relating to roll coating technology were assigned to
Flex Products and Flex Products agreed to make royalty payments to the
Company for the use of these patents. The License Agreement provides for
royalties of 4% of Flex Products' revenues. The royalty payments are to
continue for several years until a total of $13.7 million is paid. At
fiscal year end 1997, $6.4 million remained to be paid. In years prior to
1995, and until May 1995, royalties were recorded as revenues. In 1995,
after the Company's additional investment in Flex Products, the royalties
were eliminated in consolidation.
TECHNOLOGY LICENSING
The Company selectively licenses its coating technology to other companies,
primarily for integrated, mass production applications that the Company
would not otherwise be able to provide as a manufacturer in the ordinary
course of its business. During the past five years, these licenses,
together with sales of equipment built for licensees in support of the
licenses, have generated revenues to the Company totaling approximately $10
million.
MARKETING
The Company has established strong, long-term customer relationships and
serves a wide range of markets, including leading manufacturers of
computers, photographic equipment, copier products, medical
instrumentation, home entertainment products, and space and defense
systems. The Company's Flex Products subsidiary also has long-term
relationships with customers in its markets.
The Company's products are sold by its sales organizations, headquartered
in Santa Rosa, California and Reinheim, Germany, who communicate directly
with customers' engineering, manufacturing and purchasing personnel in
determining the design, performance and cost specifications for customer
product requirements. The Company has regional sales offices in several
major cities throughout the United States and in Germany, France, Spain and
the United Kingdom. In Japan and other Asian countries, the Company has
established joint venture companies with its former independent
distributors and sales representatives to provide more integrated marketing
and sales support in these regions.
With the exception of its Glare/Guard product line, the Company markets
most of its standard, high volume coated products and fabricated glass
components to OEMs. Its customized, technically sophisticated products are
also marketed to OEMs in addition to defense and aerospace contractors. The
Company exports some of its products to major distributors who perform
product conversion and other value-added process steps before resale. The
Company's Glare/Guard product line is marketed through distributors and
dealers directly to end users.
Flex Products sells into several significant markets with a small,
technically oriented sales organization supported by operations and
engineering personnel in a sales team approach.
The Company's ten largest customers accounted for 42% of its sales in 1997.
The Company's largest customer in 1997, who is also the Company's 40%
partner in the ownership of Flex Products, accounted for approximately 14%
of total sales for fiscal 1997, 13% of total sales for fiscal 1996 and 12%
of total sales for the six months of consolidation of Flex Products in
fiscal 1995. The Company's second and third largest customers in 1997
accounted for 7% and 5% of its sales in fiscal year 1997. The Company's
second largest customer in 1996 and largest customer in 1995 accounted for
5% and 8% of its sales in fiscal years 1996 and 1995. Because relatively
few customers account for a substantial portion of the Company's sales, the
loss of their business could have a material adverse effect on the
Company's operating results. However, the Company believes that it has the
resources and capabilities to replace any lost business over time through
the development of new products and new applications for its products.
Foreign sales, primarily in Europe and Asia, including foreign sales of
Flex Products for fiscal 1997, fiscal 1996 and six months of 1995,
represented 48%, 48% and 47% of revenues for fiscal years 1997, 1996 and
1995. Sales by the Company's wholly-owned subsidiary in Scotland
represented 5%, 5% and 10% of revenues for fiscal years 1997, 1996 and
1995. Sales by the Company's wholly-owned subsidiary in Germany
represented 8%, 13% and 13% of revenues for fiscal years 1997, 1996 and
1995. Sales by these subsidiaries are primarily to customers in European
countries. See Note 11 of Notes to Consolidated Financial Statements.
Export sales by U.S. operations to Asian countries represented 11%, 13%,
and 13% and to European countries 19%, 14% and 9% of revenues for fiscal
years 1997, 1996 and 1995. Export sales can be affected by adverse
currency alignments and economic factors within those countries. In
addition, although the Company has not experienced significant overall
sales or pricing declines in these countries, economic factors in Europe
and Asia could have a material effect on the Company's future results.
Sales of products to the federal government, primarily under subcontracts,
accounted for 6%, 9% and 10% of revenues for the fiscal years 1997, 1996
and 1995. The Company's cost-plus-fixed fee ("CPFF") government contracts
for fiscal years 1996 and 1995 are subject to pending governmental audit
review. The audits entail, primarily, a review of costs and expenses
charged to government contracts with the focus on potential adjustments to
the allocation of general and administrative expenses. General and
administrative expense allocations to CPFF contracts were $274,000 for
1997, $796,000 for 1996 and $1.8 million for 1995. The Company does not
expect pending governmental audits to result in adjustments that will have
a material impact on future operating results.
RAW MATERIALS AND SUPPLIERS
The primary raw materials used by the Company in its coating operations are
various forms of glass, germanium, fused silica and several types of
plastic and inorganic coating materials, such as magnesium fluoride,
silicon dioxide, aluminum or germanium. The Company has more than one
supplier for each of its raw materials and maintains adequate inventories
and close working relationships with its suppliers to assure a continuous
and adequate supply for production. The Company purchases special grade
flat glass under long-term arrangements from one major U.S. glass supplier.
The Company has not experienced any significant interruptions in production
due to a shortage of raw material. Substrate materials are purchased by the
Company or supplied by customers, while coating materials and their
composition are generally supplied by the Company, as they are often
considered a proprietary element of the manufacturing process.
In the Company's precision molded polymer optics operation, the primary raw
material used is high quality granular polycarbonite plastic base stock
which the Company procures from one principal supplier. Although the
Company has experienced price increases for this raw material, and there is
currently product supply allocation, it has been able to maintain its
supply because of the long-term customer relationship with the supplier.
Flex Products uses significant quantities of plastic film and inorganic
coating materials in the manufacture of its products. There is more than
one supplier for both materials, and Flex Products has not experienced
production interruptions due to a shortage of raw materials.
SEASONALITY
The Company's business is not seasonal in any material sense. However, the
Company customarily shuts down a major portion of its operations between
Christmas and New Year's Day. As a result, during the last five fiscal
years, normally scheduled work days for the first fiscal quarter have
averaged 56 compared to an average of 64 for the other three fiscal
quarters. Nonetheless, the Company generally has sufficient manufacturing
capacity and the ability to schedule additional production shifts to meet
its customers' shipment requirements in any period of the year. The
Company believes that its revenues and costs are consistently matched in
each fiscal quarter since labor costs during the holiday shutdown period
are generally charged to holiday and vacation labor expense categories
which are accounted for on a pro rata basis over the fiscal year.
The Company's European subsidiaries customarily shut down their operations
for a two week summer vacation. The summer shutdown has historically
reduced the Company's fiscal fourth quarter sales in Europe as compared to
sales in the other three fiscal quarters. In 1997 and prior years, the
decline in sales during the summer in Europe has not been significant to
the consolidated operations of the Company. However, such seasonality could
become significant in future periods depending upon the overall
significance of European sales to total Company sales.
BACKLOG
The Company's backlog of orders at the end of each of the last three fiscal
years ended October 31, 1997, 1996 and 1995 was as follows:
1997 1996 1995
(In Millions)
$62.2 $51.6 $47.9
At October 31, 1997, backlog includes $6.2 million from Flex Products,
which represents orders and specifically scheduled releases on long-term
contracts for delivery within 12 months. Substantially all orders in
backlog at October 31, 1997 are scheduled for shipment during 1998. The
amount of backlog at October 31, 1997 represents only a portion of
anticipated sales in 1998, with new orders historically comprising the
major portion of sales in a fiscal year.
Backlog consists of new orders on which shipments have not yet started or
unfilled portions of orders which are only partly completed. Some of these
orders are completed within several days of receipt, while others are not
completed for a number of months. Substantially all orders included in
backlog are subject to cancellation without penalty; however, the Company
generally has not experienced significant order cancellations. Contractually
specified delivery dates on orders sometimes are adjusted at the request
of either the customer or the Company.
Flex Products has multi-year supply contracts with two of its customers
which include annual buy requirements with take or pay provisions. It is
the practice of Flex Products to only include specifically scheduled
shipment releases under these contracts in reported backlog.
COMPETITION
The Company believes its ability to compete successfully in its markets
depends on a number of factors, both within and outside of its control,
including the price, quality and performance of the Company's products, the
emergence of new optical standards, the ability to maintain adequate
coating capacity and sources of raw materials, the efficiency of its
manufacturing and production, the rate at which customers design the
Company's products into their products, the number and nature of the
Company's competitors in a given market, the assertion of intellectual
property rights and general market and economic conditions. The Company
attempts to position itself as the exclusive or principal supplier to most
of its key customers. To the extent competitors offer similar products to
the Company's customers, pricing pressure may result. When the Company is
unable to differentiate its product offerings, competition and related
pressure on profit margins can be intense.
The Company's competitors include several private companies whose sales of
coated products are believed to be considerably less than the Company's, as
well as coating operations that comprise only a portion of the total
business of other companies. The Company's glass fabrication operation in
Germany also has local and foreign competitors. The Company believes none
of these competitors has the wide array of technologies or manufacturing
capabilities available at OCLI.
The Company has a larger number of domestic and foreign competitors for its
Glare/Guard anti-glare optical filters. Companies that purchase coated
glass and assemble and sell filters in competition with the Company include
Fellows, Polaroid, ACCO and 3M. The Company is the world's largest
manufacturer of anti-reflective optical filters, as measured by total
number of units produced, manufacturing filters for both Glare/Guard
products and private label distributors. Glare/Guard is one of the most
recognized brand names in its market, both domestically and
internationally.
Flex Products' position in its major market is technologically proprietary
and patent protected. Flex Products faces competition in its OVP product
from other manufacturers of special effects pigments which the Company is
addressing, in part, through patent infringement litigation. (See Item 3,
"Legal Proceedings," for a discussion of the Company's patent infringement
lawsuit with BASF Corporation and BASF AG.) In this market,and in the
remainder of its business, Flex Products competes through product
innovation, customer service and willingness to invest in additional
manufacturing capacity.
The Company responds to competition primarily on the basis of the advanced
technical characteristics and quality of its products; its ability to meet
and exceed individual customer design and performance specifications; its
dependability and capability as a manufacturer and supplier; the quality of
technical assistance and service furnished to its customers; and the
competitive pricing of its products.
EMPLOYEES
At October 31, 1997, the Company, including Flex, had 1,515 employees of
whom 1,229 were employed domestically, 103 were employed by the Company's
operations in Hillend, Scotland; 125 were employed by the Company's
OCLI/MMG Division in Goslar, Germany; 16 were employed in the Company's
sales and administrative offices in Europe and 42 were employed by OCLI
Asia in Japan. The Company has not experienced a work stoppage due to labor
difficulties. The Company believes its employee relations are
satisfactory.
None of the Company's employees in its domestic operations, in its
operations in Scotland or in its European sales and administrative offices
are subject to collective bargaining agreements. Approximately 70% of the
Company's employees in Goslar, Germany, are members of the national
chemical, paper and ceramic union organization in Germany. The unionized
employees work under a collective bargaining agreement.
In 1987, the Board of Directors approved increases in severance benefits
for its domestic employees, not including Flex Products employees, in the
event of certain changes in control of the Company. These severance
arrangements have been extended through November 1999.
OCLI attributes much of its success to its strong relationship with its
employees. The Company has instituted several employee oriented programs,
including Total Quality Management and high performance work system
practices, to enhance the quality and efficiency of its operations while
improving employee relations.
JOINT VENTURES, INVESTMENTS AND ACQUISITIONS
Information regarding joint ventures, investments and acquisitions is
included in Note 4 to the Consolidated Financial Statements filed as part
of this Annual Report on Form 10-K.
COMPUTER SYSTEMS
During 1997, the Company initiated a program to modernize its business
processes in order to reduce cycle time and improve profitability. The
program has been deployed worldwide with the goal of streamlining,
automating and applying best practices to all of the Company's business
processes. In conjunction with this initiative, the Company identified the
need for, selected and purchased an Enterprise Resource Planning System.
Expected total cost of the system, including hardware, software and
integration services, is approximately $4.6 million, of which the Company
has recorded $2.0 million in 1997. The Company expects to spend the balance
of $2.6 million over the next five years. Commencing with the
implementation dates of the system modules in 1998, software and
implementation costs will be depreciated over six years and hardware will
be depreciated over the remaining lease term of approximately three years.
Training and software maintenance costs are being expensed when incurred.
The vendor has informed us that the Enterprise Resource Planning System is
year 2000 compliant and it will be implemented at all of the Company's
business locations before the year 2000.
ITEM 2. PROPERTIES
The Company's corporate headquarters and principal manufacturing and
research and development facilities are located on a Company-owned campus
in Santa Rosa, California. The site consists of approximately 75 acres of
land of which approximately 53 acres are occupied by existing operations,
with the remaining 22 acres currently held available for development or
sale. The site is within an industrial park area and is served by well-
developed road access and utilities. In addition, the Company leases
offices for its sales personnel located in various cities in the U.S.,
Europe and the Far East.
The following table sets forth certain information concerning the Company's
principal facilities.
NO. OF LEASED/ TOTAL SITE
LOCATION BUILDINGS OWNED SQ. FT. (ACRES) USE
Santa Rosa, CA 12 Owned(1) 490,000 75 Optical Coating
Laboratory, Inc.and Flex
Products, Inc. corporate
offices, manufac-turing,
engineering and research
and development
facilities
Santa Rosa, CA 1 Leased 23,000 -- OCLI Precision Polymer
Optics adminis-trative
offices and manufacturing
facilities
Santa Rosa, CA 1 Leased 74,000 -- Warehousing facilities
Hillend, Scotland 1 Owned(2) 56,000 16 OCLI Optical Coating
Laboratory, Ltd.
administrative offices,
manufacturing and
research and development
facilities
Hillend, Scotland 1 Leased 9,000 -- OCLI Optical Coating
Laboratory, Ltd.
warehousing
Goslar, Germany 2 Owned(3) 74,000 22 OCLI/MMG Division
administrative offices
and manufacturing
facilities
Reinheim, Germany 2 Leased(4) 3,100 -- OCLI Optical Coating
Laboratory GmbH
administrative and sales
offices
Isehara, Japan 2 Leased 794 -- Hakuto-OCLI, Ltd. ("OCLI
Asia") admin- istrative
offices and manufacturing
facilities
(1) During fiscal 1996, the Company entered into two mortgage loan
agreements in the amount of $2.6 million and $3.0 million, respectively.
The loans are collateralized by the land and buildings of two newly
constructed manufacturing and office buildings located on the Company's
Santa Rosa, California campus. The term of each non-recourse loan is 15
years, with fixed interest rates of 8% and 7.5%, respectively. Payments of
principal and interest for the loans are $25,000 and $28,000 per month,
respectively. The Company leases one of the new buildings to Flex Products
for its corporate offices and additional manufacturing facilities.
(2) The facility occupied by OCLI Optical Coating Laboratory, Ltd. ("OCLI
Ltd.") in Scotland was constructed for the subsidiary by the Scottish
Development Agency ("SDA"). The facility consists of a manufacturing and
office building on a 16 acre site in an industrial park area. The property
is owned by the Company subject to a mortgage held by SDA that has a
remaining balance of $3.9 million as of October 31, 1997, with nine years
left on the term of the mortgage. At the beginning of 1995, OCLI Ltd.
negotiated a three year mortgage interest moratorium, with principal
continuing to be payable to Locate in Scotland (formerly SDA), as economic
inducement to encourage business and employment growth in this region of
Scotland.
(3) The Company's OCLI/MMG Division in Goslar, Germany, occupies two
manufacturing buildings totaling approximately 68,000 square feet and an
adjacent 6,000 square foot office building located on approximately 22
acres in an industrial park area. The land is held by a wholly-owned
subsidiary of the Company under a long-term hereditary rights agreement
that extends through September 2065. The manufacturing facility is pledged
as security on loans totaling approximately $1.9 million with repayment
terms running through 2020. The office building serves as collateral for
an approximately $500,000 mortgage loan payable over eight years
through 2005.
(4) The Company leases approximately 3,100 square feet of office space for
its European headquarters and sales activities in Reinheim, Germany.
Management believes that the Company's facilities are adequate for its
current level of business and the near-term growth requirements of the
Company and its subsidiaries.
ENVIRONMENTAL
In 1988, the Company discovered ground water contamination at its
facilities in Santa Rosa, California. With the assistance of its
environmental consultants and under the regulatory guidance of the
California Regional Water Quality Control Board, the Company established a
program for reducing contaminant concentration levels to acceptable federal
and state levels. In prior years, the Company recorded accruals to cover
the future estimated cost of drilling additional extraction and monitoring
wells and considers those accruals to be adequate. The Company spent $0,
$228,000 and $10,000 in fiscal years 1997, 1996 and 1995 for drilling,
extraction and monitoring wells which were charged against those accruals.
In addition, the accrual was reduced by a total of $200,000 in 1997 and
1996 as a result of approval of the Company's final remediation plan by the
California Regional Water Quality Control Board. Ongoing ground water
remediation expenses, and the cost of compliance with environmental
standards for years 1995 through 1997, have not been material to the
operations of the Company, and the Company does not expect them to be
material in the future
ITEM 3. LEGAL PROCEEDINGS
In 1997, Optical Corporation of America ("OCA") and certain of its
directors and officers ("Affiliates") commenced suit against the Company.
The complaint arises out of a letter of intent executed by the Company and
OCA in March 1996 and an ensuing merger agreement executed by the Company
and OCA in June 1996. Under the merger agreement, the Company would
acquire OCA. The complaint seeks damages for costs and expenses incurred
by OCA in pursuing the merger transaction with the Company due to the
Company's alleged negligent misrepresentations to OCA and Affiliates and
the Company's alleged breach of its letter of intent with OCA. The Company
has filed counterclaims against OCA and the Affiliates based on OCA's
breach of the merger agreement and is seeking damages based on the
difference between the value of OCA's business to the Company and the
agreed upon purchase price under the merger agreement. The Company does
not believe that this litigation will have any material adverse effect on
its future operating results or financial condition.
In 1997, Flex Products filed a suit in United States District Court for the
Eastern District of Michigan alleging that BASF Corporation (BASF) and BASF
AG have infringed Flex's patents covering optically variable thin film
flakes which, when mixed with paints and inks, produce color shifting
visual properties. The complaint requests that the Court enjoin BASF from
importing, making, using, selling or offering to sell the infringing
pigment in the United States. The complaint also seeks damages for the
infringement, including treble damages if the infringement is found to be
willful. BASF Corporation has filed a counterclaim seeking a declaration
that the patent in question is invalid. Both BASF companies have requested
that they be awarded their attorneys' fees and costs. Management remains
confident in the validity of Flex Products' patent, and based upon the
information currently available, that the BASF product is, in fact,
covered by the patent.
During fiscal 1996, SICPA Holding S.A. ("SICPA"), the 40% joint owner of
Flex Products, filed suit in Delaware Chancery Court seeking injunctive and
other relief against OCLI, Flex Products and certain of Flex Products'
directors. In the suit, SICPA alleged that Flex Products could not proceed
with an initial public offering of its common stock without the consent of
SICPA and that SICPA had the right to purchase OCLI's 60% ownership of Flex
Products pursuant to a call option beginning after May 8, 1998. In January
1997, the Delaware Chancery Court rendered a decision that upheld the
position of OCLI and Flex Products that a simple majority of Flex Products'
Board of Directors had the legal authority to authorize a public offering
of Flex Products' securities without the approval of SICPA.
Subsequent to fiscal year end 1997, OCLI, Flex Products and SICPA reached
settlement of the pending litigation. Under the terms of the settlement
agreement, OCLI and SICPA have agreed to modify their co-ownership
agreement to allow OCLI to more effectively manage the day-to-day
operations of Flex Products, to eliminate the "put" and "call" provisions,
to allow for the public financing of Flex's operations and to modify the
License and Supply Agreement between Flex Products and SICPA to maintain a
competitive price on the sale of optically variable pigment to SICPA but
provide for more attractive scheduled pricing discounts on higher volume
purchases. In addition, OCLI purchased Flex Products working capital loan
of $2.6 million from SICPA.
During the past several years, the Company has been engaged in litigation
in the United Kingdom ("U.K.") involving infringement of a Company patent
by a U.K. company. The Company won its action at the Patents County Courts
level but lost on appeal to the U.K. House of Lords. During the injunction
period, the U.K. company submitted a claim for damages totaling
approximately $1.6 million for lost profits. The Company and legal counsel
are in the process of reviewing the claim. Management believes that the
amount of the claim is substantially overstated and that the ultimate
settlement will not have a material adverse effect on the financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security holders
during the three months ended October 31, 1997.
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and positions of the executive officers of the Company as
of January 15, 1998 are listed below, followed by a brief description of
their business experience during at least the past five years. Officers
are appointed annually by the Board of Directors at the next regularly
scheduled meeting of the Board following the Annual Meeting of
Stockholders. There are no family relationships among these officers nor
any arrangements or understandings between any officer and any other person
pursuant to which an officer was selected.
NAME AGE POSITION BUSINESS EXPERIENCE
Herbert M. Dwight,Jr. 67 Chairman of the Board and Chairman of the
Chief Executive Officer, Board and Chief
OCLI and Flex Products, Inc Executive Officer of
OCLI since August
1991; Chairman of
the Board and Chief
Executive Officer of
Flex Products, Inc.
since May 1995;
President of OCLI
from 1991 to 1997;
Chairman, President
and Chief Executive
Officer,
Superconductor
Technologies, Inc.
from 1988 to 1991;
Chief Executive
Officer, Spectra
Physics from 1967 to
1988
Charles J. Abbe....... 56 President and Director President and
Director since
November 1997; Vice
President and
General Manager,
Santa Rosa Division
from April 1996 to
November 1997;
various senior
management positions
with Raychem
Corporation from
1989 to 1996
Craig B. Collins...... 42 Vice President, Finance and Vice President,
Chief Financial Officer Finance and Chief
Financial Officer
since September
1997; Senior Vice
President of Finance
and Chief Financial
Officer, Nestle
Beverage Company, a
division of Nestle
Corporation, from
1983 to 1996
Klaus F. Derge........ 60 Vice President, International Vice President,
Operations International
Operations since
July 1992; various
senior management
positions with
Spectra Physics,
Sweden from 1969 to
1992
Bryant Hichwa ........ 51 Vice President, Research and Vice President,
Development Research and
Development since
December 1997;
Director, Research
and Development from
1988 to December
1997
Michael A. Kasper..... 47 Vice President and General Vice President and
Manager, Aerospace & General Manager,
Instrumentation Division Aerospace &
Instrumentation
Division since
December 1997;
Director of
Operations from 1996
to December 1997;
manufacturing
engineering and
materials management
positions with
Procter & Gamble
from 1972 to 1996
John McCullough....... 65 Vice President and Director Vice President since
January 1992;
Director since 1985;
Executive Vice
President from 1988
to 1992; Senior Vice
President from 1978
to 1988; Vice
President,
Commercial Products
and Raytek Divisions
from 1976 to 1977;
Vice President,
Finance and
Administration from
1958 to 1967
Stephen E. Myers...... 50 Vice President and General Vice President and
Manager, Information General Manager,
Industries Division Information
Industries Division
since December 1997;
Director,
Information
Industries Business
Unit from February
1996 to December 1997;
various operations
and finance
management positions
with Raychem
Corporation from
1978 to 1996
Laurence D. Parson.... 49 Vice President, North Vice President,
America and Asia Sales North America and
Asia Sales since
November 1997; Vice
President, Sales
from October 1996 to
November 1997; Vice
President and
General Manager,
Glare/Guard
Division from 1993
to 1996; General
Manager,
Glare/Guard Division
from 1992 to 1993;
various
manufacturing,
marketing and sales
positions from 1973
to 1992
Kenneth D. Pietrelli.. 49 Vice President, Corporate Vice President,
Services Corporate Services
since June 1993;
Corporate Materials
Manager from 1980 to
1993
James W. Seeser, Ph.D. 54 Vice President and Chief Vice President since
Technical Officer March 1986 and Chief
Technical Officer
since November 1993;
General Manager,
Advanced Products
Division from 1987
to 1989; various
engineering and
engineering
management positions
from 1983 to 1986
Glenn K. Yamamoto..... 46 Vice President and General Vice President and
Manager, Telecommunications General Manager,
Division Telecommunications
Division since
December 1997;
various product
line, sales and
manufacturing
management posi-
tions from 1973 to
1997
Joseph C. Zils........ 43 Vice President, Legal President, Chief
Counsel and Corporate Financial Officer
Secretary, OCLI; and Director of Flex
President and Chief Products, Inc. since
Financial Officer November 1997; Vice
Flex Products, Inc. President of OCLI
since June 1993;
Corporate Secretary
of OCLI since
December 1993; Legal
Counsel of OCLI
since November 1997;
General Counsel of
OCLI from 1989 to
1997
Information regarding compliance with Section 16(a) of the Securities
Exchange Act of 1934 is set forth in the definitive Proxy Statement
relating to the Company's 1998 Annual Meeting of Stockholders, which
information is incorporated herein by reference.
PART II
ITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq Stock MarketSM under the
symbol OCLI. The table below sets forth the high and low prices of the
Company's common stock during the two most recent fiscal years ended
October 31, 1997 and 1996.
1Q 2Q 3Q 4Q FY
1997
High..............................11-5/8 11-3/8 14-1/4 13-1/4 14-1/4
Low .............................. 9-1/2 9-3/8 9-3/8 12-1/8 9-3/8
1996
High..............................15-3/8 14-3/8 19-1/4 15 19-1/4
Low .............................. 9-1/4 10-1/8 12-1/2 10-1/4 9-1/4
DIVIDEND INFORMATION
Since June 1991, the Company has paid a semiannual cash dividend of $.06 per
share on its common stock.
APPROXIMATE NUMBER OF HOLDERS OF COMMON STOCK
There were 962 holders of record of the Company's common stock as of December
31, 1997.
ITEM 6. SELECTED FINANCIAL DATA
Years ended October 31, 1997, 1996, 1995, 1994, and 1993
(Amounts in thousands,
except per share amounts) 1997 1996 1995 1994 1993
Revenues........................ $217,829 $189,195 $169,417 $131,780 $123,013
Net income (loss) before
cumulative effect of changes
in accounting principles and
dividend on preferred stock... $ 7,125 $ 5,196 $ 7,391 $ 4,604 $ (5,737)
Net income (loss) applicable to
common stock.................. $ 6,432 $ 4,236 $ 6,929 $ 4,604 $ (5,737)
Net income (loss) per common and
common equivalent share ...... $ .60 $ .41 $ .73 $ .51 $ ( .65)
Weighted average common and
common equivalent shares
outstanding................... 10,673 10,301 9,510 9,023 8,795
Cash dividend paid
on common stock................. $ 1,199 $ 1,153 $ 1,083 $ 1,075 $ 1,043
Cash dividend paid per share
of common stock................. $ .12 $ .12 $ .12 $ .12 $ .12
Working capital................. $ 41,731 $ 38,087 $ 28,015 $ 28,692 $ 16,251
Total assets.................... $183,493 $172,771 $169,834 $118,879 $ 99,226
Long-term debt.................. $ 40,975 $ 45,788 $ 47,267 $ 35,441 $ 23,110
Convertible redeemable
preferred stock................. $ 5,559 $ 11,309 $ 11,357
Stockholders' equity............ $ 86,963 $ 79,559 $ 73,894 $ 52,037 $ 47,135
Common stockholders' equity
per share....................... $ 7.68 $ 6.99 $ 6.59 $ 5.79 $ 5.25
Number of employees............. 1,515 1,362 1,407 1,162 1,107
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
THE INFORMATION CONTAINED IN MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION INCLUDES FORWARD LOOKING
STATEMENTS WHICH ARE TYPICALLY IDENTIFIED BY THE WORDS "ANTICIPATES,"
"BELIEVES," "EXPECTS," "INTENDS," "FORECASTS," "PLANS," "FUTURES,"
"STRATEGY," OR WORDS OF SIMILAR IMPORT. VARIOUS IMPORTANT FACTORS THAT
COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE EXPRESSED IN THE
FORWARD LOOKING STATEMENTS ARE IDENTIFIED BELOW. ACTUAL RESULTS MAY VARY
SIGNIFICANTLY BASED ON A NUMBER OF FACTORS INCLUDING, BUT NOT LIMITED TO,
PRODUCT DEVELOPMENT, COMMERCIALIZATION AND TECHNOLOGICAL DIFFICULTIES;
MANUFACTURING COSTS AND YIELD ISSUES ASSOCIATED WITH INITIATING PRODUCTION
AT NEW FACILITIES; THE IMPACT OF COMPETITIVE PRODUCTS AND PRICING; CHANGING
CUSTOMER REQUIREMENTS; AND THE CHANGE IN ECONOMIC CONDITIONS OF THE VARIOUS
MARKETS THE COMPANY SERVES.
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUES. Revenues for 1997 were $217.8 million, an increase of $28.6
million, or 15%, over revenues of $189.2 million for 1996. The 1997 revenue
increase was due to revenue growth in telecommunications, satellite solar
power and office automation markets and increased sales by Flex Products,
Inc. ("Flex Products") of optically variable pigment. During 1997, sales in
these markets totaled 53% of total Company sales. These revenue increases
were partially offset by decreased revenues in the Company's display and
other markets. During 1997, sales in these markets totaled 47% of total
Company sales. Much of the decrease in the Company's sales in display
markets was due to a next generation product in which the Company has
elected not to participate in order to focus resources into other markets.
GROSS PROFIT. Gross profit as a percent of revenue was 34.3% in 1997
compared to 33.0% in 1996. The 1997 gross profit improvement is primarily
due to yield and throughput improvements including improvements in the
performance of the Company's new continuous coating platforms, which had
depressed margins in 1996. The comparative improvement in 1997 was
partially offset by lower gross margins on the manufacture of wavelength
division multiplexing products used in telecommunications applications and
the gross profit recognized in 1996 on the sale of a coating machine
RESEARCH AND DEVELOPMENT. Research and development expenditures for 1997
were $14.9 million, an increase of $3.2 million, or 27% over research and
development expenditures of $11.7 million for 1996. The 1997 increase is
primarily due to increased spending by Flex Products for the qualification
of new products and processes incorporating new production equipment. The
Company also increased research and development expenditures for product
and process development for telecommunications products.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses for 1997
were $42.8 million, an increase of $5.7 million, or 15%, over 1996 selling
and administrative expenses of $37.1 million. Slightly over half of this
increase was due to increased selling expenses resulting from the
establishment of a new joint venture in Japan ("OCLI Asia") and the
introduction of new products by Flex Products. The remainder of the
increase was primarily due to higher legal expenses in 1997 associated with
patent infringement lawsuits and a lawsuit with SICPA Holding S.A.
and a $600,000 restructuring charge recorded by Flex Products pursuant
to a plan approved prior to the end of the fiscal year. (See "Acquisition
and Investment Transactions" for further discussion.)
