CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 27, 1995
Commission File Number 0-16304
Optek Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware
75-1962405
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1215 West Crosby Road, Carrollton, Texas 75006
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 323-2200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes (x) No ( )
Indicate 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 of this Form 10-K. ( )
The aggregate market value of the registrant's voting stock held by
non-affiliates as of October 27, 1995 was: $16,095,758 (* see note on
index page).
The number of shares outstanding of each class of registrant's common stock
as of October 27, 1995 was: Common Stock, par value $0.01 per share,
3,444,624 shares.
___________________
Documents Incorporated by Reference
Portions of the registrant's definitive proxy statement to be furnished to
stockholders in connection with its Annual Meeting of Stockholders to be
held on March 19, 1996 are incorporated by reference in Part III of this
Form 10-K.
<PAGE>
OPTEK TECHNOLOGY, INC.ANNUAL REPORT ON FORM 10-K
INDEX
Securities and Exchange Commission
Item Number and Description Page
PART I
ITEM 1. Business 1
ITEM 2. Properties 6
ITEM 3. Legal Proceedings 7
ITEM 4. Submission of Matters to a Vote of Security Holders 7
PART II
ITEM 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 7
ITEM 6. Selected Financial Data 8
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
ITEM 8. Financial Statements and Supplementary Data 10
ITEM 9. Changes in and Disagreements on Accounting
and Financial Disclosure 10
PART II
ITEM 10. Directors and Executive Officers of the
Registrant 11
ITEM 11. Executive Compensation 11
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management 11
ITEM 13. Certain Relationships and Related Transactions 11
PART IV AND SIGNATURES
ITEM 14. Exhibits, Financial Statements & Financial
Statement Schedules and Reports on Form 8-K 11
INDEPENDENT AUDITORS' REPORT F-1
SIGNATURES
The figure indicated on the cover page as to the aggregate market value
of shares of registrant's voting stock held by nonaffiliates, as such
figure relates to shares held by affiliates, represents the registrant's
best good faith estimate for purposes of this annual report on Form 10-K.
The aggregate market value indicated is based upon the average of the bid
and asked prices of the registrant's common stock, as reported by a market
maker for the Company's common stock, as of October 27, 1995. All
outstanding shares beneficially owned by executive officers and Directors
of the registrant or by any stockholder beneficially owning more than 10%
of registrant's common stock, as incorporated herein under the heading
"Security Ownership of Certain Beneficial Owners and Management," were
considered for purposes of this disclosure to be held by affiliates.
<PAGE>
PART I
ITEM 1. Business.
Introduction
Optek Technology, Inc. ("Optek" or "the Company") markets, designs and
manufactures sensor products based on either of two technologies:
optoelectronics or magnetic field sensing (Hall Effect). These products
react to changes in infrared light or magnetic fields which indicate
physical events such as position, speed or rotation and convert this
information into an electrical signal which can then be communicated
to control devices such as microprocessors capable of processing and
responding to that signal.
Because optoelectronic and magnetic sensors operate without physical contact,
they are capable of more accurate and reliable measurement and can be used
with more sensitive and delicate equipment than standard mechanical or
electromechanical devices. These characteristics, combined with increased
speed, durability and compactness, have prompted the substitution of
optoelectronic and magnetic sensors for mechanical and electromechanical
processors.
Optek's optoelectronic components and assemblies are used in business
machines, such as mailing machines, in which they determine envelope
position; in computer peripherals, such as disk and tape drives, in which
they sense the beginning position of the data storage area; in industrial
products, such as security systems, in which they sense the interruption
of a beam of light; and in military applications, such as missile guidance
systems, in which they assist the projectile in tracking its target.
Optek's magnetic sensors are used in automotive applications and in various
industrial applicationswhere harsh environments prevent the use of
optoelectronics. For example, Hall Effect devices sense rotation of shafts
and gears in automobiles where the presence of dirt and oil would make
the application of optoelectronic technology impractical.
Optoelectronic Products
The largest portion of the Company's current business is the design,
manufacture and sale of custom devices which use optoelectronics technology
to satisfy customers'sensing application requirements. Optoelectronics
technology uses light to measure or sense position or motion. A familiar
example of the use of this technology is its application in certain burglar
alarm systems which emit a beam of light which is received by a sensor.
The interruption of this beam causes an electrical response in the sensor
which signals the alarm. These principles may be applied using either
visible or nonvisible (i.e., infrared) light as a means of sensing motion,
speed or position. The optoelectronic products made by Optek primarily
use infrared light.
Optek specializes in customized optoelectronic solutions for its customers'
applications. The Company applies its specific engineering and manufacturing
expertise to the design and manufacture of components and assemblies which
meet the physical and technical requirements demanded for the intended use by
the customer. This application-based design requires the integration of
mechanical, electrical and optical technologies.
Based upon the Company's expertise and knowledge of the optoelectronics
industry, the Company does not believe any patents currently govern the
basic optoelectronics technology used by the Company. As a result,
development of new applications for this technology has proceeded without
the impediment of obtaining licenses for the underlying technology. Further,
the Company believes that companies desiring to enter the optoelectronics
industry may do so without obtaining licenses or permits relating to the
use of such technology and that competition is not impeded by such
constraints. However, Optek has sought to protect confidential information
which is used in the Company's operations by restricting its employees
from using, disseminating or disclosing confidential information not
generally known in the industry.
<PAGE>
Optek is vertically integrated and manufactures:
(1) infrared emitting and light sensing semiconductor chips;
(2) discrete components, which are plastic or metal packages
housing the light emitting or light sensing chips described above;
and
(3) assemblies, which combine the light emitting and light sensing
components in a single plastic package to meet various electrical
and/or mechanical specifications. Generally, it is assemblies which
are sold by Optek to its customers for use in their products.
This integrated manufacturing structure offers Optek the necessary
flexibility to satisfy customers' specialized requirements.
The following paragraphs describe these optoelectronic devices and their
basic principles of operation.
Semiconductor Chips
Light emitting and light sensing semiconductor chips are the basic elements
in Optek's optoelectronic product range. Both types of chips are
manufactured by Optek which has a complete semiconductor processing
operation from engineering, through all processing steps, to final testing.
A light emitting diode ("LED") chip emits light as the result of the
application of direct current at a low voltage. Such chips can be made to
produce light in a wide range of wavelengths extending from the near
ultraviolet region of the electromagnetic spectrum to the far infrared.
Optek's light emitting chips are manufactured from gallium arsenide wafers
using standard semiconductor manufacturing techniques.
Light sensors are semiconductor chips which are capable of converting light
into electrical signals; thus, they can be used to sense and relay the
signal produced from a light emitting chip. Optek produces light sensitive
chips from polished silicon slices using standard silicon semiconductor
manufacturing processes. Optek's light sensing chips include photodiodes,
phototransistors and photodarlingtons, which have varying speed and
sensitivity. Phototransistors and photodarlingtons incorporate transistors
as an integral part of the chip thus providing in a single unit the
ability to detect the light and amplify the signal received. The Company
uses a substantial portion of the semiconductor chips it manufactures
in its discrete components. On occasion, however, the Company has designed
and manufactured custom semiconductor chips for specific customer
applications.
Most of the light sensing chips manufactured by Optek produce an analog
output which must then be interpreted by a microprocessor. However, the
Company has developed a family of more sophisticated light sensing
integrated circuits for these applications. These Photologic chips
developed by Optek incorporate into the chip all the functions necessary to
produce a digital output. The versatility of the chip's output geometry
allows it to drive multiple outputs, resulting in savings to the customer
in system processing circuitry. A Photologic( chip has also been developed
with increased sensitivity, low level input detection and on-chip voltage
regulation which enables the chip to function under fluctuating power
conditions. The former characteristic is particularly useful in fiber
optics where the signal transmitted may be a very low level signal. The
latter characteristic finds a wide range of applications, for example with
battery powered devices or under conditions of heavy electrical interference.
Discrete Components
Discrete components incorporate LED or sensor chips in either plastic or
metal packages which protect the chip and allow light to pass to or from
the chip. These components form an integral part of the assemblies
manufactured by Optek. In manufacturing discrete components, LED or
sensor chips are mounted on lead frames or headers, a wire is bonded
from the chip to the lead, and the device is housed in a plastic or metal
package. While most of Optek's discrete components are used in its
own assembly manufacturing operations, the Company also manufactures and
sells discrete components to original equipment manufacturers ("OEMs")
which integrate them into their own products.
<PAGE>
Assemblies
Most of Optek's business is directed to the production of complete
assemblies which are ready to plug into the customer's equipment.
These assemblies generally fall into three product groups:
(1) interrupter/reflective assemblies, which use LED and sensor discrete
components in combination and detect objects interrupting the light
path;
(2) detector assemblies and displays, which incorporate specifically
designed semiconductor chips capable of sensing position in physical
packaging suitable for Aerospace/Defense applications; and
(3) isolators or couplers which transmit signals while "isolating" high
voltage circuits.
Discrete LED and sensor components are generally used in combination with
one another in interruptive or reflective assemblies. Each of these
assemblies includes a discrete emitter, a light transmission path and a
discrete sensor. The sensing occurs when an object interrupts the light
transmission path from emitter to sensor or by reflecting the emitted
light back to the sensor. Optek manufactures various types of detector
assemblies and displays which are used in modern weapons systems.
These assemblies and displays are designed to sense the location of an
object in relation to its target and often requires custom sensor or
LED chips which are incorporated in physical packaging capable of
withstanding rigorous environmental conditions.
Optoelectronic LED's and sensors can be used to isolate electrical noise
or high voltage from an electrical circuit. In an isolator or coupler,
the light path from emitter to sensor is totally enclosed and cannot be
modified externally. Placing an isolator between an input and output
circuit can eliminate the possibility of high voltage or electrical noise
reaching the output circuit. These devices are used to protect computers
and other sensitive circuits from potentially damaging electrical surges
or electrical noise.
Fiber Optic Products
As a complement to its other optoelectronic devices, Optek manufactures
fiber optic LED's and sensors. Optek uses its LED and sensor technology
to provide the light signal and receiver products for data transmission
through fiber. Fiber optics are currently widely used in modems,
multiplexers and local area networks. These products allow electronic
equipment, such as energy management systems, computers and even telephones,
to communicate over thin lightweight cables of glass or plastic fiber.
Hall Effect Devices
During fiscal 1992, Optek began production of Hall Effect (magnetic field
sensing) devices which sense physical events by reacting to changes in
magnetic fields. Since magnetic fields are relatively unaffected by the
cleanliness of the environment, Hall Effect devices can be used in
environments in which a clear optical path is inhibited. For example,
Hall Effect devices sense rotation of gears in automobiles for various
applications where the presence of dirt and oil would make the application
of optoelectronic technology impractical. The first practical application
of this technology by Optek has been the production of crankshaft and
camshaft sensors used for the ignition system of an automobile. This
application is the subject of a patent and the Company has been licensed
to manufacture such devices only for General Motors Corporation.
The Company continues to explore additional opportunities in which Hall
Effect devices can efficiently address customers' requirements. For
example, the Company recently began production of a Hall Effect sensor
used in an automotive security system. Because of the presence of oil
and dirt characteristic of automotive applications, magnetic sensing
devices are particularly useful and the Company has sought to expand upon
the expertise and familiarity gained through its initial automotive
programs to identify and participate in additional sensor programs.
<PAGE>
The Company's engineering expertise in sensor technologies has facilitated
its identification of additional potential applications for Hall Effect
devices. Because of the relative newness of some of these applications,
the Company has sought and, in some cases, obtained patent protection for
these applications. However, Optek cannot currently predict whether
additional new applications will qualify for patent registration.
As with optoelectronic products, the Company is vertically integrated and
capable of producing each of the elements incorporated into its Hall Effect
devices. The basic building block of each device is a semiconductor chip
which reacts to fluctuations in a magnetic field. Optek produces its own
magnetic field sensing chips through processes and techniques similar to
those used for manufacturing light sensing chips. As the position of a
magnet is changed, the sensor produces a signal which is relayed to a
control device. Each of these elements is combined into an assembly
integrating mechanical, electronic and magnetic technologies.
Product Development
In the past, the optoelectronics industry has not been as subject to rapid
technological change as other semiconductor-based industries. Consequently,
the Company's efforts have been primarily directed toward enhancing the
functions of its existing product base to permit a wider range of
applications and to identification of new applications for optoelectronic
devices rather than to research and development related to technological
advances.
Similarly, most of the research related to Hall Effect devices has been
directed to the solution of application-specific problems rather than to
improvements in the underlying technology.
However, in order to expand the range of applications which can be addressed
with its Hall Effect devices, the Company anticipates applying a portion of
its research activities to development of new magnetic sensor technology
having different sensitivities and capacities. If successful, this effort
would permit the Company to introduce new lines of products for applications
which are difficult or impossible to address with available sensors. No
assurance can be given that the Company will succeed in expanding these
technologies. During the past three fiscal years, the Company's product
development and engineering expenses have ranged between 6% and 7% of net
sales, a portion of which has been funded by customers. Future developments
may require the Company to allocate increased resources to advances in
optoelectronic and Hall Effect technologies. However, no assurance can be
given that the Company will be successful in further expanding these
technologies.
Raw Materials
The principal raw materials used by the Company in the manufacture of its
semiconductor chips components and assemblies are silicon wafers, gallium
wafers, chemicals and gases used in processing wafers, gold wire, lead
frames, metal and plastic for packages that house the chip and the various
custom assemblies, and magnets used in certain Hall Effect applications. All
of these raw materials can be obtained from several suppliers. From time
to time, particularly during periods of increased industry-wide demand,
silicon wafers and other materials have been in short supply. However,
the Company has not been materially affected by such shortages. As is
typical in the industry, the Company allows for a significant lead
time between order and delivery of raw materials.
Customers
In fiscal 1995, Optek's ten largest customers accounted for approximately
57% of net sales. Two customers, General Motors Corporation and Pitney
Bowes, made purchases which accounted for 13% and 13%, respectively, of
the Company's net sales.
Optek's customers normally purchase the Company's products and incorporate
them in products that they in turn sell into their own markets on an
ongoing basis. As a result, Optek's sales are dependent upon the success
of its customers' products, and its future performance is dependent upon
its success in finding new customers and receiving new orders from existing
customers.
<PAGE>
Sales orders are frequently made on the Company's standard form, which
permits the customer to cancel the order in whole or in part. In such
event, the standard form obligates the customer to pay the Company the
purchase price of finished goods, a price adjustment based on the quantity
of goods actually shipped and all costs, direct or indirect, incurred by
the Company with respect to the order, including a reasonable allowance for
prorated expenses and anticipated profits. However, no assurance can be
given that such amounts will be received by the Company after cancellation.
Marketing
Optek markets its products through its own technical sales staff and
through independent sales representatives. At October 27, 1995, Optek
employed seven technical sales people who operate out of the Company's
offices in Carrollton, Texas and two technical sales people operating out
of offices in western Europe. Optek also uses approximately 130
independent sales representatives in geographic territories throughout
the United States. Independent sales representatives are typically paid
a 3% to 5% commission on sales within their geographical territory.
The initial customer contact is usually made by either a member of Optek's
technical sales staff or a sales representative for the geographic area.
During this contact, the representative determines if custom optoelectronic
or Hall Effect components or assemblies could perform the specific functions
desired by the customer. Typically, the customer either provides a detailed
specification of its requirements or is assisted by Optek's engineering and
technical sales staff in the development of specifications. Optek then
develops a technical proposal, incorporating preliminary design concepts,
and submits the technical proposal to the customer. The technical proposal
includes pricing terms, which usually include a one-time tooling charge and
a unit price for the product over a specified period based on an estimated
production volume.
The marketing process takes approximately four to eighteen months from
initial customer contact to purchase order, depending on the complexity of
the customer's requirements. Once a purchase order is placed by the
manufacturer with Optek, the typical lead time to delivery of a prototype
is approximately twelve weeks, with production quantities available
approximately six to eight weeks later. Subsequent production releases
typically require lead times of six to eight weeks.
During fiscal 1995, foreign sales accounted for approximately $16.9 million
or approximately 27% of net sales, as compared to $14.4 million, or
approximately 26% of net sales for fiscal 1994, and $13.3 million, or
approximately 24% of net sales during 1993.
Backlog
Optek's order backlog at October 27, 1995 was approximately $23.2 million
compared with a backlog of approximately $15.6 million at October 28, 1994.
Most of the backlog existing at October 27, 1995 is scheduled to be shipped
within fiscal 1996. The Company's backlog is comprised of orders which
customers have released and scheduled for delivery within one year.
However, by industry practice, orders may be canceled or modified at any
time, with the customer being responsible for all finished goods, all
costs, direct and indirect, incurred by the Company and a reasonable
allowance for anticipated profits. No assurance can be given that such
amounts will be received by the Company after cancellation.
Competition
The Company is a leading supplier of custom optoelectronic and magnetic
sensing devices for sale to original equipment manufacturers and automotive
parts suppliers. Optek competes with a range of companies for the custom
optoelectronic and magnetic sensor requirements of vendors of general
business machines, computer peripherals, a variety of industrial products
and specialized military applications. The Company believes that its
principal competitor for sales of custom devices is Honeywell
Optoelectronics (formerly Spectronics, Inc.), a division of Honeywell,
Inc. Because the Company specializes in custom devices requiring a high
degree of engineering expertise to meet the requirements of specific
applications, it generally does not compete to any
<PAGE>
significant degree with other large United States, European or Far
Eastern manufacturers of standard "off-the-shelf" optoelectronic components.
Optek believes that the production of quality products, expertise in the
design and development of custom products, timely delivery of such products
and price are the most significant factors in the segment of the market
in which it competes. Optek believes that generally it competes favorably
with respect to these factors.
Foreign Manufacturing Operations
Virtually all of Optek's discrete components and assemblies for commercial
use, sales of which accounted for approximately 81% of Optek's net sales
in its last fiscal year, are produced in facilities operated by the Company
in Juarez, Mexico in order to realize significantly reduced labor costs.
Mexico has enacted legislation to promote the use of such manufacturing
operations by foreign companies and continuation of these operations depends
upon compliance with applicable laws and regulations of the United States
of America and Mexico, the availability of less expensive labor and the
continuation of favorable exchange rates. These operations are authorized
to operate as Maquiladoras by the Ministry of Commerce and Industrial
Development of Mexico. Maquiladora status allows Optek to wholly own
its Mexican subsidiaries and to import items into Mexico duty free,
provided that such items, after processing, are re-exported from Mexico
within six months. Maquiladora status, which must be renewed every
two years, is subject to various restrictions and requirements, including
compliance with the terms of the Maquiladora program, proper utilization
of imported materials, hiring and training of Mexican personnel,
compliance with tax, labor, exchange control and notice provisions and
regulations and compliance with locational constraints. The Company
anticipates that the North American Free Trade Agreement ("NAFTA"), when
fully implemented, will further facilitate its operations in Mexico and
reduce the restrictions applicable to those operations.
Recently, as trade relations between the two countries have matured,
labor costs have begun to rise and following a devaluation of the peso
at the beginning of the year, exchange rates have stabilized in the latter
half of the year. Although assembly operations in Mexico continue to be
less expensive than comparable operations in the United States of America,
additional investment in automated equipment may become necessary to offset
rising labor costs. The Company's foreign manufacturing operations
could be adversely affected by interruptions in the trade relations
between these two countries.
Employees
As of October 27, 1995, the Company employed 1,686 persons, including
1,544 in manufacturing and assembly (1,348 in Mexico and 196 in Carrollton),
90 in sales and engineering and 52 in management and administration.
Some of the Company's employees are highly skilled and the Company's
continued success will depend in part on its ability to attract and
retain such employees, who are generally in demand. At times, the
Company has had difficulty hiring engineering personnel with previous
experience in its industry due to the limited number of engineers
available with such experience. To date, this difficulty has not
materially affected the Company's operations. The Company has never
had a work stoppage, no employees are represented by any labor organi-
zation and the Company considers its employee relations to be good.
ITEM 2. Properties.
The Company's administrative offices, engineering facilities, silicon
and gallium arsenide chip manufacturing operations and tooling and
plastic molding operations are located in a Company-owned building
containing 205,000 square feet on a 15.5 acre site in Carrollton, Texas.
The Company also leases approximately 6,250 square feet of warehouse
space in El Paso, Texas under a lease terminating in January 1997, half
of which has been subleased.
Virtually all of the Company's non-military discrete components,
interrupter and reflective assemblies and isolators/couplers are
assembled at the facilities of the Company's subsidiaries located in
Juarez, Mexico. The Mexican subsidiaries beneficially own a 24,000
square foot building and a 45,000 square foot building in Jaurez, Mexico
through trust agreements with Banca Serfin, Sociedad Nacional de Credito,
as required by Mexican law.
<PAGE>
The operations formerly conducted at the smaller of those buildings have
been consolidated into the larger plant and adjacent leased premises,
and the Company is currently seeking to sell such plant. Therefore, the
smaller building is now classified as an asset held for disposal. This
property is currently under lease to a third party terminating in March
1998 with annual lease payments of approximately $114,000. The Company's
Mexican subsidiaries also lease a 58,000 square foot building in Juarez,
Mexico under a lease expiring in December 1996 with aggregate annual lease
payments of $269,000. The lease provides for five one-year renewals
exercisable on at least 180 days notice. This plant is adjacent to the
45,000 square foot building owned by the Company's subsidiaries.
Additional buildings aggregating 56,000 square feet are owned by Optek
in Mineral Wells, Texas which formerly housed the manufacturing and
assembly operations of Optek's Aerospace division. This plant has been
classified as an asset held for disposal in the Company's financial
statements and the Company is currently seeking to sell such plant
and other land held in Mineral Wells.
