CONFORMED COPY
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended October 31, 1997 Commission File Number
0-16304
Optek Technology, Inc.
(Exact name of registrant as specified in its charter)
Delaware 75-1962405
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1215 West Crosby Road, Carrollton, Texas 75006
(Address of principal executive offices) (Zip Code)
Registrant s telephone number, including area code: (972)
323-2200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes ( X ) No ( )
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant s knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment of this
Form 10-K. ( )
The aggregate market value of the registrant s voting stock held
by non-affiliates as of October 31, 1997 was: $67,909,282 (* see
note on index page).
The number of shares outstanding of each class of registrant s
common stock as of October 31, 1997 was: Common Stock, par value
$0.01 per share, 4,259,534 shares.
___________________
Documents Incorporated by Reference
Portions of the registrant s definitive proxy statement to be
furnished to stockholders in connection with its Annual Meeting
of Stockholders to be held on March 17, 1998 are incorporated by
reference in Part III of this Form 10-K.
PAGE
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OPTEK TECHNOLOGY, INC.
ANNUAL REPORT ON FORM 10-K
INDEX
Securities and Exchange Commission
Item Number and Description Page
PART I
ITEM 1. Business ................................... 1
ITEM 2. Properties.................................. 6
ITEM 3. Legal Proceedings ......................... 7
ITEM 4. Submission of Matters to a Vote of Security Holders
7
PART II
ITEM 5. Market for Registrant s Common Equity and Related
Stockholder Matters ........................ 7
ITEM 6. Selected Financial Data .................... 8
ITEM 7. Management s Discussion and Analysis of Financial
Condition and Results of Operations ............ 9
ITEM 8. Financial Statements and Supplemental Data ..... 11
ITEM 9. Changes in and Disagreements on Accounting and
Financial Disclosure .......................... 11
PART III
ITEM 10. Directors and Executive Officers of the Registrant
11
ITEM 11. Executive Compensation ........................ 12
ITEM 12. Security Ownership of Certain Beneficial Owners
and Management .................................. 12
ITEM 13. Certain Relationships and Related Transactions .. 12
PART IV AND SIGNATURES
ITEM 14. Exhibits, Financial Statements and Financial Statement
Schedules and Reports on Form 8-K ............
INDEPENDENT AUDITORS REPORT ............................. F-1
SIGNATURES
* The figure indicated on the cover page as to the
aggregate market value of shares of the registrant s voting stock
held by nonaffiliates represents the registrant s best good faith
estimate for purposes of this annual report on Form 10-K. The
aggregate market value indicated is based upon the closing price
of the registrant s common stock as reported by the Nasdaq
National Market System as of October 31, 1997. Shares held by
non-affiliates were calculated by reducing total outstanding
shares by outstanding shares beneficially owned by executive
officers and Directors of the registrant or by any stockholder
beneficially owning more than 10% of registrants common stock, as
incorporated herein under the heading Security Ownership of
Certain Beneficial Owners and Management, who were considered
for purposes of this disclosure to be affiliates.
PAGE
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PART I
ITEM 1. Business.
Cautionary Statement Regarding Forward-Looking Information
Certain statements contained in this report, such as those
concerning the Company's business strategy, the expected future
demand for sensor products, capital requirements and other
statements regarding matters that are not historical facts are
forward looking-statements. Because such forward-looking
statements include risks and uncertainties, actual results may
differ materially from those expressed in or implied by such
statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed
herein under "Business" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations". The Company
undertakes no obligation to release publicly the results of any
revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events.
Introduction
Optek Technology, Inc. ("Optek" or 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. Because optoelectronic and magnetic sensors
operate without physical contact, they are generally capable of
more accurate, reliable and sensitive measurement than standard
mechanical or electromechanical devices. These characteristics,
combined with increased speed, durability and compactness, have
prompted the substitution of optoelectronic and magnetic sensors
for mechanical and electromechanical switches in many instances.
The Company utilizes optoelectronic and magnetic field
sensing technologies to target customized, non-standard
applications that require specialized engineering and
manufacturing expertise. The Company applies its engineering and
manufacturing expertise to the design and manufacture of
components and assemblies which meet the physical and technical
requirements demanded for the intended use by the customer. This
application-based design requires the integration of mechanical,
electrical and optical or magnetic sensing technologies. 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.
Prior to fiscal 1992, the Company's sales to the automotive
market were not significant (less than 2% of net sales in fiscal
1991). 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.
Because of the Company's engineering and manufacturing expertise
and customer relationships, the Company has been awarded several
additional long-term automotive programs.