The Company recorded amortization of intangibles of $936,000 in 1997 and
$1.1 million in 1996, primarily resulting from amortization of goodwill
relating to the acquisitions of MMG and Netra.
INCOME FROM OPERATIONS. As a result of the foregoing changes in revenue,
gross profit and operating expenses, the Company's income from operations
in 1997 was $15.9 million compared to $12.4 million in 1996.
INTEREST INCOME AND EXPENSE. Interest income was $461,000 in 1997 compared
to $379,000 in 1996. Net interest expense in 1997 was $4.0 million
compared to $3.5 million in 1996. 1997 net interest expense is the net
result of interest incurred of $4.2 million net of interest capitalized of
$219,000, compared to 1996 interest incurred of $4.7 million net of
interest capitalized of $1.2 million. The higher amount of interest
capitalized in 1996 was due to the construction of two new buildings and
the installation of two new continuous coating machines.
PROVISION FOR INCOME TAXES. The Company's effective tax rate was 37.3% in
1997 compared to 37.0% in 1996. In both years, the lower than statutory
effective rate was primarily due to the recognition of state business tax
credits arising from the purchase of new manufacturing equipment.
MINORITY INTEREST. In 1997, the Company recorded minority interest of
$631,000 compared to minority interest of $636,000 in 1996. 1997 minority
interest represents the share of net income of Flex Products accruing to
its 40% shareholder and the portion of the operating results of OCLI Asia
attributable to its Japanese partner. 1996 minority interest represents
the share of net income of Flex Products accruing to its 40% shareholder.
NET INCOME. The Company had net income of $7.1 million in 1997 compared to
$5.2 million in 1996. Dividends of $693,000 in 1997 and $960,000 in 1996
were accrued on outstanding Convertible Redeemable Preferred Stock. The
1997 preferred dividend decrease was due to the conversion of 5,750 shares
of Convertible Redeemable Preferred Stock into 555,000 shares of Company
common stock during 1997.
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUES. Revenues for 1996 were $189.2 million compared to revenues of
$169.4 million for 1995. Excluding the revenues of Flex Products, fiscal
1996 revenues would have been $158.6 million, an increase of $4.8 million,
or 3%, over 1995 adjusted revenues of $153.8 million. The 1996 revenue
increase was due to higher sales of products used for satellite solar power
applications and licensing revenue from the sale of a coating machine,
partially offset by decreased sales of products used in office automation
and computer display applications. Flex Products reported 1996 revenues of
$30.6 million compared to six month revenues of $15.6 million in 1995. The
Company increased its ownership in Flex Products from 40% to a controlling
60% in May of 1995, resulting in the consolidation of Flex Products'
financial results into the Company's financial statements for the last six
months of fiscal 1995.
GROSS PROFIT. Gross profit as a percent of revenue was 33.0% in 1996
compared to 37.4% in 1995. Excluding the effect of Flex Products, the
1996 gross profit percentage would have been 31.4% compared to an adjusted
gross profit percentage of 36.6% in 1995. The gross profit percentage
decrease in 1996 was primarily due to startup costs and additional fixed
costs associated with adding new manufacturing facilities and coating
capacity in 1996 and the shifting of resources to new products to offset
reduced sales of products used in computer display applications. These
decreases were partially offset by the gross profit associated with the
sale of a coating machine in 1996. In addition, the Company experienced
price decreases and lower unit volumes, both domestically and in Europe, in
its office automation and computer aftermarket display businesses. These
decreases were partially offset by initiatives to shift resources to other
markets and initiatives to increase manufacturing efficiencies in order to
decrease unit cost. Flex Products' gross profit percentage for 1996 was
41.1% compared to a gross profit percentage of 45.8% for its six months of
consolidation in 1995. Flex Products' gross margin reduction was due to
start-up costs and throughput issues associated with a new coating machine
installed in 1996 which costs include inventory reserve additions of
approximately $1 million.
RESEARCH AND DEVELOPMENT. Research and development expenditures for 1996
were $11.7 million, an increase of $3.3 million over research and
development expenditures of $8.4 million for 1995. Excluding the results
of Flex Products, 1996 research and development expenditures would have
increased 3% over expenditures for 1995 and would have been consistent
with the research and development expenditures for 1995 of 4.8% of
revenues. Flex Products incurred research and development expenses of
$4.2 million compared to research and development expenses of $1.1 million
for its six months of consolidation in 1995. The 1996 increase is due to
the development and integration of state-of-the-art coating processes for
use in two new coating machines installed during fiscal 1996.
SELLING AND ADMINISTRATIVE. Selling and administrative expenses for 1996
were $37.1 million, a decrease of $317,000, compared to 1995 selling and
administrative expenses of $37.4 million. Excluding the results of Flex
Products, 1996 selling and administrative expenses would have decreased
$2.9 million, or 8%, compared to 1995. The 1996 decrease is primarily due
to higher expenses recorded in 1995 associated with the Company's European
sales operations that were not incurred in 1996. Flex Products' selling
and administrative expenses for 1996 were $4.8 million which was consistent
with its run rate for 1995.
The Company recorded amortization of intangibles of $1.1 million in 1996
and $975,000 in 1995 primarily resulting from amortization of goodwill
relating to the acquisitions of MMG and Netra.
INCOME FROM OPERATIONS. As a result of the foregoing, the Company had
income from operations of $12.4 million in 1996 compared to $16.6 million
in 1995. Excluding the effect of Flex Products, income from operations
would have been $9.1 million in 1996 compared to income from operations of
$12.9 million in 1995. The Flex Products operation contributed income from
operations of $3.3 million in 1996 compared to $3.7 million for the six
month period of consolidation in 1995.
INTEREST INCOME AND EXPENSE. Interest income decreased $288,000 in 1996
compared to 1995. The 1996 decrease was due to lower average cash
equivalents during 1996. Net interest expense was $3.5 million in 1996 and
1995. Adjusted for the effect of Flex Products, net interest expense would
have been $3.9 million in 1996 compared to $3.5 million in 1995. Adjusted
net interest expense in 1996 was composed of interest incurred of $4.2
million net of capitalized interest of $323,000. Adjusted net interest
expense in 1995 was composed of interest incurred of $4.1 million net of
capitalized interest of $616,000. Flex Products recorded capitalized
interest of $849,000 in 1996 and $163,000 in 1995. Flex Products' 1996
capitalized interest increase was due to a new coating machine and
equipment installed in 1996.
PROVISION FOR INCOME TAXES. The Company's effective income tax rate was
37.0% in 1996 and 40.1% 1995. The 1996 effective income tax rate decrease
resulted from the recognition of state business tax credits arising from
the purchase of new manufacturing equipment partially offset by losses
incurred by the Company's subsidiary in Germany for which tax benefits were
not provided.
MINORITY INTEREST. In 1996, the Company recorded minority interest of
$636,000 compared to minority interest of $816,000 in 1995. Minority
interest represents the share of net income of Flex Products accruing to
its 40% stockholder.
NET INCOME. The Company had net income of $5.2 million in 1996 compared to
net income of $7.4 million in 1995. Adjusted for the results of Flex
Products, the 1996 net income would have been $2.9 million compared to 1995
net income of $5.9 million. Dividends of $960,000 in 1996 and $462,000 in
1995 were paid on the 8% Convertible Redeemable Preferred Stock issued in
connection with the Flex Products investment transaction. As a result, net
income attributable to common stock was $4.2 million for 1996 compared to
$6.9 million for 1995.
INFLATION EFFECT. Inflation did not have a significant effect on the
operations of the Company during fiscal 1997, 1996 or 1995.
IMPACT OF FOREIGN OPERATIONS, EXPORT SALES AND FOREIGN CURRENCY. The
Company has significant investments in Germany, Scotland and Japan.
Changes in the value of those countries' currencies relative to the U.S.
dollar are recorded as direct charges or credits to equity. The Company
also has manufacturing operations in Germany, Scotland and Japan and sales
presence in other European and Asian countries. A significant weakening of
the currencies in Europe or Asia in relation to the U.S. dollar could
reduce the reported results of those operations. In addition, a
significant amount of the Company's sales are export sales which could be
subject to competitive price pressures if the U.S. dollar was to strengthen
compared to the currency of foreign competitors.
The Company is exposed to foreign currency risk on a bank loan of
approximately $4.6 million which is denominated in German marks, on open
intercompany balances between the U.S. and certain of its foreign
subsidiaries and on open intercompany balances that some of the foreign
subsidiaries have with each other. In addition, the Company and its
foreign subsidiaries make some sales and purchase commitments in currencies
other than their own which exposes the Company to currency risk on open
receivable and payable balances. The Company does not consider its net
exposure on these items to be material.
During 1997, 33% of the Company's consolidated sales constituted sales to
customers in Europe and 15% of the Company's consolidated sales constituted
sales to customers in Asia. Although the Company has not experienced
significant overall sales or pricing declines in these regions, economic
factors in Europe and Asia could have a material effect on the Company's
future results.
Sales of the Company's operation in Germany declined 8% in 1997 compared to
1996 but would have showed a slight increase in local currency sales due to
the significant decrease in the value of the deutschemark against the U.S.
dollar in 1997. The German operation continues to experience intense
competitive and pricing pressures and has responded to those pressures with
cost controls. The Company continues to explore strategies to increase the
sales growth of the German operation.
ENVIRONMENTAL MATTERS. In 1988, the Company discovered ground water
contamination at its facilities in Santa Rosa, California. With the
assistance of its environmental consultants and under the regulatory
guidance of the California Regional Water Quality Control Board, the
Company established a program for reducing contaminant concentration levels
to acceptable federal and state levels. In prior years, the Company
recorded accruals to cover the future estimated cost of drilling additional
extraction and monitoring wells and considers those accruals to be
adequate. The Company spent $0, $228,000 and $10,000 in fiscal years 1997,
1996 and 1995 for drilling, extraction and monitoring wells which were
charged against those accruals. In addition, the accrual was reduced by a
total of $200,000 in 1997 and 1996 as a result of approval of the Company's
final remediation plan by the California Regional Water Quality Control
Board. Ongoing ground water remediation expenses, and the cost of
compliance with environmental standards for years 1995 through 1997, have
not been material to the operations of the Company, and the Company does
not expect them to be material in the future.
LITIGATION. The Company has been engaged, over the past several years, in
litigation in the United Kingdom ("U.K.") involving infringement of a
Company patent by a U.K. company. The Company won its action at the
Patents County Courts level but lost on appeal to the U.K. House of Lords.
During the injunction period, the U.K. Company submitted a claim for
damages totaling approximately $1.6 million for lost profits. The Company
and legal counsel are in the process of reviewing the claim. Management
believes that the amount of the claim is substantially overstated and that
the ultimate settlement will not have a material adverse effect on its
future operating results.
In 1997, Optical Corporation of America ("OCA") and certain of its
directors and officers ("Affiliates") commenced suit against the Company.
The complaint arises out of a letter of intent executed by the Company and
OCA in March 1996 and an ensuing merger agreement executed by the Company
and OCA in June 1996. Under the merger agreement, the Company would
acquire OCA. The complaint seeks damages for costs and expenses incurred
by OCA in pursuing the merger transaction with the Company due to the
Company's alleged negligent misrepresentations to OCA and Affiliates and
the Company's alleged breach of its letter of intent with OCA. The Company
has filed counterclaims against OCA and the Affiliates based on OCA's
breach of the merger agreement and is seeking damages based on the
difference between the value of OCA's business to the Company and the
agreed upon purchase price under the merger agreement. The Company does
not believe that this litigation will have any material adverse effect on
its future operating results or financial condition.
In 1997, Flex Products filed a suit in United States District Court for the
Eastern District of Michigan alleging that BASF Corporation (BASF) and BASF
AG have infringed Flex's patents covering optically variable thin film
flakes which, when mixed with paints and inks, produce color shifting
visual properties. The complaint requests that the Court enjoin BASF from
importing, making, using, selling or offering to sell the infringing
pigment in the United States. The complaint also seeks damages for the
infringement, including treble damages if the infringement is found to be
willful. BASF Corporation has filed a counterclaim seeking a declaration
that the patent in question is invalid. Both BASF companies have requested
that they be awarded their attorneys' fees and costs. Management remains
confident in the validity of Flex Products' patent, and based upon the
information currently available, that the BASF product is , in fact,
covered by the patent.
During 1997 and 1996, the Company was engaged in litigation with SICPA
Holding S.A., the 40% joint owner of Flex Products. See "Acquisitions,
Joint Ventures and Strategic Allicances."
COMPUTER SYSTEMS AND BUSINESS PROCESSES. During 1997, the Company initiated
a program to modernize its business processes in order to reduce cycle time
and improve profitability. The program has been deployed worldwide with
the goal of streamlining, automating and applying best practices to all of
the Company's business processes. In conjunction with this initiative, the
Company identified the need for, selected and purchased an Enterprise
Resource Planning System. Expected total cost of the system, including
hardware, software and integration services, is approximately $4.6 million,
of which the Company has recorded $2.0 million in 1997. The Company expects
to spend the balance of $2.6 million over the next five years. Commencing
with the implementation dates of the system modules in 1998, software and
implementation costs will be depreciated over six years and hardware will
be depreciated over the remaining lease term of approximately three years.
Training and software maintenance costs are being expensed when incurred.
The vendor has informed us that the Enterprise Resource Planning System is
year 2000 compliant and it will be implemented at all of the Company's
business locations before the year 2000.
ACQUISITIONS, INVESTMENTS, JOINT VENTURES AND STRATEGIC ALLIANCES
ALLIANCE WITH JDS FITEL INC. In 1997, the Company announced that it had
entered into an alliance with JDS FITEL Inc. ("JDS") in order to capitalize
on the rapidly growing market for Wavelength Division Multiplexing ("WDM")
products used in telecommunications applications. The alliance is
structured as a contractual joint venture through a series of exclusive
supply and distribution contracts under which OCLI will contribute its
expertise to provide optical filters for WDM's and JDS will contribute its
expertise in the design, manufacture and marketing of WDM products. The
first sales under these agreements were recognized in the second quarter of
1997.
OCLI ASIA. In 1997, the Company announced the establishment of a joint
venture with Hakuto Co., Ltd. in Japan. The new company, Hakuto-OCLI Co.,
Ltd., which is doing business as "OCLI Asia", is headquartered in Shinjuku,
Tokyo, with manufacturing facilities in Isehara, Kanagawa Prefecture. The
joint venture was established to address the rapidly changing market for
OCLI's multi-layer thin film coatings that require an expanded presence and
more integrated support within Asia. Hakuto, an approximate 9% stockholder
of the Company, has been a major customer of OCLI and a long-term
distributor and fabricator of OCLI's products in Japan and several other
Asian countries. OCLI Asia will assume sales support, fabrication and
applications engineering support for several of the Company's products that
are being sold into the Asian market. The joint venture began operations
in Japan in the second quarter of 1997 and is consolidated into the
Company's results of operations and financial position since the Company
has operating control over the joint venture.
FLEX PRODUCTS, INC. In 1995, the Company acquired controlling ownership of
Flex Products with the purchase of an additional 20% interest in Flex
Products from ICI Americas Inc. ("ICIA"), an affiliate of Imperial Chemical
Industries PLC. Flex Products was founded as a division of the Company in
the early 1980's and subsequently established as a joint venture between
the Company and ICIA in 1988, with ICIA owning 60% and the Company owning
40%. In conjunction with the Company's increase in ownership, ICIA's
remaining 40% interest in Flex Products was acquired by SICPA Holding S.A.
("SICPA"), a privately-held Swiss Corporation headquartered in Lausanne,
Switzerland. SICPA is the world's largest manufacturer of printing inks
and a major customer of Flex Products.
Pursuant to the terms of the Stock and Note Purchase Agreement dated May
1, 1995 by and among the Company, SICPA, ICIA and Flex Products, the
Company acquired an incremental 20% interest in Flex Products for a cash
payment of $8.4 million and paid an affiliate of ICIA approximately $7.0
million in cash to acquire a 60% interest in an $11.7 million promissory
note previously issued by Flex Products to ICIA to fund Flex Products'
working capital requirements. SICPA acquired a 40% equity interest in Flex
Products and the balance of the $11.7 million promissory note.
In July of 1996, SICPA filed a lawsuit in Delaware Chancery Court in order
to block an attempted initial public offering by Flex Products arguing that
without SICPA's consent such an offering was prohibited by Flex Products'
articles of incorporation, as well as by certain contractual provisions
between OCLI and SICPA. In November 1997, after the end of fiscal year
1997, the Company announced that it had completed final negotiations for
the settlement of the litigation with SICPA. Under the terms of the
settlement, OCLI and SICPA have agreed to modify their co-ownership
agreement to enable OCLI to more effectively manage the day-to-day
operations of Flex Products, to allow for public financing of Flex Products'
operations and to modify the License and Supply Agreement between Flex
Products and SICPA to maintain a competitive price on the sale of optically
variable pigment to SICPA but provide for more attractive scheduled pricing
discounts on higher volume purchases. In addition, OCLI purchased $2.6
million of Flex Products' working capital loan from SICPA which was recorded
as a decrease to minority interest in fiscal 1998.
In 1997, the Company approved a restructuring plan which consolidates
several of the administrative and senior management functions of Flex
Products in order to reduce costs. Pursuant to this plan, Flex Products
recorded restructuring expenses in 1997 of $600,000, constituting severance
and severance related expenses.
NETRA CORPORATION. In February 1995, the Company acquired the assets and
liabilities of Netra Corporation, a precision molded plastic component
manufacturer, for a total purchase price of approximately $3.1 million.
The purchase price consisted of a cash payment of $1.5 million and the
balance of approximately $1.6 million paid by the issuance of 164,735
shares of the Company's common stock to the sellers. Upon completion of
the acquisition, Netra was relocated from its facilities in Mountain View,
California to a facility immediately adjacent to the Company's principal
manufacturing site in Santa Rosa, California.
FINANCIAL CONDITION AND LIQUIDITY
In 1997, the Company's cash and cash equivalents decreased by $810,000.
Net cash provided by operations during 1997 was $20.1 million and
stockholders and minority interest holders invested a net of $3.6 million.
These were offset by investments in plant and equipment of $17.2 million,
net repayments of debt and bank notes of $5.2 million and payment of
dividends of $1.9 million. At fiscal year end 1997, the Company had cash
and cash equivalents totaling $15.2 million. In addition, the Company has
available domestically a $20 million revolving line of credit and separate
credit arrangements in place for the operating requirements of its
subsidiaries in Germany and Scotland.
During 1997, the Company's working capital, excluding cash and cash
equivalents, increased $5.3 million, primarily due to increased accounts
receivable and inventory, offset by increased accounts payable. These
increases are primarily due to increased sales during the year and to the
consolidation of the Company's new joint venture in Japan.
During 1997, the Company replaced its 8%, $5 million note payable to
private parties with a 5.6% bank note. Payments of principal and interest
under the new note are denominated in German marks and are approximately
$300,000 at the end of each calendar quarter through December 2002. Also
during 1997, the Company's $15 million unsecured revolving credit facility
was increased to $20 million.
During 1997, the Company recorded capital leases totaling $2.0 million to
finance the hardware, software and some of the integration costs of a new
Enterprise Resource System that is to be implemented in 1998. Lease terms
run through February 2002 with payments totaling approximately $50,000 per
month.
Management believes that the cash and cash equivalents on hand at October
31, 1997, cash anticipated to be generated from future operations, new
lease agreements and the available funds from revolving credit arrangements
will be sufficient for the Company to meet its working capital needs,
capital expenditures, debt service requirements and payment of dividends as
declared for the foreseeable future.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Except for historical information contained in this report, matters
discussed in this report are forward-looking statements that involve risks
and uncertainties. Actual results may vary significantly based on a number
of factors including, but not limited to, product development,
commercialization and technological difficulties; manufacturing costs and
yield issues associated with initiating production at new facilities; the
impact of competitive products and pricing; changing customer requirements;
and the change in economic conditions of the various markets the Company
serves.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTAL FINANCIAL INFORMATION
INDEX
PAGE(S)
Report of Independent Auditors of
Optical Coating Laboratory, Inc......................................... 24
Report of Independent Auditors
of Flex Products, Inc................................................... 25
Consolidated Balance Sheets as of October 31, 1997 and 1996............. 26
Consolidated Statements of Income for the years
ended October 31, 1997, 1996 and 1995................................... 27
Consolidated Statements of Cash Flows for the
years ended October 31, 1997, 1996 and 1995............................28-29
Consolidated Statements of Stockholders' Equity
for the years ended October 31, 1997, 1996 and 1995..................... 30
Notes to Consolidated Financial Statements.............................. 31
INDEPENDENT AUDITORS' REPORT
Board of Directors
Optical Coating Laboratory, Inc.
Santa Rosa, California
We have audited the accompanying consolidated balance sheets of Optical
Coating Laboratory, Inc. and subsidiaries (the "Company") as of October 31,
1997 and 1996, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the
period ended October 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We
did not audit the financial statements of Flex Products, Inc., who became a
consolidated subsidiary effective May 1, 1995 and whose assets represent
12% and 10%, respectively, of consolidated total assets at October 31, 1997
and 1996, and whose total revenues for each of the two years in the period
ended October 31, 1997 and for the period from May 1, 1995 to October 31,
1995, represent 18%, 15% and 9%, respectively, of consolidated total
revenues. The financial statements of Flex Products, Inc. for the two
years ended October 31, 1997 and for the ten months ended October 31, 1995
were audited by other auditors whose report has been furnished to us, and
our opinion, insofar as it relates to the amounts included for Flex
Products, Inc., is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
and the report of the other auditors provide a reasonable basis for our
opinion.
In our opinion, based on our audits and the report of the other auditors,
such consolidated financial statements present fairly, in all material
respects, the financial position of Optical Coating Laboratory, Inc. and
its subsidiaries at October 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended October 31, 1997 in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
San Jose, California
December 19, 1997
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Flex Products, Inc.
Santa Rosa, California
We have audited the balance sheets of Flex Products, Inc. (the "Company"),
a joint venture of Optical Coating Laboratory, Inc. and SICPA Holding S.A.,
as of November 2, 1997 and November 3, 1996 and the related statements of
operations, stockholders' equity and cash flows for the years ended
November 2, 1997, November 3, 1996 and ten months ended October 29, 1995.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
and the report of the other auditors provide a reasonable basis for our
opinion.
These financial statements have been prepared on a historical basis of
accounting and do not reflect any purchase accounting adjustments recorded
by Optical Coating Laboratory, Inc. as a result of their acquisition of a
majority interest in Flex Products, Inc. as of May 8, 1995.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Flex Products, Inc. as
of November 2, 1997 and November 3, 1996, and the results of its operations
and its cash flows for the years then ended and for the ten months ended
October 29, 1995 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
San Francisco, California
November 26, 1997
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of October 31, 1997 and 1996
(Dollars in thousands)
ASSETS 1997 1996
CURRENT Cash and cash equivalents....................... $15,217 $16,027
ASSETS Accounts receivable, net of allowance for
doubtful accounts of $1,884 and $1,775......... 34,923 27,700
Inventories..................................... 22,829 18,701
Income taxes receivable......................... 504 1,248
Deferred income tax assets...................... 6,853 5,165
Other current assets............................ 1,707 1,230
Total Current Assets.................... 82,033 70,071
OTHER Deferred income tax assets...................... 4,451
ASSETS Other assets and investments.................... 8,243 10,680
PROPERTY, Land and improvements........................... 9,225 9,200
PLANT AND Buildings and improvements...................... 41,944 40,953
EQUIPMENT Machinery and equipment ........................ 121,717 112,326
Construction-in-progress........................ 9,525 6,190
182,411 168,669
Less accumulated depreciation................... (89,194) (81,100)
Property, plant and equipment-net ........... 93,217 87,569
Total Assets............................$183,493 $172,771
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT Accounts payable................................ $14,301 $7,199
LIABILITIES Accrued expenses................................ 6,854 6,566
Accrued compensation expenses................... 8,752 7,057
Income taxes payable............................ 339 1,823
Current maturities on long-term debt............ 7,888 4,981
Notes payable................................... 381 3,112
Deferred revenue................................ 900 1,246
Total Current Liabilities .............. 39,415 31,984
NONCURRENT Accrued postretirement health benefits
LIABIL- and pension liabilities........................ 2,040 2,308
ITIES Deferred income tax liabilities................. 785 1,804
Long-term debt ................................. 40,975 45,788
Minority interest............................... 13,315 11,328
Commitments and contingencies (Note 10)
STOCK- Preferred stock - Series C;
HOLDERS' 8% cumulative, convertible, redeemable;
EQUITY issued and outstanding 6,250 and 12,000
shares; aggregate liquidation value
at October 31, 1997 $6,250..................... 5,559 11,309
Common stock, $.01 par value; authorized
30,000,000 shares; issued and outstanding
10,599,000 and 9,761,000 shares................ 106 98
Paid-in capital................................. 55,723 47,219
Retained earnings............................... 26,217 20,984
Cumulative foreign currency
translation adjustment ....................... (642) (51)
Stockholders' Equity.......................... 86,963 79,559
Total Liabilities and
Stockholders' Equity ..................$183,493 $172,771
The accompanying notes are an integral part of these financial statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years ended October 31, 1997, 1996 and 1995
(Amounts in thousands, except per share amounts) 1997 1996 1995
REVENUES Revenues............................ $217,829 $189,195 $169,417
Cost of sales....................... 143,207 126,769 106,009
Gross Profit..................... 74,622 62,426 63,408
COSTS AND Operating Expenses:
EXPENSES Research and development .......... 14,903 11,733 8,401
Selling and administrative......... 42,836 37,145 37,462
Amortization of intangibles........ 936 1,146 975
Total Operating Expenses.......... 58,675 50,024 46,838
Income from Operations........... 15,947 12,402 16,570
Nonoperating Income (Expense):
Interest income ................... 461 379 667
Interest expense.................... (4,030) (3,524) (3,547)
EARNINGS Income Before Provision
for Income Taxes
and Minority Interest........... 12,378 9,257 13,690
Provision for income taxes........... 4,622 3,425 5,483
Minority interest.................... 631 636 816
Net Income........................ 7,125 5,196 7,391
Dividend on convertible redeemable
preferred stock..................... 693 960 462
Net Income Applicable
to Common Stock ................ $ 6,432 $ 4,236 $ 6,929
Net Income Per Common and Common
Equivalent Share.................... $ .60 $ .41 $ .73
Weighted average number of common
and common equivalent shares used
to compute earnings per share....... 10,673 10,301 9,510
The accompanying notes are an integral part of these financial statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended October 31, 1997, 1996 and 1995
(Amounts in thousands, except per share amounts) 1997 1996 1995
OPERATIONS Cash Flows From Operations:
Cash received from customers....... $194,375 $191,665 $162,568
Interest received.................. 455 258 733
Cash paid to suppliers
and employees (164,654) (165,565) (139,489)
Cash paid to ESOP+.................. (379) (406)
Interest paid....................... (5,345) (5,196) (3,730)
Income taxes paid, net of refunds... (4,316) (954) (6,625)
Net Cash Provided
By Operations 20,136 20,208 13,051
INVESTMENTS Cash Flows From Investments:
Purchase of plant and equipment..... (17,231) (30,530) (30,911)
Proceeds from sale-leaseback
of new equipment.................... 18,940
Purchase of additional equity
interest and note of Flex Products,
net of cash from
consolidation................. (15,185)
Cash portion of payment for purchase
of Netra, net of cash acquired..... (1,477)
Net Cash Used For Investments (17,231) (11,590) (47,573)
FINANCING Cash Flows From Financing:
Net proceeds from issuance of
preferred stock..................... 11,357
Proceeds from long-term debt........ 5,416 8,596 21,542
Proceeds from notes payable......... 6 8 494
Proceeds from exercise
of stock options.................. 2,247 1,713 1,627
Investment by minority
interest holder................... 1,440
Repayment of long-term debt......... (8,311) (7,019) (11,700)
Repayment of notes payable.......... (2,400) (388)
Repayment of note to minority
interest holder, net of
amounts borrowed................... (76) (413)
Payment of dividend on
preferred stock..................... (693) (960) (462)
Payment of dividend on common stock. (1,199) (1,153) (1,083)
Net Cash Provided
By Financing................. (3,570) 772 21,387
Effect of exchange rate
changes on cash................... (145) 35 74
Increase (decrease) in cash
and cash equivalents............ (810) 9,425 (13,061)
Cash and cash equivalents at
beginning of year............... 16,027 6,602 19,663
Cash and cash equivalents at
end of year..................... $5,217 $16,027 $ 6,602
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended October 31, 1997, 1996 and 1995
(Amounts in thousands) 1997 1996 1995
ADJUST- Reconciliation of Net Income
MENTS to Cash Flows From Operations:
Net income............................. $ 7,125 $ 5,196 $ 7,391
Adjustments to reconcile net
income to net cash provided
by operations:
Depreciation and amortization ...... 12,784 13,669 10,261
Minority interest in earnings
of subsidiaries..................... 631 636 816
Net book value of coating
machine sold........................ 880
Loss on disposal or abandonment
of equipment ....................... 1,412 1,356
Accrued postretirement health
benefits............................ (226) 184 238
Deferred income tax liabilities..... (1,014) (468) 2,515
Other non-cash adjustments
to net income....................... (97) (681) 46
Changes in:
Accounts receivable............... (8,012) 1,378 (3,792)
Inventories....................... (4,623) (3,030) (2,391)
Income tax receivable ............ 957 (719) (76)
Deferred income tax assets........ 2,715 1,645 (2,237)
Other current assets and
other assets
and investments.................. 136 716 (1,547)
Accounts payable, accrued
expenses and
accrued compensation expenses.... 9,979 (3,094) 2,807
Deferred revenue.................. (346) 464 (538)
Income taxes payable.............. (1,285) 2,076 (1,356)
Total adjustments................ 13,011 15,012 5,660
Net Cash Provided
By Operations ................ $20,136 $20,208 $13,051
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1997, the Company recorded capital leases totaling $2.0 million to
finance the hardware and some of the integration service costs of a new
Enterprise Resource System that is to be implemented in 1998. Lease terms
run through February 2002 with payments totaling approximately $50,000 per
month.
During 1995, the Company acquired Netra Corporation for approximately $1.5
million in cash and the issuance of approximately $1.6 million in Company
common stock. Cash and non-cash components of the acquisition were as
follows:
(Amounts in thousands)
Fair value of assets acquired,
including intangibles............................................. $3,529
Cash acquired..................................................... (188)
Liabilities assumed............................................... (279)
$3,062
Cash paid to sellers, net of cash acquired........................ $1,477
OCLI common stock issued to sellers............................... 1,585
$3,062
In 1997, 1996 and 1995, common stock, with an aggregate fair market value
of $51,000, $52,000 and $30,000 was awarded to the Company's outside
directors as remuneration.