The Company believes that its existing facilities and equipment are
well-maintained and are in good operating condition. The Company
anticipates that its current facilities will be suitable and adequate
for its operations through 1996.
ITEM 3. Legal Proceedings.
The Company is not involved in any material current or pending legal
proceedings, other than ordinary routine litigation incidental to its
business.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted by the Company during the fourth quarter of the
fiscal year ended October 27, 1995 to a vote of the Company's security
holders through the solicitation of proxies or otherwise.
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
Through July 1, 1993, the Company's Common Stock was traded in the
over-the-counter market and was quoted on the National Association of
Securities Dealers' Automated Quotations System ("NASDAQ") National
Market System. Due to the losses reported for the fiscal year ended
October 30, 1992, the Company did not satisfy the quantitative criteria
for continued listing on the NASDAQ system and, therefore, the Company's
common stock ceased to be quoted by the NASDAQ system effective
July 2, 1993. The Company's common stock continues to be traded in
the over-the-counter market.
The following table sets forth the quarterly high and low closing sales
prices (to the nearest 1/8) of the Common Stock, as quoted by NASDAQ, for
each quarterly period through July 1, 1993 and the high and low bid prices
as reported since the fourth quarter of 1994. Bid prices represent
quotations between dealers in securities, without adjustment for retail
mark-ups, mark-downs or commissions, and may not necessarily represent
actual transactions. Quarterly prices for periods from the cessation
of quotation by NASDAQ until the fourth quarter of fiscal 1994 are not
available as the Company did not have access to a regular record of
quotations.
<TABLE>
<CAPTION>
1995 Quarter Ended High Low
<S> <C> <C>
October 27, 1995 7 3/4 5 1/2
July 28, 1995 5 3/4 2 1/2
April 28, 1995 2 5/8 1 1/2
January 27, 1995 1 5/8 1 1/4
1994 Quarter Ended
October 28, 1994 1 5/8 1 1/4
July 30, 1993 1 1/2 1/4
April 30, 1993 1 1/2 3/4
January 29, 1993 1 3/4 1 1/4
</TABLE>
<PAGE>
At October 27, 1995, the Company had approximately 243 stockholders of
record. The Company believes that a significant number of shares of
the Company's Common Stock are held in street name and, consequently,
the Company is unable to determine the actual number of beneficial
owners thereof.
The Company has never paid a cash dividend on its Common Stock, currently
intends to retain any earnings for use in its business and does not
anticipate paying any cash dividends on its Common Stock in the
foreseeable future. The Company's loan agreements contain covenants
which prohibit the Company from declaring dividends on its Common
Stock unless such covenants are waived in writing.
ITEM 6. Selected Financial Data.
The following table summarizes certain selected consolidated financial
data for the periods indicated. This information is derived from the
Company's consolidated financial statements and is qualified in its
entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto
included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
(In thousands, except per share amounts)
Oct. 27, Oct. 28, Oct. 29, Oct. 30, Oct. 25,
Operating Statement Data: 1995 1994 1993 1992 1991
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Net sales $62,542 $55,625 $55,878 $58,403 $51,703
Cost and expenses:
Cost of sales 38,450 36,971 42,898 41,780 39,206
Provision for excess and
obsolete inventories 63 1,298 3,601 1,371 982
______ ______ ______ ______ ______
Gross profit 24,029 17,356 9,379 15,252 11,515
Product development and
engineering expenses 3,841 3,591 3,968 4,089 4,520
Selling, general and
administrative expenses 7,090 6,536 7,498 9,057 7,989
Provision for restructuring
costs - - 2,292 3,600 -
Reduction in value of
deferred costs - - 893 - -
______ ______ ______ ______ ______
Operating income (loss) 13,098 7,229 (5,272) (1,494) (994)
Other expense:
Interest expense 2,960 3,685 3,952 3,788 3,521
Reduction in value of
assets held for
disposal 74 230 518 - -
Other, net 68 135 317 615 658
______ ______ ______ ______ ______
Total other expenses 3,102 4,050 4,787 4,403 4,179
Earnings (loss) before
income taxes 9,996 3,179 (10,059) (5,897) (5,173)
Income tax expense 158 - - - 44
______ ______ ______ ______ ______
Net earnings (loss) $9,838 $3,179 $(10,059) $(5,897) $(5,217)
______ ______ _______ ______ ______
Earnings (loss) per
common share $ 1.40 $ .47 $ (3.12) $ (1.81) $ (1.64)
Weighted average number of
common and common
equivalent shares
outstanding 7,027 7,108 3,224 3,250 3,187
Balance sheet data:
Working capital (deficit) $4,028 $4,830 $ 6,865 $(25,081) $14,075
Total assets 26,065 27,827 32,146 48,651 45,212
Total current liabilities,
including current
maturities of long-term
debt 9,175 8,159 7,920 50,789 9,106
Long-term debt, less
current maturities 15,996 28,692 36,472 111 32,567
Stockholders' equity
(deficit) 810 (9,148) (12,340) (2,302) 3,489
<PAGE>
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Results of Operations
Net sales for 1995 were $62.5 million versus $55.6 million in 1994 and
$55.9 million in 1993. The increase from 1994 is attributed to higher
commercial sales volume of $4.5 million, higher automotive sales volume
of $1.2 million and increased volume of high-reliability optoelectronic
products of $1.2 million. The net decline from 1993 to 1994 was a result
of the divestiture of the local area network product line, $1.6 million,
and discontinuation of the power semiconductor product line, $2.8 million.
These reductions were substantially offset by increases in the commercial
and hi-reliability optoelectronics businesses totaling $4.1 million.
Cost of sales in 1995 was 61% of sales versus 66% in 1994 and 77% in 1993.
The improvements in 1995 and 1994 are the result of higher production
volumes resulting in lower unabsorbed fixed costs, favorable Mexico exchange
rates, cost reduction programs that were implemented in 1993, and divestiture
or discontinuation in 1993 of unprofitable product lines.
Operating income was $13.1 million in 1995, $7.2 million in 1994 and a loss
of $5.3 million in 1993. The improvement in 1995 was the result of the
aforementioned increase in sales volume; improvements in cost of sales as
discussed above; and the absence of additional provisions for excess and
obsolete inventories versus 1994 provisions of $1.3 million. The improvement
from 1993 to 1994 was the result of lower cost of sales as previously
mentioned; the absence of charges incurred in 1993 for restructuring,
$2.3 million and write-off of deferred product development, $.9 million;
lower provisions for excess and obsolete inventories, $2.3 million; and
reduced engineering, selling, general and administrative expenses.
Restructuring charges in 1993 of $2.3 million included a $1.9 million
inventory provision related to the discontinuation of the power
semiconductor product line and a $.4 million provision for a reduction
in force in the commercial and automotive groups.
Product development and engineering expenses in 1995 were $3.8 million
or 6.1% of sales compared to $3.6 million or 6.5% of sales in 1994 and
$4.0 million or 7.1% in 1993. These expenses are related to the development
of new products and processes as well as sustaining engineering. The
improvement in the percent to sales in 1995 was due to sales increasing at
a greater rate than expenses. The 1994 improvement was primarily the result
of the divestiture of the local area network product line and discontin-
uation of the power semiconductor product lines as well as other downsizing
activities. In 1996, the Company will continue to emphasize development of
new products in support of its strategic growth plan.
Selling, general and administrative expenses in 1995 were $7.1 million or
11.3% of sales, versus 11.8% in 1994 and 13.4% in 1993. The improvement in
1995 was the result of sales increasing at a rate greater than expenses.
The 1994 improvement was the result of divesting or discontinuing
unprofitable product lines as discussed above and other downsizing actions.
Other expenses consist primarily of interest expense which decreased in
1995 and 1994 due to the continued reduction of long-term debt.
As a result of the factors discussed above, net earnings for 1995 were
$9.8 million versus $3.2 million in 1994 and a loss of $10.1 million in 1993.
Liquidity and Capital Resources
As reflected in the Company's consolidated statements of cash flows, Optek
generated approximately $14 million in cash from operations in fiscal year
1995. The largest single use of cash flow continues to be the reduction of
the Company's outstanding debt, approximately $13 million in fiscal year
1995. The remainder of approximately $1 million was used for the purchase
of manufacturing equipment. Operating cash flows were $8 million in 1994
and $3 million in 1993. The year-to-year improvements were a direct result
of the factors discussed above.
<PAGE>
A credit agreement with a financial institution at January 20, 1994,
provided a $38.8 million line of credit consisting of a $10.5 million
working capital line and a $28.3 million revolving term loan. Amounts
drawn on the working capital line bear interest at 1 1/2% over the reference
rate announced from time to time by the First National Bank of Chicago,
Chicago, Illinois and mature on October 31, 1996, with two one year
extensions if no default exists under the loan documents at maturity.
Interest accrues on the revolving line of credit at various rates by tranche,
a summary of which is set forth in Note 5 to the consolidated financial
statements included herein.
The revolving line was scheduled to reduce to $20,650,000 as of November 1,
1995, with additional reductions in the revolving line to occur in the event
that the Company used less than the available line for the sixty days
preceding a scheduled reduction date. On November 1, 1995, the commitment
on the revolving line was reduced to approximately $8,000,000 through
operation of these provisions. The final scheduled reduction in the
revolving line of $8,000,000 is to occur October 31, 1998.
The Company is currently in compliance with the financial and other
covenants contained in its loan documents. Although Optek's ability to
fund research and development and capital expenditures is constrained by
the terms of the loan documents, management believes that its working
relationship with its lender is good and that these facilities will be
adequate to finance the Company's needs for the foreseeable future.
Recently Issued Accounting Pronouncements
The Company is required to adopt, in fiscal 1997, the Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
The Company has not determined what the impact of this adoption will be.
ITEM 8. Financial Statements and Supplemental Data.
Included on pages F-1 through F-11 hereof.
ITEM 9. Changes in and Disagreements on Accounting and Financial Disclosure.
None.
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Information relating to the Company's Directors and executive officers
is set forth under the heading "Election of Directors and Information
as to Directors, Nominees and Executive Officers" in the Company's
definitive proxy statement relating to the Company's Annual Meeting
of Stockholders to be held March 19, 1996, which will be filed with the
Securities and Exchange Commission on or about January 19, 1996, and such
information is incorporated herein by reference.
ITEM 11. Executive Compensation.
Information relating to executive compensation is set forth under the
heading "Executive Compensation" in the Company's definitive proxy
statement relating to the Company's Annual Meeting of Stockholders to be
held March 19, 1996, which will be filed with the Securities and Exchange
Commission on or about January 19, 1996, and such information is
incorporated herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management.
Information relating to the ownership of certain beneficial owners and
management of the Company's Common Stock is set forth under the heading
"Securities Ownership of Certain Beneficial Owners and Management" in the
Company's definitive proxy statement relating to the Company's Annual
Meeting of
<PAGE>
Stockholders to be held March 19, 1996, which will be filed with the
Securities and Exchange Commission on or about January 19, 1996,
and such information is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
Information relating to the business relationships and related transactions
with respect to the Company and certain Directors and nominees for election
as Directors is set forth under the heading "Certain Transactions" in the
Company's definitive proxy statement relating to the Company's Annual
Meeting of Stockholders to be held March 19, 1996, which will be filed
with the Securities and Exchange Commission on or about January 19, 1996,
and such information is incorporated herein by reference.
PART IV
ITEM 14. Exhibits, Financial Statements & Financial Statement Schedules
and Reports on Form 8-K.
1. Financial Statements included in Part II (Item 8) of this report:
Independent Auditors' Report;
Consolidated Balance Sheets as of October 27, 1995 and October 28,
1994;
Consolidated Statements of Operations for the three years ended
October 27, 1995;
Consolidated Statements of Stockholders' Equity (Deficit) for the
three years ended October 27, 1995;
Consolidated Statements of Cash Flows for the three years ended
October 27, 1995;
Notes to Consolidated Financial Statements.
2. Financial Statement Schedules included in Part IV (Item 14) of
this report for the three fiscal years ended October 27, 1995:
Independent Auditors' Report;
Schedule II - Valuation and Qualifying Accounts;
All other schedules are omitted, as the required information is
inapplicable or the information is presented in the consolidated
financial statements or related notes.
No. Exhibit
3.7 Bylaws of Optek Technology, Inc. (1).
3.8 Restated Certificate of Incorporation of Optek Technology, Inc. dated
August 27, 1987 (2).
10.1 Restated and Amended 1983 Incentive Stock Option Plan (1).
10.2 Form of Incentive Stock Option Agreement (1).
10.25 Optek Technology, Inc. Profit-Sharing Plan and Trust (1).
10.30 1983 Incentive Stock Option Plan (3).
10.33 First Amended and Restated Registration Rights Agreement dated as
of July 1, 1988 among Optek Technology, Inc., Allstate Insurance
Company, Metropolitan Life Insurance Company, Massey Burch Venture
Investors, The Confederate Venture Fund, James D. Crownover,
Jack C. Massey, Rauscher Pierce Refsnes, Inc., Equitable Enskilda
Securities Limited and Household Commercial Financial Services, Inc.
(4).
10.36 First Amendment to Optek Technology, Inc., Profit Sharing Plan
and Trust (5).
<PAGE>
10.38 Form of Director Warrant to Purchase Common Stock (5).
10.47 Long-Term Stock Investment Plan (6).
10.48 Directors' Formula Award Plan (6).
10.49 Amended and Restated Secured Credit Agreement dated January 20,
1994 between Optek Technology, Inc. and Household Commercial
Financial Services, Inc. (7).
10.52 Warrant to Purchase Common Stock of Optek Technology, Inc. dated
May 20, 1993 (8).
10.53 Warrant to Purchase Common Stock of Optek Technology, Inc. dated
November 22, 1993 (8).
10.54 Warrant to Purchase Common Stock of Optek Technology, Inc. dated
November 22, 1993 (8).
10.55 Consulting Agreement between Optek Technology, Inc. and Grant
Dove (8).
10.56 Employment Agreement between Optek Technology, Inc. and
Thomas R. Filesi (8).
10.57 Employment Agreement between Optek Technology, Inc. and
Thomas S. Garrett (8).
10.58 Employment Agreement between Optek Technology, Inc. and D.
Vinson Marley (8).
10.59 Form of Stock Option Agreement (8).
10.60 Amended and restated warrant to purchase Common Stock of Optek
Technology, Inc. dated December 13, 1995.
11.1 Statement Regarding Computation of Per Share Earnings.
22 Subsidiaries of the Registrant.
23 Independent Auditors' Consent.
(1) Previously filed as Exhibits 3.7, 10.1, 10.2, and 10.25, to
registrant's Registration Statement on Form S-1, No. 33-14885,
and incorporated herein by reference.
(2) Previously filed as Exhibit 3.8 to registrant's Registration
Statement on Form 8-A filed on October 15, 1987, and incorporated
herein by reference.
(3) Previously filed as Exhibit 10.30 to registrant's Registration
Statement on Form S-8, No. 33-18555, and incorporated herein by
reference.
(4) Previously filed as Exhibit 4 to Schedule 13D dated July 21, 1988
filed on behalf of Household Commercial Financial Services, Inc.,
and incorporated herein by reference.
(5) Previously filed as Exhibits 10.36 and 10.38 to registrant's Annual
Report on Form 10-K for the fiscal year ended October 28, 1988 and
incorporated herein by reference.
(6) Previously filed as Exhibits 10.47 and 10.48 to registrant's Annual
Report on Form 10-K for the fiscal year ended October 25, 1991 and
incorporated herein by reference.
(7) Previously filed as Exhibits 10.49 and 10.50 to registrant's Annual
Report on Form 10-K for the fiscal year ended October 29, 1993 and
incorporated herein by reference.
(8) Previously filed as Exhibits 10.52, 10.53, 10.54, 10.55, 10.56,
10.57, 10.58 and 10.59 to registrant's Annual Report on Form 10-K
for the fiscal year ended October 28, 1994 and incorporated by
reference.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K during the quarter
ended October 27, 1995.
<PAGE>
KPMG Peat Marwick LLP
Certified Public Accountants
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Optek Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Optek
Technology, Inc. and subsidiaries as of October 27, 1995 and October 28,
1994, and the related consolidated statements of operations, stockholders'
equity (deficit) and cash flows for each of the years in the three-year
period ended October 27, 1995. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Optek
Technology, Inc. and subsidiaries as of October 27, 1995 and October 28,
1994, and the results of their operations and their cash flows for each
of the years in the three-year period ended October 27, 1995, in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
December 6, 1995
<PAGE>
</TABLE>
<TABLE>
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
ASSETS
<CAPTION>
October 27, October 28,
1995 1994
__________ __________
Current assets:
<S> <C> <C>
Cash $ 928 $ 722
Accounts receivable, net of
allowance for doubtful accounts
and customer returns of $975 in
1995 and $738 in 1994 6,931 6,689
Inventories (note 2) 5,284 5,517
Prepaid expenses 60 61
_____ _____
Total current assets 13,203 12,989
Property, plant and equipment,
at cost (note 3) 33,282 32,761
Less accumulated depreciation 20,618 18,576
______ ______
12,664 14,185
Assets held for disposal at the
lower of cost or estimated net
realizable value 141 297
Other assets 57 356
______ _____
$26,065 $27,827
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Checks not presented for payment $ 979 $ 749
Accounts payable 2,339 1,938
Accrued expenses (note 4) 5,857 5,472
______ _____
Total current liabilities 9,175 8,159
Long-term debt (note 5) 15,996 28,692
Other liabilities 84 124
Stockholders' equity (deficit)
(notes 5 and 6):
Preferred stock, $.01 par value.
Authorized 1,000,000 shares;
none issued - -
Common stock, $.01 par value.
Authorized 12,000,000 shares;
issued 3,444,624 shares in 1995
and 3,232,861 shares in 1994 34 32
Additional paid-in capital 13,016 12,898
Accumulated deficit (12,240) (22,078)
______ ______
Total stockholders'
equity (deficit) 810 (9,148)
_____ ______
$26,065 $27,827
See accompanying notes to consolidated financial statements
<PAGE>
</TABLE>
<TABLE>
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<CAPTION>
Year ended
October 27, October 28, October 29,
1995 1994 1993
_________ _________ __________
<S> <C> <C> <C>
Net sales $62,542 $55,625 $ 55,878
Cost and expenses:
Cost of sales 38,450 36,971 42,898
Provision for excess and
obsolete inventories 63 1,298 3,601
Product development expenses 650 582 407
Engineering expenses 3,191 3,009 3,561
Selling expenses 4,245 3,950 4,776
General and administrative
expenses 2,845 2,586 2,722
Provision for restructuring
costs (note 4) - - 2,292
Reduction in value of deferred
costs (note 1) - - 893
Total cost and expenses 49,444 48,396 61,150
______ ______ ______
Operating income (loss) 13,098 7,229 (5,272)
Other expense:
Interest expense 2,960 3,685 3,952
Reduction in value of assets
held for disposal 74 230 518
Other, net 68 135 317
_____ _____ _____
Total other expenses 3,102 4,050 4,787
Earnings (loss) before
income taxes 9,996 3,179 (10,059)
Income tax expense (note 7): 158 - -
______ _____ ______
Net earnings (loss) $ 9,838 $ 3,179 $(10,059)
Earnings (loss) per common
share $ 1.40 $ .47 $ (3.12)
See accompanying notes to consolidated financial statements
<PAGE>
</TABLE>
<TABLE>
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands, except share data)
<CAPTION>
Total
Stock-
Additional holders'
Common Stock paid-in Accum. Treas. Stk equity
Shares Amount capital Deficit Shares Amount (deficit)
______ ______ __________ _______ ______ ______ _______
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
October 30,
1992 3,273,725 $ 33 $13,078 $(15,198) (49,020) $(215) $(2,302)
Forfeiture of
common stock
under a
restricted
stock bonus
plan - - - - (2,400) - -
Amortization
ofrestricted
stock com-
pensation
expense - - 21 - - - 21
Retirement of
treasury
shares (51,420) (1) (214) - 51,420 15 -
Net loss - - - (10,059) - - (10,059)
______ ___ ______ _______ ______ __ _______
Balance at
October 29,
1993 3,222,305 32 12,885 (25,257) - - (12,340)
Exercise of
incentive
stock
options 10,556 - 13 - - - 13
Net earnings - - - 3,179 - - 3,179
________ __ ______ ______ _____ ___ ______
Balance at
October 28,
1994 3,232,861 32 12,898 (22,078) - - (9,148)
Exercise of
incentive
stock
options and
warrants 211,763 2 118 - - - 120
Net earnings - - - 9,838 - - 9,838
_________ ___ ______ _______ _____ ___ ______
Balance at
October 27,
1995 3,444,624 $ 34 $13,016 $(12,240) - $ - $ 810
_________ ____ _______ ________ _____ ____ _______
See accompanying notes to consolidated financial statements
<PAGE>
<CAPTION>
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
Year ended
October 27, October 28, October 29,
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating
activities:
Net earnings (loss) $ 9,838 $ 3,179 $(10,059)
Adjustments to reconcile
net earnings (loss)
to net cash provided by
operating activities:
Depreciation and
amortization 2,722 2,705 3,664
Gain on sale of
property, plant &
equipment (25) (220) (133)
Reduction in value of
deferred costs - - 893
Reduction in value of
assets held for
disposal 74 230 518
Changes in assets and
liabilities:
Accounts receivable (242) 259 1,905
Inventories, prepaid
expenses and other
assets 533 1,651 8,880
Accounts payable,
accrued expenses
and other
liabilities 746 169 (2,774)
Net cash provided
by operating
activities 13,646 7,973 2,894
Cash flows from investing
activities:
Purchase of property,
plant and equipment (1,121) (898) (163)
Proceeds from sale of
property, plant and
equipment 25 681 117
Increase in other assets - - (144)
Net cash used in
investing
activities (1,096) (217) (190)
Cash flows from financing
activities:
Net repayment under
long-term bank debt (12,696) (7,780) (2,557)
Net proceeds from
exercise of stock
options 120 13 -
Other financing
activities 230 100 (266)
Net cash used in
financing
activities (12,346) (7,667) (2,823)
Effect of exchange rate
changes on cash 2 (25) (19)
______ _____ ______
Net increase (decrease)
in cash 206 64 (138)
Cash at beginning of year 722 658 796
Cash at end of year $ 928 $ 722 $ 658
Interest payments $ 3,075 $ 3,719 $ 3,947
Income tax payments $ 123 $ - $ -
See accompanying notes to consolidated financial statements
<PAGE>
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended October 27, 1995, October 28, 1994 and October 29, 1993
(dollars in thousands)
(1) Summary of Significant Accounting Policies
(a) General Information
Optek Technology, Inc. and subsidiaries (Company) design, manufacture and
market custom infrared optoelectronic devices and magnetic field sensing
(Hall Effect) devices. A substantial portion of the Company's products are
manufactured by a wholly-owned subsidiary located in Mexico. Net assets
located at that subsidiary were $6,852 in 1995, $6,901 in 1994 and $7,426
in 1993.
