-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GlMYnw6L7eHJIAZvb/KHJ78xh5I8JX4Az5zZtx/OCzig6sx+JzQNEP0p8aIVQcwE Qr2b1Unb4KIzDHPANOjoYw== 0000073568-98-000025.txt : 19980813 0000073568-98-000025.hdr.sgml : 19980813 ACCESSION NUMBER: 0000073568-98-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980812 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OAK INDUSTRIES INC CENTRAL INDEX KEY: 0000073568 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC CONNECTORS [3678] IRS NUMBER: 361569000 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-04474 FILM NUMBER: 98683650 BUSINESS ADDRESS: STREET 1: 1000 WINTER STREET STREET 2: BAY COLONY CORP CENTER CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6178900400 MAIL ADDRESS: STREET 1: BAY COLONY CORPORATE CENTER STREET 2: 1000 WINTER STREET CITY: WALTHAM STATE: MA ZIP: 02154 FORMER COMPANY: FORMER CONFORMED NAME: OAK ELECTRONETICS CORP DATE OF NAME CHANGE: 19720827 10-Q 1 MAIN DOCUMENT =========================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-Q ------------------ For Quarter Ended June 30, 1998 Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 COMMISSION FILE NO. 1-4474 -------------------------- OAK INDUSTRIES INC. (Exact name of Registrant as specified in its charter) DELAWARE 36-1569000 (State or other jurisdiction (IRS Employer of incorporation or organization) Identification Number) 1000 WINTER STREET WALTHAM, MASSACHUSETTS 02451 (Address of principal executive offices) (781) 890-0400 (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes / / No /X/ Indicate number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. As of August 10, 1998, the Company had outstanding 18,129,880 shares of Common Stock, $0.01 par value per share. =========================================================================== PART I. FINANCIAL INFORMATION ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS CONSOLIDATED CONDENSED BALANCE SHEET (Dollars in thousands) (Unaudited)
December 31, 1997 June 30, 1998 --------------------- --------------------- ASSETS Current Assets: Cash and cash equivalents................... $ 8,642 $ 10,824 Receivables, less reserves................. 47,036 52,250 Inventories: Raw materials........................... 14,153 16,269 Work in process......................... 28,852 30,930 Finished goods.......................... 8,292 51,297 10,501 57,700 --------- -------- Deferred income taxes...................... 16,143 12,634 Other current assets....................... 2,488 2,133 --------- --------- Total current assets................. 125,606 135,541 Plant and equipment, at cost.................. 159,351 166,620 Less - accumulated depreciation............... (89,926) 69,425 (96,176) 70,444 --------- -------- Deferred income taxes......................... 775 723 Goodwill and other intangible assets, less accumulated amortization of $17,239 and $20,268........................ 178,577 175,489 Investment in affiliates...................... 8,358 9,110 Other assets.................................. 5,049 8,780 --------- --------- Total Assets......................... $ 387,790 $ 400,087 ========= ========= Liabilities and Stockholders' Equity Current Liabilities: Current portion of long-term debt.......... $ 443 $ 442 Accounts payable........................... 11,128 17,451 Accrued liabilities........................ 29,217 26,193 --------- --------- Total current liabilities............ 40,788 44,086 Other Liabilities............................. 8,429 7,379 Long-Term Debt, Less Current Maturities....... 151,465 141,215 Minority Interest............................. 4,954 4,556 Stockholders' Equity: Common stock............................... 190 191 Additional paid-in capital................. 305,740 310,822 Accumulated deficit........................ (97,956) (83,548) Unearned compensation - restricted stock... (1,754) (1,429) Treasury stock............................. (22,092) (21,042) Other...................................... (1,974) 182,154 (2,143) 202,851 --------- --------- -------- --------- Total Liabilities and Stockholders' Equity.............. $ 387,790 $ 400,087 --------- ---------
See accompanying notes to consolidated condensed financial statements. CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS (In thousands, except per share data) (Unaudited)
For the Three Months For the Six Months Ended June 30, Ended June 30, ---------------------- ---------------------- 1997 1998 1997 1998 -------- -------- -------- -------- Net sales....................................... $ 80,306 $ 88,662 $ 153,348 $ 167,876 Cost of sales................................... (49,523) (54,629) (97,479) (104,169) -------- -------- --------- --------- Gross profit.................................... 30,783 34,033 55,869 63,707 Selling, general and administrative expenses.... (18,739) (19,614) (34,626) (36,784) -------- -------- --------- --------- Operating income................................ 12,044 14,419 21,243 26,923 Interest expense................................ (2,767) (2,300) (5,248) (4,865) Interest income................................. 63 137 139 314 Equity in net income of affiliated companies.... 5 851 44 1,435 -------- -------- --------- --------- Income before income taxes and minority interest..................................... 9,345 13,107 16,178 23,807 Income tax provision............................ (3,645) (4,981) (6,242) (9,047) Minority interest in net income of subsidiaries. (339) (210) (548) (352) -------- -------- --------- --------- Net income...................................... $ 5,361 $ 7,916 $ 9,388 $ 14,408 ======== ======== ========= ========= Income per share - basic Net income................................ $ .30 $ .44 $ .52 $ .81 ======== ======== ========= ========= Weighted average number of shares outstanding - basic.......................... 17,585 17,887 17,906 17,817 ======== ======== ========= ========= Income per share - diluted Net income................................ $ .30 $ .41 $ .52 $ .76 ======== ======== ========= ========= Weighted average number of shares outstanding - diluted........................ 17,894 21,233 18,217 20,346 ======== ======== ========= =========
See accompanying notes to consolidated condensed financial statements. CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS (Dollars in thousands) (Unaudited)
For the Six Months Ended June 30, ---------------------- 1997 1998 -------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS FROM: Operating Activities: Net Income............................................ $ 9,388 $ 14,408 Adjustments to reconcile net income to net cash provided by operations: Depreciation.................................... 6,135 6,806 Amortization.................................... 3,369 3,686 Minority interest............................... 548 352 Gain on the sale of properties.................. (253) -- Undistributed earnings of affiliated companies.. (44) (537) Changes in assets and liabilities, net of effects from acquisition of businesses: Receivables.................................. (9,763) (5,424) Inventories.................................. 2,332 (6,403) Accounts payable and accrued liabilities..... (838) 4,363 Other........................................ 4,479 3,715 -------- --------- Net cash provided by operations.......................... 15,353 20,966 -------- --------- Investing Activities: Capital expenditures.................................. (7,200) (8,511) Acquisition of business............................... (751) (1,000) Proceeds from the sale of properties.................. 1,524 -- Other................................................. 185 302 -------- --------- Net cash used in investing activities.................... (6,242) (9,209) -------- --------- + Financing Activities: Long-term borrowings.................................. 31,103 108,042 Repayment of borrowings............................... (17,515) (118,293) Stock repurchases..................................... (20,544) -- Exercise of stock options............................. 1,839 5,178 Dividends paid to minority stockholders............... (825) (750) Deferred debt issuance costs.......................... -- (3,303) Other................................................. (175) (396) -------- --------- Net cash provided by (used in) financing activities...... (6,117) (9,522) -------- --------- Effect of exchange rate changes on cash and cash equivalents................................... (450) (53) -------- --------- Cash and Cash Equivalents: Net change during the period.......................... 2,544 2,182 Balance, beginning of period.......................... 6,116 8,642 -------- --------- Balance, end of period................................ $ 8,660 $ 10,824 ======== =========