During 1997, 1996 and 1995, the Company issued 14,601, 39,880 and 0 shares
of common stock to the OCLI 401(k)/Employee Stock Ownership Plan at fair
market value to satisfy a portion of its Company contribution.
The accompanying notes are an integral part of these financial statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended October 31, 1997, 1996 and 1995
PREFERRED COMMON FOREIGN
STOCK STOCK PAID-IN RETAINED CURRENCY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TRANSLATION
(Amounts in thousands)
BALANCE AT
NOVEMBER 1, 1994 8,978 $ 90 $39,967 $12,055 $ (75)
Shares issued on
purchase of Netra 165 1 1,584
Shares issued to
Employee Stock
Ownership Plan 82 1 794
Exercise of stock
options,including
tax benefit and
shares issued to
directors 264 3 2,116
Series C preferred
stock issued
for cash net of
issuance expenses 12 $11,357
Foreign currency
translation
adjustment for
the year 155
Net income for
the year 7,391
Dividend on
preferred stock (462)
Dividend on
common stock (1,083)
BALANCE AT
OCTOBER 31, 1995 12 11,357 9,489 95 44,461 17,901 80
Shares issued to
Employee Stock
Ownership Plan 39 1 439
Exercise of stock
options, including
tax benefit and
shares issued
to directors 233 2 2,319
Foreign currency
translation
adjustment for
the year (131)
Net income for
the year 5,196
Series C preferred
stock issuance
expenses (48)
Dividend on
preferred stock (960)
Dividend on
common stock (1,153)
BALANCE AT
OCTOBER 31, 1996 12 11,309 9,761 98 47,219 20,984 (51)
Shares issued to
Employee Stock
Ownership Plan 15 159
Exercise of stock
options,including
tax benefit and
shares issued to
directors 268 3 2,524
Conversion of
Series C
preferred stock
to common stock (6) (5,750) 555 5 5,821
Foreign currency
translation
adjustment
for the year (591)
Net income for
the year 7,125
Dividend on
preferred stock (693)
Dividend on
common stock (1,199)
BALANCE AT
OCTOBER 31, 1997 6 $ 5,559 10,599 $106 $55,723 $26,217 $(642)
The accompanying notes are an integral part of these statements.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended October 31, 1997, 1996 and 1995
(Amounts in thousands, except per share amounts)
1. GENERAL
NATURE OF OPERATIONS. OCLI designs, develops and manufactures multi-layer
thin film coatings which control and enhance light by altering the
transmission, reflection and absorption of its various wavelengths to
achieve a desired effect such as anti-reflection, anti-glare,
electromagnetic shielding, electrical conductivity and abrasion resistance.
OCLI markets and distributes components to original equipment manufacturers
("OEMs") of optical and electro-optical systems and sells its Glare/Guard
brand ergonomic computer display products through resellers and office
retailers. OCLI's products are found in many applications including
computer monitors, flat panel displays, telecommunication systems,
photocopiers, fax machines, medical/analytical equipment and instruments,
projection imaging systems, satellite power systems and aerospace and
defense systems. Through its 60% owned subsidiary, Flex Products, Inc.
("Flex Products"), the Company designs and manufactures thin film coatings
on flexible substrates using high vacuum roll-to-roll processes. Flex
supplies critical pigments for use in anti-counterfeiting applications,
energy conserving window film for residential, commercial, and automotive
applications, photoreceptor components for copiers and ChromaFlair light
interference pigments for commercial paints.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly and majority owned subsidiaries.
All significant intercompany accounts and transactions have been
eliminated. The Company's fiscal year ends on the Sunday closest to the
last day in October. For convenience purposes, the Company has designated
October 31 as its fiscal year end. Fiscal year 1997 was a 52 week year,
fiscal year 1996 was a 53 week year and fiscal year 1995 was a 52 week
year.
INVESTMENTS. Cash and cash equivalents are comprised of cash, bank
repurchase agreements and short-term commercial paper readily convertible
to cash. Cash equivalents are carried at cost which approximates market
value. For purposes of the Statements of Cash Flows, all highly liquid cash
equivalents with an original maturity of three months or less are
considered cash equivalents.
REVENUE RECOGNITION. Revenue from sales of manufactured products is
recognized when products are shipped to the customer. Revenue from fixed
price service and supply contracts and cost reimbursement contracts is
recognized on a percentage of completion basis based on cost incurred to
total estimated cost.
INVENTORIES. Inventories are stated at the lower of cost, on a first-in,
first-out basis, or market. Work-in-process inventories related to fixed-
price contracts are stated at the accumulated cost of material, labor and
manufacturing overhead, less the estimated cost of units delivered. To the
extent total costs under fixed-price contracts are estimated to exceed the
total sales price, charges are made to current operations to reduce
inventoried costs to net realizable value. In addition, if future costs
are estimated to exceed future revenues, an allowance for losses equal to
the excess is provided by a charge to current operations. The Company did
not have any estimated loss contracts in the periods presented.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at
cost. Estimated service lives range from 5 to 45 years for buildings and
improvements and from 3 to 8 years for all other property, plant and
equipment. Buildings and improvements and substantially all equipment are
depreciated using accelerated methods.
RESEARCH AND DEVELOPMENT. Research and development costs are charged to
operations in the period incurred. The cost of equipment used in research
and development activities which has alternative uses is capitalized as
equipment and not treated as an expense of the period. Such equipment is
depreciated over estimated lives of 5 years.
FOREIGN OPERATIONS. The financial position and operating results of
foreign operations are consolidated using the local currency as the
functional currency. Local currency assets and liabilities are translated
at the rate of exchange to the U.S. dollar on the balance sheet date, and
the local currency revenues and expenses are translated at average rates of
exchange to the U.S. dollar during the period. Resulting translation gains
or losses are included in stockholders' equity as cumulative foreign
currency translation adjustment. Foreign currency transaction gains and
losses, which have not been material, are reflected in operating results.
INCOME TAXES. Income taxes include provisions for temporary differences
between earnings for financial reporting purposes and earnings for income
tax purposes under the guidelines of SFAS No. 109, Accounting for Income
Taxes. Tax credits are taken as a reduction of current income tax
provisions when available.
EARNINGS PER SHARE. Earnings per common and common equivalent share
includes the effect of dilutive stock options outstanding. Fully diluted
earnings per share are not presented as it is not materially different from
primary earnings per share.
RECLASSIFICATIONS. Certain reclassifications have been made to prior year
data to conform to the current year presentation.
FAIR VALUE OF FINANCIAL INSTRUMENTS. For certain of the Company's financial
instruments, including cash and cash equivalents, accounts receivable,
accounts payable, accrued expenses, accrued compensation expenses and
notes payable, the carrying amounts approximate fair value due to their
short maturities. The Company's long-term debt is carried at amounts
that approximate fair value based on borrowing rates currently available
to the Company for bank loans of similar terms and maturities.
NEW ACCOUNTING PRINCIPLES. During 1997, the Company adopted the provisions
of SFAS No. 123, "Accounting for Stock-Based Compensation," which requires
the Company to adopt the fair value method of accounting for employee
stock-based transactions or to disclose pro forma net income and earnings
per share as if the fair value method of accounting were adopted at the
beginning of 1996. The Company elected to continue to account for its
stock-based transactions using the intrinsic value method of accounting in
accordance with Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and has provided the pro forma disclosures, and
other disclosures required by SFAS No. 123, in Note 6 to its Notes to
Consolidated Financial Statements.
At the beginning of fiscal 1997, the Company implemented SFAS 121,
"Accounting for the Impairment of Long-Lived Assets," which requires that
long-lived assets, certain identifiable intangibles and goodwill related to
those assets be reviewed for impairment, measured by comparing the carrying
amount of the asset to its fair value, whenever events or changes in
circumstances indicate that the carrying amount of a long-lived asset may
not be recoverable. There was no financial impact resulting from the
Company's adoption of this statement in 1997.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share," which requires the Company to replace its
presentation of primary earnings per share with a presentation of basic
earnings per share and requires dual presentation of basic and diluted
earnings per share on the face of the income statement. The principal
difference between primary earnings per share under current accounting
standards and basic earnings per share under the new statement is that
basic earnings per share does not consider common stock equivalents such as
stock options and warrants. Diluted earnings per share under the new
statement will include potential dilution of convertible securities, stock
options and warrants. The statement is effective for the Company's first
quarter of fiscal 1998 and requires restatement of all prior periods
presented. Basic earnings per share would have been $.63, $.44 and $.76
for 1997, 1996 and 1995. Under the new statement, diluted earnings per
share for those periods would have been the same as net income per common
and common equivalent share as presented on the income statement.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which requires enterprises to report, by
major component and in total, all changes in equity from nonowner sources;
and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information;" which establishes annual and interim reporting standards for
a public company's operating segments and related disclosures about its
products, services, geographic areas and major customers. Both standards
are effective for the Company's fiscal year 1999 with earlier application
permitted. The effect of adoption of these statements will be limited to
the form and content of the Company's disclosure and will not impact the
Company's results of operations, cash flow or financial position.
3. LONG-TERM DEBT
Long-term debt, including current maturities,
at October 31, 1997 and 1996 consisted of the following:
(Amounts in thousands) 1997 1996
Unsecured senior notes. Interest at 8.71%
payable semiannually. Principal payable in
annual installments of $3.6 million from
1998 through 2002.................................. $14,400 $18,000
Unsecured bank term loan. Variable interest
rates averaging 6.8% at October 31, 1997,
payable quarterly, with semiannual principal
payments of $2 million............................. 10,000 13,000
Unsecured borrowings under bank line of credit.
Variable interest rate averaging 6.7% at
October 31, 1997, payable quarterly or
specified duration period. Principal due
upon expiration on April 28, 2000.................. 5,000
Mortgage payable. Interest at 8%.
Collateralized by a 72,000 sq. ft.
newly constructed building and related
land. Principal and interest payments
of $25,000 per month through 2011.................. 2,422 2,523
Mortgage payable. Interest at 7.5%.
Collateralized by a 65,000 sq. ft. newly
constructed building and related land
leased to Flex Products. Principal and
interest payments of $28,000 per month
through 2011....................................... 2,821 2,945
Land improvement assessment. Interest at an
average rate of 7.2%. Principal and
interest payable in semiannual installments
of $77,000 through 1998............................ 150 276
Scottish Development Agency building
loan, with a conditional interest moratorium
from February 1, 1995 through January 31, 1998
with interest at 9.5% thereafter. Semiannual
principal payments of approximately $100,000
are payable through January 1998 with
subsequent payments of $331,000, comprising
principal and interest, through 2006.
Collateralized by the land and building of
the Company's Scottish subsidiary.................. 3,877 3,996
Notes payable to private parties in connection
with the purchase of the Company's wholly-owned
subsidiary in Germany (OCLI/MMG Division).
Principal and interest at 8% payable
over ten years in quarterly installments.
Refinanced in May 1997............................. 6,188
Unsecured bank note. Interest at 5.6%.
Quarterly principal and interest
payments of approximately $300,000
through December 2002.............................. 4,568
Bank loans of OCLI/MMG Division with interest
rates ranging from 4.5% to 7.5%. Payable in
semiannual and annual installments
through 2020. Partly collateralized by
mortgages on OCLI/MMG Division land and
buildings and liens on equipment................... 3,618 3,760
Present value of obligations under capital
leases at imputed interest rates from
8.0% to 9.5% payable in monthly
installments through 2004.......................... 2,007 81
48,863 50,769
Less current maturities ............................... (7,888) (4,981)
Total long-term debt,
net of current maturities..................... $40,975 $45,788
Annual debt maturities and capital lease payments for the ensuing five
years are as follows:
YEAR PAYMENT
(Amounts in thousands)
1998 $ 7,888
1999 9,909
2000 12,765
2001 5,710
2002 5,401
Thereafter 7,190
$48,863
The Company has a $32 million unsecured credit facility comprised of a $10
million term loan and a $20 million revolving line of credit (increased
from $15 million in 1997). The revolving line of credit carries a
commitment fee of .375% per year on the unused portion of the facility and
expires on April 28, 2000. The Company has a surety bond for $903,000 to
satisfy the Company's workers' compensation self-insurance requirements.
The surety bond carries a fee of 1.00% per year.
During 1997, the Company replaced its 8%, $5 million note payable to
private parties with a 5.6% bank note. Payments of principal and interest
under the new note are denominated in German marks and are approximately
$300,000 per quarter through December 2002. In connection with the note
payable to private parties, the Company carried an incremental credit
facility to cover a surety letter for approximately $2.5 million issued to
secure 50% of the Company's obligation arising from the purchase of MMG.
As the new note does not require a surety letter, the $2.5 million surety
letter was canceled.
During 1997, the Company recorded capital leases totaling $2,037,000 to
finance the hardware, software and integration costs of a new computer
system that is to be implemented in 1998. Lease terms run through February
2002 with payments totaling approximately $50,000 per month.
The Company's subsidiary in Scotland has a credit arrangement of up to
approximately $490,000 at market interest rates and has outstanding letters
of credit of approximately $330,000 to guarantee import duties. There were
no borrowings under the credit arrangement in fiscal years 1997 or 1996.
The Company's subsidiary in Germany has various credit facilities with
local banks totaling approximately $381,000 which are used for working
capital requirements. These credit facilities are utilized as part of
normal local payment practices.
During 1996, the Company entered into three sale/lease-back arrangements
for a newly acquired continuous coating machine and related equipment and
for two newly acquired coating machines to be used in the manufacturing
operations of Flex Products. Cash proceeds from the sale/lease-back
arrangements exceeded the company's cost by approximately $750,000 which
was recorded as deferred revenue and is being amortized against lease
expenses at the rate of approximately $125,000 per year. The lease terms
are six years with monthly payments totaling approximately $290,000 and
buyout provisions at the end of each lease.
The Company has certain financial covenants and restrictions under its bank
credit arrangements and the unsecured senior notes.
4. ACQUISITIONS
FLEX PRODUCTS, INC. Flex Products was founded as a division of the Company
in the early 1980's, and in 1988, was established as a joint venture
between the Company and ICI Americas, Inc. ("ICIA"), an affiliate of
Imperial Chemical Industries PLC, with ICIA owning 60% and the Company
owning 40%. Upon formation of the 1988 joint venture, the Company received
proceeds in excess of the carrying amount of the assets contributed to the
joint venture. The proceeds were allocated first to reduce the carrying
amount of the Company's investment to zero, with the remaining proceeds
reported as gain on sale of equity in affiliated company. Since the
Company carried its investment in the joint venture at zero and was not
obligated to make further investment in the joint venture, it did not
recognize losses attributable to its equity position in the joint venture.
In May 1995, the Company acquired controlling ownership of Flex Products
with the purchase of an additional 20% interest in Flex Products from ICIA
and ICIA sold its remaining 40% interest to SICPA Holdings S.A. ("SICPA"),
a privately held Swiss corporation headquartered in Lausanne, Switzerland.
SICPA is the largest manufacturer of printing inks in the world and the
major customer of Flex Products.
Pursuant to the terms of the Stock and Note Purchase Agreement dated May 1,
1995, by and among the Company, SICPA, ICIA and Flex Products, the Company
acquired the incremental 20% interest in Flex Products for a cash payment
of $8.4 million and paid ICIAH approximately $7.0 million in cash to
acquire a 60% interest in an $11.7 million promissory note previously
issued by Flex Products to ICIA to fund Flex Products' working capital
requirements. SICPA acquired the balance of the note. The Company's
incremental investment in Flex Products was recorded as a purchase
transaction.
The following pro forma consolidated results of operations for 1995 assume
that the transaction took place at the beginning of 1995.
(Amounts in thousands, except per share amounts) 1995
Revenue........................................................... $181,389
Net income applicable to common stock............................. 6,887
Net income per common and common equivalent share................. $.72
During fiscal 1996, SICPA, the 40% joint owner of Flex Products, filed suit
in Delaware Chancery Court seeking injunctive and other relief against
OCLI, Flex Products and certain of Flex Products' directors. In the suit,
SICPA alleged that Flex Products could not proceed with an initial public
offering of its common stock without the consent of SICPA and that SICPA
had the right to purchase OCLI's 60% ownership of Flex Products pursuant to
a call option beginning after May 8, 1998. In January 1997, the Delaware
Chancery Court rendered a decision that upheld the position of OCLI and
Flex Products that a simple majority of Flex Products' Board of Directors
had the legal authority to authorize a public offering of Flex Products
securities without the approval of SICPA.
Subsequent to fiscal year end 1997, OCLI and SICPA reached settlement of
the pending litigation. Under the terms of the settlement agreement, OCLI
and SICPA have agreed to modify their co-ownership agreement to allow OCLI
to more effectively manage the day-to-day operations of Flex Products, to
to allow for the public financing of Flex Products' operations and to
modify the License and Supply Agreement between Flex Products and SICPA
to provide for more attractive scheduled pricing discounts on higher
volume purchases. In addition, OCLI purchased Flex Products' working
capital loan of $2.6 million from SICPA which was recorded as a decrease
to minority interest.
NETRA CORPORATION. In February 1995, the Company acquired the assets and
liabilities of Netra Corporation, a precision injection molded plastic
optics manufacturer, for a total purchase price of approximately $3.1
million. The purchase price consisted of a cash payment of $1.5 million
and the balance of approximately $1.6 million paid by the issuance of
164,735 shares of the Company's common stock. The acquisition was recorded
as a purchase. If the acquisition of Netra had occurred at the beginning of
fiscal 1995, the results of operations would not have been materially
different.
GOODWILL. At October 31, 1997, other assets and investments includes $5.2
million of goodwill, of which $4.6 million is attributed to the purchase of
MMG and is being amortized over fifteen years and $500,000 is attributed to
the purchase of Netra and is being amortized over five years.
5. STOCKHOLDERS' EQUITY
STOCKHOLDER RIGHTS PLAN. On December 16, 1997, the Board of Directors of
the Registrant adopted a new Stockholder Rights Plan (the "Plan") to
succeed the Stockholder Rights Plan first adopted on November 25, 1987.
Under the terms of the Plan, which expires in November 1999, the Company
declared a dividend of preferred stock purchase rights which only become
exercisable, if not redeemed, ten days after a person or group has acquired
20% or more of the Company's common stock or the announcement of a tender
offer which would result in a person or group acquiring 30% or more of the
Company's common stock. Under certain circumstances, the plan allows
stockholders, other than the acquiring person or group, to purchase the
Company's common stock or the common stock of the acquirer at an exercise
price of half the market price.
PREFERRED STOCK. The Company has authorized 100,000 shares of preferred
stock at $.01 par value of which 10,000 shares were designated Series A
Preferred Stock in connection with the Company's Stockholder Rights Plan.
None of the Series A Preferred Stock is issued. Additionally, 15,000
shares were designated Series B Preferred Stock, of which 8,350 shares were
issued and subsequently converted to common stock on call for redemption.
None of the Series B Preferred Stock is currently issued and outstanding.
In 1995, as part of the financing of the acquisition of a controlling
interest in Flex Products, Inc., the Company issued 12,000 shares of 8%
Series C Convertible Redeemable Preferred Stock (the "Series C Preferred
Stock") in consideration for $1,000 per share. The Series C Preferred
Stock is convertible into common stock at any time by the holders at a
conversion price of $10.50 per common share (subject to adjustment in
certain circumstances). The Series C Preferred Stock is redeemable at the
option of the Company commencing two years from the date of issuance (if
the Company's common stock is trading at $17 per share or more for any 20
consecutive day period) and, after three years, unconditionally, at 108% of
the purchase price per share, declining to 100% over four years. The
holders of the Series C Preferred Stock are entitled to receive a
cumulative annual dividend of $80 per share, which is payable quarterly and
has preference to any other dividends being paid by the Company.
The holders of shares of Series C Preferred Stock are not entitled to
notice of any stockholders' meetings or to vote on any matter, except as
provided by law or as otherwise specified in the Series C Preferred Stock
Certificate of Designation, Preferences and Rights. If, however, dividends
on the Series C Preferred Stock are in arrears in an amount equal to four
quarterly dividends, a default period would begin in which the holders of
the Series C Preferred Stock, voting as a class, would have the right to
elect the greater of 2 directors or a number of directors not less than 25%
of the total number of authorized directors. Such right terminates upon
expiration of the default period. The holders of the Series C Preferred
Stock are entitled to a liquidation preference equal to $1,000 per share
plus accrued and unpaid dividends. The Company may not create any series
or class of capital stock ranking prior or equal to the Series C Preferred
Stock unless the terms of any such series or class is approved by the
holders of not less than sixty-six and two-thirds percent (66-2/3%) of the
outstanding shares of Series C Preferred Stock, voting separately as a
class.
Pursuant to the terms of a Stock Purchase Agreement entered into with the
holders of the Series C Preferred Stock, the Company may not pay any
dividends or make any other distributions in respect of, or redeem or
repurchase any, securities of the Company to the extent such payments
exceed 25% of the difference between (a) aggregate "Net Income" (as such
term is defined in the Stock Purchase Agreement) of the Company after
January 31, 1995 and (b) all losses suffered by the Company during such
period.
During fiscal 1997, 5,750 shares of the Company's 8% Series C Convertible
Redeemable Preferred Stock, plus accrued dividends on those shares, were
converted into approximately 555,000 shares of common stock at a conversion
price of $10.50 per share.
6. INCENTIVE COMPENSATION PLANS, STOCK OPTION PLANS AND WARRANTS
Pursuant to the terms of the Company's employee stock option plans, an
aggregate of 2,292,865 shares of Company common stock has been issued or
reserved for issuance upon the exercise of options granted to qualified
employees. Options are granted with exercise prices equal to the market
price of the Company's common stock at the date of grant. Option terms are
five years and vesting periods are from one to three years. At October 31,
1997, outstanding option prices ranged from $6.125 to $13.25 per share with
weighted average remaining lives of 2.85 years.
In May, 1997, the Board of Directors approved a stock option repricing
program under which stock options with exercise prices above $14.00 per
share were repriced to the then current market value of the Company's
common stock of $9.63. A total of 162,000 shares with exercise prices
ranging from $14.13 per share to $17.38 per share were exchanged under this
program. The exchange of such options is presented in the following table
as cancellations and subsequent grants.
Stock option activity for the three years ended October 31, 1995, 1996 and
1997 was:
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
BALANCE AT NOVEMBER 1, 1994 1,343,595 $7.38
Granted 459,500 7.11
Exercised (261,295) 6.23
Canceled (25,000) 8.85
BALANCE AT OCTOBER 31, 1995 1,531,800 7.47
Granted 546,450 11.81
Exercised (229,800) 7.45
Canceled (13,770) 9.16
BALANCE AT OCTOBER 31, 1996 1,835,250 8.75
Granted 708,800 10.48
Exercised (268,849) 8.52
Canceled (272,792) 12.53
BALANCE AT OCTOBER 31, 1997 2,002,409 8.88
EXERCISABLE AT OCTOBER 31, 1997 1,176,346 $7.77
The Company's 60% owned subsidiary, Flex Products, has a non-qualified
stock option plan under which it has authorized for issuance 10,000 shares
of common stock against 100,000 shares outstanding of Flex Products, Inc.,
a non-public company, to key members of Flex Products' management. The
options have vesting periods from two to four years with five year terms.
During 1996, options were granted to purchase 10,271 shares at their
calculated market value on the date of grant (weighted average exercise
price of $444.37 per share) and options to purchase 446 shares at a
weighted average exercise price of $443.52 were cancelled during 1997. At
October 31, 1997, Flex Products had shares under option of 9,825 at an
average exercise price of $444.41 and weighted average remaining lives of
3.6 years with 3,180 options exercisable at a weighted average exercise
price of $445.69. The assets of Flex Products represent 12% and 10% of
consolidated total assets of the Company at the end of fiscal years 1997
and 1996.
In 1997, the Company adopted the disclosure requirements of SFAS 123 which
provide for the disclosure of pro forma net earnings and net earnings per
share as if the fair value method of accounting were adopted at the
beginning of fiscal 1996. If compensation expense had been determined for
stock options granted in 1997 and 1996 using the fair value method at the
date of grant, consistent with the provisions of SFAS 123, the Company's
pro forma net earnings and earnings per share would have been as follows:
(Amounts in thousands) 1997 1996
Net income as reported .................................... $ 7,125 $5,196
Pro forma compensation adjustment.......................... (2,812) (1,642)
Pro forma net income..................................... $4,313 $3,554
Net income per share, as reported.......................... $ 0.60 $ 0.41
Pro Forma compensation adjustment.......................... (0.15) (0.09)
Pro forma net income per share........................... $ 0.45 $ 0.32
Because SFAS 123 is applicable only to options granted subsequent to
October 31, 1995, its pro forma effects will not be fully reflected until
1998. The weighted average fair value of options granted during 1997 and
1996 was $5.60 and $6.25, respectively. The weighted average fair value of
Flex Products' options granted during 1996, which was the only year of
grant, was $68.82. The fair value of each option grant is estimated on the
date of grant using the Black-Scholes option pricing model with the
following weighted average assumptions used for grants in 1997 and 1996:
Expected dividend yield.................................................0.7%
Expected volatility..................................................... 59%
Risk-free interest rate.................................................5.6%
Expected term following vest date (years) .87
7. INCOME TAXES
The provision for income taxes consisted of:
(Amounts in thousands) 1997 1996 1995
CURRENT:
Federal ...........................................$2,537 $ 2,120 $ 3,617
State.............................................. 225 309 964
Foreign ........................................... 116 (149) 609
2,878 2,280 5,190
DEFERRED:
Federal............................................ 1,061 1,535 626
State.............................................. 598 (369) (586)
Foreign............................................ 85 (21) 253
1,744 1,145 293
$4,622 $3,425 $5,483
The reconciliation of the effective income tax rates to the federal statutory
rates was as follows:
1997 1996 1995
Statutory federal income tax rate..................... 34.0% 34.0% 34.0%
State taxes, net of federal tax benefit .............. 5.7 7.1 6.3
Foreign income taxes at rates different
than U.S. statutory rates........................... (0.5) 4.8 .8
Business tax credits (state tax
credits net of federal tax effect).................. (2.9) (10.3) (3.1)
Tax benefit from foreign sales corporation ........... (2.7) (1.7) (1.0)
Non-deductible expenses, primarily foreign losses..... 4.2 3.3 3.0
Other................................................. (0.5) (0.2) 0.1
Effective tax rate.................................. 37.3% 37.0% 40.1%
DEFERRED TAX ASSETS (LIABILITIES). The Company's deferred tax assets and
liabilities at October 31, 1997 and 1996 under SFAS 109 arise from the
following temporary differences in accounting for financial versus tax
reporting purposes:
(Amounts in thousands) 1997 1996
CURRENT:
Valuation reserves and accruals not deductible
for tax purposes until paid or utilized .................. $5,527 $ 4,112
Intercompany profit eliminated for financial
reporting purposes which is taxable currently............. 266 440
Domestic net operating losses available
for carryforward.......................................... 983 521
Asset valuation difference between financial and
tax reporting basis due to purchase accounting............ 131 189
State tax credits eligible for carryforward related
to purchased equipment.................................... 118
Other (54) (215)
Total deferred tax assets (liabilities)................... 6,853 5,165
NONCURRENT:
Domestic net operating losses available for carryforward.... 2,678 4,655
Foreign net operating losses available for carryforward..... 2,686 2,273
Tax depreciation greater than financial
reporting depreciation.................................... (4,045) (2,825)
Intangible assets, difference between financial
and tax reporting basis and periods....................... (816) (858)
Burden and interest on self-constructed assets
expensed for tax purposes and depreciated for financial
reporting purposes........................................ (555) (548)
Plant and equipment written off for financial
reporting purposes, depreciable for tax purposes.......... 125 308
Costs required to be capitalized under the
uniform capitalization tax rules which are deducted
for financial reporting purposes.......................... 169 389
Liability for postretirement health benefits
not deductible for tax purposes until paid................ 747 690
State tax credits eligible for carryforward
related to purchased equipment............................ 614 678
Other....................................................... 296 77
1,899 4,839
Less valuation allowance.................................... (2,684) (2,192)
(785) 2,647
Total deferred tax balances...............................$ 6,068 $ 7,812
The Company has provided a valuation allowance related to the deferred tax
asset resulting from the operating loss carryforwards of certain of its
foreign subsidiaries until the realization of the loss carryforwards is
more likely than not. The 1997 valuation allowance increase is primarily
due to losses reported in 1997 by certain of those subsidiaries.
The Company has recognized benefits in 1997, 1996 and 1995 for research and
development tax credits and in 1997 and 1996 for California manufacturers'
investment credits.
Income taxes have not been provided on approximately $7.1 million of
unremitted earnings of the Company's subsidiary in Scotland. The Company
intends to continue to reinvest these amounts in the subsidiary's
operations. Should any of these amounts be distributed to the Company, any
taxes on these distributions would be substantially offset by foreign tax
credits.
During 1995, the Company recorded $873,000 of deferred tax assets related
to the purchase of Netra and $4.7 million of deferred tax assets with the
consolidation of Flex Products. These deferred tax assets have been
recorded under the guidelines of SFAS No. 109, Accounting for Income Taxes,
on the premise that future taxable income will more likely than not be
adequate to realize future tax benefits of the available net operating loss
carryforwards giving rise to these deferred tax assets.
8. EMPLOYEE BENEFIT PLANS
U.S. OPERATIONS. The Company has a 401(k)/Employee Stock Ownership Plan
("ESOP") defined contribution retirement plan for its non-Flex Products
employees and a 401(k) plan with a Company match for the employees of Flex
Products. Company contributions for non-Flex Products employees are a
combination of a 401(k) matching contribution of 25% of the first 6% of
employee contributions plus a contribution to the ESOP plan based on the
Company's proportional share of pre-tax profits. Prior to fiscal 1997, all
Company contributions to non-Flex employees were to the ESOP and were
determined under a profit sharing formula. Company contributions for Flex
Products employees are 75% of the first 6% of employee contributions.
Company matching contributions to the 401(k) plans are funded in cash.
Company contributions to the ESOP are contributed in cash for the purchase
of Company common stock or are contributed in the form of original issued
shares of Company common stock. In fiscal 1997, 1996 and 1995, the Company
contributed and charged to operations $1,211,000, $787,000 and $1,309,000
as contributions to its U.S. retirement plans. The 1995 U.S. retirement
plan contribution includes Flex Products' six month contribution of $84,000
from the date the Company began consolidating Flex Products.
