As filed with the Securities and Exchange Commission on February
17, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
OPTEK TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware
75-1962405
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1215 West Crosby Road
Carrollton, Texas 75006
(972) 323-2200
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
THOMAS R. FILESI
President and Chief Executive Officer
1215 West Crosby Road
Carrollton, Texas 75006
(972) 323-2200
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
CHRISTOPHER M. HEWITT
Hewitt & Hewitt, P.C.
2612 Thomas Avenue
Dallas, Texas 75204
(214) 969-0250
FRANCIS S. CURRIE
JOHN T. SHERIDAN
CHRISTOPHER G. NICHOLSON
Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes
effective.
CALCULATION OF REGISTRATION FEE
Title of Each Amount to be Proposed Maximum Proposed Amount
Class of Registered Offering Price Maximum of Regis-
Securities Per Share(1) Aggregate tration
to be Registered Offering Fee
Price (1)
Common Stock
(par value $.01) 2,875,000 shares(2) $21.625 $62,171,875 $18,341
(1) Estimated solely for the purpose of calculating the amount
of the registration fee in accordance with Rule 457(c) under the
Securities Act of 1933 as the average of the high and low sale
prices of a share of the
registrant's common stock reported by the Nasdaq Stock
Market's National Market System on February
12, 1998.
(2) Includes 375,000 shares that the Underwriters have the
option to purchase to cover over-allotments, if any.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay
its effective date until the Registrant shall file a further
amendment which specifically states that this
Registration Statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act
of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE> <PAGE>
SUBJECT TO COMPLETION - DATED FEBRUARY 17, 1998
PROSPECTUS
2,500,000 Shares
Optek Technology, Inc.
Common Stock
All of the shares of common stock of Optek Technology, Inc. (the
"Company"), par value $0.01 per share (the
"Common Stock"), offered hereby are being sold by First Source
Financial LLP ("First Source" or the "Selling
Stockholder"). See "Selling Stockholder." The Company will not
receive any proceeds from the sale of shares by the
Selling Stockholder.
The Common Stock is included for quotation in The Nasdaq Stock
Market's National Market (the "Nasdaq National
Market") under the symbol "OPTT." On February 12, 1998, the last
reported sales price of the Common Stock on
the Nasdaq National Market was $21.88 per share. See "Price
Range of Common Stock."
See "Risk Factors" on pages 8 to 16 for a discussion of certain
material factors that should be considered in
connection with an investment in the Common Stock offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Price to Underwriting Discounts Proceeds to
Public and Commissions(1) Selling
Stockholder
Per Share $ $ $
Total (2)(3) $ $ $
(1) The Company and the Selling Stockholder have agreed to
indemnify the several Underwriters against certain
liabilities, including
liabilities arising under the Securities Act of 1933, as amended
(the "Securities Act"). See
"Underwriting."
(2) The Company has agreed to pay the expenses of the offering
estimated to be $200,000. .
(3) The Selling Stockholder has granted the several
Underwriters a 30-day over-allotment option to purchase up
to 375,000 additional shares of the Common Stock on the
same terms and conditions as set forth above. If
all such additional shares are purchased by the
Underwriters, the total Price to Public will be $ , the total
Underwriting Discounts and Commissions will be $ ,
and the total Proceeds to Selling Stockholder will
be $ . See "Underwriting."
The shares of Common Stock are offered by the Underwriters
subject to delivery by the Selling Stockholder and
acceptance by the Underwriters, to prior sale and to withdrawal,
cancellation or modification of the offer without
notice. Delivery of the shares to the Underwriters is expected
to be made through the facilities of the Depository Trust
Company, New York, New York on or about March , 1998.
Prudential Securities Incorporated
BancAmerica Robertson Stephens
ABN AMRO
Incorporated
March , 1998
Information contained herein is subject to completion or
amendment. A Registration Statement relating
to these securities has been filed with the Securities and
Exchange Commission. These securities may
not be sold nor may offers to buy be accepted prior to the time
the Registration Statement becomes
effective. This prospectus shall not constitute an offer to sell
or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be
unlawful prior to registration or qualification under the
securities laws of any such State.
PAGE
<PAGE>
[Photograph depicting a silicon wafer with a selection of the
Company's discrete compo-
nents and assemblies.]
"Photologic" and the Optek logo are trademarks of the
Company. Trademarks of
others are also referred to in this Prospectus.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE
PRICE OF THE COMMON STOCK, INCLUDING PURCHASES OF THE COMMON
STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE COMMON
STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON
STOCK MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF
PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND
SELLING GROUP MEMBERS, IF ANY) MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL
MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the
more detailed information and consolidated
financial statements, including the notes thereto, appearing
elsewhere in this Prospectus or incorporated by reference
herein. Unless the context indicates otherwise, references in
this Prospectus to the "Company" refer to Optek
Technology, Inc. and its wholly-owned subsidiaries. Unless
otherwise indicated, this Prospectus assumes that the
Underwriters' over-allotment option will not be exercised. See
"Underwriting."
The Company
The Company is a leading designer and manufacturer of
electronic sensor components and assemblies that
detect motion and position for a broad range of applications. The
Company utilizes optoelectronic and magnetic field
sensing technologies to target non-standard applications that
require specialized engineering and manufacturing
expertise. The Company sells its products for end use by original
equipment manufacturers (OEMs) in the office
equipment, automotive, industrial, aerospace/defense, medical and
communications markets. The Company believes
that in many cases it is the sole source supplier for specific
components and assemblies necessary for its customers'
applications. In fiscal 1997 major customers included C.P. Clare
Corporation, General Motors Corporation, Pitney
Bowes, Inc., Strattec Security Corporation and Xerox Corporation.
The Company's primary business has been focused on the
design and manufacture of optoelectronic
semiconductor chips, discrete components and assemblies for
commercial (i.e., office equipment, industrial, medical
and communications) OEMs. The Company's commercial products
include a wide array of custom electronic
components and assemblies which are each designed to address
specific applications required by its diverse customer
base. Demand by commercial customers for the Company's sensors
is driven by sales of OEM products that
incorporate the Company's sensors and frequently have life cycles
ranging from three to 15 years. Often, the
Company is able to leverage its specialized engineering expertise
and close customer relationships to assist in the
design of its customers' next generation of products, which
significantly increases the Company's ability to secure
continuing sales from these customers as their product lines
evolve. As a result, commercial OEMs have
represented a stable and predictable sales base for the Company.
The Company has leveraged its expertise in commercial
markets to develop customized electronic sensors
to address the growing application requirements of the automotive
market. The Company believes that the
automotive sector represents its primary opportunity for growth
as an increasing number of sensors are being
incorporated into automobiles to improve fuel efficiency and
emissions, increase passenger safety and provide
additional consumer options. The Company believes this trend
will continue as governmental regulation mandates
improved passenger safety and reduced emissions and consumers
demand better safety and performance and
increased functionality. As a result of its strategic pursuit of
the automotive market, the Company's sales to the
automotive market have grown from 2% to 25% of net sales from
fiscal 1992 to fiscal 1997, respectively.
Currently, a substantial portion of the Company's automotive
assemblies are sold for use in a relatively small
number of applications. The Company presently sells electronic
sensors for use in General Motors' automobile
ignition and theft deterrent systems. In addition, the Company's
engineering and manufacturing expertise and cus-
tomer relationships have resulted in the Company being awarded
other automotive programs.
The Company's business objective is to maintain and enhance
its position as a leading designer and
manufacturer of custom electronic sensors. To achieve its
objective, the Company has implemented a strategy to:
(i) leverage its existing expertise in application specific
products; (ii) pursue additional opportunities in the growing
automotive sensor market; (iii) leverage its vertically
integrated manufacturing capabilities; and (iv) utilize multiple
sales channels for effective market coverage.
The Company's manufacturing operations are vertically
integrated, with facilities located in Carrollton,
Texas and Juarez, Mexico. Over 80% of the Company's products are
assembled in facilities operated by the Com-
pany in Juarez, Mexico. The Company markets its products
worldwide through its own technical sales staff, inde-
pendent sales representatives and independent stocking
distributors.
<PAGE>
The Company was founded and incorporated in the State of
Texas in 1979 and reincorporated in the State
of Delaware in 1984. The Company's principal executive offices
are located at 1215 West Crosby Road,
Carrollton, Texas 75006, and its phone number at that location is
(972) 323-2200.
PAGE
<PAGE>
Selling Stockholder
All of the shares offered hereby will be sold by First
Source. The offered shares will be acquired pursuant
to a warrant to purchase 3,150,000 shares of Common Stock held by
First Source (the "First Source Warrant"),
which will be exercised, at least in part, in connection with
completion of the Offering. The Company will not
receive any proceeds of the Offering, but will receive the
aggregate exercise price of $1,250,000 payable upon
exercise of the First Source Warrant to acquire the 2.5 million
shares of Common Stock to be sold in this Offering.
The exercise price for the Company's Common Stock subject to the
First Source Warrant is $0.50 per share. See
"Use of Proceeds," "Capitalization" and "Principal and Selling
Stockholders."
The Offering
Common Stock Offered by the
Selling Stockholder(1) ........... 2,500,000 shares
Common Stock to be Outstanding
after the Offering(1)(2)........... 6,966,025 shares
Use of Proceeds.................... The Company will not
receive any proceeds from
the sale of the Common
Stock offered hereby. See
"Use of Proceeds."
Nasdaq National Market Symbol..... OPTT
(1) Does not include 375,000 shares which may be issued
pursuant to the First Source Warrant and offered
by the Selling Stockholder if the Underwriters'
over-allotment is exercised in full.
(2) Does not include, as of February 12, 1998 (i) 596,665
shares issuable upon exercise of outstanding
director and employee stock options, of which options for
311,533 shares are exercisable immediately or
within 60 days of February 12, 1998, and (ii) 650,000
shares issuable upon exercise of the First Source
Warrant which is immediately exercisable.
PAGE
<PAGE>
Summary Consolidated Financial Data
(in thousands, except per share amounts)
The following table sets forth certain historical operating
data for the Company for each of the periods indicated.
<TABLE>
Fiscal
Year Ended Three
Months Ended
Oct. 29, Oct. 28, Oct. 27, Oct.25, Oct. 31, Jan. 31, Jan. 30,
1993(1) 1994(1)(2) 1995(2) 1996(2) 1997(3) 1997 1998
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of
Operations
Data:
Net sales $55,878 $55,625 $62,542 $67,395 $75,572 $16,689 $20,419
Cost of
sales 46,499 38,269 38,513 39,010 43,423 10,099 12,105
Gross
profit 9,379 17,356 24,029 28,385 32,149 6,590 8,314
Operating
income
(loss).. (5,272) 7,229 13,098 15,186 17,758 3,102 4,428
Income (loss)
before income
taxes and
extraordinary
item.... (10,059) 3,179 9,996 14,039 17,764 2,943 4,524
Net income
(loss).....(10,059) 3,179 9,838 12,895 11,502 1,912 2,940
Diluted
earnings
(loss) per
share
before
extraordinary
item(4) $(3.12) $0.62 $1.40 $1.71 $1.63 $0.25 $0.37
Diluted
earnings(loss)
per
share(4) $(3.12) $0.62 $1.40 $1.71 $1.50 $0.25 $0.37
Weighted
average
shares out-
standing -
diluted
basis(4)...3,224 5,154 7,007 7,544 7,672 7,533 7,881
</TABLE>
<TABLE>
Oct. 31, Jan. 30,
1997 1998(unaudited)
Actual As adjusted
<S> <C> <C> <C>
Balance Sheet Data:
Working capital......... $15,068 $16,552 $17,602
Total assets............. 38,936 41,622 42,672
Total current liabilities...... 12,656 12,274 12,274
Stockholders' equity.......... 26,163 29,193 30,243
</TABLE>
(1) Results for fiscal 1993 and 1994 include non-recurring
charges of $8.3 million and $1.3 million, respectively, relating
to (i) restructuring charges;
(ii) write-off of excess and obsolete inventory; (iii)
losses from a discontinued subsidiary; and (iv) amortization of
deferred development costs. See
"Selected Consolidated Financial Data."
(2) Results for fiscal 1994, 1995 and 1996 include tax
benefits resulting from utilization of net operating loss
carryforwards during those years of
$305,000, $3.9 million and $3.2 million, respectively.
All such carryforwards were fully utilized during fiscal 1996.
(3) In the fourth quarter of fiscal 1997, the Company agreed
to pay its former lender First Source $1,545,000 to release all
debt obligations, including
contingent additional interest, under the credit facility
and other restrictive covenants. The provision for payment, net
of related income tax benefits
of $542,000, was classified as an extraordinary item.
(4) The Company has restated all previous earnings (loss) per
share data to comply with Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("SFAS No. 128"), which
became effective on a retroactive basis with the issuance of the
fiscal 1998 first quarter earnings data. See "Managements
Discussion and Analysis of Financial
Condition and Results of Operations - New Accounting Standards."
PAGE
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by this
Prospectus involves a high degree of risk.
Prospective investors should carefully consider the risk factors
set forth below, as well as the other information set
forth in this Prospectus or incorporated herein by reference,
prior to making any investment in the Common Stock
offered hereby.
This Prospectus, including the information incorporated by
reference herein, includes "forward-looking
statements" within the meaning of Section 27A of the Securities
Act. All of the statements contained in this Pro-
spectus, other than statements of historical fact, should be
considered forward-looking statements, including, but
not limited to, those concerning the Company's strategies,
objectives and plans for expansion of its operations, prod-
ucts and services and growth in demand for sensor products. There
can be no assurances that these expectations will
prove to have been correct. Important factors that could cause
actual results to differ materially from the
Company's expectations ("Cautionary Statements") are disclosed in
this Prospectus, included, without limitation,
under "Risk Factors." All subsequent written and oral
forward-looking statements by or attributable to the Company
or persons acting on its behalf are expressly qualified in their
entirety by such Cautionary Statements. Prospective
investors are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the
date hereof and are not intended to give any assurance as to
future results. The Company undertakes no obligation
to publicly release any revisions to these forward-looking
statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.
Fluctuations in Operating Results. The Company's net sales
and operating results have varied on a quar-
terly and an annual basis in the past and may vary significantly
in the future. The Company's first fiscal quarter,
which ends in January, includes the holiday season, which impacts
customer order entry and also includes an annual
facilities shutdown, and has therefore traditionally been the
Company's lowest in terms of net sales and operating
income. Historically, the Company's net sales have been lower in
such quarter than in the immediately preceding
quarters. The Company's third fiscal quarter has in the past been
affected by the extended vacation season in Eu-
rope, which reduces international sales during that period. The
Company's net sales and operating results could
be materially and adversely affected by many factors, some of
which are partially or wholly outside the control of
the Company, including, among others, failure to be selected to
supply sensors for new products and programs,
quality control of products sold, the relatively long sales and
development cycle for the Company's products, the
Company's ability to introduce new products and technologies on a
timely basis, market acceptance of the
Company's and its customers' products, the timing, deferral or
cancellation of customer orders and related ship-
ments, competitive pressures on selling prices, availability of
raw materials, fluctuations in yields, changes in prod-
uct mix, changes in the lead time required to ship products after
receipt of an order, introduction of products and
technologies by the Company's competitors and customers,
personnel changes and difficulties in attracting and
retaining qualified technical personnel and economic conditions
generally and in the automotive and commercial mar-
kets.
A significant portion of the Company's product sales are
made pursuant to standard purchase orders that,
in some cases, are cancelable without significant penalties. In
addition, purchase orders are subject to changes in
quantities of products and delivery schedules to reflect changes
in customers' requirements and manufacturing avail-
ability. The Company's actual shipments depend in part on the
Company's manufacturing capacity and the avail-
ability of raw materials from the Company's suppliers. The
Company's expense levels are based, in part, on its ex-
pectations as to future net sales and to some extent are fixed in
the short term. Accordingly, the Company may be
unable to adjust spending in a timely manner to compensate for
any unexpected shortfall in revenues, and any
significant shortfall of demand in relation to the Company's
expectations or any material delay or deferral of cus-
tomer orders would have a material adverse effect on the
Company's business, operating results and financial condi-
tion.
<PAGE>
The Company has commenced expenditures to increase
manufacturing capacity and engineering resources
in anticipation of additional potential net sales. In the event
that such additional net sales do not materialize when
and as anticipated, such expenditures could adversely affect the
Company's gross margins and operating margins.
As a result of the foregoing and other factors, it is likely
that in some future periods the Company's operat-
ing results will fail to meet the expectations of public market
analysts or investors. In such event, or in the event
that adverse conditions prevail or are perceived to prevail
generally or with respect to the Company's business, the
trading price of the Company's Common Stock could drop
significantly.
Dependence on Automotive Industry. The automotive industry,
which accounted for approximately 25%
of the Company's net sales during fiscal 1997, has in recent
years represented the fastest area of growth for the
Company. Thus, the maintenance of or improvement in the Company's
operating results for future periods will
depend in part on its success in the automotive sensor market and
on the increasing of use of sensors in automobiles
to improve fuel efficiency, safety and consumer options.
Currently, a substantial portion of the Company's auto-
motive assemblies are sold for use in a relatively small number
of applications. No assurance can be given that
additional applications will be developed or that the Company
will be successful in participating in them.
The automotive industry is cyclical due to general economic
conditions, the level of interest rates, consumer
confidence, patterns of consumer spending and the automobile
replacement cycle, all of which are beyond the
control of the Company. In addition, the Company's customers in
the automotive industry are highly unionized and
have in the past experienced labor disruptions. Accordingly,
automotive production may not increase or may decline
in the future. A significant reduction or prolonged interruption
in automotive production could have a material ad-
verse effect on the Company's business, operating results and
financial condition.
Dependence on Customer Specific Products; Lengthy Sales and
Development Cycle. A substantial
portion of the Company's products are designed to address the
specific needs of individual customers. As a result,
the sales and development cycle for these products can be
lengthy, with the development cycle alone ranging from
four to 36 months or longer for new products in new applications,
and are particularly long for products targeted
to the automotive industry. Because customer specific products
are developed for particular customers' applications,
some of the Company's current and future customer specific
products may never be produced in high volume, or
at all, due to the Company's inability to introduce custom
products in a timely manner, delays in the introduction
of the Company's customers' products, the failure of the
Company's customers' products to achieve and sustain
commercial success or the discontinuation of a customer's product
line. Any of these occurrences could have a
material adverse effect on the Company's business, operating
results and financial condition.
Product Life Cycles; Dependence on Selection as Provider for
New Products. The Company's ability
to generate net sales in the future is primarily dependent on its
being selected by OEMs as a provider of sensor
components and/or assemblies for their new products. OEMs
typically select and qualify sensor providers for new
product models during the initial design and testing phases of
their product development cycles, which typically
range from four to over 36 months in length. Once a new product
model is implemented, its life cycle typically
ranges from three to 15 years. The Company believes that it
would be difficult for it to begin providing components
and assemblies for use in a particular end product if the Company
had not been selected and qualified as a provider
during the development of such product. Therefore, a failure to
be selected as a provider during the early stages
of a product's life cycle could preclude the Company from ever
providing assemblies and components for such prod-
uct model throughout its life cycle. In addition, such failure
to be selected could reduce the Company's ability to
be selected as a provider for future product models if, for
example, such failure adversely affects the working rela-
tionship between the Company and the manufacturer of such product
model. There can be no assurance that the
Company will be selected as a provider of sensor assemblies and
components for new product models introduced
by current customers or other OEMs. Unless the Company is
selected as a supplier of sensor components and
assemblies for new models as existing models are phased out, the
Company's business, operating results and finan-
cial condition could materially and adversely affected.
<PAGE>
Customer Concentration. Historically, a relatively small
number of customers has accounted for a signifi-
cant percentage of the Company's total net sales, and the Company
expects that this trend will continue. During
fiscal 1997, the Company's ten largest customers accounted for
approximately 63% of net sales. Three customers,
Strattec Security Corporation, General Motors Corporation and
Pitney Bowes, Inc., made purchases which account-
ed for 13%, 13% and 10%, respectively, of the Company's net sales
for fiscal 1997. In each of fiscal 1994, 1995
and 1996, the Company has had two customers that each accounted
for at least 10% of total net sales. The
Company's ability to achieve sales in the future will depend upon
its ability to obtain orders from, maintain relation-
ships with and provide support to a relatively small number of
existing and new key customers. As a result, any
cancellation, reduction, rescheduling or delay in orders by or
shipments to any significant customer or the discon-
tinuation or redesign by any such customer of its products which
currently incorporate one or more of the
Company's products could have a material adverse effect on the
Company's business, operating results and financial
condition.
Pricing Pressure. There is continuing pressure from OEMs to
reduce costs associated with outside suppli-
ers such as the Company. In some cases, the Company sells
products under agreements which contain provisions
that require the Company to reduce its per unit price over time.
The Company's other products, subject to periodic
re-quotation, may also experience declining average selling
prices over their life cycles with a similar potential
impact on gross margins if the Company is unable to reduce
corresponding costs or introduce new products with
higher gross margins. If the Company is unable to make
corresponding product cost reductions, the resulting
decline in the average selling prices of the products sold could
reduce the Company's product gross margin.
Foreign Manufacturing Operations. Over 80% of the Company's
components and assemblies are pro-
duced in facilities operated by the Company in Juarez, Mexico.
Mexico has enacted legislation to promote the use
of such manufacturing operations by foreign companies and
continuation of these operations depends upon: com-
pliance with applicable laws and regulations of the United States
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 the Company to
wholly own its Mexican subsidiaries and to import items into
Mexico duty free, provided that such items, after pro-
cessing, 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. Although
assembly operations in Mexico continue to be less expensive than
comparable operations in the United States, in
recent years many companies have established Maquiladora
operations in the Juarez area to take advantage of lower
labor costs. Increasing demand for labor, particularly skilled
labor and professionals, from new and existing
Maquiladora operations has in the past and could in the future
result in increased labor costs. The Company may
be required to make additional investments in automating
equipment to partially offset increased labor costs. The
loss of Maquiladora status, the inability to recruit, hire and
retain qualified employees, a significant increase in labor
costs, unfavorable exchange rates or interruptions in the trade
relations between the United States and Mexico could
have a material adverse effect on the Company's business,
operating results and financial condition. The Company
anticipates that additional manufacturing capacity, primarily in
Mexico, will be required to support growth over the
next several years. Therefore, capital expenditures are planned
to increase to a total of approximately $10 to $15
million to be expended over the next two to three fiscal years to
support anticipated future growth in demand for
the Company's products. The timing and amount of such
expenditures is subject to adjustment based upon continued
evaluation by management.
<PAGE>
International Sales. In fiscal 1996 and 1997, international
sales constituted approximately 28% and 23%,
respectively, of the Company's net sales. The Company expects
that revenues derived from international sales will
continue to represent a significant portion of its net sales in
the future. Because all of the Company's revenues from
international sales have to date been denominated in United
States dollars, the Company does not currently face
significant currency exchange rate risks. However, international
operations and demand for the Company's and its
customers' products are subject to a variety of risks, including
tariffs, import restrictions and other trade barriers,
changes in regulatory requirements, longer accounts receivable
payment cycles, adverse tax consequences, export
license requirements, foreign government regulation, political
and economic instability and changes in diplomatic
and trade relationships. In addition, currency fluctuations
could reduce demand for the Company's products or
demand for its customers' products by making them more expensive
than competitors' products. There can be no
assurance that one or more of the foregoing risks will not have a
direct or indirect material adverse effect on the
Company's business, operating results and financial condition.
Moreover, the laws of certain foreign countries in
which the Company's products are or may in the future be sold may
not protect the Company's intellectual property
rights to the same extent as the laws of the United States, thus
increasing the possibility of infringement or misap-
propriation of the Company's intellectual property.
Competition. The Company believes that competition in the
market for custom optoelectronic and mag-
netic sensors is intense and is likely to increase. Competition
in the sensor markets served by the Company is pri-
marily based upon custom design capabilities, quality,
technology, responsiveness, timely delivery and price. The
Company competes with numerous companies for the custom
optoelectronic and magnetic sensor requirements of
OEMs producing office equipment, automotive products, industrial
products, specialized aerospace/defense and
medical applications and communications equipment. The Company
believes that its principal competitor for sales
of custom sensor components and assemblies is Honeywell, Inc. In
addition, because certain OEMs, either directly
or through affiliated entities, have internal capabilities to
design and manufacture custom sensor components and
assemblies, the Company must also compete with the in-house
capabilities of such OEMs. In some cases, the
Company's prospective customers may elect to purchase low-cost
standardized sensor components from commodity
suppliers and utilize their in-house design and manufacturing
capabilities to adapt such standard components to fulfill
their sensor requirements. Certain of the Company's current and
potential competitors may have substantially
greater financial resources, name recognition and/or more
extensive engineering, manufacturing, marketing and cus-
tomer service and support capabilities than the Company.
Furthermore, the Company expects its competitors to
continually improve their design and manufacturing capabilities
and to introduce new products and processes with
enhanced performance characteristics and/or lower prices. While
the Company believes that its custom design capa-
bilities, quality, responsiveness, engineering and operating
efficiencies are competitive advantages, no assurance
can be given that the Company will be able to compete
successfully in the future. This competitive environment
could result in significant price reductions or the loss of
orders from current and/or potential customers which, in
each case, could materially adversely affect the Company's
business, operating results and financial condition.
Sole or Limited Sources of Supply. The Company relies on
outside vendors to supply raw materials used
in the manufacture of its sensor components and assemblies. From
time to time, certain of these materials, includ-
ing lead frames used in the manufacture of discrete sensor
components, are only attainable from a sole or limited
group of qualified suppliers. The Company's reliance on outside
vendors generally, and on a sole or limited group
of suppliers in particular, involves several risks, including a
potential inability to obtain an adequate supply of re-
quired materials, reduced control over pricing and timely
delivery of materials, and limited ability to pass on price
increases to its customers. Because the procurement of certain
of these components may require long lead times,
there can be no assurance that delays or shortages caused by
suppliers will not occur. The Company's ability to
fill customer orders may depend on the availability of numerous
different components from its suppliers and, partic-
ularly in periods of high demand, the Company has experienced
difficulties in obtaining certain materials when
needed which, in some cases, has delayed deliveries to the
Company's customers. Furthermore, the Company's
customers, in particular in the automotive industry, may require
the Company to secure certain materials from quali-
fied manufacturers and the process of qualifying an alternate
supplier can take several months. If the Company is
unable to secure materials due to supplier shortages or for any
other reason, it could adversely affect the Company's
ability to retain customer orders or to deliver products on a
timely basis, which in turn could adversely affect its
relationships with customers. If significant customer
relationships were adversely affected in this manner or if
significant orders were cancelled or delayed, it could have a
material adverse effect on the Company's business,
operating results and financial condition.
<PAGE>
Limited Intellectual Property Protection. The Company
relies on its technical engineering expertise as
protected by trade secret laws and nondisclosure agreements and,
to a lesser extent, on a combination of patent,
maskwork rights, copyright, trademark and other intellectual
property protection methods to protect its proprietary
technology. Although the Company currently holds four patents
and has one pending patent application in the
United States, the Company believes that patents are of less
significance in its industry than such factors as customer
service, innovation, technical expertise and know-how of its
personnel. There can be no assurance that the
Company's competitors will not be able to legally ascertain the
nonpatented proprietary information embedded in
the Company's sensor components or other products, in which case
the Company may be unable to prevent use of
such information. To the extent the Company elects to assert its
patent rights, there can be no assurance that any
claims of the Company's patents will be sufficiently broad to
protect the Company's technology. In addition, there
can be no assurance that any patents issued to the Company will
not be challenged, invalidated or circumvented,
that any rights granted thereunder will provide adequate
protection to the Company, or that the Company will have
sufficient resources to prosecute its rights. The Company has
received notification of patent issues concerning a
process used to manufacture a small portion of its products, but
believes the issues asserted are without merit.
There can be no assurance that infringement claims by third
parties or claims for indemnification resulting from in-
fringement claims will not be asserted in the future, or that
such assertions, if proven to be true, will not materially
adversely affect the Company's business, operating results and
financial condition. If any such claims are asserted
against the Company, the Company may seek to obtain a license
under the third party's intellectual property rights.
There can be no assurance that a license will be available on
reasonable terms or at all. Alternatively, the Company
could resort to litigation to challenge such claims. Such
challenges could be extremely expensive and time consum-
ing. Adverse determinations in any litigation could subject the
Company to significant liabilities to third parties,
require the Company to seek licenses from third parties and
prevent the Company from manufacturing and selling
its products. Any of these developments could have a material
adverse effect on the Company's business, operating
results and financial condition.
Limited Insurance Coverage; Environmental Regulation. The
operations of the Company in the United
Stated and in Mexico involve the use of industrial machine tools
and exposure to hazardous chemicals, with atten-
dant risks of liability for personal injury and property damage.
There can be no assurance that accidents will not
occur or that the Company will not incur substantial liability in
connection with the operation of its business. The
Company maintains workers' compensation insurance and general
liability insurance, with policy limits of $1 mil-
lion and $2 million, respectively, per accident or occurrence.