See accompanying notes to consolidated condensed financial statements. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. The consolidated condensed financial statements have been prepared by Oak Industries Inc. (the "Company") without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. The Company believes that the disclosures made in this report are adequate to make the information presented not misleading. It is suggested that these consolidated condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. In the opinion of the Company, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of Oak Industries Inc. and its consolidated subsidiaries as of December 31, 1997 and June 30, 1998, and the results of their operations and cash flows for the three and six month periods ending June 30, 1997 and 1998 have been included. The results of operations for such interim periods are not necessarily indicative of the results for the full year. 2. On February 25, 1998, the Company issued $100 million of 4 7/8% convertible subordinated notes due 2008 (the "Notes"). The Notes are convertible into common stock of the Company at a conversion price of $38.66 per share. Interest on the Notes is payable semi-annually in arrears on March 1 and September 1 of each year, commencing September 1, 1998. The net proceeds from the sale of the Notes were used to reduce borrowings under the Company's $300 million revolving credit facility. 3. The Company paid interest on debt for the three months ended June 30, 1997 and 1998 in the amounts of $2.6 million and $0.7 million, respectively, and for the six months ended June 30, 1997 and 1998 in the amounts of $5.0 million and $3.0 million, respectively. Income taxes paid during the three months ended June 30, 1997 and 1998 were $0.5 million and $5.8 million, respectively, and the six months ended June 30, 1997 and 1998 were $1.4 million and $6.9 million, respectively. 4. The following represents a reconciliation of the net income and weighted average number of shares used in the basic and diluted earnings per share computations (in thousands, except per share data):
For the Three Months For the Six Months Ended June 30, Ended June 30, 1997 1998 1997 1998 ------ ------ ------ ------ Basic Net income..................................... $ 5,361 $ 7,916 $ 9,388 $ 14,408 Weighted average shares outstanding............ 17,585 17,887 17,906 17,817 Net income per share........................... $ .30 $ .44 $ .52 $ .81 ======== ======== ======== ======== Diluted Net income..................................... $ 5,361 $ 7,916 $ 9,388 $ 14,408 Interest expense and amortization of deferred costs, net of tax, related to 4 7/8% convertible subordinated notes.............. -- 807 -- 1,127 -------- -------- -------- -------- Net income as adjusted......................... $ 5,361 $ 8,723 $ 9,388 $ 15,535 Weighted average shares: Outstanding................................. 17,585 17,887 17,906 17,817 Incremental shares related to 4 7/8% convertible subordinated notes.......... -- 2,587 -- 1,811 Incremental shares related to other common stock equivalents....................... 309 759 311 718 -------- -------- -------- -------- Total shares outstanding, as adjusted.......... 17,894 21,233 18,217 20,346 Net income per share........................... $ .30 $ .41 $ .52 $ .76 ======== ======== ======== ========
5. Certain items in the 1997 financial statements have been reclassified to conform with 1998 presentation. 6. In the first quarter of 1998, the Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"), "Reporting Comprehensive Income." This statement requires disclosure of comprehensive income and its components in interim and annual reports. Comprehensive income includes all changes in stockholders' equity during a period except those resulting from investments by stockholders and distributions to stockholders. Accordingly, the components of comprehensive income include net income, cumulative translation adjustments and unrealized gains and losses on available-for-sale securities. For the three months ended June 30, 1997 and 1998, foreign currency translation adjustments resulted in losses of $0.21 million and $0.09 million, respectively, and unrealized gains on available-for-sale securities equaled $0.01 million for the three months ended June 30, 1998. For the six months ended June 30, 1997 and 1998, foreign currency translation adjustments resulted in losses of $0.98 million and $0.26 million, respectively, and unrealized gains on available- for-sale securities equaled $0.09 million for the six months ended June 30, 1998. There were no unrealized gains or losses on available-for-sale securities for the three and six months ended June 30, 1997. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SECOND QUARTER RESULTS OF OPERATIONS SUMMARY Net sales increased 10% to $88.7 million in the second quarter of 1998 from $80.3 million in the second quarter of 1997. Net income increased to $7.9 million in the second quarter of 1998 from $5.4 million in the second quarter of 1997 due to increased operating income in both the communications components group and controls components group. SALES The Company's communications components sales increased 13% in the second quarter of 1998 compared to sales in the same period in 1997. This growth was primarily the result of increased sales at Oak Frequency Control Group and at Gilbert Engineering Co., Inc. ("Gilbert"). Lasertron, Inc. also moderately increased its sales during the second quarter of 1998 compared to the second quarter of 1997. Sales at the controls components group increased 5% during the second quarter of 1998 versus sales in the comparable prior year period. This increase in sales was due to a significant increase in sales of gas controls, which was partially offset by a reduction in sales of components used in a government postal sorting system. GROSS PROFIT The gross profit margin for the second quarter of 1998 was 38.4% compared to 38.3% during the second quarter of 1997. Gross profit margins in both the communications components group and the controls components group for the second quarter of 1998 were about the same as comparable margins during the second quarter of 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $19.6 million during the second quarter of 1998 compared to $18.7 million of such expenses during the second quarter of 1997. Selling, general and administrative expenses declined as a percentage of sales to 22.1% in the second quarter of 1998 compared to 23.3% in the second quarter of 1997. INTEREST EXPENSE Interest expense decreased to $2.3 million during the second quarter of 1998 from $2.8 million during the second quarter of 1997. The decrease primarily resulted from a lower effective interest rate on outstanding borrowings in the second quarter of 1998 compared to the second quarter of 1997, due to the lower interest rate on the Notes. INCOME TAXES The effective income tax rate for financial reporting purposes for the second quarter of 1998 was 38.0%. The tax rate for the comparable prior year period was 39.0%. EQUITY IN NET INCOME OF AFFILIATED COMPANIES Equity in net income of affiliated companies was $0.85 million for the second quarter of 1998 compared to $0.01 million in the comparable prior year period. This increase resulted primarily from an increase in net income of Wuhan Telecommunication Devices Co. ("WTD"), the Company's joint venture which manufactures fiber-optic components in China, which experienced a significant increase in sales. MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES Minority interest in net income of subsidiaries during the second quarter of 1998 decreased to $0.2 million from $0.3 million in the second quarter of 1997. During the second quarter of 1998, minority stockholders owned 3.75% of Gilbert compared to 7.5% during the second quarter of 1997. SIX MONTHS RESULTS OF OPERATIONS SUMMARY Net sales increased 9% to $167.9 million in the first six months of 1998 from $153.3 million in the first six months of 1997. Net income increased to $14.4 million in the first six months of 1998 from $9.4 million in the first six months of 1997 primarily due to increased operating income from the Company's communications components group. SALES The Company's communications components sales increased 14% in the first six months of 1998 compared to sales in the same period in 1997. This growth was the result of a significant increase in sales in the Oak Frequency Control Group together with moderate increases in sales at Gilbert and Lasertron. Sales at the controls components group during the first six months of 1998 remained at approximately the same level compared to sales in the first six months of 1997. This was the net result of a moderate increase in sales of gas controls offset by a reduction in sales of components used in a government postal sorting system. GROSS PROFIT The gross profit margin for the first six months of 1998 was 37.9% compared to 36.4% during the first six months of 1997. Gross profit margin improved in the communications components group due to increased production volumes and improved productivity. Gross profit margin also improved in the controls components group as sales of higher margin products increased in 1998 when compared to sales of those products in the first six months of 1997. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased to $36.8 million during the first six months of 1998 compared to $34.6 million of such expenses during the first six months of 1997. Selling, general and administrative expenses decreased as a percentage of sales to 21.9% for the first six months of 1998 compared to 22.6% during the first six months of 1997. Research and development expenses and selling expenses increased during the first six months of 1998 versus the comparable prior year period. During the first six months of 1998, the Company received $0.5 million of royalty income related to 1997 activities. The Company reports royalty income as an offset to selling, general and administrative expenses. No royalty income was reported during the first six months of 1997. INTEREST EXPENSE Interest expense decreased to $4.9 million during the first six months of 1998 from $5.2 million during the first six months of 1997. The decrease resulted from a lower effective interest rate on borrowings, partially offset by increased average borrowings. The lower effective interest rate is due to the lower rate on the Notes. INCOME TAXES The effective income tax rate for financial reporting purposes for the first six months of 1998 was 38.0%. The tax rate for the comparable prior year period was 38.6%. EQUITY IN NET INCOME OF AFFILIATED COMPANIES Equity in net income of affiliated companies was $1.44 million for the first six months of 1998 compared to $0.04 million in the comparable prior year period. This increase resulted from increased income from WTD, and from a gain during the first quarter of 1998 of $0.48 million from the Company's sale to its joint-venture partner of the Company's interest in a joint venture that manufactured quartz crystal blanks in Venezuela. MINORITY INTEREST IN NET INCOME OF SUBSIDIARIES Minority interest in net income of subsidiaries during the first six months of 1998 decreased to $0.4 million from $0.5 million in the first six months of 1997 because minority ownership of Gilbert was 3.75% during the first six months of 1998 compared to 7.5% during the first six months of 1997. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations for the first six months of 1998 was $21.0 million compared to $15.4 million for the first six months of 1997. This increase was in large part the result of increased net income. Capital expenditures for the first six months of 1998 were $8.5 million compared to $7.2 million for the first six months of 1997. Capital expenditures during the first six months of 1998 were mainly for equipment for capacity expansion and new product introductions. In April of 1998 the Company paid $1.0 million to the former shareholders of Piezo Crystal Company under the earnout provision of the 1997 acquisition agreement. The Company has in place a $300 million unsecured revolving credit facility (the "Facility"). Borrowings under the Facility bear interest, at the option of the Company, either (i) at the prime rate (or, if higher, at 0.5% above the federal funds rate) or (ii) at a spread ranging from 0.5% to 1.25% over the reserve-adjusted 1, 2, 3 or 6 month LIBOR. Certain of the Company's subsidiaries have guaranteed the obligations under the Facility. The Facility requires the Company to meet certain periodic financial tests and prohibits the Company from paying dividends to its stockholders. Borrowing capacity under the Facility will be reduced by $50.0 million on each of November 1, 1999 and November 1, 2000. The Facility expires on December 31, 2001. As of June 30, 1998, the Company had outstanding loans of $39.0 million under the Facility. On February 25, 1998 the Company issued the Notes. The Notes are convertible into common stock of the Company at a conversion price of $38.66 per share. Interest on the Notes is payable semi-annually in arrears on March 1 and September 1 of each year, commencing September 1, 1998. The net proceeds from the sale of the Notes were used to reduce outstanding borrowings on the Facility. The Company believes that funds generated by operations and from its existing cash balances and the Facility will be sufficient to fund the Company's ongoing operations for the foreseeable future. RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), "Disclosure About Segments of an Enterprise and Related Information" requires public companies to report certain information about their operating segments in their annual financial statements and quarterly reports issued to stockholders. It also requires public companies to report certain information about their products and services, the geographic areas in which they operate, and their major customers. The Company is required to adopt this statement in the fourth quarter of 1998. Implementation of SFAS No. 131 will have no effect on the Company's financial position or results of operations. The Company is assessing the financial statement footnote disclosure impact of SFAS No. 131. In April 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 132 ("SFAS No. 132"), "Employer's Disclosures about Pensions and Other Postretirement Benefits." SFAS No. 132 revises disclosure requirements for pension and other postretirement benefit plans. The Company is required to adopt this statement in the fourth quarter of 1998. Implementation of SFAS No. 132 will have no impact on the Company's financial position or results of operations. In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS No. 133"), "Accounting for Derivative Instruments and for Hedging Activities." SFAS No. 133 requires companies to record derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from the changes in the values of those derivatives would be accounted for depending on the use of the derivatives and whether they qualify for hedge accounting. This statement is required to be adopted by the Company in the first quarter of 2000. The Company is assessing the impact of SFAS No. 133 on its financial position and results of operations. RISKS AND UNCERTAINTIES Statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations that are not statements of historical fact may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, statements as to expectations, beliefs and strategies regarding the future. It is important to note that actual results could differ materially from such forward looking statements due to a number of factors, including, among other things, the factors set forth below. The forward looking statements should be considered in light of these factors. A significant portion of the Company's revenues is attributable to sales of components for building, maintaining and expanding the communications infrastructure. These components are used primarily in cable, wireless and wired telephony systems in the United States and internationally. The amount of capital spending in these industries is affected by a variety of factors, including general economic conditions, availability of financing, government regulation, demand for the products and services offered by the Company's customers and technological developments. A decrease in capital spending for communications infrastructure could have a material adverse effect on the Company's business, financial condition and results of operations. The communications industry is very competitive and is characterized by rapid technological change, new product development, product obsolescence and evolving product specifications. Additionally, price competition in this market is intense with significant price erosion over the life cycle of a product. The ability of the Company to compete successfully depends on the continued introduction of new products and ongoing manufacturing cost reduction. The Company believes that it will continue to see varying degrees of price pressure across all product lines. These price pressures, if not offset by cost reductions, could result in lower average gross margins. Certain of the Company's business units sell products to a concentrated group of customers. The loss of, or reduced demand for products from, any of the Company's major customers could have a material adverse effect on the Company's business, financial condition and results of operations. The Company's international operations are subject to a variety of risks, including changes in policy by foreign governments, social conditions such as civil unrest, and economic conditions including high levels of inflation, fluctuation in the value of foreign currencies and currency exchange rates and trade restrictions or prohibitions. Such