The Company uses a fiscal year ending on the last Friday in October.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Optek Technology, Inc. and its majority owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
(c) Inventories
Inventories are valued at standard cost which approximates the lower of
first-in, first-out cost or market.
(d) Depreciation
Depreciation of property, plant and equipment is provided using the
straight-line method.
(e) Other Assets
The cost of other assets, principally deferred costs associated with new
products, are amortized on a straight-line basis over a period of three to
five years. In fiscal 1993, the unamortized deferred cost associated with
the development of a production line was fully amortized because of reduced
expectancy of cost recovery in the future.
(f) Earnings (loss) per Common Share
Earnings (loss) per common share is based on the weighted average number of
shares and, when dilutive, equivalent shares outstanding during each of
the periods presented. Primary earnings (loss) per share and fully diluted
earnings (loss) per share were substantially the same in fiscal 1995, 1994
and 1993. Weighted average common shares and common share equivalents when
dilutive were 7,027,181, 7,108,016, and 3,223,971 during fiscal 1995, 1994
and 1993, respectively. The calculation of net earnings per share in 1995
and 1994 uses the modified treasury stock method.
(g) Foreign Currency Translation
The United States dollar has been determined to be the functional currency
for all foreign operations. Exchange gains and losses related to such
operations are immaterial for all years presented.
<PAGE>
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands)
(2) Inventories
A summary of inventories at October 27, 1995 and October 28, 1994 follows:
1995 1994
Finished goods $1,186 $1,267
Work in process 3,393 4,504
Raw materials 3,158 2,776
Reserve for excess and obsolete inventory (2,453) (3,030)
_____ _____
$5,284 $5,517
(3) Property, Plant and Equipment
A summary of property, plant and equipment at October 27, 1995 and
October 28, 1994 follows:
1995 1994
Land $ 3,137 $ 3,137
Buildings and improvements 8,886 8,744
Equipment 21,259 20,880
______ ______
$33,282 $32,761
(4) Accrued Expenses
A summary of accrued expenses at October 27, 1995 and October 28, 1994
follows:
1995 1994
Employee related accruals $2,729 $2,055
Customer tooling 278 626
Restructuring costs 203 476
Other 2,647 2,315
_____ _____
$5,857 $5,472
In fiscal 1992, the Company accrued $3,600 for the estimated loss upon
sale or closure of a subsidiary and the consolidation of the Company's high
reliability optoelectronic and power semiconductor manufacturing capacity.
During fiscal 1993, the subsidiary's operations were substantially
discontinued and the high reliability optoelectronic and power semiconductor
manufacturing capacity was consolidated into other existing manufacturing
facilities. Subsequently during fiscal 1993, the Company discontinued the
power semiconductor product line and provided $1,942 for related excess
inventory which was included in the provision for restructuring costs.
Restructuring costs in 1993 also included $350 for a reduction in force in
the commercial and automotive groups.
<PAGE>
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands)
(5) Long-term debt
The following is a summary of long-term debt at October 27, 1995 and
October 28, 1994:
1995 1994
$10,500 working capital line of credit
from a financial institution;
interest at the corporate base rate
at the First National Bank of Chicago
(8.75% at October 27, 1995) plus 1.5%;
interest payable monthly (a) $ 1 $ 392
$21,900 revolving term loan ($28,300 in
1994) from a financial institution
with annual scheduled principal
reductions through October 31, 1998;
interest rates and associated
outstanding amounts are as follows:
Corporate base rate at the First
National Bank of Chicago plus
2.0%, interest payable monthly (b) 1,080 -
Corporate base rate at the First
National Bank of Chicago plus
4.0%; interest payable monthly (b) 6,000 6,000
Corporate base rate at the First
National Bank of Chicago plus
1.50%; interest payable monthly - 4,300
13.40%; interest payable monthly - 6,000
12.20%; interest payable monthly (b) 6,915 10,000
12.34%; interest payable monthly (b) 2,000 2,000
Total long term debt $15,996 $28,692
(a) The working capital commitment is scheduled to expire October 31,
1996 and is renewable at the option of the Company for two one-year
terms thereafter, provided no event of default has occurred, and
will be renewable after October 31, 1998 at the option of the
lender.
(b) The financial institution is entitled to additional contingent
interest in the event of a future sale of the Company or third
party refinancing of the Company's loans. The additional interest
would be equal to the difference between 18% and the applicable
interest rate on certain portions of the debt for the period
January 20, 1994 through the date of the event.
The Company must comply with specific affirmative and negative covenants
which require the Company, among other things, to maintain minimum net worth,
as defined, and to satisfy certain financial ratios. The covenants also
restrict investments, capital expenditures and additional debt and prohibit
payment of dividends. The Company was in compliance with all debt covenants
at the end of fiscal 1995.
All loans from the financial institution are secured by all of the real and
personal property of the Company. For loans from the financial institution,
a commitment fee accrues at 1/2% per annum on the daily average balance of
the unused commitment.
The Company has granted the financial institution a warrant, as amended on
December 13, 1995, to purchase 3,150,000 shares of the Company's common
stock at an exercise price of $.50 per share which expires on October 31,
1998. The exercise price may decrease to $.01 if the Company's cumulative
adjusted operating profit is less than stipulated minimums through the
earlier of the date the warrants are exercised, the Company is sold or
October 31, 1998. The warrant contains certain antidilutive provisions,
certain registration rights upon the occurrence of a public offering and
certain demand rights for such a registration.
<PAGE>
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands)
The Company has entered into bank agency agreements with the financial
institution which specify that throughout the term of the credit agreement,
the agent bank shall be pledgee-in-possession (for the benefit of the lender)
of lock boxes, master accounts and all cash instruments of the Company.
Available cash balances in excess of $300 are applied against long-term debt
and are available for re-borrowing according to the terms of the agreement.
The revolving line was scheduled to reduce to $20,650,000 as of November 1,
1995, with additional reductions in the revolving line to occur in the event
that the Company used less than the available line for the sixty days
preceding a scheduled reduction date. On November 1, 1995, the commitment
on the revolving line was reduced to approximately $8,000,000 through
operation of these provisions. The final scheduled reduction in the
revolving line of $8,000,000 is to occur October 31, 1998.
(6) Stockholders' Equity
During fiscal 1992, the Company implemented a long-term stock investment
plan (Investment Plan) which allows the granting of options to key employees
and non-employee advisors to the Company to purchase up to 1,000,000 shares
of the Company's authorized but unissued common stock at an exercise price
equal to the fair market value on the date of grant. During fiscal 1995,
the Company increased the authorized but unissued common stock available
for this plan to 1,500,000 shares. The Investment Plan allows the granting
of rights to receive cash or to acquire shares of common stock equal to
the difference between the exercise price and the current market price of
stock issuable pursuant to exercisable options. No rights to receive cash
in lieu of common stock have been granted as of October 27, 1995. During
fiscal 1995, 200,650 options were granted, 177,280 were exercised and 72,365
were terminated. A summary of options under the Long Term Investment Plan
follows:
Outstanding Exercisable Exercise Price
Granted 1,136,050 - $0.19 - $2.13
Vested - 431,679
Exercised (177,280) (177,280)
Terminated (139,945) (667)
_________ ________
Options at
October 27, 1995 818,825 253,732 $0.19 - $6.05
During fiscal 1983, the Company implemented an incentive stock option plan
(Incentive Plan) which allowed the granting of options, exercisable for up
to ten years after the date of grant, to key employees to purchase the
Company's authorized but unissued common stock at an exercise price equal
to the fair market value on the date of grant. The Incentive Plan expired
during fiscal 1993. During fiscal 1995, options to purchase 18,483 shares
of common stock were exercised. Under the Incentive Plan, options
outstanding and exercisable total 143,399 at an exercise price of $1.13
to $3.45 per share at October 27, 1995.
During fiscal 1993 and 1994, the Company granted warrants to purchase up
to 8,759 and 170,042 shares of common stock to a director in partial
consideration for consulting services. Previous grants were made to certain
non-employee directors and advisors. During fiscal 1995, warrants to
purchase 16,000 shares of common stock were exercised. Excluding warrants
granted to financial institutions, the Company at October 27, 1995 had
245,301 warrants outstanding and exercisable at $.19 to $6.13 per share
expiring December, 1996 through November, 1998.
<PAGE>
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands)
During fiscal 1992, the Company adopted a directors' formula award plan
(Directors' Plan) which provides for the granting of options to directors
of the Company to purchase up to 200,000 shares of the Company's
authorized but unissued common stock at an exercise price equal to the
fair market value on the date of grant. Each individual elected or
reelected to serve as a director of the Company who is not a full-time
employee of the Company will automatically be awarded options to purchase
up to 3,500 shares of common stock. Options granted under the Directors'
Plan vest if such individual continues to serve as a Director of the
Company until the next annual meeting of the Company's stockholders
and are exercisable for a period of ten years from the date of grant.
At October 27, 1995 there are 59,500 director options outstanding (of
which 45,500 are exercisable) from $.44 to $2.13 per share.
(7) Income Taxes
The Company adopted Financial Accounting Standards Board Statement No. 109
as of October 30, 1993. The adoption of Statement No. 109 was made on a
prospective basis and did not impact the Company in the fiscal year 1994.
Prior to adoption of Statement No. 109, the Company accounted for income
tax in accordance with Accounting Principles Board Opinion No. 11.
Income tax expense (benefit) for fiscal years 1995, 1994 and 1993 differs
from the "expected" tax expense (benefit) computed by applying the U.S.
corporate income tax rate of 34% to net earnings (loss) before income taxes
as follows:
1995 1994 1993
Expected tax expense
(benefit) $3,399 $1,081 $(3,420)
Loss in excess of
available tax carryback - - 3,371
Realization of benefits
of tax loss carryforwards (3,853) (305) -
Change in valuation reserve
net of loss carryforward
realized 410 (804) -
Other, net 202 28 49
______ ______ ______
$ 158 $ - $ -
The tax effects of temporary differences that give rise to significant
portion of the deferred tax assets and deferred tax liabilities at
October 27, 1995 and October 28, 1994 are presented below:
1995 1994
Deferred tax assets:
Net operating loss carryforwards $3,238 $7,055
Allowance for doubtful accounts,
inventories and accrued expenses 1,894 1,451
Less valuation allowance (3,805) (7,248)
_____ _____
Net deferred tax assets 1,327 1,258
Deferred tax liabilities:
Difference between book and tax
depreciation allowances (1,327) (1,258)
_____ _____
Net deferred taxes $ - $ -
The valuation allowance for deferred tax assets at October 27, 1995 was
$3,805. The net change in the valuation allowance for the year ended
October 27, 1995 and October 28, 1994 was a decrease of $3,443 and $1,109,
respectively.
<PAGE>
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(dollars in thousands)
At October 27, 1995, the Company had net operating loss carryforwards for
federal income tax purposes of $9,522 which are available to offset future
regular federal income taxes and alternate minimum tax operating loss
carryforwards of $7,870. These carryforwards expire during the years 2005
through 2008.
(8) Operating Leases
The Company and its subsidiaries lease certain manufacturing facilities and
equipment under noncancellable operating leases. Future minimum lease
payments as of October 27, 1995, under all such operating leases are as
follows: 1996, $362; 1997, $86; 1998, $35; and 1999, $33. Rental expense
was $412 in 1995, $382 in 1994, and $445 in 1993.
(9) Credit Risk and Major Customer Information
Substantially all of the Company's sales are made on credit on an unsecured
basis. The Company evaluates credit risks on an individual basis before
extending credit to its customers and it believes the allowance for doubtful
accounts adequately provides for losses on uncollectible accounts.
During fiscal 1995, the Company's ten largest customers accounted for
approximately 57% of net sales. Such customers are involved primarily
in the automotive and office equipment industries. During fiscal 1995,
sales to one customer in the automotive industry were 13% of sales, versus
14% in 1994 and 1993, and sales to one customer in the office equipment
industry were 13% of sales versus 15% in 1994 and 10% in 1993.
Aggregate export sales to unaffiliated customers were $16,856 in 1995,
$14,406 in 1994 and $13,321 in 1993. Export sales were primarily to
customers in Western Europe.
(10) Employee Benefit Plan
All U.S. paid employees of the Company are entitled to participate in the
Optek Technology, Inc. Profit-Sharing Plan and Trust (Profit-Sharing Plan).
Pursuant to the Profit-Sharing Plan, employees may request the Company to
deduct and contribute up to 15% of their salary. For each dollar con-
tributed, the Company has the option to contribute an additional $0.50 up
to 2% of the employee's salary. Employer contributions vest ratably over
a period of five years. Vesting occurs in each year in which employees
accumulate at least 1,000 hours of service. An employee's vested account
balance is distributable either upon termination of employment or after
attaining a certain age. During fiscal 1995, the Company provided for
contributions to the Profit-Sharing Plan totaling $140,000 to be paid the
first quarter of fiscal 1996. During fiscal 1994, the Company contributed
$118,000. During fiscal 1993, the Company did not make a contribution to
the Profit-Sharing Plan.
<PAGE>
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, thereunder duly authorized.
OPTEK TECHNOLOGY, INC.
By /s/ Thomas R. Filesi .
___________________________
Thomas R. Filesi, President
and Chief Executive Officer
Dated: December 12, 1995
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
/s/ Thomas R. Filesi President, Chief Executive
________________________ Officer and Director
Thomas R. Filesi (Principal Executive Officer)
/s/ D. Vinson Marley Vice President - Finance
________________________ Treasurer and Assistant
D. Vinson Marley Secretary (Principal Financial
and Accounting Officer)
/s/ Grant A. Dove Chairman of the Board
________________________ and Director
Grant A. Dove December 12, 1995
/s/ Rodes Ennis Director
________________________
Rodes Ennis
/s/ Michael E. Cahr Director
________________________
Michael E. Cahr
/s/ William H. Daughtrey Director
__________________________
William H. Daughtrey
/s/ Wayne Stevenson Director
__________________________
Wayne Stevenson
</TABLE>
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED EXCEPT IN ACCORDANCE WITH SUCH REGISTRATION
REQUIREMENTS OR AN AVAILABLE EXEMPTION THEREFROM AND EXCEPT IN
ACCORDANCE WITH THE PROVISIONS OF THIS WARRANT.
AMENDED AND RESTATED WARRANT
To Purchase Common Stock of
OPTEK TECHNOLOGY, INC.
This AMENDED AND RESTATED WARRANT (the "Warrant"), entered
into this 12th day of December, 1995, between Optek Technology,
Inc., a Delaware corporation (the "Company") and First Source
Financial, Inc., a Delaware corporation ("First Source").
WITNESSETH THAT:
WHEREAS, the Company previously has issued a warrant, dated
as of January 20, 1994, (the "Original Warrant") to purchase
shares of its Common Stock to First Source, as
successor-in-interest to Household Commercial Financial Services,
Inc. pursuant to an amended and restated Secured Credit Agreement
dated as of January 20, 1994 (as hereinafter defined) in
consideration of the loans by Household Commercial Financial
Services, Inc.;
WHEREAS, the Original Warrant was an amendment and
restatement of, and was issued in replacement of, a warrant dated
as of November 27, 1991, which, in turn, was an amendment and
restatement of, and was issued in replacement of, the warrant
dated as of January 31, 1991, which in turn replaced rights
granted under a Conversion Agreement dated July 1, 1988, all of
which were issued to Household Commercial Financial Services,
Inc.;
WHEREAS, in consideration of a single lump-sum cash payment
of Two Hundred Thousand Dollars ($200,000.00) to be made by the
Company to First Source upon execution and delivery of this
Warrant, the Company and First Source have agreed to amend
various provisions of the Original Warrant as set forth herein,
including elimination of provisions for repurchase of the Warrant
or shares of Common Stock by the Company, addition of covenants
and decoupling of the obligations under the Warrant from those
under the Secured Credit Agreement.
NOW, THEREFORE, in consideration of the foregoing payment,
the mutual covenants and agreements set forth below, and for
other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and
First Source hereby covenant to amend and restate the Original
Warrant in its entirety as follows:
<PAGE>
THIS IS TO CERTIFY that First Source Financial, Inc., a
Delaware corporation ("First Source"), as successor-in-interest
to Household Commercial Financial Services, Inc., or registered
assigns, is entitled upon the due exercise hereof at any time
during the Exercise Period (as hereinafter defined) to purchase,
in whole or in part, from Optek Technology, Inc., a Delaware
corporation (the "Company'), the number of shares of Common
Stock, $0.01 par value, of the Company as provided in Section 2.1
(subject to adjustment) at the price for each share of such
Common Stock so purchased as provided in Section 2.1 (subject to
adjustment) and to exercise the other rights, powers and
privileges hereinafter provided, all on the terms and conditions
and pursuant to the provisions hereinafter set forth.
This Warrant has been issued to First Source pursuant to the
Secured Credit Agreement (as hereinafter defined) in
consideration of the loans by Household Commercial Financial
Services, Inc. as provided therein.
Dated as of December 12, 1995.
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . .
. . . . 1
ARTICLE II EXERCISE OF WARRANT . . . . . . . . . . . . . . . . .
. . . . 5
2.1 Right to Exercise, Number of Shares and Exercise
Price. . . . 5
2.2 Notice of Exercise; Issuance of Common Stock. . . . .
. . . . 6
2.3 Fractional Shares . . . . . . . . . . . . . . . . . .
. . . . 7
2.4 Continued Validity. . . . . . . . . . . . . . . . . .
. . . . 7
ARTICLE III REGISTRATION, TRANSFER AND EXCHANGE . . . . . . .
. . . . 8
ARTICLE IV ANTIDILUTION PROVISIONS AND RIGHTS UPON EXTRAORDINARY
TRANSACTIONS 9
4.1 Adjustment of Number of Shares Purchasable and
Exercise Price 9
(a) Adjustment to Exercise Price. . . . . . . . . . .
. . . . 9
(b) Adjustment to Number of Shares Issuable Pursuant
to this Warrant 10
(c) Minimum Adjustment. . . . . . . . . . . . . . . .
. . . . 10
(d) Maximum and Minimum Exercise Price. . . . . . . .
. . . . 11
4.2 Diluting Events and Related Matters . . . . . . . . .
. . . . 11
(a) Issuance of Stock . . . . . . . . . . . . . . . .
. . . . 11
(b) Issuance of Warrants, Options or Other Rights . .
. . . . 11
(c) Issuance of Convertible Securities. . . . . . . .
. . . . 12
(d) Dividends . . . . . . . . . . . . . . . . . . . .
. . . . 13
(e) Dividends in Securities . . . . . . . . . . . . .
. . . . 13
(f) Other Distribution. . . . . . . . . . . . . . . .
. . . . 13
(g) Reorganization, Reclassification,
Recapitalization, Merger or Sale of Company 14
(h) Splits and Combinations . . . . . . . . . . . . .
. . . . 14
(i) Readjustments . . . . . . . . . . . . . . . . . .
. . . . 14
(j) Determination of Consideration for Rights or
Options. . . 15
(k) Determination of Consideration upon Payment of
Cash, Property or Merger 15
(l) Record Date . . . . . . . . . . . . . . . . . . .
. . . . 15
(m) Shares Outstanding. . . . . . . . . . . . . . . .
. . . . 16
(n) Date of Determination . . . . . . . . . . . . . .
. . . . 16
(o) No Adjustment After Exercise. . . . . . . . . . .
. . . . 16
4.3 Rights of the Holder upon Rights Offering, Mergers,
Reorganizations and Other Transfers 16
(a) Participation in Rights Offerings . . . . . . . .
. . . . 16
<PAGE>
(b) Participation in Stock Dispositions . . . . . . .
. . . . 16
4.4 Certificates, Notices and Consents. . . . . . . . . .
. . . . 17
4.5 No Implied Consent or Extension . . . . . . . . . . .
. . . . 18
ARTICLE V COVENANTS OF THE COMPANY. . . . . . . . . . . . . . .