The Company also maintains an umbrella policy with
limits of $15 million in the aggregate. Such insurance excludes
coverage for losses or liabilities relating to environ-
mental damage or pollution. The Company's business, operating
results and financial condition could be materially
adversely affected by a claim that was not covered or only
partially covered by its insurance. In addition, the Com-
pany is subject to a variety of domestic and Mexican governmental
regulations relating to the use, storage, handling
and disposal of toxic or other hazardous substances used in
connection with its manufacturing activities. Any failure
by the Company to control the use, storage, handling or disposal
or adequately restrict the discharge of hazardous
or toxic substances could subject the Company to significant
liabilities or could cause the Company's manufacturing
operations to be curtailed or suspended.
Technological Change. While the Company is unaware of any
emerging technology that would have an
adverse effect on its business, there can be no assurance that
products or technologies developed by others will not
render the Company's products obsolete or non-competitive. There
can be no assurance that the Company will be
able to define new products successfully and develop and bring to
market new and enhanced products on a timely
and cost effective basis, develop or access new processes or
technologies or respond effectively to new technological
changes or new product announcements by others. A failure in any
of these areas could have a material adverse
effect on the Company's business, operating results and financial
condition.
Reliance on Key Personnel; Need for Additional Technical
Personnel. The Company's future financial
performance will depend in significant part upon the continued
contributions of its executive officers and other key
personnel, many of whom would be difficult to replace.
Competition for such personnel is intense, and there can
be no assurance that the Company will be successful in attracting
or retaining such personnel. To better retain
them, the Company has entered into employment agreements with its
senior management. The failure to retain such
persons, or to attract and retain replacements, could materially
adversely affect the Company's business, operating
results and financial condition.
<PAGE>
The Company believes that a key requirement for competing
successfully in the optoelectronic and magnetic
sensor business is the ability to attract and retain creative and
knowledgeable design engineers and other technical
personnel who are qualified in these fields. The number of design
engineers who have the education, training, cre-
ativity and experience to design complex sensor solutions is very
limited, and the competition for such personnel
can be intense. Because of the active involvement of the
Company's design engineers in the sales process, the
Company's ability to pursue new customers and new projects from
existing customers is affected by its available
engineering resources. The Company's future success will be
heavily dependent upon its ability to attract and retain
qualified design, technical and management personnel. There can
be no assurance that the Company will be able
to continue to attract and retain these personnel, and the
failure to do so could have a material adverse effect on
the Company's business, operating results and financial
condition.
Risks of Product Liability. The use of the Company's
products in various industrial, commercial or con-
sumer applications may subject the Company to product liability
claims. The automotive industry, in particular,
has historically faced frequent product liability and similar
claims. Although the Company has not experienced any
product liability claims to date, the sale of products by the
Company may entail the risk of such claims. Further,
notwithstanding the possible existence of legal defenses or
contractual limitations of liability, industry practices or
the need to maintain good customer relationships may lead the
Company to make payments related to such product
liability claims. The Company does not currently maintain
significant levels of product liability insurance. Notwith-
standing the provisions in the agreements with its customers, any
product liability claim, which often involve claims
for substantial damages, brought against the Company could have a
material adverse effect upon the Company's
business, operating results and financial condition.
Risks of Product Recalls. The automotive industry is
heavily regulated by government agencies which
establish various vehicle safety standards that are often
indirectly related to the components and subcomponents in
their vehicles. To the extent that any vehicles or any parts
therein are required to be or are voluntarily recalled and
the recall involves vehicles or parts that are directly or
indirectly related to any of the Company's products, the
Company may be required to repair or replace its products,
redesign or reproduce its products or halt production
or shipment of its products. Further, any recall of vehicles or
parts directly or indirectly related to any of the
Company's products may have the effect of damaging the Company's
reputation. Although no such recall has in-
volved the Company or its products in the past, there can be no
assurance that such a recall will not occur in the
future or that if such a recall does occur that the Company's
business, operating results and financial condition will
not be materially adversely affected.
Year 2000 Compliance. The Year 2000 Issue is the result of
computer programs being written using two
digits rather than four to define the applicable year. Any of
the Company's computer programs that have
date-sensitive software may recognize a date using 00 as the
year 1900 rather than the Year 2000. This could
result in a system failure or miscalculations causing disruptions
of operations, including, among other things, a
temporary inability to process transactions, send invoices, or
engage in similar normal business activities. To
become Year 2000 compliant, the Company anticipates maintaining
its hardware platform, but replacing or upgrad-
ing most of the software. In addition, all PCs, HVAC, test
equipment and external providers will be reviewed and
acted on accordingly. It is anticipated that the Company will be
fully Year 2000 compliant by April 30, 1999.
Although the Company is committed to a successful and timely Year
2000 conversion and funds are dedicated and
available for this project, the Company only recently initiated
its Year 2000 compliance program and no assurance
can be given that it will be fully and timely implemented.
Failure of the Company's equipment or software to
operate properly with regard to the Year 2000 and thereafter
could require the Company to incur unanticipated
expenses to remedy any problems, which could have a material
adverse effect on the Company's business, operating
results and financial condition. Furthermore, the purchasing
patterns of customers or potential customers may be
affected by Year 2000 issues as companies expend significant
resources to correct their current systems for year
2000 compliance. These expenditures may result in reduced funds
to purchase products and services such as those
offered by the Company, which could have a material adverse
effect on the Company's business, operating results
and financial condition.
<PAGE>
Uncertain Need and Availability of Additional Funding.
Although the Company believes that its existing
cash reserves, credit facility and cash flows from operations
will be adequate to fund the Company's operations for
at least the next 12 months, there can be no assurance that such
sources will be adequate or that additional funds
will not be required either during or after such period. No
assurance can be given that additional financing will
be available or that, if available, it will be available on terms
favorable to the Company or its stockholders. If addi-
tional funds are raised through the issuance of equity
securities, the percentage ownership of then current stock-
holders of the Company will be reduced and such equity securities
may have rights, preferences or privileges senior
to those of the holders of the Company's Common Stock. If
adequate funds are not available to satisfy either short
or long-term capital requirements, the Company may be required to
limit its operations significantly. The
Company's capital requirements will depend on many factors,
including, but not limited to, the rate at which the
Company develops and introduces its products, the market
acceptance and competitive position of such products,
the levels of promotion and advertising required to market such
products and attain a competitive position in the
marketplace, and the response of competitors to the Company's
products. See "Management's Discussion and
Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Possible Volatility in Price of Common Stock. The market
price of the Common Stock is likely to be
volatile and may be significantly affected by factors such as
actual or anticipated fluctuations in the Company's
operating results, the introduction of new products, new
contracts or changes in pricing policies by the Company
or its competitors, developments with respect to proprietary
rights, changes in earnings estimates by analysts, condi-
tions and trends in the industries to which it markets its
sensors as well as general market conditions and other fac-
tors. In addition, the stock market has from time to time
experienced significant price and volume fluctuations that
have particularly affected the market prices for the securities
of technology companies. These broad market fluctu-
ations, as well as general economic, market and political
conditions, may adversely affect the market price of the
Company's Common Stock. In the past, following periods of
volatility in the market price of a company's common
stock, securities class action litigation has often occurred
against such companies. There can be no assurance that
such litigation will not occur in the future with respect to the
Company. Such litigation could result in substantial
costs and a diversion of management's attention and resources,
which could have a material adverse effect upon the
Company's business, operating results and financial condition.
There can be no assurance that the trading price of
the Common Stock will not decline substantially below the public
offering price.
Potential Future Acquisitions. In the future, the Company
may pursue acquisitions of product lines, tech-
nologies or businesses. Future acquisitions by the Company may
result in the use of significant amounts of cash,
potentially dilutive issuances of equity securities, incurrence
of debt and amortization expenses related to goodwill
and other intangible assets, each of which could materially
adversely affect the Company's business, operating
results and financial condition. In addition, acquisitions
involve numerous risks, including difficulties in the assimi-
lation of the operations, technologies and products of the
acquired company, the diversion of management's attention
from other business concerns, risks of entering markets in which
the Company has no or limited direct prior experi-
ence, and the potential loss of key employees of the acquired
company. There are currently no negotiations, com-
mitments or agreements with respect to any acquisition. In the
event that such an acquisition does occur, however,
there can be no assurance as to the effect thereof on the
Company's business, operating results and financial condi-
tion.
<PAGE>
Registration Rights. After giving effect to the sale of
Common Stock by the Selling Stockholder, two
beneficial owners hold rights to register up to 912,602 shares of
Common Stock under the Securities Act. The
largest single block of these shares entitled to registration
rights is subject to the warrant to purchase Common Stock
held by First Source. The warrant grants to First Source the
right to purchase an additional 650,000 shares of Com-
mon Stock at a current price of $0.50 per share. The exercise
price and number of shares are also subject to adjust-
ment upon the occurrence of certain events in order to address
dilution. The warrant expires on October 31, 1998.
Pursuant to the terms of the warrant, First Source may require
the Company to file a registration statement under
the Securities Act on one occasion at the Company's expense and
on two occasions at First Source's expense with
respect to shares of Common Stock which may be acquired pursuant
to the warrant. The Company is required to
use its best efforts to effect such registration, subject to
certain conditions and limitations. Further, whenever the
Company proposes to register under the Securities Act any of its
securities (other than securities to be issued solely
to employees or pursuant to a reorganization of the Company)
either for its own account or for the account of other
security holders exercising registration rights, the Company is
required to notify First Source of the proposed regis-
tration and to include, at the Company's expense, all Common
Stock which First Source may request in such regis-
tration, subject to certain conditions and limitations. The
existence or exercise of these rights may have an adverse
effect on the market price for the Common Stock. By virtue of
contractual limitations placed upon these registration
rights, First Source and James D. Crownover, the holder of
262,602 shares of Common Stock, have agreed not to
sell or otherwise dispose of their shares for a period of ninety
(90) days after the effective date of this Registration
Statement
Shares Eligible for Future Sale. Upon completion of the
Offering, the Company will have a total of
6,966,025 shares of Common Stock outstanding. Of these shares,
6,262,754 shares will be freely tradeable without
restriction or registration under the Securities Act by persons
other than "affiliates" of the Company, as defined
under the Securities Act of 1933, as amended. As of February 12,
1998, an additional 311,533 shares of Common
Stock are issuable under outstanding options at prices ranging
from $0.19 to $13.38 and are freely tradeable without
restriction under previously filed registration statements.
Further, First Source has indicated its intention to demand
registration of the 650,000 (275,000 if the Underwriters'
over-allotment option is exercised in full) shares of
Common Stock which are not sold in this Offering immediately
following termination of its lock-up period. The
Company, its officers and directors, the Selling Stockholder and
James D. Crownover, beneficial holder of 262,602
shares of Common Stock, have agreed not to directly or indirectly
offer, sell, offer to sell, contract to sell, pledge,
grant any option to purchase or otherwise sell or dispose (or
announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or other capital
stock of the Company or any securities convertible into, or
exercisable or exchangeable for, any Common Stock,
or other capital stock of the Company without the prior written
consent of Prudential Securities Incorporated, on
behalf of the Underwriters, except that such agreement does not
prevent the Company from granting additional
options under any employee benefit plan or directors stock plan
in the ordinary course of business. Upon the
expiration or release from such lock-up agreements, 1,615,873
shares will be available for immediate sale under
Rule 144 and 203,549 additional shares subject to vested stock
options could also be sold, subject in some cases
to certain volume limitations. Prudential Securities
Incorporated may, in its sole discretion, at any time and without
notice, release all or any portion of the securities subject to
such lock-up agreements. Sale of such shares in the
future could adversely affect the prevailing market price of the
Common Stock. No prediction can be made as to
the effect, if any, that future sales of shares or the
availability of shares for sale will have on the market price for
the Common Stock.
Potential Issuance of Preferred Stock. The Board of
Directors has the authority to issue up to 1,000,000
shares of preferred stock and to determine the price, rights,
preferences, privileges and restrictions, including voting
rights, of those shares without any further vote or action by the
stockholders. The rights of the holders of Common
Stock will be subject to, and may be adversely and materially
affected by, the rights of the holders of any preferred
stock that may be issued in the future. The issuance of
preferred stock, while potentially providing desirable flexi-
bility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more
difficult for a third party to acquire a majority of the
outstanding voting stock of the Company. The Company has
no current plans to issue shares of preferred stock.
<PAGE>
Anti-Takeover Provisions of Delaware Law. The Company is
subject to Section 203 of the Delaware
General Corporation Law which, subject to certain exceptions,
prohibits a publicly held Delaware corporation from
engaging in a business combination (which includes a merger,
asset sale or other transaction resulting in a financial
benefit to the interested stockholder) with an "interested
stockholder" (defined generally as any person who benefi-
cially owns 15% or more of the outstanding voting stock of the
Company or any person affiliated with such person)
for a period of three years following the date of the transaction
in which the person became an interested stockhold-
er, unless (i) prior to such date the board of directors of the
corporation approved either the business combination
or the transaction which resulted in the stockholder becoming an
interested stockholder, or (ii) upon consummation
of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares
outstanding those shares owned (x) by persons who are
directors and also officers and (y) by employee stock plans in
which the employee participants do not have the right
to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer,
or (iii) on or subsequent to such date the business combination
is approved by the board of directors and authorized
at an annual or special meeting of stockholders, and not by
written consent, by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of
shares of the Common Stock by the Selling
Stockholder, but will receive the aggregate exercise price of
$1,250,000 upon exercise of the First Source Warrant
to acquire the shares of Common Stock to be sold in this
Offering. Such shares will be issued by the Company
pursuant to the First Source Warrant to Purchase Common Stock at
an exercise price of $0.50 per share which will
be exercised in connection with completion of the Offering.
PRICE RANGE OF COMMON STOCK
The Common Stock is included for quotation in the Nasdaq
National Market under the symbol OPTT.
The following table sets forth the quarterly high and low sales
prices per share for the Common Stock for each
quarterly period subsequent to relisting on the Nasdaq Stock
Market on April 22, 1996, and the high and low bid
prices during the first and second quarters of fiscal 1996 as
reported by various market makers. Bid prices
represent quotations between dealers in securities, without
adjustment for retail mark-ups, mark-downs or commis-
sions, and may not necessarily represent actual transactions.
Fiscal 1996 High Low
First Quarter ........ $8.25 $7.00
Second Quarter........ 14.00 9.00
Third Quarter......... 15.75 9.63
Fourth Quarter ....... 11.25 9.00
Fiscal 1997
First Quarter....... $13.88 $9.00
Second Quarter ..... 14.13 10.50
Third Quarter....... 16.00 11.00
Fourth Quarter ..... 19.75 15.75
Fiscal 1998
First Quarter ...... $23.25 $18.00
Second Quarter
(through February 12,
1998).......... 22.50 20.75
<PAGE>
The last reported sales price per share of the Common Stock
on February 12, 1998, as reported on the
Nasdaq National Market, was $21.88. At January 16, 1998 the
Company had approximately 151 stockholders of
record.
DIVIDEND POLICY
The Company has never declared or paid a
cash dividend on its Common Stock, currently intends to retain
any earnings for use in its business and does not anticipate
declaring or paying cash dividends on its Common Stock
in the foreseeable future. The Company's loan agreement contains
covenants restricting the Company from
declaring dividends on its Common Stock exceeding 50% of its net
profit during any fiscal year. Any determination
to declare and pay dividends in the future will be at the
discretion of the Company's Board of Directors and will
be dependent upon the Company's results of operations, financial
condition, contractual restrictions and other factors
deemed relevant at that time by the Company's Board of Directors.
CAPITALIZATION
The following table sets forth the
capitalization of the Company at January 30, 1998 and as adjusted
as of
that date to give effect to the Offering. This information below
should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto which
are included elsewhere herein.
January 30,
1998
Actual As
Adjusted
(1)
(in thousands)
Stockholders' equity
Preferred stock, $.01 par value.
Authorized 1,000,000 shares; none issued
Common stock, $.01 par value. Authorized
12,000,000 shares; - -
4,259,534 shares issued and outstanding (actual);
6,966,025 shares issued
and outstanding (as adjusted)(2).............. 43 68
Additional paid-in capital(2) ................... 14,053 15,078
Retained earnings .............................. 15,097 15,097
Total stockholders'
equity.......................................... 29,193 30,243
(1) Does not include, as of February 12, 1998 (i) 596,665
shares issuable upon exercise of outstanding director
and employee stock options, of which options for 311,533
shares are exercisable immediately or within
60 days of February 12, 1998, and (ii) 650,000 shares
issuable upon exercise of the First Source Warrant
which are immediately exercisable.
(2) Assumes exercise of the First Source Warrant to acquire
2,500,000 shares at a price of $0.50 per share
and payment of all associated Offering costs by the
Company, estimated to be $200,000.
PAGE
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data under
caption "Statement of Operations Data" (excluding diluted
earnings (loss) per share data and "Balance Sheet Data" as of and
for each of the fiscal years in the five-year period ended
October 31, 1997, are derived from consolidated financial
statements of the Company, which financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public
accountants. The consolidated financial statements as of October
31, 1997 and October 25, 1996, and for each of the fiscal years
in the three-year period ended October 31, 1997, and the report
thereon, are included herein. The selected consolidated financial
data presented below for the Company at January 31, 1997 and
January 30, 1998 and for the three month fiscal periods then
ended are derived from the unaudited consolidated financial
statements of the Company which are incorporated by reference
herein. See note (4) to the table below concerning the
retroactive restatement of earnings (loss) per share data in
compliance with SFAS No. 128. The unaudited consolidated
financial data has been prepared on a consistent basis with the
audited financial statements and in the opinion of management
include all adjustments, consisting only of normal recurring
adjustments, which are necessary for a fair presentation of the
financial position and results of operations of the Company for
the periods covered thereby. Results for interim periods are not
necessarily indicative of those to be expected for the year.
The selected consolidated financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the
Company's Consolidated Financial Statements and the related Notes
included elsewhere in the Prospectus.
<TABLE>
Fiscal Year Ended Three Months
Ended
Oct. 29, Oct. 28 Oct. 27,Oct. 25, Oct. 31, Jan 31,Jan.30
1993(1) 1994(1) 1995(2) 1996(2) 1997(3) 1997 1998
(2) (unaudited)
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data
Net sales $55,878 $55,625 $62,542 $67,395 $75,572 $16,689 $20,419
Cost of
sales .....46,499 38,269 38,513 39,010 43,423 10,099 12,105
Gross
profit .... 9,379 17,356 24,029 28,385 32,149 6,590 8,314
Product
development
and
engineering
expenses .. 3,968 3,591 3,841 4,933 5,246 1,327 1,458
Selling,
general and
administrative
expenses .. 7,498 6,536 7,090 8,266 9,145 2,161 2,428
Provision for
restructuring
cost.... 2,292 - - - - - -
Reduction in
value of
deferred
costs....... 893 - - - - - -
Operating
income
(loss) ...(5,272) 7,229 13,098 15,186 17,758 3,102 4,428
Other (income)
expense:
Interest
(income)
expense . 3,952 3,685 2,960 1,292 (65) 83 (111)
Other (income)
expense .... 835 365 142 (145) 59 76 15
Total other,
net ........4,787 4,050 3,102 1,147 (6) 159 (96)
Income (loss)
before income
taxes and
extraordinary
item .....(10,059) 3,179 9,996 14,039 17,764 2,943 4,524
Income tax
expense .... - - 158 1,144 5,259 1,031 1,584
Net income
(loss) before
extraordinary
item ... (10,059) 3,179 9,838 12,895 12,505 1,912 2,940
Extraordinary
item, net of
income taxes - - - - 1,003 - -
Net income
(loss) ..($10,059) $3,179 $9,838 $12,895 $11,502 $1,912 $2,940
Diluted
Earnings
(loss) per
share before
extraordinary
item (4). $(3.12) $0.62 $1.40 $1.71 $1.63 $0.25 $0.37
Extraordinary
item-diluted
basis(4) - - - - (0.13) - -
Diluted earnings
(loss) per
share(4).. $(3.12) $0.62 $1.40 $1.71 $1.50 $0.25 $0.37
Weighted
average
shares
outstanding-
diluted
basis(4) . 3,224 5,154 7,007 7,544 7,672 7,533 7,881
Oct.29, Oct.28 Oct.27,Oct.25, Oct.31, Jan.31, Jan.30,
1993 1994 1995 1996 1997 1997 1998
(unaudited)
(In thousands, except per share amounts)
Balance Sheet Data:
Working
capital $6,865 $4,830 $4,028 $6,658 $15,068 $6,106 $16,552
Total
assets ...32,146 27,827 26,065 25,886 38,936 24,812 41,622
Total
current
liabilities 7,920 8,159 9,175 7,982 12,656 7,872 12,274
Long-term
debt ......36,472 28,692 15,996 3,428 - 271 -
Stockholders'
equity
(deficit).(12,340)(9,148) 810 14,067 26,163 16,271 29,193
</TABLE>
(1) Results for fiscal 1993 and 1994 include non-recurring
charges of $8.3 million and $1.3 million, respectively, relating
to
(i) restructuring charges; (ii) write-off of excess and
obsolete inventory; (iii) losses from a discontinued subsidiary;
and (iv)
amortization of deferred development costs. See
"Selected Consolidated Financial Data."
(2) Results for fiscal 1994, 1995 and 1996 include tax
benefits resulting from utilization of net operating loss
carryforwards
during those years of $305,000, $3.9 million, and $3.2
million, respectively. All such carryforwards were fully
utilized
during fiscal 1996.
(3) In the fourth quarter of fiscal 1997, the Company agreed
to pay its former lender First Source $1,545,000 to release all
debt
obligations, including contingent additional interest,
under the credit facility and other restrictive covenants. The
provision
for payment, net of related income tax benefits of
$542,000, was classified as an extraordinary item.
(4) The Company has restated all previous earnings (loss) per
share data to comply with SFAS No. 128, which became effective on
a retroactive basis with the issuance of the fiscal 1998 first
quarter earnings data. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - New Accounting
Standards."
PAGE
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Optek is a leading designer and manufacturer of electronic
sensor components and assemblies that detect
motion and position for a broad range of applications. The
Company utilizes optoelectronic and magnetic field
sensing technologies to target non-standard, customized
applications that require specialized engineering and
manufacturing expertise. The Company sells its products for end
use by OEMs in the office equipment, automotive,
industrial, aerospace/defense, medical and communications
markets. The Company believes that in many cases it
is the sole source supplier for specific components and
assemblies necessary for its customers' applications. In
fiscal 1997, major customers included C.P. Clare Corporation,
General Motors Corporation, Pitney Bowes, Inc.,
Strattec Security Corporation and Xerox Corporation.
The following table sets forth the Company's net sales by
target market for the last three fiscal years:
<TABLE>
Oct. 27, Oct. 25, Oct. 31,
1995 1996 1997
Actual Percent ActualPercent Actual Percent
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Office equipment $24.8 39.7% $24.7 36.7% $25.4 33.6%
Automotive 9.5 15.2 12.9 19.1 19.1 25.3
Industrial 16.0 25.6 17.6 26.1 18.7 24.7
Aerospace/ defense 6.4 10.2 6.0 8.9 6.0 7.9
Medical 4.1 6.6 4.0 5.9 4.4 5.8
Communications 1.7 2.7 2.2 3.3 2.0 2.7
Total net sales $62.5 100.0% $67.4 100.0% $75.6 100.0%
</TABLE>
The Company's primary business has been focused on the design
and manufacture of optoelectronic
semiconductor chips, discrete components and assemblies for
commercial (i.e., office equipment, industrial, medical
and communications) OEMs. The Company's commercial products
include a wide array of custom electronic
components and assemblies which are each designed to address
specific applications required by its diverse customer
base. Demand by commercial customers for the Company's sensors
is driven by sales of OEM products that
incorporate the Company's sensors and frequently have life cycles
ranging from three to 15 years. Often, the
Company is able to leverage its specialized engineering expertise
and close customer relationships to assist in the
design of its customers' next generation of products, which
significantly increases the Company's ability to secure
continuing sales from these customers as their product lines
evolve. As a result, commercial OEMs have
represented a stable and predictable sales base for the Company.
The Company believes that the automotive sector represents its
primary opportunity for growth as an
increasing number of sensors are being incorporated into
automobiles to improve fuel efficiency and emissions,
increase passenger safety and provide additional consumer
options. The Company believes this trend will continue
as governmental regulation mandates improved passenger safety and
reduced emissions and consumers demand better
safety and performance and increased functionality. As a result
of its strategic pursuit of the automotive market,
the Company's sales to the automotive market have grown from 2%
to 25% of net sales from fiscal 1992 to fiscal
1997, respectively. Currently, a substantial portion of the
Company's automotive assemblies are sold for use in
a relatively small number of applications. The Company presently
sells electronic sensors for use in General
Motors' automobile ignition and theft deterrent systems. In
addition, the Company's engineering and manufacturing
expertise and customer relationships have resulted in the
Company being awarded other automotive programs.
<PAGE>
Gross margins have increased from 31.2% in fiscal 1994 to 42.5%
in fiscal 1997. Gross margins are
subject to fluctuation depending upon numerous factors, including
pricing pressure from OEMs, cost of materials
and direct labor costs. There is continuing pressure on OEMs to
reduce costs, including costs associated with
outside suppliers such as the Company. In some cases, the
Company sells products under agreements requiring the
Company to reduce its per unit price over time. The Company's
other products, subject to periodic re-quotation,
may also experience declining average selling prices over their
life cycles with a similar potential impact on gross
margins if the Company is unable to reduce corresponding costs or
introduce new products with higher gross
margins. If the Company is unable to make corresponding product
cost reductions, the resulting decline in the
average selling prices of the products sold may reduce the
Company's product gross margin.
The Company has commenced expenditures to increase
manufacturing capacity and engineering resources
in anticipation of additional potential net sales. In the event
that such additional net sales do not materialize when
and as anticipated, such expenditures could adversely affect the
Company's gross margins and operating margins.
The combined effect of higher sales volumes and improved gross
margins enabled the Company to generate
sufficient cash flows to pay down its long-term debt from a high
of $39.0 million at the end of fiscal 1992 to $0
by the end of the second fiscal quarter of 1997. As a result,
interest expense was reduced from $4.0 million during
fiscal 1993 to $110,000 in fiscal 1997.
Results for fiscal 1995 and 1996 include tax benefits resulting
from utilization of net operating loss
carryforwards for book and tax purposes during those years of
$3.9 million and $3.2 million, respectively. All such
carryforwards were fully utilized during fiscal 1996.
Over 80% of the Company's components and assemblies are
produced in facilities operated by the
Company in Juarez, Mexico. The Company is not subject to
significant exchange risk because currency required
for those operations is transferred as needed to pay related
expenses and no significant balance of funds is
maintained in any foreign currency. Exchange gains and losses
related to such operations have been immaterial in
the past. The United States dollar has been determined to be the
functional currency for all foreign operations.
During fiscal 1997, international sales accounted for
approximately $17.4 million, or approximately 23%
of net sales, as compared to $18.9 million, or approximately 28%
of net sales for fiscal 1996, and $16.9 million,
or approximately 27% of net sales during fiscal 1995.
PAGE
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the
percentage relationship to net sales of certain
items in the Company's statement of income:
<TABLE>
Percentage of Net Sales
Fiscal Year Ended Three Months Ended
Oct.27, Oct.25, Oct.31, Jan.31. Jan.30,
1995 1996 1997 1997 1998
<S> <C> <C> <C> <C> <C>
Net sales ... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales..... 61.6 57.9 57.5 60.5 59.3
Gross Profit .... 38.4 42.1 42.5 39.5 40.7
Product development
and engineering
expenses ........ 6.1 7.3 6.9 8.0 7.1
Selling, general
and administrative
expenses.......... 11.3 12.3 12.1 12.9 11.9
Operating income...21.0 22.5 23.5 18.6 21.7
Other (income)
expense .......... 5.0 1.7 - 1.0 (0.5)
Income before income
taxes and
extraordinary item 16.0 20.8 23.5 17.6 22.2
Income tax expense 0.3 1.7 7.0 6.1 7.8
Extraordinary item,
net of income
taxes - - 1.3 - -
Net income ....... 15.7% 19.1% 15.2 11.5% 14.4%
</TABLE>
Three Months Ended January 30, 1998 Compared to Three Months
Ended January 31, 1997
Net sales for the three months of fiscal 1998 were $20.4
million, up $3.7 million, or 22%, compared to
net sales of $16.7 million for the first three months of fiscal
1997. The increase was the result of higher sales
volume in automotive products primarily attributable to sales of
sensor assemblies for use in a passlock theft
deterrent system on model 1998 trucks and sport utility vehicles.
Gross profit in the first three months of fiscal 1998 was $8.3
million, or 40.7% of net sales, compared to
$6.6 million, or 39.5% of net sales, in the comparable period of
fiscal 1997. The increase in absolute dollars
resulted primarily from the higher net sales volume in automotive
products.
Product development and engineering expenses during the first
three months of fiscal 1998 were $1.5
million, or 7.1% of net sales, compared to $1.3 million, or 8.0%
of net sales, during the comparable period of the
prior fiscal year. Although expenses in absolute dollars were
up slightly from the prior year, they are down as
a percentage of net sales due to the increase in net sales for
the period. These expenses were primarily related to
the development of new products and processes as well as ongoing
engineering support. The Company anticipates
expenditures to increase in absolute dollars during fiscal 1998
in order to support new product development and
expand ongoing engineering support.