factors could adversely affect the Company's international operations and have a material adverse effect on the Company's business, financial condition and results of operations. In addition, although the Company's direct sales to customers in Asia have historically been a small percentage of total sales, the Company sells to customers that do business worldwide and cannot predict how the businesses of these customers may be affected by economic conditions in Asia or elsewhere. The Company's subsidiaries currently buy a number of raw materials from single sources. The failure of the subsidiaries to obtain sufficient raw materials or components as required, or to develop alternative sources if and as required in the future, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has completed an assessment of the impact of the Year 2000 on computers and software at its operating units. This assessment included a review of the Company's year 2000 readiness by qualified independent consultants. The Company has identified a number of potential problems and corrective actions required. Some of these actions have already been, and others remain to be, completed. The Company believes that Year 2000 issues at its facilities should not have a material impact on its financial or operating performance. However, pending completion of all necessary corrective actions, it is not possible for the Company to determine the extent of any difficulty it might experience at its facilities as a result of Year 2000 issues. Such problems, or similar problems at the Company's customers or suppliers, could temporarily affect the Company's performance adversely. The Company's operations are subject to a variety of laws, regulations and licensing requirements, including governmental regulations relating to the environment. In addition, various pending or threatened legal proceedings by or against the Company or one or more of its subsidiaries involve alleged breaches of contract, torts and miscellaneous other causes of action. The Company does not currently believe that its compliance with applicable regulations or any litigation against the Company will have a material adverse effect on the Company. However, there can be no assurance that future compliance efforts or litigation will not have a material adverse effect on the Company's business, financial condition and results of operations. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Reference is made to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. ITEM 2. CHANGES IN SECURITIES On May 26, 1998, the Company issued 255 shares of its common stock to a departing employee from its Supplemental Retirement Income Plan (the "SRIP"). These shares represented vested matching contributions made by the Company to the former employee's SRIP account. This transaction was effected pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933 as amended and the rules and regulations thereunder. ITEM 3. DEFAULTS UPON SENIOR SECURITIES Not applicable ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS On April 24, 1998 the Company held its Annual Meeting of Stockholders, at which each of William S. Antle III, Beth L. Bronner, Daniel W. Derbes, Roderick M. Hills, George W. Leisz, Gilbert E. Matthews, Christopher H. B. Mills and Elliot L. Richardson were re-elected as directors for an additional term to expire at the Company's next Annual Meeting of Stockholders. The directors were re-elected with the following votes: Mr. Antle, 15,308,571 votes cast for and 257,003 votes withholding authority; Ms. Bronner, 15,306,583 votes cast for and 258,991 votes withholding authority; Mr. Derbes, 15,309,587 votes cast for and 255,987 votes withholding authority; Mr. Hills, 15,315,886 votes cast for and 249,688 votes withholding authority; Mr. Leisz, 15,315,304 votes cast for and 250,270 votes withholding authority; Mr. Matthews, 15,320,193 votes cast for and 245,381 votes withholding authority; Mr. Mills, 15,312,990 votes cast for and 252,584 votes withholding authority; and Mr. Richardson, 15,307,519 votes cast for and 258,055 votes withholding authority. The Company's stockholders also approved a proposal approving amendments to the Oak Industries Inc. 1995 Stock Option and Restricted Stock Plan (the "1995 Plan"), including, among other things, an increase in the number of shares of common stock of the Company available under the 1995 Plan from 2,000,000 to 4,000,000, with 10,305,064 votes cast for such proposal, 2,676,220 votes cast against such proposal, 55,803 votes abstaining with respect to such proposal, and 2,528,487 broker non-votes with respect to such proposal. ITEM 5. OTHER INFORMATION Written notice of any stockholder proposal to be submitted outside the processes of Section 240.14a-8 of the Securities Exchange Act of 1934, as amended, must be received by the Secretary of the Company at 1000 Winter Street, Waltham, Massachusetts 02451 no later than February 1, 1999. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibit Index (10.1) Form of Severance Agreement dated as of May 1, 1998 by and between the Company and each of William S. Antle III, Coleman S. Hicks, and Pamela F. Lenehan, filed herewith. (10.2) Oak Industries Inc. Severance Plan, filed herewith. (27) Financial Data Schedule (Submitted only to the Securities and Exchange Commission in electronic format for its information only). (b) Reports on Form 8-K: No reports on Form 8-K were filed during the second quarter ended June 30, 1998. OAK INDUSTRIES INC. SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. OAK INDUSTRIES INC. Date: August 12, 1998 /s/ Coleman S. Hicks Coleman S. Hicks Senior Vice President and Chief Financial Officer EX-10 2 FORM OF SEVERANCE AGREEMENT OAK INDUSTRIES INC. SEVERANCE AGREEMENT This is an AGREEMENT entered into between Oak Industries Inc. (the "Company") and -------------- ("Executive") effective as of the first day of May, 1998. Executive is a key executive of the Company and a vital part of its management. In consideration of Executive's continued employment with the Company, the parties agree as follows: 1. Term; Window Period. The term during which this Agreement (the "Agreement") will be in effect (the "Term of the Agreement") will be the three-year period beginning on May 1, 1998 (the "Effective Date"). However, as of May 1, 2001, and as of May 1 of each third year thereafter, the Term of the Agreement will be automatically extended for a period of three additonal years unless either party delivers to the other written notice to the contrary no later than 90 days prior to such May 1. If a Change of Control (as defined in Exhibit A) occurs during the Term of the Agreement, the Agreement will remain in effect until all obligations hereunder have been discharged. The period starting on the date of such a Change of Control and ending on the third anniversary of the Change of Control will be a "Window Period" during which special provisions of this Agreement will apply. 2. Positions and Duties. Subject to the provisions of the Agreement: 2.1 Executive will serve as ------------------- of the Company with responsibilities consistent with these positions. [Executive will also be a member of the Board of Directors of the Company (the "Board").] 2.2 Executive will be a full-time employee of the Company and, except for reasonable work-related travel, will perform his duties at the Company's headquarters, which shall be no more than 50 miles from Waltham, Massachusetts. 2.3 Executive will devote his entire business time and attention and his best efforts to the duties and services of his positions. However, Executive may serve on boards of directors of other businesses and attend to personal investments and community and charitable service, provided that such activities are not competitive with the business of the Company and do not interfere with the performance of Executive's duties to the Company. 3. Compensation and Benefits. During the Term of the Agreement, the Company will provide compensation and benefits to Executive as follows: 3.1 Base Salary. The Company will review Executive's base salary annually, and Executive will receive such increases in base salary, if any, for each succeeding year as the Board determines in its sole discretion. (Executive's base salary as so increased will be referred to as "Base Salary"). Executive's Base Salary will not be decreased during the Term of the Agreement except as part of a general reduction in which the base salaries of all executives at or above the senior vice president level have been decreased and will not be decreased during a Window Period without Executive's prior written agreement. 3.2 Performance Bonus. Executive will be eligible for an annual performance bonus based on achievement of objective performance goals established by the Compensation Committee of the Board. Executive's bonus for any year ending during a Window Period will not be less than 100 percent of his bonus for the completed year immediately preceding the Change of Control. 