-----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, TIFEPL0C9JqflTdK7teKopv7WCY8ODKUdwKTC5xNiKSAW6IL3+uD8UonZhozODZ0 9MUU5NdPw1tuPF9SbJbCdA== 0000859163-99-000007.txt : 19990615 0000859163-99-000007.hdr.sgml : 19990615 ACCESSION NUMBER: 0000859163-99-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AVX CORP /DE CENTRAL INDEX KEY: 0000859163 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS & ACCESSORIES [3670] IRS NUMBER: 330379007 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07201 FILM NUMBER: 99645829 BUSINESS ADDRESS: STREET 1: 801 17TH AVE S CITY: MYRTLE BEACH STATE: SC ZIP: 29577 BUSINESS PHONE: 8034499411 MAIL ADDRESS: STREET 1: PO BOX 867 STREET 2: PO BOX 867 CITY: MYRTLE BEACH STATE: SC ZIP: 29578 FORMER COMPANY: FORMER CONFORMED NAME: KC SUBSIDIARY CORP DATE OF NAME CHANGE: 19900212 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to__________ Commission File Number: 1-10431 AVX CORPORATION (Exact Name of Registrant as Specified in its Charter) Delaware 33-0379007 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 801 17th Avenue South Myrtle Beach, South Carolina 29577 (Address of principal executive offices) (Zip Code) (843) 448-9411 (Registrant's telephone number, including area code) _______________________ Securities registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of each exchange on which registered Common Stock, $.01par value per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate 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 ] Based on the closing sales price of $20 15/16 on May 21, 1999, the aggregate market value of the voting stock held by non-affiliates of the registrant as of that date was $420,948,960. As of May 21, 1999, the number of shares outstanding of the registrant's Common Stock, par value $.01 per share, was 86,255,025 shares. DOCUMENTS INCORPORATED BY REFERENCE There is incorporated by reference in Part III of this Annual Report on Form 10-K the information contained in the registrant's proxy statement for its annual meeting of shareholders to be held on July 15, 1999. 1 TABLE OF CONTENTS Part I Page Item 1. Business 3 Item 2. Properties 11 Item 3. Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 12 Item 6. Selected Financial Data 13 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition 13 Item 7A.Quantitative and Qualitative Disclosures About Market Risk 18 Item 8. Financial Statements and Supplemental Data 20 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 20 Part III Item 10.Directors and Executive Officers of the Registrant 20 Item 11.Executive Compensation. 20 Item 12 Security Ownership of Certain Beneficial Owners and Management 20 Item 13.Certain Relationship and Related Transactions 20 Part IV Item 14.Exhibits, Financial Statements Schedules, and Reports on Form 8-K 20 Signatures 22 Cautionary Statement Pursuant to Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements, including the Notes thereto, appearing elsewhere herein. Statements in this Annual Report on Form 10-K that reflect projections or expectations of future financial or economic performance of the Company, and statements of the Company's plans and objectives for future operations, including those contained in "Business," "Management's Discussion and Analysis of Results of Operations and Financial Condition, " and "Quantitative and Qualitative Disclosure about Market Risk," or relating to the Company's outlook for fiscal 2000, overall volume and pricing trends, cost reduction strategies and their anticipated results, and expectations for research, capital expenditures and Year 2000 issues, are "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Words such as "expects," "anticipates," "approximates," "believes," "estimates," "intends," and "hopes" and variations of such words and similar expressions are intended to identify such forward-looking statements. No assurance can be given that actual results or events will not differ materially from those projected, estimated, assumed or anticipated in any such forward-looking statements. Important factors that could result in such differences, in addition to the other factors noted with such forward-looking statements, include: general economic conditions in the Company's market, including inflation recession, interest rates and other economic factors; casualty to or other disruption of the Company's facilities and equipment; and other factors that generally affect the business of manufacturing and supplying electronic components and related products. 2 PART I Item 1. Business AVX Corporation (together with its consolidated subsidiaries, "AVX" or the "Company") is a leading worldwide manufacturer and supplier of a broad line of passive electronic components and related products. The Company's passive electronic component sales include ceramic and tantalum capacitors, both in "leaded" and "surface-mount" versions, film capacitors, ferrites, varistors and non-linear resistors manufactured in the Company's facilities located throughout the world and passive components manufactured by Kyocera Corporation of Japan, a public company, and the Company's majority stockholder ("Kyocera"). These products are used in virtually all electronic products to store, filter or regulate electric energy. The Company also manufactures and sells electronic connectors and distributes and sells certain connectors manufactured by Kyocera. The Company's strategy is to focus on: * customer service, through the breadth and quality of its product line, as well as its ability to respond in a timely manner to its customers' component design and delivery requirements; * low-cost, high-quality manufacturing, through utilization of state-of- the-art facilities and skilled labor around the world; * global coordination of marketing and manufacturing, through manufacturing operations located worldwide and the assignment of global customer account executives to cover the Company's major multi-national customers; and * innovative and unique products and manufacturing processes, developed through emphasis on advanced technologies at the Company's research laboratories and participation in its customers' long-range product development programs. The Company's customers include leading original equipment manufacturers in such industries as telecommunications, data processing, automotive electronics, medical devices and instrumentation, industrial instrumentation, military and aerospace electronic systems, and consumer electronics. Sales are coordinated by Company-employed direct sales personnel, independent manufacturers' representatives, and independent electronic component distributors. The overall growth in the electronics industry over the past several years can be particularly attributed to: * the development of new products and applications in established electronics markets, such as cellular telephones and personal computers; * the proliferating use of electronic systems in products in which such use had been historically absent or limited, such as automobiles, home appliances, and medical devices; and * the increase in the number of capacitors required in certain electronic products with higher levels of complexity and functionality, such as those that use state-of-the-art microprocessors. The Company's executive offices are located in Myrtle Beach, South Carolina and its manufacturing facilities are located in North America, Latin America, Europe and Asia. Products AVX offers an extensive line of passive components, designed to provide its customers with "one-stop shopping" for substantially all of their passive component needs. Passive components represented approximately 91% of the Company's net sales and connectors accounted for approximately 9% of net sales in fiscal 1999. 3 * Passive Components AVX manufactures a full line of multi-layered ceramic and solid tantalum capacitors in many different sizes and configurations. The Company's strategic focus on the growing use of ceramic and tantalum capacitors is reflected in its investment during the past three years of approximately $264.4 million, primarily to increase its capacitor manufacturing capacity. The Company believes that sales of ceramic and tantalum capacitors will continue to be among the most rapidly growing in the worldwide capacitor market because technological advances have been constantly expanding the number and type of applications for these products. Tantalum and ceramic capacitors are commonly used in conjunction with integrated circuits and are best suited for applications requiring lower to medium capacitance values. Generally, ceramic capacitors are more cost-effective at lower capacitance values, and tantalum capacitors are more cost-effective at medium capacitance values. Capacitance is the measure of the capacitor's ability to store energy. Ceramic and tantalum capacitors are produced by the Company in two basic versions, leaded and surface-mount. Leaded capacitors are attached to a circuit board using lead wires while surface-mount capacitors are attached directly to a circuit board. In recent years there has been significant industry-wide growth in the use of surface-mount capacitors, and industry analysts have predicted that this would cause the market for leaded capacitors to decline significantly. In certain applications, however, leaded capacitors continue to be the component of choice. The net sales of surface-mount and leaded ceramic and tantalum capacitors accounted for approximately 53% of the Company's passive component net sales in fiscal 1999. The Company also offers a line of advanced passive component products in order to fill the special needs of its customers. The Company's advanced products engineers work with certain customers' in-house technical staffs to design, produce and manufacture special products to meet the specifications of particular applications. The manufacture of special products permits AVX, through its research and development activities, to make technological advances, provide the customer with a design solution to fit its needs, gain a marketing inroad with the customer with respect to AVX's complete product line and, in some cases, develop products that can be sold to additional customers in the future. AVX's advanced products division presently has significant ongoing projects with a variety of key customers. Sales of advanced products accounted for approximately 19% of passive component net sales in fiscal 1999. With the acquisition of Thomson-CSF's passive component business ("TPC") in June of 1998, the Company expanded its family of passive components to included film capacitors, ferrites, high-energy/voltage power capacitors, varistors and non-linear resistors. These products share the same distribution and market channels as the Company's historical product base and further enhance the Company's product offerings. The sale of TPC products accounted for approximately 8% of passive component net sales in fiscal 1999. The Company has a non-exclusive license to distribute and sell Kyocera products everywhere in the world except Japan. The Company's distribution and sale of certain Kyocera products broaden the Company's range of products and further facilitate its ability to offer "one-stop shopping" for its customers' electronic components needs. Kyocera's passive components sold by the Company include ceramic capacitors, hybrids, oscillators, saw devices, resistor networks, trimmers, chip resistors, ceramic filters, resonators and piezo acoustic devices. Sales of these Kyocera products accounted for approximately 20% of passive component net sales in fiscal 1999. 4 * Connectors The Company manufactures high-quality electronic connectors and inter-connect systems for use in the computer, telecommunications, automotive electronics, medical device, military and aerospace industries. The Company's product lines include a variety of industry-standard connectors as well as products designed specifically for its customers' unique applications. The Company produces fine pitch, or small centerline, connectors, many of which have been selected by leading OEMs for applications in cellular phones, pagers, printers and notebook computers. The Company also has developed a value-added business in flat ribbon cable assembly and in backpanel and card edge assemblies. The Company also sells certain connectors manufactured by Kyocera. Marketing, Sales and Distribution The Company places a high priority on solving customers' electronic component problems and responding to their needs. AVX frequently forms teams of its marketing, research and development, and manufacturing personnel to work with customers to design and manufacture products to suit their specific requirements. The Company's products are sold primarily to manufacturers and, to a much lesser extent, to United States and foreign government agencies. The Company has also qualified products under various military specifications, approved and monitored by the United States Defense Electronic Supply Center ("DESC"), and under certain foreign military specifications. Approximately 42%, 28% and 30% of the Company's net sales for fiscal 1999, were to customers in North America, Europe, and Asia, respectively. Financial information relating to geographic operations is set forth in the Company's consolidated financial statements contained elsewhere here in. The Company's products are marketed worldwide by the Company's own sales personnel, as well as through independent manufacturers' representatives who are compensated solely on a commission basis, and independent electronic component distributors. The Company has regional sales personnel in strategic locations to provide technical and sales support for independent manufacturers' representatives and independent electronic component distributors. The Company believes that this combination of distribution channels provides a high level of market penetration and efficient coverage of its customers on a cost-effective basis. Among the Company's customers are Motorola Inc.,Lucent Technologies, American Telephone and Telegraph Corporation, L.M. Ericsson Telefonaktiebolaget, OY Nokia AB., Northern Telecom, Uniden and Siemens AG in the telecommunications industry; International Business Machines Corporation, Compaq Computer Corp., Seagate Technology International, Western Digital Corp., Acer Incorporated, Sony Corporation, and Samsung Co. Limited in the data processing industry; and Ford Motor Co., Robert Bosch GmbH, Siemens AG, General Motors Corp. and Magneti Marelli S.p.A. in the automotive industry. The Company's largest customers vary on a year-to-year basis, and no customer has a long-term commitment to purchase products of the Company. No one customer has accounted for more than 10% of net sales for the past three years. AVX had a backlog of orders of approximately $228 million at March 31, 1999, $196 million at March 31, 1998, and $240 million at March 31, 1997. Orders may be canceled by a customer at any time, subject to cancellation charges under certain circumstances. Backlog fluctuates year to year in part due to the changes in customer order patterns and the utilization of capacity in the industry. Generally, there has been a trend toward more orders being placed by customers on an "as needed" basis. The backlog outstanding at any time is not necessarily indicative of the level of business to be expected in any ensuing period since certain orders are placed and delivered within the same period. 5 Research, Development and Engineering AVX's emphasis on research and development is reflected by the fact that most of the Company's manufactured products and manufacturing processes have been designed and developed by its own engineers and scientists. The Company's 60,000 square-foot facility in Myrtle Beach, South Carolina dedicated entirely to pure research and development, and provides centralized coordination of AVX's global research and development efforts. The Company also maintains significant research and development staffs at its facilities in Northern Ireland, Israel and England. The Company's research, development and engineering effort places a priority on the design and development of innovative products and manufacturing processes and engineering advances in existing product lines and manufacturing operations. Other areas of emphasis include material synthesis and the integration of passive components for applications requiring reduced size, and lower manufacturing costs associated with board assembly. Research, development and engineering expenditures were approximately $42 million, $36 million and $33 million during fiscal 1999, 1998 and 1997, respectively. AVX owns United States patents as well as corresponding patents in various other countries, and also has patent applications pending, although patents are not in the aggregate material to the successful operation of the business. Public Offering From January 1990 through August 15, 1995, the Company was wholly-owned by Kyocera. On August 15, 1995, Kyocera sold 22.9%, or 19,650,000 shares of the Company's Common Stock, and the Company sold an additional 2,200,000 shares, in a public offering. Kyocera currently owns approximately 77% of the Company's outstanding Common Stock. Transactions with Kyocera Since January 1990, Kyocera and AVX have engaged in a significant number and variety of related party transactions, including, without limitation, the transactions referred to in the Consolidated Financial Statements of the Company set forth elsewhere in this report. The Company also has established several ongoing arrangements with Kyocera and has executed several agreements, the more significant of which are described below. Except for the Buzzer Assembly Agreement, each of the agreements described below contains provisions requiring that the terms of any transaction under such agreement be equivalent to that which an independent unrelated party would agree at arm's-length and is subject to the approval of the Special Advisory Committee of the AVX Board of Directors. The Special Advisory Committee is comprised of the independent directors of the Company and is required to review and approve such agreements and any other significant transactions between the Company and Kyocera not covered by such agreements. Products Supply and Distribution Agreement. Pursuant to the Products Supply and Distribution Agreement (the "Distribution Agreement") (i) AVX will act as the non-exclusive distributor of certain Kyocera-manufactured products in territories outside of Japan, and (ii) Kyocera will act as the non-exclusive distributor of certain AVX-manufactured products within Japan. The Distribution Agreement has a term of one year, with automatic one-year renewals, subject to the right of termination by either party at the end of the then current term upon at least three months prior written notice. 6 Disclosure and Option to License Agreement. Pursuant to the Disclosure and Option to License Agreement (the "License Agreement"), the Company and Kyocera agree to exchange confidential information relating to the development and manufacture of multi-layered ceramic capacitors and various other ceramic products. The expiration date of the License Agreement is March 31, 2005. Materials Supply Agreement. Pursuant to the Materials Supply Agreement (the "Supply Agreement"), AVX and Kyocera will from time to time supply the other party with certain raw and semi-processed materials used in the manufacture of ceramic capacitors and other ceramic products. The expiration date of the Supply Agreement is March 31, 2000. Buzzer Assembly Agreement. Pursuant to the Buzzer Assembly Agreement( the "Buzzer Agreement"), AVX assembles certain electronic components for Kyocera in the Company's Juarez, Mexico facility. Kyocera pays AVX a fixed cost mutually agreed upon by the parties for each component assembled plus a profit margin. The Buzzer Agreement will terminate on March 31, 2000, subject to the right of either party to terminate upon six months written notice. Machinery and Equipment Purchase Agreement. Pursuant to the Machinery and Equipment Purchase Agreement (the "Machinery Purchase Agreement"), AVX and Kyocera will from time to time design and manufacture for the other party certain equipment and machinery of a proprietary and confidential nature used in the manufacture of capacitors and other electrical components. The agreement will terminate on March 31, 2000. Raw Materials Although most materials incorporated in the Company's products are available from a number of sources, certain materials (particularly palladium and tantalum) are available only from a relatively limited number of suppliers. Palladium, a principal raw material used in the manufacture of ceramic capacitors, is primarily purchased from various companies in the form of palladium sponge and ingot. The main areas of mining of palladium are in Russia and South Africa. Palladium is considered a commodity and is subject to price volatility and has fluctuated in a range of approximately $120 to $417 per troy ounce during the last three years. The Company is presently expanding the development and use of base metals, such as nickel, in place of palladium in certain multilayer ceramic product applications. Tantalum powder is a principal material used in the manufacture of tantalum capacitor products. This product is purchased under annual contracts with suppliers from various parts of the world at prices that are subject to periodic adjustment. The Company is a major consumer of the world's annual tantalum production. Although the Company believes that there is currently no problem with the procurement of tantalum powder and that the tantalum required by the Company has generally been available in sufficient quantity, the limited number of tantalum powder suppliers could lead to higher prices. An inability of the Company to pass on an increase in palladium and tantalum cost to its customers could have a material adverse effect on the Company's results of operations. AVX internally develops and produces a majority of the ceramic raw materials used in its production processes and is expanding its ceramic production operations in order to meet increased demand. The Company believes that it is the only United States capacitor manufacturer that processes its own ceramic materials. 