SCOTTISH OPERATIONS. The Company's Scottish subsidiary maintains a
contributory defined benefit pension program covering most of its
employees. Benefits are primarily based on years of service and
compensation. The program is funded in conformity with the requirements of
applicable U.K. government regulations. Plan assets are invested in fixed
interest and balanced fund units which are primarily comprised of corporate
equity securities.
The funded status of the plan at October 31, 1997, 1996 and 1995 is
as follows:
(Amounts in thousands) 1997 1996 1995
Plan assets at fair value ...................... $ 7,617 $ 6,704 $5,464
Projected benefit obligation.................... (8,856) (6,250) (5,575)
Plan assets greater (less) than
projected benefit obligation.................. (1,243) 454 (111)
Unrecognized net loss........................... 1,842 301 870
Unrecognized transition asset being
amortized over 19 years....................... (423) (453) (473)
Prepaid pension cost included
in other assets......................... $ 176 $ 302 $ 286
At October 31, 1997, 1996 and 1995, the projected benefit obligations
include accumulated benefit obligations of $8,043,000, $5,658,000 and
$5,344,000 of which $8,006,000, $5,643,000 and $5,323,000 are vested.
A discount rate of 7% was used in determining the present value of the
projected benefit obligation. The expected long-term rate of return on
assets was 9% and the assumed rate of increase in future compensation
levels was 5%.
The net pension expense for the Company's Scottish subsidiary recorded in
1997, 1996 and 1995 included the following components:
(Amounts in thousands) 1997 1996 1995
Service-cost benefits earned during the period...... $ 415 $ 364 $ 313
Interest cost on projected benefit obligation....... 506 474 439
Actual return on plan assets........................ (616) (674) (318)
Net amortization and deferral....................... (13) 163 (160)
Net pension expense................................ $292 $327 $ 274
9. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company sponsors a contributory defined benefit postretirement plan for
its U.S. operations which provides medical, dental and life insurance
benefits to employees who meet age and years of service requirements prior
to retirement and who agree to contribute a portion of the cost. The
Company has the right to modify or terminate these benefits at any time.
The Company's contribution is a set amount per retiree depending on the
retiree's years of service and dependent status at the date of retirement
and the age of the retiree and dependents when benefits are provided. Cost
increases are paid by the retiree.
The postretirement plan's benefit obligation was as follows for the years
ended October 31, 1997, 1996 and 1995:
(Amounts in thousands) 1997 1996 1995
Accumulated postretirement benefit obligation:
Retirees............................................$1,017 $1,058 $1,012
Fully eligible plan participants ................... 341 336 243
Other active plan participants...................... 810 756 744
Total accumulated postretirement
benefit obligation unfunded................. 2,168 2,150 1,999
Unrecognized loss................................... (168) (279) (227)
Accrued postretirement benefit obligation.... $2,000 $1,871 $1,772
The following components were included in net periodic postretirement benefit
cost for the years ended October 31, 1997, 1996 and 1995:
(Amounts in thousands) 1997 1996 1995
Service-cost benefits earned during the period......$ 71 $ 69 $ 50
Interest cost on accumulated post
retirement benefit obligation..................... 165 141 133
Net amortization and deferral....................... 10 55
Net postretirement benefit cost................... $246 $265 $183
Because the Company has established a maximum amount it will pay per
retiree under the plan, health care cost trends do not affect the
calculation of the accumulated benefit obligation or the net postretirement
benefit cost. The weighted average discount rate used in determining the
accumulated benefit obligation was 8.0% in 1997 and 1996 and 7.25% in 1995.
10. CONTINGENCIES AND COMMITMENTS
LITIGATION. During the past several years, the Company has been engaged in
litigation in the United Kingdom (U.K.) involving infringement of a Company
patent by a U.K. company. The Company won its action at the Patents County
Courts level but lost on appeal to the U.K. House of Lords. During the
injunction period, the U.K. company submitted a claim for damages totaling
approximately $1.6 million for lost profits. The Company and legal counsel
are in the process of reviewing the claim. Management believes that the
amount of the claim is substantially overstated and that the ultimate
settlement will not have a material adverse effect on the financial
statements.
In 1997, Optical Corporation of America (OCA) and certain of its directors
and officers (Affiliates) commenced suit against the Company. The
complaint arises out of a letter of intent executed by the Company and OCA
in March 1996 and an ensuing merger agreement executed by the Company and
OCA in June 1996. Under the merger agreement, the Company would acquire
OCA. The complaint seeks damages for costs and expenses incurred by OCA in
pursuing the merger transaction with the Company due to the Company's
alleged negligent misrepresentations to OCA and Affiliates and the
Company's alleged breach of its letter of intent with OCA. The Company has
filed counterclaims against OCA and the Affiliates based on OCA's breach of
the merger agreement and is seeking damages based on the difference between
the value of OCA's business to the Company and the agreed upon purchase
price under the merger agreement. The Company does not believe that this
litigation will have any material adverse effect on its future operating
results or financial condition.
In 1997, Flex Products filed a suit in United States District Court for the
Eastern District of Michigan alleging that BASF Corporation (BASF) and BASF
AG have infringed Flex's patents covering optically variable thin film
flakes. The complaint requests that the Court enjoin BASF from importing,
making, using, selling or offering to sell the infringing pigment in the
United States. The complaint also seeks damages for the infringement,
including treble damages if the infringement is found to be willful. BASF
Corporation has filed a counterclaim seeking a declaration that the patent
in question is invalid. Both BASF companies have requested that they be
awarded their attorneys' fees and costs. Management remains confident in
the validity of Flex Products' patent, and based upon the information
currently available, that the BASF product is , in fact, covered by the
patent.
During 1997 and 1996, the Company was engaged in litigation with SICPA
Holding S.A., the 40% joint owner of Flex Products. See Note 4.
CONCENTRATIONS OF CREDIT RISK. The Company grants credit to customers,
subject to credit approval, for most of its sales. At October 31, 1997,
accounts receivable from customers in foreign countries, was $16.6 million,
or 47%, of accounts receivable with approximately $5.7 million receivable
from customers in Asia and approximately $10.9 million receivable from
customers in Europe and other countries.
OPERATING LEASE AGREEMENTS. The Company and its subsidiaries lease
computer equipment, manufacturing space and warehouse space. The operating
lease payments are recorded as rental expense and totaled $6,351,000,
$4,881,000 and $2,481,000 for 1997, 1996 and 1995. Future minimum operating
lease payments amount to $23.1 million, and for the years 1998 through 2002
are $5,595,000, $5,110,000, $4,253,000, $3,864,000 and $1,973,000 under
operating lease agreements in effect at October 31, 1997. During 1996, the
Company entered into three operating lease arrangements to finance the cost
of a continuous coating machine and related equipment and to finance the
cost of two coating machines to be used in the manufacturing operations of
Flex Products. The lease terms are six years with monthly payments
totaling approximately $290,000 and buyout provisions at the end of each
lease term.
EMPLOYMENT AGREEMENTS. The Company has approved employment agreements for
officers and employment assurance agreements for certain management and
technical employees, as well as increases in severance benefits for full-
time employees, to be effective in the event of certain changes in control
of the Company. These agreements are currently effective through 1999.
11. INFORMATION ON OPERATIONS
INVENTORIES. Inventories as of October 31, 1997 and 1996 consisted of:
(Amounts in thousands) 1997 1996
Raw materials and supplies ............................... $ 7,541 $ 7,483
Work-in-process .......................................... 12,308 8,797
Finished goods............................................ 2,980 2,421
Total inventories................................... $22,829 $18,701
ACCRUED EXPENSES. Accrued expenses at October 31, 1997 and 1996 consisted of
the following:
(Amounts in thousands) 1997 1996
Workers' compensation reserve ............................. $ 555 $ 659
Ground water remediation reserve........................... 759 659
Other accrued liabilities.................................. 5,540 5,248
Total accrued expenses............................... $6,854 $6,566
INTEREST. Interest expense and amounts capitalized were as follows for the
years ended October 31, 1997, 1996 and 1995:
(Amounts in thousands) 1997 1996 1995
Interest costs incurred.......................... $4,249 $4,696 $4,326
Less amounts capitalized......................... 219 1,172 779
Net interest expense....................... $4,030 $3,524 $3,547
SALES INFORMATION. Significant customers and sales to the federal
government were as follows:
The Company's largest customer in 1997 is also a 40% owner of Flex
Products. Sales to this customer were 14% of consolidated sales for 1997,
13% of consolidated sales for 1996 and 12% of consolidated sales for the
six months of 1995 in which Flex Products' sales were consolidated. The
Company's fifth largest customer in 1997 is also an approximate 10% common
stockholder. Sales to this customer accounted for approximately 3% of
sales in 1997, 5% of sales in 1996 and 8% of sales in 1995.
Sales of products and services to the federal government, primarily under
subcontracts, were 6%, 9% and 10% of net revenues in 1997, 1996 and 1995.
Certain of these contracts are subject to cost review by various
governmental agencies. Management believes that adjustments, if any, will
not be material to the operating results of the Company.
FOREIGN OPERATIONS. Certain information regarding the Company's domestic
and foreign revenues is as follows
UNITED EUROPE
(Amounts in thousands) STATES AND OTHER ASIA ELIMINATIONS TOTAL
FISCAL YEAR ENDED OCTOBER 31,1997:
Domestic revenues and revenues
of foreign operations $116,720 $31,411 $ 8,296 $(2,709) $153,718
Export sales from the U.S. 47,036 29,718 (12,642) 64,112
Transfers between regions (2,709) (6,669) (5,973) 15,351
Revenues from customers $114,011 $71,778 $32,040 $217,829
FISCAL YEAR ENDED OCTOBER 31,1996:
Domestic revenues and revenues
of foreign operations $99,543 $38,795 $ (815) $137,533
Export sales from the U.S. 36,131 $24,911 (9,370) 51,672
Transfers between regions (815) (9,370) 10,185
Revenues from customers $98,728 $65,556 $24,911 $189,195
FISCAL YEAR ENDED OCTOBER 31,1995:
Domestic revenues and revenues
of foreign operations $90,529 $42,840 $(1,269) $132,100
Export sales from the U.S. 23,248 $21,305 (7,236) 37,317
Transfers between regions (1,269) (7,236) 8,505
Revenues from customers $89,260 $58,852 $21,305 $169,417
Transfers between regions represent intercompany sales of products and
intercompany compensation for services.
Certain information regarding the Company's operations by region is as
follows:
UNITED EUROPE
(Amounts in thousands) STATES AND OTHER ASIA ELIMINATIONS TOTAL
FISCAL YEAR ENDED OCTOBER 31,1997
Income from operations $ 16,206 $ 385 $(316) $ (328) $ 15,947
Identifiable assets $170,443 $32,646 $ 5,570 $(25,166) $183,493
FISCAL YEAR ENDED OCTOBER 31,1996:
Income from operations $ 12,812 $ (410) $12,402
Identifiable assets $146,869 $ 9,715 $(33,813) $172,771
FISCAL YEAR ENDED OCTOBER 31,1995:
Income from operations $ 14,284 $ 2,286 $ 16,570
Identifiable assets $137,702 $50,806 $(18,674) $169,834
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL INFORMATION
(Unaudited)
Results of operations for each quarter of fiscal 1997 were as follows:
THREE MONTHS ENDED
JAN 31, APR 30, JULY 31, OCT 31, FISCAL
(Amounts in thousands,
except per share data) 1997 1997 1997 1997 1997
Revenues $ 45,720 $ 53,516 $59,997 $58,596 $217,829
Gross profit 15,521 18,674 19,790 20,637 74,622
Income before provision for
income taxes and
minority interest 1,573 2,759 3,912 4,134 12,378
Net income 907 1,513 1,994 2,711 7,125
Net income applicable
to common stock $ 667 $ 1,326 $ 1,853 $ 2,586 $ 6,432
Net income per common and common
equivalent share $ 0.07 $ 0.13 $ 0 .17 $ 0.23 $ 0.60
Weighted average number of common
and common equivalent shares
outstanding (in thousands) 10,165 10,410 10,965 11,148 10,673
Results of operations for each
quarter of fiscal 1996 were as follows:
THREE MONTHS ENDED
JAN 28, APR 28, JUL 28, OCT 31, FISCAL
(Amounts in thousands, except 1996 1996 1996 1996 1996
per share amounts)
Revenues $ 43,911 $ 48,451 $48,772 $48,061 $189,195
Gross profit 14,416 17,799 15,419 14,792 62,426
Income before provision for
income taxes and
minority interest 1,797 4,058 3,315 87 9,257
Net income 740 2,071 2,033 352 5,196
Net income applicable
to common stock $ 500 $ 1,831 $ 1,793 $ 112 $ 4,236
Net income per common and common
equivalent share $ .05 $ .18 $ .17 $ .01 $ .41
Weighted average number of common
and common equivalent shares
outstanding (in thousands) 10,119 10,158 10,550 10,358 10,301
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to Paragraph G(3) of the General Instructions to Form 10-K, the
information called for in Part III, Items 10, 11, 12 and 13 of Form 10-K is
omitted since the Company will file with the Securities and Exchange
Commission, not later than 120 days after the close of the fiscal year
ended October 31, 1997, a definitive proxy statement pursuant to Regulation
14A in connection with its 1998 Annual Meeting of Stockholders. The
information contained under the caption "Executive Officers of the
Registrant" in Part I of this Form 10-K is incorporated by reference into
Item 10.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) 1. CONSOLIDATED FINANCIAL STATEMENTS:
The following consolidated financial statements of Optical
Coating Laboratory, Inc. are included in Item 8:
PAGE(S)
Independent Auditors' Reports...................... 24-25
Consolidated Balance Sheets........................ 26
Consolidated Statements of Income.................. 27
Consolidated Statements of Cash Flows.............. 28-29
Consolidated Statements of Common
Stockholders' Equity .............................. 30
Notes to Consolidated Financial Statements......... 31
Supplemental Financial Information................. 45
(A) 2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules are
included in Item 14(d):
Schedule II - Valuation and Qualifying accounts.... 50
All other schedules have been omitted since the required information is not
present or not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the
consolidated financial statements or the accompanying notes.
(A) 3. LISTING OF EXHIBITS
The following are filed as Exhibits to this Annual Report on Form 10-K. The
numbers refer to the Exhibit Table of Item 601 of Regulation S-K.
EXHIBIT
NO. DESCRIPTION
3.1 Restated Certificate of Incorporation. Incorporated by reference to
Exhibit (4)(a) of the Registrant's Form 10-Q for the quarter ended
July 31, 1988.
3.2 By-Laws. Incorporated by reference to Exhibit (3)(b) of the
Registrant's Form 8-K under Item 5 dated November 20, 1987.
4.1* Stockholder Rights Agreement between the Registrant and ChaseMellon
Shareholder Services L.L.C. dated December 16, 1997.
4.2 Note Purchase Agreement(s) dated as of May 27, 1994 for the private
placement of $18,000,000 of 8.71% Senior Notes due June 1, 2002
between the Registrant and Connecticut Mutual Life Insurance
Company, Modern Woodman of America and American Life and Casualty
Insurance Company. Incorporated by reference to Exhibit (4)(a) of
the Registrant's Form 10-Q for the quarter ended July 31, 1994.
4.3 Stock Purchase Agreement dated as of February 8, 1995 by and between
the Registrant, Netra Corporation and the Sellers as identified on
the signature page of said agreement, each a shareholder of Netra
Corporation, for the purchase by the Registrant of all of the shares
of common and preferred stock of Netra Corporation. Incorporated by
reference to Exhibit (4) of the Registrant's Form 10-Q for the
quarter ended April 30, 1995.
4.4 Optical Coating Laboratory, Inc. 12,000 shares of 8% Series C
Convertible Redeemable Preferred Stock Purchase Agreement among the
Registrant and the investors named therein dated as of May 1, 1995.
Incorporated by reference to Exhibit 4(e) of Registrant's Form S-8
dated July 6, 1995.
4.5 Certificate of Designation, Preferences and Rights of Series C
Convertible Redeemable Preferred Stock of Optical Coating
Laboratory, Inc. dated May 2, 1995. Incorporated by reference to
Exhibit 4(f) of Registrant's Form S-8 dated July 6, 1995.
4.6 Credit Agreement dated as of May 24, 1995 among the Registrant, Bank
of America NT&SA as agent, and Letter of Credit Issuing Bank and the
other Financial Institutions party thereto arranged by BA
Securities, Inc. Incorporated by reference to Exhibit (4)(a) of the
Registrant's Form 10-Q for the quarter ended July 31, 1995.
4.7 First Amendment to Credit Agreement dated as of May 24, 1995 between
Optical Coating Laboratory, Inc., Bank of America, NT&SA, as agent
for itself and the Banks, and the several financial institutions
party to the Credit Agreement, which amendment is dated as of
December 15, 1995. Incorporated by reference to Exhibit 4.9 of the
Registrant's Form 10-K for the year ended October 31, 1995.
4.8 Third Amendment to Credit Agreement dated as of May 24, 1995 between
Optical Coating Laboratory, Inc. and Bank of America NT&SA, as agent
for itself and the Banks, and the several financial institutions
party to the Credit Agreement, which amendment is dated as of May
23, 1997. Incorporated by reference to Exhibit (4.1) of the
Registrant's Form 10-Q for the quarter ended April 30, 1997.
4.9 Secured Promissory Note between Optical Coating Laboratory, Inc. and
Aid Association for Lutherans dated November 8, 1995. Incorporated
by reference to Exhibit 4.8 of the Registrant's Form 10-K for the
year ended October 31, 1995.
4.10 Capital Equipment Lease Agreement dated as of February 20, 1996
between Optical Coating Laboratory, Inc. and Fleet Credit
Corporation. Incorporated by reference to Exhibit 4.10 of the
Registrant's Form 10-K for the year ended October 31, 1996.
4.11 Capital Equipment Lease Agreement dated as of June 19, 1996 between
Flex Products, Inc. and Fleet Credit Corporation. Incorporated by
reference to Exhibit 4.11 of the registrant's Form 10-K for the year
ended October 31,1996.
4.12 Credit Agreement dated as of May 20, 1997 between Optical Coating
Laboratory, Inc. as Borrower and ABN AMRO Bank N.V. as bank.
Incorporated by reference to Exhibit 4.2 of the Registrant's form
10-Q for the quarter ended April 30, 1997.
9 Not applicable.
10.0 Registrant's Employee Stock Ownership Plan (OCLI ESOP+), as amended.
Incorporated by reference to Exhibit (10)(c) of the Registrant's
Form 10-K for the year ended October 31, 1988.
10.1 Registrant's 1996 Incentive Compensation Plan. Incorporated by
reference to Exhibit A of the Registrant's Proxy Statement dated
March 8, 1996.(1)
10.2 Registrant's 1995 Incentive Compensation Plan. Incorporated by
reference to Exhibit A of the Registrant's Proxy Statement dated
March 10, 1995. (1)
10.3 Registrant's 1993 Incentive Compensation Plan. Incorporated by
reference to Exhibit A of the Registrant's Proxy Statement dated
March 8, 1993. (1)
10.4 Registrant's 1992 Incentive Compensation Plan. Incorporated by
reference to Exhibit A of the Registrant's Proxy Statement dated
March 8, 1992. (1)
10.5 Registrant's 1991 Incentive Compensation Plan. Incorporated by
reference to Exhibit A of the Registrant's Proxy Statement dated
February 25, 1991. (1)
10.6 Form of Directors' and Officers' Indemnification Agreement.
Incorporated by reference to Exhibit (10)(j) of the Registrant's
Form 10-K for the year ended October 31, 1987. (1)
10.7* Form of Change in Control Employment Agreements between the
Registrant and its Executive Officers dated November 20, 1997.(1)
10.8* Form of Employment Assurance Agreements between the Registrant and
its key technical and professional employees dated as of November
20, 1997. (1)
10.9 Mortgage Agreement between the Scottish Development Agency and
Registrant's Scottish Subsidiary. Incorporated by reference to
Exhibit (10)(o) of the Registrant's Form 10-K for the year ended
October 31, 1987.
EXHIBIT
NO. DESCRIPTION
10.10 Stock and Note Purchase Agreement by and among OCLI, SICPA Holding
S.A., ICIA, ICIAH and Flex Products, Inc. Incorporated by reference
to the Registrant's Form 8-K dated May 23, 1995 and Registrant's
Form 8-K/A dated April 11, 1996.
10.11 Employment Agreement Letter between John McCullough and the
Registrant dated October 31, 1995. Incorporated by reference to
Exhibit 10.18 of the Registrant's Form 10-K for the year ended
October 31, 1995. (1)
10.12*1998 Management Incentive Plan (1)
10.13*Settlement Agreement between the Registrant, SICPA Holding S.A. and
Flex Products, Inc. dated November 27, 1997 (Confidential treatment
has been requested on portions of this document.)
10.14*Agreement by and between JDS FITEL Inc. and the Registrant
dated February 1, 1997. (Confidential treatment has been requested
on portions of this document.)
11* Computation of earnings (loss) per share for the years ended October
31, 1997, 1996 and 1995.
12 Not applicable
13 Not applicable
16 Not applicable
18 Not applicable
21* Subsidiaries of the Registrant
22 Not applicable
23* Independent Auditors' Consent and Report on Schedules
24 Not applicable
27* Financial Data Schedule
28 Not applicable
99 Not applicable
* Items not previously filed are designated by an asterisk.
(1) Designates management contracts or compensatory plan arrangements
required to be filed as exhibits pursuant to Item 14(c) of Form 10-
K.
(b) REPORTS ON FORM 8-K
None
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS (S-X, RULE 12-09)
(AMOUNTS IN THOUSANDS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
ADDITIONS
BALANCE AT CHARGED TO CHARGED
DEDUCTIONS BALANCE
BEGINNING COSTS AND TO OTHER AMOUNTS AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS CHARGED OFF OF PERIOD
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year ended
October 31, 1997 $1,775 $ 642 $(31)(a) $ 502 $1,884
Year ended
October 31, 1996 $1,229 $ 674 $(7)(a) $ 121 $1,775
Year ended
October 31, 1995 $1,810 $ 369 $136(a) $1,086 $1,229
VALUATION RESERVES FOR INVENTORY:
Year ended
October 31, 1997 $2,112 $ 155 $-0- $ -0- $2,267
Year ended
October 31, 1996 $ 616 $1,496 $-0- $ -0- $2,112
Year ended
October 31, 1995 $ 765 $ -0- $-0- $ 149 $ 616
(a)The 1995 balance consists primarily of amounts recorded in connection with
the acquisition of Flex Products. The 1997 and 1996 balances consist of
recoveries and foreign currency translation effects.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DATE: JANUARY 29, 1998 OPTICAL COATING LABORATORY, INC.
BY: /S/CRAIG B. COLLINS
Craig B. Collins
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
/S/HERBERT M. DWIGHT, (Principal Executive Officer) JANUARY 29, 1998
Herbert M. Dwight, Jr.
DIRECTOR, PRESIDENT
AND CHIEF OPERATING OFFICER
/S/CHARLES J. ABBE (Principal Operating Officer) JANUARY 29, 1998
Charles J. Abbe
VICE PRESIDENT, FINANCE
/S/CRAIG B. COLLINS AND CHIEF FINANCIAL OFFICER JANUARY 29, 1998
Craig B. Collins (Principal Financial Officer)
/S/HOLLY D. NEAL CORPORATE CONTROLLER JANUARY 29, 1998
Holly D. Neal (Principal Accounting Officer)
/S/JOHN MCCULLOUGH DIRECTOR AND VICE PRESIDENT JANUARY 29, 1998
John McCullough
/S/ DOUGLAS C. CHANCE DIRECTOR JANUARY 29, 1998
Douglas C. Chance
/S/ SHOEI KATAOKA DIRECTOR JANUARY 29, 1998
Shoei Kataoka
/S/JULIAN SCHROEDER DIRECTOR JANUARY 29, 1998
Julian Schroeder
/S/RENN ZAPHIROPOULOS DIRECTOR JANUARY 29, 1998
Renn Zaphiropoulos
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 11. COMPUTATION OF EARNINGS PER SHARE
Years Ended October 31, 1997, 1996 and 1995
(Amounts in thousands, except per share data) 1997 1996 1995
PRIMARY SHARES:
Average common shares outstanding................. 10,191 9,629 9,144
Common equivalent shares outstanding.............. 482 672 367
10,673 10,301 9,511
Net income........................................ $7,125 $5,196 $ 7,391
Less dividend on preferred stock.................. 693 960 462
Net income applicable to common stock............. $6,432 $4,236 $ 6,929
Net income per common and common
equivalent share, primary....................... $ .60 $ .41 $ .73
FULLY DILUTED SHARES:
Average common shares outstanding................. 10,191 9,629 9,144
Common equivalent shares outstanding.............. 525 685 456
Potential dilution of preferred stock............. * * 553
10,716 10,314 10,153
Net income applicable to common stock............. $6,432 $4,236 $ 6,929
Add back dividend on preferred stock.............. * * 462
Net income for calculating fully diluted
earnings per share.............................. $6,432 $4,236 $ 7,391
Net income per common and common
equivalent share, fully diluted................. $ .60 $ .41 $ .73
*Excluded because the result would be anti-dilutive.
NOTE: Fully diluted earnings per share do not result in dilution of
three percent or more or are anti-dilutive and, therefore, are
not separately presented in the consolidated statements of income.
OPTICAL COATING LABORATORY, INC. AND SUBSIDIARIES
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
Optical Coating Laboratory, Inc. was incorporated in Delaware in 1948. The
Company was reincorporated in California in 1963 and again reincorporated
in Delaware November 2, 1987.
Optical Coating Laboratory, Inc. has the following subsidiaries:
PERCENT OF PLACE OF
SUBSIDIARY NAME OWNERSHIP INCORPORATION
OCLI International Service Corporation................ 100% California
OCLI Foreign Sales Corporation....................... 100% Guam
OCLI Optical Coating Laboratory, Ltd.................. 100% Scotland
OCLI Optical Coating Laboratory GmbH.................. 100% Germany
MMG Glastechnik GmbH.................................. 100% Germany
OCLI Optical Coatings Espana S.A...................... 100% Spain
Optical Coating Laboratory B.V........................ 100% Netherlands
Optical Coating Laboratory EURL....................... 100% France
Flex Products, Inc.................................... 60% Delaware
Hakuto-OCLI, Ltd. (OCLI Asia)......................... 50% Japan
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the incorporation by reference in Registration Statements No.
33-41050, No. 33-26271, No. 33-12276, No. 33-48808, No. 33-65132, No. 33-
60891 and 33-13013 of Optical Coating Laboratory, Inc. on Form S-8 and
Registration Statements No. 33-61177 and No. 33-65319 on Form S-3 of
Optical Coating Laboratory, Inc. of our report dated December 19, 1997,
appearing in this Annual Report on Form 10-K/A of Optical Coating Laboratory,
Inc. for the year ended October 31, 1997.
Our audits of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of
Optical Coating Laboratory, Inc., listed in Item 14(a)(2). The financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our
opinion, based on our audits and the report by other auditors referred to
in our aforementioned report, the financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
DELOITTE & TOUCHE LLP
San Jose, California
February 19, 1998
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<SALES> 217,829
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<CGS> 143,207
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OPTICAL COATING LABORATORY, INC.
EMPLOYEE: (Label)
CHANGE IN CONTROL
EMPLOYMENT ASSURANCE AGREEMENT
AGREEMENT made this 20th day of November 1997, between Optical Coating
Laboratory, Inc. ("OCLI"), having its principal place of business at 2789
Northpoint Parkway, Santa Rosa, California, and the employee referenced on
the label affixed above (hereinafter "Employee").
The purpose of this Agreement is to afford Employee additional
security concerning his or her employment with Employer by providing for
certain termination payments to Employee in the event that there is a
Change in Control of OCLI or Employer as described in the definition of
"Change in Control" below. The provisions of this Agreement shall only be
effective in the event that there is a Change in Control, and nothing in
this Agreement extends or expands Employee's present rights concerning
employment with Employer in the absence of a Change in Control.
Based upon the foregoing, and in consideration of Employee's continued
employment with Employer, OCLI and Employer agree as follows:
1. Term. This Agreement shall be effective as of the date first
written above through November 20, 1999; provided, however, that if a
Change in Control occurs on or before November 20, 1999, this Agreement
shall remain in effect for two (2) years from the date of occurrence of the
Change in Control.
2. Termination.
(a) Termination by Employer or Constructive Dismissal by
Employer after a Change in Control. Except in the case of a termination for
cause by Employer, if at any time within two (2) years after the occurrence
of a Change in Control, either (i) Employer terminates Employee's
employment, or (ii) Employee terminates his or her employment following a
Constructive Dismissal by Employer, then Employee shall be paid an amount
equal to twelve (12) months of Employee's maximum salary in effect within
twelve (12) months of termination.
(b) Time of Payment. Employer shall pay any amounts due to
Employee upon termination of Employee's employment.
(c) No Other Severance Payments. If Employee receives a payment
under subparagraph 2(a), Employee shall not be entitled to any severance
payments that might otherwise be payable to Employee.
3. Acceleration of Unvested Stock Options. Upon a Change in Control
as defined herein, all unvested outstanding stock options held by Employee
shall be immediately exercisable.
4. Certain Definitions. For purposes of this agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any person who or which,
together with all Affiliates and Associates of such person, shall be the
owner, beneficial or otherwise, of more than twenty percent (20%) of the
shares of Common Stock of OCLI or Employer then outstanding, but shall not
include OCLI, Employer, any subsidiary of OCLI or Employer, any employee
benefit plan of OCLI or Employer or of any subsidiary of OCLI or Employer,
or any person or entity organized, appointed or established by OCLI or
Employer for or pursuant to the terms of any such plan.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended, and in
effect on the date of this Agreement.
(c) "Continuing Director" shall mean (i) any member of the Board
of Directors of OCLI or Employer, while such person is a member of the
Board prior to the date of this Agreement, or (ii) any person who
subsequently becomes a member of the Board, while such person is a member
of the Board, if such person's nomination for election or re-election to
the Board is recommended or approved by a majority of the Continuing
Directors.
(d) "Constructive Dismissal by Employer" shall occur if Employer
demotes Employee, reduces Employee's duties, decreases Employee's benefits
or compensation, or relocates Employee to a location outside of the
community where Employee is employed as of the date of the Change in
Control.
(e) "Change in Control" shall mean the occurrence of any of the
events described in subparagraph (i) or (ii) below:
(i) (A) The acquisition of more than twenty percent (20%)
of the shares of Common Stock of OCLI or Employer then outstanding by an
Acquiring Person, alone or together with such person's Affiliates or
Associates, including any such acquisitions pursuant to a "reorganization"
within the meaning of Section 181 of the California Corporations Code and
(B) the adoption by OCLI's Board of Directors of a resolution (x)
disapproving the acquisition described in subparagraph 4(e)(i)(A); or (y)
declaring as operative the provisions of this Agreement pertaining to a
Change in Control; or
(ii) The failure of a majority of the members of the Board
of Directors of OCLI or Employer to be Continuing Directors.