3.3 Plans, Policies and Arrangements. Executive will be entitled to participate in the following plans, policies and arrangements (or in any successor or supplemental plans, policies or arrangements) in each case at a level appropriate to Executive's position and in each case in accordance with the terms of the pertinent plan, policy or arrangement: (i) the Oak Industries Salaried Pension Plan, the Oak Industries Vantage Savings Plan and the Oak Industries Supplemental Retirement Income Plan (the "SRIP"); (ii) the Company's group medical plan, Supplemental Executive Medical Plan, long-term disability plan and Executive Supplemental Long-Term Disability Plan; (iii) life insurance arrangements provided to executive-level employees of the Company; (iv) all Company stock option and restricted stock plans in which executives participate; (v) the Company's normal expense reimbursement policies; (vi) the automobile allowance arrangement for Company executives; and (vii) vacation and sick leave in accordance with the Company's policies. [3.4 Additional Term Life Insurance. The Company will purchase and keep in effect (or will reimburse Executive the cost of purchasing and keeping in effect) term life insurance on Executive's life in an amount of not less than $1 million (with the death benefit payable to Executive's designated beneficiary).] 4. Termination of Employment; Severance Benefits. 4.1 Terminability of Employment. Either the Company or Executive may at any time terminate Executive's employment with the Company after giving 30 days' written notice to the other party. However, if Executive's employment terminates during the Term of the Agreement, the parties will be required to discharge the applicable obligations described in this Section 4 and elsewhere in this Agreement. If Executive's employment terminates at any time other than during the Term of the Agreement, Executive will have no rights under the Agreement. 4.2 Termination upon Death or Disability. If Executive ceases to be an employee of the Company as a result of death or disability, the Company will have no further obligation or liability to Executive hereunder other than for Base Salary earned and unpaid at the date of termination, a pro- rata portion of his target bonus (provided for in Section 3.2 above) for the year of termination and compensation for accrued vacation. The Term of the Agreement will end when those amounts are paid. However, nothing in this Agreement is intended to interfere with the rights of Executive and his family or beneficiaries under other applicable plans, policies or arrangements of the Company. For purposes of this Section 4.2, the Company may terminate Executive's employment for "disability" if, because of physical or mental incapacity, Executive is unable for a period of ------ consecutive days to perform the material duties of his position and it is determined by a qualified physician chosen by the Company (and, if during a Window Period, approved by the Executive or his conservator) to be probable that such incapacity will continue for an additional ------ consecutive days. 4.3 Termination by the Company for Cause or by Executive Without Good Reason. If the Company terminates Executive's employment for Cause (as defined in this Section 4.3) or if Executive terminates his employment other than for Good Reason (as defined in Section 4.4), the Company will have no further obligation or liability to Executive hereunder other than for Base Salary earned and unpaid at the date of termination and compensation for accrued vacation, and the Term of the Agreement will end when those amounts are paid. "Cause" means (a) willful malfeasance or gross negligence in the performance by Executive of his duties, resulting in harm to the Company, (b) fraud or dishonesty by Executive with respect to the Company, or (c) Executive's conviction of a felony. 4.4 By the Company Without Cause or By Executive for Good Reason. (a) Entitlement to Severance Benefits. If, during the Term of the Agreement, the Company terminates Executive's employment without Cause, or if Executive terminates his employment for Good Reason, the Company will, subject to Section 5 below, provide severance benefits to Executive as set forth below in this Section 4.4. "Good Reason" means (i) failure by the Company to maintain Executive in the positions described in Section 2 or assignment to Executive of duties materially inconsistent with such positions, (ii) failure by the Company to provide Executive with the compensation and benefits described in Section 3, or (iii) relocation of Executive's principal place of work to a location more than 50 miles from its location immediately prior to the Change of Control. (b) Normal Severance Benefits. Except as provided in paragraph (c), the Company will provide severance benefits as follows: (i) The Company will pay to Executive within 30 days of the termination a lump-sum cash amount equal to -----% of the sum of (A) Executive's annual Base Salary in effect immediately prior to the termination (or, if his Base Salary has been reduced within 60 days of the termination, his Base Salary in effect prior to the reduction), plus (B) the average of the bonuses earned by Executive for the period of two years completed immediately prior to the termination (for this purpose, annualizing bonuses paid for less than a full year's employment). (ii) The Company will also pay to Executive within 30 days of the termination a pro-rata portion of his target bonus (provided for in Section 3.2 above) for the year of termination. (iii) The Company will continue for a period of ------- years from the date of termination to provide Executive with the benefits set forth in paragraphs (ii) and (iii) of Section 3.3 above. To the extent that the Company is unable to provide such benefits to Executive under its existing plans and arrangements, it will pay Executive cash amounts equal to Executive's cost of obtaining such benefits. (iv) For the ------ year period following termination of employment, stock options held by Executive will become exercisable and restricted stock held by Executive will become vested according to their original schedules as though Executive had remained employed by the Company. (c) Severance Benefits Following a Change of Control. If the termination occurs during a Window Period, the Company will, instead of the benefits prescribed in paragraph (b), provide severance benefits to Executive as follows: (i) The Company will pay to Executive within 30 days of the termination a lump-sum cash amount equal to 300% of the sum of (A) Executive's annual Base Salary in effect immediately prior to the termination (or, if his Base Salary has been reduced within 60 days of the termination or at any time after the Change of Control, his Base Salary in effect prior to the reduction), plus (B) the average of the bonuses earned by Executive for the period of two years completed immediately prior to the termination or immediately prior to the Change of Control, whichever is higher (for this purpose, annualizing bonuses paid for less than a full year's employment). (ii) The Company will also pay to Executive within 30 days of the termination a pro-rata portion of his target bonus (provided for in Section 3.2 above) for the year of termination. (iii) The Company will continue for a period of three years from the date of termination to provide Executive with the benefits set forth in paragraphs (ii), (iii) and (vi) of Section 3.3 above. To the extent the Company is unable to provide such benefits to Executive under its existing plans and arrangements, it will either arrange to provide Executive with substantially similar benefits upon comparable terms or pay Executive cash amounts equal to Executive's cost of obtaining such benefits. (iv) Notwithstanding any contrary provision of the plans or arrangements under which they are granted, (A) all options to purchase Company stock held by Executive will immediately become exercisable and will not terminate prior to the time they would have terminated had Executive remained in the employ of the Company and (B) all restricted stock held by Executive under restricted stock plans and arrangements of the Company will immediately become fully vested. (v) Executive's benefits under the SRIP will immediately become fully vested. 5. Limitations on Severance Benefits. 5.1 Except as provided in Section 5.2 below, the payments and benefits to which Executive will be entitled under Section 4 of this Agreement will be reduced to the extent necessary to prevent Executive from becoming liable for the excise tax levied on certain "excess parachute payments" under section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"). If a reduction is made under this Section 5.1, Executive will have the right to determine which payments and benefits will be reduced. 