7 Competition The Company encounters strong competition in its various product lines from both domestic and foreign manufacturers. Competitive factors in the markets of the Company's products include product quality and reliability, breadth of product line, customer service, technological innovation, timely delivery and price. The Company believes that it competes favorably on the basis of each of these factors. The breadth of the Company's product offering enables AVX to strengthen its market position by providing its customers with one of the broadest selections of passive electronic components and connector products available from one source. The Company's major competitors are Murata Manufacturing Company Ltd, KEMET Corporation, NEC Corporation, TDK Corporation and Vishay Intertechnology, Inc. Employees As of May 31, 1999, AVX employed approximately 15,100 full time employees. Approximately 3,400 of these employees are employed in the United States. Of the employees located in the United States, approximately 1,600 are covered by collective-bargaining arrangements. In addition, some foreign employees are members of various trade and government-affiliated unions. Environmental Matters The Company is subject in the United States to federal, state and local laws and regulations concerning the environment and to the environmental laws and regulations of the other countries in which it has manufacturing facilities. Based on the Company's periodic review of the operating policies and practices at all its facilities, the Company believes that its operations currently comply, in all material respects, with all such laws and regulations. The Company has been identified by the federal Environmental Protection Agency ("EPA"), state governmental agencies or other private parties as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") or equivalent state or local laws for clean-up and response costs associated with thirteen sites at which remediation is required. Because CERCLA has been construed to authorize joint and several liability, the EPA could seek to recover all clean-up costs from any one of the PRPs at a site despite the involvement of other PRPs. At all but one site, financially responsible PRPs other than the Company also are, or have been, involved in site investigation and clean-up activities. Therefore, the Company believes that any liability resulting from these sites will be apportioned between the Company and other PRPs. To resolve its liability at each of the sites at which it has been named a PRP, the Company has entered into various administrative orders and consent decrees (collectively, "Decrees") with federal and state regulatory agencies, governing the timing and nature of investigation and remediation. The Company has paid, or reserved for, all amounts required under the terms of these Decrees corresponding to its apportioned share of the liabilities. Such reserves for remediation, compliance and legal costs totaled $2.6 million at March 31, 1999. As is customary, the Decrees at sites where the PRPs are not themselves implementing the chosen remedy contain provisions allowing the EPA to reopen the agreement and seek additional amounts from settling PRPs in the event that certain contingencies occur, such as the discovery of significant new information about site conditions during clean-up or substantial cost overruns for the chosen remedy. The existence of such reopener provisions, combined with the difficulties of reliably estimating clean-up costs and the joint and several nature of CERCLA liability, makes it difficult to predict the ultimate liability at any site with certainty. While no assurance can be given, the Company does not believe that any additional costs to be incurred by the Company at any of the sites will have a material adverse effect on the Company's financial condition, results of operations or cash flows. 8 In addition, the Company does not believe that any investigation or clean-up that may be required at any other locations will have a material adverse effect on the Company's financial condition, results of operations or cash flows. Executive Officers of the Registrant The following table provides certain information regarding the executive officers of the Company as of May 21, 1999: Name Age Position Benedict P. Rosen 63 Chief Executive Officer John S. Gilbertson 55 President and Chief Operating Officer Donald B. Christiansen 60 Senior Vice President of Finance, Chief Financial Officer and Treasurer C. Marshall Jackson 50 Senior Vice President of Sales and Marketing Ernie Chilton 55 Senior Vice President of Tantalum S. M. Chan 43 Vice President of Sales and Marketing -Asia Allan Cole 56 Vice President of Sales Alan Gordon 50 Vice President of Sales and Marketing - Europe John L. Mann 56 Vice President of Quality Roberto E. Salazar 44 Vice President of Latin America Operations Carl L. Eggerding 49 Vice President of Advanced Products and Technology Center Kurt P. Cummings 43 Corporate Controller and Secretary Benedict P. Rosen Chairman of the Board and Chief Executive Officer effective July 1997. Chief Executive Officer and President of the Company from April 1993 until July 1997 and a member of the Board since January 1990. Executive Vice President from February 1985 to March 1993 and employed by the Company since 1972. Senior Managing and Representative Director of Kyocera since June 1995 and previously served as a Managing Director of Kyocera from 1992 to June 1995. Director of Nitzanim-AVX/Kyocera-Venture Capital Fund Ltd., Aerovox Corporation and the Nordson Corporation. John S. Gilbertson President since July 1997. Chief Operating Officer of the Company since April 1994, and a member of the Board since January 1990. Executive Vice President from April 1992 to July 1997, Senior Vice President from September 1990 to March 1992 and employed by the Company since 1981. Director of Kyocera since June 1995. Donald B. Christiansen Senior Vice President of Finance, Chief Financial Officer and Treasurer of the Company since July 1997 and a member of the Board since April 1992. Vice President of Finance, Chief Financial Officer and Treasurer from April 1994 to July 1997 and Chief Financial Officer from March 1992 to April 1994. 9 C. Marshall Jackson Senior Vice President of Sales and Marketing since April 1994. From January 1990 until March 1994, Mr. Jackson was Vice President of AVX and has been employed by the Company since 1969. Ernie Chilton Senior Vice President-Tantalum since April 1994. From January 1990 until February 1993, Mr. Chilton served as Vice President of AVX. Mr. Chilton has been employed by the Company since 1979. S. M. Chan Vice President of Sales and Marketing Asia since April 1994. From April 1992 until March 1994, Mr. Chan served as the Director of Marketing of AVX. Mr. Chan has been employed by AVX since October 1990. Allan Cole Vice President of Sales of the Company since May 1987. Mr. Cole has been employed by AVX since 1977 serving in several sales management positions, both domestic and international. Alan Gordon Vice President of European Sales and Marketing of Europe since February 1993. From January 1991 until February 1993, Mr. Gordon served as the Director of Marketing of AVX. Mr. Gordon has been employed by AVX since 1991. John L. Mann Vice President of Quality of the Company since May 1986. From March 1984 until May 1986, Mr. Mann served as the Corporate Director of Quality. Carl L. Eggerding Vice President of Advanced Products and Technology Center since July 1997. Employed by the Company since April 1996. Prior to April 1996, employed by IBM as Director of Development for Organic Packaging Technology. Roberto E. Salazar Vice President of Latin America Operations since July 1997. Served as General Manager of El Salvador Operations from 1980 until 1993. Division President for El Salvador and later Chihuahua Mexico operations. Business manager for the radial conformed coated devices with worldwide responsibility since 1986. Kurt P. Cummings Secretary of the Company since July 1997. Corporate Controller of the Company since June 1992. 10 Item 2. Properties The Company conducts manufacturing operations throughout the world. All the Company's operations around the world are certified to the ISO 9000 international quality control standards. ISO 9000 is a comprehensive set of quality program standards developed by the International Organization for Standardization. Many facilities have also been qualified under a new set of stringent QS 9000 quality standards developed by the US automotive industry. Virtually all manufacturing, research and development and warehousing facilities could at any time be involved in the manufacturing, sale or distribution of passive components (PC) and connector products (CP) .A list of the Company's facilities, their square footage, whether they are leased or owned and a description of their use follows: Type Square of Description Location Footage Interest of Use UNITED STATES Myrtle Beach, SC 546,098 Owned Manufacturing/Research/ Headquarters -PC - CP Myrtle Beach, SC 69,000 Owned Office/Warehouse - PC, CP Conway, SC 70,408 Owned Manufacturing - PC Biddeford, ME 72,000 Owned Manufacturing - PC Colorado Springs, CO 15,000 Owned Manufacturing - PC El Paso, TX 24,460 Leased Warehouse - PC - CP New Orleans, LA 18,840 Leased Warehouse - PC Olean, NY 107,400 Owned Manufacturing - PC Raleigh, NC 206,000 Owned Manufacturing/Warehouse - PC - CP Sun Valley, CA 25,000 Leased Manufacturing - PC Vancouver, WA 87,048 Leased Manufacturing - PC Vancouver, WA 10,800 Leased Warehouse/Office - PC OUTSIDE THE UNITED STATES Beaune, France 235,210 Leased Manufacturing - PC Betzdorf, Germany 101,671 Owned Manufacturing - CP Biggleswade, England 10,000 Leased Manufacturing - CP Chihuahua, Mexico 393,952 Owned Manufacturing - PC Coleraine, N. Ireland 167,000 Owned Manufacturing/Research - PC Hong Kong 30,257 Owned Warehouse - PC - CP Jerusalem, Israel 98,200 Leased Manufacturing/Research - PC Juarez, Mexico 84,000 Owned Manufacturing - PC - CP Lanskroun, Czech Republic 197,593 Leased Manufacturing - PC Lanskroun, Czech Republic 201,586 Owned Manufacturing - PC Manaus, Brazil 78,500 Owned Manufacturing - PC - CP Uherske Hradiste, Czech Republic 148,910 Leased Manufacturing - PC - CP Larne, N. Ireland 120,000 Owned Manufacturing/Warehouse PC - CP Newmarket, England 52,000 Leased Manufacturing - CP Penang, Malaysia 140,825 Owned Manufacturing - PC Paignton, England 154,909 Owned Manufacturing/Research -PC Saint-Apollinaire, France 321,535 Leased Manufacturing - PC Seurre, France 134,333 Leased Manufacturing - PC San Salvador, El Salvador 232,981 Owned Manufacturing - PC Singapore 49,500 Leased Manufacturing/Warehouse -PC - CP Taipei, Taiwan 52,500 Owned Manufacturing - PC In addition to the foregoing, the Company owns and leases a number of sales offices throughout the world. 11 Management believes that all its property, plant and equipment is in good operating condition. The Company is constantly upgrading its equipment and adding capacity through greater use of automation. The Company's capital expenditures for plant and equipment were $97.7 million for fiscal 1999 and $100.4 million in fiscal 1998. Item 3. Legal Proceedings The Company is a party to various legal proceedings and administrative actions, all of which are of an ordinary or routine nature incidental to the operations of the Company. Although it is difficult to predict the outcome of any legal proceeding, in the opinion of the Company's management, such proceedings and actions should not, individually or in the aggregate, have a material adverse effect on the Company's financial condition, results of operations or cash flows. Item 4. Submission of Matters to a Vote of Securities Holders During the fourth quarter of the fiscal year covered by this report, no matter was submitted to a vote of security holders of the Company. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters Market for Common Stock The Company's Common Stock is listed on the New York Stock Exchange and trades under the symbol AVX. The following presents the high and low sale prices for the Company's Common Stock for each quarter since June 30, 1997 as reported on the New York Stock Exchange Composite Tape. 1999 1998 High Low High Low First quarter $21 5/16 $15 5/8 $29 1/8 $19 3/4 Second Quarter 17 15/16 13 5/8 39 5/8 26 5/8 Third Quarter 20 3/4 13 1/2 34 1/2 17 11/16 Fourth Quarter 17 15/16 12 9/16 23 3/8 18 1/4 Holders of Record At May 21, 1999, there were approximately 13,000 holders of record of the Company's Common Stock. Dividends The Company has declared and paid cash dividends of $.065 per share of Common Stock for the quarters ended March 31, 1999, December 31, 1998, September 30, 1998, June 30, 1998 and March 31, 1998. The Company declared and paid cash dividends for the quarters ended December 31, 1997, September 30, 1997, June 30, 1997 and March 31, 1997 of $.06 per share of Common Stock. Future dividends, if any, will depend on the Company's future profitability and anticipated operating cash requirements. 12 Item 6. Selected Financial Data The following table sets forth selected financial data for the Company for the five years ended March 31, 1999. The financial data set forth below should be read in conjunction with the Company's Consolidated Financial Statements and the Notes thereto included elsewhere in this Form 10-K. Selected Financial Data (dollars in thousands, except share data) Income Statement data: Year Ended March 31, 1999 1998 1997 1996 1995 Net sales $1,245,473 $1,267,653 $1,126,178 $1,207,761 $988,893 Cost of sales 1,078,064 970,216 851,863 886,494 777,687 Gross profit 167,409 297,437 274,315 321,267 211,206 Selling, general and administrative expenses 114,104 110,737 102,369 116,586 101,013 Profit from operations 53,305 186,700 171,946 204,681 110,193 Interest income 7,946 11,268 7,536 5,096 2,018 Interest expense (2,228) (1,921) (2,049) (2,352) (2,229) Other, net 1,719 1,377 1,010 1,655 1,218 Income before income taxes 60,742 197,424 178,443 209,080 111,200 Provision for income taxes 19,226 62,773 57,102 71,344 36,329 Net income $41,516 $134,651 $121,341 $137,736 $74,871 Basic and diluted income per share $0.48 $1.53 $1.38 $1.58 $0.87 Weighted average common shares outstanding 87,066,028 88,109,643 88,000,000 87,175,000 85,800,000 Cash dividends declared per common share $0.26 $0.245 $0.225 $0.229 $0.305 As of March 31, 1999 1998 1997 1996 1995 Balance sheet data: Working capital $471,253 $552,787 $456,672 $357,930 $224,999 Total assets 1,058,040 1,048,653 949,307 867,516 670,697 Long-term debt 12,714 8,376 12,170 8,507 9,544 Stockholders' equity 830,641 850,884 731,969 624,000 456,266 Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition General The modest growth in sales from 1997 to 1999 is primarily the result of the Company increasing its production capacity to meet the unit expansion of the electronic components industry and the inclusion of approximately $85 million of net sales in 1999 as a result of the acquisition of TPC, effective June 1998. This expansion has been due primarily to the growth of computer, telecommunications and automotive manufacturers' usage of passive electronic components, as the use of electronics in all walks of life has become more widespread and sophisticated. 13 During this period of unit growth in the industry, the average selling prices of electronic components, as well as the selling prices of end use products which rely on passive components, have declined. In order to lower the costs of production, the Company continues to increase automation of its manufacturing processes, substitute base metals for precious metals in the manufacture of ceramic capacitors and transfer certain labor intensive manufacturing processes from countries with higher labor costs to lower labor cost areas (such as the Czech Republic, El Salvador, Malaysia and Mexico). The Company also places emphasis on the development of specialty advanced and connector products in order to take advantage of higher margin sales growth. The following table sets forth the percentage relationships to net sales of certain income statement items for the periods presented. Year Ended March 31, 1999 1998 1997 Net Sales 100.0% 100.0% 100.0% Cost of sales 86.6 76.5 75.6 Gross profit 13.4 23.5 24.4 Selling, general and administrative expenses 9.2 8.7 9.1 Profit from operations 4.3 14.7 15.3 Income before income taxes 4.9 15.6 15.8 Provision for income taxes 1.5 5.0 5.0 Net income 3.3 10.6 10.8 Outlook Precious metal costs coupled with selling price pressures continue to create difficult market conditions, although the Company has recently experienced strengthened demand and firmer selling prices. The Company believes that there are several factors which may lead to improved profitability during the next year, including: (a) the expanding use of electronics and the resulting increased demand for passive components and interconnect products, (b) the Company's ongoing efforts to substitute base metals for precious metals in the manufacture of ceramic capacitors, (c) continued improvements in production processes, (d) the growth of advanced products through innovation and component design in conjunction with our customers, and (e) expanded product offerings resulting from the TPC acquisition. Results of Operations Year Ended March 31, 1999 Compared to Year Ended March 31, 1998 Net sales for the year ended March 31, 1999 decreased 1.7% to $1,245.5 million from $1,267.7 million for the year ended March 31, 1998. Sales for the year ended March 31, 1999 include approximately $85 million of sales from TPC, a passive component manufacturing business acquired on June 2, 1998. Exclusive of the acquisition of TPC , sales declined 8.5%, although global unit sales increased year over year. The decrease in revenue was attributable to a combination of factors, including, the negative impact of the Asian economic crisis on worldwide demand and prices, a softening of demand in the electronic components industry as customers reduced their level of inventory and suppliers reduced their lead times, and the continued trend toward smaller part sizes, all of which contributed to lower average selling prices. Partially offsetting these overall effects was a 6.8% increase in sales of advanced products within the passive components group and an 8% increase in sales of connector products. 14 Gross profit as a percentage of net sales for the year ended March 31, 1999 decreased 10.1% to $167.4 million (13.4% of net sales) from $297.4 million (23.5% of net sales) for the year ended March 31, 1998. As indicated above, overall sales prices in fiscal1999 were lower compared to fiscal 1998. Gross profit was also negatively impacted by the rising cost of palladium, a precious metal used in the manufacture of ceramic capacitors. Compared to fiscal 1998, the average market price for palladium during fiscal 1999 increased 152% to $315 per troy ounce. The overall impact of rising palladium prices is estimated to have reduced gross profit for fiscal 1999 by $16.7 million. Slightly lower throughput, which negatively impacts cost absorption, reflects soft demand and the intentional reduction in the Company's inventory levels, also contributed to the decline in gross profit. Partially offsetting these factors were continued production efficiencies and improvements in production processes, as well as the impact of relatively higher sales of better margin advanced and connector products. Gross profit was also negatively impacted by costs associated with the integration of the recently acquired TPC operation into the Company's organization. . The benefit of cost cutting measures and organizational changes initiated since the TPC acquisition is expected to be realized during fiscal 2000. Selling, general and administrative expenses for the year ended March 31, 1999 were $114.1 million (9.2% of net sales), compared with $110.7 million (8.7% of net sales) in the year ended March 31, 1998. The increase is primarily attributable to the integration of the TPC operations and the amortization of goodwill related to the acquisition. Research, development and engineering expenditures, which encompass the personnel and related expenses devoted to developing new products, processes and technical innovations, were $42 million and $36 million in fiscal 1999 and 1998, respectively. These cost are incurred as the Company continues to enhance existing product lines and develop new products. As a result of the above factors, profit from operations for the year ended March 31, 1999, decreased to $53.3 million from $186.7 million for the year ended March 31, 1998. For the reasons set forth above and lower interest income on invested cash, net income in the year ended March 31, 1999 decreased to $41.5 million (3.3% of net sales) from $134.6 million (10.6% of net sales) for the year ended March 31, 1998. Year Ended March 31, 1998 Compared to Year Ended March 31, 1997 Net sales for the year ended March 31, 1998 increased 12.6% to $1,267.7 million from $1,126.2 million for the year ended March 31, 1997. The increase was primarily attributable to the growth in the ceramic and tantalum products, particularly surface-mount and advanced products. Despite the overall increase in sales, the Company's results continue to be impacted by several factors including: (a) the shortening of lead times as customers reduced their level of inventory and suppliers reduced lead times, (b) a continuation of the trend toward surface-mount products and smaller part sizes, which traditionally have lower average selling prices, (c) an overall reduction in selling prices, (d) the uncertainties surrounding the Asian economic crisis and (e) the strengthening of the U.S. dollar and certain European currencies, which had a modest dampening effect on reported U.S. dollar sales. 