(f) "Termination for Cause" shall mean a termination by Employer
because of a willful breach by Employee in the course of his or her
employment, or in the case of his or her habitual neglect of his or her
duties or continuing incapacity to perform his or her duties.
5. Effect of Employer's Merger, Transfer of Assets or Dissolution.
This Agreement shall not be terminated by any merger or consolidation
where OCLI or Employer is not the consolidated or surviving corporation,
transfer of substantially all of the assets of OCLI or Employer, or voluntary
or involuntary dissolution of OCLI or Employer. In the event of any such
merger, consolidation or transfer of assets, the surviving corporation or
the transferee of OCLI's or Employer's assets shall be bound by the
provisions of this Agreement, and OCLI or Employer shall take all actions
necessary to insure that such corporation or transferee is bound by the
provisions of this Agreement.
6. Agreement Supersedes Any Inconsistent Prior Agreements or
Understandings.
The terms of this Agreement supersede any insistent prior
promises, policies, representations, understandings, arrangements or
agreements between the parties.
7. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
OPTICAL COATING LABORATORY, INC.
By
EMPLOYEE:
Signature Date
Address:
5 Change in Control
Employment Assurance Agreement
November 20, 1997
OPTICAL COATING LABORATORY, INC.
and
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
as RIGHTS AGENT
Rights Agreement
Dated as of December 16, 1997
Table of Contents
Section Page
1. Certain Definitions.......................................... 2
2. Appointment of Rights Agent................................. 7
3. Issue of Rights Certificates................................ 7
4. Form of Rights Certificates................................. 10
5. Countersignature and Registration........................... 12
6. Transfer, Split Up, Combination and Exchange of
Rights Certificates; Mutilated, Destroyed, Lost or
Stolen Rights Certificate................................... 14
7 . Exercise of Rights; Purchase Price; Expiration
Date of Rights.............................................. 15
8. Cancellation and Destruction of Rights Certificates......... 20
9. Reservation and Availability of Capital Stock............... 20
10. Preferred Stock Record Date................................. 24
11. Adjustment of Purchase Price, Number and Kind of Shares or
Number of Rights............................................ 25
12. Certificate of Adjusted Purchase Price
or Number of Shares......................................... 47
13. Consolidation, Merger or Sale or Transfer
of Assets or Earning Power.................................. 48
14. Fractional Rights and Fractional Shares..................... 53
15. Rights of Action........................................... 56
16. Agreement of Rights Holders................................. 57
17. Rights Certificate Holder Not Deemed a Stockholder.......... 58
18. Concerning the Rights Agent................................. 59
19. Merger or Consolidation or Change of Name of Rights Agent... 60
20. Duties of Rights Agent...................................... 62
21. Change of Rights Agent...................................... 66
22. Issuance of New Rights Certificates......................... 68
23. Redemption and Termination.................................. 69
24. Notice of Certain Events.................................... 71
25. Notices..................................................... 73
26. Supplements and Amendments.................................. 74
27. Successors.................................................. 76
28. Determinations and Actions by the Board of Directors, etc... 76
29. Benefits of this Agreement................................. 77
30. Severability............................................... 77
31. Governing Law.............................................. 78
32. Counterparts................................................ 78
33. Descriptive Headings........................................ 79
Exhibit A -- Certificate of Designation, Preferences and Rights
Exhibit B -- Form of Rights Certificate
Exhibit C -- Form of Summary of Rights
RIGHTS AGREEMENT
RIGHTS AGREEMENT, dated as of December 16, 1997 (the Agreement.), between
Optical Coating Laboratory, Inc., a Delaware corporation (the "Company"),
and ChaseMellon Shareholder Services L.L.C. (the "Rights Agent").
W I T N E S S
WHEREAS, on December 16, 1997 (the "Rights Dividend Declaration Date"), the
Board of Director's of the Company authorized and declared a dividend
distribution of one Right for each share of common stock, par value $.01
per share, of the Company (the "Common Stock") outstanding at the close of
business on December 16, 1997 (the "Record Date"), and has authorized the
issuance of one Right (as such number may hereinafter be adjusted pursuant
to the provisions of Section ll(p) hereof) for each share of Common Stock
of the Company issued between the Record Date (whether originally issued or
delivered from the Company's treasury) and the Distribution Date, each
Right initially representing the right to purchase one one-thousandth of a
share of Series A Preferred Stock of the Company having the rights, powers
and preferences set forth in the form of Certificate of Designation,
Preferences and Rights attached hereto as Exhibit A, upon the terms and
subject to the conditions hereinafter set forth (the "Rights");
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
following Term have the meanings indicated:
(a) Acquiring Person. shall mean any Person who or which, together
with all Affiliates and Associates of such Person, shall be the Beneficial
Owner of 20% or more of the shares of Common Stock then outstanding, but
shall not include the Company, any Subsidiary of the Company, any employee
benefit plan of the Company or of any Subsidiary of the Company, or any
Person or entity organized, appointed or established by the Company for or
pursuant to the terms of any such plan.
(b) Affiliate and Associate shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations
under the Securities Exchange Act of 1934, as amended and in effect on the
date of this Agreement (the "Exchange Act").
(c) A Person shall be deemed the "Beneficial Owner" of, and shall
be deemed to beneficially own any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise; provided, however, that a person
shall not be deemed the beneficial Owner of, or to beneficially own,. (A
securities tendered pursuant to a tender or exchange offer made by such
Person or any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange, or (B) securities
issuable upon exercise of Rights at any time prior to the occurrence of a
Triggering Event, or (C) securities issuable upon exercise of Rights from
and after the occurrence of a Triggering Event which Rights were acquired
by such Person or any of such Person's Affiliates or
Associates prior to the Distribution Date or pursuant to Section 3(a) or
Section 22 hereof (the Original Rights.) or pursuant to Section ll(i)
hereof in connection with an adjustment made with respect to any Original
Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or
has beneficial ownership of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act), including pursuant
to any agreement, arrangement or understanding, whether or not in writing;
presided, however, that a Person shall not be deemed the
"Beneficial Owner" of, or to "beneficially own," any security under this
subparagraph (ii) as a result of an agreement, arrangement or understanding
to vote such security if such agreement, arrangement or understanding: (A)
arises solely from a revocable proxy given in response to a
public proxy or consent solicitation made pursuant to, and in accordance
with, the applicable provisions of the General Rules and Regulations under
the Exchange Act, and (B) is not also then reportable by such Person on
Schedule 13D under the Exchange Act (or any comparable or successor
report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such
Person (or any of such Person's affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing), for
the purpose of acquiring, holding, voting (except pursuant to a revocable
proxy as described in the proviso to subparagraph (ii) of this paragraph
(c)) or disposing of any voting securities of the Company (d) "Business
Day" shall mean any day other than a Saturday, Sunday or a day on which
banking institutions in the State of California are authorized or obligated
by law or executive order to close (e) "Close of Business" on any given
date shall mean 5:00 P.M., Pacific time, on such date; provided, however,
that if such date is not a Business Day it shall mean 5:00 P.M., Pacific
time, on the next succeeding Business Day; (f) Common Stock. shall mean the
common stock, par value $.01 per share, of the Company, except that Common
Stock, when used with reference to any Person other than the Company, shall
mean the capital stock of such Person with the greatest voting power, or
the equity securities or other equity interest having power to control or
direct the management, of such Person; (g) "Continuing Director" shall mean
(i) any member of the Board of Directors of the Company, while such Person
is a member of the Board, who i. not an Acquiring Person, or an Affiliate
or Associate of an Acquiring Person, or a representative of an Acquiring
Person or of any such Affiliate or Associate, and was a member of the Board
prior to the date of this Agreement, or:(ii) any Person who subsequently
becomes a member of the Board, while such Person is a member of the Board,
who is not an Acquiring Person, or an Affiliate or Associate of an
Acquiring Person, or a representative of an Acquiring Person or of any such
Affiliate or Associate, if such Person's nomination for election or
election to the Board is recommended or approved by a majority of the
Continuing Directors; (h) "Person" shall mean any individual, firm,
corporation, partnership or other entity; ( i) "Preferred Stock" shall mean
shares of Series A Preferred Stock, par value $.01 per share, of the
Company and, to the extent that there are not a sufficient number of shares
of Series A Preferred Stock authorized to permit the full
exercise of the Rights, any other series of Preferred Stock, par value $.01
per share, of the Company designated for such purpose containing terms
substantially similar to the terms of the Series A Preferred Stock; (j)
Section ll(a)(ii) "Event" shall mean any event described in Section
ll(a)(ii)(A) or (B) hereof; (k) Section 13 "Event" shall mean any event
described in clauses (x), (y) or (a) of Section 13(a) hereof; (1) "Stock
Acquisition Date"shall mean the first date of public announcement (which,
for purposes of this definition, shall include, without limitation, a
report filed pursuant to Section 13(d) under the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such;
(m) "Subsidiary" shall mean, with reference to any Person, any corporation
of which an amount of voting securities sufficient to elect at least a
majority of the directors of such corporation is beneficially owned,
directly or indirectly, by such Person, or otherwise controlled by such
Person; (n) 'Triggering Event' shall mean any Section Il(a)(ii) Event or
any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints
the Rights Agent to act as agent for the Company and the holders of the
Rights (who, in accordance with Section 3 hereof, shall, prior to the
Distribution Date, also be the holders of the Common Stock) in accordance
with the terms and conditions hereof, and the Right. Agent hereby accepts
such appointment. The Company may from time to time appoint such Co-Rights
Agents as it may deem necessary or desirable.
Section 3. Issue of Rights Certificates. (a) Until the earlier of (i)
the close of business on the tenth day after the Stock Acquisition Date or
(ii) the close of business on the tenth day after the date that a tender or
exchange offer by any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of
the Company or any Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan) is first
published sent or given within the meaning of Rule 14d-2 (a) of the General
Rules and Regulations under the Exchange Act, if upon consummation thereof,
such Person would be the Beneficial Owner of 30% or more of the shares of
Common Stock then outstanding (the earlier of (i) and (ii)- being herein
referred to as the ("Distribution Date"); (x) the Rights will be evidenced
subject to the provisions of paragraph (b) of this Section 3) by the
certificates for the Common Stock registered in the name of the
holders of the Common Stock (which certificates for Common Stock shall be
deemed also to be certificates for Rights) and not by separate
certificates, and (y) the Rights will be transferable only in connection
with the transfer of the underlying shares of Common Stock (including a
transfer to the Company). As soon as practicable after the Distribution
Date, the Rights Agent will send, by first-class, insured, postage prepaid
mail, to each record holder of the Common Stock as of the close of business
on the Distribution Date, at the address of such holder shown on the
records of the Company, one or more rights certificates, evidencing one
Right for each share of Common Stock so held, subject to adjustment as
provided herein. In the event that an adjustment in the number of Rights
per share of Common Stock has been made pursuant to Section ll (p) hereof,
at the time of distribution of the Rights Certificates, the Company shall
make the necessary and appropriate rounding adjustments (in accordance with
Section 14(a) hereof) so that Rights Certificates representing only whole
numbers of Rights are distributed and cash is paid in lieu of any rational
Rights. As of and after the Distribution Date, the Rights will be evidenced
solely by such Rights Certificates as promptly as practicable following the
Record Date and the Company will send a copy of a Summary of Rights, in
substantially the form attached hereto as Exhibit B (the "Summary of
Rights"), by first-class, postage prepaid mail, to each record holder of
the Common Stock as of the close of business on the Record Date, at the
address of such holder shown on the records of the Company. With respect
to certificates for the Common Stock outstanding as of the Record Date,
until the Distribution Date, the Rights will be evidenced by such
certificates for the Common Stock and the registered holders of the Common
Stock shall also be the registered holders of the associated Rights. Until
the earlier of the Distribution Date or the Expiration Date (as such term
is defined in Section 7 hereof), the transfer of any certificates
representing shares of Common Stock in respect of which Rights have been
issued shall also constitute the transfer of the Rights associated with
such shares of Common Stock; (c) Rights shall be issued in respect of all
shares of Common Stock which are issued after the Record Date but prior to
the earlier of the Distribution Date or the Expiration Date. Certificates
representing such shares of Common Stock shall also be deemed to be
certificates for Rights, and shall bear the following legend:
This certificate also evidences and entitles the holder
hereof to certain Rights as set forth in the Rights Agreement between
Optical Coating Laboratory, Inc. (the "Company") and ChaseMellon
Shareholder Services L.L.C. (the "Rights Agent") dated as of December 16,
1997 (the "Rights Agreement"), the terms of which are hereby incorporated
herein by reference and a copy of which is on file at the principal offices
of the Rights Agent. Under certain circumstances, as set forth in theRights
Agreement, such Rights will be evidenced by separate certificates and will
no longer be evidenced by this certificate. The Rights Agent will mail to
the holder of this certificate a copy of the Rights Agreement, in effect on
the date of mailing, without charge promptly after receipt of a written
request therefor. Under certain circumstances set forth in the Rights
Agreement, Rights issued to, or held by, any Person who is, was or becomes
an Acquiring Person or any Affiliate or Associates thereof (as such terms
are defined in the Rights Agreement), whether currently held by or on
behalf of such Person or by any subsequent holder, may become null and
void.
With respect to such certificates containing the foregoing legend,
until the earlier of (i) the Distribution Date or (ii) the Expiration Date,
the Rights associated with the Common Stock represented by such
certificates shall be evidenced by such certificates alone and registered
holders of Common Stock shall also be the registered holders of the
associated Rights, and the transfer of any of such certificates shall also
constitute the transfer of the Rights associated with the Common Stock
represented by such certificates.
Section 4. Form of Rights Certificates.
(a) The Rights Certificates (and the forms of election to purchase
and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such
marks of identification or designation and such legends, summaries or
endorsements printed thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be
required to comply with any applicable law or with any rule or regulation
made pursuant thereto or with any rule or regulation of any stock exchange
or inter-dealer quotation system of a registered national Securities
association on which the Rights may from time to time be listed, traded or
quoted or to conform to usage. Support to the provisions of Section 11 and
Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date and on their face shall entitle the holders
thereof to purchase such number of one one-thousandths of a share of
Preferred Stock as shall be set forth therein at the price set forth
therein (suchexercise price per one one-thousandth of a share, the Purchase
Price), but the amount and type of securities purchasable upon the exercise
of each Right and the Purchase Price thereof shall be subject to adjustment
as provided herein; (b) Any Rights Certificate issued pursuant to Section
3(a) or Section 22 hereof that represents Rights beneficially owned by: (i)
an Acquiring Person or any Associate or Affiliate of an Acquiring Person,
(ii) a transferee of an Acquiring Person (or of any such Associate or
Affiliate) who becomes a transferee after the Acquiring Person becomes
such, or (iii) a transferee of an Acquiring Person (or of any such
Associate or Affiliate) who becomes a transferee prior to or concurrently
with the Acquiring Person becoming such and receives such Rights pursuant
to either (A) a transfer (whether or not for consideration) from the
Acquiring Person to holders of equity interests in such Acquiring Person or
to any Person with whom such Acquiring Person has any continuing agreement,
arrangement or understanding regarding the transferred Rights or (B) a
transfer which the Board of Directors of the Company has determined is part
of a plan, arrangement or understanding which has as a primary purpose or
effect of avoidance of Section 7(e) hereof, and any Rights Certificate
issued pursuant to Section 6, Section 11, or Section 22 hereof upon
transfer, exchange, replacement or adjustment of any other Rights
Certificatereferred to in this sentence, shall contain (to the extent
feasible) the following legend:
The Rights represented by this Rights Certificate are or were
beneficially owned by a Person who was or became an Acquiring Person or an
Affiliate or Associate of an Acquiring Person (as such terms are defined in
the Rights Agreement). Accordingly, this Rights Certificate and the Rights
represented hereby may become null and void in the circumstances specified
in Section 7(e) of such Agreement.
Section 5. Countersignature and Registration. (a) The Rights
Certificates shall be executed on behalf of the Company by its Chairman of
the Board, its President or any Vice President, either manually or by
facsimile signature, and shall have affixed thereto the Company's seal or a
facsimile thereof which shall be attested by the Secretary or an Assistant
Secretary of the Company, either manually or by facsimile signature. The
Rights Certificates shall be manually countersigned by the Rights Agent and
shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any of the Rights Certificates
shall cease to be such officer of the Company before countersignature by
the Rights Agent and issuance and delivery by the Company, such Rights
Certificates, nevertheless, may be countersigned by the Rights Agent and
issued and delivered by the Company with the same force and effect as
though the person who signed such Rights Certificates had not coaled to be
such officer of the Company; and any Rights Certificate may be signed on
behalf of the Company by any person who, at the actual date of the
execution of such Rights Certificate, shall be a proper officer of the
Company to sign such Rights Certificate, although at the date of the
execution of this Rights Agreement any such person was not such an officer;
(b) following the Distribution Date, the Rights Agent will keep or cause to
be kept, at its principal office or offices designated as the appropriate
place for surrender of Rights Certificates upon exercise or transfer, books
for registration and transfer of the Rights Certificates issued hereunder.
Such books shall show the names and addresses of the respective holders of
the Rights Certificates, the number of Rights evidenced on its face by each
of the Rights Certificates and the date of each of the Rights Certificates.
Section 6. Transfer, Split Up, Combination and Exchange of Rights
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates. (a)
Subject to the provisions of Section 4(b), Section 7(e) and Section 14
hereof, at any time after the close of business on the Distribution Date,
and at or prior to the close of business on the Expiration Date, any Rights
Certificate or Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of one one-thousandths of a
share of Preferred Stock (or, following a Triggering Event, Common Stock,
other securities, cash or other assets, as the case may be) as the Rights
Certificate or Certificates surrendered then entitled such holder (or
former holder in the case of a transfer) to purchase. Any registered holder
desiring to transfer, split up, combine or exchange any Rights Certificate
or Certificates shall make such request in writing delivered to the Rights
Agent, and shall surrender the Rights Certificate or Certificates to be
transferred, split up, combined or exchanged at the principal office or
offices of the Rights Agent designated for such purpose. Neither the Rights
Agent nor the Company shall be obligated to take any action whatsoever with
respect to the transfer of any such surrendered Rights Certificate until
the registered holder shall have completed and signed the certificate
contained in the form of assignment on the reverse side of such Rights
Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates
or Associates thereof as the Company shall reasonably request. Thereupon
the Rights Agent shall, subject to Section 4(b), Section 7(e) and Section
14 hereof, countersign and deliver to the Person entitled thereto a Rights
Certificate or Rights Certificates, as the case may be, as so requested.
The Company may require payment of a sum sufficient to cover any tax or
governmental charge that may be imposed in connection with any transfer,
split up, combination or exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of
evidence reasonably satisfactory to them of the loss, theft, destruction or
mutilation of a Rights Certificate, and, in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to them, and
reimbursement to the Company and the Rights Agent of all reasonable
expenses incidental thereto, and upon surrender to the Rights Agent and
cancellation of the Rights Certificate if mutilated, the Company will
execute and deliver a new Rights Certificate of like tenor to the Rights
Agent for countersignature and delivery to the registered owner in lieu of
the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
Rights. (a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein including, without limitation, the restriction on
exercisability set forth in Section 9(c), Section ll(a)(iii) and Section
23(a) hereof) in whole or in part at any time after the Distribution Date
upon surrender of the Rights Certificate, with the form of election to
purchase and the certificate on the reverse side thereof duly executed, to
the Rights Agent at the principal office or offices of the Rights Agent
designated for such purpose, together with payment of the aggregate
Purchase Price with respect to the total number of one one-thousandths of a
share (or other securities, cash or other assets, as the case may be) as to
which such surrendered Rights are then exercisable, at or prior to the
earlier of (i) the close of business on December 16, 1999, (the "Final
Expiration Date"), or (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof (the earlier of (i) and (ii) being herein
referred to as the "Expiration Date").
(b) The Purchase Price for each one one-thousandth of
a share of Preferred Stock pursuant to the exercise of a Right shall
initially be $45, and shall be subject to adjustment from time to time as
provided in Sections 11 and 13(a) hereof and shall be payable in accordance
with paragraph (c) below.
(c) Upon receipt of a Right. Certificate representing
exercisable Rights, with the form of election to purchase and the
certificate duly executed, accompanied by payment, with respect to each
Right so exercised, of the Purchase Price per one one-thousandth of a share
of Preferred Stock (or other shares, securities, cash or other assets, as
the case may be) to be purchased as set forth below and an amount equal to
any applicable transfer tax, the Rights Agent shall, subject to Section
20(k) hereof, thereupon promptly (i) (A) requisition from any transfer
agent of the shares of Preferred Stock (or make available, if the Rights
Agent is the transfer agent for such shares) certificates for the total
number of one one-thousandths of a share of Preferred Stock to be purchased
and the Company hereby irrevocably authorizes its transfer agent to comply
with all such requests, or (B) if the Company shall have elected to deposit
the total number of shares of Preferred Stock issuable upon exercise of the
Rights hereunder with a depository agent, requisition from the depository
agent depository receipts representing such number of one one-thousandths
of a share of Preferred Stock as are to be purchased (in which case
certificates for the shares of Preferred Stock represented by such receipts
shall be deposited by the transfer agent with the depository agent) and the
Company will direct the depository agent to comply with such request, (ii)
requisition from the Company the amount of cash, if any, to be paid in lieu
of fractional shares in accordance with Section 14 hereof, (iii) after
receipt of such certificates or depository receipts, cause the same to be
delivered to or upon the order of the registered holder of such Rights
Certificate, registered in such name or names as may be designated by ouch
holder, and 1iv) after receipt thereof, deliver such cash, if any, to or
upon the order of the registered holder of such Rights Certificate. The
payment of the Purchase Price (as such amount may be reduced pursuant to
Section ll(a)(iii) hereof) may be made in cash or by certified bank check
or bank draft payable to the order of the Company. In the event that the
Company is obligated to issue other securities (including Common Stock) of
the Company, pay cash and/or distribute other property pursuant to Section
ll(a) hereof, the Company will make all arrangements necessary so that such
other securities, cash and/or other property are available for distribution
by the Rights Agent, if and when appropriate.
(d) In case the registered holder of any Rights Certificate
shall exercise less than all the Rights evidenced thereby, a new Rights
Certificate evidencing Rights equivalent to the Rights remaining
unexercised shall be issued by the Rights Agent and delivered to, or upon
the order of, the registered holder of such Rights Certificate, registered
in such name or names as may be designated by such holder, subject to the
provisions of Section 14 hereof.
(e) Notwithstanding anything in this Agreement to the contrary,
from and after the first occurrence of a Section ll(a)(ii) Event, any
Rights beneficially owned by (i) an Acquiring Person or an
Associate or Affiliate of an Acquiring Person, (ii) a transferee of an
Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee after the Acquiring Person become such, or (iii) a transferee of
an Acquiring Person (or of any such Associate or Affiliate) who becomes a
transferee prior to or concurrently with the Acquiring Person becoming such
and receive. such Rights pursuant to either (A) a transfer (whether or not
for consideration) from the Acquiring Person to holders of equity interests
in such Acquiring Person or to any Person with whom the Acquiring Person
has any continuing agreement, arrangement or understanding regarding the
transferred Rights or (B) a transfer which the Board of Directors of the
Company has determined is part of a plan, arrangement or understanding
which has a" a primary purpose or effect the avoidance of this Section
7(e), shall become null and void without any further action and no holder
of such Rights shall have any rights whatsoever with respect to such
Rights, whether under any provision of this Agreement or otherwise. The
Company shall use all reasonable efforts to insure that the provisions of
this Section 7(e) and Section 4(b) hereof are complied with, but shall have
no liability to any holder of Rights Certificates or other Person as a
result of its failure to make any determinations with respect to an
Acquiring Person or its Affiliates, Associates or transferees hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake
any action with respect to a registered holder upon the occurrence of any
purported exercise as set forth in this Section 7 unless such registered
holder shall have (I) completed and signed the certificate contained in the
form of election to purchase set forth on the reverse side of the Rights
Certificate surrendered for such exercise, and (ii) provided such
additional evidence of the identity of the Beneficial Owner (or former
Beneficial Owner) or Affiliates or Associates thereof as the Company shall
reasonably request.
Section 8. Cancellation and Destruction of Rights; Certificates. All
Rights Certificates Surrendered for the purpose of exercise, transfer,
split up, combination or exchange shall, if surrendered to the Company or
any of its agents, be delivered to the Rights Agent for cancellation or in
cancelled form, or, if surrendered to the Rights Agent, shall be cancelled
by it, and no Rights Certificates shall be issued in lieu thereof except as
expressly permitted by any of the provisions of this Agreement. The Company
shall deliver to the Rights Agent for cancellation and retirement, and the
Rights Agent shall so cancel and retire, any other Rights Certificate
purchased or acquired by the Company otherwise than upon the exercise
thereof. The Rights Agent shall deliver all cancelled Rights Certificates
to the Company, or shall, at the written request of the Company, destroy
such cancelled Rights Certificates, and in either such case shall deliver a
certificate of destruction or a certificate of cancellation, as may be
appropriate, thereof to the Company.
Section 9. Beservation and Availability of Capital Stock.
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out
of its authorized and unissued shares of Common Stock and/or other
securities or out of its authorized and issued shares held in its
treasury), the number of shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities)
that, as provided in this Agreement including Section ll(a)(iii) hereof,
will be sufficient to permit the exercise in full of all outstanding
Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or securities) issuable
and deliverable upon the exercise of the Rights may be listed on any
national securities exchange or inter-dealer quotation system of a
registered national securities association on which the Preferred Stock may
from time to time be listed, traded or quoted, the Company shall use its
best efforts to cause, from and after such time as the Rights become
exercisable, all shares reserved for such issuance to be listed on such
exchange or quotation system upon official notice of issuance upon such
exercise.
(c) The Company shall use it" best efforts to (I) file, as soon as
practicable following the earliest date after the first occurrence of a
Section ll(a)(ii) Event on which the consideration to be delivered by the
Company upon exercise of the Rights has been determined in accordance with
Section ll(a)(iii) hereof, a registration statement under the Securities
Act of 1933 (the "Act"), with respect to the securities purchasable upon
exercise of the Rights on an appropriate form, (ii) cause such registration
statement to become effective as soon as practicable after such filing, and
(iii) cause such registration statement to remain effective (with a
prospectus at all times meeting the requirements of the Act) until the
earlier of (A) the date as of which the Rights are no longer exercisable
for such securities, and (B) the date of the expiration-of the Rights. The
Company will also take such action as may be appropriate under, or to
ensure compliance with, the securities or blue sky laws of the various
states in connection with the exercisability of the Rights. The Company may
temporarily suspend, for a period of time not to exceed ninety (90) days
after the date set forth in clause (i) of the first sentence of this
Section 9(c), the exercisability of the Rights in order to prepare and file
such registration statement and permit it to become effective. Upon any
such suspension, the Company shall issue a public announcement stating that
the exercisability of the Rights has been temporarily suspended, as well an
a public announcement at such time as the suspension is no longer in effect
that the Rights are presently exercisable. In addition, if the Company
shall determine that a registration statement is required following the
Distribution Date, the Company may temporarily suspend the exercisability
of the Rights until such time as a registration statement has been declared
effective.
Notwithstanding any provision of this Agreement to the contrary,
the Rights shall not be exercisable in any jurisdiction if the requisite
qualification in such jurisdiction shall not have been obtained or the
exercise thereof shall not be permitted under applicable law.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all one one-thousandths of a
share of Preferred Stock (and, following the occurrence of a Triggering
Event, Common Stock and/or other securities) delivered upon exercise of
Rights shall, at the time of delivery of the certificates for such shares
(subject to payment of the Purchase Price), be duly and validly authorized
and issued and fully paid and nonassessable.
(e) The Company further covenants and agree" that it will pay when
due and payable any and all federal and state transfer taxes and charges
which may be payable in respect of the issuance or delivery of the Rights
Certificates and of any certificates for a number of one one-thousandths of
a share of Preferred Stock (or Common Stock and/or other securities, as the
case may be) upon the exercise of Rights. The Company shall not, however,
be required to pay any transfer tax which may be payable in respect of any
transfer or delivery of Rights Certificates to a Person other than, or the
issuance or delivery of a number of one one-thousandths of a share of
Preferred Stock (or Common Stock and/or other securities, as the case may
be) in respect of a name other than that of, the registered holder of the
Rights Certificates evidencing Rights surrendered for exercise or to issue
or deliver any certificates for a number of one one-thousandths of a share
of Preferred Stock (or Common Stock and/or other securities, as the case
may be) in a name other than that of the registered holder upon the
exercise of any Rights until such tax shall have been paid (any such tax
being payable by the holder of such Rights Certificate at the time of
surrender) or until it has been established to the Company's satisfaction
that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name any
certificate for a number of one one-thousandths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) is
issued upon the exercise of Rights shall for all purposes be deemed to have
become the holder of record of such fractional shares of Preferred Stock
(or Common Stock and/or other securities, as the case may be) represented
thereby on, and such certificate shall be dated, the date upon which the
Rights Certificate evidencing such Rights was duly surrendered and payment
of the Purchase Price (and all applicable transfer taxes) was made;
Provided, however, that if the date of such surrender and payment is a date
upon which the Preferred Stock (or Common Stock and/or other securities, as
the case may be) transfer books of the Company are closed, such Person
shall be deemed to have become the record holder of such shares
(fractional or otherwise) on, and such certificate shall be dated, the next
succeeding Business Day on which the Preferred Stock (or Common Stock
and/or other securities, as the case may be) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder
of a Rights Certificate shall not be entitled to any rights of a
stockholder of the Company with respect to shares for which the Rights
shall be exercisable, including, without limitation, the right to vote, to
receive dividends or other distributions or to exercise any preemptive
rights, and shall not be entitled to receive any notice of any proceedings
of the Company, except as provided herein.
Section 11. Adjustment of Purchase Price. Number and Kind of Shares
or Number of Rights
The Purchase Price, the number and kind of shares covered by each
Right and the number of Rights outstanding are subject to adjustment from
time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date
of this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock,
(C) combine the outstanding Preferred Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a reclassification
of the Preferred Stock (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section ll(a)
and Section 7(e) hereof, the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of
Preferred Stock or capital stock, as the ease may be, issuable on such
date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of the
Purchase price then in effect, the aggregate number and kind of shares of
Preferred Stock (or Common Stock and/or other securities as the ease may
be), which, if such Right had been exercised immediately prior to such date
and at a time when the Preferred Stock transfer books of the Company were
open, he would have owned upon such exercise and been entitled to receive
by virtue of such dividend, subdivision, combination or reclassification.