The Company's manufacturing operations are vertically
integrated with facilities located in Carrollton, Texas and
Juarez, Mexico. A substantial majority of the Company's products
are assembled in facilities operated by the Company in Juarez,
Mexico. The Company markets its products through its own
technical sales staff, independent sales representatives and
independent stocking distributors.
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Products and Technology
Optoelectronic Products.
The largest portion of the Companys current business is the
design, manufacture and sale of custom devices which use
optoelectronic technology to satisfy customers
sensing application requirements in all of its major markets.
Optoelectronic technology uses light to measure or sense position
or motion. A familiar example of the use of this technology is
its application in certain security systems which emit a beam of
light which is received by a sensor. The interruption of this
beam causes an electrical response in the sensor which activates
the alarm. These principles may be applied using either visible
or nonvisible (e.g., infrared) light as a means of sensing
motion, speed or position. The optoelectronic products made by
Optek primarily use infrared light.
Optek's optoelectronic products consist of: (i) infrared
light emitting and light sensing semiconductor chips; (ii)
discrete components, which are plastic or metal packages housing
the light emitting or light sensing chips described above; (iii)
assemblies, which combine the light emitting and light sensing
discrete components in a single package to meet various
electrical and/or mechanical specifications; generally, it is
assemblies which are sold by Optek to its customers for use in
their products; and (iv) fiber optic products, which use light
emitting and light sensing technologies to transmit and receive
light signals for data transmission through fiber.
The following paragraphs describe these optoelectronic
devices and their basic principles of operation.
Semiconductor Chips. Light emitting and light sensing
semiconductor chips are the basic elements in Optek s
optoelectronic product range. A light emitting diode (LED) chip
emits light as the result of the application of direct current at
a low voltage. Such chips can be made to produce light in a wide
range of wavelengths extending from the near ultraviolet
to the far infrared. Optek manufactures its own light emitting
chips from gallium arsenide and gallium aluminum
arsenide wafers using standard semiconductor manufacturing
techniques.
Light sensors are semiconductor chips which are capable of
converting light into electrical signals; thus, they can be used
to sense and relay the signal produced from a light emitting
chip. Optek produces light sensitive chips from polished silicon
slices using standard silicon semiconductor manufacturing
processes. Optek s light sensing chips have varying speed and
sensitivity. Some chips incorporate transistors as an integral
part of the chip, thus providing in a single unit the ability to
detect the light and amplify the signal received. The Company
uses a substantial portion of the semiconductor chips it
manufactures in its discrete components. On occasion, however,
the Company does design and manufacture custom semiconductor
chips for specific customer applications.
Most of the light sensing chips manufactured by Optek
produce an analog output which must be processed before it can be
communicated to a digital device. The Company has also developed
a family of light sensing integrated circuits which produce a
digital output. The versatility of the chip s output geometry
allows it to drive multiple outputs, resulting in savings to the
customer in system processing circuitry. A chip has also been
developed with increased sensitivity, low level input detection
and on-chip voltage regulation which enables the chip to function
under fluctuating power conditions. The former characteristic is
particularly useful in fiber optics where the signal transmitted
may be a very low-level signal. The latter characteristic finds
a wide range of applications, for example, with battery powered
devices or under conditions of heavy electrical interference.
Discrete Components. Discrete components incorporate the
Company's LED or sensor chips in either plastic or metal packages
which protect the chip and allow light to pass to or from the
chip. These components form an integral part of the assemblies
manufactured by Optek. In manufacturing discrete components, LED
or sensor chips are mounted on lead frames or headers, a wire is
bonded from the chip to the lead, and the device is housed in a
plastic or metal package. While most of Optek s discrete
components are used in its own assembly manufacturing operations,
the Company also manufactures and sells discrete components to
OEMs which integrate them into their own products and through
independent distributors, especially in foreign markets.
Assemblies. Most of Optek s business is directed to the
production of complete assemblies which are ready to plug into
the customer s equipment.
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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 sensor. The
sensing occurs when an object interrupts the light transmission
path from emitter to sensor or reflects the emitted light back to
the sensor.
Optek also manufactures various types of detector assemblies
and displays which are used in aerospace/defense applications.
These assemblies and displays often require custom sensor or LED
chips which are incorporated in physical packaging capable of
withstanding rigorous environmental conditions of temperature,
acceleration, or mechanical shock.
Optoelectronic LED s and sensors can also be used to isolate
electrical noise or high voltage from an electrical circuit.
These devices are used to protect computers and other sensitive
circuits from potentially damaging electrical surges or
electrical noise.