15 Gross profit as a percentage of net sales for the year ended March 31, 1998 decreased 0.9% to $297.4 million (23.5% of net sales) from $274.3 million (24.4% of net sales) for the year ended March 31, 1997. Overall sales prices in the 1998 year were lower compared to the 1997 year. Gross profit was also negatively impacted by the rising cost of palladium, a principle raw material used in the manufacture of ceramic capacitors. Continued automation of the manufacturing processes and higher volumes of through-put in the factories have helped to reduce manufacturing costs for products sold and have enabled the Company to maintain strong gross profit levels. As a result of the Company's strategy to manufacture in the various regions in which it sells products, the strengthening of the U.S. dollar and certain European currencies acted to reduce the overall cost of manufacturing when reported in U.S. dollars. Selling, general and administrative expenses for the year ended March 31, 1998 were $110.7 million (8.7% of net sales), compared with $102.4 million (9.1% of net sales) in the year ended March 31, 1997. The increase in selling, general, and administrative expenses is due to higher research and development spending, higher sales commissions, and the benefit of adjustments to environmental remediation accruals in 1997. As a percentage of sales, such expenses have declined due to the Company's stringent cost control measures. Research, development and engineering expenditures, which encompass the personnel and related expenses devoted to developing new products, processes and technical innovations, were $36 million and $33 million in fiscal 1998 and 1997, respectively. As a result of the above factors, profit from operations for the year ended March 31, 1998 increased 8.6% to $186.7million from $171.9 million for the year ended March 31, 1997. For the reasons set forth above, higher interest income on invested cash and a $3.1 million dividend from a nonmarketable equity investment, net income in the year ended March 31, 1998 increased 11.0% to $134.6 million (10.6% of net sales) from $121.3 million (10.8% of net sales) for the year ended March 31, 1997. Financial Condition Liquidity and Capital Resources The Company's liquidity needs arise primarily from working capital requirements, dividends and capital expenditures. Historically, the Company has satisfied its liquidity requirements through internally generated funds. As of March 31, 1999, the Company had a current ratio of 3.4 to 1, $173.1 million of cash and cash equivalents, $830.6 million of stockholders' equity and an insignificant amount of long-term debt. Net cash from operating activities was $184.4 million for the year ended March 31, 1999, compared to $136.8 million for the year ended March 31, 1998 and $167.9 million for the year ended March 31, 1997. The increase is primarily a result of an intentional reduction of inventories, partially offset by lower earnings before depreciation and amortization. Purchases of property and equipment were $97.7 million in fiscal 1999, $100.4 million in fiscal 1998, and $93.9 million in fiscal 1997. Virtually all expenditures related to expanding the production capabilities of the ceramic and tantalum surface-mount, advanced and interconnect product lines. The carrying value for the Company's equipment reflects the fact that depreciation expense for machinery and equipment is generally computed using the accelerated double-declining balance method. The Company continues to add additional capacity. The Company expects to construct additional facilities and purchase equipment totaling from $80 million to $150 million in fiscal 2000. On June 2, 1998, the Company purchased the passive component business of Thomson-CSF ("TPC") for $74.0 million, including the assumption of debt. The Company's net cash outlay was $58.0 million 16 During fiscal 1998, the Company invested $5.3 million in a research and development company (Electro-Chemical Research Ltd. "ECR"). ECR has developed and patented a technology for high capacity electrical storage devices. Although the majority of the Company's funding is internally generated, certain European subsidiaries of the Company have borrowed German deutsche marks and French francs under various bank agreements. These borrowings were used for working capital requirements and to repay other outstanding obligations. In fiscal 1999, 1998 and 1997, dividends of $22.7 million, $21.1 million and $19.4 million, respectively, were paid to stockholders. In accordance with the Company's stock repurchase program, the Company is authorized to purchase 2.2 million shares. As of March 31, 1999 the Company had purchased 1,929,100 shares at a cost of $31.7 million during fiscal 1999. The repurchased shares are held as treasury stock. The Company has established reserves in the three years ended March 31, 1999 for its projected share of costs associated with the remediation of, and compliance with, environmental matters at various sites. Adjustments to such provisions and related expenditures have not been material in any of these periods. Based on the financial condition of the Company as of March 31, 1999, the Company believes that cash expected to be generated from operating activities will be sufficient to satisfy the Company's anticipated financing needs for working capital, capital expenditures, environmental clean-up costs, research and development expenses, stock repurchases and any dividends to be paid for the foreseeable future. Year 2000 The Year 2000 issue concerns the inability of information systems to properly recognize and process date-sensitive information beginning January 1, 2000. The Company has determined that it will be required to modify or replace some of its hardware and software so that those systems will properly process dates beyond December 31, 1999. However, if such modifications and replacements are not made, or are not completed on a timely basis, the Year 2000 issue could have a material impact on the financial position, results of operations or cash flows of the Company. The Company's procedures to resolve the Year 2000 issue have involved four phases: assessment, remediation, testing and implementation. The Company has completed its assessment of all major systems that could be affected by the Year 2000 issue. The assessment indicated that most of the Company's significant systems, such as customer order, manufacturing and accounting systems, could be affected. For its information technology systems, the Company is currently 100% complete with the remediation phase for all major systems and expects to complete software reprogramming and replacement no later than June 1, 1999. After completing portions of the reprogramming and replacement of software, the Company performs integrated testing and implementation. The Company has completed 90% of its testing and has implemented 80% of its remediated systems. The testing and remediation of all major systems is expected to be completed by the quarter ending June 1999 and other systems should be completed by September 1999. 17 For operating equipment systems, the Company is currently 95% complete with the remediation phase of the resolution process. The Company has completed 85% of its testing and has implemented 75% of its remediated equipment systems. The testing and remediation of all critical equipment systems is expected to be completed by the quarter ending June 1999 and any other systems should be completed by September 1999. The Company has queried its important raw material and service suppliers relative to their resolution of the Year 2000 issue. The Company is not aware of any supplier problems that would materially impact results of operations, liquidity or capital resources. The Company has no means of ensuring that these entities will be Year 2000 ready. If important suppliers or customers are unable to complete their Year 2000 resolution, it could materially impact the Company. The Company does not yet have a comprehensive contingency plan with respect to the Year 2000 issue, but intends to establish such a plan in the near future as part of its ongoing Year 2000 effort. The Company is using both internal and external resources to reprogram, or replace, test and implement, its software and operating equipment systems. The total cost of the Year 2000 project is estimated at $5.7 million and is being funded through operating cash flows. To date, the Company has incurred approximately $4.4 million ($2.0 million of which has been expensed and $2.4 million capitalized for new software and equipment), related to all phases of the Year 2000 project. Of the remaining estimated project costs, approximately $0.5 million is allocated to the purchase of new software and equipment, which will be capitalized. The remaining $0.8 million relates to anticipated remediation, testing and implementation of hardware and software and will be expensed as incurred. The Company's plan to complete the Year 2000 project discussed above is based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources and other factors. Estimates concerning the status of completion and expected completion dates are based on costs incurred to date compared to total expected costs. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those estimates. New Accounting Standards In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"). This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company will be required to adopt SFAS No. 133 for the quarter ended June 30, 2000. Currently, the Company is evaluating this standard and ithe impact it will have on the Company's consolidated financial statements Item 7A. Quantitative and Qualitative Disclosure about Market Risk 18 Foreign Currency The Company's European sales, which account for approximately one-third of Company's revenues, generally are denominated in local currencies whereas those in North America and Asia generally are denominated in U.S. dollars. Also, certain manufacturing and operating costs denominated in local currencies are incurred in Europe, Asia, Mexico and Latin America. As a result, fluctuations in currency exchange rates affect the Company's operating results and cash flow. In order to minimize the effect of movements in currency exchange rates, the Company periodically enters into forward exchange contracts to hedge external and intercompany foreign currency transactions. The Company does not hold or issue derivative financial instruments for speculative purposes. Currency exchange gains and losses have been immaterial during the three years ended March 31, 1999. Assuming a 10% hypothetical adverse change in all foreign currencies, with the resulting functional currency gains and losses translated into U.S. dollars at the spot rate, the resulting net loss in fair value of exchange contracts held would not be material to the results, financial position or cash flows of the Company. Euro On January 1, 1999 certain member countries of the European Union established fixed conversion rates between their existing currencies and the European Union's common currency, the Euro. The Company has successfully completed all the necessary enhancements to its sales order, banking arrangements and operational procedures to ensure Euro compliance. The Company is able to process orders, invoice customers and accept payment in Euros throughout Europe. The introduction of the Euro has not had any material adverse impact upon the Company. The Company continues to monitor the risk of price erosion which could result from increased price transparency among countries using the Euro. Precious Metals The Company is exposed to risk from fluctuations in prices for commodities used to manufacture its products, primarily palladium and tantalum. Palladium, a precious metal used in the manufacture of multilayer ceramic capacitors, is primarily purchased from various companies in the form of palladium sponge and ingot. The main areas of mining of palladium are in Russia and South Africa. Palladium is considered a commodity and is subject to price volatility and has fluctuated in a range of approximately $120 to $417 per troy ounce during the past three years. The Company has managed, through the use of forward purchase agreements and strategic spot buying, to purchase palladium at below average market cost each year. The Company is aggressively stepping up its efforts to substitute base metals for precious metals in the manufacture of ceramic capacitors. If the conversion to base metals occurs as planned, the Company anticipates that, by the end of fiscal 2000, it will have reduced its annual usage of palladium by 80%. Assuming a 10% hypothetical increase in the average cost of palladium purchased by the Company, gross profit for the year ended March 31, 1999 would have been negatively impacted by approximately $9.6 million. Tantalum powder is a principal material used in the manufacture of solid tantalum capacitors. This product is purchased under annual contracts through suppliers from various parts of the world at prices that are subject to periodic adjustment. The Company is a major consumer of the world's annual tantalum production. Although the Company believes that there is currently no problem with the procurement of tantalum powder and that the tantalum required by the Company has generally been available in sufficient quantity to meet requirements, the limited number of tantalum powder suppliers could lead to higher prices. Assuming a 10% hypothetical increase in the average cost of tantalum purchased by the Company, gross profit for the year ended March 31, 1999 would have been negatively impacted by approximately $6.6 million. 19 Interest Rate Exposure Interest rate exposure is centrally managed by offsetting surplus cash and deposits against borrowings on a currency-by-currency basis. The Company maintains an insignificant amount of foreign currency denominated long-term and short-term debt. The term of these borrowings range from 3 months to 36 months, with both fixed and variable interest rates. A 10% adverse movement in interest rates would not have a material impact on the Company's operating results, financial position or cash flows. Item 8. Financial Statements and Supplementary Data The following Consolidated Financial Statements of the Company and its subsidiaries, together with the Report of Independent Accountants thereon, are presented beginning on page 44 of this report: Page Consolidated Balance Sheets, March 31, 1999 and 1998 23 Consolidated Statements of Income, Years Ended March 31, 1999, 1998 and 1997 24 Consolidated Statements of Stockholders' Equity, Years Ended March 31, 1999, 1998 and 1997 25 Consolidated Statements of Cash Flows, Years Ended March 31, 1999, 1998 and 1997 26 Notes to Consolidated Financial Statements 27 Report of Independent Accountants 44 All financial statement schedules are omitted because of the absence of the conditions under which they are required or because the information required is shown in the consolidated financial statements or notes thereto. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Information with respect to Items 10, 11, 12 and 13 on Form 10-K is set forth in the Company's definitive proxy statement filed with the Security and Exchange Commission in June of 1999, which information is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statements and Financial Statement Schedules and Reports on Form 8-K (a) Financial Statements and Financial Statement Schedules - See Index to Consolidated Financial Statements at Item 8 of this report. (b) Reports on Form 8-K None for the quarter ended March 31,1999 20 (c) Exhibits: Certain of the exhibits to this report, indicated by an asterisk, are hereby incorporated by reference to other documents on file with the Securities and Exchange Commission with which they are physically filed, to be a part hereof as of their respective dates. *3.1 Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to Registration statement on Form S-1 (File No. 33-94310 of the Company (the "Form S-1"))). 3.2 By-laws of the Company as amended. *10.1 Amended AVX Corporation 1995 Stock Option Plan (incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-8 (File No. 333-37201) of the Company). 10.2 Non-Employee Directors Stock Option Plan as amended. *10.3 Form of Employment Agreement between AVX Corporation and Benedict P. Rosen (incorporated by reference to Exhibit 10.3 to the Form S-1). *10.4 Products Supply and Distribution Agreement by and between Kyocera Corporation and AVX Corporation (incorporated by reference to Exhibit 10.4 to the Form S-1). *10.5 Disclosure and Option to License Agreement by and between Kyocera Corporation and AVX Corporation (incorporated by reference to Exhibit 10.5 to the Form S-1). *10.6 Management Incentive Plan (incorporated by reference to Exhibit 10.6 to the Form S-1). 10.7 AVX Nonqualified Supplemental Retirement Plan (formerly known as Deferred Compensation Plan). *10.8 Directors Deferred Compensation Plan (incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K of the Company for the year ended March 31, 1997 (the "1997 Form 10-K")). *10.9 AVX Corporation SERP (incorporated by reference to Exhibit 10.9 To the Annual Report on Form 10-K of the Company for the year ended March 31, 1998 (the "1998 Form 10-K")). 21.1 Subsidiaries of the Registrant. 23.1 Consent of PricewaterhouseCoopers LLP 24.1 Power of Attorney. 27.1 Financial Data Schedule. 21 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. AVX Corporation by: /s/ Donald B. Christiansen - --------------------------------- DONALD B. CHRISTIANSEN Senior Vice President of Finance, Chief Financial Officer and Treasurer Dated: June 10, 1999 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 * - ------------- Kazuo Inamori Chairman Emeritus of the Board June 10,1999 * - ------------- Benedict P. Rosen Chairman of the Board and Chief Executive Officer June 10,1999 * - ------------- John S. Gilbertson President and Chief Operating Officer and Director June 10,1999 * - ------------- Donald B. Christiansen Senior Vice President of Finance, Chief Financial Officer and Treasurer and Director June 10,1999 * - ------------- Marshall D. Butler Director June 10,1999 * - ------------ Carroll A. Campbell Director June 10,1999 * - ------------ Richard Tressler Director June 10,1999 * - ------------ Kensuke Itoh Director June 10,1999 * - ------------ Rodney N. Lanthorne Director June 10,1999 * - ------------ Michihisa Yamamoto Director June 10,1999 * - ------------ Masahiro Umemura Director June 10,1999 * - ------------ Masahiro Yamamoto Director June 10,1999 * - ------------ Yuzo Yamamura Director June 10,1999 * by: /s/ Donald B. Christiansen DONALD B. CHRISTIANSEN, Attorney-in-Fact for each of the persons indicated EX-13 2 22 AVX Corporation and Subsidiaries Consolidated Balance Sheets (dollars in thousands, except share data) March 31, 1999 1998 Assets Current assets: Cash and cash equivalents $ 173,106 $ 201,887 Accounts receivable, net 157,331 139,812 Inventories 277,393 326,787 Deferred income taxes 21,895 20,039 Other receivables 2,738 3,707 Prepaid and other 31,072 29,980 Total current assets 663,535 722,212 Property and equipment: Land 12,287 10,110 Buildings and improvements 142,661 123,668 Machinery and equipment 730,574 663,594 Construction in progress 58,692 44,313 944,214 841,685 Accumulated depreciation (639,966) (559,431) 304,248 282,254 Goodwill, net 78,790 33,479 Other assets 11,467 10,708 Total Assets $ 1,058,040 $ 1,048,653 Liabilities and Stockholders' Equity Current liabilities: Short-term bank debt $ 20,944 $ 9,887 Current maturities of long-term debt 148 2,911 Accounts payable: Trade 46,737 39,507 Affiliates 30,689 37,800 Income taxes payable 11,995 15,650 Accrued payroll and benefits 23,112 36,361 Accrued expenses 58,657 27,309 Total current liabilities 192,282 169,425 Long-term debt 12,714 8,376 Deferred income taxes 6,115 8,563 Other liabilities 16,288 11,405 Total Liabilities 227,399 197,769 Commitments and contingencies (Notes 10 and 13) Stockholders' Equity Preferred stock, par value $.01 per share: - - Authorized, 20,000,000 shares; None issued and outstanding Common stock, par value $.01 per share: 882 882 Authorized, 300,000,000 shares; issued and outstanding, 88,184,125 and 88,183,500 shares for 1999 and 1998, respectively Additional paid-in capital 325,028 325,017 Retained earnings 541,267 522,410 Accumulated other comprehensive income (loss) (4,789) 2,575 Common stock in treasury, at cost, 1,929,100 shares (31,747) - Total Stockholders' Equity 830,641 850,884 Total Liabilities and Stockholders' Equity $ 1,058,040 $ 1,048,653 See accompanying notes to consolidated financial statements. 23 AVX Corporation and Subsidiaries Consolidated Statements of Income (dollars in thousands, except share data) Years Ended March 31, 1999 1998 1997 Net sales $ 1,245,473 $ 1,267,653 $ 1,126,178 Cost of sales 1,078,064 970,216 851,863 Gross profit 167,409 297,437 274,315 Selling, general and administrative expenses 114,104 110,737 102,369 Profit from operations 53,305 186,700 171,946 Other income (expense): Interest income 7,946 11,268 7,536 Interest expense (2,228) (1,921) (2,049) Other, net 1,719 1,377 1,010 Income before income taxes 60,742 197,424 178,443 Provision for income taxes 19,226 62,773 57,102 Net income $ 41,516 $ 134,651 $ 121,341 Basic and diluted income per share $ 0.48 $ 1.53 $ 1.38 Weighted average common shares outstanding 87,066,028 88,109,643 88,000,000 See accompanying notes to consolidated financial statements. 24 AVX Corporation and Subsidiaries Consolidated Statements of Stockholders' Equity (dollars in thousands)
Common Stock Accumulated Additional Other Current Year's Number Treasury Paid-In Retained Comprehensive Comprehensive Of Shares Amount Stock Capital Earnings Income(Loss) Total Income Balance, March 31, 1996 88,000,000 $ 880 $ - $ 319,909 $ 306,923 $ (3,712) $ 624,000 Net income 121,341 121,341 $121,341 Other comprehensive income 5,988 5,988 5,988 Dividends (19,360) (19,360) Balance, March 31, 1997 88,000,000 880 - 319,909 408,904 2,276 731,969 $127,329 Net income 134,651 134,651 $134,651 Other comprehensive income 299 299 299 Dividends (21,145) (21,145) Exercise of stock options 183,500 2 4,482 4,484 Tax benefit of stock option exercises 626 626 Balance, March 31, 1998 88,183,500 882 - 325,017 522,410 2,575 850,884 $134,950 Net income 41,516 41,516 $ 41,516 Other comprehensive income (loss) (7,364) (7,364) (7,364) Dividends (22,659) (22,659) Exercise of stock options 625 11 11 Treasury stock purchased (1,929,100) (31,747) (31,747) Balance, March 31, 1999 86,255,025 $ 882 $ (31,747) $ 325,028 $ 541,267 $ (4,789) $830,641 $ 34,152