5.2 The limitations of Section 5.1 will not apply if -- (i) the present value, net of all federal, state, and other income and excise taxes, of all payments and benefits to which Executive is entitled hereunder without such limitations, exceeds (ii) the present value, net of all federal, state, and other income and excise taxes, of all payments and benefits to which Executive would be entitled hereunder if such limitations applied. 5.3 Determinations under this Section 5 will be made by the firm of certified public accountants then serving as the Company's auditor unless Executive has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen by Executive after consultation with the Company. The determinations of such firm will be binding upon the Company and Executive. 6. Withholding. All payments required to be made by the Company to Executive under this Agreement will be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as may be required by law. 7. Fees and Expenses. In the event of Executive's termination of employment during a Window Period, the Company will pay any and all fees and expenses (including legal fees and other costs of arbitration or litigation) that may be incurred by Executive in enforcing his rights under this Agreement. If the termination of employment does not occur during a Window Period, the Company will pay that amount of such fees and expenses that bears the same ratio to the total fees and expenses as the dollar amount of payments and benefits determined to be payable to Executive bears to the total dollar amount of payments and benefits in dispute. 8. No Duty to Mitigate. Benefits payable under this Agreement as a result of termination of Executive's employment will be considered severance pay in consideration of his past service and his continued service from the Effective Date, and his entitlement thereto will neither be governed by any duty to mitigate his damages by seeking further employment nor offset by any compensation that he may receive from other employment. 9. Confidentiality and Exclusivity. Executive agrees to maintain the confidentiality of the Company's (and its related entities and projects) books, records, financial information, technical information, business plans and/or strategies, and other confidential matters unless required to make disclosure in the performance of his duties for the Company or as a result of a legal proceeding or other legally mandated cause. In the event of termination without Good Reason by Executive, other than such a termination occurring during a Window Period, Executive will not for two years following termination act as an executive-level employee with any company that directly competes against the Company. The parties recognize and agree that should the Company be required to pursue a claim against Executive under this Section 9, the Company will likely be required to seek injunctive relief as well as damages at law. Accordingly, Section 11, Arbitration, will not apply to any action by the Company against Executive for violation of this Section 9. Executive agrees for purposes of any disputes arising under this Section 9 to submit to the exclusive jurisdiction of the federal and state courts in the Commonwealth of Massachusetts. 10. Indemnification. To the extent permitted by law, the Company will defend, indemnify and hold Executive harmless from and against any and all losses, liabilities, damages, expenses (including attorneys' fees and costs), actions, causes of action or proceedings arising directly or indirectly from Executive's performance of this Agreement or services as an employee of the Company. Executive may retain his own counsel to defend himself in such actions, and the Company will pay for the reasonable costs and expense of such counsel. This indemnification is in addition to any right of indemnification to which Executive may be entitled under the Company's Articles of Incorporation and By-laws and any insurance policies that may be maintained by the Company. 11. Arbitration. Except as otherwise provided in Section 9, any dispute or controversy between the parties involving the construction or application of any terms, covenants or conditions of this Agreement, or any claim arising out of or relating to this Agreement, or any claim arising out of or relating to Executive's employment by the Company that is not resolved within ten days by the parties will be settled by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The Company and Executive agree that the arbitrator(s) will have no authority to award punitive or exemplary damages or so-called consequential or remote damages such as damages for emotional distress. Any decision of the arbitrator(s) will be final and binding upon the parties. Upon request the arbitrator(s) shall submit written findings of fact and conclusions of law. The parties agree and understand that they hereby waive their rights to a jury trial of any dispute or controversy relating to the matters specified above in this Section 11. 12. Rights of Survivors If Executive dies after becoming entitled to benefits under Section 4 following termination of employment but before all such benefits have been provided, (a) all unpaid cash amounts will be paid to the beneficiary that has been designated by Executive in writing (the "beneficiary"), or if none, to Executive's estate, (b) all applicable insurance coverage will be provided to Executive's family as though Executive had continued to live, and (c) any stock options that become exercisable under Section 4.4(b)(iii) or Section 4.4(c)(iv) will be exercisable by the beneficiary, or if none, the estate. 13. Successors. This Agreement will inure to and be binding upon the Company's successors. The Company will require any successor to all or substantially all of the business and/or assets of the Company by sale, merger or consolidation (where the Company is not the surviving corporation), lease or otherwise, by agreement in form and substance satisfactory to Executive, to assume this Agreement expressly. This Agreement is not otherwise assignable by the Company. 14. Subsidiaries. For purposes of this Agreement, employment by a corporation or other entity that is controlled directly or indirectly by the Company will be deemed to be employment by the Company. Thus, references in the Agreement to "Company" include such corporations or other entities where appropriate in the context. 15. Amendment or Modification; Waiver. Except as provided in clause (1) of Exhibit A, this Agreement may not be amended unless agreed to in writing by Executive and the Company. No waiver by either party of any breach of this Agreement will be deemed a waiver of a subsequent breach. 16. Severability. In the event that any provision of this Agreement is determined to be invalid or unenforceable, the remaining provisions shall remain in full force and effect to the fullest extent permitted by law. 17. Controlling Law. This Agreement will be controlled and interpreted pursuant to Massachusetts law. 18. Superseded Agreement. This Agreement supersedes in its entirety the Employment Agreement between Executive and the Company dated May 1, 1996. 19. Notices. Any notices required or permitted to be sent under this Agreement are to be delivered by hand or mailed by registered or certified mail, return receipt requested, and addressed as follows: If to the Company: Oak Industries Inc. 1000 Winter Street, South Entrance Waltham, MA 02154 If to Executive: ---------------------- ---------------------- ---------------------- Either party may change its address for receiving notices by giving notice to the other party. In witness whereof, the parties hereto have executed this Agreement as of the date first set forth above. ----------------------- [EXECUTIVE] OAK INDUSTRIES INC. By:--------------------- Exhibit A "Change of Control" means the occurrence of any of the following events: (1) any Person becomes the owner of 20% or more of the Company's Common Stock; provided, however, that the Board of Directors of the Company may unilaterally amend this clause (1) to increase the 20% threshold to any percentage up to, but not exceeding, 50%; or (2) individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "Continuing Directors") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual becoming a director after the Effective Date whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the Continuing Directors will be deemed to be a Continuing Director, but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (3) approval by the shareholders of the Company of a reorganization, merger, consolidation or other transaction that will result in the transfer of ownership of more than 50% of the Company's Common Stock; or (4) liquidation or dissolution of the Company or sale of substantially