. . . . 18
5.1 No Impairment . . . . . . . . . . . . . . . . . . . .
. . . . 18
5.2 Affirmative Covenants . . . . . . . . . . . . . . . .
. . . . 19
5.2.2 Disputed Financial Statements . . . . . . . . . .
. . . . 20
5.2.3 Budget. . . . . . . . . . . . . . . . . . . . . .
. . . . 21
5.2.4 Auditors' Reports . . . . . . . . . . . . . . . .
. . . . 21
5.2.5 Lender Information. . . . . . . . . . . . . . . .
. . . . 21
5.2.6 Litigation. . . . . . . . . . . . . . . . . . . .
. . . . 21
5.2.7 Default . . . . . . . . . . . . . . . . . . . . .
. . . . 21
5.2.8 Material Adverse Developments . . . . . . . . . .
. . . . 21
5.2.9 Other Information . . . . . . . . . . . . . . . .
. . . . 21
5.2.10 Auditors. . . . . . . . . . . . . . . . . . . . .
. . . . 21
5.2.11 Inspection and Meeting Rights; Budget Review. . .
. . . . 21
5.2.12 Accounting. . . . . . . . . . . . . . . . . . . .
. . . . 22
5.2.13 Insurance . . . . . . . . . . . . . . . . . . . .
. . . . 22
5.2.14 Payment of Taxes. . . . . . . . . . . . . . . . .
. . . . 22
5.2.15 Compliance With Laws. . . . . . . . . . . . . . .
. . . . 22
5.2.16 Preservation of Corporate Existence and Property;
Operations 22
5.2.17Holder as Observer . . . . . . . . . . . . . . . . . . . .
. . . . 23
5.2.18 Confidential Information. . . . . . . . . . . . .
. . . . 23
5.3 Negative Covenants. . . . . . . . . . . . . . . . . .
. . . . 23
(a) Distributions . . . . . . . . . . . . . . . . . .
. . . . 23
(b) Redemptions . . . . . . . . . . . . . . . . . . .
. . . . 23
(c) Security Issuances. . . . . . . . . . . . . . . .
. . . . 23
(d) Loans or Guarantees . . . . . . . . . . . . . . .
. . . . 24
(e) Mergers . . . . . . . . . . . . . . . . . . . . .
. . . . 24
(f) Asset Dispositions. . . . . . . . . . . . . . . .
. . . . 24
(g) Liquidation . . . . . . . . . . . . . . . . . . .
. . . . 24
(h) Acquisitions. . . . . . . . . . . . . . . . . . .
. . . . 24
(i) Related Party Arrangements. . . . . . . . . . . .
. . . . 24
(j) Subsidiaries. . . . . . . . . . . . . . . . . . .
. . . . 24
(k) Leases. . . . . . . . . . . . . . . . . . . . . .
. . . . 24
(l) Fiscal Year . . . . . . . . . . . . . . . . . . .
. . . . 24
(m) Securities of Subsidiary. . . . . . . . . . . . .
. . . . 25
(n) Compensation. . . . . . . . . . . . . . . . . . .
. . . . 25
(o) Public Offering . . . . . . . . . . . . . . . . .
. . . . 25
(p) Change in the Business. . . . . . . . . . . . . .
. . . . 25
(q) Bankruptcy, Etc.. . . . . . . . . . . . . . . . .
. . . . 25
(r) Capital Expenditures. . . . . . . . . . . . . . .
. . . . 25
<PAGE>
ARTICLE VI RESERVATION OF STOCK ISSUABLE ON EXERCISE OF WARRANT;
PREEMPTIVE RIGHTS 26
ARTICLE VII LISTING ON SECURITIES EXCHANGE. . . . . . . . . .
. . . . 26
ARTICLE VIII RESTRICTIONS ON TRANSFER. . . . . . . . . . . . .
. . . . 26
8.1 Notice of Proposed Transfer; Transfers Without
Registration . 26
8.2 Registration and Qualification. . . . . . . . . . . .
. . . . 27
(a) Piggyback Registration. . . . . . . . . . . . . .
. . . . 27
(b) Demand Registration . . . . . . . . . . . . . . .
. . . . 29
8.3 Registration and Qualification Procedures . . . . . .
. . . . 30
8.4 Allocation of Expenses. . . . . . . . . . . . . . . .
. . . . 31
8.5 Indemnification . . . . . . . . . . . . . . . . . . .
. . . . 32
8.6 Legend on Certificates. . . . . . . . . . . . . . . .
. . . . 33
8.7 Supplying Information . . . . . . . . . . . . . . . .
. . . . 34
8.8 Damages . . . . . . . . . . . . . . . . . . . . . . .
. . . . 34
8.9 Holdback Agreements . . . . . . . . . . . . . . . . .
. . . . 35
8.10 Rule 144 Reporting. . . . . . . . . . . . . . . . . .
. . . . 35
8.11 Consent for Additional Registration Rights. . . . . .
. . . . 36
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . .
. . . . 36
9.1 Nonwaiver and Expenses. . . . . . . . . . . . . . . .
. . . . 36
9.2 Holder Not a Stockholder. . . . . . . . . . . . . . .
. . . . 36
9.3 Notice Generally. . . . . . . . . . . . . . . . . . .
. . . . 36
9.4 Payment of Certain Expenses . . . . . . . . . . . . .
. . . . 36
9.5 Successors and Assigns. . . . . . . . . . . . . . . .
. . . . 36
9.6 Amendment . . . . . . . . . . . . . . . . . . . . . .
. . . . 36
9.7 Headings. . . . . . . . . . . . . . . . . . . . . . .
. . . . 37
9.8 GOVERNING LAW . . . . . . . . . . . . . . . . . . . .
. . . . 37
9.9 Subsidiaries. . . . . . . . . . . . . . . . . . . . .
. . . . 37
9.10 No Section 338 Election or Step-Up in Asset Value on
Books of the Company 38
9.11 Replacement . . . . . . . . . . . . . . . . . . . . .
. . . . 38
NOTICE OF EXERCISE FORM
ASSIGNMENT FORM
<PAGE>
ARTICLE I
DEFINITIONS
The terms defined in this ARTICLE I, whenever used in this
Warrant, shall have the respective meanings hereinafter
specified. Whenever used in this Warrant, any noun or pronoun
shall be deemed to include both the singular and plural and to
cover all genders.
"Adjusted Operating Profits" means an amount equal to the
Net Income of the Company and its Subsidiaries for the period
specified before deduction of any amount which, in conformity
with generally accepted accounting principles, would be set forth
opposite the caption "income tax expense" (including deferred
income taxes) (or any like caption) on a consolidated income
statement of the Company, and excluding any amounts which, in
conformity with generally accepted accounting principles, would
be set forth opposite the captions, "extraordinary pre-tax gain"
and "extraordinary pre-tax loss" (or any like captions) on such
consolidated income statement, plus the amount which, in
accordance with generally accepted accounting principles, would
be set forth opposite the caption "interest expense" (or any like
caption) on such consolidated income statement, plus an amount
which, in conformity with generally accepted accounting
principles, is equal to any amortization or depreciation for such
fiscal period, to the extent the same are deducted from net
revenues, in conformity with generally accepted accounting
principles, in determining Net Income for such fiscal period.
"Affiliate" of any person means any other person which,
directly or indirectly, controls or is controlled by or is under
common control with, such person. A person shall be deemed to be
"controlled by" any other person if such other person possesses,
directly or-indirectly, power
(a) to vote 10% or more of the securities having ordinary
voting power, or if not having ordinary voting power, having at
the time voting power, for the election of directors of such
person; or
(b) to direct or cause the direction of the management and
policies of such person whether by contract or otherwise.
"Assignment" means the form of Assignment appearing at the
end of this Warrant.
"Basic Exercise Price" shall have the meaning provided in
Section 2.2 (b) (i).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's authorized Common Stock,
$0.01 par value, and any class of capital stock of the Company
now or hereafter authorized having the right to share in
distributions either of earnings or assets of the Company without
limit as to amount or percentage.
<PAGE>
"Common Stock on a Fully Diluted Basis" means, at any date
as at which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held
by or for the account of the Company, and shall include all
shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in shares of
Common Stock (which issued and outstanding shares shall be
approximately 3,432,278 shares on the date this Warrant is
issued), and all shares issuable pursuant to the Company's
incentive stock option plan, restricted stock bonus plan,
long-term stock investment plan or director's formula award plan,
to the extent each of these plans has been previously approved by
First Source, or pursuant to an employee or director stock option
plan, restricted stock bonus or ownership plan, stock
appreciation plan or similar equity appreciation plan which the
Company may implement after receiving written approval of a
majority of the Holders in their sole discretion (which approval
must include First Source if First Source is a Holder) (whether
or not options or awards with respect to such shares have been
granted) or issuable upon exercise of any warrant (including this
Warrant), rights to subscribe for or options (whether or not
vested) to purchase Common Stock or Convertible Securities or
upon the conversion of any Convertible Securities. On the date
hereof, the number of shares of Common Stock on a Fully Diluted
Basis shall be 8,486,382 shares, including 3,150,000 shares of
Common Stock initially issuable pursuant to this Warrant.
"Common Stock Valuation Price" in effect as of any date
shall mean a per share value equal to the result obtained by
dividing
(a) an amount equal to (i) the product of the
Company's Adjusted Operating Profits for the four most recent
Quarterly Fiscal Periods of the Company (at the end of the
Quarterly Fiscal Period of the Company immediately preceding such
date) and seven (7) less (ii) the amount of Funded Indebtedness
(at the end of the Quarterly Fiscal Period of the Company
immediately preceding such date), plus (iii) the proceeds that
would be received by the Company upon exercise of all warrants,
rights to subscribe for or options to purchase Common Stock or
Convertible Securities or upon conversion of any Convertible
Securities, plus (iv) the fair market value of proceeds received
by the Company (other than proceeds in the form of services of
employees of the Company and cash proceeds, which are reflected
in the amount of Funded Indebtedness in clause (ii) above) upon
any issuances or sales by it of Common Stock, Convertible
Securities or warrants, rights to subscribe for or options to
purchase Common Stock or Convertible Securities, multiplied by a
fraction the numerator of which (which shall never be less than
zero) is four minus the number of full Quarterly Fiscal Periods
since such issuance or sale and the denominator of which is four,
by
(b) the number of shares of Common Stock on a Fully
Diluted Basis on such date,
all as determined by a firm of independent public accountants of
recognized standing selected by the Company and reasonably
acceptable to the Holder.
"Company" means Optek Technology, Inc., a Delaware
corporation.
<PAGE>
"Convertible Securities" means evidences of indebtedness,
shares of stock or other securities which are convertible into or
exchangeable for, with or without payment of additional
consideration in cash or property, shares of Common Stock, either
immediately or upon the arrival of a specified date or the
happening of a specified event.
"Default Rate" means at any time 4.50% plus the rate per
annum then most recently announced by The First National Bank of
Chicago, a national banking association ("FNBC"), as its
corporate base rate at Chicago, Illinois (or if such rate is not
being quoted by FNBC, the rate which is the successor to such
rate, and if FNBC is not quoting any such rate, the rate
conceptually equivalent to such rate which the domestic
commercial bank having the highest combined capital and surplus
of any bank having its principal office in Chicago, Illinois is
quoting).
"Diluting Event" means any transaction or event which is
identified as a Diluting Event in Section 4.2(a) - (h).
"Exercise Period" means the period commencing on the Closing
Date and terminating at 5:00 p.m., Chicago time, on October 31,
1998.
"Exercise Price" means the price per share of Common Stock
as set forth in Section 2.1 as such price may be adjusted from
time to time pursuant to Article IV.
"Exercise Price" shall have the meaning provided in Section
4.1.
"First Alternative Exercise Price" shall have the meaning
provided in Section 2.1 (b)(ii).
"First Source" means First Source Financial, Inc., a
Delaware corporation.
"Funded Indebtedness" means all indebtedness of the Company
and its Subsidiaries, on a consolidated basis, if appropriate,
solely for money borrowed and owing, less the aggregate amount of
all cash and cash equivalents of the Company and its Subsidiaries
but not including the amount of any indebtedness of the Company
represented by Convertible Securities and not including
additional interest pursuant to Section 4.7 of the Secured Credit
Agreement.
"Holder" means the person in whose name this Warrant is
registered on the books of the Company maintained for such
purpose.
"Independent Counsel" means counsel to the Company, unless
counsel to the Holder disagrees in writing with the opinion or
advice of such counsel with respect to the issue in question
within 15 days after receipt of such opinion or advice, in which
case the Company and Holder shall select another counsel, not the
regular counsel of the Company or the Holder and experienced in
Securities Act matters, who shall render an opinion with respect
to the issue in question. The opinion or advice of such other
counsel so given shall be conclusive and binding on the Company
and the Holder. The legal fees and expenses of such other
counsel incurred in connection with the rendering of such opinion
shall be borne equally by the Holder and the Company.
<PAGE>
"Market Value" per share of Common Stock on any date shall
mean the average of the daily market prices for the 30
consecutive trading days preceding such date. The market price
for each such day shall be the last sale price on such day on
such stock exchange on which such stock is listed or admitted to
trading, or, if no sale takes place on such day on any such
exchange, the average of the closing bid and asked prices on such
day and officially quoted on any such exchange, or, if the Common
Stock is not then listed or admitted to trading on any stock
exchange, the market price for each such business day shall be
the last sale price on such day if reported by the National
Association of Securities Dealers Automated Quotation System or,
if not so reported, the average of the reported closing bid and
asked price quotations for such day, as reported by the National
Association of Securities Dealers Automated Quotation System or,
if not so reported, as furnished by the National Quotation
Bureau, Inc., or, if such firm at the time is not engaged in the
business of reporting such prices, as furnished by any similar
firm then engaged in such business as selected by the Holder, or
if there is no such firm, as determined by any member of the
National Association of Securities Dealers, Inc. selected by the
Holder.
"Net Income" for any fiscal period of the Company shall mean
consolidated net income or loss of the Company and its
Subsidiaries (including, without limitation, Opcom), if any, as
it would appear on the consolidated statement of income of the
Company for such fiscal period prepared in accordance with
generally accepted accounting principles and as it may be
adjusted pursuant to Section 5.2.
"Notice of Cashless Exercise" shall have the meaning
provided in Section 2.2(b)(ii).
"Notice of Exercise" means the form of Notice of Exercise
appearing at the end of this Warrant.
"Organic Change" shall have the meaning provided in Section
4.3(b).
"Plan Adjusted Operating Profits" for any fiscal year shall
be the amount so identified in Schedule I hereto.
"Quarterly Fiscal Period" means a period comprised of
thirteen or fourteen weeks, as applicable, representing a fiscal
quarter of the Company, the first of which in any fiscal year
shall begin on the first day of the Company's fiscal year and the
remainder of which in such year shall begin on the day following
the termination of the preceding Quarterly Fiscal Period.
"Registration Agreement" shall have the meaning provided in
Section 8.2.
"Second Alternative Exercise Price" shall have the meaning
provided in Section 2.1 (b) (iii).
"Secured Credit Agreement" means the Amended and Restated
Secured Credit Agreement among the Company and First Source, as
successor-in-interest to Household Commercial Financial Services,
Inc., as the same may be amended, modified or supplemented from
time to time.
<PAGE>
"Securities Act" means the Securities Act of 1933, as
amended, or any similar Federal statute, and the rules and
regulations of the Commission promulgated thereunder, all as the
same shall be in effect from time to time.
"Shares" shall have the meaning provided in Section 2.1.
"Subsidiary" means a corporation, partnership or other
entity of which a person and/or such person's other Subsidiaries,
individually or in the aggregate, own, directly or indirectly,
such number of outstanding shares or other interests as have more
than 50% of the ordinary voting power (or, at the time
extraordinary powers are available to holders of shares or other
interests, such number of outstanding shares or other interests
as have more than 50% of voting power) for the election of
directors or the members of any similar governing body.
"Warrant" and "Warrants," including "this Warrant," mean (a)
the warrant dated as of the Closing Date issued to First Source
and (b) all warrants issued upon the partial exercise, transfer
or division of or in substitution for such warrant.
"Warrant Valuation Price" in effect as of any date shall
mean a per share value equal to the difference between the Common
Stock Valuation Price and the Exercise Price then in effect.
ARTICLE II
EXERCISE OF WARRANT
2.1 Right to Exercise, Number of Shares and Exercise Price.
Subject to and upon compliance with the conditions of this
ARTICLE II, the Holder shall have the right, at its option, at
any time and from time to time during the Exercise Period, to
exercise this Warrant in whole or in part.
The aggregate number of shares of Common Stock which may be
purchased from time to time during the Exercise Period by the
Holder upon exercise of this Warrant shall be as set forth below,
subject to adjustment as provided in ARTICLE IV hereof (the
"Shares"):
(a) The number of shares of Common Stock issuable upon the
exercise of the Warrant shall be 3,150,000 (subject to adjustment
as provided herein). The initial Exercise Price shall be fifty
cents ($0.50) (subject to adjustment as provided herein).
(b) On January 31 of each year (and applicable for the
period through and including January 30 of the next succeeding
year), the Exercise Price shall be adjusted to the extent
provided as follows:
(i) If the Company's cumulative Adjusted Operating
Profits for the period from November 1, 1993 through the end of
the most recently ended fiscal year are equal to or greater than
Plan Adjusted Operating Profits through the end of the most
<PAGE>
recently ended fiscal year as set forth in Schedule I hereto,
then the Exercise Price through January 30 of the next succeeding
year shall be fifty cents ($0.50) (subject to adjustment as
provided herein) (the "Basic Exercise Price").
(ii) If the Company's cumulative Adjusted Operating
Profits for the period from November 1, 1993 through the end of
the most recently ended fiscal year are less than 100% of Plan
Adjusted Operating Profits but at least 90% of Plan Adjusted
Operating Profits for the period from November 1, 1993 through
the end of the most recently ended fiscal year as set forth on
Schedule I hereto, then the Exercise Price through January 30 of
the next succeeding year shall be twenty-five cents ($0.25)
(subject to adjustment as provided herein) (the "First
Alternative Exercise Price").
(iii) If the Company's cumulative Adjusted Operating
Profits for the period from November 1, 1993 through the end of
the most recently ended fiscal year are less than 90% of Plan
Adjusted Operating Profits through the end of the most recently
ended fiscal year as set forth on Schedule I hereto, then the
Exercise Price through January 30 of the next succeeding year
shall be one cent ($0.01) (the "Second Alternative Exercise
Price").
2.2 Notice of Exercise; Issuance of Common Stock. (a) To
exercise this Warrant, the Holder shall deliver to the Company at
its principal office at 1215 West Crosby Road, Carrollton, Texas
75006 Attention: President (i) a Notice of Exercise duly executed
by the Holder and specifying the number of shares of Common Stock
to be purchased and (ii) this Warrant.
(b) Payment of the Exercise Price shall be made in the
manner selected by the Holder as set forth below:
(i) At the option of the Holder, (A) by wire transfer
to an account in a bank located in the United States designated
for such purpose by the Company or (B) by certified or official
bank check payable to the order of the Company and drawn on a
member of the Chicago or New York Clearing House; or
(ii) In lieu of delivering the cash Exercise Price as
set forth in Section 2.2(b)(i), the Holder may instruct the
Company in writing ("Notice of Cashless Exercise") to deduct from
the number of shares of Common Stock that would otherwise be
issued upon such exercise a number of shares of Common Stock
equal to the quotient obtained from dividing
(x) the product obtained by multiplying (1) the
number of shares of Common Stock for which the Warrant is being
exercised and (2) the Exercise Price then in effect, by
(y) the Market Value of a share of Common Stock.
The Notice of Cashless Exercise may be given by completing the
appropriate box in the Notice of Exercise at the end of this
Warrant. Upon receipt of the cash payment described in Section
2.2(b)(i) or the Notice of Cashless Exercise described in Section
2.2(b)(ii), the Company shall, as promptly as practicable, and in
<PAGE>
any event within five days thereafter, cause to be issued and
delivered to the Holder, or, subject to ARTICLE VIII, the
transferee designated in the Notice of Exercise, a certificate or
certificates representing the aggregate number of full shares of
Common Stock issuable upon such exercise registered in the name
of the Holder or the name of the transferee so designated.
(c) Unless otherwise requested by the Holder, this Warrant
shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and the Holder
or transferee so designated in the Notice of Exercise shall be
deemed to have become the holder of record of such shares for all
purposes, as of the close of business on the date the Notice of
Exercise, together with payment or Notice of Cashless Exercise as
herein provided, and this Warrant, are received by the Company.
(d) If this Warrant is exercised in part, the Company
shall, at the time of delivery of the certificate or certificates
for Common Stock, unless this Warrant has then expired, issue and
deliver to the Holder or the transferee so designated in the
Notice of Exercise a new Warrant evidencing the rights of the
Holder or such transferee to purchase the aggregate number of
shares of Common Stock for which this Warrant shall not have been
exercised, and this Warrant shall be cancelled.
2.3 Fractional Shares. The Company shall not issue
fractional shares of Common Stock or scrip representing
fractional shares of Common Stock upon exercise of this Warrant.
As to any fractional share of Common Stock which the Holder would
otherwise be entitled to purchase upon such exercise, the Company
shall purchase from the Holder such unissued fractional share at
a price equal to an amount calculated by multiplying such
fractional share (calculated to the nearest 1/100th of a share)
by the Common Stock Valuation Price, unless such Common Stock
Valuation Price is a negative amount, in which case such
fractional share shall be multiplied by its Exercise Price
determined in accordance with this Warrant. Payment of such
amount shall be made in cash or by check payable to the order of
the Holder at the time of delivery of any certificate or
certificates arising upon such exercise.
2.4 Continued Validity. A holder of shares of Common Stock
issued upon the exercise of this Warrant, in whole or in part,
shall continue to be entitled to all rights provided to holders
of Common Stock issuable on the exercise of this Warrant, whether
or not this Warrant has been fully exercised. The Company will,
at the time of the exercise of this Warrant, in whole or in part,
upon the request of the holder of the shares of Common Stock
issued upon the exercise thereof, acknowledge in writing, in form
reasonably satisfactory to such holder, its continuing obligation
to afford to such holder all rights to which such holder shall
continue to be entitled after such exercise in accordance with
the provisions of this Warrant; provided, however, that if such
holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to
such holder all such rights.