See accompanying notes to consolidated financial statements. 25 AVX Corporation and Subsidiaries Consolidated Statements of Cash Flows (dollars in thousands) Years Ended March 31, 1999 1998 1997 Operating Activities: Net income $ 41,516 $ 134,651 $ 121,341 Adjustment to reconcile net income to net cash from operating activities: Depreciation and amortization 94,728 87,668 82,242 Deferred income taxes (4,305) (2,520) (911) Changes in operating assets and liabilities, net of effects of business acquired: Accounts receivable 2,269 11,621 (9,745) Inventories 70,256 (77,053) (2,912) Accounts payable and accrued expenses (20,804) (3,772) (5,730) Income taxes payable (3,318) (9,507) (11,093) Other assets and liabilities 4,061 (4,327) (5,266) Net cash from operating activities 184,403 136,761 167,926 Investing Activities: Purchases of property and equipment (97,715) (100,374) (93,954) Equity investments (5,300) Business acquired, net of cash (58,027) Other 65 142 2,347 Net cash used in investing activities (155,677) (105,532) (91,607) Financing Activities: Proceeds from issuance of debt 19,596 2,197 9,738 Repayment of debt (22,675) (3,464) (10,043) Dividends paid (22,659) (21,145) (19,360) Purchase of treasury stock (31,747) Exercise of stock options 11 4,482 Net cash used in financing activities (57,474) (17,930) (19,665) Effect of exchange rate on cash (33) 14 319 Increase (decrease) in cash and cash equivalents (28,781) 13,313 56,973 Cash and cash equivalents at beginning of period 201,887 188,574 131,601 Cash and cash equivalents at end of period $ 173,106 $ 201,887 $ 188,574 See accompanying notes to consolidated financial statements. 26 AVX Corporation and Subsidiaries Notes to Consolidated Financial Statements (dollars in thousands, except share data) 1. Summary of Significant Accounting Policies: General: AVX Corporation is a leading worldwide manufacturer and supplier of a broad line of passive electronic components and interconnect products. Components sold by the Company are used in virtually all types of electronic products for industries such as telecommunications, computers, automotive, medical and consumer electronics. The consolidated financial statements of AVX Corporation and its subsidiaries (the "Company" or "AVX") include the accounts of the Company and its subsidiaries. All significant intercompany transactions and accounts have been eliminated. Other investments for which the Company does not control the financial and operational direction, are either accounted for using the equity method or are recorded at cost. Public Offering: From January 1990 through August 15, 1995, the Company was wholly-owned by Kyocera Corporation ("Kyocera"). On August 15, 1995, Kyocera sold 22.9%, or 19,650,000 of the Company's common shares, and the Company sold an additional 2,200,000 common shares, in a public offering. Kyocera currently owns approximately 77% of the Company's outstanding common shares. Cash Equivalents: The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventories: Inventories are valued at the lower of cost (first-in, first-out method) or market. Inventory costs include material, labor and manufacturing overhead. 27 Property and Equipment: Property and equipment are recorded at cost. Machinery and equipment are generally depreciated on the double-declining balance method. Buildings are depreciated on the straight-line method. The estimated useful lives used for computing depreciation are as follows: buildings and improvements-10 to 31.5 years, and machinery and equipment-3 to 10 years. Depreciation expense was $90,858, $85,858 and $80,120 for the years ended March 31, 1999, 1998 and 1997, respectively. The cost of maintenance and repairs is charged to expense as incurred. Upon disposal or retirement, the cost and accumulated depreciation of assets are eliminated from the respective accounts. Any gain or loss is reflected in income. Goodwill: Assets and liabilities related to business combinations accounted for as purchase transactions were recorded at their respective fair values on the dates of acquisition. Any excess of purchase price over such fair value ("Goodwill") is amortized on a straight-line basis over periods ranging from 20 to 40 years. The accumulated amortization as of March 31, 1999 and 1998 was $22,972 and $19,099, respectively. The carrying value of Goodwill is evaluated quarterly in relation to the operating performance and estimated future undiscounted cash flows of the related operating unit. Adjustments are made if the sum of expected future net cash flows is less than carrying value. Income Taxes: Deferred tax liabilities and assets are determined based on temporary differences between the bases of certain assets and liabilities for income tax and financial reporting purposes. The deferred tax assets and liabilities are classified according to the financial statement classification of the assets and liabilities generating the differences. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. The Company does not provide for U.S. taxes on the undistributed earnings of foreign subsidiaries which are considered to be reinvested indefinitely. As of March 31, 1999, the amount of U.S. taxes on such undistributed earnings would have been approximately $39,178. 28 Foreign Currency Activity: Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the exchange rate in effect at the balance sheet date. Operating accounts are translated at an average rate of exchange for the respective accounting periods. Translation adjustments result from the process of translating foreign currency financial statements into U.S. dollars and are reported separately as a component of accumulated comprehensive income. The Company enters into foreign currency exchange contracts and swaps to manage exposure to currency rate fluctuations on anticipated sales, purchases and intercompany transactions. These exchange agreements generally qualify for accounting as designated hedges. The realized and unrealized gains and losses on these contracts are deferred and included as a component of the related transaction. Any contracts that do not qualify as hedges for accounting purposes are marked to market with the resulting gains and losses recognized in other income or expense. Revenue Recognition: Sales are recorded upon shipment of related goods to customers. Certain sales to distributors are under terms which allow for the affected distributors to receive price protection from the Company for actual sales at prices below anticipated sales prices. A portion of sales is made to distributors under agreements allowing limited rights of return. The Company provides an allowance for distributor adjustments based on historical experience. Grants: The Company receives employment and research grants from various non-US governmental agencies which are recognized in earnings in the period in which the related expenditures are incurred. Capital grants for the acquisition of equipment are recorded as reductions of the related equipment cost and reduce future depreciation expense. Use of Estimates: The consolidated financial statements are prepared on the basis of generally accepted accounting principles. The preparation of financial statements in conformity with general accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at March 31, 1999 and 1997 and reported amounts of revenues and expenses for each of the three years in the period ended March 31, 1999. Actual results could differ from those estimates and assumptions. Research, Development and Engineering: Research, development and engineering expenses totaled approximately $42,000, $36,000 and $33,000 for the years ended March 31, 1999, 1998 and 1997, respectively, while research and development expenses included in these amounts totaled $20,622, $21,001 and $18,558 for the years ended March 31, 1999, 1998 and 1997, respectively. Research and development expenditures are expensed when incurred. Stock-Based Compensation: Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, allows companies to record compensation cost for stock-based compensation plans at fair value or provide pro forma disclosures. The Company has chosen to continue to account for stock-based compensation using the method whereby compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the date of grant over the amount an employee must pay to acquire the stock. Treasury Stock: In January 1998, the Company's Board of Directors approved a stock repurchase program whereby up to 2.2 million shares of common stock may be purchased from time to time at the discretion of management. As of March 31, 1999 the Company had purchased 1,929,100 shares at a cost of $31,747. The repurchased shares are held as treasury stock and are available for general corporate purposes. New Accounting Standards: In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities ("SFAS No. 133"). This statement establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company will be required to adopt SFAS No. 133 for the quarter ended June 30, 2000. Currently, the Company is evaluating this standard and the impact it will have on the Company's consolidated financial statements. 2. Earnings Per Share: Basic earnings per share are computed by dividing net earnings by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share are computed by dividing net earnings by the sum of (a) the weighted average number of shares of common stock outstanding during the period and (b) the dilutive effect of potential common stock equivalents during the period. The basic weighted average number of shares of common stock outstanding for the period were 87,066,028, 88,109,643 and 88,000,000 for the years ended March 31, 1999, 1998 and 1997, respectively. The diluted weighted average number of shares of common stock and potential common stock equivalents outstanding for the period were 87,083,500, 88,279,846 and 88,038,950 for the years ended March 31, 1999, 1998 and 1997, respectively. Stock options are the only common stock equivalents and are therefore considered in the diluted earnings per share calculations. Common stock equivalents are computed using the treasury stock method. 3. Comprehensive Income: The Company has adopted Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income ("SFAS No. 130"). The statement requires disclosure of total non-shareowner changes in equity. Total non-shareowner changes in equity include all changes in equity during a period except those resulting from investments by and distributions to shareowners. The Company's total comprehensive income was $34,152, $134,950 and $127,329 for the years ended March 31, 1999, 1998 and 1997, respectively. The only adjustment to net income in the periods was for foreign currency translation adjustments. 4. Accounts Receivable: Accounts receivable at March 31 consisted of: 1999 1998 Trade $183,033 $163,348 Less: allowances for doubtful accounts, sales returns distributor adjustments and discounts (25,702) (23,536) $157,331 $139,812 Charges to expense related to such allowances were approximately $111,813, $93,059 and $58,543, and applications to such allowances were approximately $109,558, $87,746 and $60,991 for the years ended March 31, 1999, 1998 and 1997, respectively. 31 5. Inventories: Inventories at March 31 consisted of: 1999 1998 Finished goods $ 91,551 $116,811 Work in process 96,604 114,827 Raw materials and supplies 89,238 95,149 $277,393 $326,787 6. Debt: Long-term debt at March 31 consisted of: 1999 1998 Deutsche mark loans at 3.29-6.25% due through 2001 $12,862 $11,287 Less - current maturities (148) (2,911) $12,714 $8,376 As of March 31, 1999, $8.3 million of long-term deutsche mark debt originally scheduled to mature on January 1, 2000 has been excluded from current maturities of long-term debt based on the Company's intent and ability to extend the facilities. The aggregate annual maturities of long-term debt are as follows: 2000 $ 148 2001 11,080 2002 1,634 $12,862 Long-term debt includes 15.0 million and 5.0 million of deutsche mark loans which have variable rates of interest based on a market rate plus .25%. At March 31, 1999, these loans had a rate of 3.29%. The remaining loans of 3.0 million and .25 million deutsche marks carry fixed rates of 4.5% and 6.25%, respectively. Short-term bank debt at March 31, 1999, consists primarily of borrowings incurred by the Company's European subsidiaries under 15.0 million and 10.0 million deutsche mark short-term working capital bank facilities bearing interest at market rates (between 3.09% and 4.4% at March 31, 1999) which extend through April 1999 and June 1999, respectively. In addition, the Company has two 50.0 million French franc working capital bank facilities bearing interest at market rates (3.42% as of March 31, 1999) which extended through June 1999. 32 Interest paid totaled $1,575, $1,426 and $1,639 during the years ended March 31, 1999, 1998 and 1997, respectively. 7. Income Taxes: For financial reporting purposes, after adjustments for certain corporate items, income before income taxes includes the following components: Years Ended March 31, 1999 1998 1997 Domestic $24,089 $126,236 $102,717 Foreign 36,653 71,188 75,726 $60,742 $197,424 $178,443 The provision (benefit) for income taxes consisted of: Years Ended March 31, 1999 1998 1997 Current: Federal/State $13,573 $49,075 $38,186 Foreign 13,096 17,487 20,084 26,669 66,562 58,270 Deferred: Federal/State (7,709) (4,362) 4,031 Foreign 266 573 (5,199) (7,443) (3,789) (1,168) $19,226 $62,773 $57,102 33 Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows: March 31, 1999 1998 Current: Assets Liabilities Assets Liabilities Sales and receivable reserves $ 9,489 $ -- $ 7,626 $ -- Inventory reserves 3,441 -- 2,990 -- Accrued expenses 8,965 -- 9,423 -- $ 21,895 $ -- $ 20,039 $ -- Non-current: Property and equipment depreciation $ 690 $ 2,002 $ 1,123 $ 2,707 Accrued expenses 2,422 1,252 1,330 1,260 Other -- 7,934 -- 11,638 Foreign income tax loss carryforwards 18,412 -- 4,964 -- 21,524 11,188 7,417 15,605 Valuation allowance (16,451) -- (375) -- $ 5,073 $ 11,188 $ 7,042 $ 15,605 A reconciliation between the U.S. Federal statutory income tax rate and the Company's effective rate for income tax is as follows: Years Ended March 31, 1999 1998 1997 U.S. Federal statutory rate 35.0% 35.0% 35.0% Increase (decrease) in tax rate resulting from: State income taxes, net of federal benefit 1.0 1.7 2.4 Taxes at different tax rates on foreign earnings (9.5) (3.6) (2.9) Change in valuation allowance 10.4 (.8) Other, net (5.2) (1.3) (1.7) Effective tax rate 31.7% 31.8% 32.0% 34 At March 31, 1999, certain of the Company's foreign subsidiaries in Europe had tax net operating loss carryforwards totaling approximately $53,428, most with no expiration date. Accordingly, the Company's valuation allowances relate to deferred tax assets which are the result of the loss carryforwards in these jurisdictions. The valuation allowance increased $16,076 during the year ended March 31, 1999, $8,500 of which was due to the pre-acquisition operating loss carryforwardsof TPC, and decreased $2,560 during the year ended March 31, 1998. Income taxes paid totaled $26,084, $76,013 and $72,096 during the years ended March 31, 1999, 1998 and 1997, respectively. 8. Employee Retirement Plans: Pension Plans: The Company sponsors various defined benefit pension plans covering certain employees. Pension benefits provided to certain U.S. employees covered under collective bargaining agreements are based on a flat benefit formula. Effective December 31, 1995, the Company froze benefit accruals under its domestic non-contributory defined benefit pension plan for a significant portion of the employees covered under collective bargaining agreements. The Company's pension plans for certain European employees provide for benefits based on a percentage of final pay. The Company's funding policy is to contribute the statutory required amount to the appropriate trust or government funds. The change in the benefit obligation and plan assets of the U.S. and non-U.S. defined benefit plans for 1999 and 1998 were as follows: U.S. Plans International Plans Years ended March 31, 1999 1998 1999 1998 Change in benefit obligation: Benefit obligation at beginning of year $23,187 $21,442 $50,471 $43,483 Service cost 306 181 2,438 2,358 Interest cost 1,538 1,511 3,517 3,102 Plan participants' contributions 0 0 942 926 Actuarial loss (gain) (854) 1,055 2,303 1,971 Benefits paid (1,074) (1,002) (1,904) (1,369) Benefit obligation at end of year 23,103 23,187 57,767 50,471 35 Change in plan assets: Fair value of plan assets at beginning of year 23,813 19,702 53,330 46,306 Actual return on assets 2,652 4,903 4,331 7,124 Employer contributions 0 252 1,485 561 Plan participants' contributions 0 0 942 926 Benefits paid (1,074) (1,002) (1,904) (1,369) Other expenses 0 (42) (370) (218) Fair value of plan assets at end of year 25,391 23,813 57,814 53,330 Funded status 2,288 626 47 2,859 Unrecognized actuary loss (gain) (3,613) (2,249) (2,093) (5,314) Unrecognized prior service cost 174 196 426 477 Unrecognized transition obligation 65 87 54 (49) Prepaid (accrued) benefit cost $(1,086) $(1,340) $(1,566) $(2,027) The Company's assumptions used in determining the pension assets (liabilities) shown were as follows: March 31, 1999 1998 1997 Assumptions: Discount rates 6.00-7.0% 6.75-7.0% 6.75%-7.75% Increase in compensation 2.50-3.50% 3.0-4.0% 3.0-4.0% Expected long-term rate of return on plan assets 7.50-9.0% 8.0-9.0% 8.0-9.0% Net pension cost related to these pension plans include the following components: Years ended March 31, 1999 1998 1997 Service cost $ 2,744 $ 2,539 $ 2,745 Plan participants' contributions (942) (926) (872) Interest cost 5,055 4,613 4,384 Expected return on plan assets (6,748) (7,816) (4,837) Amortization of prior service cost 51 73 10 Amortization of transition obligation 43 43 22 Recognized actuarial loss (gain) 364 2,342 (43) Net periodic pension cost $ 567 $ 868 $ 1,409 Savings Plans: The Company sponsors retirement savings plans which allow eligible employees to defer part of their annual compensation. Certain contributions by the Company are discretionary and are determined by the Company's Board of Directors each year. The Company's contributions to the savings plans in the United States and Europe for the years ended March 31, 1999, 1998 and 1997, were approximately $6,272, $6,302 and $5,800, respectively. 36 The Company sponsors nonqualified deferred compensation programs which permit key employees to annually elect to defer a portion of their compensation until retirement. A portion of the deferral is subject to a matching contribution by the Company. The employees select among various investment alternatives, with the investments held in a separate trust. The value of the participant's balance fluctuates based on the performance of the investments. At March 31, 1999, the market value of the trust, $2,503, is included as an asset and a liability of the Company in the accompanying balance sheet because the trust assets are available to AVX's general creditors in the event of the Company's insolvency. 9. Stock Based Compensation: The Company has two fixed option plans. Under the 1995 Stock Option Plan, as amended, the Company may grant options to employees for the purchase of up to an aggregate of 2,650,000 shares of common stock. Under the Non-Employee Directors' Stock Option Plan, as amended, the Company may grant options for the purchase of up to an aggregate of 250,000 shares of common stock. Under both plans, the exercise price of each option equals the market price of the Company's stock on the date of grant and an option's maximum term is 10 years. Options granted under the 1995 Stock Option Plan vest as to 25% annually and options granted under the Non-Employee Directors' Stock Option Plan vest as to one third annually. The following table summarizes the transactions of the Company's stock option plans for the three year period ended March 31, 1999: Number of Weighted Average Shares Exercise Price Unexercised options outstanding - March 31, 1996 1,126,000 $25.50 Options granted 534,000 $18.13 Options exercised - - Options forfeited (21,500) $23.61 Unexercised options outstanding - March 31, 1997 1,638,500 $23.12 Options granted 633,000 $22.09 Options exercised (183,500) $24.42 Options forfeited (14,325) $22.54 Unexercised options outstanding - March 31, 1998 2,073,675 $22.69 Options granted 458,300 $16.09 Options exercised (625) $18.13 Options forfeited (203,275) $20.26 Unexercised options outstanding - March 31, 1999 2,328,075 $21.20 37 Price Range $25.50-$31.813 (weighted average contractual life 6.5 years) 951,250 $25.80 Price Range $15.0-$19.94 (weighted average contractual life 8.5 years) 1,376,825 $18.02 Exercisable options: March 31, 1997 277,500 $25.50 March 31, 1998 534,250 $24.07 March 31, 1999 1,051,881 $23.20 The calculated fair value at date of grant for each option granted during the years ended March 31, 1999, 1998 and 1997 was $6.35 to $8.59, $8.59 to $14.48 and $6.82, respectively. The fair value of options at date of grant was estimated using the Black-Scholes model with the following weighted average assumptions: Year Ended March 31 1999 1998 1997 Expected life (years) 5 5 5 Interest rate 6.6% 6.6% 6.7% Volatility 45% 45% 35% Dividend yield 1.23-1.63% 0.75-1.23% 1.21% If the estimated fair value of the options had been recognized as compensation expense over the vesting periods, income before income taxes would have been reduced by $4,839 ($3,980 after income taxes or $.05 per share), $4,127 ($3,408 after income taxes, or $.04 per share) and $3,099 ($2,523 after income taxes, or $.03 per share) for the years ended March 31, 1999, 1998 and 1997, respectively. 10. Commitments and Financial Instruments: Commitments: At March 31, 1999, the Company had contractual obligations for the acquisition or construction of plant and equipment aggregating approximately $21,840 . In connection with an expansion at the Company's manufacturing facility in the Northern Ireland, capital grants totaling $11,500 have been approved, $1,700 of which had not been received as of March 31, 1999 and are contingent upon the Company spending approximately $5,700 for plant and equipment. The Company is a lessee under long-term operating leases primarily for office space, plant and equipment. Future minimum lease commitments under non-cancelable operating leases as of March 31, 1999, were as follows: 38 Years Ending March 31, 2000 $8,532 2001 6,848 2002 6,228 2003 6,214 2004 6,724 Thereafter 13,825 Rental expense for operating leases was $9,634, $6,440 and $6,390 for the years ended March 31, 1999, 1998 and 1997, respectively. Financial Instruments: At March 31, 1999, $11,000 of the Company's intercompany borrowings by a European subsidiary were denominated in U.S. dollars. To reduce the exposure to foreign currency fluctuations, the subsidiary entered into foreign currency swaps which at March 31, 1999 fixed principal balance of the intercompany borrowings in U.K. sterling. In addition to the U.S. dollar, the Company conducts business in most European currencies and the Japanese yen. The Company's foreign currency contracts related to anticipated sales and purchases generally have maturities that do not exceed six months. The Company enters into forward delivery contracts with certain suppliers for certain precious metals used in its production processes. The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents and trade accounts receivable. The Company places its cash and cash equivalents with high credit quality institutions. At times, such investments may be in excess of the Federal Deposit Insurance Corporation insurance limit. Concentrations of credit risk with respect to trade accounts receivable are limited due to the large number of entities comprising the Company's customer base and their dispersion across many different industries and countries. As of March 31, 1999, the Company believes that its credit risk exposure is not significant. 39 The following disclosure of the estimated fair value of financial instruments has been determined by the Company, using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities including cash and cash equivalents, receivables and accounts payable approximate carrying value due to the short-term maturity of the instruments. The fair value of short-term and long-term debt approximate carrying value based on their effective interest rates compared to current market rates. March 31, 1999 March 31, 1998 Contract Carrying Unrealized Contract Carrying Unrealized Amount Amount Gain (Loss) Amount Amount Gain (Loss) Off-Balance Sheet Financial Instruments: Foreign currency contracts $46,968 $ - $ (266) $26,541 $ - $ 259 Foreign currency swaps 11,000 (570) (570) 16,000 (1,474) (1,474) Metal delivery contracts - - - 25,014 - 8,016 11. Transactions With Affiliate: The Company's businesses include the sale and distribution of electronic products manufactured by Kyocera. The Company entered into transactions with Kyocera as follows: Years Ended March 31, 1999 1998 1997 Sales: Product and equipment sales to affiliates $14,247 $25,725 $23,120 Subcontracting activities 2,103 1,679 2,111 Commissions received 78 438 236 Purchases: Purchases of resale inventories, raw materials supplies, equipment and services 245,504 266,568 234,434 Commissions paid 72 87 202 Rent paid 1,141 1,137 959 Other: Dividends paid 17,200 15,883 14,553 12. Segment and Geographic Information: The Company has three reportable operating segments: Passive Components, Connectors and Research and Development. The Company is organized, exclusive of research and development, on the basis of products being separated into six units. Five of the units which manufacture or distribute ceramic, tantalum, film and power capacitors, ferrites and other passive devices have been aggregated into the segment "Passive Components". 