<PAGE>
Selling, general and administrative expenses during the first
three months of fiscal 1998 were $2.4 million,
or 11.9% of net sales, compared to $2.2 million, or 12.9% of net
sales, in the first three months of fiscal 1997.
Although expenses in absolute dollars were up slightly from the
prior year, they are down as a percentage of net
sales due to the increase in net sales for the period.
Operating income for the first three months of fiscal 1998 was
$4.4 million, or 21.7% of net sales, versus
$3.1 million, or 18.6% of net sales, during the comparable period
of fiscal 1997. The increase in operating income
was attributable primarily to higher net sales volume.
Other (income) expense consisted primarily of interest income
of $111,000 in the first three months of
fiscal 1998 and interest expense of $83,000 in the comparable
period of fiscal 1997. The Company repaid the
remaining balance of long-term debt during the second quarter of
fiscal 1997 and has earned interest income on
accumulated cash balances since that time.
Income tax expense for the first three months of fiscal 1998
was $1.6 million, or 7.8% of net sales,
compared to $1.0 million, or 6.1% of net sales, in the same
period of fiscal 1997. The increase in tax expense for
the period was attributable to higher income. The effective tax
rate for both periods was 35%.
As a result of the factors discussed above, net income for the
first three months of fiscal 1998 was $2.9
million, or 14.4% of net sales, compared to $1.9 million, or
11.5% of net sales, in the first three months of fiscal
1997.
Fiscal Year Ended October 31, 1997 Compared to Fiscal Years Ended
October 25, 1996 and October 27, 1995
Net sales for fiscal 1997 were $75.6 million compared to $67.4
million in fiscal 1996 and $62.5 million
in fiscal 1995. The increase from fiscal 1996 to fiscal 1997 of
$8.2 million, or 12.1%, was primarily the result
of higher automotive net sales of $6.2 million and higher
commercial (i.e., office equipment, industrial, medical
and communications) net sales of $2.0 million. The significant
increase in automotive net sales was primarily
attributable to sales of sensor assemblies for use in a new theft
deterrent system for model year 1998 trucks and
sport utility vehicles. The increase from fiscal 1995 to fiscal
1996 of $4.9 million, or 7.8%, was the result of
increases in automotive net sales of $3.4 million and commercial
net sales of $1.9 million, partially offset by a de-
crease in aerospace/defense optoelectronic product net sales of
$400,000.
Gross profit in fiscal 1997 was $32.1 million, or 42.5% of net
sales, compared to $28.4 million, or 42.1%
of net sales, in fiscal 1996 and $24.0 million, or 38.4% of net
sales, in fiscal 1995. The increase from fiscal 1996
to fiscal 1997 was primarily attributable to the higher net sales
volume in automotive and commercial products in
fiscal 1997. The increase from fiscal 1995 to fiscal 1996 was
the result of higher net sales volumes in automotive
and commercial products, which increased in absolute dollars and
resulted in lower unabsorbed fixed costs, con-
tinued efforts to reduce manufacturing cycle times, favorable
peso exchange rates as well as cost reduction and yield
improvement programs.
Product development and engineering expenses in fiscal 1997
were $5.2 million, or 6.9% of net sales, com-
pared with $4.9 million, or 7.3% of net sales, in fiscal 1996 and
$3.8 million, or 6.1% of net sales, in fiscal 1995.
These expenses were primarily related to the development of new
applications and processes. Although expenses
were up slightly in absolute dollars from 1996 to 1997, they
declined as a percentage of net sales due to the increase
in net sales. The increase in fiscal 1996 compared to fiscal
1995 was related to additional development expenses
for fiber optic connector products used in telecommunications and
magnetoresistive technologies for use in auto-
motive applications. In addition, certain expenses were incurred
to refurbish the Company's engineering and prod-
uct development labs. The Company anticipates expenditures to
increase in absolute dollars in fiscal 1998 primarily
to support the development of new products.
<PAGE>
Selling, general and administrative expenses in fiscal 1997
were $9.1 million, or 12.1% of net sales, com-
pared to $8.3 million, or 12.3% of net sales, in fiscal 1996 and
$7.1 million, or 11.3% of net sales, in fiscal 1995.
The increase in absolute dollars from fiscal 1996 to fiscal 1997
was primarily related to additional commissions
earned on increased net sales volume. The increase from fiscal
1995 to fiscal 1996 was primarily attributable to
additional sales commissions earned on higher net sales volume
and expenses related to refurbishment of the sales
and customer service offices.
As a result of the factors discussed above, operating income
for fiscal 1997 was $17.8 million, or 23.5%
of net sales, compared to $15.2 million, or 22.5% of net sales,
in fiscal 1996 and $13.1 million, or 21.0% of net
sales, in fiscal 1995.
Other (income) expense for fiscal 1997 was $6,000 of income as
compared to $1.1 million of expense in
fiscal 1996 and $3.1 million of expense in fiscal 1995. Other
(income) expense consists primarily of interest income
net of interest expense in fiscal 1997 and interest expense in
fiscal 1996 and fiscal 1995. Interest expense decreased
in fiscal 1997 and fiscal 1996 due to the continued reduction and
eventual retirement, in fiscal 1997, of long-term
debt. Net interest in fiscal 1997 consisted of $110,000 of
interest expense and $175,000 of interest income.
Income tax expense was $5.3 million, or 7.0% of net sales, in
fiscal 1997 compared to $1.1 million, or
1.7% of net sales, in fiscal 1996 and $158,000, or 0.3% of net
sales, in fiscal 1995. The Company's effective tax
rate increased in fiscal 1997 and fiscal 1996 as a result of the
Company fully utilizing its remaining net operating
loss carryforwards during the fourth quarter of fiscal 1996. As
a result, income for fiscal 1997 was taxed at the
effective rate of 29.6%, which was lower than the statutory rate
primarily due to research and experimentation tax
credits.
In the fourth quarter of fiscal 1997, the Company agreed to pay
First Source, its former lender,
$1,545,000 to release all debt obligations, including contingent
additional interest, under the credit facility and other
restrictive covenants. The provision for payment, net of related
income tax benefits of $542,000, was classified
as an extraordinary item. See Note 5 to the Consolidated
Financial Statements.
As a result of the factors discussed above, net income for
fiscal 1997 was $11.5 million compared to $12.9
million in fiscal 1996 and $9.8 million in fiscal 1995.
Quarterly Results of Operations
The following table presents unaudited quarterly results in
dollar amounts and as a percentage of net sales
for the last nine quarters. The information has been prepared
by the Company on a basis consistent with the
Company's audited financial statements and includes all
adjustments, consisting only of normal recurring adjust-
ments, which management considers necessary for a fair
presentation of the information for the periods presented.
<PAGE>
<TABLE>
(In Thousands)
Quarter Ended
Fiscal 1996 Fiscal 1997 Fiscal 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C>
<C>
Jan.26 Apr.26 July 26 Oct.25. Jan. 31 May 2 Aug.1 Oct.31,Jan. 30,
Net
sales $15,040 $18,051 $16,834 $17,470 $16,689 $18,251 $18,763
$21,869
$20,419
Cost
of
sales ..9,275 10,369 9,464 9,902 10,099 10,750 10,522 12,052
12,105
Gross
profit .5,765 7,682 7,370 7,568 6,590 7,501 8,241 9,817
8,314
Product
development
expenses 195 347 464 342 318 342 215 358
254
Engineering
expenses 948 960 822 855 1,009 978 990 1,036
1,204
Selling,
general
and
administrative
expenses.. 2,123 2,171 1,869 2,103 2,161 2,151 2,268 2,565
2,428
Total
expenses . 3,266 3,478 3,155 3,300 3,488 3,471 3,473 3,959
3,886
Operating
income.... 2,499 4,204 4,215 4,268 3,102 4,030 4,768 5,858
4,428
Other
(income)
expense.. 399 311 296 141 159 3 (68) (100)
(96)
Income
before
income
taxes
and
extraordinary
item..... 2,100 3,893 3,919 4,127 2,943 4,027 4,836 5,958
4,524
Income
tax
expense.. 55 274 352 463 1,031 1,408 1,692 1,128
1,584
Net
income
before
extraordinary
item ... 2,045 3,619 3,567 3,664 1,912 2,619 3,144 4,830
2,940
Extraordinary
item net of in-
come taxes.. - - - - - - - 1,003
- -
Net
income ... $2,045 $3,619 $3,567 $3,664 $1,912 $2,619 $3,144
$3,827 $2,940
- -
Basic
earnings
per share:
Earnings
before
extraordinary
item ... $0.58 $0.96 $0.93 $0.92 $0.46 $0.63 $0.75 $1.13
$0.69
Extraordinary
item ..... - - - - - - - (0.23)
- -
Basic
earnings
per
share .... $0.58 $0.96 $0.93 $0.92 $0.46 $0.63 $0.75 $0.90
$0.69
Weighted
average
shares out-
standing 3,521 3,787 3,848 3,964 4,150 4,172 4,188 4,260
4,273
Diluted
Earnings
per share:
Earnings
before
extraordinary
item .... $0.28 $0.48 $0.47 $0.48 $0.25 $0.34 $0.41 $0.62
$0.37
Extraordinary
item....... - - - - - - - (0.13)
- -
Diluted
earnings
per share .$0.28 $0.48 $0.47 $0.48 $0.25 $0.34 $0.41 $0.49
$0.37
Weighted
average
shares out-
standing -
diluted
basis 7,413 7,572 7,602 7,590 7,533 7,642 7,674 7,846
7,881
Percentage of Net Sales
Net
sales 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
100.0%
Cost
of
sales 61.7% 57.5% 56.2% 56.7% 60.5% 58.9% 56.1% 55.1%
59.3%
Gross
profit 38.3% 42.5% 43.8% 43.3% 39.5% 41.1% 43.9% 44.9%
40.7%
Product
development
expenses 1.3% 1.9% 2.7% 2.0% 1.9% 1.9% 1.1% 1.6%
1.2%
Engineering
expenses 6.3% 5.3% 4.9% 4.9% 6.1% 5.3% 5.3% 4.8%
5.9%
Selling,
general
and
adminis-
trative
expenses 14.1% 12.0% 11.1% 12.0% 12.9% 11.8% 12.1% 11.7%
11.9%
Total
expenses 21.7% 19.2% 18.7% 18.9% 20.9% 19.0% 18.5% 18.1%
19.0%
Operating
income . 16.6% 23.3% 25.1% 24.4% 18.6% 22.1% 25.4% 26.8%
21.7%
Other
(income)
expense: 2.6% 1.7% 1.8% 0.8% 1.0% 0.0% (0.4%) (0.4%)
(0.5%)
Income
before
income
taxes
and
extraordinary
item ... 14.0% 21.6% 23.3% 23.6% 17.6% 22.1% 25.8% 27.2%
22.2%
Income
tax
expense.. 0.4% 1.5% 2.1% 2.6% 6.1% 7.7% 9.0% 5.1%
7.8%
Income
before
extraordinary
item .... 13.6% 20.1% 21.2% 21.0% 11.5% 14.4% 16.8% 22.1%
14.4%
Extraordinary
item
net of
income
taxes .. - - - - - - - 4.6%
0.0%
Net
income 13.6% 20.1% 21.2% 21.0% 11.5% 14.4% 16.8% 17.5%
14.4%
</TABLE>
<PAGE>
The Company's net sales and operating results have varied on a
quarterly and an annual basis in the past
and may vary significantly in the future. The Company's first
fiscal quarter, which ends in January, includes the
holiday season, which impacts customer order entry and also
includes an annual facilities shutdown, and has there-
fore traditionally been the Company's lowest in terms of net
sales and operating income. Historically, the
Company's net sales have been lower in such quarter than in the
immediately preceding quarters. The Company's
third fiscal quarter has in the past been affected by the
extended vacation season in Europe, which reduces
international sales during that period. The Company's net sales
and operating results could be materially and ad-
versely affected by many factors, some of which are partially or
wholly outside the control of the Company, includ-
ing, among others, failure to be selected to supply sensors for
new products and programs, quality control of prod-
ucts sold, the relatively long sales and development cycle for
the Company's products, the Company's ability to
introduce new products and technologies on a timely basis, market
acceptance of the Company's and its customers'
products, the timing, deferral or cancellation of customer orders
and related shipments, competitive pressures on
selling prices, availability of raw materials, fluctuations in
yields, changes in product mix, changes in the lead time
required to ship products after receipt of an order, introduction
of products and technologies by the Company's com-
petitors and customers, personnel changes and difficulties in
attracting and retaining qualified technical personnel
and economic conditions generally and in the automotive and
commercial markets.
Liquidity and Capital Resources
The Company generated approximately $14.3 million in cash from
operations during fiscal 1997. The larg-
est uses of cash flow were the retirement of long-term debt
during the first and second quarters of the fiscal year
in the amount of $3.4 million, and the purchase of manufacturing
equipment throughout the year in the amount of
$2.0 million. At fiscal year end, the Company's working capital
was $15.1 million, including $9.8 million of cash
and cash equivalents.
The Company anticipates that additional manufacturing capacity,
primarily in Mexico, will be required to
support growth over the next several years. Therefore, capital
expenditures are planned to increase to a total of
approximately $10 to $15 million to be expended over the next two
to three fiscal years to support anticipated future
growth in demand for the Company's products. The timing and
amount of such expenditures is subject to adjust-
ment based upon continued evaluation by management.
In January 1998, the Company obtained a three-year $10.0
million unsecured line of credit from
NationsBank N.A. Borrowings under this facility bear interest, at
the option of the Company, either at (i) a LIBOR-
based rate plus a margin ranging from 1.00% per annum to 1.50%
per annum, depending upon the Company's
ratio of indebtedness to operating income, or (ii) a base rate
equal to a reference rate plus a margin ranging from
- -1.00% to 0%, depending upon the Company's ratio of indebtedness
to operating income. These facilities contain
customary covenants that, among other things: require the
maintenance of certain financial ratios relating to fixed
charge and interest coverage and debt and equity amounts; require
the maintenance of certain net worth levels;
restrict liens on Company and subsidiary assets; and limit the
payment of cash dividends.
The Company anticipates that it will generate sufficient cash
flow from operations to meet its obligations,
including capital requirements, for the next 12 months. However,
an unanticipated expansion or contraction of its
business or future acquisitions may require the Company to draw
upon its existing credit line or obtain other financ-
ing.
<PAGE>
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being
written using two digits rather than four to
define the applicable year. Any of the Company's computer
programs that have date-sensitive software may recog-
nize a date using 00 as the year 1900 rather than the year
2000. This could result in a system failure or miscalcu-
lations causing disruptions of operations, including, among other
things, a temporary inability to process transac-
tions, send invoices, or engage in similar normal business
activities.
The Company is committed to a successful and timely Year 2000
conversion and funds are dedicated and
available for this project. The Company anticipates maintaining
its hardware platform but replacing or upgrading
most of the software. In addition, all PCs, HVAC, test equipment
and external providers will be reviewed and
acted on accordingly. Although the Company has only recently
initiated its Year 2000 compliance program, the
Company anticipates that it will be fully Year 2000 compliant by
April 30, 1999.
The Year 2000 Issue is not expected to have a material adverse
effect on the Company's results of opera-
tions. See "Risk Factors - Year 2000 Compliance."
New Accounting Standards
In February 1997, the Financial Accounting Standards Board
issued SFAS No. 128, which establishes new
standards for computing and presenting earnings per share. SFAS
No. 128 is effective for financial statements issued
for periods ending after December 15, 1997, including interim
periods, and requires restatement of all prior-period
earnings per share data. Early application of SFAS No. 128 is
not
permitted. Effective November 1, 1997, the
Company has adopted on a retroactive basis SFAS No. 128, which
requires the dual presentation of basic and
diluted earnings per share on the Company's consolidated
statements of income. All earnings per share data
included herein has been restated in compliance with SFAS No. 128
with the issuance of the fiscal 1998 first quarter
earnings date.
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Stan-
dards No. 130 (SFAS No. 130), Reporting Comprehensive Income, and
Statement of Financial Accounting Standards
No. 131 (SFAS No. 131), Disclosures About Segments of an
Enterprise and Related Information. SFAS No. 130 and SFAS
No. 131 are effective for financial statements issued for periods
beginning after December 15, 1997. The Company does
not expect these standards to have a significant impact on the
consolidated financial statements.
PAGE
<PAGE>
BUSINESS
Introduction
The Company is a leading designer and manufacturer of
electronic sensor components and assemblies that
detect motion and position for a broad range of applications.
The Company utilizes optoelectronic and magnetic
field sensing technologies to target customized, non-standard
applications that require specialized engineering and
manufacturing expertise. The Company sells its products for end
use by OEMs in the office equipment, automotive,
industrial, aerospace/defense, medical and communications
markets. The Company believes that in many cases it
is the sole source supplier for specific components and
assemblies necessary for its customers' applications. In
fiscal 1997 major customers of the Company included C.P. Clare
Corporation, General Motors Corporation, Pitney
Bowes, Inc., Strattec Security Corporation and Xerox Corporation.
The Company's primary business has been focused on the design
and manufacture of optoelectronic
semiconductor chips, discrete components and assemblies for
commercial (i.e., office equipment, industrial, medical
and communications) OEMs. The Company's commercial products
include a wide array of custom electronic
components and assemblies which are each designed to address
specific applications required by its diverse customer
base. Demand by commercial customers for the Company's sensors
is driven by sales of OEM products that
incorporate the Company's sensors and frequently have life cycles
ranging from three to 15 years. Often, the
Company is able to leverage its specialized engineering expertise
and close customer relationships to assist in the
design of its customers' next generation of products, which
significantly increases the Company's ability to secure
continuing sales from these customers as their product lines
evolve. As a result, commercial OEMs have
represented a stable and predictable sales base for the Company.
The Company has leveraged its expertise in commercial markets
to develop customized electronic sensors
to address the growing application requirements of the automotive
market. The Company believes that the
automotive sector represents its primary opportunity for growth
as an increasing number of sensors are being
incorporated into automobiles to improve fuel efficiency and
emissions, increase passenger safety and provide
additional consumer options. The Company believes this trend
will continue as governmental regulation mandates
improved passenger safety and reduced emissions and consumers
demand better safety and performance and
increased functionality. As a result of its strategic pursuit of
the automotive market, the Company's sales to the
automotive market have grown from 2% to 25% of net sales from
fiscal 1992 to fiscal 1997, respectively.
Currently, a substantial portion of the Company's automotive
assemblies are sold for use in a relatively small
number of applications. The Company presently sells electronic
sensors for use in General Motors' automobile
ignition and theft deterrent systems. In addition, the Company's
engineering and manufacturing expertise and cus-
tomer relationships have resulted in the Company being awarded
other automotive programs.
The Company's manufacturing operations are vertically
integrated, with facilities located in Carrollton,
Texas and Juarez, Mexico. Over 80% of the Company's products are
assembled in facilities operated by the Com-
pany in Juarez, Mexico. The Company markets its products
worldwide through its own technical sales staff, inde-
pendent sales representatives and independent stocking
distributors.
Industry Background
The use of electronic sensors is playing a key role in the
increasing convenience, functionality, safety and
performance of many products. Sensors are electronic devices
that detect the presence or amount of a physical
stimulus such as temperature, motion, position or pressure. The
sensor converts the detected stimuli into electrical
signals which can be interpreted by a microprocessor to initiate
a desired response. In essence, sensors act as the
interface between the physical world and electronic systems.
<PAGE>
Electronic sensors operate without physical contact and are
generally capable of more accurate, reliable
and sensitive detection than standard mechanical or
electromechanical devices. These characteristics coupled with
generally increased speed, durability and compactness, have
prompted the substitution of electronic sensors for appli-
cations that previously used mechanical and electromechanical
switches. For example, to achieve higher reliability,
lower maintenance costs, increased fuel efficiency and better
emission control, automobile engine manufacturers
are utilizing electronic sensors to control the firing of spark
plugs in ignition systems, thereby replacing the
traditional mechanical distributor. In addition, sensors are
being used to offer increased functionality and perfor-
mance in products. Electronic sensors are used in vending and
coin changing machines to determine whether the
currency tendered is counterfeit.
Two major types of electronic sensors are optoelectronic and
magnetic. Optoelectronic sensors use a light
emitting diode ("LED") and a photosensitive receiver to detect
light as a means of sensing motion, speed or position.
For example, in security systems, optoelectronic sensors sense
the interruption of a beam of light; in commu-
nications products, they transmit and receive data over fiber
optic cables; in military applications, they assist a
missile's guidance system in controlling direction; and in
computer peripherals, they enable a tape drive to sense
the edge of the tape. Magnetic sensors detect small changes in a
magnetic field. Magnetic sensors are well-suited
for use in environments where the presence of dirt, heat or other
hostile conditions could reduce the accuracy and
reliability of light-based optoelectronic sensors such as in
certain automotive applications.
Electronic sensors generally divide into two categories:
standardized products which are produced to
general specifications and customized products which are designed
to meet customer specific applications using
significant technical expertise. The use of custom sensors to
perform basic product functions in various commercial
applications such as high-end office equipment and certain
industrial applications is well established and these
markets have presented a steady sales base. However, growth in
the use of sensors in automotive applications has
been driven by governmental regulation of the environment and
passenger safety and by consumer preferences,
which have required greater fuel efficiency, better emission
control, additional safety features and passenger options
in automobiles. These applications drive the demand for more and
better sensors. For example, ignition systems
using magnetic sensors which have replaced the mechanical
distributor in certain automobiles, are better able to
control the firing of the spark plugs, thus improving fuel
efficiency and reducing pollution. As new automobile
designs incorporate more and increasingly sophisticated
electronics, the demand for sensors in automotive applica-
tions is expected to continue to increase.
Business Strategy
The Company's objective is to maintain and enhance its position
as a leading designer and manufacturer
of custom electronic sensors. Key elements of the Company's
business strategy include:
Leverage Expertise in Custom Applications. The Company has
structured its operations to effectively and
efficiently handle the design and manufacture of
customer-specific products. Companies that compete on the basis
of the functionality and performance of their products often
require sensors that are unique and specific to their
product. A customer's application typically requires particular
electrical, optical and mechanical packaging
characteristics. The Company's engineering and technical
expertise have made it, in many cases, an integral part
of its OEM customers' design teams. This expertise and the
Company's close customer relationships have helped
it to develop a stable business to commercial (i.e., office
equipment, industrial, medical and communications)
customers.
Pursue Additional Automotive Applications. The Company has
leveraged its expertise in commercial
markets to develop customized electronic sensors to address the
growing application requirements of the automotive
market. An increasing number of sensors are being incorporated
into automobiles to improve fuel efficiency,
increase safety and provide additional passenger options. The
Company believes this trend will continue as
governmental regulations mandate increases in safety and
decreases in emissions and as consumers demand better
performance and increased functionality. In fiscal 1992, the
Company began production and sale of magnetic field
sensors for automotive applications and continued efforts to
identify additional applications. As a result of this
strategic pursuit of the automotive market, by fiscal 1997
automotive sales represented approximately 25% of net
sales. In late 1997, the Company obtained QS-9000 certification,
a rigorous quality standard required by the Big
Three auto makers. In order to expand the range of automotive
applications which can be addressed, the Company
has developed magnetoresistive sensors, which have sensitivity
characteristics particularly useful in automotive
applications. The Company is also adding engineering and
manufacturing resources primarily to enable the handling
of additional automotive customer development programs.
<PAGE>
Leverage Vertically Integrated Manufacturing Capabilities.
The Company believes its high degree of
control of the manufacturing process and stringent quality
control procedures are competitive advantages. The
Company's vertically integrated manufacturing structure enables
it to exercise better control throughout manufac-
turing processes and to respond on a timely basis to customer
requests for development of new products and design
changes to existing products. The Company manufactures sensor
and LED semiconductor chips; tools and plastic
molds; plastic assemblies; discrete, assembly, hybrid and high
reliability components; printed circuit boards and wire
and cable assemblies.
Utilize Multiple Sales Channels for Effective Market Coverage.
The Company sells its products through
a combination of direct technical sales personnel (eight in the
United States and three in Europe), 20 independent
manufacturers' representatives and 42 electronics parts
distributors, both domestically and internationally. The multi-
ple sales channels enable more efficient and wider coverage of
available markets. The Company's technical sales
personnel, together with the Company's engineering staff, seek to
develop long-term relationships with customers
by working closely with them throughout all phases of new product
development and subsequent production. In
addition, independent manufacturers' representatives provide
additional market coverage for the Company. The
Company selects representatives on their ability to effectively
interface with its customers' engineers. Distributors
are typically utilized where customers are outsourcing their
electronics parts purchasing and inventory functions.
The Company believes that the combination of its own technical
sales people together with independent sales repre-
sentatives and distributors allows the Company to market its
products in an efficient cost-effective manner.
Products and Technology
The Company is a leading designer and manufacturer of
electronic sensor components and assemblies that
detect motion and position for a broad range of applications.
The Company utilizes optoelectronic and magnetic
field sensing technologies to target non-standard applications
that require specialized engineering and manufacturing
expertise. The Company sells its products for end use by OEMs in
the office equipment, automotive, industrial,
aerospace/defense, medical and communications markets.
Optoelectronic Sensor Products
The largest portion of the Company's current business consists
of the design, manufacture and sale of cus-
tom devices which use optoelectronic technology to satisfy the
sensor requirements of its customer sin all of its
target markets. During 1997, sales of optoelectronic devices
accounted for approximately 75% of the Company's
net sales. Optoelectronic sensors use a light emitting diode
("LED") and a photosensitive receiver to detect light
as a means of sensing motion, speed or position. For example,
certain security systems emit a beam of light which
is received by a sensor. The interruption of this beam causes an
electrical response in the sensor which activates
the alarm.
The Company's optoelectronic products consist of: (i) infrared
light emitting and light sensing semicon-
ductor chips; (ii) discrete components, which are plastic or
metal packages housing the light emitting or light sensing
chips; (iii) assemblies, which combine the light emitting and
light sensing discrete components in a single package
to meet various electrical and/or mechanical specifications; and
(iv) fiber optic products, which use light emitting
and light sensing technologies to transmit and receive light
signals for data transmission through fiber optic cables.
<PAGE>
The following paragraphs describe these optoelectronic devices
and their basic principles of operation.
Semiconductor Chips. Light emitting and light sensing
semiconductor chips are the core elements in the
Company's optoelectronic products. LED chips emit light in
response to an electrical charge. Optek manufactures
light emitting chips from gallium arsenide and gallium aluminum
arsenide wafers using standard semiconductor
manufacturing techniques.
Light sensors are semiconductor chips which convert light into
electrical signals and can be used to sense
and relay the signal produced by an LED. The Company produces
light sensitive chips from polished silicon slices
using standard silicon semiconductor manufacturing processes.
The Company's light sensing chips have varying
characteristics of speed, sensitivity and performance, which
permit the Company to address applications requiring
varying specifications. For example, less sensitive chips may
perform better in applications where more ambient
light is present that might otherwise cause a false signal.
Other chips incorporate transistors as an integral part of
the chip, which amplifies the signal received.
In addition, the Company has developed light sensors with
analog or digital output characteristics. Less
sophisticated light sensors, which are analog in nature, produce
electricity in proportion to the amount of light
applied. While analog output must be processed before it can be
communicated to a logic device such as a
microprocessor, digital output can be transmitted directly to a
logic device without processing. The Company's
digital chips are marketed under the trademark Photologic. The
versatility of the Photologic chip's output geometry
allows it to drive multiple outputs, potentially resulting in
customer savings in system processing circuitry.
The Company has also developed a Photologic chip with low level
input detection and on-chip voltage regu-
lation which enables the chip to function under fluctuating power
conditions. The former characteristic is particu-
larly 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.
The Company uses a substantial portion of the semiconductor
chips it manufactures in its discrete compo-
nents. On occasion, however, the Company does design and
manufacture custom semiconductor chips for specific
customer applications.
Discrete Components. Discrete components incorporate the
Company's LED or sensor chips in either
plastic or metal packages which protect the chip and control the
focus of light to or from the chip. These compo-
nents form an integral part of the assemblies manufactured by the
Company. 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
the Company's discrete components are used in its
own assembly manufacturing operations, the Company also
manufactures and sells discrete components to OEMs,
which integrate them into their own products, and through
independent distributors.
Assemblies. Most of the Company's business is directed to the
sale of custom assemblies which are
designed to be easily integrated into the customer's products.
In assemblies, the LED and sensor components are
incorporated in physical packaging capable of withstanding
rigorous environmental conditions of temperature,
acceleration, or mechanical shock. Generally, discrete LED and
sensor components are 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 sensing component. The sensing
function occurs when an object interrupts the light
transmission path from emitter to sensor or reflects the emitted
light back to the sensor.
<PAGE>
Optoelectronic LEDs and sensors can also be paired in sealed
couplings to isolate electrical noise or high
voltage from an electrical circuit. These coupled assemblies 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, the Company manufactures
fiber optic LEDs and sensors. The Company uses its LED and sensor
technology to provide the light signal and
receiver products for data transmission through fiber. These
products allow electronic equipment, such as energy
management systems, computers and even telephones, to communicate
over thin lightweight cables of glass or plas-
tic fiber.