<PAGE>
ARTICLE III
REGISTRATION, TRANSFER AND EXCHANGE
The Company shall keep at the Company's principal office
referred to in Section 2.2 or at the offices of Hewitt & Hewitt,
P.C. in Dallas, Texas or at such other address as shall be
specified in a written notice to the Holder a register in which,
subject to such reasonable regulations as it may prescribe, the
Company shall provide for the registration, transfer and exchange
of this Warrant. The Company will not at any time, except upon
the dissolution, liquidation or winding up of the Company, close
such register so as to result in preventing or delaying the
exercise or transfer of this Warrant.
Upon surrender for registration of transfer of this Warrant
at such office, the Company shall execute and deliver, in the
name of the designated transferee or transferees, one or more new
Warrants representing the right to purchase a like aggregate
number of shares of Common Stock. At the option of the Holder,
this Warrant may be exchanged for other Warrants representing the
right to purchase a like aggregate number of shares of Common
Stock upon surrender of this Warrant at such office. Whenever
this Warrant is so surrendered for exchange, the Company shall
execute and deliver the Warrants which the Holder making the
exchange is entitled to receive.
Every Warrant presented or surrendered for registration of
transfer or exchange shall be accompanied by an Assignment duly
executed by the holder thereof or its attorney duly authorized in
writing.
All warrants issued upon any registration of transfer or
exchange of warrants shall be the valid obligations of the
Company, evidencing the same rights, and entitled to the same
benefits as the warrants surrendered upon such registration of
transfer or exchange.
Upon receipt by the Company of evidence satisfactory to it
(in the exercise of reasonable discretion) of the ownership of
and the loss, theft, destruction or mutilation of this Warrant
and (in case of loss, theft or destruction) the written agreement
of the Holder to indemnify the Company (or, if the Holder is not
First Source Financial and if the Company reasonably requests, a
bond) against any resulting loss or expense and in case of
mutilation upon surrender and cancellation thereof, the Company
will execute and deliver in lieu thereof a new Warrant.
No service charge shall be made for any registration of
transfer or exchange of Warrants, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any
registration of transfer as provided in Section 9.4.
The Company and any agent of the Company may treat the
person in whose name this Warrant is registered as the owner of
this Warrant for all purposes whatsoever, and neither the Company
nor any agent of the Company shall be affected by notice to the
contrary. This Warrant, if properly assigned, may be exercised
by a new holder without first having a new Warrant issued.
<PAGE>
ARTICLE IV
ANTIDILUTION PROVISIONS AND RIGHTS UPON
EXTRAORDINARY TRANSACTIONS
4.1 Adjustment of Number of Shares Purchasable and
Exercise Price. Subject to the provisions of this ARTICLE IV,
the Basic Exercise Price, the First Alternative Exercise Price
and the Second Alternative Exercise Price at the time of any
calculation pursuant to this Article IV, and the number of shares
of Common Stock issuable upon exercise of this Warrant at the
time of any calculation pursuant to this Article IV (the
"Exercise Price") shall be subject to adjustment from time to
time as set forth below in the order set forth below. After
making any antidilution adjustment, pursuant to this Article IV,
the adjustments described in Section 4.1(d) must be made.
(a) Adjustment to Exercise Price. If a Diluting Event, as
identified in Section 4.2, occurs (unless otherwise specified in
Section 4.2), the Basic Exercise Price, the First Alternative
Exercise Price and the Second Alternative Exercise Price shall
each be reduced to the lower of the prices calculated by:
(i) Dividing (A) an amount equal to the sum of
(x) the number of shares of Common Stock on a Fully Diluted Basis
(but not including Shares issuable upon exercise of this Warrant)
immediately prior to such Diluting Event multiplied by the then
existing Basic Exercise Price, First Alternative Exercise Price
or Second Alternative Exercise Price, as applicable, plus (y) the
aggregate consideration, if any, received or deemed to be
received by the Company upon such Diluting Event, by (B) the
total number of shares of Common Stock on a Fully Diluted Basis
(but not including Shares issuable upon exercise of this Warrant)
immediately after such Diluting Event; and
(ii) Multiplying the then existing Basic Exercise
Price, First Alternative Exercise Price or Second Alternative
Exercise Price, as applicable, by a fraction (a) the numerator of
which is (x) the sum of (i) the number of shares of Common Stock
on a Fully Diluted Basis immediately prior to such Diluting Event
(but not including shares of Common Stock issuable upon exercise
of this Warrant) multiplied by the Common Stock Valuation Price
immediately prior to such Diluting Event plus (ii) the aggregate
consideration, if any, deemed to be received by the Company upon
such Diluting Event, divided by (y) the total number of shares of
Common Stock on a Fully Diluted Basis immediately after such
Diluting Event (but not including shares of Common Stock issuable
upon exercise of this Warrant), and (b) the denominator of which
shall be the Common Stock Valuation Price immediately prior to
such Diluting Event.
Notwithstanding the foregoing, if the Common Stock Valuation
Price is less than or equal to zero, the Basic Exercise Price and
the First Alternative Exercise Price and the Second Alternative
Exercise Price shall be reduced in accordance with clause (i)
above.
<PAGE>
(b) Adjustment to Number of Shares Issuable Pursuant to
this Warrant. Upon any adjustment of the Basic Exercise Price,
First Alternative Exercise Price and the Second Alternative
Exercise Price as provided in this Section 4.1 or Section 4.2,
the Holder shall thereafter be entitled upon exercise of this
Warrant under Section 2.1 to receive, at the Exercise Price in
effect after such adjustment (which may be the Basic Exercise
Price, the First Alternative Exercise Price or Second Alternative
Exercise Price):
(i) If the Warrant Valuation Price in effect
immediately prior to and after a Diluting Event are each positive
numbers, the number of shares of Common Stock (calculated to the
nearest 1/100th of a share) which, when multiplied by the Warrant
Valuation Price in effect immediately after the Diluting Event
(and after giving effect to the number of shares of Common Stock
issuable upon the exercise of this Warrant as determined under
this clause (i) immediately after the Diluting Event), shall
equal the product of (A) the Warrant Valuation Price in effect
immediately prior to such Diluting Event and (B) the number of
shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such Diluting Event.
(ii) If the Warrant Valuation Price in effect
immediately prior to or after a Diluting Event is not a positive
number, the number of shares of Common Stock (calculated to the
nearest 1/100th of a share) which, when multiplied by the
Exercise Price per share of Common Stock in effect immediately
after the Diluting Event, shall equal the product of (A) the
Exercise Price per share of Common Stock immediately prior to
such Diluting Event and (B) the number of shares of Common Stock
issuable upon exercise of this Warrant immediately prior to such
Diluting Event.
The Company shall not engage in any Diluting Event if as a
result of such event and the adjustment pursuant to this Section
4.1 (b), an ownership change would occur within the meaning of
Section 382 of the Internal Revenue Code of 1986, as amended, or
any successor provision. If notwithstanding the foregoing, a
Diluting Event inadvertently occurs which would result in such an
ownership change if the full adjustments provided herein were
made, then the number of shares subject to this Warrant shall
only be adjusted to the extent possible without causing such an
ownership change, and notwithstanding such partial adjustment,
the Holder shall retain all applicable rights with respect to
breach of the foregoing sentence.
(c) Minimum Adjustment. In the event any adjustment of the
Exercise Price pursuant to this Section 4.l shall result in an
adjustment of the Basic Exercise Price, the First Alternative
Exercise Price or the Second Alternative Exercise Price of less
than $0.01 per share of Common Stock, no such adjustment shall be
made, but any such lesser adjustment shall be carried forward and
shall be made at the time and together with the next subsequent
adjustment which, together with any adjustments so carried
forward, shall amount to $0.01 or more per share of Common Stock;
provided, however, that upon any adjustment of the Exercise Price
resulting from (i) the declaration of a dividend upon, or the
making of any distribution in respect of, any stock of the
Company payable in Common Stock or Convertible Securities or (ii)
the reclassification, by subdivision, combination or otherwise,
of the Common Stock into a greater or smaller number of shares,
the foregoing figure of $0.01 per share (or such figure as last
adjusted) shall be proportionately adjusted; and provided
<PAGE>
further, that upon exercise of this Warrant: the Company shall
make all necessary adjustments not theretofore made to the
Exercise Price up to and including the date upon which this
Warrant is exercised.
(d) Maximum and Minimum Exercise Price. At no time shall
the Exercise Price per share of Common Stock exceed $0.50 except
as provided in subsection (g) or (h) of Section 4.2. Subject to
Article V, at no time shall the Exercise Price per share of
Common Stock be less than the par value per share of Common
Stock.
4.2 Diluting Events and Related Matters. Except as
otherwise expressly provided, upon the occurrence of a Diluting
Event, as identified in subsections (a)-(h) below, the Exercise
Price shall be adjusted as set forth in Section 4.1:
(a) Issuance of Stock. If the Company shall issue or sell
any shares of Common Stock, including any treasury shares but
excluding (i) any shares issued pursuant to warrants or options
outstanding on the date hereof (at prices not less than the
prices at which such warrants and options are exercisable on the
date hereof), (ii) any shares issued pursuant to the Company's
existing incentive stock option plan or restricted stock bonus
plan, directors formula award plan or long term stock incentive
plan, in each case as in effect and in an amount permitted on the
date hereof, whether or not options or awards with respect to
such shares have been granted and (iii) any shares issuable
pursuant to an employee or director stock option plan, restricted
stock bonus or ownership plan, stock appreciation plan or similar
equity appreciation plan which the Company may implement after
receiving the written approval of a majority of the Holders in
their sole discretion (which approval must include First Source
if First Source is a Holder) whether or not options or awards
with respect to such shares have been granted for the
consideration per share less than (x) the Exercise Price in
effect immediately prior to the time of such issue or sale or (y)
the Common Stock Valuation Price in effect immediately prior to
the time of such issue or sale, then a Diluting Event shall have
occurred and the Exercise Price shall be adjusted as set forth in
Section 4.1.
(b) Issuance of Warrants, Options or Other Rights.
(i) Characterization of Transaction for
Antidilution Adjustment. In case the Company shall in any manner
grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of Common Stock or for the purchase of
Convertible Securities (but excluding options or awards granted
pursuant to the Company's existing incentive stock option plan,
restricted stock bonus plan, directors' formula award plan or
long term stock incentive plan, in each case as in effect and in
an amount permitted on the date hereof or granted pursuant to an
employee or director stock option plan, restricted stock bonus or
ownership plan, stock appreciation plan or similar equity
appreciation plan which the Company may implement after receiving
the written approval of a majority of the Holders in their sole
discretion (which approval must include First Source if First
Source is a Holder) in amounts permitted pursuant to the approval
described above), whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which shares
<PAGE>
of Common Stock are issuable upon the exercise of such rights or
options or upon conversion or exchange of such Convertible
Securities shall be less than (1) the Exercise Price in effect
immediately prior to the time of the granting of such rights or
options, or (2) the Common Stock Valuation Price existing
immediately prior to the time of such granting of such rights or
options, then a Diluting Event shall have occurred and the
maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon conversion or exchange
of the maximum amount of such Convertible Securities issuable
upon the exercise of such rights or options shall (as of the date
for adjustment required by subsection (n) below) be deemed to be
outstanding and to have been issued for such price per share.
Except as otherwise specified in Section 4.2 (i), no further
adjustments described in Section 4.1 of the Exercise Price shall
be made upon the actual issuance of such Common Stock or of such
rights or options or upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible Securities.
(ii) Adjustment to Price. The price per share for
which shares of Common Stock are issuable upon the exercise of
such rights or options or upon conversion or exchange of such
Convertible Securities shall be determined by dividing (1) the
total amount, if any, received or receivable by the Company as
consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration payable
to the Company upon the exercise of such rights or options, plus,
in the case of such Convertible Securities, the minimum aggregate
amount of additional consideration if any, payable upon the
conversion or exchange thereof plus the net amount received or
receivable upon the issuance of such Convertible Securities (in
each case without double counting), by (2) the total maximum
number of shares of Common Stock issuable upon the exercise of
such rights or options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such
rights or options.
(c) Issuance of Convertible Securities.
(i) Characterization of Transaction for
Antidilution Adjustment. in case the Company shall in any manner
issue or sell (whether directly or by assumption in a merger or
otherwise) any Convertible Securities, whether or not the rights
to convert or exchange thereunder are immediately exercisable,
and the price per share for which shares of Common Stock are
issuable upon such conversion or exchange shall be less than (1)
the Exercise Price in effect immediately prior to the time of
such issue or sale or (2) the Common Stock Valuation Price
existing immediately prior to the time of such issuance or sale,
then a Diluting Event shall have occurred and the Exercise Price
shall be adjusted as provided in Section 4.1 and the maximum
number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall (as of the date
for adjustment required by subsection (n) below) be deemed to be
outstanding and to have been issued for such price per share.
Except as otherwise specified in Section 4.2(i), (x) no further
<PAGE>
adjustments of the Exercise Price shall be made upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities and (y) if any such issue or sale of such
Convertible Securities is made upon exercise of any rights to
subscribe for or to purchase or any option to purchase any such
Convertible Securities for which adjustments of the Exercise
Price have been or are to be made pursuant to other provisions of
Sections 4.1 and 4.2, no further adjustment of the Exercise Price
shall be made by reason of such issue or sale.
(ii) Adjustment to Price. The price per share
for which shares of Common Stock are issuable upon such
conversion or exchange shall be determined by dividing (1) the
total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the conversion
or exchange thereof, by (2) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities.
(d) Dividends. In case the Company shall declare, in
any 12-month period, dividends upon the Common Stock (excluding a
dividend payable in Common Stock referred to in subsection (e)
below or in warrants, rights or Convertible Securities referred
to in subsection (b) or (c) above) which in the aggregate is in
excess of either 50% of Net Income for such 12- month period or
15% of the net worth of the Company (as shown on the most recent
year end consolidated balance sheet to be delivered pursuant to
ARTICLE V hereof), then a Diluting Event shall have occurred and
the Basic Exercise Price and the First Alternative Exercise Price
in effect immediately prior to the declaration of such dividend
shall each be reduced by an amount equal to the aggregate amount
of such dividends in excess of (x) the lesser of (a) 50% of Net
Income for such 12-month period and (b) 15% of Net Worth divided
by (y) all outstanding shares of Common Stock with respect to
which such dividend is payable. Such reductions shall take
effect as of the date on which a record date is established for
the purpose of such dividend, or, if a record date is not
established, the date as of which the holders of Common Stock of
record entitled to such dividend are to be determined.
Appropriate readjustment of the Basic Exercise Price and the
First Alternative Exercise Price shall be made in the event that
any dividend referred to in this subsection (d) shall be lawfully
abandoned.
(e) Dividends in Securities. In case the Company shall
declare a dividend or make any other distribution upon any stock
of the Company payable in either case in Common Stock or
Convertible Securities, then a Diluting Event shall have
occurred, and such Common Stock or Convertible Securities, as the
case may be, issuable in payment of such dividend or
distribution, shall be deemed to have been issued or sold without
consideration.
(f) Other Distribution. In case the Company shall
distribute or grant to the holders of shares of Common Stock
(whether or not on a pro rata basis) any evidence of its
indebtedness or any assets (including any such distribution made
in connection with a consolidation or merger in which the Company
is the continuing corporation) or rights or options to subscribe
or purchase any such evidence of its indebtedness or assets
(excluding rights or options to subscribe or purchase Common
Stock or Convertible Securities), then a Diluting Event shall
have occurred and the Basic Exercise Price, the First Alternative
Exercise Price and the Second Alternative Exercise Price in
<PAGE>
effect immediately prior to such distribution or grant shall each
be reduced by an amount equal to the aggregate amount of such
distribution divided by the number of outstanding shares of
Common Stock with respect to which such distribution was made
immediately prior to such distribution, and other adjustments
shall be made as set forth in Section 4.1 hereof. Such
reductions shall take effect as of the date on which a record
date is established for the purpose of such distribution or
grant, or, if a record date is not established, the date as of
which the holders of Common Stock of record entitled to such
distribution or grant are to be determined.
(g) Reorganization, Reclassification, Recapitalization,
Merger or Sale of Company. In case the Company or a successor
thereto issues Common Stock, options, other rights or Convertible
Securities in connection with any consolidation or merger of the
Company or any of its Subsidiaries with or into another
corporation or in connection with the sale or other disposition
of all or substantially all of the business or assets of the
Company or any of its Subsidiaries and the consideration per
share realized by the Company by reason of any such transaction,
determined as applicable in accordance with subsection (k) of
this Section 4.2, is less than (i) the Exercise Price in effect
immediately prior to such event, or (ii) the Common Stock
Valuation Price in effect immediately prior to such event, then a
Diluting Event shall have occurred and the Exercise Price shall
be adjusted as set forth in Section 4.1.
(h) Splits and Combinations. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a
greater number of shares or combine its outstanding shares of
Common Stock into a smaller number of shares, then a Diluting
Event shall have occurred and the Exercise Price in effect
immediately prior to such combinations, notwithstanding Section
4.1, shall be adjusted as follows: Each of the Basic Exercise
Price, the First Alternative Exercise Price and the Second
Alternative Exercise Price in effect immediately after such event
shall equal the product of (a) the Basic Exercise Price, the
First Alternative Exercise Price or the Second Alternative
Exercise Price, as applicable, in effect immediately prior to
such event and (b)(i) the number of outstanding shares of Common
Stock immediately prior to such event, divided by (ii) the number
of outstanding shares of Common Stock immediately after such
event. The number of shares of Common Stock issuable upon the
exercise of the Warrant immediately after such event shall equal
the product of (c) the number of shares of Common Stock issuable
upon the exercise of the Warrant immediately prior to such event
and (d) (i) the number of outstanding shares of Common Stock
immediately after such event, divided by (ii) the number of
shares of outstanding Common Stock immediately prior to such
event.
(i) Readjustments. In the event (i) the purchase price
provided for in any rights or options referred to in subsection
(b) above, or (ii) the additional consideration, if any, payable
upon the conversion or exchange of Convertible Securities
referred to in subsection (b) or (c) above or (iii) the rate at
which any Convertible Securities referred to in subsection (b) or
(c) above are convertible into or exchangeable for Common Stock
shall change (other than under or by reason of provisions
designed to protect against dilution), the Exercise Price in
effect at the time of such event shall forthwith be readjusted to
the Exercise Price which would have been in effect at such time
had such rights, options or Convertible Securities still
outstanding provided for such changed purchase price, additional
consideration or exercise rate, as the case ray be, at the time
initially granted, issued or sold. On the expiration of any such
<PAGE>
option or right or the termination of any such right to convert
or exchange such Convertible Securities, the Exercise Price then
in effect hereunder shall forthwith be readjusted to the Exercise
Price which would have been in effect at the time of such
expiration or termination had such right, option or Convertible
Security never been issued, and the Common Stock issuable
thereunder shall no longer be deemed to be outstanding.
(j) Determination of Consideration for Rights or Options.
In case any rights or options to purchase any shares of Common
Stock or Convertible Securities shall be issued in connection
with the issue or sale of other securities of the Company,
together comprising one integral transaction in which no specific
consideration is allocated to the rights or options, such rights
or options shall be deemed to have been issued without
consideration.
(k) Determination of Consideration upon Payment of Cash,
Property or Merger. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase any
such Common Stock or Convertible Securities shall be issued or
sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor,
after deduction of any accrued interest, dividends or any
expenses incurred or any underwriting commissions or concessions
paid or allowed by the Company in connection therewith. In case
any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such Common Stock or
Convertible Securities shall be issued for a consideration other
than cash, the amount of the consideration other than cash
received by the Company shall be deemed to be the fair market
value of such other consideration on the date of issue of such
securities, as determined in good faith by the Board of Directors
of the Company, less any expenses incurred by the Company in
connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase such
Common Stock or Convertible Securities shall be issued in
Connection with any merger or consolidation in which the Company
and its Subsidiary, if applicable, survive, the amount of
consideration therefor shall be deemed to be the fair market
value thereof on the date of issue, as determined in good faith
by the Board of Directors of the Company, or such portion of the
assets and business of the non-surviving corporation as the Board
of Directors shall attribute to such Common Stock, Convertible
Securities, rights or options, as the case may be. In the event
of any consolidation or merger of the Company or any of its
Subsidiaries in which the Company or its Subsidiary, if
applicable, does not survive or in the event of any sale or other
disposition of all or substantially all of the business or assets
of the Company or any of its Subsidiaries for stock or other
securities of any corporation, the Company shall be deemed to
have issued a number of shares of its Common Stock for stock or
securities of the other corporation computed on the basis of the
actual exchange ratio on which the transaction was predicated and
for a consideration equal to the fair market value on the date of
such transaction of such stock or securities of the other
corporation.
(l) Record Date. In case the Company shall establish a
record date of the holders of the Common Stock for the purpose of
entitling them (i) to receive a dividend or other distribution
payable in Common Stock or in Convertible Securities or (ii) to
subscribe for or purchase Common Stock or Convertible Securities,
then effective as of such record date such Common Stock or
Convertible Securities shall be deemed to have been issued or
sold. Appropriate readjustment of the Basic Exercise Price and
<PAGE>
the First Alternative Exercise Price shall be made in the event
that any dividend, distribution or subscription referred to in
this subsection (l) shall be lawfully abandoned.
(m) Shares Outstanding. Except as provided to the contrary
herein, the number of shares of Common Stock deemed to be
outstanding for purposes of Section 4.2(d), (f) and (h) at any
given time shall be the number of shares of Common Stock actually
issued and outstanding at such time, plus any shares of Common
Stock issuable in respect of scrip certificates which have been
issued in lieu of fractional shares of Common Stock.