40 The Company evaluates performance of its segments based upon sales and operating profit. There are no intersegment revenues. For determining segment assets, cash and accounts receivable, which are centrally managed, are not readily allocable to operating segments. The tables below present information about reported segments for the years ended March 31, 1999 1998 1997 Net sales: Passive components $1,129,714 $1,160,428 $1,036,096 Connectors 115,759 107,225 90,082 Research & development - - - Total $1,245,473 $1,267,653 $1,126,178 Operating profit: Passive components $67,257 $211,416 $196,104 Connectors 18,806 10,950 3,745 Research & development (20,622) (21,001) (18,558) Corporate administration (12,136) (14,665) (9,345) Total $53,305 $186,700 $171,946 Depreciation: Passive components $79,493 $74,938 $70,112 Connectors 7,545 7,329 6,250 Research & development 2,435 2,401 2,173 Corporate administration Research & Development 1,385 1,190 1,585 Total $90,858 $85,858 $80,120 Assets: Passive components $560,982 $570,335 $492,234 Connectors 33,809 45,799 47,408 Research & development 19,475 17,252 15,480 Cash and accounts receivable 330,438 341,699 343,932 Goodwill 78,790 33,479 34,913 Corporate administration Research & Development 34,546 40,089 15,340 Total $1,058,040 $1,048,653 $949,307 Capital expenditures: Passive components $90,952 $89,790 $83,686 Connectors 3,244 5,971 6,908 Research & development 3,519 4,613 3,360 Total $97,715 $100,374 $93,954 41 The following geographic data is based upon net sales generated by operations located within that geographic area and long lived assets based upon physical location. The Other category consists of Latin America and Israel. For the year ended March 31, 1999 1998 1997 Net sales: United States $520,195 $607,064 $522,879 Europe 345,055 291,709 253,493 Asia 369,974 364,300 345,262 Other 10,249 4,580 4,544 Total $1,245,473 $1,267,653 $1,126,178 Property, plant and equipment, net: United States $129,937 $127,360 $122,390 Europe 129,016 119,869 116,571 Asia 10,384 2,818 3,226 Other 34,911 32,207 29,405 Total $304,248 $282,254 $271,592 No one customer has accounted for more than 10% of net sales in the past three years. 13. Environmental Matters and Contingencies: The Company has been named as a potentially responsible party in state and federal administrative proceedings seeking contribution for costs associated with the correction and remediation of environmental conditions at various hazardous waste disposal sites. The Company continues to monitor these actions and proceedings and to vigorously defend its interests. The Company's ultimate liability in connection with environmental claims will depend on many factors, including its volumetric share of waste, the total cost of remediation and the financial viability of other companies that also sent waste to a given site. Once it becomes probable that the Company will incur costs in connection with remediation of a site and such costs can be reasonably estimated, the Company establishes or adjusts its reserves for its projected share of these costs. These reserves do not reflect any possible future insurance recoveries, which are not expected to be significant, but do reflect a reasonable estimate of cost sharing at multiple party sites. Based upon information known to the Company concerning the size of these sites, their years of operations and the number of past users, management believes that it has adequate reserves with respect to these matters. Such reserves for remediation, compliance and legal cost s totaled $2,600 at March 31, 1999. Actual costs may vary from these estimated reserves, but such costs are not expected to have a material adverse effect on the Company's financial condition or results of operations. 42 14. Acquisition: On June 2, 1998, the Company purchased the passive component business of Thomson-CSF ("TPC") for $74,000 ($58,000 in cash and $16,000 of assumed debt). The acquisition was accounted for as a purchase and funded through the use of working capital. Based upon market valuations of the fair values of the assets acquired and liabilities assumed the purchase price exceeded the fair value of net assets acquired by approximately $49,600, which is being amortized on a straight-line basis over 20 years. The results of operations of TPC are included in the accompanying financial statements from the date of acquisition. 15. Summary of Quarterly Financial Information (Unaudited): Quarterly financial information for the years ended March 31, 1999 and 1998 is as follows: First Quarter Second Quarter 1999 1998 1999 1998 Net sales $292,000 $313,807 $324,144 $329,224 Gross profit 51,460 78,080 42,604 79,318 Net income 17,402 34,935 10,514 36,730 Basic and diluted earnings per share .20 .40 .12 .41 Third Quarter Fourth Quarter 1999 1998 1999 1998 Net sales $310,718 $319,651 $318,611 $304,971 Gross profit 36,914 74,173 36,431 65,866 Net income 6,052 33,329 7,548 29,657 Basic and diluted earnings per share .07 .38 .09 .34 43 Report of Independent Accountants To the Board of Directors and Stockholders of AVX Corporation In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of cash flows and of stockholders' equity present fairly, in all material respects, the financial position of AVX Corporation and Subsidiaries at March 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 1999, in conformity with generally accepted accounting principles. 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 of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICEWATERHOUSECOOPERS LLP Atlanta, Georgia May 14, 1999 44 EX-21.1 3 AVX Corporation Subsidiaries of the Registrant Exhibit 21.1 As of March 31, 1999, active subsidiaries, all 100% owned directly or indirectly, consist of the following: 1 AVX Corporation 2 AVX Tantalum Corporation 3 AVX Filters Corporation 4 AVX Vancouver Corporation 5 Elco USA, Inc. 6 AVX Israel Limited 7 AVX Limited 8 AVX GmbH 9 AVX SRL 10 AVX SA 11 AVX Czech Republic sro 12 Elco Europe GmbH 13 AVX/Kyocera Asia Limited 14 AVX/Kyocera Hong Kong Limited 15 AVX Industries Pte Ltd 16 AVX/Kyocera (Malaysia) Sdm Bhd 17 AVX/Kyocera (Singapore) Pte Ltd 18 Avio Exito de Chihuahua, S.A. de C.V. 19 Avio Excelente, S.A. de C.V. 20 Avio Excelente de Chihuahua, S.A. de C.V. 21 TPC - SA 22 TPC do Brasil Limitada 23 AVX Componentes da Amazonia Limitada 24 TPC Malaysia Sdn Bhd 25 AVX Asia Pte Ltd 26 AVX Asia Limited 27 TPC Passive Components Taiwan Liimited 28 TPC FerriteTaiwan Limited 29 AVX Hong Kong Limited 30 AVX Guadalajaria S.A. De CV 31 Tianjin AVX/Kyocera International Trading Company Ltd 32 AVX Israel Holding Company (1998) Ltd 33 AVX Electronisch Baulemente GmbH 34 Thomson -CSF Passive Components, Corp. EX-23.1 4 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 We consent to the incorporation by reference in the registration statements of AVX Corporation on Form S-8 (File Nos. 33-97628, 33-98114, 33-98094, 333-00890, 333-02808, and 333-37201) of our report dated May 14, 1999, on our audits of the consolidated financial statements of AVX Corporation as of March 31, 1999 and 1998, and for the years ended March 31, 1999, 1998 and 1997, which report is included in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP Atlanta, Georgia June 11, 1999 EX-24.1 5 POWER OF ATTORNEY Exhibit 24.1 KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned directors and officers of AVX Corporation, a Delaware corporation, which will file with the Securities and Exchange Commission, Washington, D.C., under the provisions of the Securities Law, an Annual Report for fiscal year ended March 31, 1999 on Form 10-K, hereby constitutes and appoints Benedict P. Rosen, John S. Gilbertson and Donald B. Christiansen his true and lawful attorneys-in-fact and agents, and each of them with full power to act without the others, for him and in his name, place and stead, in any and all capacities, to sign said 10-K Annual Report and any and all amendments thereto, and any and all other documents in connection therewith, with the Securities and Exchange Commission, hereby granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform any and all acts and things requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power-of Attorney on the date set opposite his respective name. Director Title Date Signature /s/Kazuo Inamori Chairman Emeritus of the Board of Directors January 28, 1999 Kazuo Inamori /s/Yuzo Yamamura Director January 28, 1999 Yuzo Yamamura /s/Kensuke Itoh Director January 28, 1999 Kensuke Itoh /s/Michihisa Yamamoto Director January 28, 1999 Michihisa Yamamoto /s/Masahiro Umemura Director January 28, 1999 Masahiro Umemura /s/Masahiro Yamamoto Director January 28, 1999 Masahiro Yamamoto /s/Benedict P. Rosen Chairman of the Board, January 28, 1999 Benedict P. Rosen Chief Executive Officer /s/John S. Gilbertson President, Chief Operating Officer January 28, 1999 John S. Gilbertson and Director /s/Donald B. Christiansen Chief Financial Officer, Senior Vice January 28, 1999 Donald B. Christiansen President, Treasurerand Director /s/Carroll A. Campbell, Jr. Director January 28, 1999 Carroll A. Campbell, Jr. /s/Marshall D. Butler Director January 28, 1999 Marshall D. Butler /s/Rodney N. Lanthorne Director January 28, 1999 Rodney N. Lanthorne /s/Richard Tressler Director January 28, 1999 Richard Tressler EX-27 6
5 0000859163 AVX CORPORATION 12-MOS MAR-31-1999 MAR-31-1999 173106 0 183033 25702 277393 663535 304248 94728 1058040 192282 0 0 0 882 342759 1058040 1245473 1245473 1078064 1192168 (1719) 1058040 (5718) 60742 19226 41516 0 0 0 41516 .48 .48
EX-10.2 7 AVX CORPORATION Exhibit 10.2 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN AS AMENDED JULY 16, 1998 1. Adoption and Purpose. The AVX Corporation (the "Company") hereby adopts the AVX Corporation Non-Employee Directors' Stock Option Plan (the "Plan") to secure for the Company and its stockholders the benefits of the incentive inherent in increased common stock ownership by the members of the Board of Directors (the "Board") of the Company who are not employees of the Company or any of its subsidiaries (a "Non-Employee Director"). 2. Administration. The Plan shall be administered by the Board. The Board shall have all the powers vested in it by the terms of the Plan, such powers to include authority (within the limitations described herein) to prescribe the form of the agreement embodying awards of stock options made under the Plan (the "Options") and the power to determine the restrictions, if any, on the ability of participants to earn-out and to dispose of any stock issued in connection with the exercise of any Options granted pursuant to the Plan. The Board shall, subject to the provisions of the Plan, have the power to interpret the Plan and to prescribe, amend and rescind rules and regulations for the administration of the Plan as it may deem desirable. Any decisions of the Board in the administration of the Plan, as described herein, shall be final and conclusive. The Board may authorize any one or more of their number (each, a "Director") or the Secretary or any other officer of the Company to execute and deliver documents on behalf of the Board. The Board hereby authorizes the Secretary to execute and deliver all documents to be delivered by the Board pursuant to the Plan. No member of the Board shall be liable for anything done or omitted to be done by such member or by any other member of the Board in connection with the Plan, except for such member's own willful misconduct or as expressly provided by statute. 3. Shares Subject to Plan. The stock which may be issued and sold under the Plan will be the Common Stock (par value $1.00 per share) of the Company. The total amount of stock for which Options may be granted under the Plan shall not exceed 250,000 shares of Common Stock, subject to adjustment as provided in Paragraph 6 below. The stock to be issued may be either authorized and unissued shares or shares held by the Company in its treasury. Shares that by reason of the expiration of an option or otherwise are no longer subject to purchase pursuant to an Option granted under the Plan may be reoffered under the Plan. 4. Participants. Each Non-Employee Director shall be eligible to receive an Option in accordance with Paragraph 5 below. 5. Terms and Conditions of Options. Each Option granted under the Plan shall be evidenced by an agreement in such form as the Board shall prescribe from time to time in accordance with the Plan, and shall comply with the following terms and conditions: (a) The Option exercise price shall be the Fair Market Value of the Common Stock shares subject to such Option on the date the Option is granted, which, except as provided in paragraph (b) of this Section, shall be the average of the high and the low sales prices of a share of Common Stock on the date of grant (or, if not a trading day, on the last preceding trading day) as reported on the New York Stock Exchange Composite Transactions Tape or, if not listed on the New York Stock Exchange, the principal stock exchange or the NASDAQ National Market on which the Common Stock is then listed or traded; provided, however, that if the Common Stock is not so listed or traded then the Fair Market Value shall be determined in good faith by the Board. (b) Each Non-Employee Director serving on the date of the initial public offering of the Common Stock in 1995 and each other Non-Employee Director subsequently elected for the first time shall automatically receive an Option for 7,500 shares of Common Stock (each, an "Initial Option"); provided, however, that the Option price for the Non-Employee Director serving at the date of the initial public offering shall be the public offering price. (c) Each Non-Employee Director serving on the date of the Annual Meeting of Stockholders of the Company in 1998 shall automatically receive an Option in 1998 shall automatically receive an Option for 7,500 shares of Common Stock (each, a "1998 Grant") as of the first day of the month following such annual meeting. Beginning in the year in which the third anniversary of the 1998 Grant occurs, and in every year in which a subsequent third anniversary occurs, as of the first day of the month following the Annual Meeting of Stockholders of the Company, each Non-Employee Director who is entitled to a 1998 Grant and who has been re-elected as a Non-Employee Director shall automatically receive an additional Option for 7,500 shares of Common Stock in the year in which the third anniversary of his or her Initial Option occurs and in every year in which a subsequent third anniversary of his or her Initial Option occurs provided that he/she has been re-elected as a Non-Employee Director in such year. Such Option shall be granted as of the first day of the month following the Annual Meeting of Stockholders of the Company in such year. (d) The Option shall not be transferable by the optionee otherwise than by will or the laws of descent and distribution and shall be exercisable during the lifetime of the optionee only by the optionee. (e) No Option or any part of an Option shall be exercisable: (i) after the expiration of ten years from the date the Option was granted, (ii) unless written notice of the exercise is delivered to the Company specifying the number of shares to be purchased and payment in full is made for the shares of Common Stock being acquired thereunder at the time of exercise; such payment shall be made (A) in cash or by check, (B) by tendering to the Company Common Stock shares owned by the person exercising the Option and having a Fair Market Value equal to the cash exercise price applicable to such Option, it being understood that the Board shall determine acceptable methods for tendering Common Stock shares and may impose such conditions on the use of Common Stock shares to exercise Options as it deems appropriate, or (C) by a combination of cash or check and Common Stock shares as aforesaid; and (iii) unless the person exercising the Option has been, at all times during the period beginning with the date of grant of the Option and ending on the date of such exercise, a Director of the Company, except that if such person shall cease to be such a Director by reason of Retirement (as defined below), Incapacity (as defined below) or death while holding an Option that has not expired and has not been fully exercised, such person, or in the case of death, the executors, administrators, or distributees, as the case may be, may at any time after the date such person ceased to be such a Director (but in no event after the Option has expired under the provisions of subparagraph 5(e)(i) above) exercise the Option (to the extent exercisable by the Director on the date he ceased to be a Director) with respect to any shares of Common Stock as to which such person has not exercise If any person who has ceased to be a Director for any reason other than death, shall die holding an Option that has not expired and has not been fully exercised, such person's executors, administrators, or distributees, as the case may be, may exercise the Option (to the extent exercisable by the decedent on his date of death) provided that in no event may the Option be exercised after it has expired pursuant to subparagraph 5(e)(i). graph 5(e)(i). In the event any Option is exercised by the executors, administrators, legatees, or distributees of the estate of a deceased optionee, the Company shall be under no obligation to issue stock thereunder unless and until the Company is satisfied that the person or persons exercising the Option are the duly appointed legal representatives of the deceased optionee's estate or the proper legatees or distributees thereof. (f) One-third of the total number of shares of Common Stock covered by all Options shall become exercisable beginning with the first anniversary date of the grant of the Option; thereafter an additional one-third of the total number of shares of Common Stock covered by the Option shall become exercisable on each subsequent anniversary date of the grant of the Option until on the third anniversary date of the grant of the Option the total number of shares of Common Stock covered by the Option shall become exercisable. The preceding sentence shall apply to Options granted prior to 1998; provided, however that it shall not effect the vesting of any such Option prior to the anniversary date of the grant of such Option occurring in 1998, In the event the Non-Employee Director ceases to be a Director by reason of Retirement, Incapacity or death, the total number of shares of Common Stock covered by the Option shall thereupon become exercisable. (g) Options granted to a person shall automatically be forfeited by such person if such person shall cease to be a Director for reasons other than Retirement, Incapacity or death. (h) As used in this Paragraph 5, the term "Retirement" means the termination of a Director's service on the Board, including resignation from the Board upon reaching retirement age or otherwise resigning or not standing for reelection with the approval of the Board, but shall not include any termination of service resulting from an act of (i) fraud or intentional misrepresentation or (ii ) embezzlement, misappropriation or conversion of assets or opportunities of the Company or any direct or indirect majority-owned subsidiary of the Company, by such Director. The determination of whether termination results from any such act shall be made by the Board, whose determination shall be conclusive. (i) As used in this paragraph 5, the term "Incapacity" means any material physical, mental or other disability rendering the Director incapable of substantially performing his or her services hereunder that is not cured within 180 days of the first occurrence of such incapacity. In the event of any dispute between the Company and the Director as to whether he or she is incapacitated as defined herein, the determination of whether the Director is so incapacitated shall be made by an independent physician selected by the Board and the decision of such physician shall be binding upon the Company and the Director. 6. Adjustment in the Event of Certain Changes in Stock. (a) If there is any change in the number of outstanding shares of Common Stock by reason of any stock dividend, stock split, recapitalization, combination, exchange of shares, merger, consolidation, liquidation, split-up, spin-off or other similar change in capitalization, any distribution to common shareholders, including a rights offering, other than cash dividends, or any like change, then the number of shares of Common Stock available for options, the number of such shares covered by outstanding options, and the price per share of such options shall be proportionately adjusted by the Board to reflect such change or distribution; provided, however, that any fractional shares resulting from such adjustment shall be eliminated. (b) In the event of change in the Common Stock of the Company as presently constituted, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. (c) In the event of a reorganization, recapitalization, merger, consolidation, acquisition of property or stock, extraordinary dividend or distribution (other than as covered by Section 6(a) hereof), separation or liquidation of the Company, or any other event similarly affecting the Company, the Board shall have the right, but not the obligation, notwithstanding anything to the contrary in this Plan, to provide that outstanding options granted under this Plan shall (i) be canceled in respect of a cash payment or the payment of securities or property, or any combination thereof , with a per share value determined by the Board in good faith to be equal to the value received by the stockholders of the Company in such event in the respect of each share of Common Stock, with appropriate deductions of exercise prices, or (ii) be adjusted to represent options to receive cash, securities, property, or any combination thereof, with a per share value determined by the Board in good faith to be equal to the value received by the stockholders of the Company in such event in respect of each share of Common Stock, at such exercise prices as the Board in its discretion may determine is appropriate. (d) To the extent that the foregoing adjustments relate to stock or securities of the Company, such adjustments shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. 