all of the Company's assets. In addition, for purposes of this definition the following terms have the meanings set forth below: "Common Stock" means the then outstanding Common Stock of the Company plus, for purposes of determining the stock ownership of any Person, the number of unissued shares of Common Stock which such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) upon the exercise of conversion rights, exchange rights, warrants or options or otherwise. Notwithstanding the foregoing, the term Common Stock does not include shares of preferred stock or convertible debt or options or warrants to acquire shares of Common Stock (including any shares of Common Stock issued or issuable upon the conversion or exercise thereof) to the extent that the Board expressly so determines in any future transaction or transactions. A Person will be deemed to be the "owner" of any Common Stock of which such Person would be the "beneficial owner," as such term is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Exchange Act. "Person" has the meaning used in Section 13(d) of the Exchange Act, except that "Person" does not include (i) the Executive, an Executive Related Party, or any group of which the Executive or Executive Related Party is a member, or (ii) the Company or a wholly owned subsidiary of the Company or an employee benefit plan (or related trust) of the Company or of a wholly owned subsidiary. An "Executive Related Party" means any affiliate or associate of the Executive other than the Company or a subsidiary of the Company. The terms "affiliate" and "associate" have the meanings given in Rule 12b-2 under the Exchange Act; the term "registrant" in the definition of "associate" means, in this case, the Company. EX-10 3 OAK INDUSTRIES INC. SEVERANCE PLAN OAK INDUSTRIES INC. SEVERANCE PLAN The purpose of this Plan is to induce those key executives of Oak Industries Inc. (the "Company") who are chosen to participate in the Plan ("Executives") to continue their employment with the Company notwithstanding any threatened or actual change of control of the Company. 1. Term. The term during which this Plan (the "Plan") will be in effect (the "Term of the Plan") will begin on May 1, 1998 (the "Effective Date") and, except as provided below, will end at such time as the Plan is terminated in accordance with Section 13. If a Change of Control (as defined in Schedule A) occurs during the Term of the Plan, the Plan will remain in effect until all obligations hereunder have been discharged. 2. Participation. The Compensation Committee of the Board of Directors of the Company (the "Committee") will select Executives to participate in the Plan upon recommendation of the Chief Executive Officer of the Company. The Executives whose names or positions are set forth in attached Schedules B and C will become participants on the Effective Date. If and when participants are added or deleted, the Schedules will be appropriately amended. 3. Termination of Employment; Severance Benefits. 3.1 Window Period. If an Executive's employment terminates during that Executive's "Window Period," the Company and such Executive will be required to discharge the applicable obligations described in this Section 3 and elsewhere in the Plan. The Window Period of an Executive will begin on the date of any Change of Control that occurs during the Term of the Plan and will end, in the case of an Executive whose name or position is listed on Schedule B (a "Schedule B Executive"), on the second anniversary of the Change of Control and, in the case of an Executive whose name or position is listed on Schedule C (a "Schedule C Executive"), on the first anniversary of the Change of Control. If an Executive's employment terminates at any time other than during his or her Window Period, the Executive will have no rights under this Plan, and the Plan will cease to be effective as to that person. 3.2 Termination upon Death or Disability. If an Executive ceases to be an employee of the Company as a result of death or disability, the Company will have no further obligation or liability to the Executive under this Plan, but nothing in the Plan is intended to interfere with the rights of the Executive and his or her family or beneficiaries under other applicable plans, policies or arrangements of the Company. For purposes of this Section 3.2, the Company may terminate an Executive's employment for "disability" if, because of physical or mental incapacity, the Executive is unable for a period of 30 consecutive days to perform each of the material duties of his or her position, and it is determined by a qualified physician chosen by the Company and approved by the Executive or his or her conservator to be probable that such incapacity will continue for an additional 60 consecutive days. 3.3 Termination by the Company for Cause or by an Executive Without Good Reason. If the Company terminates an Executive's employment for Cause (as defined in this Section 3.3) or if an Executive terminates his or her employment other than for Good Reason (as defined in Section 3.4), the Company will have no further obligation or liability to the Executive under this Plan. "Cause" means (a) willful malfeasance or gross negligence in the performance by the Executive of his or her duties, resulting in harm to the Company, (b) fraud or dishonesty by the Executive with respect to the Company, or (c) the Executive's conviction of a felony. 3.4 By the Company Without Cause or By the Executive for Good Reason. (a) Entitlement to Severance Benefits. If, during an Executive's Window Period, the Company terminates the Executive's employment without Cause, or if the Executive terminates his or her employment for Good Reason, the Company will, subject to Section 4, provide severance benefits to the Executive as set forth below in paragraph (b). "Good Reason" means (i) reduction of the Executive's base salary below the level in effect immediately prior to the Change of Control without the Executive's prior written consent, or (ii) relocation of the Executive's principal place of work to a location more than 50 miles from its location immediately prior to the Change of Control. (b) Severance Benefits. The benefits to be provided to the Executive under this Section 3.4 are as follows: (i) The Company will pay to the Executive within 30 days of the termination of employment a lump-sum cash amount equal to the applicable percentage of the sum of (A) the Executive's annual base salary in effect immediately prior to the termination (or, if his or her base salary has been reduced after the Change of Control, the base salary in effect prior to the reduction), plus (B) the average of the bonuses earned by the Executive for the period of three years (or such fewer number of years as the Executive has been employed by the Company) completed immediately prior to the termination or immediately prior to the Change of Control, whichever is higher (for this purpose, annualizing bonuses paid for less than a full year's employment). An Executive's "applicable percentage" will be 200% in the case of Schedule B Executives, and 100% in the case of Schedule C Executives. (ii) The Company will also pay to the Executive within 30 days of the termination of employment a pro-rata portion of his or her target bonus for the year of termination. (iii) The Company will continue for the applicable period to provide the Executive with family medical, disability and life insurance coverage and automobile allowance at the level in effect immediately prior to the Change of Control. To the extent the Company is unable to provide such benefits to an Executive under its existing plans and arrangements, it will either arrange to provide the Executive with substantially similar benefits upon comparable terms or pay the Executive cash amounts equal to the Executive's cost of obtaining such benefits. An Executive's "applicable period" will be two years in the case of a Schedule B Executive and one year in the case of a Schedule C Executive. (iv) Notwithstanding any contrary provision of the plans or arrangements under which they are granted, (A) all options to purchase Company stock held by Executive will immediately become exercisable and will not terminate prior to the time they would have terminated had Executive remained in the employ of the Company and (B) all restricted stock held by Executive under restricted stock plans and arrangements of the Company will immediately become fully vested. (v) The Executive's benefits under the Company's Supplemental Retirement Income Plan will immediately become fully vested. 4. Limitation of Benefits. 4.1 The payments and benefits to which an Executive will be entitled under Section 3 of this Plan will be reduced to the extent necessary to prevent the Executive from becoming liable for the excise tax levied on certain "excess parachute payments" under section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"). If a reduction is made under this Section 4.1, the Executive will have the right to determine which payments and benefits will be reduced. 