If an event occurs which would require an adjustment under both this
Section ll(a)(i) and Section ll(a)(ii) hereof, the adjustment provided for
in this Section ll(a)(i) shall be in addition to, and shall be made prior
to, any adjustment required pursuant to Section ll(a)(ii) hereof. (ii) In
the event:
(A) any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan), alone or
together with its Affiliates and Associates, shall, at any time after the
Rights Dividend Declaration Date, become the Beneficial Owner of 30% or
more of the shares of Common Stock then outstanding, unless the event
causing the 30th threshold to be crossed is (x) a transaction set forth in
Section 13(a) hereof, or (y) an all cash tender offer or an exchange offer
for all outstanding shares of Common Stock of the Company, or any other
transaction which, in either such instance, a majority of the Continuing
Directors then in office, after receiving advice from one or more
investment banking firms, has determined to be (a) at a price which is fair
to stockholders (taking into account elf factors which such members of the
Board deem relevant including, without limitation, prices which could
reasonably be achieved if the Company or its assets were "sold on an
orderly basis designed to realize maximum value) and (b) otherwise in the
best interests of the Company and its stockholders (any transaction
described in this clause (y) being hereafter referred to as an "Approved
Transaction"), or
(B) during such time as there is an Acquiring Person, there shall
be a reclassification of securities (including any reverse stock split), or
recapitalization of the Company, or any merger or consolidation of the
Company with any of its Subsidiaries or any other transaction or series of
transactions involving the Company or any of its Subsidiaries, other than a
transaction or transactions to which the provisions of it- ~,~ yet Section
13(a) apply (whether or not with or [nto;~rotherwise involving an Acquiring
Person) wh~ch~hae the effect, directly or indirectly, of increasing by
morethan 1% the proportionate share of the outstanding shares of any class
of equity securities of the Company or any of its Subsidiaries which is
directly or indirectly beneficially owned by any Acquiring Person or any
Associate or Affiliate of any Acquiring Person, or
(C) any Acquiring Person or any Associate or Affiliate of any
Acquiring Person, at any time after the date of this Agreement, directly or
indirectly, (1) shall sell, purchase, lease, exchange, mortgage, pledge
transfer or otherwise dispose of assets (in one or more transactions), to,
from, with or of, as the case may be, the Company or any of its
Subsidiaries (including, in the case of Subsidiaries, by way of a merger or
consolidation of any Subsidiary), on terms and ~ Ci-~i; conditions less
favorable to the Company than the Company would be able to obtain in arms-
length ?' negotiation with an unaffiliated third party, other than pursuant
to a transaction "et forth in Section 13(a) hereof, (2) shall receive any
compensation from the Company or any of its Subsidiaries other than
compensation for full time employment as a regular "employee at rate" in
accordance with the Company's (or its "Subsidiaries") past practices, or
(3) shall receive the benefit, directly or indirectly (except
proportionately as a shareholder and except if resulting from a requirement
of law or governmental regulation), of any loans, assumptions of loans,
advances, guarantees, pledges or other financial assistance, or any tax
credits or other tax advantage, provided by the Company or any of its
Subsidiaries, then, promptly following five (5) days after the date of the
occurrence of the event described in Section ll(a)(ii)(A) hereof and
promptly following the occurrence of any event described in Section
ll(a)(ii)(B) hereof, proper provision shall be made so that each holder of
a Right (except as provided below and in Section 7(e) hereof) shall
thereafter have the right to receive, upon exercise thereof at the then
current Purchase Price in accordance with the terms of this Agreement, in
lieu of the number of one one-thousandths of a share of Preferred Stock,
such number of shares of Common Stock of the Company as shall equal the
result obtained by (x) multiplying the then current Purchase Price by the
then number of one one-thousandths of a share of Preferred Stock for which
a Right was exercisable immediately prior to the first occurrence of a
Section ll(a)(ii) Event, and (y) dividing that product (which, following
such first occurrence, "hall thereafter be referred to as the 'Purchase
Price. for each Right and for all purposes of this Agreement) by 50% of the
current market price (determined pursuant to Section ll(d) hereof) per
share of Common Stock on the date of such first occurrence (such number of
shares, the Adjustment Shares.).
(iii) In the event that the number of shares of Common Stock
which are authorized by the Company's certificate of incorporation but not
outstanding or reserved for issuance for purposes other than upon exercise
of the Rights are not sufficient to permit the exercise in full of the
Rights in accordance with the foregoing subparagraph (ii) of this Section
ll(a), the Company shall: (A) determine the excess of (1) the value of the
Adjustment Shares issuable upon the exercise of a Right (the Current
Value.) over (2) the Purchase Price (such excess, the ~Spread.), and (B)
with respect to each Right, make adequate provision to substitute for the
Adjustment Shares, upon payment of the applicable Purchase Price, (1) cash,
(2) a reduction in the Purchase Price, (3) Common Stock or other equity
securities of the Company (including, without limitation, shares, or units
of shares, of preferred stock which the Board of Directors of the Company
has deemed to have the same value as shares of Common Stock (such shares of
preferred stock, Common stock equivalents), (4) debt securities of the
Company, (5) other assets, or (6) any combination of the foregoing, having
an aggregate value equal to the Current Value, where such aggregate value
has been determined by the Board of Directors of the Company based upon the
advice of a nationally recognized investment banking firm selected by the
Board of Directors of the Company; provided, however, if the Company shall
not have made adequate provision to deliver value pursuant to clause (B)
above within thirty (30) days following the later of (x) the first
occurrence of a Section ll(a)(ii) Event and (y) the date on which the
Company's right of redemption pursuant to Section 23(a) expires (the later
of (x) and (y) being referred to herein as the Section ll(a)(ii) Trigger
Date.), then the Company shall be obligated to deliver, upon the surrender
for exercise of a Right and without requiring payment of the Purchase
Price, shares of Common Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal to
the Spread. If the Board of Directors of the Company shall determine in
good faith that it is likely that sufficient additional shares of Common
Stock could be authorized for issuance upon exercise in full of the Rights,
the thirty (30) day period set forth above may be extended to the extent
necessary, but not more than ninety {90) days after the Section ll(a)(ii)
Trigger Date, in order that the Company may seek shareholder approval for
the authorization of such additional shares (such period, as it may be
extended, the Substitution Period.). To the extent that the Company
determines that some action need be taken pursuant to the first and/or
second sentences of this Section ll(a)(iii), the Company (x) shall provide,
subject to Section 7(e) hereof, that such action shall apply uniformly to
all outstanding Rights, and (y) may suspend the exercisability of the
Rights until the expiration of the Substitution Period in order to seek any
authorization of additional shares and/or to decide the appropriate form of
distribution to be made pursuant to such first sentence and to determine
the value thereof. In the event of any such suspension, the Company shall
issue a public anouncement "stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. For purposes of this Section
ll(a)(iii), the value of the Common Stock shall be the current market price
(as determined pursuant to Section ll(d) hereof) per share of the Common
Stock on the Section ll(a)(ii) Trigger Date and the value of any Common
stock equivalent. shall be deemed to have the same value a. the Common
Stock on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling
them to subscribe for or purchase (for a period expiring within forty-five
(45) calendar days after such record date) Preferred Stock (or shares
having the same rights, privileges and preferences as the shares of
Preferred Stock ("equivalent preferred stock.)) or securities convertible
into Preferred Stock or equivalent preferred stock at a price per share of
Preferred Stock or per share of equivalent preferred stock (or having a
conversion price per share, if a security convertible into Preferred Stock
or equivalent preferred stock) less than the current market price (as
determined pursuant to Section ll(d) hereof) per share of Preferred Stock
on such record date, the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Preferred Stock outstanding on such record
date, plus the number of shares of Preferred Stock which the aggregate
offering price of the total number of shares of Preferred Stock and/or
equivalent preferred stock so to be offered (and/or the aggregate initial
conversion price of the convertible securities so to be offered) would
purchase at such current market price, and the denominator of which shall
be the number of shares of Preferred Stock outstanding on such record date,
plus the number of additional shares of Preferred Stock and/or equivalent
preferred stock to be offered for subscription or purchase (or into which
the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration part
or all of which may be in a form other than cash, the value of such
consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a
statement filed with the Rights Agent and shall be binding on the rights
Agent and the holders of the Rights. Shares of Preferred Stock owned by or
held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation.
Such adjustment shall be made successively whenever such a record date
is fixed, and in the event that such rights or warrants are not so issued,
the Purchase Price shall be adjusted to be the Purchase Price which would
then be in effect if such record date had not been fixed.
(c) In case the Company shall fix a record date for a distribution to
all holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness, cash (other than a
regular quarterly cash dividend out of the earnings or retained earnings of
the Company), assets (other than a dividend payable in Preferred Stock, but
including any dividend payable to stock other than Preferred Stock) or
Subscription rights or warrants (excluding those referred to in Section
ll(b) hereof), the Purchase Price to be in effect after such record date
shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be
the current market price (as determined pursuant to Section ll(d) hereof)
per share of Preferred Stock on such record date, less the fair market
value (as determined in good faith by the Board of Directors of the
Company, whose determination shall be described in a statement filed with
the Rights Agent) of the portion of the cash, assets or evidences of
indebtedness so to be distributed or of such subscription rights or
warrants applicable to a share of Preferred Stock and the denominator of
which shall be such current market price (as determined pursuant to Section
ll(d) hereof) per share of Preferred Stock. Such adjustments shall be made
successively whenever such a record date is fixed, and in the event that
such distribution is not so made, the Purchase Price shall be adjusted to
be the Purchase Price which would have been in effect if such record date
had not been fixed. (d)(i) For the purpose of any computation hereunder,
other than computations made pursuant to Section ll(a)(iii) hereof, the
current market price per share of Common Stock on any date shall be deemed
to be the average of the daily closing prices per share of such Common
Stock for the thirty (30) consecutive; Trading Days (as such term is
hereinafter defined) immediately prior to such date, and for purposes of
computations made pursuant to Section ll(a)(iii) hereof, the Current market
price. per share of Common Stock on, any date shall be deemed to be the
average of the daily closing prices per share of such Common Stock for the
ten (10) consecutive Trading Days immediately following such date;
provided, however, that in the event that the current market price per
share of the Common Stock is determined during a period following the
announcement by the issuer of such Common Stock of (A) a dividend or
distribution on such Common Stock payable in shares of such Common Stock or
securities convertible into shares of such Common Stock (other than the
Rights), or (B) any subdivision, combination or reclassification of such
Common Stock, and prior to the expiration of the requisite thirty (30)
Trading Day or ten (10) Trading Day period, as set forth above, after the
tax-dividend date for such dividend or distribution, or the record date for
such subdivision, combination or reclassification, then, and in each such
case, the current market price- shall be properly adjusted to take into
account tax-dividend trading. The closing price for each day shall be the
last cafe price, regular way, or, in case no such sale takes place on each
day, the average of the closing bid and asked prices, regular way, in
either case as reported in the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New
York Stock Exchange or, if the shares of Common Stock are not listed or
admitted to trading on the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which
the shares of Common Stock are listed or admitted to trading or, if the
shares of Common Stock are not listed or admitted to trading on any
national securities exchange, the last quoted price or, if not so quoted,
the average of the high bid and low asked prices in the over-the-counter
market, and reported by the National Association of Securities Dealers,
Inc. Automated Quotation System ('NASDAQ.) or-such other system then in
use, or, if on any such date the shares of Common Stock are not quoted by
any such organization, the average of the closing bid and asked prices as
furnished by a professional market maker, making a market in the Common
Stock selected by the Board of Directors of the Company. If on any such
date no market maker is making a market in the Common Stock, the fair value
of such shares on such date as determined in good faith by the Board of
Directors of the Company shall be used. The term Trading Day. shall mean a
day on which the principal national securities exchange on which the shares
of Common Stock are listed or admitted to trading is open for the
transaction of business or, if the shares of Common Stock are not listed or
admitted to trading on any national securities exchange, a Business Day.
If the Common Stock is not publicly held or not so listed or traded,
Current market price. per share shall mean the fair value per share as
determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent
and shall be conclusive for all purposes. (ii) For the purpose of any
computation hereunder, the Current market price. per share of Preferred
Stock shall be determined in the same manner as set forth above for the
Common Stock in clause (i) of this Section ll(d) (other than the last
sentence thereof). If the current market price per share of Preferred Stock
cannot be determined in the manner provided above or if the Preferred Stock
ds not publicly held or listed or traded in a manner described in clause
(i) of this Section ll(d), the Current market price per share of Preferred
Stock shall be conclusively deemed to be an amount equal to 100 (such
number may be appropriately adjusted for such events as stock splits, "such
dividends and recapitalizations with respect to the Common Stock occurring
after the date of this Agreement) multiplied by the current market price
per share of the Common Stock. If neither the Common Stock nor the
Preferred Stock is publicly held or so listed or traded, Current market
price. per share of the Preferred Stock shall mean the fair value per share
as determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent
and shall be conclusive for all purposes. For all purposes of this
Agreement, the Current market price. of one one-thousandth of a share of
Preferred Stock shall be equal to the Current market price. of one share of
Preferred Stock divided by 100 required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the
Purchase Price; provided, however, that any adjustments which by reason of
this Section ll(e) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment. All calculations under
this Section 11 shall be made to the nearest cent or to the nearest ten-
thousandth of a share of Common Stock or other share or one-millionth of a
share of Preferred Stock, as the case may be. Notwithstanding the first
sentence of this Section ll(e), any adjustment required by this Section 11
shall be made no later than the earlier of (i) three (3) years from the
date of the transaction which mandates such adjustment, or (ii) the
Expiration Date.
(f) If as a result of an adjustment made pursuant to Section ll(a)(ii)
or Section 13(a) hereof, the holder of any Right thereafter exercised shall
become entitled to receive any shares of capital stock other than Preferred
Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent
as practicable to the provisions with respect to the Preferred Stock
contained in Section ll(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m),
and the provisions of Section 7, 9,10, 13 and 14 hereof with respect to the
Preferred Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths
of a share of Preferred Stock purchasable from time to time hereunder upon
exercise of the Rights, all subject to further adjustment as provided
herein.
(h) Unless the Company shall have exercised its election as provided
in Section ll(i), upon each adjustment of the Purchase Price as a result of
the calculations made in Sections ll(b) and (c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter
evidence the right to purchase, at the adjusted Purchase Price, that number
of one one-thousandths of a share of Preferred Stock (calculated to the
nearest one-millionth) obtained by (i) multiplying (x) the number of one
one-thousandths of a share covered by a Right immediately prior to this
adjustment, by (y) the Purchase Price in effect immediately prior to such
adjustment of the Purchase Price, and (ii) dividing the product so obtained
by the Purchase Price in effect immediately after such adjustment of the
Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of rights, in lieu of any
adjustment in the number of one one-thousandths of-a share of Preferred
Stock purchasable upon the exercise of a Right. Each of the Rights
outstanding after the adjustment in the number of Rights shall be
exercisable for the number of one one-thousandth6 of a share of Preferred
Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to ouch adjustment of the
number of Rights shall become that number of Rights (calculated to the
nearest one-ten-thousandth) obtained by dividing the Purchase Price in
effect immediately prior to adjustment of the Purchase Price by the
Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall;make a public announcement of it. election to
adjust the number of Rights, indicating the record date for the adjustment,
and, if known at the time, the amount of the adjustment to be made. This
record date may be the date on which the Purchase Price is adjusted or any
day thereafter, but, if the Rights Certificates have been issued, shall be
at least ten (10) days later than the date of the public announcement. If
Rights Certificates have been issued, upon each adjustment of the number of
Rights pursuant to this Section ll(i), the Company shall, as promptly as
practicable, cause to be distributed to holders of record of Rights
Certificates on such record date Rights Certificates evidencing, subject to
Section 14 hereof, the additional Rights to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Rights Certificates held by such holders prior to the
date of adjustment, and upon surrender thereof, if required by the Company,
new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates to be so
distributed shall be issued, executed and countersigned in the manner
provided for herein (and may bear, at the option of the Company, the
adjusted Purchase Price) and shall be registered in the names of the
holders of record of Rights Certificates on the record date specified in
the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths of a share of Preferred Stock issuable
upon the exercise of the Rights, the Rights Certificates theretofore and
thereafter issued may continue to express the Purchase Price per one one-
thousandth of a share and the number of one one-thousandth of a share which
were expressed in the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then stated value, if any, of the number of
one one-thousandths of a share of Preferred Stock issuable upon exercise of
the Rights, the Company shall take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Company may validly
and legally issue fully paid and nonassessable such number of one one-
thousandths of a share of Preferred Stock at such adjusted Purchase Price.
(1) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for
a specified event, the Company may elect to defer until the occurrence of
such event the issuance to the holder of any Right exercised after such
record date the number of one one-thousandths of a share of Preferred Stock
and other capital stock or securities of the Company, if any, issuable upon
such exercise over the above the number of one one-thousandths of a share
of Preferred Stock and other capital stock or securities of the Company, if
any, issuable upon such exercise on the basis of the Purchase Price in
effect prior to such adjustment; provided, however, that the Company shall
deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares
(fractional or otherwise) or securities upon the occurrence of the event
requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and
to the extent that in their good faith judgment the Board of Directors of
the Company shall determine to be advisable in order that any
(i) consolidation or subdivision of the Preferred Stock,
(ii) issuance wholly for cash of any shares of Preferred Stock at less
than the current market price,
(iii) issuance wholly for cash of shares of Preferred Stock or
securities which by their terms are convertible into or exchangeable for
shares of Preferred Stock,
(iv) stock dividends or (v) issuance of rights, options or warrants
referred to in this Section 11, hereafter made by the Company to holders of
its Preferred Stock shall not be taxable to such stockholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other
than a Subsidiary of the Company in a transaction which complies with
Section ll(o) hereof), (ii) merge with or into any other Person (other than
a Subsidiary of the Company in a transaction which complies with Section
ll(o) hereof), or (iii) sell or transfer (or permit any Subsidiary to sell
or transfer), in one transaction, or a series of related transactions,
assets or earning power aggregating more than 50% of the assets or earning
power of the Company and its Subsidiaries (taken as a whole) to any other
Person or Persons (other than the Company and/or any of its Subsidiaries in
one or more transaction each of which complies with Section ll(o) hereof),
if (x) at the time of or immediately after such consolidation, merger or
sale there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights or
(y) prior to, simultaneously with or immediately after such consolidation,
merger or sale, the shareholders of the Person who constitutes, or would
constitute, the Principal Party. for purposes of Section 13(a) hereof shall
have received a distribution of Rights previously owned by such Person or
any of its Affiliates and Associates.
(a) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23 or Section 26 hereof,
take (or permit any Subsidiary to take) any action if at the time such
action is taken it is reasonably foreseeable that such action will diminish
substantially or otherwise eliminate the benefits intended to be afforded
by the Rights.
(b) Anything in this Agreement to the contrary notwithstanding, in
the event that the Company shall at any time after the Rights Dividend
Declaration Date and prior to the Distribution Date (i) declare a dividend
on the outstanding shares of Common Stock payable in shares of Common
Stock,
(ii) subdivide the outstanding shares of Common Stock, or
(iii) combine the outstanding shares of Common Stock into a
smaller number of shares, the number of Rights associated with each share
of Common Stock then outstanding, or issued or delivered thereafter but
prior to the Distribution Date, shall be proportionately adjusted so that
the number of Rights thereafter associated with each share of Common Stock
following any such event shall equal the result obtained by multiplying the
number of Rights associated with each share of Common Stock immediately
prior to such event by a fraction the numerator of which shall be the total
number of shares of Common Stock outstanding immediately prior to the
occurrence of the event and the denominator of which shall be the total
number of shares of Common Stock outstanding immediately following the
occurrence of such event.
Section 12. Certificate of Adjusted Purchase Price or Number of
Shares. Whenever an adjustment is made as provided in Section 11 and
Section 13 hereof, the Company shall (a) promptly prepare a certificate
setting forth such adjustment and a brief statement of the facts accounting
for such adjustment, (b) promptly file with the Rights Agent, and with each
transfer agent for the Preferred Stock and the Common Stock, a copy of such
certificate, and (c) mail a brief summary thereof to each holder of a
Rights Certificate (or, if prior to the Distribution Date, to each holder
of a certificate representing shares of Common Stock) in accordance with
Section 25 hereof. The Rights Agent shall be fully protected in relying on
any such certificate and on any adjustment therein contained.
Section 13. Consolidation Merger or Sale or Transfer of Assets or
Earninas Power.
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (x) the Company shall consolidate with, or merge with and
into, any other Person (other than a Subsidiary of the Company in a
transaction which complies with Section ll(o) hereof), and the Company
shall not be the continuing or surviving corporation of such consolidation
or merger, (y) any Person (other than a Subsidiary of the Company in a
transaction which complies with Section ll(o) hereof) shall consolidate
with, or merge with or into, the Company, and the Company shall be the
continuing or surviving corporation of such consolidation or merger and, in
connection with such consolidation or merger, all or part of the
outstanding shares of Common Stock shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other
property, or (z) the Company shall sell or otherwise transfer (or one or
more of its Subsidiaries shall sell or otherwise transfer), in one
transaction or a series of related transactions, assets or earning power
aggregating more than 50% of the assets or earning power of the Company and
its Subsidiaries (taken as a whole) to any Person or Persons (other than
the Company or any Subsidiary of the Company in one or more transactions
each of which complies with Section ll(o) hereof), then, and in each such
case (except as may be contemplated by Section 13(d) hereof), proper
provision shall be made so that: (i) each holder of a Right, except as
provided in Section 7(e) hereof, shall thereafter have the right to
receive, upon the exercise thereof at the then current Purchase Price in
accordance with the terms of this Agreement, such number of validly
authorized and issued, fully paid, non-assessable and freely traceable
shares of Common Stock of the Principal Party (as such term is hereinafter
defined), not subject to any liens, encumbrances, rights of first refusal
or other adverse claims, as shall be equal to the result obtained by (1)
multiplying the then current Purchase Price by the number of one one-
thousandth of a share of Preferred Stock for which a Right is exercisable
immediately prior to the first occurrence of a Section 13 Event (or, if a
Section ll(a)(ii) Event has occurred prior to the first occurrence of a
Section 13 Event, multiplying the number of such one one-thousandths of a
share for which a Right was exercisable immediately prior to the first
occurrence of a Section ll(a)(ii) Event by the Purchase Price in effect
immediately prior to such first occurrence), and dividing the product
(which, following the first occurrence of a Section 13 Event, shall be
referred to as the Purchase Price. for each Right and for all purposes of
this Agreement) by (2) 50% of the current market price (determined pursuant
to Section ll(d)(i) hereof) per "hare of the Common Stock of such Principal
Party on the date of consummation of such Section 13 Event; (ii) such
Principal Party shall thereafter be liable for, and shall assume, by virtue
of such Section 13 Event, all the obligations and duties of the Company
pursuant to this Agreement: (iii) the term Company. shall thereafter be
deemed to refer to such Principal Party, it being specifically intended
that the provisions of Section 11 hereof "hall apply only to such Principal
Party following the first occurrence of a Section 13 Event; (iv) much
Principal Party shall take such steps (including, but not limited to, the
reservation of a sufficient number of shares of its Common Stock) in
connection with the consummation of any such transaction as may be
necessary to assure that the provisions hereof shall thereafter be
applicable, as nearly as reasonably may be, in relation to its shares of
Common Stock thereafter deliverable upon the exercise of the Rights; and
(v) the provisions of Section ll(a)(ii) hereof shall be of no effect
following the first occurrence of any Section 13Event.
(b) Principal Party. shall mean (i) in the case of any transaction
described in clause (x) or (y) of the first sentence of Section 13(a), the
Person that is the issuer of any securities into which shares of Common
Stock of the Company are converted in such merger or consolidation, and if
no securities are so issued, the Person that is the other party to such
merger or consolidation; and (ii) in the case of any transaction described
in clause (z) of the first sentence of Section 13(a), the Person that is
the party receiving the greatest portion of the assets or earning power
transferred pursuant to such transaction or transactions; provided,
however, that in any such case, (1) if the Common Stockof such Person is
not at much time and has not been continuously over the preceding twelve
(12) month period registered under Section 12 of the Exchange Act, and such
Person is a direct or indirect Subsidiary of another Person the Common
Stock of which is and has been so registered, Principal Party. shall refer
to such other Person; and (2) in case such Person is a Subsidiary, directly
or indirectly, of more than one Person, the Common Stocks of two or more of
which are and have been so registered, "Principal Party. shall refer to
whichever of such Persons is the issuer of the Common Stock having the
greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number
of authorized shares of its Common Stock which have not been issued or
reserved for issuance to permit the exercise in full of the Rights in
accordance with this Section 13 and unless prior thereto the Company and
such Principal Party shall have executed and delivered to the Rights Agent
a supplemental agreement providing for the terms set forth in paragraphs
(a) and (b) of this Section 13 and further providing that, as soon as
practicable after the date of any consolidation, merger or sale of assets
mentioned in paragraph (a) of this Section 13, the Principal Party will (i)
prepare and file a registration statement under the Act, with respect to
the Rights and the securities purchasable upon exercise of the Rights on an
appropriate form, and will use it" bent effort. to cause such registration
statement to (A) become effective as soon as practicable after such filing
and (B) remain effective (with a prospectus at all times meeting the
requirements of the Act) until the Expiration Date; and (ii) will deliver
to holders of the Rights historical financial statements for the Principal
Partys and each of its Affiliates which comply in all respects with the
requirements for registration on Form 10 under the Exchange Act.
The provisions of this Section 13 shall similarly apply to successive
mergers or consolidations or sales or other transfers. In the event that a
Section 13 Event shall occur at any time after the occurrence of a Section
ll(a)(ii) Event, the Rights which have not theretofore been exercised shall
thereafter become exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary,
Section 13 shall not be applicable to a transaction described in
subparagraphs (x) and (y) of Section 13(a) if (i) such transaction is
consummated with a Person or Persons who acquired shares of Common Stock
pursuant to an Approved Transaction (or a wholly-owned subsidiary of any
such Person or Persons), (ii) the price per share of Common Stock offered
in such transaction is not less than the price per share of Common Stock
paid to all holders of shares of Common Stock whose shares were purchased
pursuant to such Approved Transaction, and (iii) the form of consideration
being offered to the remaining holders of shares of Common Stock pursuant
to such transaction is the same as the form of consideration paid pursuant
to such Approved Transaction. Upon consummation of any such transaction
contemplated by this Section 13(d), all Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section ll(p) hereof,
or to distribute Rights Certificates which evidence fractional Rights. In
lieu of such fractional Rights, there shall be paid to the registered
holders of the Rights Certificates with regard to which such fractional
Rights would otherwise be issuable, an amount in cash equal to the same
fraction of the current market value of a whole Right.
For purposes of this Section 14(a), the current market value of a, whole
Right shall be the closing price of the Rights for the Trading Day
immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights for any day shall
be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way,
in either case as reported in the principal consolidated transaction
reporting system with respect to securities listed or admitted to trading
on the New York Stock Exchange or, if the Rights are not listed or admitted
to trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed
on the principal national securities exchange on which the Rights are
listed or admitted to trading, or if the Rights are not listed or admitted
to trading on any national securities, exchange, the last quoted price or,
if not so quoted, the average of the high bid and low asked prices in the
over-the-counter market, as reported by NASDAQ or such other system then in
use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished
by a professional market maker making a market in the Rights selected by
the Board of Directors of the Company. If on any such date no such market
maker is making a market in the Rights the fair value of the Rights on such
date as determined in good faith by the Board of Directors of the Company
shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one
one-thousandth of a share of Preferred Stock) upon exercise of the Rights
or to distribute certificates which evidence fractional shares of Preferred
Stock (other than fractions which are integral multiples of one one
thousandth of a share of Preferred Stock). In lieu of fractional shares of
Preferred Stock that are not integral multiples of one one-thousandth of a
share of Preferred Stock, the Company may pay to the registered holders of
Rights Certificates at the time such Rights are exercised as herein
provided an amount in cash equal to the same fraction of the current market
value of one one thousandth of a share of Preferred Stock. For purposes of
this Section 14(b), the current market value of one one-thousandth of a
share of Preferred Stock shall be one one-thousandth of the closing price
of a share of Preferred Stock {as determined pursuant to Section ll(d)(ii)
hereof) for the Trading Day immediately prior to the date of such exercise.
(C) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise
of the Rights or to distribute certificates which evidence fractional
shares of Common Stock. In lieu of fractional shares of Common Stock, the;
Company may pay to the registered holders of Rights Certificates at the
time such Rights are exercised as herein provided an amount in cash equal
to the name fraction of the current market value of one (1) share of Common
Stock. For purposes of this Section 14(c), the current market value of one
share of Common Stock shall be the closing price of one share of Common
Stock (as determined pursuant to Section ll(d)(i) hereof) for the Trading
Day immediately prior to the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares
upon exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of this
Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders
of the Common Stock); and any registered holder of any Rights Certificate
(or, prior to the Distribution Date, of the Common Stock), without the
consent of the Rights Agent or of the holder of any other Rights
Certificate (or, prior to the Distribution Date, of the Common Stock), may,
in his own behalf and for his own benefit, enforce, and may institute and
maintain any suit, action or proceeding against the Company to enforce, or
otherwise act in respect of, his right to exercise the Rights evidenced by
such Rights Certificate in the manner provided in such Rights Certificate
and in this Agreement. Without limiting the foregoing or any remedies
available to the holders of Rights, it is specifically acknowledged that
the holders of Rights would not have an adequate remedy at law for any
breach of this Agreement and shall be entitled to specific performance of
the obligations hereunder and injunctive relief against actual or
threatened violations of the obligations hereunder of any Person subject to
this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
accepting the same consents and agrees with the Company and the Rights
Agent and with every other holder of a Right that: (a) prior to the
Distribution Date, the Rights will be transferable only in connection with
the transfer of Common Stock; (b) after the Distribution Date, the Rights
Certificates are transferable only on the registry books of the Rights
Agent if surrendered at the principal office or offices of the Rights Agent
designated for such purposes, duly endorsed or accompanied by a proper
instrument of transfer and with the appropriate forms and certificates
fully executed; (c) subject to Section 6(a) and Section 7(f) hereof, the
Company and the Rights Agent may deem and treat the person in whose name a
Rights Certificate (or, prior to the Distribution Date, the associated
Common Stock certificate) is registered as the absolute owner thereof and
of the Rights evidenced thereby (notwithstanding any notations of ownership
or writing on the Rights Certificates or the associated Common Stock
certificate made by anyone other than the Company or the Rights Agent) for
all purposes whatsoever, and neither the Company nor the Rights Agent,
subject to the last sentence of Section 7(e) hereof, shall be required to
be affected by any notice to the contrary; and (d) notwithstanding anything
in this Agreement to the contrary, neither the Company nor the Rights Agent
shall have any liability to any holder of a Right or other Person as a
result of its inability to perform any of its obligations under this
Agreement by reason of any preliminary or permanent injunction or other
order, decree or ruling issued by a court of competent jurisdiction or by a
governmental, regulatory or administrative agency or commission, or any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority, prohibiting or otherwise restraining performance of
such obligation; provided, however, the Company must use its best efforts
to have any such order, decree or ruling lifted or otherwise overturned as
soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
holder, as such, of any Rights Certificate shall be entitled to vote,
receive dividends or be deemed for any purpose the holder of the number of
one one-thousandths of a share of Preferred Stock or any other securities
of the Company which may at any time be issuable on the exercise of the
Rights represented thereby, nor shall anything contained herein or in any
Rights Certificate be construed to confer upon the holder of any Rights
Certificate, as such, any of the rights of a stockholder of the Company or
any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action, or to receive notice of meetings or other
actions affecting stockholders (except as provided in Section 24 hereof),
or to receive dividends or subscription rights, or otherwise, until the
Right or Rights evidenced by such Rights Certificate shall have been
exercised in accordance with the provisions hereof.