Magnetic Sensor Products
During fiscal 1992, the Company began production of Hall Effect
(magnetic field sensing) devices which
sense physical events by reacting to changes in magnetic fields.
As the magnetic field applied to the sensor changes,
the sensor produces a signal which is relayed to a control
device. Since magnetic fields are relatively unaffected
by the cleanliness of the environment, magnetic devices can be
used in environments in which a clear optical path
is inhibited. Because the presence of oil and dirt is
characteristic of automotive applications, magnetic sensing
devices are particularly useful in such applications. For
example, magnetic devices sense rotation of gears in auto-
mobiles 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 the Company was the production of
crankshaft and camshaft sensors used in conjunction with ignition
systems on automobiles. The Company also
produces a magnetic sensor used in an automotive theft deterrent
system. The Company has sought to utilize the
expertise and experience gained through its initial automotive
programs to identify and participate in additional
sensor programs. Presently, most automotive applications served
by the Company's products use magnetic sensors,
although the Company has begun to introduce optoelectronic
technology in a few automotive applications. To date,
few applications for magnetic sensors have been developed by the
Company outside automotive applications.
As with the manufacture of optoelectronic products, the Company
is vertically integrated and capable of
producing each of the elements incorporated into its magnetic
sensor assemblies. The basic building block of each
device is a semiconductor chip which reacts to fluctuations in a
magnetic field. The Company produces its own
magnetic sensor chips through processes and techniques similar to
those used for manufacturing the Company's light
sensing chips. These chips are mounted into discrete components,
which are incorporated into custom assemblies.
PAGE
<PAGE>
Customers and Applications
The following table identifies representative customers in each
of the Company's target markets, the tech-
nology utilized and the applications which the Company's products
address for each.
Customer Sensor Technology Customer Application
AUTOMOTIVE
General Motors Corporation Magnetic Camshaft and crankshaft
position sensing
Strattec Security
Corporation Magnetic Ignition security systems
OFFICE EQUIPMENT
Xerox Corporation Optoelectronic
Paper sensing, toner
sensing for copiers
Pitney Bowes, Inc. Optoelectronic Paper motion sensing,
encoders for
postal equipment
NCR Corporation Optoelectronic Automated teller machines
Eastman Kodak Company
(Inc.) Optoelectronic Copiers/photolab
processing
Quantum Corp. Optoelectronic Tape drive systems
INDUSTRIAL
C.P. Clare Corporation Optoelectronic Solid state relays
Banner Engineering
Corporation Optoelectronic Retroreflective
industrial sensors
IBM Corp. Optoelectronic Point of sale equipment
MEDICAL
Pyxis Corp. Optoelectronic Position sensing of
drawers and
drug disposal cabinets
Hewlett Packard Co. Optoelectronic Heart monitor equipment
Chiron Diagnostic Corp. Optoelectronic Blood analysis
AEROSPACE/DEFENSE
Lockheed/Martin Corp. Optoelectronic
and magnetic Gyros, encoders, DC
brushless motors
Raytheon Company Inc. Optoelectronic
and magnetic DC brushless motors,
missiles,
FKIR systems, target
acquisition
COMMUNICATIONS
CMAC Microcircuits
USA Inc. Optoelectronic Telecommunications
American Fibertek, Inc. Optoelectronic Local area networks
<PAGE>
In fiscal 1997, Optek's ten largest customers accounted for
approximately 63% of net sales. Three cus-
tomers, Strattec Security Corporation, General Motors Corporation
and Pitney Bowes, Inc., made purchases which
accounted for 13%, 13% and 10%, respectively, of the Company's
net sales during fiscal 1997.
Historically, a relatively small number of customers has
accounted for a significant percentage of the
Company's total net sales, and the Company expects that this
trend will continue. In each of fiscal 1994, 1995 and
1996, the Company has had two customers which each accounted for
at least 10% of total revenues. The
Company's ability to achieve sales in the future will depend upon
its ability to obtain orders from, maintain
relationships with and provide support to a relatively small
number of existing and new key customers. As a result,
any cancellation, reduction, rescheduling or delay in orders by
or shipments to any customer or the discontinuation
or redesign by any customer of its products which currently
incorporate one or more of the Company's products
could have a material adverse effect on the Company's business,
operating results and financial condition.
The automotive industry, which accounted for approximately 25%
of the Company's net sales during fiscal
1997, represents the fastest area of growth for the Company. The
automotive industry is cyclical due to general
economic conditions, the level of interest rates, consumer
confidence, patterns of consumer spending and the
automobile replacement cycle, all of which are beyond the control
of the Company. In addition, the Company's
customers in the automotive industry are highly unionized and
have in the past experienced labor disruptions.
Accordingly, automotive production may not increase or may
decline in the future. A significant reduction or
prolonged interruption in automotive production could have a
material adverse effect on the Company.
The Company'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, the Company'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.
Sales, Marketing and Distribution
Optek sells its products through its technical sales staff,
independent sales representatives and independent
stocking distributors. At October 31, 1997, the Company employed
eight technical sales people who operate out
of the Company's offices in Carrollton, Texas and three technical
sales people operating out of offices in Western
Europe. The Company also sells its products worldwide through 20
independent sales representatives and 42 stock-
ing distributors.
The Company's technical sales personnel, together with the
Company's engineering staff, seek to develop
long-term relationships with customers by working closely with
them throughout all phases of new product develop-
ment and subsequent production. Initial customer contact is
usually made by either a member of the Company's
technical sales staff, a sales representative or a distributor
for the geographic area. The representative determines
if custom optoelectronic or magnetic components or assemblies
could perform the specific sensing functions desired
by the customer. Typically, the customer either provides a
detailed specification of its requirements or is assisted
by the Company's engineering and technical sales staff in the
development of specifications. The Company then
develops a technical proposal, incorporating preliminary design
concepts, and submits the technical proposal to the
customer. The technical proposal typically 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. After approval,
the Company continues to work with the customer to develop an
assembly meeting the customer's requirements.
Frequently, especially in automotive applications, the Company is
involved in development, testing and qualification
phases which involve all aspects of the Company's engineering and
manufacturing expertise.
<PAGE>
The marketing and development process can range from four
months to three years or more from initial
customer contact to purchase order, depending on the complexity
of the customer's requirements. Automotive appli-
cations tend to have a longer development cycle, typically
exceeding three years. Once a product is qualified,
subsequent production releases typically require lead times of
six or more weeks.
Many products sold by the Company are application specific and,
therefore, have life cycles generally rang-
ing from three to 15 years. For example, many products sold to
the automotive industry are model, engine or sys-
tem specific. As described above, lengthy product development
cycles requiring substantial design and qualification
are customary in the sourcing decisions of OEMs. Therefore, the
primary focus of the Company's sales effort is
to develop applications designed into the products of OEMs during
development.
Engineering and Development
A significant portion of the Company's design and application
expertise is devoted to developing customized
products for performing specific applications. As a result, the
Company's efforts have been primarily directed
toward developing enhancements to existing customer applications
and to identifying new customer-specific applica-
tions. Typically, the Company conducts joint development efforts
with its customers and receives funds for the
custom tooling required to manufacture the customer's assembly.
The Company employs over 70 engineers, many
of whom are focused on working with customers to design
assemblies to perform additional applications. The
Company seeks to involve its engineers in the design phase of its
customer's products.
In order to expand the range of applications which can be
addressed with magnetic sensor devices, the
Company has identified magnetoresistive technology as one
alternative for new magnetic sensor designs.
Magnetoresistive technology produces a superior signal to noise
ratio, and is able to detect very slow motion which
is required in certain applications. The Company has been
awarded additional programs by an automotive OEM
utilizing magnetoresistive motion and position sensors for
electronic ignition systems.
In addition, in order to address certain fiber optic
applications requiring higher data transmission speeds,
the Company has applied a portion of its research activities in
recent years to the development of higher speed fiber
optic LEDs, sensors, and transceivers.
During the past three fiscal years, the Company's product
development and engineering expenses have
ranged between 6% and 8% of net sales, not including a portion of
which has been funded by customers. Future
developments may require the Company to allocate increased
resources to advances in optoelectronic and magnetic
sensor technologies. However, no assurance can be given that the
Company will be successful in further expanding
these technologies.
Manufacturing
The Company utilizes a vertically integrated manufacturing
structure which enables the Company to
exercise better control through all manufacturing cycles and to
respond on a timely basis to customer requests for
development of new products and design changes to existing
products. The Company manufactures sensor and LED
semiconductor chips, tools and plastic molds, plastic assemblies,
discrete, assembly, hybrid and high reliability
components, printed circuit boards and wire and cable
assemblies.
The Company attempts to maintain consistent high product
quality as a means to attract and retain customer
business and limit price competition. As customers have moved to
"just in time" inventory management, products
are often shipped directly to the production line without
incoming inspection. The Company utilizes advanced
machinery and production techniques, incorporates raw materials
conforming to stringent quality standards and
individually tests each of its products in an effort to
manufacture products of consistent high quality and reliability.
<PAGE>
The principal raw materials used by the Company in the
manufacture of its semiconductor chips, compo-
nents and assemblies are silicon wafers, gallium wafers, certain
chemicals and gases used in processing wafers, gold
wire, copper lead frames, metal and plastic for packages that
house the chip and the various custom assemblies, and
magnets used in certain magnetic sensor applications. Presently,
the Company uses sole sources for its requirements
of some of the materials used in its manufacturing operations,
which could adversely affect the Company if any such
source failed to deliver for any reason. The Company is
currently identifying and qualifying additional sources for
these materials. From time to time, particularly during periods
of increased industry-wide demand, silicon wafers
and other materials have been in short supply. As is typical in
the industry, the Company allows for a significant
lead-time between order and delivery of raw materials. See
"Risk Factors - Sole or Limited Sources of Supply."
The Company's silicon and gallium arsenide chip manufacturing,
high reliability and hybrid assembly
manufacturing and tooling, plastic molding and printed circuit
board operations occupy approximately 52,000 square
feet of manufacturing space at the Company's facilities in
Carrollton, Texas. The Company's non-military discrete
components, interrupter and reflective assemblies and
isolators/couplers are assembled in the facilities of the
Company's subsidiaries located in Juarez, Mexico utilizing
approximately 103,000 square feet in two buildings.
Over 80% of the Company's components and assemblies are
produced in facilities operated by the Com-
pany in Juarez, Mexico. 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 regula-
tions of the United States and Mexico; the availability of less
expensive labor; and the continuation of favorable ex-
change rates. These operations are authorized to operate as
Maquiladoras by the Ministry of Commerce and Indus-
trial Development of Mexico. Maquiladora status allows the
Company 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 provi-
sions and regulations; and compliance with locational
constraints. Although assembly operations in Mexico continue
to be less expensive than comparable operations in the United
States, in recent years many companies have estab-
lished Maquiladora operations in the Juarez area to take
advantage of lower labor costs. Increasing demand for
labor, particularly skilled labor and professionals, from new and
existing Maquiladora operations has in the past
and could in the future result in increased labor costs. The
Company may be required to make additional investments
in automating equipment to partially offset increased labor
costs. The loss of Maquiladora status, the inability to
recruit, hire and retain qualified employees, a significant
increase in labor costs, unfavorable exchange rates or inter-
ruptions in the trade relations between the United States and
Mexico could have a material adverse effect on the
Company's business, operating results and financial
condition.
The Company anticipates that additional manufacturing capacity,
primarily in Mexico, will be required to
support growth over the next several years. Therefore, capital
expenditures are planned to increase to a total of
approximately $10 to $15 million to be expended over the next two
to three fiscal years to support anticipated future
growth in demand for the Company's products. The timing and
amount of such expenditures is subject to adjust-
ment based upon continued evaluation by management.
<PAGE>
Intellectual Property
The Company relies on its technical engineering expertise as
protected by trade secret laws and
nondisclosure agreements and, to a lesser extent, on a
combination of patent, maskwork rights, copyright, trademark
and other intellectual property protection methods to protect its
proprietary technology. Although the Company
currently holds four patents and has one pending patent
application in the United States, the Company believes that
patents are of less significance in its industry than such
factors as customer service, innovation, technical expertise
and know-how of its personnel. There can be no assurance that
the Company's competitors will not be able to
legally ascertain the nonpatented proprietary information
embedded in the Company's sensor components or other
products, in which case the Company may be unable to prevent use
of such information. To the extent the
Company elects to assert its patent rights, there can be no
assurance that any claims of the Company's patents will
be sufficiently broad to protect the Company's technology. In
addition, there can be no assurance that any patents
issued to the Company will not be challenged, invalidated or
circumvented, that any rights granted thereunder will
provide adequate protection to the Company, or that the Company
will have sufficient resources to prosecute its
rights. The Company has received notification of patent issues
concerning a process used to manufacture a small
portion of its products, but believes the issues asserted are
without merit. There can be no assurance that
infringement claims by third parties or claims for
indemnification resulting from infringement claims will not be
asserted in the future, or that such assertions, if proven to be
true, will not materially adversely affect the
Company's business, operating results and financial condition.
If any such claims are asserted against the Company,
the Company may seek to obtain a license under the third party's
intellectual property rights. There can be no
assurance that a license will be available on reasonable terms or
at all. Alternatively, the Company could resort
to litigation to challenge such claims. Such challenges could be
extremely expensive and time consuming. Adverse
determinations in any litigation could subject the Company to
significant liabilities to third parties, require the
Company to seek licenses from third parties and prevent the
Company from manufacturing and selling its products.
Any of these developments could have a material adverse effect on
the Company's business, operating results and
financial condition.
Competition
The Company believes that competition in the market for custom
optroelectronic and magnetic sensors is
intense and likely to increase substantially. Competition in the
sensor markets served by the Company is primarily
based upon custom design capabilities, quality, technology,
responsiveness, timely delivery and, to a lesser extent,
price. The Company competes with numerous companies for the
custom optroelectronic and magnetic sensor
requirements of OEMs producing office equipment, automotive
products, industrial products, aerospace/defense and
medical applications and communications equipment. The Company
believes that its principal competitor for sales
of custom sensor components and assemblies is Honeywell, Inc. In
addition, because certain OEMs, either directly
or through affiliated entities, have internal capabilities to
design and manufacture custom sensor components and
assemblies, the Company must also compete with the in-house
capabilities of such OEMs. In some cases, the
Company's prospective customers may elect to purchase low-cost
standardized sensor components from commodity
suppliers and utilize their in-house design and manufacturing
capability to adapt such standard components to fulfill
their sensor requirements. See "Risk Factors -
Competition."
Environmental
The Company is subject to a variety of domestic and Mexican
governmental regulations relating to the use,
storage, handling and disposal of toxic or other hazardous
substances used in connection with its manufacturing
activities. Any failure by the Company to control the use,
storage, handling or disposal or adequately restrict the
discharge of hazardous or toxic substances could subject the
Company to significant liability or could cause the
Company's manufacturing operations to be curtailed or suspended.
See "Risk Factors - Limited Insurance
Coverage; Environmental Regulation."
Backlog
The Company's order backlog was approximately $23.9 million at
October 31, 1997 compared with a
backlog of approximately $18.4 million at October 25, 1996 and
approximately $23.2 million at October 27, 1995.
The Company's backlog is comprised of orders which customers have
released and scheduled for delivery within
one year. Sales orders are typically made on the Company's
standard form, which permits the customer to cancel
the order in whole or in part. 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.
<PAGE>
Employees
As of October 31, 1997, the Company employed 1,971 persons,
including 1,821 in manufacturing and
assembly (1,633 in Juarez, Mexico and 188 in Carrollton, Texas),
104 in sales and engineering and 46 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 organization and the Company considers its employee
relations to be good.
Facilities
The Company's administrative offices, engineering facilities,
silicon and gallium arsenide chip
manufacturing and hybrid assembly manufacturing, as well as
tooling, plastic molding and printed circuit board
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. This lease expires in January of 1999.
Over 80% all of the Company's nonmilitary 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 Juarez,
Mexico through trust agreements with Banca Serfin, Sociedad
Nacional de Credito. The Company is currently
expanding the space available in the larger facility by 12,000
square feet to provide additional space for expansion
of automotive programs. 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. The Company's Mexican subsidiaries also lease a 58,000
square foot building in Juarez, Mexico under a
lease expiring in December 1998 with aggregate annual lease
payments of $306,000. The lease provides for three
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 subsidiary.
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 1998. The Company anticipates a need for
increased capital spending during 1998 to support
potential increases in demand during 1999 and 2000.
<PAGE>
<PAGE>
MANAGEMENT
Information as of February 12, 1998 with respect to the
executive officers and Directors of the Company
is as follows:
Name Age Position
Grant A. Dove ............ 69 Chairman of the Board
Thomas R. Filesi............ 62 President, Chief
Executive Officer and Director
Richard G. Dahlberg..... 44 Senior Vice President,
Engineering
Thomas S. Garrett ........ 51 Senior Vice President,
Operations
William J. Collinsworth ... 47 Vice President, Finance and
Chief Financial Officer
Robert J. Kosobucki ........ 46 Vice President, Worldwide
Sales and Marketing
Michael E. Cahr ........... 57 Director
William H. Daughtrey, Jr..... 57 Director
Rodes Ennis ............... 61 Director
Wayne Stevenson ......... 62 Director
Mr. Dove was elected a Director of the Company in July 1989 and
Chairman of the Board in March 1993.
He is currently a managing partner of Technology Strategies &
Alliance, a strategic planning and investment
banking firm. He spent 28 years with Texas Instruments, retiring
in 1987 as Executive Vice President. He then
served as Chairman and Chief Executive Officer of
Microelectronics and Computer Technology Corporation, a
research and development consortium, retiring in 1992. He
currently serves on the boards of the Cooper Cameron
Corporation, an oilfield services company; U.S. WEST, Inc., a
telecommunications company; Intervoice, Inc., a
telecommunications equipment and software sales provider; and
Fore Front Group, Inc., a personal computer and
internet software provider.
Mr. Filesi has served as President, Chief Executive Officer and
a Director of the Company since April
1991. Before joining the Company, he was employed by Motorola,
Inc. Semiconductor Products Sector for 21
years, completing his tenure there as Director of Manufacturing,
RF Products.
Mr. Dahlberg was elected Vice President, Engineering in March
1994 and became a Senior Vice President
in December 1997. Mr. Dahlberg has been employed by the Company
since 1983 and has served in various
engineering capacities. He is a Registered Professional Engineer
in the State of Texas.
Mr. Garrett joined the Company in October 1991 as Vice
President, Operations and became a Senior Vice
President in December 1997. In April 1988 he founded Garrett
Consulting Group and was President of that firm
until December 1990, at which time it merged with Northwest
Technology Group, Inc. These companies provided
comprehensive consulting services to the microelectronics and
other high technology related industries.
<PAGE>
Mr. Collinsworth joined the Company as Vice President, Finance
and Chief Financial Officer in October
1996. From 1991 until joining the Company, he was an independent
financial consultant specializing in start-up
and troubled companies. In that role, he worked with several
private companies and also served as interim Chief
Operating Officer and Chief Financial Officer for Intellicall,
Inc., a provider of telecommunications services and
equipment, from April 1992 to September 1993 and Chief Financial
Officer for Value Added Communications, Inc.
( VAC ), a provider of telecommunications services and equipment,
from June 1994 to October 1994. In
November 1995, VAC filed for protection under Chapter 11 of the
Bankruptcy Code.
Mr. Kosobucki joined the Company as Vice President, Worldwide
Sales and Marketing in July 1995. From
1991 to 1995, he served in various strategic marketing and sales
capacities for Summagraphics Corp., a
manufacturer of computer-based printers and plotters, most
recently as Director of Strategic Sales and Product
Marketing. He is a Registered Professional Engineer in the State
of New York.
Mr. Cahr was elected a Director of the Company in August 1988.
He is President and Chief Executive
Officer of Allscrips Pharmaceuticals, Inc., a private company
engaged in the sale of prepackaged pharmaceuticals,
having served in that capacity since January 1995. Until late
1994 he was Manager of Venture Capital at Allstate
Insurance Company in Northbrook, Illinois, having been with
Allstate Insurance Company since 1987.
Mr. Daughtrey was elected a Director of the Company in March
1992. Mr. Daughtrey is currently
President of Princeton Associates, Inc., a management consulting
firm. Prior to founding Princeton Associates,
Inc. in January 1991, he was Group Managing Partner for
Virginia/Maryland Management Consulting Services at
Coopers & Lybrand, Richmond, Virginia from December 1984. On
September 1, 1995, JGB Industries, Inc., a
company for which Mr. Daughtrey had formerly served as interim
President and Chief Executive Officer from
November 1993 to August 1995, filed for protection under Chapter
11 of the Bankruptcy Code.
Mr. Ennis was elected a Director of the Company in February
1987. Mr. Ennis currently serves as a
general management consultant and formerly served as President of
the Journeys and Hardy Divisions of Genesco,
Inc., a footwear retailer, from March 1990 to December 1992.
Mr. Stevenson was elected a Director of the Company in
September 1992. Mr. Stevenson is the Chairman
and Chief Executive Officer of CSI Control Systems International,
Inc., a private firm engaged in the manufacture
and installation of environmental controls for the commercial
market, a position he has held since 1986.
Directors are elected annually and serve until their successors
are duly elected and qualified. Officers serve
at the discretion of the Board, subject to contractual rights.
There is no family relationship between any Director,
nominee for Director or executive officer of the Company.
The Company has entered into indemnification agreements with
its executive officers and Directors,
pursuant to which the Company has agreed to indemnify such
persons to the fullest extent permitted by law, and
providing for certain other protection.
PAGE
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding the Common
Stock owned at February 12, 1998 and
as adjusted to reflect the issuance and sale of the shares sold
in this Offering by this Prospectus by (i) each stock-
holder known to the Company to own beneficially more than 5% of
the Common Stock, (ii) each of the Company's
executive officers and Directors, (iii) all executive officers
and Directors as a group, and (iv) the Selling Stockhold-
er. To the Company's knowledge, the persons named in the table
have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned
by them, subject to community property laws,
where applicable, and the information contained in the footnotes
to the table.
<TABLE>
Shares Beneficially Shares Shares
Owned Before to be Beneficially
Offering(1) Offered Owned After
Offering(1)
Name and Address Number Percent Offered NumberPercent
<S> <C> <C> <C> <C> <C>
First Source
Financial LLP(2) 3,150,000 43.7% 2,500,000 650,000 8.5%
2850 W. Golf Rd.,
5th Floor
Rolling Meadows,
IL 60008
James D. Crownover 262,602 6.2 - 262,602 3.8
P.O. Box 7812
Horseshoe Bay, TX
78657
Wellingon Management
Company, LLP....... 212,800 5.2 - 212,800 3.1
75 State Street
Boston, MA 02109
Grant A. Dove .... 206,601 4.9 - 206,601 3.0
15301 Dallas Parkway
Suite 840
Dallas, TX 75248
Thomas R. Filesi (3) ..375,499 8.7 - 375,499 5.3
1180 Emerald Sound Blvd.
Oak Point, TX 75068
Richard G. Dahlberg(4) 49,755 * - 49,755 *
Thomas S. Garrett(5) 102,333 2.3 - 102,333 1.5
William J.
Collinsworth(6) 13,784 * - 13,784 *
Robert J.
Kosobucki(7) 29,998 * - 29,998 *
Michael E.
Cahr(8) .... 51,500 1.1 - 51,500 *
William H. Daughtrey,
Jr.(9) .......... 8,000 * - 8,000 *
Rodes Ennis(10) ...... 47,100 1.1 - 47,100 *
Wayne Stevenson(11) ... 19,250 * - 19,250 *
All executive officers
and Directors
as a group (10
persons)(12) ...... 906,820 18.6 - 906,820 12.7
* Less than 1%.
</TABLE>
<PAGE>
(1) Number of shares beneficially owned and the percentage of
shares beneficially owned are based
on: (i) 4,466,025 shares outstanding as of February 12,
1998, (ii) 6,966,025 shares outstanding
following issuance of 2.5 million shares of Common Stock
through the exercise of the First Source
Warrant in connection with the Offering and (iii) the
assumption that the Underwriters' over-
allotment option will not be exercised. Beneficial
ownership is determined in accordance with the
rules of the Securities and Exchange Commission, and
includes shares over which the listed
beneficial owner holds sole or shared voting or
dispositive power. In addition to shares actually
outstanding, all shares subject to warrants and options
exercisable within 60 days of February 12,
1998 are deemed outstanding and beneficially owned by the
person holding such options and
warrants for purposes of computing the number of shares
beneficially held by such person and the
percentage ownership of such person, but are not deemed
to be outstanding for the purposes of
computing percentage ownership of any other person.
(2) Includes 3,150,000 shares to be issued or issuable
pursuant to the exercise of the First Source
Warrant. The indicated shares may also be deemed to be
beneficially owned by Dominion
Resources, Inc., the indirect parent company of the
Selling Stockholder, and by other affiliated
entities.
(3) Includes 74,499 shares that may be acquired upon exercise
of stock options which are presently
exercisable or will become exercisable within 60 days of
February 12, 1998.
(4) Includes 21,332 shares that may be acquired upon exercise
of stock options which are presently
exercisable or will become exercisable within 60 days of
February 12, 1998.
(5) Includes 7,999 shares that may be acquired upon
exercise of stock options which are presently
exercisable or will become exercisable within 60
days of February 12, 1998.
(6) Includes 13,334 shares that may be acquired upon exercise
of stock options which are presently
exercisable or will become exercisable within 60 days of
February 12, 1998.
(7) Includes 18,135 shares that may be acquired upon exercise
of stock options which are presently
exercisable or will become exercisable within 60 days of
February 12, 1998.
(8) Includes 21,000 shares that may be acquired upon exercise
of stock options which are presently
exercisable or will become exercisable within 60 days of
February 12, 1998. Also includes 5,500
shares owned of record by Mr. Cahr s wife of which Mr.
Cahr may be deemed the beneficial
owner.
(9) Includes 7,000 shares that may be acquired upon exercise
of stock options which are presently
exercisable or will become exercisable within 60 days of
February 12, 1998.
(10) Includes 21,000 shares that may be acquired upon exercise
of stock options which are presently
exercisable or will become exercisable within 60 days of
February 12, 1998.
(11) Includes 19,250 shares that may be acquired upon exercise
of stock options which are presently
exercisable or will become exercisable within 60 days of
February 12, 1998.
(12) Includes 203,549 shares that may be acquired upon
exercise of stock options and warrants which
are presently exercisable or will become exercisable
within 60 days of February 12, 1998.
<PAGE>
UNDERWRITING
Prudential Securities Incorporated, BancAmerica Robertson
Stephens and ABN AMRO Incorporated (the
"Underwriters") have severally agreed, subject to the terms and
conditions contained in the underwriting agreement
(the "Underwriting Agreement"), to purchase from the Selling
Stockholder the number of shares of Common Stock
set forth below opposite their respective names:
Underwriter Number
of Shares
Prudential Securities Incorporated ...
BancAmerica Robertson Stephens ......
ABN AMRO Incorporated ...............
Total .......................... $2,500,000
The Selling Stockholder is obligated to sell, and the
Underwriters are obligated to purchase, all the shares
of Common Stock offered hereby, if any are purchased.
The Underwriters have advised the Company and the Selling
Stockholder that they propose to offer the
shares of Common Stock initially at the public offering price set
forth on the cover page of this Prospectus; that
the Underwriters may allow selected dealers a concession of $
per share; and that such dealers may reallow a
concession of $ per share to certain other dealers. After
the Offering, the public offering price and the con-
cessions may be changed by the Underwriters.
The Selling Stockholder has granted the Underwriters an option,
exercisable for 30 days from the date of
this Prospectus, to purchase up to 375,000 additional shares of
Common Stock at the public offering price, less
underwriting discounts and commissions, as set forth on the cover
page of this Prospectus. The Underwriters may
exercise such options solely for the purpose of covering
over-allotments incurred in the sale of the shares of Com-
mon Stock offered hereby. To the extent such option is
exercised, each Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same
percentage of such additional shares as the number set
forth next to such Underwriter's name in the preceding table
bears to $2.5 million.
The Company's officers and directors, who in the aggregate will
beneficially own approximately 906,820
shares of Common Stock upon the completion of the Offering, the
Company, the Selling Stockholder and certain
other stockholders of the Company, have agreed not to, directly
or indirectly, offer, sell, offer to sell, contract to
sell, pledge, grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale,
contract of sale, pledge, grant of any option to purchase or
other sale or disposition) of any shares of Common
Stock or other capital stock or any securities convertible into,
or exercisable or exchangeable for, any shares of
Common Stock or other capital stock of the Company or any right
to purchase or acquire Common Stock or other
capital stock of the Company, for a period of 90 days after the
date of this Prospectus without the prior written
consent of Prudential Securities Incorporated, on behalf of the
Underwriters, other than pursuant to the exercise of
currently outstanding stock options and except for bona fide
gifts or transfer effected by such stockholders other
than on any securities exchange or in the over-the-counter market
to donees or transferees that agree to execute and
be bound by such agreements. By virtue of contractual limitations
placed upon his registration rights, James D.