(n) Date of Determination. For purposes of Section 4.1 and
4.2, the date as of which the Exercise Price shall be adjusted
shall be the earlier of the date upon which the Company shall (1)
enter into a firm contract for the issuance of shares of Common
Stock, rights or other options or Convertible Securities, as the
case may be, or (2) issue such shares of Common Stock, rights or
other options or Convertible Securities, as the case may be.
(o) No Adjustment After Exercise. After this Warrant is
exercised in whole or in part, the holder of any Common Stock so
acquired shall not be entitled to any adjustment in the price or
number of shares so acquired by reason of any subsequent
occurrence which would result in an adjustment of the Exercise
Price, number of shares or other adjustments by operation of this
Article IV.
4.3 Rights of the Holder upon Rights Offering, Mergers,
Reorganizations and Other Transfers.
(a) Participation in Rights Offerings. In the event the
Company shall effect an offering of Common Stock or other stock
pro rata among its stockholders, the Holder shall be entitled, at
the Holder's option, regardless of whether the Warrant is
otherwise then exercisable, in lieu of the adjustments set forth
in Sections 4.1 and 4.2 to the extent that such option is
exercised by the Holder, to elect to participate in each and
every such offering as though this Warrant had been exercised and
the holder were, at the time of any such rights offering, then a
holder of that number of shares of Common Stock to which the
Holder is then entitled on the exercise hereof.
(b) Participation in Stock Dispositions. In the event that
the Company shall offer, approve, accept or recommend an
offering, sale, transfer, redemption, cancellation or other
disposition of Common Stock (including without limitation, by way
of any merger, capital reorganization, or reclassification or
recapitalization of the capital stock of the Company) to any
person (other than in any offering described in subsection (a)
above) or in the event that the Company liquidates or dissolves
following a sale or transfer of all or substantially all of its
assets to any entity, the Company shall arrange as part of such
offering, sale or other disposition for the participation of the
Holder, with respect to including this Warrant or the Shares
issuable upon exercise hereof in such offering, sale or other
disposition upon identical terms, without such Holder incurring
any liability under Section 16(b) of the Securities Exchange Act
of 1934, as amended, and after taking into account the Exercise
Price. Such participation shall be at the Holder's option,
regardless of whether the Warrant is otherwise then exercisable,
in lieu of the adjustments set forth in Sections 4.1 and 4.2, to
the extent such option is exercised by the Holder.
<PAGE>
In case of the consolidation or merger of the Company or any
of its Subsidiaries with or into another corporation (each such
event is herein called an "Organic Change") and in which the
Holder does not participate as contemplated by the preceding
paragraph, then after any required adjustment in the Exercise
Price on account of such Organic Change, there shall thereafter
be deliverable upon the exercise of this Warrant or any portion
hereof (in lieu of or in addition to the number of shares of
Common Stock theretofore deliverable) the number of shares of
stock or other securities or property to which a holder of the
number of shares of Common Stock represented by that portion of
this Warrant so exercised would have been entitled upon such
Organic Change, and at the same aggregate Exercise Price, as
adjusted. Prior to and as a condition of the consolidation of
any Organic Change described, the Company shall make appropriate,
written adjustments in the application of the provisions herein
set forth satisfactory to the holders of the Warrants entitled to
not less than a majority of the shares of Common Stock issuable
upon the exercise thereof with respect to the rights and
interests of the holders of the Warrants so that the provisions
set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares of stock or other securities
or other property thereafter deliverable upon exercise of the
Warrants. Any such adjustment shall be made by and set forth in
a supplemental agreement between the Company and the successor
entity and be approved by the holders of the Warrants entitled to
not less than a majority of the shares of Common Stock issuable
upon the exercise thereof.
4.4 Certificates, Notices and Consents.
(a) Upon the occurrence of any Diluting Event requiring
adjustments of the Exercise Price pursuant to Sections 4.1 and/or
4.2, a certificate signed (i) by the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the Company or (ii) by any
independent firm of certified public accountants of recognized
standing selected by, and at the expense of, the Company setting
forth in reasonable detail the events requiring' the adjustment
and the method by which such adjustment was calculated, shall be
mailed (by first class mail, postage prepaid) to the Holder
specifying the adjusted Exercise Price after giving effect to the
adjustment(s).
The certificate of any independent firm of certified public
accountants of recognized standing selected by the Board of
Directors of the Company and reasonably acceptable to the Holder
shall be conclusive evidence, absent manifest error, of the
correctness of any computation made under Sections 4.1 and/or
4.2.
(b) In case the Company after the date hereof shall propose
to (i) pay any dividend payable in stock to the holders of shares
of Common Stock or to make any other distribution to the holders
of shares of Common Stock, (ii) offer to the holders of shares of
Common Stock rights to subscribe for or purchase any additional
shares of any class of stock or any other rights or options or
(iii) effect any reclassification involving merely the
subdivision or combination of outstanding shares of Common Stock,
or (iv) any capital reorganization or any consolidation or
merger, or any sale or other disposition of all or substantially
all of the business or assets of the Company, or the liquidation,
dissolution or winding up of the Company or (v) engage in any
Diluting Event not otherwise mentioned in this subsection (b),
then, in each such case, the Company shall mail (by first class
mail, postage prepaid) to the Holder notice of such proposed
action, which shall specify the date on which the books of the
Company shall close, or a record date shall be established, for
<PAGE>
determining holders of Common Stock entitled to receive such
stock dividends or other distribution of such rights or options,
or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition,
liquidation, dissolution or winding up shall take place or
commence, as the case may be, and the date as of which it is
expected that holders of Common Stock of record shall be entitled
to receive securities or other property deliverable upon such
action, if any such date is to be fixed. Such notice shall be
mailed, in the case of any action covered by clause (i) or (ii)
above, at least 30 days prior to the date upon which such action
takes place, and, in the case of any action covered by clause
(iv) above, at lease 30 days prior to the date upon which such
action takes place and 30 days prior to any record date to
determine holders of Common Stock entitled to receive such
securities or other property.
(c) Failure to file any certificate or notice or to mail
any notice, or any defect in any certificate or notice, pursuant
to this Section 4.4, shall not affect the legality or validity of
the adjustment of the Exercise Price, the number of shares
purchasable upon exercise of this Warrant, or any transaction
giving rise thereto.
4.5 No Implied Consent or Extension. Nothing in this
Warrant is intended to permit any action or event which is
prohibited by the Secured Credit Agreement as long as such
Secured Credit Agreement remains in effect; nor shall the Secured
Credit Agreement or any provision or term thereof extend or apply
to any right or liability under this Warrant or any observance or
breach thereof. After all obligations under the Secured Credit
Agreement other than those that are distinct and exclusive to
this Warrant have been paid in full or otherwise satisfied by the
Company, no provision or term thereof shall extend or apply to
any right or liability under this Warrant or any observance or
breach thereof.
ARTICLE V
COVENANTS OF THE COMPANY
5.1 No Impairment. The Company shall not, and shall not
permit its Subsidiaries to, directly or indirectly, by any
action, including, without limitation, amending its Certificate
of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate to protect the rights
of the Holder against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase
the par value of any shares of Common Stock receivable upon the
exercise of this Warrant above the amount payable therefor upon
such exercise, (b) take all such action as may be necessary or
appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of Common Stock upon
the exercise of this Warrant and any required issuance of
additional shares of Common Stock pursuant to Sections 4.1 and
4.2, (c) obtain all such authorizations, exemptions or consents
from any public regulatory body having jurisdiction thereof as
may be necessary to enable the Company to perform its obligations
under this Warrant (except that compliance with applicable
securities and blue sky laws shall be governed by the provisions
of Article VII of this Warrant), (d) not issue any capital stock
<PAGE>
of any class which is preferred as to dividends or as to the
distribution of assets upon voluntary or involuntary dissolution,
liquidation or winding up of the Company or which has
disproportionately greater voting rights under any circumstance,
(e) not permit any Subsidiary of the Company to issue, sell or
transfer any capital stock or other equity interest in such
Subsidiary, or to sell all or substantially all of the assets of
such Subsidiary, to any person or entity other than the Company,
except in connection with an employee or director stock option
plan, restricted stock bonus or ownership plan, stock
appreciation plan or similar equity appreciation plan which the
Company or Opcom may implement after receiving the written
approval of a majority of the Holders (which approval must
include First Source if First Source is a Holder), (f) not
undertake any reverse stock split, combination, reorganization or
other reclassification of its capital stock which would have the
effect of making this Warrant exercisable for less than one share
of Common Stock, (g) not take or permit the taking of any action
which could subject the holder of this Warrant or shares of
Common Stock issuable upon exercise thereof to liability under
Section 16(b) of the Securities Exchange Act of 1934, as amended
and (h) not change the Company's fiscal year from a fiscal year
ending at the end of October as identified on Schedule I hereto.
5.2 Affirmative Covenants. So long as the Holder is the
owner of or is entitled upon the due exercise hereof during the
Exercise Period to purchase 1,039,500 shares of the Company's
Common Stock, the Company shall comply with the requirements of
this Section 5.2:
5.2.1 Delivery of Financial and Business
Information. The Company will deliver to the Holder:
(a) As soon as practicable after the end of each of the
first three Quarterly Fiscal Periods in each fiscal year of the
Company, and in any event within 45 days thereafter, two copies
of:
(i) a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such quarter (reflecting, among
other things, Funded Indebtedness), and
(ii) consolidated statements of income, retained
earnings and cash flow of the Company and its Subsidiaries for
such quarter and (in the case of the second and third quarters)
for the portion of the fiscal year ending with such quarter;
setting forth in each case in comparative form the figures for
the corresponding periods in the previous fiscal year. Such
statements shall be (1) prepared in accordance with generally
accepted accounting principles consistently applied, (2) in
reasonable detail and (3) certified as complete and correct by
the principal financial or accounting officer of the Company;
(b) As soon as practicable after the end of each fiscal
year of the Company, and in any event within 90 days thereafter,
two copies of:
(i) a consolidated balance sheet of the Company and
its Subsidiaries as at the end of such year, and
<PAGE>
(ii) consolidated statements of income, retained
earnings and cash flow of the Company and its Subsidiaries for
such year;
setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and
accompanied by a report thereon by a firm of independent
certified public accountants of recognized standing selected by
the Company, which report shall state that such financial
statements fairly present the financial position of the company
being reported upon at the end of such year and the results of
their operations and changes in their financial position for such
year in conformity with generally accepted accounting principles
applied consistently (except for changes in accounting principles
with which such accountants concur) and that their examination of
such financial statements has been made in accordance with
generally accepted auditing standards, and accordingly included
such tests of the accounting records and other auditing
procedures as they considered necessary in the circumstances;
(c) Promptly upon their becoming available one copy of each
report, notice or proxy statement sent by the Company to its
stockholders generally, and of each regular or periodic report
(pursuant to the Securities Exchange Act of 1934, as amended) and
any registration statement, prospectus or written communication
(other than transmittal letters) (pursuant to the Securities
Act), filed by the Company with (i) the Commission or (ii) any
securities exchange on which shares of the Common Stock are
listed;
(d) With reasonable promptness, such other data and
information as from time to time may be reasonably requested by
the Holder; and
(e) Promptly upon, and in any event within 10 days after,
the adoption, initiation or undertaking of any plan, arrangement,
negotiations, intention or commitment to enter into any of the
transactions described in Sections 4.1, 4.2, or 4.3, notice of
any such transactions, including information in reasonable detail
pertaining to the terms, conditions and consummation of any such
transactions.
5.2.2 Disputed Financial Statements. The Holder
shall have the right at any time after receipt thereof to object
to any financial statements delivered to the Holder pursuant to
subsections (a) or (b) of Section 5.2.1 by specifying in writing
to the Company the nature of its objection, and, unless such
objection is resolved by agreement of the Company and the Holder,
the Company and the Holder shall each have the right to submit
the disputed financial statements to separate firms of
independent accountants of recognized standing for a joint
resolution (based upon written submissions) of the objection of
the Holder (which firms of independent accountants may, in either
case, be the firm of accountants regularly retained by the
Company or the Holder). If such firms cannot jointly resolve the
objection of the Holder, then, unless otherwise directed by
agreement of the Company and the Holder, such firms shall in
their sole discretion choose another firm of independent
certified public accountants of recognized standing not the
regular auditor of the Holder or of the Company, which firm shall
resolve such objection. In either case, the determination so
made shall be conclusive and binding on the Company solely for
purposes of this Warrant, the Holder and all persons claiming
under or through either of them, and any adjustment in the
disputed financial statements, the Common Stock Valuation Price
resulting from such determination shall be made. The cost of any
such determination shall be borne by the Company if it results in
an increase in the applicable Common Stock Valuation Price or by
<PAGE>
the Holder if it results in no adjustment or a decrease in the
Common Stock Valuation Price;
5.2.3 Budget. The Company will deliver to the Holder
not less than thirty (30) days prior to the commencement of each
fiscal year, an annual business plan, including a budget and
detailed financial projections for the Company and its
Subsidiaries, for each month during such period (the "Budget"),
all in reasonable detail, together with underlying assumptions
and approved by a majority of the entire Board;
5.2.4 Auditors' Reports. The Company will deliver to
the Holder promptly upon receipt thereof, copies of all other
material reports, if any, submitted to the Company by independent
public accountants in connection with any annual or interim audit
of the books of the Company and its Subsidiaries made by such
accountants;
5.2.5 Lender Information. The Company will deliver to
the Holder a copy of each material financial statement, report,
notice or communication that the Company or any Subsidiary
delivers to any of their lenders or creditors;
5.2.6 Litigation. The Company will deliver to the
Holder promptly upon the Company's learning thereof, notice of
any litigation, suit or administrative proceeding that could
reasonably be expected to have a material adverse affect on the
Company's or any Subsidiary's business, affairs, assets,
prospects, operations, employee relations or condition, financial
or otherwise, whether or not the claim is considered by the
Company to be covered by insurance;
5.2.7 Default. The Company will deliver to the Holder
notice of any default under any senior or subordinated loan
agreements promptly upon the occurrence thereof;
5.2.8 Material Adverse Developments. The Company will
deliver to the Holder promptly upon the occurrence thereof,
notice of any event which has had, or could reasonably be
expected to have, a material adverse impact on the business,
affairs, assets, prospects, operations, employee relations or
condition, financial or otherwise, of the Company or any
Subsidiary, including, without limitation, the institution or
threat of any material litigation or investigation with respect
to the Company or any Subsidiary;
5.2.9 Other Information. The Company will deliver to
the Holder with reasonable promptness, all press releases issued
by the Company or any Subsidiary, any filings made with the
Commission by the Company or any Subsidiary and such other data
and information as from time to time may be reasonably requested
by First Source or such other data as the Company may from time
to time furnish to any of the holders of its securities;
5.2.10 Auditors. The Company will deliver to the
Holder promptly after the occurrence thereof, the engagement or
termination of any individual or firm that provides accounting
advice to the Company;
5.2.11 Inspection and Meeting Rights; Budget Review.
The Company will permit First Source to visit and inspect the
properties of the Company and its Subsidiaries, including,
without limitation, its and their books and records (and to make
extracts therefrom) and to discuss its and their affairs,
<PAGE>
finances and accounts with its and their officers and personnel,
all at such reasonable times and as often as such party may
reasonably request. First Source also shall have the right to
meet with the Company's key management, including, without
limitation, Messrs. Filesi and Marley, on a quarterly basis, to
discuss the state of the Company's finances, business operations
and prospects, and any other matters relating to the affairs of
the Company and its Subsidiaries;
5.2.12 Accounting. The Company will maintain and will
cause each of its Subsidiaries to maintain a system of accounting
established and administered in accordance with GAAP and all
financial statements or information delivered under Section
5.2.1(a) and (b) (in the case of 5.2.1(b) exclusive of footnote
disclosures) will be prepared in accordance with GAAP;
5.2.13 Insurance. The Company agrees to maintain or
cause to be maintained, with financially sound and reputable
insurers, insurance with respect to its assets and business and
the assets and business of its Subsidiaries against loss or
damage of the kinds customarily insured against by similarly
situated corporations of established reputation engaged in the
same or similar businesses, in adequate amounts, and at the
request of First Source shall furnish First Source with evidence
of the same;
5.2.14 Payment of Taxes. The Company agrees to pay or
cause to be paid all taxes, assessments and other governmental
charges levied upon any of its assets or those of its
Subsidiaries or in respect of its or their respective franchises,
businesses, income or profits, which if unpaid might become a
Lien upon any asset of the Company or any Subsidiary, before the
same become delinquent, except that (unless and until
foreclosure, distraint, sale or other similar proceedings shall
have been commenced) no such charge need be paid if being
contested in good faith and by appropriate measures promptly
initiated and diligently conducted if (a) a reserve or other
appropriate provision, if any, as shall be required by sound
accounting practice shall have been made therefor, and (b) such
contest does not have a material adverse effect on the financial
condition of the Company and no material assets are in imminent
danger of forfeiture;
5.2.15 Compliance With Laws. The Company agrees to use
its best efforts to comply, and shall use its best efforts to
cause each Subsidiary to comply, with all laws, rules,
regulations, judgments, orders and decrees of any governmental or
regulatory authority applicable to it and its respective assets,
and with all contracts, and agreements to which it is a party or
shall become a party, and to perform all obligations which it has
or shall incur, the violation of which would reasonably be
anticipated to have a material adverse effect on the business,
affairs, assets, prospects, operations or condition, financial or
otherwise, of the Company and its Subsidiaries taken as a whole;
5.2.16 Preservation of Corporate Existence and
Property; Operations. The Company agrees to preserve, protect,
and maintain, and cause each Subsidiary to preserve, protect, and
maintain, (a) its corporate existence, and (b) all rights,
franchises, accreditations, privileges, and properties the
failure of which to preserve, protect, and maintain would
reasonably be anticipated to have a material adverse effect on
the business, affairs, assets, prospects, operations, or
condition, financial or otherwise, of the Company and its
Subsidiaries taken as a whole;
<PAGE>
5.2.17 Holder as Observer. The Company agrees at all
times to permit a representative of Holder to attend and observe
all meetings of Company's Board of Directors and each committee
thereof, and cause Holder to receive reasonably adequate notice
of all such meetings; provided, however, that Holder shall not be
entitled to attend or observe any portion of a meeting relating
solely and exclusively to action proposed to be taken by Company
with respect to Company's relationship with Holder. The Company
acknowledges and agrees that attendance by a designee of Holder
at any meeting of Company's Board of Directors or any committee
thereof shall not constitute approval by Holder of or consent by
Holder to any action authorized at such meeting, or constitute a
waiver or modification of any provision of this Warrant or any
right hereunder. The Company agrees to reimburse Holder for all
reasonable travel, lodging, and meal expenses incurred in
connection with the foregoing; and
5.2.18 Confidential Information. Holder acknowledges
that pursuant to the provisions of this Section 5.2, Holder may
receive insider information concerning the Company which Holder
may be precluded from acting upon by applicable securities and
other laws. Except as otherwise required by law or judicial
order or decree or by any governmental agency or authority, each
Person entitled to receive information regarding the Company and
its Subsidiaries under this Section 5.2 shall use its best
efforts to maintain the confidentiality of all nonpublic
information obtained by it hereunder; provided that each such
Person may disclose such information in connection with the sale
or transfer or proposed sale or transfer of this Warrant or of
any Common Stock, provided such Person's transferee or proposed
transferee agrees in writing to be bound by the provisions of
this Warrant and such disclosure would not materially and
adversely affect the Company.
5.3 Negative Covenants. So long as the Holder is the owner
of or is entitled upon the due exercise hereof during the
Exercise Period to purchase 1,039,500 shares of the Company's
Common Stock, the Company agrees that it will not effect any of
the following matters, unless, at any time, First Source shall
otherwise expressly consent in writing:
(a) Distributions. The direct or indirect
declaration or payment of any dividends or distributions upon any
of the Company's equity securities;
(b) Redemptions. The direct or indirect redemption,
purchase or other acquisition of any of the Company's or any
Subsidiary's equity securities (including, without limitation,
warrants, options and other rights to acquire equity securities)
if the total amount of such redemptions, purchases or other
acquisitions exceeds 3% of the Common Stock on a Fully Diluted
Basis during any 12 month period; provided that no Common Stock
held Messrs. Grant A. Dove, Thomas R. Filesi, D. Vinson Marley,
Richard G. Dahlberg and Thomas S. Garrett shall be redeemed
without the express written consent of First Source;
(c) Security Issuances. The authorization, issuance
or entering into any agreement providing for the issuance
(contingent or otherwise) of (X) any notes or debt securities
containing equity features (including, without limitation, any
notes or debt securities convertible into or exchangeable for
equity securities, issued in connection with the issuance of
equity securities or containing profit participation features) ,
or (Y) any equity securities (or any securities convertible into
or exchangeable for any equity securities) except (i) pursuant to
<PAGE>
warrants and options outstanding on the date of this Warrant or
the Company's incentive stock option plan, restricted stock bonus
plan, long- term stock investment plan, or directors formula
award plan, to the extent each of these plans has been previously
approved by First Source, (ii) in connection with any transaction
permitted pursuant to Section 5.3(e) or 5.3(h) hereof, and (iii)
that up to 5% of the Common Stock on a Fully Diluted Basis may be
granted in connection with obtaining financing from any
subsequent lender;
(d) Loans or Guarantees. The making of any loans or
advances to, guarantees for the benefit of, or investments in,
any person or entity (other than a wholly-owned Subsidiary);
(e) Mergers. A merger, consolidation or
reorganization with any person or entity unless the Company shall
be the surviving entity and the transaction is permitted by
Section 5.3(h);
(f) Asset Dispositions. The sale, assignment,
transfer, lease or other disposition of more than 10% of the
consolidated assets of the Company and its wholly- owned
subsidiaries (computed on the basis of book value, determined in
accordance with generally accepted accounting principles, or fair
market value, determined by the Board of Directors in its
reasonable good faith judgment) in any transaction or series of
related transactions;
(g) Liquidation. The liquidation or dissolution of
the Company;
(h) Acquisitions. The acquisition of any interest
in any business (whether by a purchase of assets, purchase of
stock, merger or otherwise), if financial statements, for the
business acquired would be required under the provisions of Rule
3-05 of Regulation S-X promulgated by the Securities and Exchange
Commission;
(i) Related Party Arrangements. The entering into,
or permitting any Subsidiary to enter into, any material
transaction with any of the Company's or any Subsidiary's
officers, directors, employees or affiliates where such
transaction would be required to be reported under Item 404 of
Regulation S-K (excluding employment arrangements and agreements
entered into during the ordinary course of business);
(j) Subsidiaries. The establishment or acquisition
of any Subsidiary which is not wholly-owned by the Company;
(k) Leases. The entering into or becoming or
remaining liable in any way, whether directly or by assignment or
as a guarantor or other surety, for the obligations of a lessee
under any leases or other rental agreements under which the
amount of the aggregate lease payments for all such agreements
exceeds $750,000 on a consolidated basis in any fiscal year of
the Company;
(l) Fiscal Year. The changing of the Company's
fiscal year end from the last Friday of October.