Section 18. Concerning the Rights Agent.
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to
time, on demand of the Rights Agent, its reasonable expenses and counsel
fees and disbursements and other disbursements incurred in the
administration and execution of this Agreement and the exercise and
performance of its duties hereunder. The Company also agrees to indemnify
the Rights Agent for, and to hold it harmless against, any loss, liability,
or expense, incurred without negligence, bad faith or willful misconduct on
the part of the Rights Agent, for anything done or omitted by the Rights
Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim
of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in
connection with its administration of this Agreement in reliance upon any
Rights Certificate or certificate for Common Stock or for other securities
of the Company, instrument of assignment or transfer, power of attorney,
endorsement, affidavit, letter, notice, direction, consent, certificate,
statement, or other paper or document believed by it to be genuine and to
be signed, executed and, where necessary, verified or acknowledged, by the
proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
Agent.
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights
Agent or any successor Rights Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Rights Agent or any
successor. Rights Agent, shall be the successor to the Rights Agent under
this Agreement without the execution or filing of any paper or any further
act on the part of any of the parties hereto:
Provided, however, that such corporation would be eligible for
appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent
shall succeed to the agency created by this Agreement, any of the
Rights Certificates shall have been countersigned but not delivered,
any such successor Rights Agent may adopt the countersignature of a
predecessor Rights Agent and deliver such Right Certificates so
countersigned; and in case at that time any of the Rights Certificates
shall not have been countersigned, any successor Rights Agent may
countersign such Rights Certificates,either in the name of the
predecessor or in the name of the successor Rights Agent; and in all
such cases such Rights Certificates shall have the full force provided
in the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been
countersigned but not delivered, the Rights Agent may adopt the
countersignature under its prior name and deliver Rights Certificates so
countersigned; and in case at that time any of the Rights Certificates
shall not have been countersigned, the Right. Agent may countersign such
Rights Certificates either in its prior name or in its changed name; and in
all such cases such Rights Certificates shall have the full force provided
in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
duties and obligations imposed by this Agreement, upon the following terms
and conditions, by all of which the Company and the holders of Rights
Certificates, by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of much counsel shall be full and
complete authorization and protection to the Rights Agent as to any action
taken or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement the
Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and
the determination of current market price-) be proved or established by the
Company prior to taking or suffering any action hereunder, such fact or
matter (unless other evidence in respect thereof be herein specifically
prescribed) may be deemed to be conclusively proved and established by a
certificate signed by the Chairman of the Board, the President, any Vice
President, the Treasurer, any Assistant Treasurer, the Secretary or any
Assistant Secretary of the Company and delivered to the Rights Agent; and
such certificate shall be full authorization to the Rights Agent for any
action taken or suffered in good faith by it under the provisions of this
Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the
Rights Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof
(except the due execution hereof by the Rights Agent) or in respect of the
validity or execution of any Rights Certificate (except its
countersignature thereof); nor shall it be responsible for any breach by
the Company of any covenant or condition contained in this Agreement or in
any Rights Certificate; nor shall it be responsible for any adjustment
required under the provisions of Section 11 or Section 13 hereof or
responsible for the manner, method or amount of any such adjustment or the
ascertaining of the existence of facts that would require any such
adjustment (except with respect to the exercise of Rights evidenced by
Rights Certificates after actual notice of any such adjustment); nor shall
it by any act hereunder be deemed to make any representation or warranty as
to the authorization or reservation of any shares of Common Stock or
Preferred Stock to be issued pursuant to this Agreement or any Rights
Certificate or as to whether any shares of Common Stock or Preferred Stock
will, when so issued, be validly authorized and issued, fully paid and
nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all
such further and other acts, instruments and assurances as may reasonably
be required by the Rights Agent for the carrying out or performing by the
Rights Agent of the provisions of this Agreement.
(g) The Rights Agent is hereby authorized anddirected to accept
instructions with respect to the performance of its duties hereunder from
the Chairman of the Board, the President, any Vice President, the
Secretary, any Assistant Secretary, the Treasurer or any Assistant
Treasurer of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it "hall not be liable for
any action taken or suffered to be taken by it in good faith in accordance
with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as though it
were not Rights Agent under this Agreement. Nothing herein shall preclude
the Rights Agent from acting in any other capacity for the Company or for
any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or
by or through its attorneys or agents, and the Rights Agent shall not be
answerable or accountable for any act, default, neglect or misconduct of
any such attorneys or agents or for any loss to the Company resulting from
any such act, default, neglect or misconduct; provided, however, reasonable
care was exercised in the selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in
the performance of any of its duties hereunder or in the exercise of its
rights if there shall be reasonable grounds for believing that repayment of
such funds or adequate indemnification against such risk or liability is
not reasonably assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form
of assignment or form of election to purchase, as the case-may be, has
either not been completed or indicates an affirmative response to clause 1
and/or 2 thereof, the Rights Agent shall not take any further action with
respect to such requested exercise of transfer without first consulting
with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any successor
Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company,
and to each transfer agent of the Common Stock and Preferred Stock, by
registered or certified mail, and to the holders of the Rights Certificates
by first-class mail. The Company may remove the Rights Agent or any
successor Rights Agent upon thirty (30) days' notice in writing, mailed to
the Rights Agent or successor Rights Agent, as the case. may be, and to
each transfer agent of the Common Stock and Preferred Stock, by registered
or certified mail, and to the holders of the Rights Certificates by first-
class mail. If the Rights Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor
to the Rights Agent. If the Company shall fail to make such appointment
within a period of thirty (30) days after giving notice of such removal or
after it has been notified in writing of such resignation or in capacity by
the resigning or incapacitated Rights Agent or by the holder of a Rights
Certificate (who shall, with such notice, submit his Rights Certificate for
inspection by the Company), then any registered holder of any Rights
Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be a corporation
organized and doing business under the laws of the United States or of the
State of New York (or of any other state of the United States so long as
such corporation is authorized to do business as a banking institution in
the State of New York), in good standing, having a principal office in the
State of New York, which is authorized under such laws to exercise
corporate trust powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $100,000,000. After
appointment, the successor Rights Agent shall be vested with the same
powers,rights, duties and responsibilities as if it had been originally
named as Rights Agent without further act or deed; but the predecessor
Rights Agent shall deliver and transfer to the successor Rights Agent any
property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not
later than the effective date of any such appointment, the Company shall
file notice thereof in writing with the predecessor Rights Agent and each
transfer agent of the Common Stock and the Preferred Stock, and mail a
notice thereof in writing to the registered holders of the Rights
Certificates. Failure to give any notice provided for in this Section 21,
however, or any defect therein, shall not affect the legality or validity
of the resignation or removal of the Rights Agent or the appointment of the
successor Rights Agent, as the case may be.
Section 22. Issuance of New Rights Certificates.
Notwithstanding any of the provisions of this Agreement or of the
Rights to the contrary, the Company may, at its option, issue new Rights
Certificates evidencing Rights in such form as may be approved by its Board
of Directors to reflect any adjustment or-
change in the Purchase Price and the number or kind or class of shares or
other securities or property purchasable under the Rights Certificates made
in accordance with the provisions of this Agreement. In addition, in
connection with the issuance or sale of shares of Common Stock following
the Distribution Date and prior to the redemption or expiration of the
Rights, the Company (a) shall, with respect to shares of Common Stock so
issued or sold pursuant to the exercise of stock options or under any
employee plan or arrangement, or upon the exercise, conversion or exchange
of securities hereinafter issued by the Company, and (b) may, in any other
case, if deemed necessary or appropriate by the Board of Directors of the
Company, issue Rights Certificates representing the appropriate number of
Rights in connection with such issuance or ~ale: provided, however, that
(i) no such Rights Certificate shall be issued if, and to the extent that,
the Company shall be advised by counsel that such issuance would create a
significant risk of material adverse tax consequences to the Company or the
Person to whom such Rights Certificate would be issued, and (ii) no such
Rights Certificate shall be issued if, and to the extent that, appropriate
adjustment shall otherwise have been made in lieu of the issuance thereof.
Section 23. Redemption and Termination.
(a) The Board of Directors of the Company may, at its option, at any
time prior to the earlier of (i) the close of business on the tenth day
following the Stock Acquisition Date (or, if the Stock Acquisition Date
shall have occurred prior to the Record Date, the close of business on the
tenth day following the Record Date), or (ii) the Final Expiration Date,
redeem all but not less than all the then outstanding Rights at a
redemption price of $.01 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the Redemption Price"), and the Company may, at its option,
pay the Redemption Price either in shares of Common Stock (based on the
"current market value", as defined in Section ll(d)(i) hereof, of the
shares of Common Stock at the time of redemption) or cash; provided,
however, if the Board of Directors of the Company authorizes redemption of
the Rights and such authorization occurs on or after the time a Person
becomes an Acquiring Person then there must be Continuing Directors then in
office and such authorization shall require the concurrence of a majority
of such Continuing Directors; provided, further, however, that if,
following the occurrence of a Stock Acquisition Date and following the
expiration of the right of redemption hereunder but prior to any Triggering
Event, (i) a Person who is an Acquiring Person shall have transferred or
otherwise disposed of a number of shares of Common Stock in one transaction
or series of transaction", not directly or indirectly involving the Company
or any of its Subsidiaries, which did not result in the occurrence of a
Triggering Event such that such Person is thereafter a Beneficial Owner of
10% or less of the outstanding shares of Common Stock, and (ii) there are
no other Persons, immediately following the occurrence of the event
described in clause (I), who are Acquiring Persons, then the right of
redemption shall be reinstated and thereafter be subject to the provisions
of this Section 23. Notwithstanding anything contained in this Agreement to
the contrary, the Rights shall not be exercisable after the first
occurrence of a Section ll(a)(ii) Event until such time as the Company's
right of redemption hereunder has expired.
(b) Immediately upon the action of the Board of Directors of the
Company ordering the redemption of the Rights, evidence of which shall have
been filed with the Rights Agent and without any further action and without
any notice, the right to exercise the Rights will terminate and the only
right thereafter of the holders of Rights shall be to receive the
Redemption Price for each Right so held. Promptly after the action of the
Board of Directors ordering the redemption of the Rights, the Company shall
give notice of such redemption to the Rights Agent and the holders of the
then outstanding Rights by mailing such notice to all such holders at each
holder's last address as it appears upon the registry books of the Rights
Agent or, prior to the Distribution Date, on the registry books of the
Transfer Agent for the Common Stock. Any notice which is mailed in the
manner herein provided shall be deemed given, whether or not the holder
receives the notice. Each such notice of redemption will state the method
by which the payment of the Redemption Price will be made.
Section 24. Notice of Certain Events.
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to
the holders of Preferred Stock or to make any other distribution to the
holders of Preferred Stock (other than a regular quarterly cash dividend
out of earnings or retained earnings of the Company), or (ii) to offer to
the holders of Preferred Stock rights or warrants to subscribe for or to
purchase any additional shares of Preferred Stock or shares of stock of any
class or any other securities, rights or options, or., (iii) to effect any
reclassification of its Preferred Stock (other than a reclassification
involving only the subdivision of outstanding shares of Preferred Stock),
or (iv) to effect any consolidation or merger into or with any other Person
(other than a Subsidiary of the Company in a transaction which complies
with Section ll(o) hereof), or to effect any sale or other transfer(or to
permit one or more of its Subsidiaries to effect any sale or other
transfer), in one transaction or a series of related transactions, of more
than 50% of the assets or earning power of the Company and its Subsidiaries
(taken as a whole) to any other Person or Persons (other than the Company
and/or any of its Subsidiaries in one or more transactions each of which
complies with Section ll(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the
Company shall give to each holder of a Rights Certificate, to the extent
feasible and in accordance with Section 25 hereof, a notice of such
proposed action, which shall specify the record date for the purposes of
such stock dividend, distribution of rights or warrants, or the date on
which such reclassification, consolidation, merger, sale, transfer,
liquidation, dissolution, or winding up is to take place and the date of
participation therein by the holders of the shares of Preferred Stock, if
any such date is to be fixed, and such notice shall be so given in the case
of any action covered by clause (i)or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other
action, at least twenty (20) days prior to the date of the taking of such
proposed action or the date of participation therein by the holders of the
shares of Preferred Stock whichever shall be the earlier.
(b) In case any of the events set forth in Section ll(a)(ii) hereof
shall occur, then, in any such case, (I) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 25 hereof, a notice of the
occurrence of such event, which shall specify the event and the
consequences of the event to holders of Rights under Section ll(a)(ii)
hereof, and (ii) all references in the preceding paragraph to Preferred
Stock shall be deemed thereafter to refer to Common Stock and/or, if
appropriate, other securities.
Section 25. Notices. Notices or demands authorized bythis Agreement
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Rights Agent) as follows:
Optical Coating Laboratory, Inc.
2789 Northpoint Parkway
Santa Rosa, California 95407-7397
Attention: Joseph Zils, Secretary
Subject to the provisions of Section 21, any notice or demand
authorized by this Agreement to be given or made by the Company or by the
holder of any Rights Certificate to or on the Rights Agent shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed (until another address is filed in writing with the Company as
follows:
ChaseMellon Shareholder Services L.L.C.
235 Montgomery Street, 23rd Floor
San Francisco, CA 94104
Attention: Patricia Dedrick
Notices or demands authorized by this Agreement to be given or made by
the Company or the Rights Agent to the holder of any Rights Certificate
(or, if prior to the Distribution date, to the holder of certificates
representing Shares of Common Stock) shall be sufficiently given if sent by
first-class mail, postage prepaid, addressed to such holder at the address
of such holder as shown on the registry books of the Company.
Section 26. Supplements and Amendments. Prior to the Distribution
Date and subject to the penultimate sentence of this Section 26, the
Company and the Rights Agent shall, if the Company so directs, supplement
or amend eny provision of this Agreement without the approval of any
holders of certificates representing shares Of Common Stock. From and after
the Distribution Date and subject to the penultimate sentence of this
Section 26, the Company and the Rights Agent shall, if the Company directs,
supplement or amend this Agreement without the approval of any holders of
Rights Certificates in order (i) to cure any Ambiguity, (ii) to correct or
supplement any provision Contained herein which may be defective or
inconsistent with any other provisions herein, (iii) to shorten or lengthen
any time period hereunder (which lengthening or shortening shall be
effective only if there are Continuing Directors in office and shall
require the concurrence of a majority of such Continuing Directors) or (iv)
to change or supplement the provisions hereunder in any manner which the
Company may deem necessary or desirable and which shall not adversely
affect the interests of the holders of Rights Certificates (other than an
Acquiring Person or an Affiliate or Associate of an Acquiring Person);
provided, this Agreement may not be supplemented or amended to lengthen,
pursuant to clause (iii) of this sentence, (A) a time period relating to
when the Rights may be redeemed at such time as the Rights are not then
redeemable, or (B) any other time period unless such lengthening is for the
purpose of protecting, enhancing or clarifying the rights of, and/or the
benefits to, the holders of Rights. Upon the delivery of a certificate from
an appropriate officer of the Company which states that the proposed
supplement or amendment is in compliance with the terms of this Section 26,
the Rights Agent shall execute such supplement or amendment.
Notwithstanding anything contained in this Agreement to the contrary, no
supplement or amendment shall be made which changes the Redemption Price,
the Final Expiration Date, the Purchase Price or the number of one one-
thousandths of a share of Preferred Stock for which a Right is
exercisable.Prior to the Distribution Date, the interests of the holders of
Rights shall be deemed coincident with the interests of the Holders of
Common Stock.
Section 27. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Rights Agent shall
bind and inure to the benefit of their respective successors and assigns
hereunder.
Section 28. Determinations and Actions by the Board of Directors. etc.
For all purposes of this Agreement, any calculation of the number of shares
of Common Stock outstanding at any particular time, including for purposes
of determining the particular percentage of such outstanding shares of
Common Stock of which any Person is the Beneficial Owner, shall be made in
accordance with the last sentence of Rule 13d-3 (d)(1)(i) of the General
Rules and Regulations under the Exchange Act. The Board of Directors of the
Company (with, where specifically provided for herein, the concurrence of
the Continuing Directors) shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers
specifically granted to the Board (with, where specifically provided for
herein, the concurrence of the Continuing Directors) or to the Company, or
as may be necessary or advisable in the administration of this Agreement,
including, without limitation, the right and power (i) interpret the
provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including
a determination to redeem or not redeem the Rights or to amend the
Agreement). All such actions, calculations, interpretations and
determinations (including, for purposes of clause (y) below, all omissions
with respect to the foregoing) which are done or made by the Board (with,
where specifically provided for herein, the concurrence of the Continuing
Directors) in good faith, shall (x) be final, conclusive and binding on the
Company, the Rights Agent, the holders of the Rights and all other parties,
and (y) not subject the Board or the Continuing Directors to any liability
to the holders of the Rights.
Section 29. Benefits of this Agreement. Nothing in this Agreement
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to
the Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to
the Distribution Date, registered holders of the Common Stock).
Section 30. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated; Provided, however, that notwithstanding anything in this
Agreement to the contrary, if any such term, provision, covenant or
restriction is held by such court or authority to be invalid, void or
unenforceable and the Board of Directors of the Company determines in its
good faith judgment that severing the invalid language from this Agreement
would adversely affect the purpose or effect of this Agreement, the right
of redemption set forth in Section 23 hereof shall be reinstated and shall
not expire until the close of business on the tenth day following the date
of such determination by the Board of Directors.
Section 31. Governing Law. This Agreement, each Right and each
Rights Certificate issued hereunder shall be deemed to be a contract made
under the laws of the State of Delaware and for all purposes shall be
governed by and construed in accordance with the laws of such State
applicable to contracts made and to be performed entirely with such State.
Section 32. Counterparts. This Agreement may be executed in any
number of counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall together
constitute but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headingsof the
several sections of this Agreement are inserted the convenience only and
shall not control or affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF,the parties hereto have caused this Agreement to be duly
executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: OPTICAL COATING LABORATORY, INC.
By
Name
Title:
Attest: CHASEMELLON SHAREHOLDER SERVICES L.L.C.
By:
Name
Title:
Exhibit A
FORM OF CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS OF SERIES A
PREFERRED STOCK
of
Optical Coating Laboratory, Inc.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Herbert M. Dwight, President and Chief Executive Officer, and Joseph C.
Zils, Secretary, of Optical Coating Laboratory, Inc., a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 103 thereof,
DO HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by the
Certificate of Incorporation of the said Corporation, the said Board of
Directors on November 25, 1987, adopted the following resolution creating a
series of 10,000 shares of Preferred Stock designated as Series A Preferred
Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of this Corporation in accordance with the provisions of its
Certificate of Incorporation, a series of Preferred Stock of the
Corporation be and it hereby is created, and that the designation and
amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof are as
follows:
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Preferred Stock,. shall have a par value of $.01
per share, and the number of shares constituting such series shall be
10,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the
shares of Series A Preferred Stock with respect to dividends, if any, the
holders of shares of Series A Preferred Stock shall be entitled to receive,
when, as and if declared by the Board of Directors out of funds legally
available for the purpose, quarterly dividends payable in cash on the last
day of January, April, July and October in each year (each such date being
referred to herein as a Quarterly Dividend Payment Date"), commencing on
the first Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to 1,000 times the aggregate per
share amount of all cash dividends, and 1,000 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions
other than a dividend payable in shares of Common Stock or a subdivision of
the outstanding shares of Common Stock (by reclassification or otherwise),
declared on the Common Stock, par value $.01 per share, of the Corporation
(the Common Stock") subject to the provision for adjustment hereinafter set
forth, since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Preferred Stock.
In the event the Corporation shall at any time after November 25, 1987 (the
frights Declaration Date-), (i) declare any dividend on Common Stock
payable in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a smaller number
of shares, then in each such case the amount to which holders of shares of
Series A Preferred Stock were entitled immediately prior to such event
under clause (b) of the preceding sentence shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) above immediately
after it declares a dividend or distribution on the Common Stock (other
than a dividend payable in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date
next preceding the date of issue of such shares of Series A Preferred
Stock, unless the date of issue of such shares is prior to the record date
for the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date or is a date
after the record date for the determination of holders of shares of Series
A Preferred Stock entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such dividends
shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest.
Dividends paid on the shares of Series A Preferred Stock in an amount less
than the total amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share basis among all
such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 30 days prior to
the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provisions for adjustment hereinafter set forth,
each share of Series A Preferred Stock shall entitle the holder thereof to
1,000 votes on all matters submitted to a vote of the stockholders of the
Corporation. In the event the Corporation shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the number of votes per share to which holders of
shares of Series A Preferred Stock were entitled immediately prior to such
event shall be adjusted by multiplying such number by a fraction the
numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common
Stock shall vote together as one class on all matters submitted to a vote
of stockholders of the Corporation.
(C) (i) If at any time dividends on any Series A Preferred Stock
shall be in arrears in an amount equal to six (6) quarterly dividends
thereon, the occurrence of such contingency shall mark the beginning of a
period (herein called a "default period.) which shall extend until such
time when all accrued and unpaid dividends for all previous quarterly
dividend periods and for the current quarterly dividend period on all
shares of Series A Preferred Stock then outstanding shall have been
declared and paid or set apart for payment. During each default period, all
holders of Preferred Stock (including holders of the Series A Preferred
Stock) with dividends in arrears in an amount equal to six (6) quarterly
dividends thereon, voting as a class, irrespective of series, shall have
the right to elect two (2) Directors.
(ii) During any default period, such voting right of the holders
of Series A Preferred Stock may be exercised initially at a special meeting
called pursuant to subparagraph (iii) of this Section 3(C) or at any annual
meeting of stockholders, and thereafter at annual meetings of stockholders
provided that neither such voting right nor the right of the holders of any
other series of Preferred Stock, if any, to increase, in certain cases, the
authorized number of Directors shall be exercised unless the holders of ten
percent (10%) in number of shares of Preferred Stock outstanding shall be
present in person or by proxy. The absence of a quorum of the holders of
Common Stock shall not affect the exercise by the holders of Preferred
Stock of such voting right. At any meeting at which the holders of
Preferred Stock shall exercise such voting right initially during an
existing default period, they shall have the right, voting as a class, to
elect Directors to fill such vacancies, if any, in the Board of Directors
as may then exist up to two (2) Directors or, if such right is exercised at
an annual meeting, to elect two (2) Directors. If the number which may be
so elected at any special meeting does not amount to the required number,
the holders of the Preferred Stock shall have the right to make such
increase in the number of Directors as shall be necessary to permit the
election by them of the required number. After the holders of the
Preferred Stock shall have exercised their right to elect Directors in any
default period and during the continuance of such period, the number of
Directors shall not be increased or decreased except by vote of the holders
of Preferred Stock as herein provided or pursuant to the rights of any
equity securities ranking senior to or pari passu with the Series A
Preferred Stock.
(iii) Notwithstanding anything to the contrary contained in the
Corporation's Certificate of Incorporation or By-Laws, unless the holders
of Preferred Stock shall, during an existing default period, have
previously exercised their right to elect Directors, the Board of Directors
may order, or any stockholder or stockholders owning in the aggregate not
less than ten percent (10%) of the total number of shares of Preferred
Stock outstanding, irrespective of series, may request, the calling of a
special meeting of the holders of Preferred Stock, which meeting shall
thereupon be called by the President, a Vice-President or the Secretary of
the Corporation. Notice of such meeting and of any annual meeting at which
holders of Preferred Stock are entitled to vote pursuant to this paragraph
(C)(iii) shall be given to each holder of record of Preferred Stock by
mailing a copy of such notice to him at his last address as the same
appears on the books of the Corporation. Such meeting shall be called for a
time not earlier than 10 days and not later than 60 days after such order
or request or in default of the calling of such meeting within 60 days
after such order or request, such meeting may be called on similar notice
by any stockholder or stockholders owning in the aggregate not less than
ten percent (10%) of the total number of shares of Preferred Stock
outstanding. Notwithstanding the provisions of this paragraph (C)(iii), no
such special meeting shall be called during the period within 60 days
immediately preceding the date fixed for the next annual meeting of the
stockholders.
(iv) In any default period, the holders of Common Stock, and other
classes of stock of the Corporation, if applicable, shall continue to be
entitled to elect the whole number of Directors until the holders of
Preferred Stock shall have exercised their right to elect two (2) Directors
voting as a class, after the exercise of which right (x) the Directors so
elected by the holders of Preferred Stock shall continue in office until
their successors shall have been elected by such holders or until the
expiration of the default period, and (y) any vacancy in the Board of
Directors may (except as provided in paragraph (C)(ii) of this Section 3)
be filled by vote of a majority of the remaining Directors theretofore
elected by the holders of the class of stock which elected the Director
whose office shall have become vacant. References in this paragraph (C) to
Directors elected by the holders of a particular class of stock shall
include Directors elected by such Directors to fill vacancies as provided
in clause (y) of the foregoing sentence.
(v) Immediately upon the expiration of a default period, (x) the right
of the holders of Preferred Stock as a class to elect Directors shall
cease, (y) the term of any Directors elected by the holders of Preferred
Stock as a class shall terminate, and (z) the number of Directors shall be
such number as may be provided for in the certificate of incorporation or
by-laws irrespective of any increase made pursuant to the provisions of
paragraph (C)(ii) of this Section 3 (such number being subject, however, to
change thereafter in any manner provided by law or in the certificate of
incorporation or by-laws). Any vacancies in the Board of Directors effected
by the provisions of clauses (y) and (z) in the preceding sentence may be
filled by a majority of the remaining Directors.
(D) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common
Stock as set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock, as provided in Section 2 hereof,
are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred
Stock outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other distributions on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable, or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration shares
of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
provided that the Corporation may at any time redeem, purchase or otherwise
acquire shares of any such parity stock in exchange for shares of any stock
of the Corporation ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity with
the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of Directors,
after consideration of the respective annual dividend rates and other
relative rights and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable treatment among
the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of
the Corporation unless the Corporation could, under paragraph (A) of this
Section 4, purchase or otherwise acquire such shares at such time and in
such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred
Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired and cancelled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized
but unissued shares of Preferred Stock and may be reissued as part of a new
series of Preferred Stock to be created by resolution or resolutions of the
Board of Directors, subject to the conditions and restrictions on issuance
set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Corporation, no distribution shall be made to the holders
of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A Preferred Stock
unless, prior thereto, the holders of shares of Series A Preferred Stock
shall have received $1,000 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment (the Series A Liquidation Preference"). Following the
payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Preferred Stock unless, prior thereto, the holders of shares of Common
Stock shall have received an amount per share (the nCommon Adjustment.)
equal to the quotient obtained by dividing (i) the absolute value of the
Series A Liquidation Preference by (ii) 1,000 (as appropriately adjusted as
set forth in subparagraph C below to reflect such events as stock splits,
stock dividends and recapitalizations with respect to the Common Stock)
(such number in clause (ii), the Adjustment Number.). Following the payment
of the full amount of the Series A Liquidation Preference and the Common
Adjustment in respect of all outstanding shares of Series A Preferred Stock
and Common Stock, respectively, holders of Series A Preferred Stock and
holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio
of the Adjustment Number to 1 with respect to such Preferred Stock and
Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference
and the liquidation preferences it,: of all other series of preferred
stock, if any, which rank on a parity with the Series A Preferred Stock,
then such remaining assets shall be distributed ratably to the holders of
such parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment, then such
remaining assets shall be distributed ratably to the holders of Common
Stock.
(C) In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares
of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then
in each such case the Adjustment Number in effect immediately prior to such
event shall be adjusted by multiplying such Adjustment Number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation. Merger. etc. In case the Corporation
shall enter into any consolidation, merger, combination or other
transaction in which the shares of Common Stock are exchanged for or
changed into other stock or securities, cash and/or any other property,
then in any such case the shares of Series A Preferred Stock shall at the
same time be similarly exchanged or changed in an amount per share (subject
to the provision for adjustment hereinafter set forth) equal to 1,000 times
the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share
of Common Stock is changed or exchanged. In the event the Corporation shall
at any time after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock, or (iii) combine the outstanding Common Stock
into a smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or change of
shares of Series A Preferred Stock shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator
of which is the number of shares of Common Stock that were outstanding
immediately prior to such event.
Section 8. No Redemption. The shares of Series A Preferred Stock
shall not be redeemable.
Section 9. Ranking. The Series A Preferred Stock shall rank junior
to all other series of the Corporation's Preferred Stock as to the payment
of dividends and the distribution of assets, unless the terms of any such
series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be further amended in any manner which would
materially alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of a majority or more of the outstanding
shares of Series A Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Preferred Stock may be issued
in fractions of a share which shall entitle the holder thereof, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of
all of the rights of holders of shares of Series A Preferred Stock.
IN WITNESS WHEREOF, we have executed and subscribed this Certificate and do
affirm the foregoing as true under the penalties of perjury thisday of ,
1998.
President
Attest:
Secretary
Exhibit B
[Form of Rights Certificate]
Certificate No. R- Rights
NOT EXERCISABLE AFTER NOVEMBER 25, 1997 OR EARLIER IF REDEEMED BY THE
COMPANY. THE RIGHTS ARE SUBJECT TO REDEMPTION, AT THE OPTION OF THE
COMPANY, AT $-01 PER RIGHT ON THE TERMS SET FORTH IN THE RIGHTS AGREEMENT.