Crownover has agreed not to sell or otherwise dispose of his
shares for a period of ninety (90) days after the
effective date of the Registration Statement. Prudential
Securities Incorporated may, in its sole discretion at any
time and without notice, release all or any portion of the shares
subject to such lock-up agreements.
<PAGE>
The Company and the Selling Stockholder have agreed to
indemnify the several Underwriters and contribute
to any losses arising out of certain liabilities, including
liabilities under the Securities Act.
In connection with this Offering, certain Underwriters (and
selling group members, if any) or their
respective affiliate who are qualified market makers on the
Nasdaq National Market may engage in passive market
making transactions in the Common Stock of the Company on the
Nasdaq National Market in accordance with Rule
103 of Regulation M under the Exchange Act during the business
day prior to the pricing of the Offering before
the commencement of offers and sales of Common stock. Passive
market makers must comply with applicable
volume and price limitations and must be identified as such. In
general, a passive market maker must display its
bid at a price in excess of the highest independent bid for such
security; if all independent bids are lowered below
the passive market maker's bid, however, such bid must then be
lowered when certain purchase limited are
exceeded.
In connection with the Offering, certain Underwriters (and
selling group members, if any) and their respec-
tive affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common
Stock. Such transactions may include stabilization transactions
effected in accordance with Rule 104 of Regulation
M, pursuant to which such persons may bid for or purchase Common
Stock for the purpose of stabilizing its market
price. The Underwriters also may create a short position for the
account of the Underwriters by selling more
Common Stock in connection with the Offering than they are
committed to purchase from the Selling Stockholder,
and in such case may purchase Common Stock in the open market
following the completion of the Offering to cover
all or a portion of such short position. The Underwriters may
also cover all or a portion of such short position,
up to 375,000 shares of Common Stock, by exercising the
Underwriters' over-allotment option referred to above.
In addition, Prudential Securities Incorporated, on behalf of the
Underwriters, may impose "penalty bids" under
contractual arrangements with the Underwriters whereby it may
reclaim from an Underwriter (or any selling group
member participating in the Offering) for the account of the
other Underwriters, the selling concession with respect
to Common Stock that is distributed in the Offering but
subsequently purchased for the account of the Underwriters
in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price
of the Common Stock at a level above that which might otherwise
prevail in the open market. None of the trans-
action described in this paragraph are required and, if they are
undertaken, then they may be discontinued at any
time.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has
been passed upon for the Company by
Hewitt & Hewitt, P.C., Dallas, Texas. Certain legal matters in
connection with the offering will be passed upon
for the Underwriters by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements and schedule of Optek
Technology, Inc. as of October 31, 1997 and
October 25, 1996, and for each of the years in the three-year
period ended October 31, 1997, have been included
herein and incorporated by reference in this Prospectus and in
the Registration Statement of which this Prospectus
forms a part, in reliance upon the reports of KPMG Peat Marwick
LLP, independent certified public accountants,
and upon the authority of said firm as experts in accounting and
auditing.
PAGE
<PAGE>
INFORMATION INCORPORATED BY REFERENCE
The following documents have been filed with the Commission
(File No. 0-16304) pursuant to the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
and are incorporated herein by reference and
made a part of this Prospectus:
1. The Company's Annual Report on Form 10-K for the year
ended October 31, 1997;
2. The Company's Quarterly Report on Form 10-Q for the
quarter ended January 30, 1998; and
3. Description of the Company's Common Stock contained in
the Company's Registration Statem
ent on Form 8-A.
All documents filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act
subsequent to the date of this Prospectus and prior to the
termination of the offering of the Company's Common
Stock shall be deemed to be incorporated herein by reference and
made a part of this Prospectus from the respective
filing dates of such documents. Any statement contained in a
document incorporated or deemed to be incorporated
by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that
a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incor-
porated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute
a part of this Prospectus.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as
amended (the "Exchange Act") and in accordance therewith, files
reports, proxy statements, and other information
with the Securities and Exchange Commission (the "Commission").
The Company has filed with the Commission a Registration
Statement on Form S-3 (together with all
amendments, schedules and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as
amended (the "Securities Act") with respect to the Common Stock
offered hereby. This Prospectus, omits certain
of the information set forth in the Registration Statement, and
reference is hereby made to the Registration Statement
for further information with respect to the Company and the
Common Stock offered hereby. Any statements
contained herein concerning the provisions of any documents are
not necessarily complete, and in each such instance
reference is made to the copy of such document filed as an
exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference.
Reports and other information filed by the Company with the
Commission and copies of the Registration
Statement can be inspected and copied at the public reference
facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, DC 20549, and should
also be available for inspection and copying at
the following regional offices of the Commission: 7 World Trade
Center, Suite 1300, New York, New York
10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511.
Copies of such material also may be obtained from the Public
Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates, and
through the Commission's Internet address at
"http://www.sec.gov".
PAGE
<PAGE>
OPTEK TECHNOLOGY, INC.
Index to Consolidated Financial Statements
Page
INDEPENDENT AUDITORS' REPORT
............................................................. F-2
Consolidated Balance Sheets as of January 30, 1998,
October 31, 1997 and October 25, 1995 ... F-3
Consolidated Statements of Income for the Quarters
ended January 30, 1998 and January 31, 1997
and the Years Ended October 31, 1997, October 25, 1996 and
October 27, 1995 ................ F-4
Consolidated Statements of Stockholders' Equity for the
Quarter Ended January 30, 1998
and the Years Ended October 31, 1997, October 25, 1996
and October 27, 1995 ............... F-5
Consolidated Statements of Cash Flows for the Quarters
ended January 30, 1998 and January 31, 1997 and the Years
Ended October 31, 1997, October 25, 1996 and October 27,
1995 .............................................. F-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ............. F-7
<PAGE> <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 31, 1997 and October 25, 1996, and the related
consolidated statements of income, stockholders'
equity and cash flows for each of the years in the three-year
period ended October 31, 1997. 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 disclo-
sures 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 31, 1997 and October 25,
1996, and the results of their operations and their cash flows
for each of the years in the three-year period ended
October 31, 1997, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
December 16, 1997, except as to
note 1g which is as of February 16, 1998
<PAGE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
January 30, October 31, October 25,
1998 1997 1996
(unaudited)
ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..........$11,644 $9,815 $ 121
Accounts receivable, net of
allowance for doubtful accounts and
customer returns of $1,773 in 1998,
$1,653 in 1997 and $1,095 in 1996... 8,049 9,196 7,288
Inventories (note 2).................6,908 6,491 6,007
Deferred income taxes (note 7).......2,113 2,113 1,142
Prepaid expenses.......................112 109 82
Total current assets................28,826 27,724 14,640
Property, plant and equipment, net
(note 3)...........................12,732 11,135 11,150
Other assets...........................64 77 96
$41,622 $38,936 $25,886
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................$3,162 $3,109 $2,637
Accrued expenses (note 4)......... 9,112 9,547 5,345
Total current liabilities........ 12,274 12,656 7,982
Long-term debt (note 5)............ - - 3,428
Other liabilities.................. 155 117 100
Deferred income taxes (note 7) .... - - 309
Stockholders' equity (note 6):
Preferred stock, $.01 par value.
Authorized 1,000,000 shares;
none issued..................... - - -
Common stock, $.01 par value.
Authorized 12,000,000 shares;
issued and outstanding 4,272,727 shares
in 1998, 4,259,534
shares in 1997 and 3,912,915
shares in 1996....................... 43 43 39
Additional paid-in-capital........ 14,053 13,963 13,373
Retained earnings................. 15,097 12,157 655
Total stockholders' equity........ 29,193 26,163 14,067
$41,622 $38,936 $25,886
See accompanying notes to consolidated financial statements.
</TABLE>
PAGE
<PAGE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
<TABLE>
Quarter Ended Year Ended
(unaudited)
January 30, January 31, October 31, October 25, October 27,
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Net sales..... $20,419 $16,689 $75,572 $67,395 $62,542
Cost and expenses:
Cost of sales.. 12,105 10,099 43,423 39,010 38,513
Product development
expenses.... 254 318 1,233 1,348 650
Engineering
expenses....... 1,204 1,009 4,013 3,585 3,191
Selling
expenses........ 1,457 1,295 5,289 5,087 4,245
General and
administrative
expenses........ 971 866 3,856 3,179 2,845
Total costs and
expenses....... 15,991 13,587 57,814 52,209 49,444
Operating
income.......... 4,428 3,102 17,758 15,186 13,098
Other (income) expense:
Interest (income)
expense (111) 83 (65) 1,292 2,960
Other (income)
expense........... 15 76 59 (145) 142
Total other, net . (96) 159 (6) 1,147 3,102
Income before income
taxes and extraordi-
nary item....... 4,524 2,943 17,764 14,039 9,996
Income tax expense
(note 7)....... 1,584 1,031 5,259 1,144 158
Net income before
extraordinary item 2,940 1,912 12,505 12,895 9,838
Extraordinary item
(net of income tax
benefit of $542 -
note 5)........... - - 1,003 - -
Net income...... $2,940 $1,912 $11,502 $12,895 $9,838
Basic earnings per share:
Earnings before
Extraordinary item $0.69 $0.46 $2.98 $3.41 $2.96
Extraordinary item - - (0.24) - -
Basic earnings
Per share $0.69 $0.46 2.74 $3.41 $2.96
Weighted average
shares outstanding 4,272,727 4,150,007 4,192,530 3,779,748
3,318,649
Diluted earnings
per share:
Earnings before
Extraordinary item $0.37 $0.25 $1.63 $1.71 $1.40
Extraordinary
item ............. - - (0.13) - -
Diluted earnings
per share ...... $0.37 $0.25 $1.50 $1.71 $1.40
Weighted average
shares outstanding -
diluted basis . 7,881,398 7,533,237 7,671,509 7,544,333
7,007,408
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share data)
<TABLE>
Retained Total
Addi- earnings stock-
tional (accum- holders'
Common Stock paid-in ulated equity
Shares Amount capital deficit (deficit)
<S> <C> <C> <C> <C> <C>
Balance at
October 28,
1994 3,232,861 $ 32 $12,898 $(22,078) $(9,148)
Exercise of
stock options
and warrants 211,763 2 118 - 120
Net income - - - 9,838 9,838
Balance at
October 27,
1995 3,444,624 34 13,016 (12,240) 810
Exercise of
stock options
and warrants 468,291 5 357 - 362
Net income - - - 12,895 12,895
Balance at
October 25,
1996 3,912,915 39 13,373 655 14,067
Exercise of
stock options
and warrants 346,619 4 590 - 594
Net income - - - 11,502 11,502
Balance at
October 31,
1997 4,259,534 $ 43 $13,963 $12,157 $26,163
Exercise of
stock options
and warrants
(unaudited) 13,193 - 90 - 90
Net income
(unaudited) - - - 2,940 2,940
Balance at
January 30,
1998 (unaudited)4,272,727 $43 $14,053 $15,097 $29,193
</TABLE>
See accompanying notes to consolidated financial statements.
PAGE
<PAGE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Quarter Ended Year ended
(unaudited)
January 31, January 30, October 31, October 25, October
1998 1997 1997 1996 27,
1995
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income...... $2,940 $1,912 $11,502 $12,895 $ 9,838
Adjustments to
reconcile net income
to net cash provided
by operating activities:
Depreciation and
amortization..... 410 570 2,038 2,944 2,722
Gain on sale of
property, plant and
equipment............ (6) - (204) - (25)
Provision for deferred
taxes........... - - (1,280) (833) -
Changes in assets and
liabilities:
Accounts receivable 1,147 1,197 (1,908) (357) (242)
Inventories, prepaid
expenses and
other assets........ (407) (521) (492) (643) 607
Accounts payable,
accrued expenses
and other liabilities (344) (121) 4,691 (310) 733
Net cash provided by
operating
activities........... 3,740 3,037 14,347 13,696 13,633
Cash flows from
investing activities:
Purchase of property,
plant and equipment (2,007) (165) (2,034) (1,432) (1,121)
Proceeds from sale
of property, plant
and equipment..... 6 - 215 2 25
Net cash used in
investing activities (2,001) (165) (1,819) (1,430) (1,096)
Cash flows from
financing activities:
Net repayment under
long-term bank debt - (3,157) (3,428) (12,568) (12,696)
Net proceeds from
exercise of stock
options and warrants.... 90 292 594 362 120
Net cash used in
financing activities 90 (2,865) (2,834) (12,206) (12,576)
Net increase (decrease)
in cash and cash
equivalents ......... 1,829 7 9,694 60 (39)
Cash and cash equivalents
at beginning
of period .......... 9,815 121 121 61 100
Cash and cash equivalents
at end of period ...$11,644 $128 $9,815 $121 $61
Interest payments - $98 $171 $1,346 $3,075
Income tax payments $1,020 $93 $4,258 $2,089 $123
</TABLE>
See accompanying notes to consolidated financial
statements.
PAGE
<PAGE>
OPTEK TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended October 31, 1997, October 25, 1996 and October 27,
1995 and Quarters Ended January 30, 1998 (unaudited) and January
31, 1997 (unaudited)
(dollars in thousands, except share and per share data)
(1) Summary of Significant Accounting Policies
(a) General Information
Optek Technology, Inc. and subsidiaries (The Company)
design, manufacture and market custom infrared
optoelectronic devices, magnetic field sensing devices and fiber
optic transmitters and receivers. A substantial por-
tion of the Company's products are manufactured by a wholly-owned
subsidiary located in Mexico. Net assets
located at that subsidiary were $5,773 at October 31, 1997, and
$6,334 at October 25, 1996.
The Company uses a fiscal year ending on the last Friday
in October. Fiscal 1997 comprised 53 weeks
and fiscal 1996 and fiscal 1995 comprised 52 weeks.
(b) Principles of Consolidation
The accompanying consolidated financial statements include
the accounts of Optek Technology, Inc. and
its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in
consolidation.
(c) Revenue Recognition
Revenues from product sales are recognized at the time of
shipment to the customer. Certain shipments
to distributors are subject to limited right-of-return
provisions. The Company provides for estimated returns when
material.
(d) Use of Estimates
The preparation of the consolidated financial statements
in conformity with generally accepted accounting
principles requires management to make estimates and assumptions
that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities
at the date of the consolidated financial statements and
the reported amounts of net sales and expenses during the
reporting period. Because of the use of estimates inherent
in the financial reporting process, actual results could differ
from those estimates.
(e) Inventories
Inventories are stated at the lower of cost or market on a
first-in, first-out basis. The Company continually
assesses the appropriateness of the inventory valuations giving
consideration to obsolete and excess inventory.
(f) Property, Plant and Equipment
Depreciation of property, plant and equipment is provided
using the straight-line method over the estimated
useful life of the asset. Useful lives range from 20 years for
buildings to 3 to 5 years for equipment. Leasehold
improvements are depreciated over the shorter of the life of the
asset or the lease.
<PAGE>
The Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and Long-Lived Assets to
Be Disposed Of, on October 26, 1996. This
Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recover-
ability of assets to be held and used is measured by a comparison
of the carrying amount of the asset to future net
cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to
be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the
assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
Adoption of this Statement did not have a material impact on the
Company's financial position, results of operations,
or liquidity.
(g) Earnings per Common Share
Effective November 1, 1997 the Company adopted Statement
of Financial Accounting Standards No. 128
"Earnings per Share." This statement replaces the primary and
fully diluted earnings per share computations with
basic and diluted earnings per share. Basic earnings per share
is computed by dividing net income by the weighted
average number of common shares outstanding during the period.
Diluted earnings per share is computed by
dividing net income by weighted average number of common shares
and dilutive securities outstanding during the
period and must be presented in all cases with basic earnings per
share. Dilutive securities consist of common stock
options granted to employees and directors, a warrant issued to
First Source Financial LLP ("First Source"), and
warrants granted to non-employee directors and advisors.
Shares used in calculating basic and diluted earnings per
share are as follows:
<TABLE>
First Quarter Fiscal Year
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Weighted average
shares
outstanding 4,272,727 4,150,007 4,192,530 3,779,748 3,318,649
Dilutive
securities -
Common stock
options.......607,662 359,565 586,406 738,864 921,174
Warrants held
by First
Source .... 3,150,000 3,150,000 3,150,000 3,150,000 3,150,000
Other
warrants ....178,801 196,468 191,968 233,801 251,509
Assumed
repurchase
of common
shares..... (327,792) 322,803 (449,395) (358,080) (633,924)
Weighted
average
shares out-
standing -
diluted basis 7,881,398 7,533,237 7,671,509 7,544,333 7,007,408
</TABLE
<PAGE>
(h) Cash and Cash Equivalents
The Company considers all cash and short-term investments
with original maturities of three months or less
to be cash equivalents.
(i) Stock Based Compensation Plans
The Company accounts for its stock option plans and
warrants in accordance with the provisions of
Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting
for Stock Issued to Employees, and related
interpretations. Compensation expense is recorded on the date of
grant only if the market price of the underlying
stock exceeds the exercise price. On October 26, 1996, the
Company adopted Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123"). Under SFAS 123, the Company may
elect to recognize expense for stock-based compensation based on
the fair value of the awards, or continue to
account for stock-based compensation under APB 25 and disclose in
the financial statements the effects of SFAS
123 as if the recognition provisions were adopted. The Company
has elected to continue to account for stock-based
compensation under APB 25 and provide the disclosure required by
SFAS 123.
(j) Financial Instruments
All financial instruments held by the Company have been
stated at values which approximate fair value as of
October 31, 1997 and October 25, 1996 due to the instruments
bearing interest at market rates or due to their short
duration.
(k) 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.
(l) Income Taxes
The Company uses the asset and liability method of
accounting for income taxes. Under this method,
deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date.
(m) Reclassifications
Certain amounts in the 1996 and 1995 consolidated
financial statements have been reclassified to conform
with the current year's presentation.
<PAGE>
(n) Unaudited Quarterly Information
The consolidated financial statements of the Company for
the quarters ended January 30, 1998 and January
31, 1997, and the quarterly information included in footnote 1(g)
and footnote 2 are unaudited and reflect all adjustments,
consisting only of normal recurring adjustments, which are, in
the opinion of management, necessary for a fair
presentation of the results, for the interim periods. The
results of operations for the three months ended January
30, 1998 are not necessary indicative of the results for the
entire year ending October 30, 1998.
(2) Inventories
A summary of inventories at January 30, 1998, October
31, 1997 and October 25, 1996 follows:
1998 1997 1996
Finished goods 1,114 $1,503 $1,109
Work in process 4,343 4,003 3,323
Raw materials 3,757 3,140 3,381
Reserve for excess
and obsolete
inventory (2,306) (2,155) (1,806)
$6,908 $6,491 $6,007
(3) Property, Plant and Equipment
A summary of property, plant and equipment at October 31,
1997 and October 25, 1996 follows:
1997 1996
Land $ 3,137 $ 3,137
Building and improvements 8,873 8,821
Equipment 20,106 18,238
32,116 30,196
Accumulated depreciation (20,981) (19,046)
$11,135 $11,150
(4) Accrued Expenses
A summary of accrued expenses at October 31, 1997 and
October 25, 1996 follows:
1997 1996
Employee related accruals $3,413 $2,778
Federal income tax 1,625 -
Debt extinguishment charge 1,545 -
Other 2,964 2,567
$9,547 $5,345
<PAGE>
(5) Long-term Debt
At October 25, 1996, the Company had borrowings
outstanding of $3,428 under a credit facility with First
Source. The facility provided for a $10,500 working capital line
of credit and an $8,000 revolving term loan. Sub-
stantially all of the amount outstanding at October 25, 1996, was
borrowed against the revolving term loan bearing
interest at the corporate base rate at the First National Bank of
Chicago (corporate base rate) plus 4.0%. On
November 1, 1996, the revolving term loan was retired using the
available working capital line of credit bearing
interest at the corporate base rate plus 0.5%. During the second
quarter of fiscal 1997, the Company repaid all
amounts outstanding under the credit facility with First Source.
The credit facility continued to provide a $10.5
million working capital line through the end of fiscal 1997 at
which time the Company chose to let the facility
expire.
In the fourth quarter of fiscal 1997, the Company agreed
to pay First Source $1,545 to release all obliga-
tions, including contingent additional interest, under the credit
facility and other restrictive covenants. The provision
for payment, net of related income tax benefits of $542, has been
classified as an extraordinary item.
In January 1998, the Company obtained a three year $10.0
million unsecured line of credit from
NationsBank N.A. subject to customary terms and conditions.
(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 mar-
ket value on the date of grant. Options vest over a period of 3
years and are exercisable for up to 10 years after
the date of grant. During fiscal 1995, the Company increased the
authorized common stock available for this plan
to 1,500,000 shares. The Investment Plan allows the granting of
rights to receive cash in the event of a change of
control in the Company or to acquire shares of common stock equal
in value 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 31, 1997. A
summary of option activity under the Invest-
ment Plan follows:
Number Weighted
of Average
Shares Exercise Price
Balance at October 28, 1994 867,820 $ .40
Granted 200,650 5.58
Exercised (177,280) .26
Canceled (72,365) .19
Balance at October 26, 1995 818,825 1.72
Granted 156,000 11.88
Exercised (370,202) .41
Canceled (17,665) 3.68
Balance at October 25, 1996 586,958 5.19
Granted 200,500 10.16
Exercised (272,247) 1.49
Canceled (6,917) 8.77
Balance at October 31, 1997 508,294 $9.08
<PAGE>
At October 31, 1997, the range of exercise prices and
weighted average remaining contractual life of out-
standing options were $.19 to $11.97 and 9 years, respectively.
At October 31, 1997 and October 25, 1996, the
number of options exercisable was 171,711 and 275,826,
respectively, and the weighted average exercise price of
those options was $7.33 and $1.37, respectively.
During fiscal 1983, the Company implemented an incentive
stock option plan (Incentive Plan) which
allowed the granting of options, vesting over 3 years and
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. During
fiscal 1996, options to purchase 84,089 shares
of common stock were exercised. During fiscal 1997, options to
purchase 21,166 shares of common stock were
exercised at a weighted average price of $1.31. Under the
Incentive Plan, options outstanding and exercisable to-
taled 42,700 at a weighted average exercise price of $2.15 and a
range of $1.19 to $2.31 per share at October 31,
1997.
During fiscal 1992, the Company adopted a directors'
formula award plan (Directors' Award 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' Award 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. During each of the fiscal years 1995,
1996, and 1997, options to purchase 14,000 shares
of the Company's common stock were granted. During fiscal 1996,
options to purchase 14,000 shares of common
stock were exercised. At October 31, 1997 there are 73,500
director options outstanding of which 59,500 are cur-
rently exercisable at a weighted average exercise price of $3.90
and a range of $.44 to $13.38 per share.
During fiscal 1997, the Company adopted a directors'
formula compensation plan (Directors' Compensation
Plan) which provides for the reservation and issuance of up to
100,000 shares of the Company's common stock.
Under the plan, non-employee directors may elect, in lieu of all
or part of the annual retainer of $12, to: a) receive
the number of shares of Optek's common stock equal to the amount
of the retainer divided by the fair market value
per share on the date such amount would otherwise be paid; b)
receive ten year options to purchase shares of the
Company's common stock at an exercise price equal to 50% of the
fair market value for the number of shares equal
to the retainer divided by the difference between the market
price and the exercise price, or; c) defer payment of
the retainer until such time as they cease to be a director. For
purposes of the Directors' Compensation Plan, fair
market value per share is defined as the average of the closing
prices for the Company's common stock for the
twenty trading days preceding an event. No elections to receive
the benefits afforded have been made by any direc-
tor under the Director's Compensation Plan.
The per share weighted average fair value of stock options
granted during fiscal 1997 and fiscal 1996 was
$3.77 and $4.13, respectively, on the date of grant using the
Black-Scholes option-pricing model with the following
weighted average assumptions:
1997 1996
Expected dividend yield 0% 0%
Expected volatility 44.2% 41.5%
Risk-free interest rate 6% 6%
Expected life 3 years 3 years
<PAGE>
The Company applies APB opinion No. 25 in accounting for
its plans and, accordingly, no compensation
cost has been recognized for its stock options in the
consolidated financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for
stock options granted in fiscal 1996 and fiscal 1997
under SFAS No. 123, the Company's net income would have been
reduced to the proforma amounts indicated
below:
Net income: 1997 1996
As reported $11,502 $12,895
Proforma 11,259 12,810
Diluted earnings per share:
As reported $1.50 $1.71
Proforma 1.47 1.70
Proforma net income reflects only options granted in
fiscal 1997 and fiscal 1996. Therefore, the full impact
of calculating compensation cost for stock options under SFAS No.
123 is not reflected in the proforma net income
and diluted earnings per share amounts presented above because
compensation cost is reflected over the options vesting
period of 3 years and compensation cost for options granted prior
to October 28, 1995 is not considered.
Prior to fiscal 1995, warrants were granted in the amount
of 261,301 shares to certain non-employee
directors and advisors. During fiscal 1995, warrants to purchase
16,000 shares of common stock were exercised
at a weighted average exercise price of $3.25. During fiscal
1996, 11,500 warrants expired with an exercise price
of $6.13 per share. During fiscal 1997, warrants to purchase
53,333 shares of common stock were exercised at
a weighted average exercise price of $3.03. Excluding warrants
granted to financial institutions, the Company, at
October 31, 1997, had 180,468 warrants outstanding at a weighted
average exercise price of $.39 and a range of
$.19 to $6.00 per share expiring July 1998 through November 1998.
Prior to fiscal 1997, the Company granted First Source a
warrant, as amended on October 31, 1997, 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 warrant contains certain antidilutive
provisions, certain registration rights upon the occur-
rence of a public offering and certain demand rights for such a
registration.
(7) Income Taxes
Income taxes consist of the following:
Current: 1997 1996 1995
U.S. Federal $6,379 $1,887 $158
Foreign 160 90 -
Deferred (1,280) (833) -
Income tax expense
before extraordinary
item 5,259 1,144 158
Extraordinary item (542) - -
$4,717 $1,144 $158
Income tax expense attributable to income before
extraordinary item differs from the expected tax expense
computed by applying the U.S. corporate income tax rate of 35%
for fiscal 1997 and 1996, and 34% for fiscal 1995
to income before income taxes and extraordinary item as follows:
<PAGE>
1997 1996 1995
Expected tax expense $6,217 $4,914 $3,399
Realization of benefits
of tax loss carryforwards - (3,238) (3,853)
Change in valuation
allowance (358) (209) 410
Tax credit for research
and experimentation
activities (600) - -
Other, net - (323) 202
Income tax expense $5,259 $1,144 $158
The fiscal 1997 change in valuation allowance and tax
credit for research and experimentation activities
occurred in the fourth quarter.
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and
liabilities at October 31, 1997 and October 25, 1996 are
presented below:
Deferred tax assets: 1997 1996
Accounts receivable allowances $578 $372
Inventory allowances 506 525
Accrued expenses and other 524 603
Property, plant and equipment 505 -
Less valuation allowance - (358)
Deferred tax assets 2,113 1,142
Deferred tax liabilities:
Property, plant and equipment - 309
Net deferred tax assets $2,113 $833
The net change in the valuation allowance for the year ended
October 31, 1997 and October 25, 1996 was a
decrease of $358 and $3,447, respectively. Based on the
Company's historical and current earnings, management
believes it is more likely than not that the Company will realize
the benefits of its net deferred tax assets existing
at October 31, 1997.
(8) Operating Leases
The Company leases certain manufacturing facilities and
equipment under noncancellable operating leases.
Future minimum lease payments as of October 31, 1997 under all
such operating leases are as follows: 1998, $668;
1999, $305; 2000, $233; 2001, $211; and 2002, $208. Rental
expense in 1997 was $469; 1996, $399; and 1995,
$412.
(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 believes the allowance for doubtful
accounts adequately provides for losses on uncollectible
accounts.
During fiscal 1997, the Company's ten largest customers
accounted for approximately 63% of net sales ver-
sus 62% in fiscal 1996 and 57% in fiscal 1995. Such customers
are involved primarily in the automotive and office
equipment industries. During fiscal 1997, net sales to one
customer in the automotive industry were 13% of total
net sales, versus 11% in fiscal 1996 and 13% in fiscal 1995, and
net sales to another automotive customer were
13% of total net sales versus 8% in fiscal 1996 and 3% in fiscal
1995. Sales to one customer in the office equip-
ment industry were 10% of total net sales versus 11% in fiscal
1996 and 13% in fiscal 1995.
<PAGE>
Aggregate export sales to unaffiliated customers were
$17,361 in fiscal 1997, $18,865 in fiscal 1996, and
$16,856 in fiscal 1995. 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 up
to the appropriate statutory dollar limits. The
Company has the option to contribute up to 2% of the employee's
salary. Employer contributions vest ratably over
a period of five years. Vesting occurs after 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 1997, the Company
provided for contributions to the Profit-Sharing Plan total-
ing $165 to be paid the first quarter of fiscal 1998. For fiscal
1996 and fiscal 1995 the Company contributed $143
and $139, respectively.