<PAGE>
(m) Securities of Subsidiary. The issuance or sale
of any shares of the capital stock, or rights to acquire shares
of the capital stock, of any Subsidiary to any person or entity
other than the Company or another wholly-owned Subsidiary;
(n) Compensation. The Company will not permit (x)
the salary and (y) other remuneration (which shall mean an amount
equal to (i) gross salary shown on the relevant Form W-2 or gross
income on the relevant Form 1099, plus accrued bonuses and
director's fees for such year, less (ii) base salary for such
year less (iii) accrued bonuses and director's fees for the
previous year and paid in the current year) excluding (z) any
amounts so recognized but attributable to exercise of options or
warrants or resale of Common Stock so acquired to be paid during
any Fiscal Year to the persons holding the positions listed in
Schedule I (or any successor of any thereof in the capacity shown
in Schedule I), to exceed, in the aggregate for each such person,
the amount for such person shown in Schedule I, to be adjusted as
of the first day of each Fiscal Year to an amount not to exceed
110% of the maximum allowable amount (as set forth in Schedule I
and subsequently adjusted) for the preceding Fiscal Year;
(o) Public Offering. The consummation of any public
offering of the Company's equity or debt securities;
(p) Change in the Business. The Company making a
fundamental change in business so that less than 75% of its
revenues are received from the manufacture and sale of
optoelectronic, magnetic, fiber optic and other sensor products;
(q) Bankruptcy, Etc. The making of an assignment
for the benefit of creditors; or petitioning or applying to any
tribunal for the appointment of a custodian, trustee, receiver or
liquidator of the Company or any subsidiary, or of any
substantial part of the assets of the Company or any subsidiary,
or commencing of any proceeding (other than a proceeding for the
voluntary liquidation and dissolution of any subsidiary) relating
to the Company or any subsidiary under any bankruptcy,
reorganization, arrangement, insolvency,readjustment of debt,
dissolution or liquidation law of any jurisdiction; and
(r) Capital Expenditures. The making of capital
expenditures in excess of an aggregate of $5,000,000 in any
fiscal year of the Company, unless such capital expenditures
shall have been provided for in an annual budget approved by the
Board of Directors for such fiscal year.
Upon the request of First Source, the Company will at any
time and from time to time during the period this Warrant is
outstanding acknowledge in writing, in form satisfactory to First
Source, the continued validity of this Warrant and the Company's
obligations hereunder.
<PAGE>
ARTICLE VI
RESERVATION OF STOCK ISSUABLE ON EXERCISE OF
WARRANT; PREEMPTIVE RIGHTS
The Company will at all times reserve and keep available,
solely for issuance, sale and delivery upon the exercise of this
Warrant, a number of shares of Common Stock equal to the number
of full shares of Common Stock issuable upon the exercise of this
Warrant. All shares of Common Stock issuable upon the exercise
of this Warrant shall, when issued upon such exercise, (a) be
duly and validly authorized and issued, fully paid and
nonassessable, and (b) be free from all taxes, liens and charges
with respect to the issue thereof other than any stock transfer
taxes in respect of any transfer occurring contemporaneously with
such issue. No stockholder of the Company has or shall have any
preemptive rights to subscribe for such shares of Common Stock.
ARTICLE VII
LISTING ON SECURITIES EXCHANGE
If the Company shall list any shares of Common Stock on any
securities exchange, it will during the Exercise Period, at its
expense, list thereon, maintain and, when necessary, increase
such listing of, all shares of Common Stock issued or, to the
extent permissible under the rules of the applicable securities
exchange or automated quotation system, issuable upon the
exercise of this Warrant so long as any shares of Common Stock
shall be so listed.
ARTICLE VIII
RESTRICTIONS ON TRANSFER
The conditions contained in the following sections of this
ARTICLE VIII are intended to insure compliance with the
Securities Act in respect of the transfer of Warrants or Common
Stock issuable upon the exercise of Warrants. Reference in this
ARTICLE VIII to shares of Common Stock issuable upon the exercise
of Warrants includes shares of Common Stock theretofore issued
upon the exercise of any Warrants which are then evidenced by
certificates required to bear the legend set forth in Section
8.6.
8.1 Notice of Proposed Transfer; Transfers Without
Registration. The Holder or the holder of any shares of Common
Stock issuable upon the exercise of this Warrant, by acceptance
hereof or thereof, agrees to give written notice to the Company,
prior to any transfer of this Warrant, such shares of Common
Stock or any portion thereof which bear the legend described in
Section 8.6, of its intention to make such transfer, which notice
shall include a brief description of such proposed transfer. A
copy of such notice shall be sent to Independent Counsel.
If in the opinion of Independent Counsel the proposed
transfer may be effected without registration or qualification
under any Federal or State law, such counsel shall, as promptly
<PAGE>
as practicable, notify the Company and the Holder of such opinion
and of the terms and conditions, if any, to be observed in such
transfer, whereupon the Holder shall be entitled to transfer such
shares of Common Stock in accordance with the terms of the notice
delivered to the Company and the opinion of Independent Counsel.
In the event this Warrant shall be exercised as an incident to
such transfer, such exercise shall relate back and for all
purposes of this Warrant be deemed to have occurred as of the
date of such notice regardless of delays incurred by reason of
the provisions of this ARTICLE VIII which may result in the
actual exercise on any later date.
8.2 Registration and Qualification. The provisions of
Section 8.2 (a), 8.2 (b), and 8.9 below are subject to the terms
of the First Amended and Restated Registration Rights Agreement,
dated as of July 1, 1988 (the "Original Registration Agreement"),
among the Company, First Source and the stockholders listed
therein, as the same may be amended, modified or supplemented
from time to time with the consent required by Section 8.11 (the
"Registration Agreement"), and if, prior to an amendment of the
Original Registration Agreement as amended by any effective
amendment thereof, any conflict exists between the provisions of
the Original Registration Agreement as amended by any effective
amendment thereof, and Section 8.2 (a), 8.2 (b) and 8.9, the
applicable conflicting provisions of the Original Registration
Agreement as amended by any effective amendment thereof shall
control, but only to the extent of the conflict, and the holder
of any Warrant and the shares of Common Stock issuable upon
exercise thereof shall have the applicable conflicting rights
contained in the Original Registration Agreement as amended by
any effective amendment thereof but only to the extent of the
conflict, until such time as the Original Registration Agreement
as amended by any effective amendment thereof is so amended.
(a) Piggyback Registration. If the Company proposes
(whether on its own behalf or at the request of any other person
or entity) to register any security under the Securities Act on
any registration form (otherwise than for the registration of
securities to be offered and sold pursuant to (a) an employee
benefit plan, (b) a dividend or interest reinvestment plan, (c)
other similar plans or (d) reclassifications of securities,
mergers, consolidations and acquisitions of assets on Form S-4 or
any successor thereto) prescribed by the Commission permitting a
secondary offering or distribution, not less than 60 days prior
to each such registration, the Company shall give to the holders
of the Warrants or shares of Common Stock issuable upon the
exercise thereof written notice of such proposal which shall
describe in detail the proposed registration and distribution
(including those jurisdictions where registration or
qualification under the securities or blue sky laws is intended)
and, upon the written request of any holder of a Warrant or
shares of Common Stock issuable upon the exercise thereof given
within 30 days after the date of any such notice, proceed to
include in such registration such shares of Common Stock as have
been requested by any such holder to be included in such
registration; provided, however, that the Company shall not be
required to include fewer than 50,000 shares (subject to
adjustment upon any combination or split of shares or similar
event) of Common Stock in any such registration pursuant to this
Section 8.2(a). Any holder of a Warrant or shares of Common
Stock issuable upon the exercise thereof shall in its request
describe briefly the proposed disposition of such shares of
Common Stock. The Company will in each instance use its best
efforts to cause any shares of Common Stock issuable upon the
exercise of the Warrants (the holders of which shall have so
requested registration thereof) to be registered under the
Securities Act and qualified under the securities or blue sky
laws of any jurisdiction requested by a prospective seller, all
<PAGE>
to the extent necessary to permit the sale or other disposition
thereof (in the manner stated in such request) by a prospective
seller of the securities so registered.
If the managing underwriter, who shall be selected by the
Company (subject to the approval, not unreasonably withheld, of a
majority of the holders that have requested registration (which
must include First Source if First Source is then a holder and
requesting registration)) to manage the distribution of the
shares of Common Stock being registered, advises the Company in
writing that, in its opinion, the inclusion of the shares of
Common Stock requested to be included in such registration by a
holder of a Warrant or shares of Common Stock issuable upon the
exercise thereof with the securities being registered by the
Company and other prospective sellers would materially adversely
affect the distribution of all such securities, then: (a) (i) if
such registration has been initially proposed by the Company, the
Company shall include in such registration the number of shares
proposed to be registered by the Company and by the holders of
the Warrants or shares of Common Stock issuable upon the exercise
thereof before including any other securities in the
registration, and, if an additional reduction in the number of
securities being registered is necessary, the Company shall
include in such registration such shares of the Company and the
holders of the Warrants or shares of Common Stock issuable upon
the exercise thereof pro rata based on the number of shares
originally proposed to be registered by the Company and by the
holders of the Warrants or shares of Common Stock issuable upon
the exercise thereof or (ii) if such registration has been
initially proposed by a holder of securities other than the
Company or the holders of Warrants or shares of Common Stock
issuable upon exercise thereof, the Company shall include in such
registration the number of shares proposed to be registered by
such other holder and the holders of Warrants or shares of Common
Stock issuable upon exercise thereof before including any other
securities in the registration and, if an additional reduction in
the number of securities being registered is necessary, the
Company shall include in such registration such shares of such
other holder and the holders of Warrants or shares of Common
Stock issuable upon exercise thereof pro rata based on the number
of shares originally proposed to be registered by such other
holder and by each holder of Warrants or shares of Common Stock
issuable upon exercise thereof; or (b) any holder of a Warrant or
shares of Common Stock issuable upon the exercise thereof may, at
its sole option, delay its offering and sale for a period not to
exceed 120 days after the effective date of such registration as
such managing underwriter shall reasonably request. In the event
of such delay, the Company: (i) shall use its best efforts to
effect any registration or qualification under the Securities Act
and the securities or blue sky laws of any jurisdiction as may be
necessary to permit such prospective seller to make its proposed
offering and sale following the end of such period of delay; and
(ii) during such period of delay and for at least 90 days
thereafter, shall not file or cause to be effected any other
registration of its capital stock or securities convertible into
or exchangeable or exercisable for any such capital stock,
whether on its own behalf or at the request of any other person
or entity, and shall not sell any shares of its capital stock or
securities convertible into or exchangeable or exercisable for
any such capital stock.
The holder of a Warrant or shares of Common Stock issuable
upon the exercise thereof who has requested shares of Common
Stock to be included in a registration pursuant to this Section
8.2(a) by acceptance hereof or thereof, agrees to execute an
underwriting agreement with such underwriter that is (i)
reasonably satisfactory to such holder and (ii) in customary
form.
<PAGE>
Nothing in this Section 8.2(a) shall be deemed to require
the Company to proceed with any registration of its securities
after giving the notice herein provided.
(b) Demand Registration. The holders of the Warrants and
of any shares of Common Stock issuable upon the exercise thereof
may, on up to four separate occasions (unless such request is
withdrawn in accordance with the terms hereof) (the "Demands"),
require the Company to effect the registration of the Shares
pursuant to the provisions of this Section 8.2(b). Such Demands
"shall consist of two demands for which the Company shall pay all
the fees and expenses as set forth in Section 8.4 (the "Free
Demands") and two demands for which the holders shall pay their
proportionate share of the fees and expenses set forth in Section
8.4 (the "Charged Demands"). If the holders of the Warrants and
of any shares of Common Stock issuable upon the exercise thereof
representing a total of more than 50% of the shares of Common
Stock then issued and issuable upon the exercise of the Warrants
(which must include First Source if First Source is then a
holder) shall give notice to the Company to the effect that such
holders intend to (i) transfer all or any part of the Shares or
(ii) exercise all or any part of the Warrants and transfer all or
any part of the Shares under such circumstances that a public
distribution (within the meaning of the Securities Act) of the
Shares will be involved, then the Company shall (A) within 10
days after receipt of such notice, give written notice of the
proposed registration to the other holders of Warrants and shares
of Common Stock issuable upon exercise thereof, and (B) within 30
days after receipt of such notice, file a registration statement
pursuant to the Securities Act to the effect that such shares may
be sold under the Securities Act as promptly as is practicable
thereafter and the Company will use its best efforts to cause any
such registration to become effective and to keep the prospectus
included therein current for at least six months after the
effective date thereof or until the distribution shall have been
completed, whichever first occurs; provided, however, that such
holders shall furnish the Company with such appropriate
information (relating to the intention of such holders) in
connection therewith as the Company may reasonably request in
writing; and provided, further, that the Company shall not be
required to register fewer than 200,000 (subject to adjustment
upon any combination or split of shares or similar event) shares
of Common Stock in any registration pursuant to this Section
8.2(b). As long as the Company is not in default on its
obligations under Section 5.1.2(a) and (b), the Company's
obligation to file a registration statement, at any time when it
is impossible or impracticable to include the Company's fiscal
year-end financial statements as the most recent certified
financial statements required to be included therein, shall be
suspended until the Company's next fiscal year-end financial
statements are due in accordance with Section 5.1.2(b), unless
the request for registration pursuant to this Section 8.2(b) has
been withdrawn. The managing underwriter for offerings made
pursuant to this Section 8.2(b) shall be selected by the parties
requiring registration hereunder (which must include First Source
if First Source is then a holder and requesting registration),
subject to the consent, not unreasonably withheld, of the
Company.
If the managing underwriter for any offering made pursuant
to this Section 8.2(b) advises the Company in writing that, in
its opinion, the inclusion of all of the shares of Common Stock
requested to be included in such registration by the holders of
Warrants and shares of Common Stock issuable upon the exercise
thereof would materially adversely affect the distribution of all
such securities, then (a) there shall be included in such
registration shares of the holders of Warrants or shares of
Common Stock issuable upon the exercise thereof pro rata based on
the number of shares originally proposed to be registered by each
holder of Warrants or shares of Common Stock issuable upon the
<PAGE>
exercise thereof or (b) any holder of a Warrant or shares of
Common Stock issuable upon the exercise thereof may, at its sole
option, delay its offering and sale for a period not to exceed
120 days after the effective date of such registration as such
managing underwriter shall reasonably request. In the event of
such delay, the Company (i) shall use its best efforts to effect
any registration or qualification under the Securities Act and
the securities or blue sky laws of any jurisdiction as may be
necessary to permit such prospective seller to make its proposed
offering and sale following the end of such period of delay; and
(ii) during such period of delay and for at least 90 days
thereafter, shall not file or cause to be effected any other
registration of its capital stock or securities convertible into
or exchangeable or exercisable for any such capital stock,
whether on its own behalf or at the request of any other person
or entity, and shall not otherwise sell any of its capital stock
or securities convertible into or exchangeable or exercisable for
any such capital stock. A registration shall not reduce the
number of Demands available to the holders under this Section
8.2(b) until such registration has become effective and the
holders of the Warrants or shares of Common Stock issuable upon
the exercise thereof participating in the demand registration are
able to register and sell at least 80% of the shares of Common
Stock originally requested to be included in such registration;
provided, however, that if in connection with a proposed Demand
made pursuant to Section 8.2(b) the holders of the Warrants or
shares of Common Stock issuable upon the exercise thereof
participating in the demand registration are able to register and
sell more than 50% but less than 80% of the shares of Common
Stock originally requested to be included in such registration,
the number of Free Demands shall be reduced by one, and the
number of Charged Demands shall be increased by one.
8.3 Registration and Qualification Procedures. Whenever
the Company is required by the provisions of Section 8.2 to use
its best efforts to effect the registration of any of its
securities under the Securities Act, the Company will, as
expeditiously as is possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities;
(b) prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to keep such
registration statement effective and the prospectus current and
to comply with the provisions of the Securities Act with respect
to the sale of all securities covered by such registration
statement whenever the seller of such securities shall desire to
sell the same, including the offering or sale of such securities
on a continuous or delayed basis pursuant to Rule 415 under the
Securities Act as the same shall be in effect from time to time;
(c) furnish to each seller such number of copies of
preliminary prospectuses and prospectuses and each supplement or
amendment thereto and such other documents as each seller may
reasonably request in order to facilitate the sale or other
disposition of the securities owned by such seller in conformity
with (i) the requirements of the Securities Act and (ii) the
seller's proposed method of distribution;
(d) register or qualify the securities covered by such
registration statement under the securities or blue sky laws of
such jurisdictions within the United States as each seller shall
reasonably request, and do such other reasonable acts and things
<PAGE>
as may be required of it to enable each seller to consummate the
sale or other disposition in such jurisdictions of the securities
owned by such seller; provided, however, that the Company shall
not be required to (i) qualify as a foreign corporation or
consent to a general and unlimited service of process in any such
jurisdictions, (ii) qualify as a dealer in securities or (iii)
register or qualify at its own expense securities of such seller
in any jurisdiction not described in the notice of the Company
referred to in the first paragraph of Section 8.2(a), in any case
in order to accomplish any of the foregoing;
(e) furnish, at the request of any seller on the date such
securities are delivered to the underwriters for sale pursuant to
such registration or, if such securities are not being sold
through underwriters, on the date the registration statement with
respect to such securities becomes effective, (i) an opinion,
dated such date, of the counsel representing the Company for the
purposes of such registration, addressed to the underwriters, if
any, and to the seller making such request, covering such legal
matters with respect to the registration in respect of which such
opinion is being given as the seller of such securities may
reasonably request and are customarily included in such opinion
and (ii) letters, dated, respectively, (1) the effective date of
the registration statement and (2) the date such securities are
delivered to the underwriters, if any, for sale pursuant to such
registration, from a firm of independent certified public
accountants of recognized standing selected by the Company,
addressed to the underwriters, if any, and to the seller making
such request, covering such financial, statistical and accounting
matters with respect to the registration in respect of which such
letters are being given as the seller of such securities may
reasonably request and are customarily included in such letters;
(f) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make
available to its security holders as soon as reasonably
practicable, but not later than 16 months after the effective
date of the registration statement, an earnings statement
covering a period of at least 12 months beginning after the
effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the
Securities Act;
(g) enter into and perform an underwriting agreement with
the managing underwriter, if any, selected as provided in Section
8.2, as the case may be, containing customary terms of offer and
sale of the securities, payment provisions, underwriting
discounts and commissions, representations, warranties,
covenants, indemnities, terms and conditions; and
(h) keep each seller advised in writing as to the
initiation and progress of any registration under Section 8.2, as
the case may be.
8.4 Allocation of Expenses. If the Company is required by
the provisions of Section 8.2 to use its best efforts to effect
the registration or qualification under the Securities Act or any
state securities or blue sky laws of any of the shares of Common
Stock issuable upon the exercise of the Warrants, the Company
will pay all expenses in connection therewith, including, without
limitation, (a) all expenses incident to filing with the National
Association of Securities Dealers, Inc., (b) registration fees,
(c) printing expenses, (d) the Company's accounting and legal
fees and expenses, (e) expenses of any special audits incident to
or required by any such registration or qualification, (f)
premiums for insurance in such amount, if any, deemed appropriate
by the managing underwriter and (g) expenses of complying with
<PAGE>
the securities or blue sky laws of any jurisdictions in
connection with such registration or qualification; provided,
however, that the holders of any Warrant or shares of Common
Stock issuable upon exercise thereof participating in a Charged
Demand shall be liable for the amount of such expenses in
connection with such Charged Demand made pursuant to Section
8.2(b) equal to the product of (a) all such expenses and (b) the
proportion which the number of shares of Common Stock issuable
upon exercise of the Warrants for which registration has become
effective and which are sold pursuant to Section 8.2(b) bears to
the total number of all shares included in such registration; and
provided, further, that the Company shall not be liable for (1)
any discounts or commissions to any underwriter or (2) any stock
transfer taxes incurred in respect of the shares of Common Stock
issuable upon the exercise of the Warrants sold by the sellers.