UNDER CERTAIN CIRCUMSTANCES, RIGHTS BENEFICIALLY OWNED BY AN ACQUIRING
PERSON (AS SUCH TERM IS DEFINED IN THE RIGHTS AGREEMENT) AND ANY SUBSEQUENT
HOLDER OF SUCH RIGHTS MAY BECOME NULL AND VOID. [THE RIGHTS REPRESENTED BY
THIS RIGHTS CERTIFICATE ARE OR WERE BENEFICIALLY OWNED BY A PERSON WHO WAS
OR BECAME AN ACQUIRING PERSON OR AN AFFILIATE OR ASSOCIATE OF AN ACQUIRING
PERSON (AS SUCH TERMS ARE DEFINED IN THE RIGHTS AGREEMENT). ACCORDINGLY,
THIS RIGHTS CERTIFICATE AND THE RIGHTS REPRESENTED HEREBY MAY BECOME NULL
AND VOID IN THE CIRCUMSTANCES SPECIFIED IN SECTION 7(e) OF SUCH AGREEMENT.
Rights Certificate
OPTICAL COATING LABORATORY, INC.
This certifies that , or
registered assigns, is the registered owner of the number of Rights set
forth above, each of which entitles the owner thereof, subject to the
terms, provisions and conditions of the Rights Agreement, dated as of
_________________________ (the "Rights Agreement"), between Optical Coating
Laboratory, Inc., a Delaware corporation (the "Company.) and ChaseMellon
Shareholder Services, L.L.C. (the "Rights Agent.), to purchase from the
Company at any time prior to 5:00 P.M. (Pacific time) on at the office or
offices of the Rights Agent, designated for such purpose, or its successors
as Rights Agent, one one-thousandth of a fully paid, non-assessable share
of Series A Preferred Stock (the Preferred Stock") of the Company, at a
purchase price of $45 per one-one thousandth of a share (the "Purchase
Price"), upon presentation and surrender of this Rights Certificate with
the Form of Election to Purchase and related Certificate duly executed. The
Purchase Price shall be paid in cash. The number of Rights evidenced by
this Rights Certificate (and the number of shares which may be purchased
upon exercise thereof) set forth above, and the Purchase Price per share
set forth above, are the number and Purchase Price as of December 16, 1997,
based on the Preferred Stock as constituted at such date.
Upon the occurrence of a Section ll(a)(ii) Event (as such term is defined
in the Rights Agreement), if the Rights evidenced by this Rights
Certificate are beneficially owned by
(i) an Acquiring Person or an Affiliate or Associate of any such
Acquiring Person (as such terms are defined in the Rights Agreement),
(ii) a transferee of any such Acquiring Person, Associate or
Affiliate, or
(iii) under certain circumstances specified in the Rights Agreement, a
transferee of a person who, after such transfer, became an Acquiring
Person, or an Affiliate or Associate of an Acquiring Person, such Rights
shall become null and void and no holder hereof shall have any right with
respect to such Rights from and after the occurrence of such Section
ll(a)(ii) Event.
As provided in the Rights Agreement, the Purchase Price and the number and
kind of shares of Preferred Stock or other securities, which may be
purchased upon the exercise of the Rights evidenced by this Rights
Certificate are subject to modification and adjustment upon the happening
of certain events, including Triggering Events.
This Rights Certificate is subject to all of the terms, provisions and
conditions of the Rights Agreement, which terms, provisions and conditions
are hereby incorporated herein by reference and made a part hereof and to
which Rights Agreement reference is hereby made for a full description of
the rights, limitations of rights, obligations, duties and immunities
hereunder of the Rights Agent, the Company and the holders of the Rights
Certificates, which limitations of rights include the temporary suspension
of the exercisability of such Rights under the specific circumstances set
forth in the Rights Agreement.
Copies of the Rights Agreement are on file at the above-mentioned office of
the Rights Agent and are also available upon written request to the Rights
Agent.
This Rights Certificate, with or without other Rights Certificates, upon
surrender at the principal office or offices of the Rights Agent designated
for such purpose, may be exchanged for another Rights Certificate or Rights
Certificates of like tenor and date evidencing Rights entitling the holder
to purchase a like aggregate number of one one-thousandths of a share of
Preferred Stock as the Rights evidenced by the Rights Certificate or Rights
Certificates surrendered shall have entitled such holder to purchase. If
this Rights Certificate shall be exercised in part, the holder shall be
entitled to receive upon surrender hereof another Rights Certificate or
Rights Certificates for the number of whole Rights not exercised.
Subject to the provisions of the Rights Agreement, the Rights evidenced by
this Certificate may be redeemed by the Company at its option at a
redemption price of $.01 per Right in cash or in shares of Common Stock at
any time prior to the earlier of the close of business on (i) the tenth day
following the Stock Acquisition Date (as such time period may be extended
pursuant to the Rights Agreement), and (ii) the Final Expiration Date.
Under certain circumstances set forth in the Rights Agreement, the decision
to redeem shall require the concurrence of a majority of the Continuing
Directors. After the expiration of the redemption period, the Company's
right of redemption may be reinstated if an Acquiring Person reduces his
beneficial ownership to 10% or less of the outstanding shares of Common
Stock in a transaction or series of transactions not involving the Company.
No fractional shares of Preferred Stock will be issued upon the exercise of
any Right or Rights evidenced hereby (other than fractions which are
integral multiples of one one-thousandth of a share of Preferred Stock,
which may, at the election of the Company, be evidenced by depository
receipts), but in lieu.thereof a cash payment will be made, as provided in
the Rights Agreement.
No holder of this Rights Certificate shall be entitled to vote or receive
dividends or be deemed for any purpose the holder of shares of Preferred
Stock or of any other securities of the Company which may at any time be
issuable on the exercise hereof, nor shall anything contained in the Rights
Agreement or herein be construed to confer upon the holder hereof, as such,
any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at
any meeting thereof, or to give or withhold consent to any corporate
action, or, to receive notice of meetings or other actions affecting
stockholders (except as provided in the Rights Agreement), or to receive
dividends or subscription rights, or otherwise, until the Right or Rights
evidenced by this Rights Certificate shall have been exercised as provided
in the Rights Agreement.
This Rights Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Rights Agent.
WITNESS the signature of the proper officers of the Company and its
corporate seal.
ATTEST: OPTICAL COATING LABORATORY, INC.
By:
Secretary
Countersigned:
CHASEMELLON SHAREHOLDER SERVICES L.L.C.
By
Authorized Signature
[Form of Reverse Side of Rights Certificate]
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer
the Rights Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto (Please print name and address of
transferee)
this Rights Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint Attorney, to
transfer the within Rights Certificate on the books of the within-named
Company, with full power of substitution.
Dated: , 19
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the
appropriate boxes that:
(1) this Rights Certificate [ ] is [ ] is not being sold, assigned and
transferred by or on behalf of a Person who is or was an Acquiring Person
or an Affiliate or Associate of any such Acquiring Person (as such terms
are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or subsequently became an Acquiring Person or
an Affiliate or Associate of an Acquiring Person.
Dated: , 19
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Assignment and Certificate must correspond
to the name as written upon the face of this Rights Certificate in every
particular, without alteration or enlargement or any change whatsoever.
FORM OF ELECTION TO PURCHASE
(To be executed if holder desires to exercise Rights represented by the
Rights Certificate.)
To: OPTICAL COATING LABORATORY, INC.:
The undersigned hereby irrevocably elects to exercise Rights represented
by this Rights Certificate to purchase the shares of Preferred Stock
issuable upon the exercise of the Rights (or such other securities of the
Company or of any other person which may be issuable upon the exercise of
the Rights) and requests that certificates for such shares be issued in the
name of and delivered to:
Please insert social security or other identifying number
(Please print name and address)
If such number of Rights shall not be all the Rights evidenced by this
Rights Certificate, a new Rights Certificate for the balance of such Rights
shall be registered in the name of and delivered to:
Please insert social security or other identifying number
(Please print name and address)
Dated: , 19
Signature
Signature Guaranteed:
Certificate
The undersigned hereby certifies by checking the appropriate boxes that:
(1) the Rights evidenced by this Rights Certificate [ ] are [ ] are not
being exercised by or on behalf of a Person who is or was an Acquiring
Person or an Affiliate or Associate of any such Acquiring Person (as such
terms are defined pursuant to the Rights Agreement);
(2) after due inquiry and to the best knowledge of the undersigned, it [ ]
did [ ] did not acquire the Rights evidenced by this Rights Certificate
from any Person who is, was or became an Acquiring Person or an Affiliate
or Associate of an Acquiring Person.
Dated: , 19
Signature
Signature Guaranteed:
NOTICE
The signature to the foregoing Election to Purchase and Certificate must
correspond to the name as written upon the face of this Rights Certificate
in every particular, without alteration or enlargement or any change
whatsoever.
Exhibit C
SUMMARY OF RIGHTS TO PURCHASE PREFERRED STOCK
On December 16, 1997, the Board of Directors of Optical Coating
Laboratory, Inc. (the "Company") declared a dividend distribution of one
Right for each outstanding shares of the Company's Common Stock to
stockholders of record at the close of business on December 16, 1997. Each
Right entitles the registered holder to purchase from the Company a unit
consisting of one one-thousandth of a share (a "Unit") of Series A
Preferred Stock, par value $.01 per share (the "Preferred Stock"), at a
Purchase Price of $45 per Unit, subject to adjustment. The Purchase Price
shall be paid in cash. The description and terms of the Rights are set
forth in a Rights Agreement (the Rights Agreement*) between the Company and
ChaseMellon Shareholder Services L.L.C., as Rights Agent.
Initially, the Rights will be attached to all Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. The Rights will separate from the Common
Stock and a distribution date (the "Distribution Date".) will occur upon
the earlier of (i) 10 days following a public announcement that a person or
group of affiliated or associated persons (an "Acquiring Person.) has
acquired, or obtained the right to acquire, beneficial ownership of 20% or
more of the outstanding shares of Common Stock (the "Stock Acquisition
Date") or (ii) 10 days following the commencement of a tender offer or
exchange offer that would result in a person or group beneficially owning
30% or more of such outstanding shares of Common Stock. Until the
Distribution Date (i) the Rights will be evidenced by the Common Stock
certificates and will be transferred with and only with such Common Stock
certificates, (ii) new Common Stock certificates issued after November 25,
1987 will contain a notation incorporating the Rights Agreement by
reference and (iii) the surrender for transfer of any certificates for
Common Stock outstanding will also constitute the transfer of the Rights
associated~with the Common Stock represented by such certificate.
The Rights are not exercisable until the Distribution Date and will
expire at the close of business on December 16, 1999, unless earlier
redeemed by the Company as described below.
As soon as practicable after the Distribution Date, Rights
Certificates will be mailed to holders of record of the Common Stock as of
the close of business on the Distribution Date and, thereafter, the
separate Rights Certificates alone will represent the Rights. Except as
otherwise determined by the Board of Directors, only shares of Common Stock
issued prior to the Distribution Date will be issued with Rights. In the
event that, at any time following the Distribution Date, (i) a Person
becomes the beneficial owner of 30% or more of the then outstanding shares
of Common Stock (except pursuant to an all cash offer for all outstanding
shares of Common Stock, or any other transaction which, in either such;
instance, the independent Continuing Directors have determined to be fair
to and otherwise in the best interests of the Company and its shareholders
(an Approved Transaction.)), (ii) during such time as there is an Acquiring
Person, an event occurs which results in such Acquiring Person's ownership
interest being increased by more than 1% (e.g., a reverse stock split), or
(iii) an Acquiring Person engages in one or more "self-dealing"
transactions as set forth in the Rights Agreement, each holder of a Right
will thereafter have the right to receive, upon exercise, Common Stock (or,
in certain circumstances, cash, property or other securities of the
Company) having a value equal to two times the exercise price of the Right.
Notwithstanding the foregoing, following the occurrence of the events set
forth in this paragraph, all Rights that are, or (under certain
circumstances specified in the Rights Agreement) were, beneficially owned
by any Acquiring Person will be null and void.
However, Rights are not exercisable following the occurrence of an
event set forth above until such time as the Rights are no longer
redeemable by the Company as set forth below.
For example, at an exercise price of $45 per Right, each Right not
owned by an Acquiring Person (or by certain related parties) following an
event set forth in the preceding paragraph would entitle its holder to
purchase $90 worth of Common Stock (or other consideration, as noted above)
for $45. Assuming that the Common Stock had a per share value of $15 at
such time, the holder of each valid Right would be entitled to purchase 6
shares of Common Stock for $45.
In the event that, at any time following the Stock Acquisition Date
(i) the Company is acquired in a merger or other business combination
transaction in which the Company is not the surviving corporation (other
than in connection with an Approved Transaction), or (ii) 50% or more of
the Company's assets or earning power is sold or transferred, each holder
of a Right (except Rights which previously have been voided as set forth
above) shall thereafter have the right to receive, upon exercise, common
stock of the acquiring company having a value equal to two times the
exercise price of the Right. The events set forth in this paragraph and in
the second preceding paragraph are referred to as the "Triggering Events."
The Purchase Price payable, and the number of Units of Preferred Stock
or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the
event of a stock dividend on, or a subdivision, combination or
reclassification of, the Preferred Stock, (ii) if holders of the Preferred
Stock are granted certain rights or warrants to subscribe for Preferred
Stock or convertible Securities at less than the current market price of
the Preferred Stock, or (iii) upon the distribution to holders of the
Preferred Stock of evidences of indebtedness or assets (excluding regular
quarterly cash dividends) or of subscription rights or warrants (other than
those referred to above).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments amount to at least 1% of the Purchase
Price. No fractional Units will be issued and, in lieu thereof, an
adjustment in cash will be made based on the market price of the Preferred
Stock on the last trading date prior to the date of exercise. At any time
until 10 days following the Stock Acquisition Date, the Company may redeem
the Rights in whole, but not in part, at a price of $.01 per Right in cash
or in shares of Common Stock. Under certain circumstances set forth in the
Rights Agreement, the decision to redeem shall require the concurrence of a
majority of the Continuing Directors. After the redemption period has
expired, the Company's right of redemption may be reinstated if an
Acquiring Person reduces his beneficial ownership to 10% or less of the
outstanding shares of Common Stock in a transaction or series of
transactions not involving the Company. Immediately upon the action of the
Board of Directors ordering redemption of the Rights, with, where required,
the concurrence of the Continuing Directors, the Rights will terminate and
the only right of the holders of Rights will be to receive the $.01
redemption price.
The term "Continuing Directors. means any member of the Board of
Directors of the Company who was a member of the Board prior to the date of
the Rights Agreement, and any person who is subsequently elected to the
Board if such person is recommended or approved by a majority of the
Continuing Directors, but shall not include an Acquiring Person or an
affiliate or associate of an Acquiring Person, or any representative of the
foregoing entities.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the
right to vote or to receive dividends.
While the distribution of the Rights will not be taxable to stockholders or
to the Company, stockholders may, depending upon the circumstances,
recognize taxable income in the event that the Rights become exercisable
for Common Stock (or other consideration) of the Company or for Common
Stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms
of the Rights, any of the provisions of the Rights Agreement may be amended
by the Board of Directors of the Company prior to the Distribution Date.
After the Distribution Date, the provisions of the Rights Agreement may be
amended by the Board (in certain circumstances, with the concurrence of the
Continuing Directors) in order to cure any ambiguity, to make changes which
do not adversely affect the interests of holders of Rights (excluding the
interest of any Acquiring Person) or to shorten or lengthen any time period
under the Rights Agreement; provided, however, that no amendment to adjust
the time period governing redemption shall be made at such time as the
Rights are not redeemable or, in certain circumstances, without the
concurrence of the Continuing Directors.
A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit its Form 10-K for the fiscal year ended
October 31, 1997 and filed effective January 29, 1998. A copy of the Rights
Agreement is available free of charge from the Rights Agent. This summary
description of the Rights does not purport to be complete and is qualified
in its entirety by reference to the Rights Agreement, which is incorporated
hereinby reference.
OPTICAL COATING LABORATORY, INC.
CHANGE IN CONTROL AGREEMENT
AGREEMENT made this 20th day of November 1997, between OPTICAL COATING
LABORATORY, INC., having its principal place of business at 2789 Northpoint
Parkway, Santa Rosa, California 95407 ("Employer"), and ("Employee").
1. Employment. In addition to the policies and procedures published
from time to time by Employer in its Employee Handbook, Employer hereby
agrees to employ Employee, and Employee hereby agrees to be employed by
Employer, subject to the terms and provisions herein. As used herein, the
phrase "employment term" refers to the entire period of employment of
Employee by Employer hereunder.
2. Duties of Employee. Employee shall serve in such capacities and
shall do and perform all such services, acts or things necessary and
appropriate in the course of his or her employment as reasonably required
from time to time by Employer. Employee shall devote his or her knowledge,
skill, working time and energy to the performance of his or her duties in
an efficient, trustworthy and businesslike manner. Employee shall not
directly or indirectly render any services of a business, commercial or
professional nature during the employment term to any other person or
organization, whether for compensation or otherwise, that would conflict
with the rendition of services under this agreement without the prior
written consent of Employer.
3. Compensation of Employee. As compensation for his or her
services hereunder, Employee shall receive a base salary of $____________
DOLLARS) per year payable in equal installments no less than weekly during
the employment term. Employee's salary may be increased in an amount
determined in the sole discretion of Employer. Employee shall also be
entitled to participate in such other retirement, bonus and other benefits
as may be available to other employees of his or her status and rank with
Employer and which shall be commensurate with his or her rank, experience
and record.
4. Expenses. Employee is authorized to incur reasonable business
expenses necessary in the performance of his or her duties hereunder,
including travel, meal and lodging expenses, provided such expenses have
been incurred in conformity with Employer's policy prevailing from time to
time for all such business expenses. Employee shall provide Employer
documentary evidence in form reasonably required by Employer to confirm the
propriety of such expenses and to enable Employer, to the extent possible,
to deduct such expenses for federal and state income tax purposes.
5. Termination by Employee after Occurrence of a Hostile Change in
Control. Employee shall have the right to terminate his or her employment
any time during the period beginning three (3) months after the occurrence
of a Change in Control and ending twelve (12) months after the occurrence
of such Change in Control. If Employee terminates his or her employment
during such time period, Employee shall be paid an amount equal to the
lesser of (i) eighteen (18) months of Employee's maximum salary in effect
within twelve (12) months of termination, or (ii) the maximum amount
payable under Section 280G of the Internal Revenue Code of 1986, as the
same may be amended from time to time (the "Code"), without any portion of
such amount being classified as an "excess parachute payment" within the
meaning of Section 280G(b)(1) of the Code, after taking into account all
other "parachute payments" within the meaning of Section 280G(b)(2) of the
Code.
6. Termination or Constructive Dismissal by Employer after
Occurrence of Change in Control. Except in the case of a Termination for
Cause, if any time within two (2) years after the occurrence of a Change in
Control either (i) Employer terminates Employee's employment or (ii)
Employee terminates his or her employment following a Constructive
Dismissal by Employer, then Employee shall be paid an amount equal to the
lesser of (A) thirty-six (36) months of Employee's maximum salary in effect
within twelve (12) months of termination, or (B) the maximum amount payable
under Section 280G of the Code, without any portion of such amount being
classified as an "excess parachute payment" within the meaning of Section
280G(b)(1) of the Code, after taking into account all other "parachute
payments" within the meaning of Section 280G(b)(2) of the Code. If
Employee is entitled to payment under this subparagraph 5, Employee shall
not be entitled to payment under subparagraph 6.
7. Time of Payment. Employer shall pay any amounts due to Employee
hereunder upon termination of Employee's employment.
8. No other Severance Payments. If Employee receives a payment
under either subparagraphs 5 or 6, Employee shall not be entitled to any
severance payments that might otherwise be payable to Employee.
9. Acceleration of Unvested Stock Options. Upon a Hostile Change in
Control or a Change in Control as defined herein, all unvested outstanding
stock options held by Employee shall be immediately exercisable.
10. Certain Definitions. For Purposes of this agreement, the
following terms have the meanings indicated:
(a) "Acquiring Person" shall mean any person who or which,
together with all Affiliates and Associates of such person, shall be the
owner, beneficial or otherwise, of at least twenty percent (20%) of the
shares of Common Stock of Employer then outstanding, but shall not include
Employer, any subsidiary of Employer, any employee benefit plan of Employer
or of any subsidiary of Employer, or any person or entity organized,
appointed or established by Employer for or pursuant to the terms of any
such plan.
(b) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended and in
effect on the date of this Agreement.
(c) "Continuing Director" shall mean (i) any member of the Board
of Directors of Employer, while such person is a member of the Board, and
who was a member of the Board prior to the date of this Agreement, or (ii)
any person who subsequently becomes a member of the Board, while such
person is a member of the Board, if such person's nomination for election
or reelection to the Board is recommended or approved by a majority of the
Continuing Directors.
(d) "Constructive Dismissal by Employer" shall occur if Employer
demotes Employee, reduces Employee's duties, decreases Employee's benefits
or compensation, or relocates Employee to a location outside of the
community where Employee is employed as of the date of the Change in
Control.
(e) "Change in Control" shall mean the occurrence of any of the
events described in subparagraph (i), or (ii), or below:
(i) The acquisition of more than fifty percent (50%) of the
shares of Common Stock of Employer then outstanding by an
Acquiring Person, alone or together with such person's Affiliates
or Associates, including any such acquisitions pursuant to a
"reorganization" within the meaning of Section 181 of the
California Corporations Code; or
(ii) The failure of a majority of the members of the
Board of Directors of Employer to be Continuing Directors.
(f) "Hostile Change in Control" shall mean the acquisition of
more than twenty percent (20%) of the shares of Common Stock of Employer
then outstanding by an Acquiring Person, alone or together with such
person's Affiliates or Associates, including any such acquisitions pursuant
to a "reorganization" within the meaning of Section 181 of the California
Corporations Code, and (B) the adoption by Employer's Board of Directors of
a resolution (i) disapproving the acquisition in subparagraph 10(f), or
(ii) declaring operative the provisions of this Agreement pertaining to a
Hostile Change in Control.
(g) "Termination for Cause" shall mean a termination of the
Employee's employment for a willful breach of duty in the course of his or
her employment, or in the case of his or her habitual neglect or continued
incapacity to perform his or her duty.
11. Effect of Employer's Merger, Transfer of Assets or Dissolution.
This Agreement shall not be terminated by any merger or consolidation where
Employer is not the consolidated or surviving corporation, transfer of
substantially all of the assets of Employer, or voluntary or involuntary
dissolution of Employer. In the event of any such merger, consolidation or
transfer of assets, the surviving corporation or the transferee of
Employer's assets shall be bound by the provisions of this Agreement, and
Employer shall take all actions necessary to insure that such corporation
or transferee is bound by the provisions of this Agreement.
12. Arbitration. Any controversy between Employer and Employee
involving the construction or application of any of the terms, provisions
or conditions of this Agreement, any claim hereunder, or any claim
pertaining to any covenant of good faith and fair dealing or any other duty
implied by law, shall on the written request of either party served on the
other be submitted to arbitration, and such arbitration shall proceed and
be governed by the provisions of the California Arbitration Act. Employer
and Employee shall, within fourteen (14) days after such notice, each
appoint one person to hear and determine the dispute, and the two
appointees, within fourteen (14) days after appointment of both of them,
shall jointly select a third impartial arbitrator whose decision shall be
final and conclusive upon both parties. The arbitrators shall not have the
power to alter, amend or modify the terms of this agreement. The decision
of the arbitrators shall be final and binding. The costs of arbitration,
including the reasonable attorney's fees of the prevailing party, shall be
borne by the losing party. Arbitration as provided herein shall be the
exclusive means to resolve any of the controversies referred to in this
paragraph 8.
13. Notices. Any notices to be given hereunder by either party to
the other may be effected by personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested.
Mail notices shall be addressed to the parties at the address of Employer
appearing above or at the address of Employee appearing beneath his or her
signature below, but each party may change his or her address by written
notice in accordance with this paragraph. Notices delivered personally
shall be deemed communicated as of actual receipt; mail notices shall be
deemed communicated as of two days after mailing.
14. Partial Invalidity. If any provision of this Agreement is held
by a court of competent jurisdiction to be invalid, void or unenforceable,
the remaining provisions shall nevertheless continue in full force without
being impaired or invalidated in any way.
15. Agreement Supersedes Any Inconsistent Prior Agreements or
Understandings. The terms of this Agreement supersede any inconsistent
prior promises, policies, representations, understandings, arrangements or
agreements between the parties.
16. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
OPTICAL COATING LABORATORY, INC.
By
EMPLOYEE:
Signature Date
Address:
Optical Coating Laboratory, Inc.
Change in Control Agreement
1998 MANAGEMENT INCENTIVE PLAN
Page 1
OBJECTIVES
The objectives of the Optical Coating Laboratory, Inc. (OCLI) Fiscal Year
1998 Management Incentive Plan (MIP) are:
. To motivate key OCLI managers and employees to achieve Fiscal Year
(FY) 1998 financial objectives; and
. To reward key OCLI managers and employees who contribute significantly
towards the achievement of OCLI's financial and operational
objectives.
ADMINISTRATION
The Human Resources Department, in coordination with the Finance &
Accounting Department, will administer the MIP under the direction of the
Chairman of the Board and CEO of OCLI (Plan Administrator).
ELIGIBILITY
Employees in Salary Grades 11 and above, or equivalent (for non-US
subsidiaries), are eligible to participate in the MIP. MIP participants
are not eligible for "Superior Merit" bonuses unless approved by the Plan
Administrator. Concurrent participation in any other type of bonus program
requires the approval of the Plan Administrator.
The quantitative portion of the bonus awards are calculated quarterly and
annually based on OCLI's and the Divisions' financial results. Qualitative
annual bonus awards are based on each participant's performance to
individual objectives (described in their Personal Action Plan) during the
plan year. The plan year is defined as the fiscal year beginning November
3, 1997 and ending November 1, 1998.
Employees who are newly hired, promoted or transferred into or out of
eligible positions and those who move from one eligibility level to another
will receive pro rata bonus awards based on actual base pay earned during
the plan year in the eligible positions. For purposes of this plan the
1/12/98 salary will be treated as the beginning salary for the plan year.
Page 2
1998 MANAGEMENT INCENTIVE PLAN
In addition, participants who leave OCLI during the plan year under any of
the following conditions may be eligible for pro rata bonus awards:
. participants who retire under the provisions of one of the Company's
retirement plans or the Social Security Act; or
. a disabled participant or the spouse or legal representative of a
deceased participant.
Participants leaving the Company under any conditions other than those
outlined above are not eligible for bonus awards for the plan quarter or
year in which they leave.
BONUS OPPORTUNITY
The bonus opportunity for each participant by salary grade as a percentage
of base salary is shown below.
TARGET BONUS OPPORTUNITY
AS A PERCENT OF BASE SALARY EARNED
SALARY GRADE PERCENT
CEO 35%
President 35%
Vice Presidents 25%
Level 14 20%
Level 13 15%
Level 12 15%
Level 11 10%
QUARTERLY BONUS DETERMINATION
Quarterly bonus payments will be prorated linearly between 5% and 10% of
the participant's targeted bonus opportunity for COP (Company Operating
Profit) performance between 80% and 100% of plan. In other words,
achievement of 80% of the quarterly COP plan will payout half of the
quarterly targeted bonus opportunity. Payments will increase without limit
for performance over plan.
OCLI Consolidated and division COP performance for the quarter is found on
the Quarterly Income Statement displayed as Company Operating Profit.
Page 3
1998 MANAGEMENT INCENTIVE PLAN
QUARTERLY BONUS CALCULATION
Quarterly bonus awards will be weighted according to the MIP Annual
Performance Weighting Matrix, page 5. The 48%/32% annual ratio
proportionally equals the 60%/40% quarterly ratio. Quarterly bonus awards
will be based on defined targets.
There is no 80% threshold for negative targets. The target must be met for
any award to be distributed. Also, any additional award above target will
not be generated until the performance is above zero and will be paid at
the discretion of the plan administrator.
Page 4
1998 MANAGEMENT INCENTIVE PLAN
Quarterly bonus award payments will be approved by the Plan Administrator
following a review of the quarterly results by the Finance and Accounting
Department.
ANNUAL BONUS DETERMINATION
The quantitative portion of this annual bonus payment will be based on the
RONA (Return on Net Assets) performance of the Division and/or the overall
Company.
The Operating Entity RONA performance for the plan year is calculated
by dividing net operating profit after tax (NOPAT) by net average
assets.
-Net operating profit after tax (NOPAT) is defined as the Operating
Entity's net income plus the after tax interest for the plan year,
as certified by the Company's independent auditors, including
appropriate accruals for all incentive awards estimated to be
payable for that plan year.
-Net Average assets is defined as the average of the Company's total
assets minus current liabilities plus current maturities at the
beginning and at the end of the fiscal year.
The quantitative portion of the annual bonus payments (40% of the target
bonus opportunity) will be equal to a linear extrapolation between 20% and
40% of the participant's targeted bonus opportunity for RONA performance
between 80% and 100% of the RONA contained in the Annual Operating Plan
(AOP). In other words, achievement of 80% of the RONA target will payout
half of the annual target bonus opportunity.
A compounding multiplier of 10% for each 10% increment that RONA
performance exceeds budgeted RONA target is applied to calculate the bonus
pool available. Any impact due to this multiplier's effect will be applied
to the annual quantitative portion of the MIP payouts. The formula allows
for interpolation between the 10% ranges.
Page 5
ANNUAL INDIVIDUAL QUALITATIVE PERFORMANCE BONUS
Individual Performance -- Individual performance is defined as each
participant's performance for the plan year based on an assessment of the
individual's results and contribution by the Division General Manager, the
President in the case of Division General Managers, or the Plan
Administrator in the case of Corporate.
Page 6
1998 MANAGEMENT INCENTIVE PLAN
Individual performance awards are separate from payments based upon ROA
performance. The Individual Qualitative Pool is 20% of the planned target
pay-out. It does not increase with achievements over plan. This 20% of
the planned target pay-out will be distributed as a pool to each Division
(pro-rated to reflect the number of participants in each Division). The
General Manager of each division will be part of the part of the Corporate
pool for distribution purposes. The General Manager of each Division, and
the Plan Administrator in the case of Corporate, shall distribute the funds
based on the criteria defined in the first paragraph of this section.
ANNUAL BONUS PAYMENT
Annual bonus award payments will be approved by the Plan Administrator
following the certification of OCLI's Consolidated Financial Statements by
an independent auditor. Payments will be distributed to eligible
participants during the second payroll in January, 1999.
AMENDMENTS
The Board of Directors of OCLI reviews the Company's incentive compensation
plans annually to ensure equity both within the Company and in relation to
current economic conditions. The Board of Directors reserves the right to
amend, suspend, terminate or make exceptions to this plan at any time. The
effects of any unusual and material accounting or non-recurring
transactions may be excluded from the bonus calculations with the approval
of the Plan Administrator. For example, performance objectives may be
adjusted to reflect major acquisitions and/or divestitures during the plan
year.