(11) Contingencies
The Company is involved in various claims and legal
actions arising in the ordinary course of business.
In the opinion of management, the ultimate disposition of these
matters will not have a material affect on the
Company's financial position or results of operations.PAGE
<PAGE>
[Picture depicting a few of the Company's sensor assemblies with
examples of end products in which they are used.]
<PAGE>
<PAGE>
No dealer, salesperson or other person has been
authorized to give any information or to make any
representation other than those contained in this
Prospectus in connection with this offer made by
this Prospectus, and, if given or made, such infor-
mation or representations must not be relied upon
as having been authorized by the Company, the
Selling Stockholder or any of the Underwriters.
This Prospectus does not constitute an offer to
sell, or the solicitation of any offer to buy, any
securities other than the shares of Common Stock
offered by this Prospectus, nor does it constitute
an offer to sell or a solicitation of any offer to buy
the Common Stock by anyone in any jurisdiction
in which such offer or solicitation is not qualified
to do so, or to any person to whom it is unlawful
to make such offer or solicitation. Neither the
delivery of this Prospectus nor any sale made
hereunder shall, under any circumstances, create
any implication that the information contained
herein is correct as of any time subsequent the
date hereof.
TABLE OF CONTENTS
Page
Prospectus Summary ..........
Risk Factors ....................
Use of Proceeds ...............
Price Range of Common Stock
Dividend Policy ................
Capitalization ..................
Selected Consolidated Financial
Data ..............................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....
Business ..........................
Management ...................
Principal and Selling Stockholders
Underwriting ..................
Legal Matters ..................
Experts .........................
Information Incorporated by
Reference......................
Available Information ........
Index to Consolidated Financial
Statements .................... <PAGE>
2,500,000 Shares
Optek Technology, Inc.
Common Stock
PROSPECTUS
Prudential Securities Incorporated
BancAmerica Robertson Stephens
ABN AMRO Incorporated
March , 1998
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following are estimated expenses (other than the SEC
registration fee and the NASD filing fee) of the
issuance and distribution of the securities being registered, all
of which will be paid by the Company.
Securities and Exchange
Commission Registration Fee....... $18,350
NASD Filing Fee...................... 6,700
Accounting Fees and Expenses.... 25,000
Legal Fees and Expenses............ 50,000
Transfer Agent and Registrar Fees
and Expenses....................... 500
Printing and Engraving Expenses 40,000
Miscellaneous................... 59,450
TOTAL.................... $200,000
The Company intends to pay all expenses of registration,
issuance and distribution, excluding underwriting
discounts and commissions, with respect to the shares being sold
by the Selling Stockholder.
Item 15. Indemnification of Directors and Officers.
Section 145 of the Delaware General Corporation Law empowers
the Registrant to indemnify its current
and former directors, officers, and certain other persons against
certain expenses incurred by them in connection
with any suit to which they were or are a party or are threatened
to be made a party by reason of their serving in
such positions, so long as they acted in good faith and in a
manner they reasonably believed to be in or not opposed
to the best interests of the Registrant and, with respect to any
criminal action, they had no reasonable cause to
believe their conduct was unlawful. With respect to suits by or
in the right of the Registrant, however, the power
to indemnify does not extend to judgments or settlement amounts
and, unless the court determines that indem-
nification is appropriate, indemnification is not available for
the benefit of such persons who are adjudged to be
liable to the Registrant. The Delaware General Corporation Law
also provides for mandatory indemnification of
any director, officer, employee or agent against expenses to the
extent such person has been successful in any
proceeding covered by the statute. In addition, the Delaware
General Corporation Law provides the general
authorization of advancement of a director's or officer's
litigation expenses in lieu of requiring the authorization
of such advancement by the board of directors in specific cases.
The statute also empowers the Registrant to
purchase and maintain insurance for such persons with respect to
liability arising out of or in connection with their
capacity or status with the Registrant. The Registrant maintains
liability insurance for the benefit of its officers and
directors.
<PAGE>
The statute further specifically provides that the
indemnification authorized thereby shall not be deemed
exclusive of any other rights to which any such officer or
director may be entitled under any bylaws, agreements,
vote of stockholders or disinterested directors or otherwise.
Article VI of the Registrant's Bylaws provides for the
indemnification of directors, officers, and certain other persons
within the limitations of Section 145. Section 7 of
the Underwriting Agreement, filed as Exhibit 1.2 hereto and
incorporated herein by reference, provides for indem-
nification of the directors, controlling persons and officers of
the Registrant against certain liabilities relating to
claims based upon the offering.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
1.1 Underwriting Agreement.
5.1 Opinion and Consent of Hewitt & Hewitt, P.C.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Hewitt & Hewitt, P.C. Reference is made to
Item 5.1.
24.1 Power of Attorney. Reference is made to the Signature
Page.
Item 17. Undertakings
The undersigned Registrant hereby undertakes that, for
purposes of determining any liability under the
Securities Act of 1933, as amended (the "Securities Act") each
filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d)
of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating
to the securities offered therein and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors,
officers, and controlling persons of the Registrant pursuant to
the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against
public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event a claim for
indemnification against such liabilities (other than the payment
by the Registrant of expenses incurred or paid by
a director, officer or controlling person of the Registrant in
the successful defense of any action, suit, or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the
form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under
the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements for
filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Carrollton, State
of Texas, on the 17th day of February, 1998.
OPTEK TECHNOLOGY, INC.
By: /s/ Thomas R. Filesi
Thomas R. Filesi, President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes
and appoints Thomas R. Filesi, William J. Collinsworth, and
Christopher M. Hewitt, and each of them, his true
and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities (including his
capacity as a director and/or officer of Optek Technology,
Inc.) to sign any or all amendments (including post-effective
amendments) to this Registration Statement and to sign
a Registration Statement pursuant to Section 462(b) of the
Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agents, and each of them,
full power and authority to do and perform each
and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents
or any of them, or their or his or her substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933,
this Registration Statement has been signed by
the following persons in the capacities and on the dates
indicated.
Signature Title
Date
/s/ Thomas R. Filesi President, Chief
Thomas R. Filesi Executive Officer,
and Director (Principal
Executive Officer)
Vice President - February
/s/ William J. Collinsworth Finance (Principal 17, 1998
William J. Collinsworth Financial and
Accounting Officer)
Director
Rodes Ennis
/s/ Grant Dove Director
Grant Dove
/s/ William Daughtrey Director
William Daughtrey
/s/ Michael Cahr Director
Michael Cahr
Wayne Stevenson Director
<PAGE>
INDEX TO EXHIBITS
No. Exhibit Page
1.1 Underwriting Agreement.
5.1 Opinion and Consent of Hewitt & Hewitt, P.C.
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Hewitt & Hewitt, P.C. Reference is
made to Item 5.1
24.1 Power of Attorney. Reference is made to the
Signature Page.
<PAGE>
</TABLE>
February 17, 1998
Optek Technology, Inc.
1215 West Crosby Road
Carrollton, Texas 75006
Re: Optek Technology, Inc.
Registration Statement on Form S-3
Gentlemen:
Optek Technology, Inc., a Delaware corporation (the
"Company"), has filed with the Securities and Exchange Commission
its Registration Statement on Form S-3 (the "Registration
Statement") relating to 2,875,000 shares of its Common Stock, par
value $0.01 per share (the "Common Stock"), to be sold to
underwriters for distribution to the public. Such 2,875,000 shares
are issuable pursuant to a warrant (the "Warrant") held by First
Source Financial LLP (the "Selling Stockholder"), exercisable to
purchase up to 3,150,000 shares of Common Stock, and are to be
purchased upon exercise of the Warrant and sold in the offering, as
set forth in the Registration Statement.
We have acted as counsel for the Company in connection with
the proposed public offering of said shares of Common Stock and the
registration under the Securities Act of 1933, as amended, of such
shares and are familiar with the proceedings taken and proposed to
be taken in connection therewith. We are familiar with the
corporate law of the State of Delaware under which the Company is
incorporated and exists, and we have examined such documents and
corporate proceedings, and have made such further examinations and
inquiries, as we deem necessary for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware.
2. The 2,875,000 shares of Common Stock to be issued and
sold by the Selling Stockholders, shall be, when the Warrant is
exercised in accordance with its terms, validly issued and
outstanding, fully paid and nonassessable.
<PAGE>
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption
"Legal Matters" in the Prospectus included in the Registration
Statement.
Very truly yours,
HEWITT & HEWITT, P.C.
By: /s/ Christopher M. Hewitt
Christopher M. Hewitt
President
CMH:ds
The Board of Directors
Optek Technology, Inc.
We consent to the use of our reports included and incorporated by
reference herein and to the references to our firm under the
headings "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
KPMG Peat Marwick LLP
Dallas, Texas
February 16, 1998
Optek Technology, Inc.
2,500,000 Shares
Common Stock
UNDERWRITING AGREEMENT
March ___, 1998
PRUDENTIAL SECURITIES INCORPORATED
BANCAMERICA ROBERTSON STEPHENS
ABN AMRO INCORPORATED
As a Representatives of the several Underwriters
c/o Prudential Securities Incorporated
One New York Plaza
New York, New York 10292
Ladies and Gentlemen:
Optek Technology, Inc., a Delaware corporation (the "Company")
and First Source Financial LLP, an Illinois limited liability
partnership (the ASelling Securityholder@), hereby confirm their
agreement with the several underwriters named in Schedule I
hereto (the "Underwriters"), for whom you have been duly
authorized to act as representatives (in such capacities, the
"Representatives"), as set forth below. If you are the only
Underwriters, all references herein to the Representatives shall
be deemed to be to the Underwriters.
1. Securities. Subject to the terms and conditions herein
contained, the Selling Securityholder proposes to sell to the
several Underwriters an aggregate of 2,500,000 shares (the "Firm
Securities") of the Company's Common Stock, par value $0.01 per
share ("Common Stock"). The Selling Securityholder also proposes
to sell to the several Underwriters not more than 375,000
additional shares of Common Stock if requested by the
Representatives as provided in Section 3 of this Agreement. Any
and all shares of Common Stock to be purchased by the
Underwriters pursuant
<PAGE>
to such option are referred to herein as
the "Option Securities", and the Firm Securities and any Option
Securities are collectively referred to herein as the
"Securities".
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, each of the several
Underwriters that:
(a) The Company meets the requirements for use of Form S-3 under
the Securities Act of 1933, as amended (the "Act"). A
registration statement on such Form (File No. 333-____________)
with respect to the Securities, including a prospectus subject to
completion, has been filed by the Company with the Securities and
Exchange Commission (the "Commission") under the Act, and one or
more amendments to such registration statement may have been so
filed. After the execution of this Agreement, the Company will
file with the Commission either (i) if such registration
statement, as it may have been amended, has been declared by the
Commission to be effective under the Act, either (A) if the
Company relies on Rule 434 under the Act, a Term Sheet (as
hereinafter defined) relating to the Securities, that shall
identify the Preliminary Prospectus (as hereinafter defined) that
it supplements and, if reacquired to be filed pursuant to Rules
434(c)(2) and 424(b), an Integrated Prospectus (as hereinafter
defined), in either case, containing such information as is
required or permitted by Rule 434, 430A and 424(b) under the Act
or (B) if the Company does not rely on Rule 434 under the Act, a
prospectus in the form most recently included in an amendment to
such registration statement (or, if no such amendment shall have
been filed, in such registration statement), with such changes or
insertions as are required by Rule 430A under the Act or
permitted by Rule 424(b) under the Act, and in the case of clause
(i)(A) or (i)(B) of this sentence as have been provided to and
approved by the Representatives prior to the execution of this
Agreement, or (ii) if such registration statement, as it may have
been amended, has not been declared by the Commission to be
effective under the Act, an amendment to such registration
statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by the
Representatives prior to the execution of this Agreement. The
Company may also file a related registration statement with the
Commission pursuant to Rule 462(b) under the Act for the purpose
of registering certain additional Securities, which registration
shall be effective upon filing with the Commission. As used in
this Agreement, the term "Original Registration Statement" means
the registration statement initially filed relating to the
Securities, as amended at the time when it was or is declared
effective, including (i) all financial schedules and exhibits
thereto, (ii) all documents incorporated by reference therein
filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and (iii) any information omitted therefrom
pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined) or, if required to be filed
pursuant to Rule 434(c)(2) and 424(b), in the Integrated
Prospectus; the term "Rule 462(b) Registration Statement" means
any registration statement filed with the Commission pursuant to
Rule 462(b) under the Act (including the Registration Statement
and any Preliminary Prospectus or Prospectus incorporated therein
at the time such Registration Statement becomes effective); the
term "Registration Statement" includes both the Original
Registration Statement and any Rule 462(b) Registration
<PAGE>
Statement; the term "Preliminary Prospectus" means each
prospectus subject to completion filed with such registration
statement or any amendment thereto (including the prospectus
subject to completion, if any, included in the Registration
Statement or any amendment thereto at the time it was or is
declared effective), including all documents incorporated by
reference therein filed under the Exchange Act; the term
"Prospectus" means:
(A) if the Company relies on Rule 434 under the Act,
the Term Sheet relating to the Securities that is first filed
pursuant to Rule 424(b)(7) under the Act, together with the
Preliminary Prospectus identified therein that such Term Sheet
supplements;
(B) if the Company does not rely on Rule 434 under the
Act, the prospectus first filed with the Commission pursuant to
Rule 424(b) under the Act; or
A. if the Company does not rely on Rule 434
under the Act and if no prospectus is required to be filed
pursuant to Rule 424(b) under the Act, the prospectus included in
the Registration Statement, including, in the case of clauses
(A), (B) or (C) of this sentence, all documents incorporated by
reference therein filed under the Exchange Act;
the term "Integrated Prospectus" means a prospectus first filed
with the Commission pursuant to Rules 434(c)(2) and 424(b) under
the Act including all documents incorporated by reference
therein; and the Term "Term Sheet" means any abbreviated term
sheet that satisfies the requirements of Rule 434 under the Act.
Any reference in this Agreement to an "amendment or supplement"
to any Preliminary Prospectus, the Prospectus or any Integrated
Prospectus or an "amendment" to any registration statement
(including the Registration Statement) shall be deemed to include
any document incorporated by reference therein that is filed with
the Commission under the Exchange Act after the date of such
Preliminary Prospectus, Prospectus, Integrated Prospectus or
registration statement, as the case may be; any reference herein
to the "date" of a Prospectus that includes a Term Sheet shall
mean the date of such Term Sheet. For purposes of the preceding
sentence, any reference to the "effective date" of an amendment
to a registration statement shall, if such amendment is effected
by means of the filing with the Commission under the Exchange Act
of a document incorporated by reference in such registration
statement, be deemed to refer to the date on which such document
was so filed with the Commission.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When any
Preliminary Prospectus or any amendment or supplement thereto was
filed with the Commission, it (i) contained all statements
required to be stated therein in accordance with, and complied in
all material respects with the requirements of, the Act, the
<PAGE>
Exchange Act and the respective rules and regulations of the
Commission thereunder, and (ii) did not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading.
When the Registration Statement or any amendment thereto was or
is declared effective, it (i) contained or will contain all
statements required to be stated therein in accordance with, and
complied or will comply in all material respects with the
requirements of, the Act, the Exchange Act and the respective
rules and regulations of the Commission thereunder and (ii) did
not or will not include any untrue statement of a material fact
or omit to state any material fact necessary to make the
statements therein not misleading. When the Prospectus or any
Term Sheet that is a part thereof or any Integrated Prospectus or
any amendment or supplement to the Prospectus is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or part
thereof or such amendment or supplement is not required to be so
filed, when the Registration Statement or the amendment thereto
containing such amendment or supplement to the Prospectus was or
is declared effective), on the date when the Prospectus is
otherwise amended or supplemented and on the Firm Closing Date
and any Option Closing Date (both as hereinafter defined), each
of the Prospectus, and, if required to be filed pursuant to Rules
434(c)(2) and 424(b) under the Act, the Integrated Prospectus as
amended or supplemented at any such time, (i) contained or will
contain all statements required to be stated therein in
accordance with, and complied or will comply in all material
respects with the requirements of, the Act, the Exchange Act and
the respective rules and regulations of the Commission thereunder
and (ii) did not or will not include any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
foregoing provisions of this paragraph (b) do not apply to
statements or omissions made in any Preliminary Prospectus or any
amendment or supplement thereto, the Registration Statement or
any amendment thereto, the Prospectus or, if required to be filed
pursuant to Rules 434(c)(2) and 424(b) and the Act, the
Integrated Prospectus or any amendment or supplement thereto in
reliance upon and in conformity with written information
furnished to the Company by any Underwriter through the
Representatives specifically for use therein.
(c) If the Company has elected to rely on Rule 462(b) and the
Rule 462(b) Registration Statement has not been declared
effective, (i) the Company has filed a Rule 462(b) Registration
Statement in compliance with and that is effective upon filing
pursuant to Rule 462(b) and has received confirmation of its
receipt and (ii) the Company has given irrevocable instructions
for transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement, in
compliance with Rule 111 promulgated under the Act or the
Commission has received payment of such filing fee.
(d) The Company and each of its subsidiaries have been duly
organized and are validly existing as corporations in good
standing under the laws of their respective jurisdictions of
<PAGE>
incorporation and are duly qualified to transact business as
foreign corporations and are in good standing under the laws of
all other jurisdictions where the ownership or leasing of their
respective properties or the conduct of their respective
businesses requires such qualification, except where the failure
to be so qualified does not amount to a material liability or
disability to the Company and its subsidiaries, taken as a whole.
(e) The Company and each of its subsidiaries have full power
(corporate and other) to own or lease their respective properties
and conduct their respective businesses as described in the
Registration Statement, each of the Prospectus and any Integrated
Prospectus or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus; and the Company has full power (corporate and other)
to enter into this Agreement and to carry out all the terms and
provisions hereof to be carried out by it.
(f) The issued shares of capital stock of each of the Company's
subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable and are owned beneficially by the
Company free and clear of any security interests, liens,
encumbrances, equities or claims.
(g) The Company has an authorized, issued and outstanding
capitalization as set forth in each of the Prospectus and any
Integrated Prospectus or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus. All of the issued shares of capital
stock of the Company have been duly authorized and validly issued
and are fully paid and nonassessable. The Firm Securities and
the Option Securities have been duly authorized and, at the Firm
Closing Date or the related Option Closing Date (as the case may
be), will be validly issued, fully paid and nonassessable. No
holders of outstanding shares of capital stock of the Company are
entitled as such to any preemptive or other rights to subscribe
for any of the Securities, and no holder of securities of the
Company has any right which has not been fully exercised or
waived to require the Company to register the offer or sale of
any securities owned by such holder under the Act in the public
offering contemplated by this agreement.
(h) The capital stock of the Company conforms to the description
thereof contained in the Prospectus and any Integrated Prospectus
or, if the Prospectus and any required Integrated Prospectus are
not in existence, the most recent Preliminary Prospectus.
(i) Except as described in the Prospectus and any Integrated
Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus), there are not outstanding (A) securities or
obligations of the Company or any of its subsidiaries convertible
into or exchangeable for any capital stock of the Company or any
such subsidiary, (B) warrants, rights or options to subscribe for
or purchase from the Company or any such subsidiary any such
capital stock or any such convertible or exchangeable securities
<PAGE>
or obligations, or (C) obligations of the Company or any such
subsidiary to issue any shares of capital stock, any such
convertible or exchangeable securities or obligations, or any
such warrants, rights or options.
(j) The consolidated financial statements and schedules of the
Company and its consolidated subsidiaries included in the
Registration Statement and the Prospectus or any Integrated
Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus) fairly present the financial position of the Company
and its consolidated subsidiaries and the results of operations
and changes in financial condition as of the dates and periods
therein specified. Such financial statements and schedules have
been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved
(except as otherwise noted therein). The selected financial data
set forth under the caption "Selected Consolidated Financial
Data" in each of the Prospectus and any Integrated Prospectus
(or, if the Prospectus and any required Integrated Prospectus are
not in existence, the most recent Preliminary Prospectus) and in
the Company's Annual Report on Form 10-K for the fiscal year
ended October 31, 1997, fairly present, on the basis stated in
each of the Prospectus and any Integrated Prospectus (or such
Preliminary Prospectus) and such Annual Report, the information
included therein.
(k) KPMG Peat Marwick LLP, who have certified certain financial
statements of the Company and its consolidated subsidiaries and
delivered their report with respect to the audited consolidated
financial statements and schedules included in the Registration
Statement and each of the Prospectus and any Integrated
Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus), are independent public accountants as required by
the Act, the Exchange Act and the related published rules and
regulations thereunder.
(l) The execution and delivery of this Agreement have been duly
authorized by the Company and this Agreement has been duly
executed and delivered by the Company, and is the valid and
binding agreement of the Company, enforceable against the Company
in accordance with its terms.
(m) No legal or governmental proceedings are pending to which
the Company or any of its subsidiaries is a party or to which the
property of the Company or any of its subsidiaries is subject
that are required to be described in the Registration Statement
or the Prospectus or, if each of the Prospectus and any
Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus), and no such proceedings have been
threatened against the Company or any of its subsidiaries or with
respect to any of their respective properties; and no contract or
other document is required to be described in the Registration
<PAGE>
Statement or the Prospectus or any Integrated Prospectus or to be
filed as an exhibit to the Registration Statement that is not
described therein (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus) or filed as required.
(n) The offering and sale of the Securities to the Underwriters
by the Selling Securityholder pursuant to this Agreement, the
compliance by the Company with the other provisions of this
Agreement and the consummation of the other transactions herein
contemplated do not (i) require the consent, approval,
authorization, registration or qualification of or with any
governmental authority, except such as have been obtained, such
as may be required under state securities or blue sky laws and,
if the registration statement filed with respect to the
Securities (as amended) is not effective under the Act as of the
time of execution hereof, such as may be required (and shall be
obtained as provided in this Agreement) under the Act, or (ii)
conflict with or result in a breach or violation of any of the
terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease or other agreement or
instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or any
of their respective properties are bound, or the charter
documents or by-laws of the Company or any of its subsidiaries,
or any statute or any judgment, decree, order, rule or regulation
of any court or other governmental authority or any arbitrator
applicable to the Company or any of its subsidiaries.
(o) Subsequent to the respective dates as of which information
is given in the Registration Statement, the Prospectus or any
Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus), neither the Company nor any of its
subsidiaries has sustained any material loss or interference with
their respective businesses or properties from fire, flood,
hurricane, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding and there has not been any material adverse change, or
any development involving a prospective material adverse change,
in the condition (financial or otherwise), management, business
prospects, net worth, or results of operations of the Company or
any of its subsidiaries, except in each case as described in or
contemplated by the Prospectus or, if each of the Prospectus and
any Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus).
(p) The Company has not, directly or indirectly, (i) taken any
action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities or
(ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting
purchases of, the Securities or (B) paid or agreed to pay to any
<PAGE>
person any compensation for soliciting another to purchase any
other securities of the Company (except for the sale of
Securities by the Selling Securityholder under this Agreement).
(q) The Company has not distributed and, prior to the later of
(i) the Closing Date and (ii) the completion of the distribution
of the Securities, will not distribute any offering material in
connection with the offering and sale of the Securities other
than the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or other materials, if any permitted by the
Act.
(r) Subsequent to the respective dates as of which information
is given in the Registration Statement, the Prospectus and any
Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus), (1) the Company and its subsidiaries
have not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the
ordinary course of business; (2) the Company has not purchased
any of its outstanding capital stock, nor declared, paid or
otherwise made any dividend or distribution of any kind on its
capital stock; and (3) there has not been any material change in
the capital stock, short-term debt or long-term debt of the
Company and its consolidated subsidiaries, except in each case as
described in or contemplated by the Prospectus and any Integrated
Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus).
(s) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and
marketable title to all personal property owned by each of them,
in each case free and clear of any security interests, liens,
encumbrances, equities, claims and other defects, except such as
do not materially and adversely affect the value of such property
and do not interfere with the use made or proposed to be made of
such property by the Company or such subsidiary, and any real
property and buildings held under lease by the Company or any
such subsidiary are held under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not
interfere with the use made or proposed to be made of such
property and buildings by the Company or such subsidiary, in each
case except as described in or contemplated by the Prospectus and
any Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus).
(t) No labor dispute with the employees of the Company or any
of its subsidiaries exists or is threatened or imminent that
could result in a material adverse change in the condition
(financial or otherwise), business prospects, net worth or
results of operations of the Company and its subsidiaries, except
as described in or contemplated by the Prospectus and any
Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus).
<PAGE>
(u) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent
applications, trademarks, service marks, trade names, licenses,
copyrights and proprietary or other confidential information
currently employed by them in connection with their respective
businesses, and neither the Company nor any such subsidiary has
received any notice of infringement of or conflict with asserted
rights of any third party with respect to any of the foregoing
which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, except as
described in or contemplated by the Prospectus and any Integrated
Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus).
(v) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such
losses and risks and in such amounts as are prudent and customary
in the businesses in which they are engaged; neither the Company
nor any such subsidiary has been refused any insurance coverage
sought or applied for; and neither the Company nor any such
subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that would
not materially and adversely affect the condition (financial or
otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, except as
described in or contemplated by the Prospectus and any Integrated
Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus).
(w) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company,
from making any other distribution on such subsidiary's capital
stock, from repaying to the Company any loans or advances to such
subsidiary from the Company or from transferring any of such
subsidiary's property or assets to the Company or any other
subsidiary of the Company, except as described in or contemplated
by the Prospectus and any Integrated Prospectus (or, if the
Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus).
(x) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct
their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization
or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a
material adverse change in the condition (financial or
otherwise), business prospects, net worth or results of
operations of the Company and its subsidiaries, except as
<PAGE>
described in or contemplated by the Prospectus and any Integrated
Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus).
(y) The Company will conduct its operations in a manner that
will not subject it to registration as an investment company
under the Investment Company Act of 1940, as amended, and this
transaction will not cause the Company to become an investment
company subject to registration under such Act.
(z) The Company has filed all foreign, federal, state and local
tax returns that are required to be filed or has requested
extensions thereof (except in any case in which the failure so to
file would not have a material adverse effect on the Company and
its subsidiaries) and has paid all taxes required to be paid by
it and any other assessment, fine or penalty levied against it,
to the extent that any of the foregoing is due and payable,
except for any such assessment, fine or penalty that is currently
being contested in good faith or as described in or contemplated
by the Prospectus and any Integrated Prospectus (or, if the
Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus).
(aa) Neither the Company nor any of its subsidiaries is in
violation of any foreign, federal, or state law or regulation
relating to occupational safety and health or to the storage,
handling or transportation of hazardous or toxic materials and
the Company and its subsidiaries have received all permits,
licenses or other approvals required of them under applicable
foreign, federal, state occupational safety and health and
environmental laws and regulations to conduct their respective
businesses, and the Company and each such subsidiary is in
compliance with all terms and conditions of any such permit,
license or approval, except any such violation of law or
regulation, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals which would
not, singly or in the aggregate, result in a material adverse
change in the condition (financial or otherwise), business
prospects, net worth or results of operations of the Company and
its subsidiaries, except as described in or contemplated by the
Prospectus and any Integrated Prospectus (or, if the Prospectus
and any required Integrated Prospectus are not in existence, the
most recent Preliminary Prospectus).
(bb) Each certificate signed by any officer of the Company and
delivered to the Representatives or counsel for the Underwriters
shall be deemed to be a representation and warranty by the
Company to each Underwriter as to the matters covered thereby.
(cc) Except for the shares of capital stock of each of the
subsidiaries owned by the Company and such subsidiaries, neither
the Company nor any such subsidiary owns any shares of stock or
any other equity securities of any corporation or has any equity
interest in any firm, partnership, association or other entity,
except as described in or contemplated by the Prospectus and any
<PAGE>
Integrated Prospectus (or, if the Prospectus and any required
Integrated Prospectus are not in existence, the most recent
Preliminary Prospectus).
(dd) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (1) transactions are executed in accordance with
management's general or specific authorizations; (2) transactions
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain asset accountability; (3) access to
assets is permitted only in accordance with management's general
or specific authorization; and (4) the recorded accountability
for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
(ee) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in
the due performance and observance of any term, covenant or
condition of any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their respective properties is bound or
may be affected in any material adverse respect with regard to
property, business or operations of the Company and its
subsidiaries.
3. The Selling Securityholder represents and warrants to, and
agrees with, each of the several Underwriters that:
(a) The Selling Securityholder has full power (corporate and
other) to enter into this Agreement and to sell, assign, transfer
and deliver to the Underwriters the Securities to be sold by the
Selling Securityholder hereunder in accordance with the terms of
this Agreement; the execution and delivery of this Agreement have
been duly authorized by all necessary corporate action of the
Selling Securityholder; and this Agreement has been duly executed
and delivered by the Selling Securityholder.
(b) The Selling Securityholder has duly executed and delivered
a power of attorney and custody agreement (with respect to such
Selling Securityholder, the "Power-of-Attorney" and the "Custody
Agreement", respectively), each in the form heretofore delivered
to the Representatives, appointing Thomas R. Filesi and William
J. Collinsworth, and each of them, as the Selling
Securityholder=s attorney-in-fact (the "Attorney-in-Fact") with
authority to execute, deliver and perform this Agreement on
behalf of such Selling Securityholder and appointing [insert name
of Custodian], as custodian thereunder (the "Custodian").