7. Nonexclusive Plan. Neither the adoption of the Plan by the Board nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options otherwise than under the Plan, and such arrangements may be either generally applicable or applicable only in specific cases. 8. Section 16 Persons. Transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 or its successors under Section 16 of the Securities Exchange Act of 1934 (the "Exchange Act"). To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 9. Nonassignability. Options may not be transferred other than by will or by the laws of descent and distribution. During a Director's lifetime, options granted to a Director may be exercised only by the Director or by his or her guardian or legal representative. 10. Amendment or Discontinuance. The Plan may be amended or discontinued by the Board without the approval of the stockholders of the Company, except that (a) stockholder approval shall be required for any amendment that would (i) increase (except as provided in Section 6 hereof) the maximum number of shares of Common Stock for which Options may be granted under the Plan, (ii) change the class of persons eligible to participate in the Plan or (iii) adopt any other amendments to the Plan that are considered material for purposes of Rule 16b-3(b) under the Exchange Act and (b) to the extent required by Rule 16b-3 under Section 16 of the Securities Exchange Act of 1934 in effect from time to time, Plan provisions relating to the amount , price and timing of Options shall not be amended more than once every six months, except to comply with changes in the Internal Revenue Code of 1986 or the rules thereunder in effect from time to time. No termination, modification or amendment of the Plan may, without the consent of the Director to whom any Option shall theretofore have been granted, adversely affect the rights of such Director (or his or her transferee) under such Option. 11. Effect of Plan. Neither the adoption of the Plan nor any action of the Board shall be deemed to give any Non-Employee Director any right to be granted an option to purchase Common Stock or any other rights except as may be evidenced by a stock option agreement, or any amendment thereto, duly authorized by the Board and executed on behalf of the Company, and then only to the extent and on the terms and conditions expressly set forth therein. 12. Term. Unless sooner terminated by action of the Board, this Plan will terminate on August 1, 2005. The Board may not grant Options under the Plan after that date, but Options granted before that date will continue to be effective in accordance with their terms. 13. Effectiveness; Approval of Stockholders. The Plan shall take effect upon its adoption by the Board, but its effectiveness and the exercise of any options shall be subject to the approval of the holders of a majority of the voting shares of the Company, which approval must occur within twelve months after the date on which the Plan is adopted by the Board. 14. Withholding Taxes. If the Board shall so require, as a condition of exercise, each Non-Employee Director shall agree that (a) no later than the date of exercise of any Option, such Non-Employee Director will pay to the Company or make arrangements satisfactory to the Board regarding payment of any Federal, state or local taxes of any kind required by law to be withheld upon the exercise of such option (any such tax, a "Withholding Tax"); and (b) the Company shall, to the extent permitted or required by law, have the right to deduct from any payment of any kind otherwise due to such Non-Employee Director, any such Withholding Tax. 7 EX-3.2 8 By-laws of the Company as amended Exhibit 3.2 AVX CORPORATION Incorporated under the laws of the State of Delaware BY-LAWS AS AMENDED JULY 16, 1998 BY-LAWS of AVX CORPORATION ARTICLE I Offices SECTION 1. Principal Office. The principal office of the Corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle, and the resident agent in charge thereof shall be The Corporation Trust Company. SECTION 2. Other Offices. The Corporation may have offices at such other place or places as from time to time the Board of Directors may determine or the business of the Corporation may require. ARTICLE II Meetings of Stockholders SECTION 1. Annual Meetings. The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may come before the meeting shall be held at ten o'clock in the forenoon on the third Friday in July in each year, if not a legal holiday under the laws of the state where such meeting is to be held, and if a legal holiday under the laws of said state then on the next succeeding business day not a legal holiday under the laws of said state, unless a different time is fixed by the Board of Directors in the notice or waiver of notice of said meeting. SECTION 2. Special Meetings. A special meeting of the stockholders for any purpose or purposes, unless otherwise prescribed by statute, may be called at any time by the Chairman of the Board or by order of the Board of Directors and shall be called by the Chairman of the Board or Secretary upon the request in writing of a stockholder or stockholders holding of record at least one-half of the outstanding shares of stock of the Corporation entitled to vote at such meeting. SECTION 3. Place of Meetings. Each meeting of stockholders of the Corporation shall be held at such place, within or outside the State of Delaware, and at such hour as shall be fixed by the Board of Directors and specified in the notice or waiver of notice of said meeting. Page 1 SECTION 4. Notice of Meetings. Except as otherwise provided by law, notice of each meeting of the stockholders shall be given to each stockholder of record entitled to vote at such meeting, whether annual or special, not less than ten nor more than sixty days before the day on which the meeting is to be held, by delivering a written or printed notice thereof to the stockholder personally, or by mailing such notice in a postage prepaid envelope addressed to the stockholder at the post office address furnished to the Secretary of the Corporation for such purpose, or, if the stockholder shall not have furnished to the Secretary of the Corporation an address for such purpose, then at the post office address last known to the Secretary of the Corporation. Except where expressly required by law, no publication of any notice of a meeting of stockholders shall be required. Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy or who shall in person or by attorney thereunto authorized, waive such notice in writing, either before or after such meeting. Notice of any adjourned meeting of the stockholders shall not be required to be given, except where expressly required by law. SECTION 5. Quorum. At each meeting of the stockholders, except where other provision is made by law, the holders of a majority of the issued and outstanding stock of the Corporation entitled to vote at such meeting shall constitute a quorum for the transaction of business. In the absence of a quorum, a majority in interest of the stockholders of the Corporation present in person or by proxy and entitled to vote, or, in the absence of all the stockholders entitled to vote, any officer entitled to preside at, or act as Secretary of, such meeting, shall have the power to adjourn the meeting from time to time, until stockholders holding the requisite amount of stock shall be present or represented. At any such adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the meeting as originally called. SECTION 6. Voting. Each stockholder shall, subject to the provisions of the Certificate of Incorporation, at each meeting of the stockholders, be entitled to one vote in person or by proxy for each share of the stock of the Corporation which has voting power on the matter in question and which shall have been held by the stockholder and registered in the stockholder's name on the books of the Corporation: (a) on the date fixed pursuant to the provisions of Section 4 of Article VII of these By-laws as the record date for the determination of stockholders who shall be entitled to notice of and to vote at such meeting, or (b) if no such record date shall have been so fixed, then (i) at the close of business on the date next preceding the date on which notice of the meeting shall be given, or (ii) if notice of the meeting shall be waived, at the close of business on the date next preceding the day on which the meeting shall be held. Page 2 Any vote on stock of the Corporation may be given by the stockholder entitled thereto in person or by proxy appointed by an instrument in writing, subscribed by such stockholder or by an attorney thereunto authorized and delivered to the Secretary of the meeting; provided, however, that no proxy shall be voted on after three years from its date unless said proxy provides for a longer period. At all meetings of the stockholders, all matters (except where other provision is made by law or by the Certificate of Incorporation of the Corporation) shall be decided by a majority of the votes cast by the holders of the stock present in person or by proxy and entitled to vote thereat, a quorum being present. SECTION 7. List of Stockholders. It shall be the duty of the Secretary or other officer of the Corporation who shall have charge of its stock ledger, either directly or through another designated officer of the Corporation or through a transfer agent or transfer clerk appointed by the Board of Directors, to prepare and make, at least ten days before every meeting of the stockholders for the election of directors of the Corporation, a complete list of the stockholders entitled to vote thereat, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder during ordinary business hours, for a period of at least ten days prior to the election, either at a place within the city, town or village where the election is to be held and which place shall be specified in the notice of meeting, or, if not so specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of said meeting during the whole time thereof and subject to the inspection of any stockholder who shall be present thereat. Upon the willful neglect or refusal of the directors to produce such list at any election, they shall be ineligible for election to any office at such election. The original or duplicate stock ledger shall be the only evidence as to who are the stockholders entitled to examine such list or the books of the Corporation, or to vote in person or by proxy at such election. SECTION 8. Consent of Stockholders in Lieu of Meeting. Anything in these By-laws to the contrary notwithstanding, any action required by the General Corporation Law of the State of Delaware to be, or which may be, taken at any annual or special meeting of the stockholders may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. In connection with any such action without a meeting by consent in writing, (i) notice of the proposal to take such action shall be given, as provided in Section 4 of this Article II, to each stockholder of record of the Corporation who would be entitled to notice if such action were to be taken at a meeting; (ii) such action shall be deemed to have been taken upon receipt by the Corporation of the Page 3 requisite consents or, if so specified in the notice, upon the later of a specified date or receipt of the requisite consents; and (iii) the record of stockholders provided for in Section 1 of Article VII shall be opened to the examination of any stockholder, for purposes germane to such action to be taken, during ordinary business hours, from the time of giving notice of the meeting until the action shall have been taken. Prompt notice of the taking of the corporate action without a meeting by less than a stockholders who have not consented in writing. SECTION 9. Advance Notice of Stockholder Business. At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting business must be (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors, or (c) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal offices of the Corporation, not less than sixty days nor more than ninety days prior to the meeting; provided, however, that in the event that less than seventy days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class and number of shares of the Corporation which are beneficially owned by such stockholder and (d) any material interest of the stockholder in such business. Notwithstanding anything in the By-Laws to the contrary, no business shall be conducted at any annual meeting except in accordance with the procedures set forth in this Section 9. The Chairman of the annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section 9, and if the Chairman should so determine, the Chairman shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. Business transacted at any special meeting of the stockholders shall be limited to the purposes stated in the notice of such special meeting. Page 4 ARTICLE III Board of Directors SECTION 1. General Powers. The property, affairs and business of the Corporation shall be managed by the Board of Directors. SECTION 2. Number, Election, Qualification and Term of Office. The number of directors shall be as fixed from time to time by resolution of the Board of Directors or of the stockholders but in no case shall the number be less than three. Beginning on July 16, 1998, the Board of Directors shall be divided into three classes of numbers as equal as possible. The term of office of one of such classes shall expire each year. At each annual meeting of shareholders, there shall be elected (i) the directors of the class the term of office of which shall then expire; (ii) directors to fill any vacancies in any other class; (iii) directors to succeed any directors who shall have been elected to fill vacancies in any other class since the next preceding annual meeting; and (iv) directors to be added to a respective class as a result of an increase in the number of directors. Directors to be elected as provided in clauses (ii) and (iii) shall be elected for the unexpired portions of the original terms of the respective classes. Directors to be elected as provided in clause (iv) shall be elected to the class recommended by the Board of Directors. Except as otherwise provided in the Certificate of Incorporation or in these By-laws, directors shall be elected by a plurality of the votes of the stockholders entitled to vote at each meeting of stockholders for the election of a director or directors. At any meeting of shareholders where directors of more than one class are to be elected, the directors of the class or classes being elected for the shortest terms shall be elected first. Election of directors need not be by ballot. Directors need not be stockholders. Each director shall hold office until a successor shall have been duly elected and qualified, or until death, or until the director shall resign, or until such director shall have been removed in the manner hereinafter provided. SECTION 3. Resignation. Any director of the Corporation may resign at any time by giving written notice to the Chairman of the Board or to the Secretary of the Corporation. The resignation of any director shall take effect at the time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 4. Vacancies. Any vacancy in the Board of Directors caused by death, resignation, disqualification, removal, an increase in the number of directors, or any other cause, may be filled by a majority of the remaining directors (though less than a quorum), or by a majority of the stockholders at a special meeting of the stockholders Page 5 called for such purpose and each director so chosen shall hold office until the next annual election and until a successor shall be duly elected and qualified, unless sooner displaced. SECTION 5. Place of Meetings. Except as otherwise specifically provided by law, the Board of Directors may hold its meetings, have one or more offices, and keep the books and records of the Corporation, at such place or places within or without the State of Delaware, as the Board may from time to time determine. SECTION 6. Annual Organizational Meeting. After each annual election of directors and on the same day, the Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business at the place where regular meetings of the Board of Directors are held. Notice of such meeting need not be given. Such meeting may be held at any other time or place which shall be specified in a notice given as hereinafter provided for special meetings of the Board of Directors or in a consent and waiver of notice thereof signed by all the directors. SECTION 7. Regular Meetings. Regular meetings of the Board of Directors may be held at such places and at such times as the Board shall determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at such place at the same hour and on the next succeeding business day not a legal holiday. Notice of regular meetings need not be given. SECTION 8. Special Meetings; Notice. A special meeting of the Board of Directors shall be held whenever called by the Chairman of the Board or by two of the directors. Notice of each such meeting shall be mailed (by airmail if not within 100 miles of the place of mailing) to each director, addressed to the director at the director's residence or usual place of business at least ten calendar days before the day on which the meeting is to be held, or shall be sent to the director at such place by facsimile transmission or comparable medium or shall be delivered personally or by telephone at least seven calendar days before the day on which the meeting is to be held. Each such notice shall state the time and place of the meeting but need not state the purposes thereof, except as otherwise herein expressly provided. Notice of any meeting of the Board need not be given to any director if waived by such director in writing, whether before or after such meeting shall be held. SECTION 9. Quorum and Manner of Acting. Except as otherwise provided by statute or by these By-laws, a majority of the total number of directors (but not less than two) shall be required to constitute a quorum for the transaction of business at any meeting, and the act of a majority of the directors present at any meeting at which a quorum shall be present shall be the act of the Board of Directors. In the absence of a Page 6 quorum, a majority of the directors present may adjourn any meeting from time to time until a quorum be had. Notice of any adjourned meeting need not be given. The Directors shall act only as a board and the individual Directors shall have no power as such. Participation by the Director in a meeting of the Board or committee held by means of conference telephone or similar communications equipment in which all persons so participating can hear each other constitutes presence of such Director in person at such meeting for purposes of this Section. SECTION 10. Remuneration. In addition to reimbursement of the reasonable expenses incurred in attending meetings or otherwise in connection with attention to the affairs of the Corporation, each director as such, and as a member of any committee of the Board of Directors shall be entitled to receive such remuneration as may be fixed from time to time by the Board of Directors, no such payments shall preclude any director from serving the Corporation in any other capacity and receiving remuneration therefor. SECTION 11. Action by Consent. Unless otherwise restricted by the Certificate of Incorporation or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting, if prior to such action a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of proceedings of the Board or Committee. ARTICLE IV Executive and Other Committees SECTION 1. Executive Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may designate not less than four of the directors then in office to constitute an Executive Committee, each member of which unless otherwise determined by resolution adopted by a majority of the whole Board, shall continue to be a member of such Committee until the annual meeting of the stockholders which shall be held next after designation as a member of such Committee or until the earlier termination as a director. The President shall always be designated as a member of the Executive Committee. The Board may by resolution appoint one member as the Chairman of the Executive Committee who shall preside at all meetings of such Committee. In the absence of said Chairman, the President shall preside at all such meetings. In the absence of both the Chairman of the Executive Committee and the President, a majority of the members of the Executive Committee present shall choose a chairman to preside at such meetings. The Secretary, or if the Secretary shall be absent Page 7 from such meeting, any person (who shall be an Assistant Secretary, if any of them shall be present at such meeting) appointed by the chairman, shall act as secretary of the meeting and keep the minutes thereof. SECTION 2. Powers of the Executive Committee. To the extent permitted by law, the Executive Committee may exercise all the powers of the Board in the management of specified matters where such authority is delegated to it by the Board, and also, to the extent permitted by law, the Executive Committee shall have, and may exercise, all the powers of the Board in the management of the business and affairs of the Corporation, including, if such Committee is so empowered and authorized by resolution adopted by a majority of the entire Board, the power and authority to declare a dividend and to authorize the issuance of stock, and may authorize the seal of the Corporation to be affixed to all papers which may require it, except that the Executive Committee shall not have such power or authority to amend the Certificate of Incorporation or these By-laws, to adopt an agreement of merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the property and assets of the Corporation, or to recommend to the stockholders a dissolution of the Corporation or a revocation of a dissolution. An act of the Executive Committee taken within the scope of its authority shall be an act of the Board. The Executive Committee shall render in the form of minutes a report of its several acts at each regular meeting of the Board and at any other time when so directed by the Board. SECTION 3. Meetings of the Executive Committee. Regular meetings of the Executive Committee shall be held at such times, on such dates and at such places as shall be fixed by resolution adopted by a majority of the Executive Committee, of which regular meetings