4.2 Determinations under this Section 4 will be made by the firm of certified public accountants then serving as the Company's auditor unless the Executive has reasonable objections to the use of that firm, in which case the determinations will be made by a comparable firm chosen by the Executive after consultation with the Company. The determinations of such firm will be binding upon the Company and the Executive. 5. Withholding. All payments required to be made by the Company under this Plan will be subject to the withholding of such amounts, if any, relating to tax and other payroll deductions as may be required by law. 6. Fees and Expenses. The Company will pay any and all fees and expenses (including legal fees and other costs of arbitration or litigation) that may be incurred by an Executive in enforcing his or her rights under this Plan. 7. No Duty to Mitigate. Benefits payable under this Plan as a result of termination of an Executive's employment will be considered severance pay in consideration of his or her past service and continued service from the Effective Date, and the Executive's entitlement thereto will neither be governed by any duty to mitigate damages by seeking further employment nor offset by any compensation received from other employment. 8. Confidentiality and Exclusivity. Each Executive (by participation in the Plan) agrees to maintain the confidentiality of the Company's (and its related entities and projects) books, records, financial information, technical information, business plans and/or strategies, and other confidential matters unless required to make disclosure in the performance of his or her duties for the Company or as a result of a legal proceeding or other legally mandated cause. Should the Company be required to pursue a claim against an Executive under this Section 8, the Company will likely be required to seek injunctive relief as well as damages at law. Accordingly, Section 9, Arbitration, will not apply to any action by the Company against an Executive for violation of this Section 8. Each Executive (by participation in the Plan) agrees for purposes of any disputes arising under this Section 8 to submit to the exclusive jurisdiction of the federal and state courts in the Commonwealth of Massachusetts. 9. Arbitration. Except as otherwise provided in Section 8, any dispute or controversy between the Company and an Executive involving the construction or application of any terms, covenants or conditions of this Plan, or any claim arising out of this Plan, that is not resolved within ten days by the parties will be settled by arbitration in Boston, Massachusetts, in accordance with the rules of the American Arbitration Association then in effect, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The Company and all Executives (by participation in this Plan) agree that the arbitrator(s) will have no authority to award punitive or exemplary damages or so-called consequential or remote damages such as damages for emotional distress. Any decision of the arbitrator(s) will be final and binding upon the parties. Either party may request that the arbitrator(s) submit written findings of fact and conclusions of law. The Company and all Executives (by participation in this Plan) agree and understand that they are waiving their rights to a jury trial of any dispute or controversy relating to the matters specified above in this Section 9. 10. Rights of Survivors. If an Executive dies after becoming entitled to benefits under Section 3 following termination of employment but before all such benefits have been provided, (a) all unpaid cash amounts will be paid to the beneficiary that has been designated by the Executive in writing (the "beneficiary"), or if none, to the Executive's estate, (b) all applicable insurance coverage will be provided to the Executive's family as though the Executive had continued to live, and (c) any stock options that became exercisable under Section 3.4(b)(iv) will be exercisable by the beneficiary, or if none, the estate. 11. Successors. This Plan will inure to and be binding upon the Company's successors. The Company will require any successor to all or substantially all of the business and/or assets of the Company by sale, merger or consolidation (where the Company is not the surviving corporation), lease or otherwise, to adopt this Plan expressly. Obligations under this Plan are not otherwise assignable by the Company. 12. Subsidiaries. For purposes of this Plan, employment by a corporation or other entity that is controlled directly or indirectly by the Company will be deemed to be employment by the Company. Thus, references in the Plan to "Company" include such corporations or other entities where appropriate in the context. 13. Amendment or Termination. This Plan may be amended or terminated by the Company at any time prior to a Change of Control. Following a Change of Control the Plan may not be amended or terminated with respect to any Executive unless agreed to in writing by such Executive and the Company. 14. Severability. In the event that any provision of this Plan is determined to be invalid or unenforceable, the remaining provisions are intended to remain in full force and effect to the fullest extent permitted by law. 15. Controlling Law. This Plan will be controlled and interpreted pursuant to Massachusetts law. OAK INDUSTRIES INC. By: __________________________________ Schedule A ---------- "Change of Control" means the occurrence of any of the following events: (1) any Person becomes the owner of 20% or more of the Company's Common Stock; or (2) individuals who, as of the Effective Date, constitute the Board of Directors of the Company (the "Continuing Directors") cease for any reason to constitute at least a majority of such Board; provided, however, that any individual becoming a director after the Effective Date whose election or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the Continuing Directors will be deemed to be a Continuing Director, but excluding for this purpose any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Securities and Exchange Act of 1934 (the "Exchange Act")) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (3) approval by the shareholders of the Company of a reorganization, merger, consolidation or other transaction that will result in the transfer of ownership of more than 50% of the Company's Common Stock; or (4) liquidation or dissolution of the Company or sale of substantially all of the Company's assets. In addition, for purposes of this definition the following terms have the meanings set forth below: "Common Stock" means the then outstanding Common Stock of the Company plus, for purposes of determining the stock ownership of any Person, the number of unissued shares of Common Stock which such Person has the right to acquire (whether such right is exercisable immediately or only after the passage of time) upon the exercise of conversion rights, exchange rights, warrants or options or otherwise. Notwithstanding the foregoing, the term Common Stock does not include shares of preferred stock or convertible debt or options or warrants to acquire shares of Common Stock (including any shares of Common Stock issued or issuable upon the conversion or exercise thereof) to the extent that the Board expressly so determines in any future transaction or transactions. A Person will be deemed to be the "owner" of any Common Stock of which such Person would be the "beneficial owner," as such term is defined in Rule 13d-3 promulgated by the Securities and Exchange Commission under the Exchange Act. "Person" has the meaning used in Section 13(d) of the Exchange Act, except that "Person" does not include (i) the Executive with respect to whom the Plan is being applied, an Executive Related Party, or any group of which the Executive or Executive Related Party is a member, or (ii) the Company or a wholly owned subsidiary of the Company or an employee benefit plan (or related trust) of the Company or of a wholly owned subsidiary. An "Executive Related Party" means any affiliate or associate of the Executive with respect to whom the Plan is being applied other than the Company or a subsidiary of the Company. The terms "affiliate" and "associate" have the meanings given in Rule 12b-2 under the Exchange Act; the term "registrant" in the definition of "associate" means, in this case, the Company. EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS Dec-31-1998 Jun-30-1998 10,824 0 52,250 0 57,700 135,541 166,620 96,176 400,087 44,086 0 191 0 0 202,660 400,087 167,876 167,876 104,169 104,169 0 0 4,865 23,807 9,047 14,408 0 0 0 14,408 .81 .76
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