Certificates in negotiable form, endorsed in blank or accompanied
by blank stock powers duly executed, with signatures
appropriately guaranteed, representing the Securities to be sold
by the Selling Securityholder hereunder have been
<PAGE>
deposited with
the Custodian pursuant to the Custody Agreement for the purpose
of delivery pursuant to this Agreement. The Selling
Securityholder has full power (corporate and other) to enter into
the Custody Agreement and the Power-of-Attorney and to perform
its obligations under the Custody Agreement. The execution and
delivery of the Custody Agreement and the Power-of-Attorney have
been duly authorized by all necessary corporate action of the
Selling Securityholder; the Custody Agreement and the
Power-of-Attorney have been duly executed and delivered by the
Selling Securityholder and, assuming due authorization, execution
and delivery by the Custodian, are the legal, valid, binding and
enforceable instruments of the Selling Securityholder. The
Selling Securityholder agrees that each of the Securities
represented by the certificates on deposit with the Custodian is
subject to the interests of the Underwriters hereunder, that the
arrangements made for such custody, the appointment of the
Attorney-in-Fact and the right, power and authority of the
Attorney-in-Fact to execute and deliver this Agreement, to agree
on the price at which the Securities are to be sold to the
Underwriters, and to carry out the terms of this Agreement, are
to that extent irrevocable and that the obligations of the
Selling Securityholder hereunder shall not be terminated, except
as provided in this Agreement or the Custody Agreement, by any
act of the Selling Securityholder, by operation of law or
otherwise, whether by its liquidation or dissolution or by the
occurrence of any other event. If any corporate or partnership
Selling Securityholder shall liquidate or dissolve, or if any
other event should occur, before the delivery of such Securities
hereunder, the certificates for such Securities deposited with
the Custodian shall be delivered by the Custodian in accordance
with the respective terms and conditions of this Agreement as if
such liquidation or dissolution or other event had not occurred,
regardless of whether or not the Custodian or the
Attorney-in-Fact shall have received notice thereof.
(c) The Selling Securityholder is the lawful owner of the
Securities to be sold by the Selling Securityholder hereunder and
upon sale and delivery of, and payment for, such Securities, as
provided herein, the Selling Securityholder will convey good and
marketable title to such Securities, free and clear of any
security interests, liens, encumbrances, equities, claims or
other defects.
(d) The Selling Securityholder has not, directly or indirectly,
(i) taken any action designed to cause or result in, or that has
constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities or
(ii) since the filing of the Registration Statement (A) sold, bid
for, purchased, or paid anyone any compensation for soliciting
purchases of, the Securities or (B) paid or agreed to pay to any
person any compensation for soliciting another to purchase any
other securities of the Company (except for the sale of
Securities by the Selling Securityholder under this Agreement).
(e) To the extent that any statements or omissions are made in
the Registration Statement, any Preliminary Prospectus, the
Prospectus and any Integrated Prospectus or any amendment or
<PAGE>
supplement thereto in reliance upon and in conformity with
written information furnished to the Company by the Selling
Securityholder specifically for use therein, such Preliminary
Prospectus did, and the Registration Statement and the Prospectus
and any amendments or supplements thereto, when they become
effective or are filed with the Commission, as the case may be,
will conform in all material respects to the requirements of the
Act, the Exchange Act and the respective rules and regulations of
the Commission thereunder and will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they are
made, not misleading. The Selling Securityholder has reviewed the
Prospectus (or, if the Prospectus and any required Integrated
Prospectus are not in existence, the most recent Preliminary
Prospectus) and the Registration Statement, and the information
regarding the Selling Securityholder set forth therein under the
caption APrincipal and Selling Stockholders@ is complete and
accurate.
(f) Based on a review of the Registration Statement and a due
and diligent inquiry, nothing came to the attention of the
Selling Securityholder that caused the Selling Securityholder to
believe that (i) when any Preliminary Prospectus and any
amendment or supplement thereto was filed with the Commission, it
included any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were
made, not misleading; (ii) when the Registration Statement or any
amendment thereto was or is declared effective, it included or
will include any untrue statement of a material fact or omitted
or will omit to state any material fact necessary to make the
statements therein not misleading; or (iii) when the Prospectus
or any Integrated Prospectus or any amendment or supplement
thereto is filed with the Commission pursuant to Rule 424(b) (or,
if not required to be so filed, when the Registration Statement
or the amendment thereto containing such amendment or supplement
to the Prospectus was or is declared effective), on the date when
the Prospectus is otherwise amended or supplemented and on the
Firm Closing Date and any Option Closing Date (both as
hereinafter defined), each of the Prospectus and any Integrated
Prospectus, each as amended or supplemented at any such time,
included or will include any untrue statement of a material fact
or omitted or will omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The
foegoing provisions of this paragraph (f) do not apply to
statements or omissions made in reliance upon and in conformity
with written information furnished to the Company by any
Underwriter through the Representatives specifically for use
therein.
(g) The sale by the Selling Securityholder of Securities
pursuant hereto is not prompted by any adverse information
concerning the Company that is not set forth in the Registration
Statement or the Prospectus and any Integrated Prospectus (or, if
the Prospectus and any required Integrated Prospectus are not in
existence, the most recent Preliminary Prospectus).
<PAGE>
(h) The sale of the Securities to the Underwriters by the
Selling Securityholder pursuant to this Agreement, the compliance
by the Selling Securityholder with the other provisions of this
Agreement, the Custody Agreement and the consummation of the
other transactions herein contemplated do not (i) require the
consent, approval, authorization, registration or qualification
of or with any governmental authority, except such as have been
obtained, such as may be required under state securities or blue
sky laws and, if the registration statement filed with respect to
the Securities (as amended) is not effective under the Act as of
the time of execution hereof, such as may be required (and shall
be obtained as provided in this Agreement) under the Act and the
Exchange Act, or (ii) conflict with or result in a breach or
violation of any of the terms and provisions of, or constitute a
default under any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which the Selling Securityholder
or any of its subsidiaries is a party or by which the Selling
Securityholder or any of its subsidiaries or any of the Selling
Securityholder=s properties are bound, or the charter documents
or by-laws of the Selling Securityholder or any of its
subsidiaries or any statute or any judgment, decree, order, rule
or regulation of any court or other governmental authority or any
arbitrator applicable to the Selling Securityholder or any of its
subsidiaries.
4. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties,
agreements and covenants herein contained and subject to the
terms and conditions herein set forth, the Selling Securityholder
agrees to sell to each of the Underwriters, and each of the
Underwriters, severally and not jointly, agrees to purchase from
the Selling Securityholder, at a purchase price of $_______ per
share, the number of Firm Securities set forth opposite the name
of such Underwriter in Schedule 1 hereto. One or more
certificates in definitive form for the Firm Securities that the
several Underwriters have agreed to purchase hereunder, and in
such denomination or denominations and registered in such name or
names as the Representatives request upon notice to the Company
and the Selling Stockholder at least 48 hours prior to the Firm
Closing Date, shall be delivered by or on behalf of the Selling
Securityholder to the Representatives for the respective accounts
of the Underwriters, against payment by or on behalf of the
Underwriters of the purchase price therefor by wire transfer in
same-day funds (the "Wired Funds") to the account of the Selling
Securityholder. Such delivery of and payment for the Firm
Securities shall be made at the offices of Wilson Sonsini
Goodrich & Rosati, 650 Page Mill Road, Palo Alto, CA 94304 at
9:30 A.M., New York time, on March ___, 1998 , or at such other
place, time or date as the Representatives and the Company may
agree upon or as the Representatives may determine pursuant to
Section 11 hereof, such time and date of delivery against payment
being herein referred to as the "Firm Closing Date". The Company
will make such certificate or certificates for the Firm
Securities available for checking and packaging by the
Representatives at the offices in New York, New York of the
<PAGE>
Company's transfer agent or registrar or of Prudential Securities
Incorporated at least 24 hours prior to the Firm Closing Date.
(b) For the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities
as contemplated by the Prospectus, the Selling Securityholder
hereby grants to the several Underwriters an option to purchase,
severally and not jointly, the Option Securities. The purchase
price to be paid for any Option Securities shall be the same
price per share as the price per share for the Firm Securities
set forth above in paragraph (a) of this Section 3, plus if the
purchase and sale of any Option Securities takes place after the
Firm Closing Date and after the Firm Securities are trading
"ex-dividend", an amount equal to the dividend payable on such
Option Securities. The option granted hereby may be exercised as
to all or any part of the Option Securities from time to time
within thirty days after the date of the Prospectus (or, if such
30th day shall be a Saturday or Sunday or a holiday, on the next
business day thereafter when the New York Stock Exchange is open
for trading). The Underwriters shall not be under any obligation
to purchase any of the Option Securities prior to the exercise of
such option. The Representatives may from time to time exercise
the option granted hereby by giving notice in writing or by
telephone (confirmed in writing) to the Company and the Selling
Securityholder setting forth the aggregate principal amount of
Option Securities as to which the several Underwriters are then
exercising the option and the date and time for delivery of and
payment for such Option Securities. Any such date of delivery
shall be determined by the Representatives but shall not be
earlier than two business days or later than five business days
after such exercise of the option and, in any event, shall not be
earlier than the Firm Closing Date. The time and date set forth
in such notice, or such other time on such other date as the
Representatives and the Company may agree upon or as the
Representatives may determine pursuant to Section 11 hereof, is
herein called the "Option Closing Date" with respect to such
Option Securities. Upon exercise of the option as provided
herein, the Selling Securityholder shall become obligated to sell
to each of the several Underwriters, and, subject to the terms
and conditions herein set forth, each of the Underwriters
(severally and not jointly) shall become obligated to purchase
from the Selling Securityholder, the same percentage of the total
number of the Option Securities as to which the several
Underwriters are then exercising the option as such Underwriter
is obligated to purchase of the aggregate number of Firm
Securities, as adjusted by the Representatives in such manner as
they deem advisable to avoid fractional Shares. If the option is
exercised as to all or any portion of the Option Securities, one
or more certificates in definitive form for such Option
Securities, and payment therefor, shall be delivered on the
related Option Closing Date in the manner, and upon the terms and
conditions, set forth in paragraph (a) of this Section 3, except
that reference therein to the Firm Securities and the Firm
Closing Date shall be deemed, for purposes of this paragraph (b),
to refer to such Option Securities and Option Closing Date,
respectively.
<PAGE>
(c) The Selling Securityholder hereby acknowledges that the wire
transfer by or on behalf of the Underwriters of the purchase
price for any Securities does not constitute closing of a
purchase and sale of the Securities Only execution and delivery
of a receipt for Securities by the Underwriters indicates
completion of the closing of a purchase of the Securities from
the Selling Securityholder. Furthermore, in the event that the
Underwriters wire funds to the Selling Securityholder prior to
the completion of the closing of a purchase of Securities, the
Selling Securityholder hereby acknowledges that until the
Underwriters execute and deliver a receipt for the Securities, by
facsimile or otherwise, the Selling Securityholder will not be
entitled to the wired funds and shall return the wired funds to
the Underwriters as soon as practicable (by wire transfer of
same-day funds) upon demand. In the event that the closing of a
purchase of Securities is not completed and the wired funds are
not returned by the Selling Securityholder to the Underwriters on
the same day the wired funds were received by the Selling
Securityholder, the Selling Securityholder agrees to pay to the
Underwriters in respect of each day the wire funds are not
returned by it, in same-day funds, interest on the amount of such
wire funds in an amount representing the Underwriters' cost of
financing as reasonably determined by Prudential Securities
Incorporated.
(d) It is understood that any of you, individually and not as
one of the Representatives, may (but shall not be obligated to)
make payment on behalf of any Underwriter or Underwriters for any
of the Securities to be purchased by such Underwriter or
Underwriters. No such payment shall relieve such Underwriter or
Underwriters from any of its or their obligations hereunder.
5 Offering by the Underwriters. Upon your authorization of
the release of the Firm Securities, the several Underwriters
propose to offer the Firm Securities for sale to the public upon
the terms set forth in the Prospectus.
6 Covenants of the Company. The Company covenants and agrees
with each of the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution
of this Agreement, and any amendments thereto to become effective
as promptly as possible. If required, the Company will file the
Prospectus or any Term Sheet that constitutes a part thereof and
any amendment or supplement thereto with the Commission in the
manner and within the time period required by Rule 434 and 424(b)
under the Act. During any time when a prospectus relating to the
Securities is required to be delivered under the Act, the Company
(i) will comply with all requirements imposed upon it by the Act
and the Exchange Act and the respective rules and regulations of
the Commission thereunder to the extent necessary to permit the
continuance of sales of or dealings in the Securities in
accordance with the provisions hereof and each of the Prospectus
and any Integrated Prospectus, as then amended or supplemented,
<PAGE>
and (ii) will not file with the Commission the prospectus or the
amendment referred to in the third sentence of Section 2(a)
hereof, any amendment or supplement to such prospectus or any
amendment to the Registration Statement or any Rule 462(b)
Registration Statement of which the Representatives shall not
previously have been advised and furnished with a copy for a
reasonable period of time prior to the proposed filing and as to
which filing the Representatives shall not have given their
consent. The Company will prepare and file with the Commission,
in accordance with the rules and regulations of the Commission,
promptly upon request by the Representatives or counsel for the
Underwriters, any amendments to the Registration Statement or
amendments or supplements to the Prospectus and any Integrated
Prospectus that may be necessary or advisable in connection with
the distribution of the Securities by the several Underwriters,
and will use its best efforts to cause any such amendment to the
Registration Statement to be declared effective by the Commission
as promptly as possible. The Company will advise the
Representatives, promptly after receiving notice thereof, of the
time when the Registration Statement or any amendment thereto has
been filed or declared effective or the Prospectus and any
Integrated Prospectus or any amendment or supplement thereto has
been filed and will provide evidence satisfactory to the
Representatives of each such filing or effectiveness.
(b) The Company will advise the Representatives, promptly after
receiving notice or obtaining knowledge thereof, of (i) the
issuance by the Commission of any stop order suspending the
effectiveness of the Original Registration Statement or any Rule
462(b) Registration Statement or any post-effective amendment
thereto or any order directed at any document incorporated by
reference in the Registration Statement or the Prospectus and any
required Integrated Prospectus or any amendment or supplement
thereto or any order preventing or suspending the use of any
Preliminary Prospectus or, the Prospectus and any Integrated
Prospectus or any amendment or supplement thereto, (ii) the
suspension of the qualification of the Securities for offering or
sale in any jurisdiction, (iii) the institution, threatening or
contemplation of any proceeding for any such purpose or (iv) any
request made by the Commission for amending the Original
Registration Statement or any Rule 462(b) Registration Statement,
for amending or supplementing any Preliminary Prospectus, the
Prospectus and any Integrated Prospectus or for additional
information. The Company will use its best efforts to prevent
the issuance of any such stop order and, if any such stop order
is issued, to obtain the withdrawal thereof as promptly as
possible.
(c) The Company will arrange for the qualification of the
Securities for offering and sale under the securities or blue sky
laws of such jurisdictions as the Representatives may designate
and will continue such qualifications in effect for as long as
may be necessary to complete the distribution of the Securities,
provided, however, that in connection therewith the Company shall
not be required to qualify as a foreign corporation or to execute
a general consent to service of process in any jurisdiction.
<PAGE>
(d) If, at any time prior to the later of (i) the final date
when a prospectus relating to the Securities is required to be
delivered under the Act or (ii) the Option Closing Date, any
event occurs as a result of which the Prospectus, as then amended
or supplemented, would include any untrue statement of a material
fact or omit to state a material fact necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading, or if for any other reason
it is necessary at any time to amend or supplement the Prospectus
to comply with the Act, the Exchange Act or the respective rules
or regulations of the Commission thereunder, the Company will
promptly notify the Representatives thereof and, subject to
Section 6(a) hereof, will prepare and file with the Commission,
at the Company's expense, an amendment to the Registration
Statement or an amendment or supplement to the Prospectus or any
Integrated Prospectus that corrects such statement or omission or
effects such compliance.
(e) The Company will, without charge, provide (i) to the
Representatives and to counsel for the Underwriters a conformed
copy of the registration statement originally filed with respect
to the Securities and each amendment thereto (in each case
including exhibits thereto) or any Rule 462(b) Registration
Statement, certified by the Secretary or an Assistant Secretary
of the Company to be true and complete copies thereof as filed
with the Commission by electronic transmission, (ii) to each
other Underwriter, a conformed copy of such registration
statement or any Rule 462(b) Registration Statement and each
amendment thereto (in each case without exhibits thereto) and
(iii) so long as a prospectus relating to the Securities is
required to be delivered under the Act, as many copies of each
Preliminary Prospectus, the Prospectus or any Integrated
Prospectus or any amendment or supplement thereto as the
Representatives may reasonably request; without limiting the
application of clause (iii) of this sentence, the Company, not
later than (A) 6:00 PM, New York City time, on the date of
determination of the public offering price, if such determination
occurred at or prior to 10:00 AM, New York City time on such date
or (B) 2:00 PM, New York City time, on the business day following
the date of determination of the public offering price, if such
determination occurred after 10:00 AM, New York City time, on
such date, will deliver to the Underwriters, without charge, as
many copies of the Prospectus and any amendment or supplement
thereto as the Representatives may reasonably request for
purposes of confirming orders that are expected to settle on the
Firm Closing Date.
(f) The Company, as soon as practicable, will make generally
available to its securityholders and to the Representatives a
consolidated earnings statement of the Company and its
subsidiaries that satisfies the provisions of Section 11(a) of
the Act and Rule 158 thereunder.
(g) The Company will not, directly or indirectly, without the
prior written consent of Prudential Securities Incorporated, on
behalf of the Underwriters, offer, sell, offer to sell, contract
to sell, pledge, grant any option to purchase or otherwise sell
or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other sale or
<PAGE>
disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of ninety (90) days after the date
hereof, except pursuant to this Agreement and except for
issuances pursuant to the exercise of employee stock options
outstanding on the date hereof, or pursuant to the terms of
convertible securities of the Company outstanding on the date
hereof.
(h) The Company will not, directly or indirectly, (i) take any
action designed to cause or to result in, or that has constituted
or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities or
(ii) (A) sell, bid for, purchase, or pay anyone any compensation
for soliciting purchases of, the Securities or (B) pay or agree
to pay to any person any compensation for soliciting another to
purchase any other securities of the Company (except for the sale
of Securities by the Selling Securityholders under this
Agreement).
(i) The Company will obtain the agreements described in Section
9(f) hereof prior to the Firm Closing Date.
(j) If at any time during the 25-day period after the
Registration Statement becomes effective or the period prior to
the Option Closing Date, any rumor, publication or event relating
to or affecting the Company shall occur as a result of which in
your opinion the market price of the Common Stock has been or is
likely to be materially affected (regardless of whether such
rumor, publication or event necessitates a supplement to or
amendment of the Prospectus and any Integrated Prospectus), the
Company will, after notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you
concerning the substance of, and disseminate a press release or
other public statement, reasonably satisfactory to you,
responding to or commenting on such rumor, publication or event.
(k) If the Company elects to rely on Rule 462(b), the Company
shall both file a Rule 462(b) Registration Statement with the
Commission in compliance with Rule 462(b) and pay the applicable
fees in accordance with Rule 111 promulgated under the Act by the
earlier of (i) 10:00 P.M. Eastern time on the date of this
Agreement and (ii) the time confirmations are sent or given, as
specified by Rule 462(b)(2).
(l) The Company will use its best efforts to cause the
Securities to be duly included for quotation on The Nasdaq Stock
Market's National Market (the "Nasdaq National Market") prior to
the Firm Closing Date. The Company will ensure that the
Securities remain included for quotation on the Nasdaq National
Market following the Firm Closing Date.
<PAGE>
7 Expenses. The Company will pay all costs and expenses
incident to the performance of its obligations under this
Agreement, whether or not the transactions contemplated herein
are consummated or this Agreement is terminated pursuant to
Section 13 hereof, including all costs and expenses incident to
(i) the printing or other production of documents with respect to
the transactions, including any costs of printing the
registration statement originally filed with respect to the
Securities and any amendment thereto, any Rule 462(b)
Registration Statement, any Preliminary Prospectus, the
Prospectus and any Integrated Prospectus and any amendment or
supplement thereto, this Agreement and any blue sky memoranda,
(ii) all arrangements relating to the delivery to the
Underwriters of copies of the foregoing documents, (iii) the fees
and disbursements of the counsel, accountants and any other
experts or advisors retained by the Company, (iv) preparation,
issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's and
registrar's fees, (v) the qualification of the Securities under
state securities and blue sky laws, including filing fees and
fees and disbursements of counsel for the Underwriters relating
thereto, (vi) the filing fees of the Commission (and the National
Association of Securities Dealers, Inc.) relating to the
Securities, (vii) the quotation of the Securities on the Nasdaq
National Market, (viii) meetings with prospective investors in
the Securities (other than shall have been specifically approved
by the Representatives to be paid for by the Underwriters) and
(ix) advertising relating to the offering of the Securities
(other than shall have been specifically approved by the
Representatives to be paid for by the Underwriters). If the sale
of the Securities provided for herein is not consummated because
any condition to the obligations of the Underwriters set forth in
Section 9 hereof is not satisfied, because this Agreement is
terminated pursuant to Section 13 hereof or because of any
failure, refusal or inability on the part of the Company to
perform all obligations and satisfy all conditions on its part to
be performed or satisfied hereunder other than by reason of a
default by any of the Underwriters, the Company will reimburse
the Underwriters severally upon demand for all out-of-pocket
expenses (including fees and disbursements of counsel) that shall
have been incurred by them in connection with the proposed
purchase and sale of the Securities. The Company shall not in
any event be liable to any of the Underwriters for the loss of
anticipated profits from the transactions covered by this
Agreement.
8 Covenants of the Selling Securityholder
(a) The Selling Securityholder will not, directly or indirectly,
without the prior written consent of Prudential Securities
Incorporated, offer, sell, offer to sell, contract to sell,
pledge, grant any option to purchase or otherwise sell or dispose
(or announce any offer, sale, offer of sale, contract of sale,
pledge, grant of any option to purchase or other sale or
disposition) of any Securities legally or beneficially owned by
such Selling Securityholder or any securities convertible into,
or exchangeable or exercisable for, Securities for a period of
ninety (90) days after the date hereof.
<PAGE>
(b) Such Selling Securityholder will not, directly or
indirectly, (i) take any action designed to cause or result in,
or that has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of the
Securities or (ii) (A) sell, bid for, purchase, or pay anyone any
compensation for soliciting purchases of, the Securities or (B)
pay or agree to pay to any person any compensation for soliciting
another to purchase any other securities of the Company (except
for the sale of Securities by the Selling Securityholder under
this Agreement).
(c) The Selling Securityholder agrees to deliver to you prior to
or at the Firm Closing Date a properly completed and executed
United States Treasury Department Form W-9 (or other applicable
form or statement specified by Treasury Department regulation in
lieu thereof).
9 Conditions of the Underwriters' Obligations. The
obligations of the several Underwriters to purchase and pay for
the Firm Securities shall be subject, in the Representatives'
sole discretion, to the accuracy of the representations and
warranties of the Company and the Selling Securityholder
contained herein as of the date hereof and as of the Firm Closing
Date, as if made on and as of the Firm Closing Date, to the
accuracy of the statements of the Company's officers made
pursuant to the provisions hereof, to the performance by the
Company and the Selling Securityholder of its respective
covenants and agreements hereunder and to the following
additional conditions:
(a) If the Original Registration Statement or any amendment
thereto filed prior to the Firm Closing Date has not been
declared effective as of the time of execution hereof, the
Original Registration Statement or such amendment and, if the
Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement, shall have been declared effective not
later than the earlier of (i) 11:00 A.M., New York time, on the
date on which the amendment to the registration statement
originally filed with respect to the Securities or to the
Registration Statement, as the case may be, containing
information regarding the initial public offering price of the
Securities has been filed with the Commission and (ii) the time
confirmations are sent or given as specified by Rule 462(b)(2),
or with respect to the Original Registration Statement, or such
later time and date as shall have been consented to by the
Representatives; if required, the Prospectus or any Term Sheet
that constitutes a part thereof and any Integrated Prospectus and
any amendment or supplement thereto shall have been filed with
the Commission in the manner and within the time period required
by Rule 434 and 424(b) under the Act; no stop order suspending
the effectiveness of the Registration Statement or any
post-effective amendment thereto and no order directed at any
document incorporated by reference in the Registration Statement,
the Prospectus or any Integrated Prospectus or any amendment or
supplement thereto shall have been issued and no proceedings for
that purpose shall have been instituted or threatened or, to the
knowledge of the Company or the Representatives, shall be
contemplated by the Commission; and the Company shall have
<PAGE>
complied with any request of the Commission for additional
information (to be included in the Registration Statement, the
Prospectus or any Integrated Prospectus or otherwise).
(b) The Representatives shall have received an opinion, dated
the Firm Closing Date, of Hewitt & Hewitt, P.C., counsel for the
Company, to the effect that:
(i) the Company and each of its subsidiaries listed in Schedule
2 hereto (the "Subsidiaries") have been duly incorporated and are
validly existing as corporations in good standing under the laws
of their respective jurisdictions of incorporation and are duly
qualified to transact business as foreign corporations and are in
good standing under the laws of all other jurisdictions where the
ownership or leasing of their respective properties or the
conduct of their respective businesses requires such
qualification, except where the failure to be so qualified does
not amount to a material liability or disability to the Company
and the Subsidiaries, taken as a whole;
(ii) the Company and each of the Subsidiaries have corporate
power to own or lease their respective properties and conduct
their respective businesses as described in the Registration
Statement and the Prospectus or any Integrated Prospectus, and
the Company has corporate power to enter into this Agreement and
to carry out all the terms and provisions hereof and thereof to
be carried out by it;
(iii) the issued shares of capital stock of each of the
Subsidiaries have been duly authorized and validly issued, are
fully paid and nonassessable and are owned beneficially by the
Company free and clear of any perfected security interests or, to
the best knowledge of such counsel, any other security interests,
liens, encumbrances, equities or claims;
(iv) the Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus or any Integrated
Prospectus; all of the issued shares of capital stock of the
Company have been duly authorized and validly issued and are
fully paid and nonassessable, have been issued in compliance with
all applicable federal and state securities laws and were not
issued in violation of or subject to any preemptive rights or
other rights to subscribe for or purchase securities; the Firm
Securities have been duly authorized by all necessary corporate
action of the Company and, when delivered to and paid for by the
Underwriters pursuant to this Agreement, will be validly issued,
fully paid and nonassessable; the Securities have been duly
included for trading on the Nasdaq National Market; no holders of
outstanding shares of capital stock of the Company are entitled
as such to any preemptive or other rights to subscribe for any of
the Securities; and no holders of securities of the Company are
entitled to have such securities registered under the
Registration Statement; the warrant pursuant to which the
Securities were issued was duly exercised;
<PAGE>
(v) the statements set forth under the heading "Description of
Capital Stock" in each of the Prospectus and any Integrated
Prospectus, insofar as such statements purport to summarize
certain provisions of the capital stock of the Company, provide a
fair summary of such provisions;
(vi) the execution and delivery of this Agreement have been duly
authorized by all necessary corporate action of the Company and
this Agreement has been duly executed and delivered by the
Company;
(vii) no legal or governmental proceedings are pending to
which the Company or any of the Subsidiaries is a party or to
which the property of the Company or any of the Subsidiaries is
subject that are required to be described in the Registration
Statement, the Prospectus and any Integrated Prospectus and are
not described therein, and, to the best knowledge of such
counsel, no such proceedings have been threatened against the
Company or any of the Subsidiaries or with respect to any of
their respective properties; and no contract or other document is
required to be described in the Registration Statement, the
Prospectus and any Integrated Prospectus or to be filed as an
exhibit to the Registration Statement that is not described
therein or filed as required;
(viii) the offering and sale of the Securities to the
Underwriters by the Selling Securityholder pursuant to this
Agreement, the compliance by the Company with the other
provisions of this Agreement and the consummation of the other
transactions herein contemplated do not (A) require the consent,
approval, authorization, registration or qualification of or with
any governmental authority, except such as have been obtained and
such as may be required under state securities or blue sky laws,
or (B) conflict with or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any
indenture, mortgage, deed of trust, lease or other agreement or
instrument, known to such counsel, to which the Company or any of
the Subsidiaries is a party or by which the Company or any of the
Subsidiaries or any of their respective properties are bound, or
the charter documents or by-laws of the Company or any of the
Subsidiaries, or any statute or any judgment, decree, order, rule
or regulation of any court or other governmental authority or any
arbitrator known to such counsel and applicable to the Company or
any of the Subsidiaries;
(ix) the Registration Statement is effective under the Act; any
required filing of the Prospectus, or any Term Sheet that
constitutes a part thereof, and any Integrated Prospectus
pursuant to Rules 434 and 424(b) has been made in the manner and
within the time period required by Rules 434 and 424(b); and no
stop order suspending the effectiveness of the Registration
Statement or any post-effective amendment thereto and no order
directed at any document incorporated by reference in the
Registration Statement, the Prospectus and any Integrated
Prospectus or any amendment or supplement thereto has been
<PAGE>
issued, and no proceedings for that purpose have been instituted
or threatened or, to the best knowledge of such counsel, are
contemplated by the Commission;
(x) the Registration Statement originally filed with respect to
the Securities and each amendment thereto and any Rule 462(b)
Registration Statement, the Prospectus and any Integrated
Prospectus (in each case, including the documents incorporated by
reference therein but not including the financial statements and
other financial information contained therein, as to which such
counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act,
the Exchange Act and the respective rules and regulations of the
Commission thereunder;
(xi) If the Company elects to rely on Rule 434, the Prospectus is
not "materially different", as such term is used in Rule 434,
from the prospectus included in the Registration Statement at the
time of its effectiveness or any effective post-effective
amendment thereto (including such information that is permitted
to be omitted pursuant to Rule 430A).