8.5 Indemnification. In connection with any registration or
qualification of securities under Section 8.2 or 8.3, the Company
hereby indemnifies the Holder and the holders of any shares of
Common Stock issuable upon the exercise of the Warrants and each
underwriter thereof, including each person, if any, who controls
the Holder or such stockholder or underwriter within the meaning
of Section 15 of the Securities Act, against all losses, claims,
damages, liabilities and expenses (including reasonable costs of
investigation) caused by any untrue, or alleged untrue, statement
of a material fact contained in any registration statement,
preliminary prospectus, prospectus or notification or offering
circular (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or caused by any
omission, or alleged omission, to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by any untrue
statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with information
furnished in writing to the Company by the Holder or any such
stockholder or underwriter expressly for use therein. The Holder
and the holders of any shares of Common Stock issuable upon the
exercise of the Warrants hereby indemnify the Company and each
officer, director and controlling person of the Company or
underwriter within the meaning of Section 15 of the Securities
Act against all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation) caused by any
untrue, or alleged untrue, statement of a material fact contained
in any registration statement, preliminary prospectus or
notification or offering circular (as amended or supplemented if
the Company shall have furnished any amendments or supplements
thereto) or caused by any omission, or alleged omission, to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only
to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance
upon and in conformity with information furnished in writing to
the Company by the Holder or any such stockholder expressly for
use therein.
Promptly upon receipt by a party indemnified under this
Section 8.5 of notice of the commencement of any action against
such indemnified party in respect of which indemnity or
reimbursement may be sought against any indemnifying party under
this Section 8.5, such indemnified party shall notify the
indemnifying party in writing of the commencement of such action,
but the failure so to notify the indemnifying party shall not
relieve it of any liability which it may have to any indemnified
party, unless such failure shall materially adversely affect the
defense of such action. In case notice of commencement of any
such action shall be given to the indemnifying party as above
provided, the indemnifying party shall be entitled to participate
<PAGE>
in and, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense of
such action at its own expense, with counsel chosen by it and
satisfactory to such indemnified party. The indemnified party
shall have the right to employ separate counsel in any such
action and participate in the defense thereof, but the fees and
expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (a)
the indemnifying party agrees to pay the same, (b) the
indemnifying party fails to assume the defense of such action
with counsel reasonably satisfactory to the indemnified party or
(c) the named parties to any such action (including any impleaded
parties) have been advised by such counsel that representation of
such indemnified party and the indemnifying party by the same
counsel would be inappropriate under applicable standards of
professional conduct (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf
of such indemnified party); provided that the indemnifying party
shall not be required to pay the fees and expenses of more than
one counsel to indemnified parties claiming indemnification
pursuant to this Section 8.5. No indemnifying party shall be
liable for any settlement entered into without its consent.
If the indemnification provided for in this Section 8.5
shall for any reason be unenforceable by an indemnified party,
although otherwise available in accordance with its terms, then
each indemnifying party shall, in lieu of indemnifying such
indemnified party, contribute to the amount paid or payable by
such indemnified party as a result of the losses, claims,
damages, liabilities or expenses with respect to which such
indemnified party has claimed indemnification, in such proportion
as is appropriate to reflect the relative fault of the
indemnified party on the one hand and the indemnifying party on
the other in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations.
The Company, each holder of the Warrants and each holder of
Shares of Common Stock issued upon the exercise thereof agree
that it would not be just and equitable if contribution pursuant
hereto were to be determined by pro rata allocation or by any
other method of allocation which does not take into account such
equitable considerations. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to herein shall be deemed to
include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending
against any action or claim which is the subject hereof. No
person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
Each Holder of the Warrants and each holder of shares of
Common Stock issued upon the exercise thereof and bearing the
legend required by Section 8.6, by acceptance thereof, agrees to
the indemnification provisions of this Section 8.5.
8.6 Legend on Certificates. In case any shares of Common
Stock are issued upon the exercise in whole or in part of the
Warrants or are thereafter transferred, in either case under such
circumstances that no registration under the Securities Act is
required, each certificate representing such shares shall bear on
the face thereof the following legend:
The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and any
transfer thereof is subject to the conditions specified in the
<PAGE>
Warrant, dated as of December 12, 1995, which is an amendment and
restatement of the Warrant originally issued by Optek Technology,
Inc. (the "Company") to First Source Financial, Inc., dated as of
January 31, 1991. A copy of the form of such Warrant is on file
with the Secretary of the Company at 1215 West Crosby Road,
Carrollton, Texas 75006 and will be furnished without charge by
the Company to the holder of this certificate upon written
request to the Secretary of the Company at such address.
In case (a) a registration statement covering shares of
Common Stock represented by a certificate bearing the legend
specified above becomes effective under the Securities Act or (b)
the Company receives an opinion of Independent Counsel that such
legend is no longer necessary on such certificate to protect the
Company from a violation of the Securities Act, the Company
shall, or shall instruct its transfer agent and registrar to,
issue in lieu thereof a new certificate or certificates for such
shares in the name of the holder of such shares without such
legend on the face thereof.
8.7 Supplying Information. The Company, the Holder and
each holder of shares of Common Stock issuable upon the exercise
of the Warrant shall cooperate with each other in supplying such
information as may be necessary for any of such parties to
complete and file any information reporting forms presently or
hereafter required by the Commission or any commissioner or other
authority administering the blue sky or securities laws of any
jurisdiction where shares of Common Stock are proposed to be sold
pursuant to Section 8.2 or 8.3.
8.8 Damages. In the event the Company fails to comply with
any provision of Section 8.2 or 8.3, upon written request of the
Holder of the Warrant or any holder of shares of Common Stock
issuable upon the exercise thereof, the Company shall promptly
obtain from an independent investment banking firm acceptable to
such person an opinion estimating the net proceeds which such
person would have received (after deducting underwriting
commissions and discounts and any other expenses that would have
been for the account of such Holder or holder of shares of Common
Stock in connection with the registration or qualification of
such shares of Common Stock) upon the sale of shares of Common
Stock proposed to be sold pursuant to such registration or
qualification. Such opinion of the independent investment
banking firm shall be (a) delivered in writing to the Company,
with a copy to such person, within 15 days after the date of the
request of such person to the Company and (b) conclusive and
binding on the Company and such person.
Within 21 days of receipt by the Company of such estimate,
if such person so elects, the Company shall pay to such person an
amount, equal to such estimated net proceeds related to the
Warrants or shares of Common Stock, as the case may be. Payment
of such amount shall be made at the option of such person, by
(i) wire transfer to an account in a bank located in the
United States designated by such person for such purpose or (ii)
a certified or official bank check drawn on a member of the
Chicago or New York Clearing House payable to the order of such
person. Upon payment to such person of such amount, such person
shall assign to the Company, this Warrant and, if issued, the
shares of Common Stock issued upon the exercise of this Warrant
proposed to be sold pursuant to the registration or qualification
in question, without any representation or warranty (other than
<PAGE>
that such Holder has good and valid title thereto free and clear
of liens, claims, encumbrances and restrictions of any kind
arising by or through such Holder). If less than all of the
shares of Common Stock issuable upon exercise of this Warrant
were proposed to be sold pursuant to the registration or
qualification in question, the Company shall cancel the Warrant
and issue in the name of, and deliver to, the Holder, pursuant to
Section 2, a new Warrant for the shares of Common Stock issuable
upon the exercise thereof not required to be assigned to the
Company pursuant to the provisions of the preceding sentence.
The Company agrees that the amount of actual damages that would
be sustained by the Holder as a result of the failure of the
Company to comply with any provisions of Section 8.2 or 8.3 is
not capable of ascertainment on any other basis.
8.9 Holdback Agreements. The Company agrees: (i) not to
effect any public sale or distribution of or otherwise dispose of
any of its capital stock or securities convertible into or
exchangeable or exercisable for any such capital stock during the
seven days prior to or 135 days after the date any registration
pursuant to Section 8.2(a) or 8.2(b) has become effective, except
as part of such registration and except pursuant to any
registration of securities to be offered and sold pursuant to (A)
an employee benefit plan, (B) a dividend or interest reinvestment
plan, (C) other similar plans or (D) reclassifications of
securities, mergers, consolidations and acquisitions of assets on
Form S-4 or any successor thereto; and (ii) to cause each person
or entity which owns any capital stock of the Company as of the
date of this Warrant (other than persons or entities holding
nonrestricted stock that can be freely traded pursuant to Section
4(1) of the Securities Act and persons or entities who obtained
stock pursuant to a registration described in Section 8.9(i)(A),
(B), (C) or (D)) and each person or entity which purchases the
Company's capital stock or securities convertible into or
exchangeable or exercisable for any such capital stock at any
time after the date of this Warrant (other than in a public
offering and other than persons or entities holding nonrestricted
stock that can be freely traded pursuant to Section 4(1) of the
Securities Act and persons or entities who obtained stock
pursuant to a registration described in Section 8.9(i)(A), (B),
(C) or (D)) to agree not to effect any such public sale or
distribution during such period.
8.10 Rule 144 Reporting. With a view to making available to
the holders of Warrants and of shares of Common Stock issuable
upon exercise thereof the benefits of certain rules and
regulations of the Commission which may permit the sale of
Warrants or shares of Common Stock issuable upon exercise thereof
to the public without registration, the Company agrees to: (a)
make and keep public information available as those terms are
understood and defined in Rule 144 under the Securities Act or
any successor rule or regulation from time to time in effect; (b)
file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and
the Exchange Act; and (c) furnish to the Holder or a holder of
Common Stock issuable upon exercise of Warrants forthwith upon
request a written statement by the Company as to its compliance
with the reporting requirements of Rule 144 and the Exchange Act,
a copy of the most recent annual or quarterly report of the
Company filed with the Commission and such other reports and
documents of the Company and other information in the possession
of or reasonably obtainable by the Company as the Holder or such
holders my reasonably request in availing themselves of any rule
or regulation of the Commission allowing them to sell securities
without registration under the Securities Act.
<PAGE>
8.11 Consent for Additional Registration Rights. The
Company shall not grant rights to register any of its securities
under the Securities Act to any person or entity, and shall not
permit the amendment, supplement or modification of any such
rights existing as of the Closing Date, without the consent of
the holders of Warrants and shares of Common Stock issuable upon
exercise thereof representing more than 50% of the shares of
Common Stock issued or issuable upon exercise of the Warrants
(which must include First Source if First Source is then a
Holder), except for the rights described by the Registration
Agreement.
ARTICLE IX
MISCELLANEOUS
9.1 Nonwaiver and Expenses. No course of dealing or
any delay or failure to exercise any right hereunder on the part
of the Holder shall operate as a waiver of such right or
otherwise prejudice the Holder's rights, power or remedies. If
the Company fails to make, when due, any payments provided for
herein or fails to comply with any other provision of this
Warrant, the Company shall pay to the Holder (a) interest at the
Default Rate on any amounts due and owing to the Holder and (b)
such further amounts as shall be sufficient to cover any costs
and expenses including, but not limited to, reasonable attorneys,
fees, incurred by the Holder in collecting any amounts due
pursuant to this Warrant or in otherwise enforcing any of its
rights, powers or remedies hereunder.
9.2 Holder Not a Stockholder. Except as otherwise provided
herein, prior to the exercise of this Warrant as hereinbefore
provided, the Holder shall not be entitled to any of the rights
of a stockholder of the Company, including, without limitation,
the right as a stockholder to (a) vote or consent, or (b) receive
dividends or any other distributions made to stockholders.
9.3 Notice Generally. Any notice, demand or delivery to be
made pursuant to the provisions of this Warrant shall be
sufficiently given or made if sent by first class mail, postage
prepaid, addressed to (a) the Holder at its last known address
appearing on the books of the Company maintained for such purpose
or (b) the Company at its principal office referred to in Section
2.2. The Holder and the Company nay each designate a different
address by notice to the other pursuant to this Section 9.3.
9.4 Payment of Certain Expenses. The Company shall pay all
expenses in connection with, and all taxes (other than stock
transfer taxes and income taxes) and other governmental charges
that may be imposed in respect of, the issue, sale and delivery
of (a) the shares of Common Stock issuable upon the exercise of
this Warrant or (b) this Warrant. The Company shall reimburse
First Source for all reasonable expenses incurred by First Source
in monitoring the Company's compliance with the affirmative and
negative covenants of this Warrant.
9.5 Successors and Assigns. This Warrant and the rights
evidenced hereby shall inure to the benefit of and be binding
upon the successors of the Company and the Holder. The
provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of this Warrant, and shall be
enforceable by any such Holder.
<PAGE>
9.6 Amendment. This Warrant may not be modified or amended
except by an instrument in writing signed by the party against
which enforcement is sought.
9.7 Headings. The headings of the Articles and Sections of
this Warrant are for convenience of reference only and shall not,
for any purpose, be deemed a part of this Warrant.
9.8 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF ILLINOIS FOR CONTRACTS ENTERED INTO AND TO
BE PERFORMED IN SUCH STATE.
9.9 Subsidiaries. The provisions of this Warrant referring
to "Subsidiaries" of the Company or to "consolidated" financial
statements shall only apply during such times as the Company has
one or more Subsidiaries.
<PAGE>
9.10 No Section 338 Election or Step-Up in Asset Value on
Books of the Company. The Company acknowledges that the
definition of Adjusted Operating Profits is based upon the
assumption that neither the Company nor any of its Subsidiaries
will (or will be deemed to) make a Section 336 election under the
Internal Revenue Code of 1986, as amended, or otherwise write-up
the value of any of its assets on its books used for computing
Adjusted Operating Profits. The Company hereby agrees and
covenants that neither it nor any of its Subsidiaries will (or
will be deemed to) make any such election or write-up.
9.11 Replacement. This Warrant is an amendment and
restatement of, and is issued in replacement of, the warrant
dated as of January 20, 1994 which was issued to Household
Commercial Financial Services, Inc., and that warrant and its
predecessors and all rights thereunder are hereby cancelled and
terminated.
Dated as of December 12, 1995.
OPTEK TECHNOLOGY, INC.
By:
Its:
Attest:
Secretary
(AFFIX CORPORATE SEAL)
AGREED AND ACCEPTED TO:
FIRST SOURCE FINANCIAL, INC.
By:
Its:
<PAGE>
NOTICE OF EXERCISE FORM,
(To be executed only upon partial
or full exercise of the within Warrant)
The undersigned registered Holder of the within Warrant
irrevocably exercises the within Warrant for and purchases
_____________ shares of Common Stock of Optek Technology, Inc.
and
[Make appropriate selection by placing an "X" in the
box and completing the blank associated with that box]
(a) agrees to make payment therefor in the amount of
$__________,
(b) pursuant to Section 2.2(b)(ii) of the within
Warrant instructs and agrees that shares of Common Stock of Optek
Technology, Inc. be withheld in payment therefor,
all at the price and on the terms and conditions specified in the
within Warrant and requests that a certificate (or ______________
certificates in denominations of __________ shares) for the
shares of Common Stock of Optek Technology, Inc. hereby purchased
be issued in the name of and delivered to (choose one) (a) the
undersigned or (b) ___________________, whose address is
____________________, and if such shares of Common Stock shall
not include all the shares of Common Stock issuable as provided
in the within Warrant, that a new Warrant of like tenor for the
number of shares of Common Stock of Optek Technology, Inc. not
being purchased hereunder be issued in the name of and delivered
to [choose one] (a) the undersigned or (b) _________________
whose address is _____________________.
Dated:_______________________, 19___
By
(Signature of Registered
Holder)
Signature Guaranteed:
By
[Title)
NOTICE: The signature of this Notice of Exercise must
correspond exactly with the name of the Holder as specified on
the face of the within Warrant.
The signature to this Notice of Exercise must be
guaranteed by a commercial bank or trust company in the United
States or a member firm of the New York Stock Exchange.
<PAGE>
SCHEDULE I
Compensation (Section 5.3(n))
Title
Maximum, Not
to Exceed
President, CEO
$250,000/yr*
Vice President
$175,000/yr*
Dir. Corp. Services
$175,000/yr*
Dir. Operations
$175,000/yr*
Dir. Marketing/R&D
$175,000/yr*
_______________________
* Maximum amount shown is for Fiscal Year Ending 1988, and
increases 10% per year.
Computation of Per Share Earnings
Exhibit 11.1
<TABLE>
For the Fiscal Years Ended
<CAPTION>
October 27, October 28, October 29,
1995 1994 1993
___________ ___________ __________
<S> <C> <C> <C>
Adjusted shares outstanding
Weighted average common
shares outstanding 3,318,649 3,223,741
3,223,971
Warrants 3,404,801 3,408,801
-
Stock Options 967,461 1,120,222
-
_________ _________ _________
Total common shares and
common share equivalents 7,690,911 7,752,764
3,223,971
20% common stock limitation (663,730) (644,748)
-
_________ _________ _________
Adjusted weighted average
shares outstanding 7,027,181 7,108,016
3,223,971
_________ _________ _________
Adjusted net earnings (loss)
Net earnings (loss) $ 9,838,000 $ 3,179,000
$(10,059,000)
Adjustment for 20% common stock
limitation 27,000 184,000
-
__________ _________ ____________
Adjusted earnings for computation
of earnings per share $ 9,865,000 $ 3,363,000
$(10,059,000)
Earnings (loss) per share
Adjusted earnings for computation
of earnings per share $ 9,865,000 $ 3,363,000
$(10,059,000)
Adjusted weighted average
shares outstanding 7,027,181 7,108,016
3,223,971
__________ __________ ___________
Earnings (loss) per common share $1.40 $0.47
($3.12)
</TABLE>
Notes:
Primary earnings (loss) per share and fully diluted earnings
(loss) per
share were substantially the same in all periods presented.
The modified treasury stock method is used to calculate net
earnings per
common share. The calculation uses the weighted average number of
common
shares outstanding and, when fully dilutive, common equivalent
shares
outstanding (warrants and stock options). Under this method, all
warrants
and options are assumed to be exercised and up to 20% of common
shares
outstanding are assumed to be repurchased. The net proceeds are
then
assumed to be used to reduce debt and the resulting reduction in
interest
expense is added back to net earnings for calculation of earnings
per share.
SUBSIDIARIES OF THE REGISTRANT
Optek Holdings, Inc. (Texas)
OTX Corporation (Texas)
Semiconductores Opticos, S.A. de C.V. (Mexico)
Optron de Mexico, S.A. de C.V. (Mexico)
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Optek Technology, Inc.:
We consent to incorporation by reference in the registration
statements on Form S-8 (no. 33-18555 and No. 33-60656) of Optek
Technology, Inc. of our reports dated December 6, 1995, relating
to
the consolidated balance sheets of Optek Technology, Inc. and
subsidiaries as of October 27, 1995 and October 28, 1994, the
related consolidated statements of operations, stockholders'
equity
(deficit), and cash flows for each of the years in the three-year
period ended October 27, 1995, and the related schedule, which
reports appear in the October 27, 1995 annual report on Form 10-K
of Optek Technology, Inc.
KPMG Peat Marwick LLP
Dallas, Texas
January 5, 1996
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Optek Technology, Inc.:
Under date of December 6, 1995, we reported on the consolidated
balance sheets of Optek Technology, Inc. and subsidiaries as of
October 27, 1995 and October 28, 1994, and the related
consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the years in the three-year
period ended October 27, 1995, which are included in this annual
report on Form 10-K. In connection with our audits of the
aforementioned consolidated financial statements, we also audited
the related consolidated financial statement schedule as listed
in Item 14. This consolidated financial statement schedule is
the responsibility of the Company's management. Our
responsibility is to express an opinion on this consolidated
financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
Dallas, Texas
December 6, 1995
<PAGE>
<TABLE>
Schedule II
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(in thousands)
<CAPTION>
Additions
Balance at charged to Deductions
beginning of costs and and Balance at
Description year expenses write-offs end of year
<S> <C> <C> <C> <C>
Year ended October 27, 1995
Allowance for
doubtful accounts
and customer returns 738 785 (548) 975
Reserve for excess and
obsolete inventory 3,030 63 (640) 2,453
Year ended October 28, 1994
Allowance for
doubtful accounts
and customer returns 825 697 (784) 738
Reserve for excess and
obsolete inventory 3,483 1,298 (1,751) 3,030
Year ended October 29, 1993
Allowance for
doubtful accounts
and customer returns 561 1,099 (835) 825
Reserve for excess and
obsolete inventory 2,320 5,543 (4,380) 3,483
</TABLE>
<PAGE>
<TABLE>
Schedule X
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
Supplementary Statement of Operations Information
(in thousands)
<CAPTION>
Year ended
Oct. 27 Oct. 28, Oct. 29,
1995 1994 1993
<S> <C> <C> <C>
Maintenance and repairs $1,718 $ 851 $ 702
Depreciation and amortization 2,722 2,705 3,664
</TABLE>
S-1
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
registrant's Form 10-K for the fiscal year ended October 27, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-27-1995
<PERIOD-END> OCT-27-1995
<CASH> 928
<SECURITIES> 0
<RECEIVABLES> 7906
<ALLOWANCES> 975
<INVENTORY> 5284
<CURRENT-ASSETS> 13203
<PP&E> 33282
<DEPRECIATION> 20618
<TOTAL-ASSETS> 26065
<CURRENT-LIABILITIES> 9175
<BONDS> 15996
<COMMON> 34
0
0
<OTHER-SE> 810
<TOTAL-LIABILITY-AND-EQUITY> 26065
<SALES> 62542
<TOTAL-REVENUES> 62542
<CGS> 38450
<TOTAL-COSTS> 49444
<OTHER-EXPENSES> 142
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2960
<INCOME-PRETAX> 9996
<INCOME-TAX> 158
<INCOME-CONTINUING> 9838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9838
<EPS-PRIMARY> 1.40
<EPS-DILUTED> 1.40
</TABLE>