notice need not be given, or as shall be fixed by the Chairman of the Executive Committee or in the absence of the Chairman of the Executive Committee the President and specified in the notice of such meeting. Special meetings of the Executive Committee may be called by the Chairman of the Executive Committee or by the President. Notice of each such special meeting of the Executive Committee (and of each regular meeting for which notice shall be required), stating the time and place thereof shall be mailed (by airmail if not within 100 miles of the place of mailing) to each member of the Executive Committee at least ten calendar days before the day on which such meeting is to be held, or shall be sent by facsimile transmission or comparable medium, or be delivered personally or by telephone, at least seven calendar days before the time at which such meeting is to be held; but notice need not be given to a member of the Executive Committee who shall waive notice in writing, whether before or after such meeting shall be held. SECTION 4. Quorum and Manner of Acting of the Executive Committee. Four members of the Executive Committee shall constitute a quorum for the transaction of Page 8 business, and the act of a majority of the members of the Executive Committee present at a meeting at which a quorum shall be present shall be the act of the Executive Committee. In the absence or disqualification of a member of the Executive Committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not the member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. The members of the Executive Committee shall act only as a committee and individual members shall have no power as such. SECTION 5. Other Committees. The Board of Directors may, by resolution adopted by a majority of the Board, designate members of the Board to constitute other committees, which shall have, and may exercise, such powers as the Board may by resolution delegate to them, and shall in each case consist of such number of directors as the Board may determine; provided, however, that each such committee shall have at least three directors as members thereof. Such a committee may either be constituted for a specified term or may be constituted as a standing committee which does not require annual or periodic reconstitution. A majority of all the members of any such committee may determine its action and its quorum requirements and may fix the time and place of its meetings, unless the Board shall otherwise provide. SECTION 6. Changes in Committees; Resignations; Removals; Vacancies. The Board of Directors shall have power, by resolution adopted by a majority of the Board, at any time to change or remove the members of, to fill vacancies in, and to discharge any committee created pursuant to these By-laws, either with or without cause. Any member of any such committee may resign at any time by giving written notice to the Board, the Chairman of the Board or the Secretary. Such resignation shall take effect upon receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective. Any vacancy in any committee, whether arising from death, resignation, and increase in the number of committee members or any other cause, shall be filled by the Board of Directors in the manner prescribed in these By-laws for the original appointment of the members of such committee. ARTICLE V Officers SECTION 1. Number. The Officers of the Corporation shall be a Chairman of the Board, a President, one or more Vice Presidents (one or more of whom may be designated Executive Vice Presidents), a Secretary, a Treasurer, and, if the Board Page 9 shall so elect, such other officers and agents as may be appointed by the Board of Directors pursuant to Section 3 of this Article V. Any two or more offices may be held by the same person. SECTION 2. Election, Term of Office and Qualifications. The officers shall be elected annually by the Board of Directors, and except in the case of officers appointed in accordance with the provisions of Section 3 of this Article V, each shall hold office until the next annual election of officers and until a successor shall have been duly elected and qualified, or until death, or until the officer shall resign, or until the officer shall have been removed in the manner hereinafter provided. SECTION 3. Other Officers. The Corporation may have such other officers and agents as may be deemed necessary by the Board of Directors. Such other officers and agents shall be appointed in such manner, have such duties and hold their offices for such terms as may be determined by the Board of Directors. The Board may delegate to any principal officer the power to appoint or remove any such other officers or agents. SECTION 4. Resignations. Any officer may resign at any time by giving written notice of such resignation to the Board of Directors, to the Chairman of the Board or to the Secretary of the Corporation. Any such resignation shall take effect at the time of acceptance by the Corporation. SECTION 5. Removal. Any officer may be removed, either with or without cause, by a vote of a majority of the whole Board of Directors at a special meeting called for the purpose. SECTION 6. Vacancies. A vacancy in any office because of death, resignation, removal or any other cause shall be filled for the unexpired portion of the term in the manner prescribed in these By-laws for election or appointment to such office. SECTION 7. The Chairman of the Board. The Chairman of the Board shall, if present, preside at all meetings of the Board of Directors and, if present, at all meetings of the stockholders. The Chairman of the Board shall perform such other duties and may exercise such other powers as may from time to time be assigned by these By-laws or the Board of Directors. In the absence or disability of the Chairman of the Board, the powers of the Chairman of the Board may be exercised by the President. SECTION 8. The President. The President shall be the chief executive officer of the Corporation and have, subject to the direction of the Board, general and active supervision over the business and affairs of the Corporation and over its several Page 10 officers. The President shall perform such duties and may exercise such power as from time to time may be assigned by these By-laws, the Board of Directors or the Chairman of the Board. SECTION 9. The Vice Presidents. Any Vice President shall perform such duties and may exercise such powers as from time to time may be assigned by these By-laws, the Board of Directors or the Chairman of the Board. SECTION 10. The Secretary and the Assistant Secretaries. The Secretary shall record or cause to be recorded in books provided for the purpose the minutes of the meetings of the stockholders, the Board of Directors and all committees, if any; shall see that all notices are duly given in accordance with the provisions of these By-laws and as required by law; shall be custodian of all corporate records (other than financial) and of the seal of the Corporation and see that the seal is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these By-laws; shall keep the record of stockholders as required by Article VII of these By-laws, which shall include the post office address of each stockholder, and make all proper changes therein, retaining the documents relied upon for all such changes; shall see that the books, reports, statements, certificates and all other documents and records required by law are properly kept and filed; and, in general, shall perform all duties incident to the office of Secretary and such other duties as may, from time to time, be assigned by the Board of Directors or by the Chairman of the Board. At the request of the Secretary, or in the absence of the Secretary, any Assistant Secretary shall perform any of the duties of the Secretary and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Secretary. Except where by law the signature of the Secretary is required, each of the Assistant Secretaries shall possess the same power as the Secretary to sign certificates, contracts, obligations and other instruments of the Corporation, and to affix the seal of the Corporation to such instruments, and attest the same. SECTION 11. The Treasurer and the Assistant Treasurers. The Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation, and shall deposit all such funds in the name of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of these By-laws; shall render to the Board of Directors, whenever the Board may so require , and shall present at the annual meeting of the stockholders, if called upon so to do, a report of all transactions as Treasurer; and, in general, shall perform all duties incident to the office of Treasurer and such other duties as may, from time to time, be assigned by the Board of Directors or by the Chairman of the Board. Page 11 At the request of the Treasurer, or in the absence of the Treasurer, the Assistant Treasurer, or in case there shall be more than one Assistant Treasurer, the Assistant Treasurer designated by the Board of Directors or by the Chairman of the Board shall perform any of the duties of the Treasurer and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Treasurer. Except where by law the signature of the Treasurer is required, each of the Assistant Treasurers shall possess the same power as the Treasurer to sign all certificates, contracts, obligations and other instruments of the Corporation. SECTION 12. Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors. No officer shall be prevented from receiving such salary by reason of the fact that the officer is also a director of the Corporation. ARTICLE VI Contracts, Checks, Loans and Deposits SECTION 1. Contracts, Checks, etc. All contracts and agreements authorized by the Board of Directors and all checks, drafts, bills of exchange or other orders for the payment of money, notes, or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, or agent or agents, as may from time to time be designated by the Board of Directors, which designation may be general or confined to specific instances. SECTION 2. Proxies in Respect of Securities of Other Corporations. Unless otherwise provided by resolution adopted by the Board of Directors, the Chairman of the Board, the President or a Vice President may from time to time appoint an attorney or attorneys, or an agent or agents, to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation to vote or to consent in respect of such stock or other securities; the Chairman of the Board, the President or any Vice President may instruct the person or persons so appointed as to the manner of exercising such powers and rights and the Chairman of the Board, the President or any Vice President may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies, powers of attorney or other written instruments as such officer may deem necessary in order that the Corporation may exercise such powers and rights. Page 12 ARTICLE VII Certificates of Stock, Books and Records SECTION 1. Certificates for Stock. Every owner of stock of the Corporation shall be entitled to have a certificate or certificates, in such form as the Board shall prescribe, certifying the number, class and series, if any, of shares of stock of the Corporation owned by such person. The certificates representing shares of the respective classes and series, if any, of such stock shall be numbered in the order in which they shall be issued and shall be signed in the name of the Corporation by the person who was at the time of signing the Chairman of the Board, the President or a Vice President and by the person who was at the time of signing the Secretary or an Assistant Secretary, and the seal of the Corporation shall be affixed thereto; provided, however, that if any such certificate is countersigned by a transfer agent other than the Corporation or its employee, or, (b) by a registrar other than the Corporation or its employee, the signatures thereon of such Chairman of the Board, President or Vice President and of such Secretary or Assistant Secretary and the seal of the Corporation affixed thereto may be facsimiles. In case any officer or the officers of the Corporation who shall have signed, or whose facsimile signature or signatures shall have been placed upon, any such certificate or certificates shall cease to be such officer or officers before such certificate or certificates shall have been issued, such certificate or certificates may nevertheless be issued by the Corporation with the same effect as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been placed thereof were such officer or officers at the date of issuance. A record shall be kept of the respective names of the persons, firms or corporations owning the stock represented by certificates for stock of the Corporation, the number, class and series, if any, of shares represented by such certificates, respectively, the respective dates thereof, and in case of cancellation, the respective dates of cancellation. Every certificate surrendered to the Corporation for exchange or transfer shall be canceled, and a new certificate or certificates shall not be issued in exchange for any existing certificate until such existing certificate shall have been so canceled, except in cases provided for in Section 6 of this Article. SECTION 2. Transfers of Stock. Transfers of shares of the stock of the Corporation shall be made only on the books of the Corporation by the registered holder thereof, or by an attorney thereunto authorized by power of attorney duly executed and filed with the Secretary or with a transfer clerk or a transfer agent appointed as in Section 3 of this Article provided, and upon surrender of the certificate or certificates for such shares properly endorsed and payment of all taxes thereon. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. Whenever any transfer of shares shall be made for collateral security, and not absolutely, such fact shall be so expressed in the Page 13 entry of transfer if, when the certificate or certificates shall be presented to the Corporation for transfer, both the transferor and the transferee request the Corporation to do so. SECTION 3. Regulations. The Board may make such rules and regulations as it may deem expedient, not inconsistent with these By-laws, concerning the issue, transfer and registration of certificate for stock of the Corporation. The Board may appoint or authorize any officer or officers to appoint one or more transfer clerks or one or more transfer agents and one or more registrars and may require all certificates for stock to bear the signature or signatures of any of them. SECTION 4. Fixing Date for Determination of Stockholders of Record. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any other change, conversion or exchange of stock of for the purpose of any other lawful action, the Board may fix, in advance, a record date, which shall not be more than sixty nor less than 10 days before the date of such meeting, nor more than 60 days prior to any other action. If in any case involving the determination of stockholders for any purpose other than (i) notice of or voting at a meeting of stockholders or (ii) expressing consent to corporate action in writing without a meeting, the Board shall not fix such a record date, the record date for determining stockholders for such purpose shall be the close of business on the day on which the Board shall adopt the resolution relating thereto. A determination of stockholders entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. SECTION 5. Lost Certificates. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and advertise the same in such manner as the Board of Directors may require, and shall if the directors so require give the Corporation a bond of indemnity, in form and with one or more sureties satisfactory to the Board, in at least double the value of the stock represented by said certificate, whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or destroyed. SECTION 6. Books and Records. The books and records of the Corporation may be kept at such places within or without the State of Delaware as the Board of Directors may from time to time determine. Page 14 ARTICLE VIII Dividends Dividends upon the capital stock of the Corporation when earned may be declared by the Board of Directors at any regular or special meeting. Before payment of any dividend or making any distribution of profits, there may be set aside out of the surplus or net profits of the Corporation such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interests of the Corporation. ARTICLE IX Seal The corporate seal shall be in the form of a circle and shall bear the name of the Corporation, the year in which the Corporation was incorporated and the words "CORPORATE SEAL-DELAWARE". ARTICLE X Fiscal Year The fiscal year of the Corporation shall end on March 31 in each year, unless otherwise fixed by the Board of Directors. ARTICLE XI Indemnification SECTION 1. Indemnification. (a) The Corporation shall to the fullest extent permitted by applicable law as then in effect indemnify any person who is or was a director or officer of the Corporation (the "Indemnitee") who was or is involved in any manner (including, without limitation, as a party or a witness) or is threatened to be made so involved in any threatened, pending or completed investigation, claim, action, suit or proceeding, whether civil, criminal, administrative or investigative (including without limitation, any action, suit or proceeding by or in the right of the Corporation to procure a Page 15 judgment in its favor) (a "Proceeding") by reason of the fact that the Indemnitee (i) is or was a director, officer, employee or agent of the Corporation, or (ii) is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan) against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding; provided, however, that except as provided in Section 4(d), the foregoing shall not apply to a director or officer of the Corporation with respect to a Proceeding that was commenced by such director or officer prior to a Change in Control (as hereinafter defined), but only in the case of clause (ii) to the extent the Indemnitee is not fully indemnified therefor by such other corporation, partnership, joint venture, trust or other enterprise. Such indemnification shall be a contract right and shall include the right to receive payment in advance of a final determination of entitlement thereto pursuant to the provisions of this Article of any expenses incurred by the Indemnitee in connection with such Proceeding, consistent with the provisions of applicable law as then in effect. (b) The Corporation may to the extent authorized at any time or from time to time by the Board of Directors and permitted by applicable law as then in effect indemnify any person who is not or was not a director or officer of the Corporation but is or was an employee or agent of the Corporation or a director, officer, employee or agent of any subsidiary of the Corporation who was or is involved in any Proceeding by reason of the fact that such person (i) is or was an employee or agent of the Corporation, (ii) is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise (including, without limitation, any employee benefit plan), or (iii) is or was a director, officer, employee or agent of any subsidiary of the Corporation against any expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding. SECTION 2. Insurance, etc. The Corporation may purchase and maintain insurance or use any other method that may be available from time to time to protect itself, and any Indemnitee and any other person permitted to be indemnified pursuant to this Article against any expenses, judgments, fines and amounts paid in settlement as specified in Section 1 of this Article or incurred by any Indemnitee or other such person in connection with any Proceeding referred to in Section 1 of this Article, to the fullest extent permitted by applicable law as then in effect. SECTION 3. Indemnification; Not Exclusive Right. The indemnification provided for in this Article shall not be exclusive of any other rights to which those seeking indemnification may otherwise be entitled, and the provisions of this Article shall Page 16 inure to the benefit of the heirs and legal representatives of any person entitled to indemnity under this Article and shall be applicable to Proceedings commenced or continuing after the adoption of this Article, whether arising from acts or omissions occurring before or after such adoption. SECTION 4. Advancement of Expenses; Procedures; Presumptions and Effect of Certain Proceedings; Remedies. In furtherance, but not in limitation of the foregoing provisions, the following procedures, presumptions and remedies shall apply with respect to advancement of expenses and the right to indemnification under this Article: (a) Advancement of Expenses. All reasonable expenses incurred by or on behalf of the Indemnitee in connection with any Proceeding shall be advanced to the Indemnitee by the Corporation within 20 days after the receipt by the Corporation of a statement or statements from the Indemnitee or the Indemnitee's agent requesting such advance or advances from time to time, whether prior to or after final disposition of such Proceeding. Such statement or statements shall reasonably evidence the expenses incurred by the Indemnitee and, if required by law at the time of such advance, shall include or be accompanied by an undertaking by or on behalf of the Indemnitee to repay the amounts advanced if it should ultimately be determined that the Indemnitee is not entitled to be indemnified against such expenses pursuant to this Article. (b) Procedure for Determination of Entitlement to Indemnification. (i) To obtain indemnification under this Article, an Indemnitee shall submit to the Secretary of the Corporation a written request, including such documentation and information as is reasonably available to the Indemnitee and reasonably necessary to determine whether and to what extent the Indemnitee is entitled to indemnification (the "Supporting Documentation"). The determination of the Indemnitee's entitlement to indemnification shall be made not later than 90 days (or such greater number of days to which the Indemnitee shall have agreed) after receipt by the Corporation of the written request for indemnification together with the Supporting Documentation. The Secretary of the Corporation shall, promptly upon receipt of such a request for indemnification, advise the Board of Directors in writing that the Indemnitee has requested indemnification. (ii) The Indemnitee's entitlement to indemnification under this Article shall be determined in one of the following ways: (A) by a majority vote of the Disinterested Directors (as hereinafter defined), if they constitute a quorum of the Board of Directors; (B) by a written opinion of Independent Counsel (as hereafter defined) if (x) a Change of Control (as hereinafter defined) shall have occurred and Page 17 the Indemnitee so requests or (y) a quorum of the Board of Directors consisting of Disinterested Directors is not obtainable or, even if obtainable, a majority of such Disinterested Directors so directs; (C) by the stockholders of the Corporation (but only if a majority of the Disinterested Directors, if they constitute a quorum of the Board of Directors, presents the issue of entitlement to indemnification to the stockholders for their determination); or (D) as provided in Section 4(c). (iii) In the event the determination of entitlement to indemnification is to be made by Independent Counsel pursuant to Section 4(b)(ii), a majority of the Disinterested Directors shall select the Independent Counsel, but only an Independent Counsel to which the Indemnitee does not reasonably object; provided, however, that if a Change of Control shall have occurred, the Indemnitee shall select such Independent Counsel, but only an Independent Counsel to which the Board of Directors does not reasonably object. (c) Presumptions and Effect of Certain Proceedings. Except as otherwise expressly provided in this Article, if a Change of Control shall have occurred the Indemnitee shall be presumed to be entitled to indemnification under this Article upon submission of a request for indemnification together with the Supporting Documentation in accordance with Section 4(b)(i), and thereafter the Corporation shall have the burden of proof to overcome that presumption in reaching a contrary determination. In any event, if the person or persons empowered under Section 4(b) to determine entitlement to indemnification shall not have been appointed or shall not have made a determination within 90 days (or such greater number of days to which the Indemnitee shall have agreed) after receipt by the Corporation of the request therefor together with the Supporting Documentation, the Indemnitee shall be deemed to be entitled to indemnification. The termination of any Proceeding, or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, adversely affect the right of the Indemnitee to indemnification or create a presumption that the Indemnitee did not act in good faith and in a manner which the Indemnitee reasonably believed to be in or not opposed to the best interests of the Corporation or, with respect to any criminal Proceeding, that the Indemnitee had reasonable cause to believe that such conduct was unlawful. (d) Remedies of Indemnitee. (i) In the event that a determination is made pursuant to Section 4(b) that the Indemnitee is not entitled to indemnification under this Article, (A) the Indemnitee shall be entitled to seek an adjudication of entitlement to such indemnification either, at the Indemnitee's sole option, in (x) an appropriate court of the State of Delaware or any other court of competent jurisdiction or (y) an arbitration to be conducted by a single arbitrator pursuant to Page 18 the rules of the American Arbitration Association; (B) any such judicial proceeding or arbitration shall be de novo and the Indemnitee shall not be prejudiced by reason of such adverse determination; and (C) if a Change of Control shall have occurred, in any such judicial proceeding or arbitration the Corporation shall have the burden or proving that the Indemnitee is not entitled to indemnification under this Article. (ii) If a determination shall have been made or deemed to have been made, pursuant to Section 4(b) or (c), that the Indemnitee is entitled to indemnification, the Corporation shall be obligated to pay the amounts constituting such indemnification within five days after such determination has been made or deemed to have been made and shall be conclusively bound by such determination unless (A) the Indemnitee misrepresented or failed to disclose a material fact in making the request for indemnification or in the Supporting Documentation or (B) such indemnification is prohibited by law. In the event that (x) advancement of expenses is not timely made pursuant to Section 4(a) or (y) payment of indemnification is not made within five days after a determination of entitlement to indemnification has been made or deemed to have been made pursuant to Section 4(b) or (c), the Indemnitee shall be entitled to seek judicial enforcement of the Corporation's obligation to pay to the Indemnitee such advancement of expenses or indemnification. Notwithstanding the foregoing, the Corporation may bring an action, in an appropriate court in the State of Delaware or any other court of competent jurisdiction, contesting the right of the Indemnitee to receive indemnification hereunder due to the occurrence of an event described in subclause (A) or (B) of this clause (ii) (a "Disqualifying Event"); provided, however, that in any such action the Corporation shall have the burden of proving the occurrence of such Disqualifying Event. (iii) The Corporation shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 4(d) that the procedures and presumptions of this Article are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Corporation is bound by all the provisions of this Article. (iv) In the event that the Indemnitee, pursuant to this Section 4(d), seeks a judicial adjudication of or an award in arbitration to enforce rights under, or to recover damages for breach of, this Article, the Indemnitee shall be entitled to recover from the Corporation, and shall be indemnified by the Corporation against, any expenses actually and reasonably incurred by the Indemnitee in connection with such judicial adjudication or arbitration. If it shall be determined in such judicial adjudication or arbitration that the Indemnitee is entitled to receive part but not all the indemnification or advancement of expenses sought, the expenses Page 19 incurred by the Indemnitee in connection with such judicial adjudication or arbitration shall be prorated accordingly. (e) Indemnification by Another Enterprise. Notwithstanding anything to the contrary contained in this Section 4, if the Indemnitee shall receive indemnification in connection with any Proceeding from another corporation, partnership, joint venture, trust or other enterprise of which the Indemnitee is serving as a director, officer, employee or agent at the request of the Corporation, the Indemnitee shall promptly refund to the Corporation amounts advanced or paid to the Indemnitee pursuant to Section 4(a) or 4(d)(ii) in connection with such Proceeding to the extent such other corporation, partnership, joint venture, trust or other enterprise has indemnified the Indemnitee for such amounts. (f) Definitions. For purposes of this Section 4: (i) "Change in Control" means a change in control of the Corporation of a nature that would be required to be reported in response to Item 6(e) (or any successor provision) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or not the Corporation is then subject to such reporting requirement; provided that, without limitation, such a change in control shall be deemed to have occurred if (A) any "person" (as such term is used in Sections 13(d) and 14(d) of the Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of securities of the Corporation representing 30% or more of the combined voting power of the corporation's then outstanding securities without the prior approval of at least two-thirds of the members of the Board of Directors in office immediately prior to such acquisition; (B) the Corporation is a party to any merger or consolidation in which the corporation is not the continuing or surviving corporation or pursuant to which shares of the Corporation's Common Stock would be converted into cash, securities or other property, other than a merger of the Corporation in which the holders of the Corporation's Common Stock immediately prior to the merger have the same proportionate ownership of common stock of the surviving corporation immediately after the merger; (C) there is a sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all, or substantially all, the assets of the Corporation, or a liquidation or dissolution of the Corporation; or (D) during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (including for this purpose any new director whose election or nomination for election by the Corporation's stockholders was approved by a vote of at least a majority of the directors then still in office who were directors at the beginning of such period) cease for any reason to constitute at least a majority of the Board of Directors. Page 20 (ii) "Disinterested Director" means a director of the Corporation who is not or was not a party to the Proceeding in respect of which indemnification is sought by the Indemnitee. (iii) "Independent Counsel" means a law firm or a member of a law firm that neither presently is, nor in the past five years has been, retained to represent: (x) the Corporation or the Indemnitee in any matter material to either such party or (y) any other party to the Proceeding giving rise to a claim for indemnification under this Article. Notwithstanding the foregoing, the term "Independent Counsel" shall not include any person who, under the applicable standards of professional conduct then prevailing under the law of the State of Delaware, would have a conflict of interest in representing either the Corporation or the Indemnitee in an action to determine the Indemnitee's rights under this Article. SECTION 5. Effect of Amendments. Neither the amendment or repeal of, nor the adoption of a provision inconsistent with, any provision of this Article (including, without limitation, this Section 5) shall adversely affect the rights of any director or officer under this Article (x) with respect to any Proceeding commenced or threatened prior to such amendment, repeal or adoption of any inconsistent provision or (y) if such amendment, repeal or adoption occurs after a Change in Control, with respect to any Proceeding arising out of any action or omission occurring prior to such amendment, repeal or adoption of any inconsistent provision, in either case without the written consent of such director or officer. SECTION 6. Severability. If any provision or provisions of this Article shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Article (including, without limitation, all portions of any paragraph of this Article containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby; and (b) to the fullest extent possible, the provisions of this Article (including, without limitation, all portions of any paragraph of this Article containing any such provision held to be invalid, illegal or unenforceable, that are not themselves invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested by the provision held invalid, illegal or unenforceable. Page 21 ARTICLE XII Amendments These By-laws may be altered or repealed by the vote of a majority of the whole Board, subject to the power of the holders of a majority of the outstanding stock of the Corporation entitled to vote in respect thereof, by their vote given at an annual meeting or at any special meeting, to alter or repeal any By-law made by the Board. Page 22 EX-10.7 9 Exhibit 10.7 AVX NONQUALIFIED SUPPLEMENTAL RETIREMENT PLAN Restated as of January 1, 1998 AGREEMENT made as of January 1, 1998 by AVX Corporation (hereinafter referred to as the "Company"). WI T N E S S E T H: WHEREAS, the Company implemented the AVX Corporation Deferred Compensation Plan (the "Original Plan") for the benefit of certain management or highly compensated employees, effective August 1, 1994; and WHEREAS, the Company restated the Original Plan, effective July 1, 1995; and WHEREAS, the restated Original Plan has been amended four times; and WHEREAS, it is now desired to again amend and restate the Original Plan, effective January 1, 1998; NOW, THEREFORE, the Original Plan is hereby amended and renamed the AVX Nonqualified Supplemental Retirement Plan (the "Plan") effective January 1, 1998 to read as follows: Section 1 Purpose of the Plan The purpose of the Plan is to provide certain management or highly compensated employees of the Company with supplemental retirement benefits that would otherwise be lost due to the limitation on covered compensation under plans intended to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"). Section 2 Eligibility to Participate Each employee of the Company on January 1, 1998 who at any time participated in the Original Plan shall continue to be eligible to participate in this Plan. Every other employee of the Company on January 1, 1998 and thereafter who is eligible to participate in the AVX Corporation Stock Bonus Plan and whose annual compensation is in excess of $160,000 (or such higher amount as determined under Section 401(a)(17) of the Code), shall participate in the Plan as of the date his/her annual compensation exceeds $160,000 (or such higher amount as determined under Section 401(a)(17) of the Code). An eligible employee who participates in the Plan is hereinafter referred to as a "Participant." Section 3 Benefits 3.1 Each Participant shall be entitled to make an irrevocable election, as specified in Section 3.2, to defer receipt of compensation otherwise payable by the Company to such Participant for the calendar year commencing January 1, 1998, and each calendar year thereafter. The deferred amount may range from 1% of compensation to 3% of compensation in excess of $160,000 (or such higher amount as determined under Section 401(a)(17) of the Code). For purposes of the Plan, compensation shall include any amounts not includible in the gross income of the Participant due to any salary reduction agreement maintained with the Company under Sections 125 or 401(k) of the Code and any compensation deferred under the AVX Corporation SERP (the "SERP"). 3.2 A Participant may elect to defer compensation pursuant to Section 3.1 by giving written notice to the Company. Such notice must be received by the Company prior to January 1, 1998, and thereafter prior to the first day of the calendar year to which such election is applicable. Notwithstanding anything contained in Sections 3.1 or 3.2 to the contrary, for each employee who enters the Plan after January 1, 1998, in the first year in which such employee becomes eligible to participate, such newly eligible employee may make an election to defer compensation for services to be performed subsequent to such election within 30 days after the date such employee becomes eligible. Any compensation deferred under this Section 3.2 shall be invested in accordance with Section 4.2. A Participant's initial election to defer compensation shall also include an election as to the manner of payment which shall be (i) a lump sum distribution, or (ii) installment payments over a period of years (not to exceed 10 years). The time of payment shall be in accordance with Section 5.2. 3.3 In addition to any compensation deferred by a Participant under Section 3.2, the Company shall also defer an amount for each Participant, which amount shall be equal to the sum of the following: a. A Company matching contribution equal to 100% of the amount deferred under Section 3.2 by such Participant on compensation between $160,000 and $600,000; and b. Provided such Participant is an employee of the Company on December 31 of such year (unless employment terminated during such year due to retirement, disability or death as determined under the AVX Corporation Retirement Plan), an amount equal to the aggregate amount that would have been contributed on such Participant's compensation between $160,000 and $300,000 under profit sharing and between $160,000 and $600,000 under money purchase of the AVX Corporation Retirement Plan (had there been no limit on compensation in said plan, as required by Section 401(a)(17) of the Code). For the purpose of determining the Company's contribution under this Section 3.3, the $160,000 shall be increased in order to reflect any cost-of-living adjustment for each calendar year pursuant to Code Section 401(a)(17). Section 4 Deferred Compensation Accounts 4.1 In furtherance of the purposes of this Plan, the Company has established the Trust Under the AVX Corporation Deferred Compensation Plans (the "Trust") which is intended to be a "grantor trust" within the meaning of Subpart E, Part I, Subchapter J, Chapter 1, Subtitle A of the Code. The trustee of the Trust (the "Trustee") shall hold, invest and distribute any assets contributed to the Trust in accordance with the provisions thereof. The AVX Stock Fund is an investment option under the Trust. Notwithstanding anything contained in the Plan or Trust to the contrary, the purchase price to be paid for shares of AVX Stock acquired by the Trust shall be equal to the fair market value of such shares and the maximum number of such shares that may be purchased during the existence of the Plan shall not exceed one (1) million shares. 4.2 Any compensation deferred by a Participant pursuant to Section 3.2 and the matching Company contribution thereon shall be invested in the AVX Stock Fund. Section 5 Distribution of Benefits 5.1 Each Participant shall be fully vested and shall have a nonforfeitable interest in his/her account. 5.2 Benefits under the Plan shall be payable to a Participant or beneficiary, as the case may be, upon the earlier of such Participant's termination of employment (for any reason), or death. 5.3 In the event a Participant dies before all amounts credited to such Participant's account have been distributed to him/her, then the beneficiary designated by the Participant shall be paid the balance of such account. If a Participant shall fail to designate a beneficiary or if the beneficiary designated does not survive the Participant, then the beneficiary shall be deemed to be one of the following, in the order named: (i) spouse, (ii) children, per stirpes and (iii) estate of the Participant. Such designation of beneficiary may be changed from time to time by the Participant filing a new designation with the Company. 5.4 The Trustee shall deduct from each payment under the Plan, any federal, state or local withholding or other taxes or charges which the Trustee may be required to deduct under applicable laws. 5.5 Notwithstanding anything contained in this Plan or Trust to the contrary, if at any time the Trust is determined by the Internal Revenue Service ("IRS") not to be a "grantor trust" with the result that the income of the Trust is not treated as income of the Company pursuant to Subpart E of Subchapter J of the Code, or if a tax is finally determined by the IRS to be payable by the Participants or their beneficiaries in respect of any vested interests in their accounts prior to payment of such interest to the Participants or their beneficiaries, then the Board of Directors of the Company or the Chief Executive Officer of the Company shall have the right in its or his sole and complete discretion (i) to permit the distribution of the amount of such tax or (ii) terminate the Plan and Trust and the full fair market value of the assets in the Trust distributed to the Participants. For purposes of this Section 5.5, a final determination of the IRS shall be a decision rendered by the IRS which is no longer subject to administrative appeal within the IRS. 5.6 Notwithstanding anything contained herein to the contrary, a "derivative security" (as defined in rules issued by the Securities and Exchange Commission under Section 16 of the Securities Exchange Act of 1934) issued under the Plan shall not be transferrable by a Participant other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined under the Code. Section 6 Status of Plan Assets 6.1 The Trust assets are and shall remain at all time subject to the claims of the general creditors of the Company. Accordingly, the Company shall not create a security interest in the Trust assets in favor of the Participants (or their beneficiaries). 6.2 Except insofar as applicable law may otherwise require and subject to the provisions of the Trust, (i) no amount payable to or in respect of the Participants or their beneficiaries at any time under the Plan shall be subject in any manner to alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind, and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge or otherwise encumber any such amount, whether presently or thereafter payable, shall be void; and (ii) the Plan shall in no manner be liable for or subject to the debts or liabilities of the Participants or their beneficiaries. Section 7 Amendment and Termination The Plan may, at any time or from time to time, be amended, modified or terminated by the Company. However, no amendment, modification or termination of the Plan shall, without the consent of a Participant, adversely affect such Participant's rights with respect to amounts then accrued in his/her account. Section 8 Miscellaneous 8.1 If the Company shall find that any person to whom any payment is payable under the Plan is unable to care for his affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefore shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to a spouse, a child, a parent, or a brother or sister, or to any person deemed by the Company to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as the Company may determine. Any such payment shall be a complete discharge of the liabilities of the Company under the Plan. 8.2 Nothing contained herein shall be construed as conferring upon a Participant the right to continue in the employ of the Company as an employee or in any other capacity. 8.3 The Company (or such party or committee as the Company may designate) shall have full power and authority to interpret, construe and administer the Plan (except to the extent authority has been explicitly granted to the Trustee under the Trust) and such interpretation, construction, and actions hereunder, shall be binding and conclusive on all persons for all purposes. The Company (or such party or committee as the Company may designate) shall not be liable to any person for any action taken or omitted in connection with the interpretation and administration of this Plan unless attributable to willful misconduct or lack of good faith. 8.4 Titles to the Sections of the Plan are included for convenience only and shall not control the meaning or interpretation of any provision of the Plan. 8.5 Except to the extent preempted by federal law, this Plan and the Trust established hereunder shall be governed by and construed, enforced, and administered in accordance with the laws of the State of New York and the Trustee shall be liable to account only in the courts of the State of New York. 8.6 All expenses of administering the Plan and Trust shall be borne by the Company. 8.7 For Participants of the Plan who are subject to Section 16(b) of the Securities Exchange Act of 1934, the Company (or such party or committee as the Company may designate) may adopt such rules and procedures as it considers appropriate. -----END PRIVACY-ENHANCED MESSAGE-----