Such counsel shall also state that they have no reason to believe
that the Registration Statement, as of its effective date,
contained any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading or that
the Prospectus and any Integrated Prospectus, as of its date or
the date of such opinion, included or includes any untrue
statement of a material fact or omitted or omits to state a
material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Company and public
officials and, as to matters involving the application of laws of
any jurisdiction other than the State of Texas or Delaware or the
United States, to the extent satisfactory in form and scope to
counsel for the Underwriters, upon the opinion of Mexican
counsel. The foregoing opinion shall also state that the
Underwriters are justified in relying upon such opinion of
Mexican counsel, and copies of such opinion shall be delivered to
the Representatives and counsel for the Underwriters.
References to the Registration Statement and the Prospectus and
any Integrated Prospectus in this paragraph (b) shall include any
amendment or supplement thereto at the date of such opinion.
(c) The Representatives shall have received an opinion, dated
the Firm Closing Date, of [patent and trademark counsel], patent
and trademark counsel for the Company in such form and covering
such intellectual property matters as are reasonably requested by
the Representative and counsel for the Underwriters.
<PAGE>
(d) The Representatives shall have received an opinion, dated
the Firm Closing Date, of Wilson Sonsini Goodrich & Rosati, 650
Page Mill Road, Palo Alto, CA 94304, counsel for the
Underwriters, with respect to the issuance and sale of the Firm
Securities, the Registration Statement, the Prospectus, or any
Integrated Prospectus, and such other related matters as the
Representatives may reasonably require, and the Company shall
have furnished to such counsel such documents as they may
reasonably request for the purpose of enabling them to pass upon
such matters. In rendering such opinion, such counsel may rely as
to all matters of law upon the opinion of referred to in
paragraph (b) above.
(e) The Selling Securityholder shall have furnished to the
Representatives the opinion of [First Source outside counsel],
counsel for the Selling Securityholder, dated the Closing Date,
to the effect that:
(i) the Selling Securityholder has full corporate power to enter
into this Agreement, the Custody Agreement, and the
Power-of-Attorney and to sell, transfer and deliver the
Securities being sold by the Selling Securityholder hereunder in
the manner provided in this Agreement and to perform its
obligations under the Custody Agreement; the execution and
delivery of this Agreement, the Custody Agreement and the
Power-of-Attorney have been duly authorized by all necessary
corporate action of the Selling Securityholder; this Agreement,
the Custody Agreement and the Power-of-Attorney have been duly
executed and delivered by the Selling Securityholder; assuming
due authorization, execution and delivery by the Custodian, the
Custody Agreement and the Power-of-Attorney are the legal, valid,
binding and enforceable instruments of the Selling
Securityholder, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and subject,
as to enforceability, to general principles of equity (regardless
of whether enforcement is sought in a proceeding in equity or at
law);
(ii) the delivery by the Selling Securityholder to the several
Underwriters of certificates for the Securities being sold
hereunder by the Selling Securityholder against payment therefor
as provided herein, will convey good and marketable title to such
Securities to the several Underwriters, free and clear of all
security interest, liens, encumbrances, equities, claims or other
defects;
(iii) the sale of the Securities to the Underwriters by the
Selling Securityholder pursuant to this Agreement, the compliance
by the Selling Securityholder with the other provisions of this
Agreement, the Custody Agreement and the consummation of the
other transactions herein contemplated do not (i) require the
consent, approval, authorization, registration or qualification
of or with any governmental authority, except such as have been
obtained and such as may be required under state securities or
blue sky laws, or (ii) conflict with or result in a breach or
<PAGE>
violation of any of the terms and provisions of, or constitute a
default under any indenture, mortgage, deed of trust, lease or
other agreement or instrument to which the Selling Securityholder
or any of its subsidiaries is a party or by which the Selling
Securityholder or any of its subsidiaries or any of the Selling
Securityholder's or any of its subsidiaries' respective
properties are bound, or the charter documents or by-laws of the
Selling Securityholder or any of its subsidiaries or any statute
or any judgment, decree, order, rule or regulation of any court
or other governmental authority or any arbitrator applicable to
the Selling Securityholder or any of its subsidiaries.
In rendering such opinion, such counsel may rely, as to the
matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Company and public
officials.
References to the Registration Statement and the Prospectus in
this paragraph (d) shall include any amendment or supplement
thereto at the date of such opinion.
(f) The Representatives shall have received from KPMG Peat
Marwick LLP a letter or letters dated, respectively, the date
hereof and the Firm Closing Date, in form and substance
satisfactory to the Representatives, to the effect that:
(i) they are independent accountants with respect to the Company
and its consolidated subsidiaries within the meaning of the Act,
the Exchange Act and the applicable rules and regulations
thereunder;
(ii) in their opinion, the audited consolidated financial
statements and schedules examined by them and included in the
Registration Statement, the Prospectus and any Integrated
Prospectus comply in form in all material respects with the
applicable accounting requirements of the Act, the Exchange Act
and the related published rules and regulations thereunder;
(iii) [assumes no reports will be filed for interim
financial] on the basis of a reading of the latest available
interim unaudited consolidated condensed financial statements of
the Company and its consolidated subsidiaries, carrying out
certain specified procedures (which do not constitute an
examination made in accordance with generally accepted auditing
standards) that would not necessarily reveal matters of
significance with respect to the comments set forth in this
paragraph (iii), a reading of the minute books of the
shareholders, the board of directors and any committees thereof
of the Company and each of its consolidated subsidiaries, and
inquiries of certain officials of the Company and its
consolidated subsidiaries who have responsibility for financial
and accounting matters, nothing came to their attention that
caused them to believe that:
<PAGE>
(A) the unaudited consolidated condensed financial statements of
the Company and its consolidated subsidiaries included in the
Registration Statement, the Prospectus and any Integrated
Prospectus do not comply in form in all material respects with
the applicable accounting requirements of the Act, the Exchange
Act and the related published rules and regulations thereunder,
or are not in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that
of the audited consolidated financial statements included in the
Registration Statement and the Prospectus and any Integrated
Prospectus;
(B) at a specific date not more than five business days prior to
the date of such letter, there were any changes in the capital
stock or long-term debt of the Company and its consolidated
subsidiaries or any decreases in net current assets or
stockholders' equity of the Company and its consolidated
subsidiaries, in each case compared with amounts shown on the
January 31, 1998 unaudited consolidated balance sheet included in
the Registration Statement, the Prospectus and any Integrated
Prospectus, or for the period from January 31, 1998 to such
specified date there were any decreases, as compared with [insert
appropriate comparative period or, if no appropriate period
exists, insert dollar amounts for each item], in sales, net
revenues, net income before income taxes or total or per share
amounts of net income of the Company and its consolidated
subsidiaries [conform the above list of items to line items in
financial statements and add other line items as appropriate],
except in all instances for changes, decreases or increases set
forth in such letter; and
(iv) they have carried out certain specified procedures, not
constituting an audit, with respect to certain amounts,
percentages and financial information that are derived from the
general accounting records of the Company and its consolidated
subsidiaries and are included in the Registration Statement, the
Prospectus and any Integrated Prospectus under the captions
[headings as appropriate], in Exhibit II to the Registration
Statement or under [insert item numbers and titles of any
Exchange Act reports containing information as to which comfort
is sought] incorporated by reference in the Registration
Statement, the Prospectus and any Integrated Prospectus, and have
compared such amounts, percentages and financial information with
such records of the Company and its consolidated subsidiaries and
with information derived from such records and have found them to
be in agreement, excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any
such changes, decreases or increases, it shall be a further
condition to the obligations of the Underwriters that (A) such
letters shall be accompanied by a written explanation of the
Company as to the significance thereof, unless the
Representatives deem such explanation unnecessary, and (B) such
changes, decreases or increases do not, in the sole judgment of
the Representatives, make it impractical or inadvisable to
<PAGE>
proceed with the purchase and delivery of the Securities as
contemplated by the Registration Statement, as amended as of the
date hereof.
References to the Registration Statement, the Prospectus and any
Integrated Prospectus in this paragraph (f) with respect to
either letter referred to above shall include any amendment or
supplement thereto at the date of such letter.
(g) The Representatives shall have received a certificate, dated
the Firm Closing Date, of the principal executive officer and the
principal financial or accounting officer of the Company to the
effect that:
(i) the representations and warranties of the Company in this
Agreement are true and correct as if made on and as of the Firm
Closing Date; the Registration Statement, as amended as of the
Firm Closing Date, does not include any untrue statement of a
material fact or omit to state any material fact necessary to
make the statements therein not misleading, the Prospectus and
any Integrated Prospectus, as amended or supplemented as of the
Firm Closing Date, does not include any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the
Company has performed all covenants and agreements and satisfied
all conditions on its part to be performed or satisfied at or
prior to the Firm Closing Date;
(ii) no stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto
and no order directed at any document incorporated by reference
in the Registration Statement or the Prospectus or any amendment
or supplement thereto has been issued, and no proceedings for
that purpose have been instituted or threatened or, to the best
of the Company's knowledge, are contemplated by the Commission;
and
(iii) subsequent to the respective dates as of which
information is given in the Registration Statement, the
Prospectus and any Integrated Prospectus, neither the Company nor
any of its Subsidiaries has sustained any material loss or
interference with their respective businesses or properties from
fire, flood, hurricane, accident or other calamity, whether or
not covered by insurance, or from any labor dispute or any legal
or governmental proceeding, and there has not been any material
adverse change, or any development involving a prospective
material adverse change, in the condition (financial or
otherwise), management, business prospects, net worth or results
of operations of the Company or any of its subsidiaries, except
in each case as described in or contemplated by the Prospectus
and any Integrated Prospectus.
<PAGE>
(h) The Representatives shall have received a certificate from
the Selling Securityholder, signed by the principal executive
officer and the principal financial or accounting officer of the
Selling Securityholder, dated the Firm Closing Date, to the
effect that:
(i) the representations and warranties of the Selling
Securityholder in this Agreement are true and correct as if made
on and as of the Firm Closing Date;
(ii) to the extent that any statements or omissions are made in
the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto in reliance
upon and in conformity with written information furnished to the
Company by the Selling Securityholder specifically for use
therein the Registration Statement, as amended as of the Closing
Date, does not include any untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein not misleading, and the Prospectus, as amended or
supplemented as of the Closing Date, does not include any untrue
statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading;
(iii) the Selling Securityholder has reviewed the Prospectus,
any Integrated Prospectus and the Registration Statement, as
amended as of the Closing Date, and the information regarding
the Selling Securityholder set forth therein under the caption
APrincipal and Selling Stockholders@ is complete and accurate;
(iv) based on a review of the Registration Statement and a due
and diligent inquiry, nothing came to the attention of the
Selling Securityholder that caused the Selling Securityholder to
believe that (i) the Preliminary Prospectus as amended or
supplemented as of the Closing Date, included any untrue
statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading; (ii) when the Registration Statement or any amendment
thereto was declared effective, it included any untrue statement
of a material fact or omitted to state any material fact
necessary to make the statements therein not misleading; or (iii)
the Prospectus or any Integrated Prospectus, each as amended or
supplemented as of the Closing Date, included any untrue
statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading;
(v) the Selling Securityholder has performed all covenants and
agreements on its part to be performed or satisfied at or prior
to the Closing Date.
(i) The Representatives shall have received from each person who
is a director or officer of the Company or who beneficially owns
five percent or more of the shares of Common Stock an agreement
<PAGE>
to the effect that such person will not, directly or indirectly,
without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, offer, sell, offer
to sell, contract to sell, pledge (except to the extent already
pledged), grant any option to purchase or otherwise sell or
dispose (or announce any offer, sale, offer of sale, contract of
sale, pledge, grant of an option to purchase or other sale or
disposition) of any shares of Common Stock or any securities
convertible into, or exchangeable or exercisable for, shares of
Common Stock for a period of ninety (90) days after the date of
this Agreement.
(j) On or before the Firm Closing Date, the Representatives and
counsel for the Underwriters shall have received such further
certificates, documents or other information as they may have
reasonably requested from the Company.
All opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof
only if they are reasonably satisfactory in all material respects
to the Representatives and counsel for the Underwriters. The
Company shall furnish to the Representatives such conformed
copies of such opinions, certificates, letters and documents in
such quantities as the Representatives and counsel for the
Underwriters shall reasonably request.
The respective obligations of the several Underwriters to
purchase and pay for any Option Securities shall be subject, in
their discretion, to each of the foregoing conditions to purchase
the Firm Securities, except that all references to the Firm
Securities and the Firm Closing Date shall be deemed to refer to
such Option Securities and the related Option Closing Date,
respectively.
10. Indemnification and Contribution.
(a) The Company, with respect to clauses (i) through (v) below,
and the Selling Securityholder, with respect to clauses (ii),
(iii) and (iv) below (and, in the case of the Selling
Securityholder, with respect to clauses (iii) and (iv) below,
only with respect to statements or omissions in any (1)
Preliminary Prospectus, Integrated Prospectus or Prospectus or
any amendment or supplement thereto, (2) Registration Statement
or any amendment thereto or (3) any Application (as defined
below), made in reliance upon written information furnished to
the Company by the Selling Securityholder specifically for use
therein) jointly and severally agree to indemnify and hold
harmless each Underwriter and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act against any losses, claims,
damages or liabilities, joint or several, to which such
Underwriter or such controlling person may become subject under
the Act, the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon:
<PAGE>
(i) any untrue statement or alleged untrue statement made by the
Company in Section 2 of this Agreement,
(ii) any untrue statement or alleged untrue statement made by the
Selling Securityholder in Section 3 of this Agreement,
(iii) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any
amendment thereto or any Preliminary Prospectus, any Integrated
Prospectus or the Prospectus or any amendment or supplement
thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by the Company or the
Selling Securityholder or based upon written information
furnished by or on behalf of the Company or the Selling
Securityholder filed in any jurisdiction in order to qualify the
Securities under the securities or blue sky laws thereof or filed
with the Commission or any securities association or securities
exchange (each an "Application"),
(iv) the omission or alleged omission to state in the
Registration Statement or any amendment thereto, any Preliminary
Prospectus, any Integrated Prospectus or the Prospectus or any
amendment or supplement thereto, or any Application a material
fact required to be stated therein or necessary to make the
statements therein not misleading or
(v) any untrue statement or alleged untrue statement of any
material fact contained in any audio or visual materials used in
connection with the marketing of the Securities, including
without limitation slides, videos, films, tape records,
and will reimburse, as incurred, each Underwriter and each such
controlling person for any legal or other expenses reasonably
incurred by such Underwriter or such controlling person in
connection with investigating, defending against or appearing as
a third-party witness in connection with any such loss, claim,
damage, liability or action; provided, however, that the Company
and the Selling Securityholder will not be liable in any such
case to the extent that any such loss, claim, damage or liability
arises out of or is based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in such
registration statement or any amendment thereto, any Preliminary
Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application in reliance upon and in conformity
with written information furnished to the Company by any
Underwriter through the Representatives specifically for use
therein. This indemnity agreement will be in addition to any
liability which the Company and the Selling Securityholder may
otherwise have. Neither the Company nor the Selling
Securityholder will, without the prior written consent of the
Underwriter or Underwriters purchasing, in the aggregate more
than fifty percent (50%) of the Securities, settle or compromise
or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not any such
<PAGE>
Underwriter or any person who controls any such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act is a party to such claim, action, suit or
proceeding), unless such settlement, compromise or consent
includes an unconditional release of all of the Underwriters and
such controlling persons from all liability arising out of such
claim, action, suit or proceeding.
(b) Each Underwriter will, severally and not jointly, indemnify
and hold harmless the Company, each of its directors, each of its
officers who signed the Registration Statement, the Selling
Securityholder and each person, if any, who controls the Company
or the Selling Securityholder within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act against any losses,
claims, damages or liabilities to which the Company, any such
director or officer of the Company, the Selling Securityholder or
any such controlling person of the Company or the Selling
Securityholder may become subject under the Act, the Exchange Act
or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement or
any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any
Application or (ii) the omission or the alleged omission to state
therein a material fact required to be stated in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or
the Prospectus or any amendment or supplement thereto, or any
Application or necessary to make the statements therein not
misleading, in each case to the extent, 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 written information furnished to the Company by
any Underwriter through the Representatives specifically for use
therein; and, subject to the limitation set forth immediately
preceding the clause, will reimburse, as incurred, any legal or
other expenses reasonably incurred by the Company, any such
director, officer of controlling person or the Selling
Securityholder in connection with investigating or defending any
such loss, claim, damage, liability or any action in respect
thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 10 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be
made against the indemnifying party under this Section 10, notify
the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it
from any liability which it may have to any indemnified party
otherwise than under this Section 10. In case any such action is
brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying
party will be entitled to participate therein and, to the extent
that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party; provided, however, that
if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall
<PAGE>
have reasonably concluded that there may be one or more legal
defenses available to it and/or other indemnified parties which
are different from or additional to those available to the
indemnifying party, the indemnifying party shall not have the
right to direct the defense of such action on behalf of such
indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend
such action on behalf of such indemnified party or parties.
After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof and
approval by such indemnified party of counsel appointed to defend
such action, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other
expenses, other than reasonable costs of investigation,
subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party shall
have employed separate counsel in accordance with the proviso to
the next preceding sentence (it being understood, however, that
in connection with such action the indemnifying party shall not
be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but
substantially similar actions in the same jurisdiction arising
out of the same general allegations or circumstances, designated
by the Representatives in the case of paragraph (a) of this
Section 10, representing the indemnified parties under such
paragraph (a) who are parties to such action or actions) or (ii)
the indemnifying party does not promptly retain counsel
satisfactory to the indemnified party or (iii) the indemnifying
party has authorized the employment of counsel for the
indemnified party at the expense of the indemnifying party.
After such notice from the indemnifying party to such indemnified
party, the indemnifying party will not be liable for the costs
and expenses of any settlement of such action effected by such
indemnified party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided
for in the preceding paragraphs of this Section 10 is unavailable
or insufficient, for any reason, to hold harmless an indemnified
party in respect of any losses, claims, damages or liabilities
(or actions in respect thereof), each indemnifying party, in
order to provide for just and equitable contribution, shall
contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the
indemnifying party or parties on the one hand and the indemnified
party on the other from the offering of the Securities or (ii) if
the allocation provided by the foregoing clause (i) is not
permitted by applicable law, not only such relative benefits but
also the relative fault of the indemnifying party or parties on
the one hand and the indemnified party on the other in connection
with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits
received by the Company and the Selling Securityholder on the one
hand and the Underwriters on the other shall be deemed to be in
the same proportion as the total proceeds from the offering
(before deducting expenses) received by the Company and the
Selling Securityholder bear to the total underwriting discounts
<PAGE>
and commissions received by the Underwriters. The relative fault
of the parties shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Company, the
Selling Securityholders or the Underwriters, the parties'
relative intents, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and
any other equitable considerations appropriate in the
circumstances. The Company, the Selling Securityholders and the
Underwriters agree that it would not be equitable if the amount
of such contribution were determined by pro rata or per capita
allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does
not take into account the equitable considerations referred to
above in this paragraph 10(d). Notwithstanding any other
provision of this paragraph 10(d), no Underwriter shall be
obligated to make contributions hereunder that in the aggregate
exceed the total public offering price of the Securities
purchased by such Underwriter under this Agreement, less the
aggregate amount of any damages that such Underwriter has
otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraud
representation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters'
obligations to contribute hereunder are several in proportion to
their respective underwriting obligations ad not joint, and
contributions among Underwriters shall be governed by the
provisions of the Prudential Securities Incorporated Master
Agreement Among Underwriters. For purposes of this paragraph
10(d), each person, if any, who controls an Underwriter within
the meaning of Section 15 of the Act or Section 20 of the
Exchange Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of
the Company who signed the Registration Statement and each
person, if any, who controls the Company or the Selling
Securityholder within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company or the Selling Securityholder, as the
case may be.
11. Default of Underwriters. If one or more Underwriters
default in their obligations to purchase Firm Securities or
Option Securities hereunder and the aggregate number of such
Securities that such defaulting Underwriter or Underwriters
agreed but failed to purchase is ten percent or less of the
aggregate number of Firm Securities or Option Securities to be
purchased by all of the Underwriters at such time hereunder, the
other Underwriters may make arrangements satisfactory to the
Representatives for the purchase of such Securities by other
persons (who may include one or more of the non-defaulting
Underwriters, including the Representatives), but if no such
arrangements are made by the Firm Closing Date or the related
Option Closing Date, as the case may be, the other Underwriters
shall be obligated severally in proportion to their respective
commitments hereunder to purchase the Firm Securities or Option
<PAGE>
Securities that such defaulting Underwriter or Underwriters
agreed but failed to purchase. If one or more Underwriters so
default with respect to an aggregate number of Securities that is
more than ten percent of the aggregate number of Firm Securities
or Option Securities, as the case may be, to be purchased by all
of the Underwriters at such time hereunder, and if arrangements
satisfactory to the Representatives are not made within 36 hours
after such default for the purchase by other persons (who may
include one or more of the non-defaulting Underwriters, including
the Representatives) of the Securities with respect to which such
default occurs, this Agreement will terminate without liability
on the part of any non-defaulting Underwriter or the Company
other than as provided in Section 11 hereof. In the event of any
default by one or more Underwriters as described in this Section
11, the Representatives shall have the right to postpone the Firm
Closing Date or the Option Closing Date, as the case may be,
established as provided in Section 3 hereof for not more than
seven business days in order that any necessary changes may be
made in the arrangements or documents for the purchase and
delivery of the Firm Securities or Option Securities, as the case
may be. As used in this Agreement, the term "Underwriter"
includes any person substituted for an Underwriter under this
Section 9. Nothing herein shall relieve any defaulting
Underwriter from liability for its default.
12. Survival. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the
Company, its officers, the Selling Securityholder and the several
Underwriters set forth in this Agreement or made by or on behalf
of them, respectively, pursuant to this Agreement shall remain in
full force and effect, regardless of (i) any investigation made
by or on behalf of the Company, any of its officers or directors,
the Selling Securityholder, any Underwriter or any controlling
person referred to in Section 10 hereof and (ii) delivery of and
payment for the Securities. The respective agreements,
covenants, indemnities and other statements set forth in Sections
7 and 10 hereof shall remain in full force and effect, regardless
of any termination or cancellation of this Agreement.
13. Termination. (a) This Agreement may be terminated with
respect to the Firm Securities or any Option Securities in the
sole discretion of the Representatives by notice to the Company
given prior to the Firm Closing Date or the related Option
Closing Date, respectively, in the event that the Company shall
have failed, refused or been unable to perform all obligations
and satisfy all conditions on its part to be performed or
satisfied hereunder at or prior thereto or, if at or prior to the
Firm Closing Date or such Option Closing Date, respectively,
(i) the Company or any of its subsidiaries shall have, in the
sole judgment of the Representatives, sustained any material loss
or interference with their respective businesses or properties
from fire, flood, hurricane, accident or other calamity, whether
or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding or there shall have been any
material adverse change, or any development involving a
prospective material adverse change (including without limitation
a change in management or control of the Company), in the
condition (financial or otherwise), business prospects, net worth
or results of operations of the Company and its subsidiaries,
<PAGE>
except in each case as described in or contemplated by the
Prospectus (exclusive of any amendment or supplement thereto);
(ii) trading in the Common Stock shall have been suspended by the
Commission or the Nasdaq National Market or trading in securities
generally on the New York Stock Exchange or the Nasdaq National
Market shall have been suspended or minimum or maximum prices
shall have been established on such exchange or market system,
(iii) a banking moratorium shall have been declared by Texas,
New York or United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B)
an outbreak or escalation of any other insurrection or armed
conflict involving the United States or (C) any other calamity or
crisis or material adverse change in general economic, political
or financial conditions having an effect on the U. S. financial
markets that, in the sole judgment of the Representatives, makes
it impractical or inadvisable to proceed with the public offering
or the delivery of the Securities as contemplated by the
Registration Statement, as amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 13
shall be without liability of any party to any other party except
as provided in Section 12 hereof.
14. Information Supplied by Underwriters. The statements set
forth in the last paragraph on the front cover page and under the
heading "Underwriting" in any Preliminary Prospectus, the
Prospectus or any Integrated Prospectus (to the extent such
statements relate to the Underwriters) constitute the only
information furnished by any Underwriter through the
Representatives to the Company for the purposes of Sections 2(b)
and 10 hereof. The Underwriters confirm that such statements (to
such extent) are correct.
15. Notices. All communications hereunder shall be in writing
and, if sent to any of the Underwriters, shall be delivered or
sent by mail, telex or facsimile transmission and confirmed in
writing to Prudential Securities Incorporated, One New York
Plaza, New York, New York 10292, Attention: Equity Transactions
Group; if sent to the Company, shall be delivered or sent by
mail, telex or facsimile transmission and confirmed in writing to
the Company at 1215 West Crosby Road, Carrolton, Texas 75006,
Attention: William J. Collinsworth; if sent to the Selling
Securityholder, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to the Selling
Securityholder at [address].
<PAGE>
16. Successors. This Agreement shall inure to the benefit of
and shall be binding upon the several Underwriters, the Company
and their respective successors and legal representatives, and
nothing expressed or mentioned in this Agreement is intended or
shall be construed to give any other person any legal or
equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and
all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for
the benefit of no other person except that (i) the indemnities of
the Company contained in Section 10 of this Agreement shall also
be for the benefit of any person or persons who control any
Underwriter within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act and (ii) the indemnities of the
Underwriters contained in Section 10 of this Agreement shall also
be for the benefit of the directors of the Company, the officers
of the Company who have signed the Registration Statement and any
person or persons who control the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act. No
purchaser of Securities from any Underwriter shall be deemed a
successor because of such purchase.
17. Applicable Law. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ANY PROVISIONS
RELATING TO CONFLICTS OF LAWS.
18. Consent to Jurisdiction and Service of Process. All
judicial proceedings arising out of or relating to this Agreement
may be brought in any state or federal court of competent
jurisdiction in the State of New York, and by execution and
delivery of this Agreement, the Selling Securityholder accepts
for itself and in connection with its properties, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid
courts and waives any defense of forum non conveniens and
irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Agreement. The Selling Securityholder
designates and appoints _____________, and such other persons as
may hereafter be selected by the Selling Securityholder
irrevocable agreeing in writing to so serve, as its agent to
receive on its behalf service of all process in any such
proceedings in any such court, such service being hereby
acknowledged by the Selling Shareholder to be effective and
binding service in every respect. A copy of any such process so
served shall be mailed by registered mail to the Selling
Securityholder at its address provided in Section 15 hereof;
provided, however, that, unless otherwise provided by applicable
law, any failure to mail such copy shall not affect the validity
of service of such process. If any agent appointed by the
Selling Shareholder refuses to accept service, the Selling
Securityholder hereby agrees that service of process sufficient
for personal jurisdiction in any action against the Selling
Securityholder in the State of New York may be made by registered
or certified mail, return receipt requested, to the Selling
Securityholder at its address provided in Section 15 hereof, and
the Selling Securityholder hereby acknowledges that such service
shall be effective and binding in every respect. Nothing herein
shall affect the right to serve process in any other manner
<PAGE>
permitted by law or shall limit the right of any Underwriter to
bring proceedings against the Selling Securityholder in the
courts of any other jurisdiction.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for
that purpose, whereupon this letter shall constitute an agreement
binding the Company and each of the several Underwriters.
Very truly yours,
OPTEK TECHNOLOGY, INC.
By _________________________________
William T. Collinsworth, CFO
FIRST SOURCE FINANCIAL LLP
By ______________________________
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
BancAmerica Robertson Stephens
ABN AMRO Incorporated
By: PRUDENTIAL SECURITIES INCORPORATED
By ______________________________________
Jean-Claude Canfin
Managing Director
For itself and on behalf of the Representatives.
PAGE
<PAGE>
SCHEDULE 1
UNDERWRITERS
Underwriter
Number of Firm
Securities to be Purchased
Prudential Securities Incorporated.....
BancAmerica Robertson Stephens
ABN AMRO Incorporated
Total
<PAGE>
<PAGE>
SCHEDULE 2
SUBSIDIARIES
Name
Jurisdiction of Incorporation
<PAGE>