Fiber Optic Products. As a complement to its other
optoelectronic devices, Optek manufactures fiber optic LED s and
sensors. Optek uses its LED and sensor technology to provide the
light signal and receiver products for data transmission through
fiber. These products allow electronic equipment, such as energy
management systems, computers and even telephones, to communicate
over thin lightweight cables of glass or plastic fiber.
Magnetic Sensors.
During fiscal 1992, Optek began production of Hall Effect
(magnetic field sensing) devices which sense physical events by
reacting to changes in magnetic fields. Since magnetic fields
are relatively unaffected by the cleanliness of the environment,
Hall Effect devices can be used in environments in which a clear
optical path is inhibited. For example, Hall Effect devices
sense rotation of gears in automobiles for various applications
where the presence of dirt and oil would make the application of
optoelectronic technology impractical. The first practical
application of this technology by Optek has been the production
of crankshaft and camshaft sensors used in conjunction with
ignition systems on automobiles.
The Company continues to explore additional opportunities in
which Hall Effect devices can efficiently address customers
requirements. For example, the Company produces a Hall Effect
sensor used in an automotive theft deterrent system. Because of
the presence of oil and dirt characteristic of automotive
applications, magnetic sensing devices are particularly useful,
and the Company has sought to expand upon the expertise and
familiarity gained through its initial automotive programs to
identify and participate in additional sensor programs.
Prior to fiscal 1992, the Company's sales to the automotive
market were not significant (less than 2% of net sales in fiscal
1991). 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.
Because of the Company's engineering and manufacturing expertise
and customer relationships, the Company has been awarded several
additional long-term automotive programs. Sensor components and
assemblies are being used increasingly by the automotive industry
to improve emission control, fuel economy, safety and
performance, while reducing warranty costs. As a result of this
demand and the Company's strategy to capitalize on trends in the
automotive industry, including single sourcing, the Company
believes that the automotive market represents its most
significant opportunity for growth.
As with optoelectronic products, the Company is vertically
integrated and capable of producing each of the elements
incorporated into its magnetic sensing devices. The basic
building block of each device is a semiconductor chip which
reacts to fluctuations in a magnetic field. Optek produces its
own magnetic sensor chips through processes and techniques
similar to those used for manufacturing light sensing chips. As
the position of a magnet is changed, the sensor produces a signal
which is relayed to a control device. Each of these elements is
combined into an assembly integrating mechanical, electronic and
magnetic technologies.
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Marketing and Sales
Optek sells its products through its own technical sales
staff, independent sales representatives, and independent
stocking distributors. At October 31, 1997, Optek 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. Optek also uses 20 independent
sales representatives and 42 stocking distributors, both
domestically and internationally.
An initial customer contact is usually made by either a
member of Optek s technical sales staff, a sales representative
or a distributor for the geographic area. During this contact,
the representative determines if custom optoelectronic or
magnetic components or assemblies could perform the specific
functions desired by the customer. Typically, the customer either
provides a detailed specification of its requirements or is
assisted by Optek s engineering and technical sales staff in the
development of specifications. Optek then develops a technical
proposal, incorporating preliminary design concepts, and submits
the technical proposal to the customer. The technical proposal
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.
Frequently, especially in automotive applications, the
Company's products continue through development, testing and
qualification phases which involve all aspects of the Company's
engineering and manufacturing expertise.
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 applications 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 ranging from three to
fifteen years. For example, many products sold to the
automotive industry are model, engine or system 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 products to
perform specific applications identified with OEMs. Therefore,
the Companys efforts have been primarily directed toward
enhancing the functions of its existing product base to permit a
wider range of applications and to identification of new
applications.
Based upon the Company s expertise and knowledge of the
optoelectronics industry, the Company does not believe any
patents currently govern the basic optoelectronics technology
used by the Company. As a result, development of new
applications for this technology has proceeded without the
impediment of obtaining licenses for the underlying technology.
Further, the Company believes that companies desiring to enter
the optoelectronics industry may do so without obtaining licenses
or permits relating to the use of such technology and that
competition is not impeded by such constraints. However, Optek
has sought to protect confidential information which is used in
the Company s operations by restricting its employees from using,
disseminating or disclosing confidential information not
generally known in the industry.
The Company s engineering expertise in sensor technologies
has likewise facilitated its identification of potential
applications for magnetic sensors. Because of the relative
newness of some of these applications, the Company has sought
and, in some cases, obtained patent protection for these
applications. However, Optek cannot currently predict whether
additional new applications will qualify for patent registration.
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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 has the
advantage of demonstrating a good signal to noise ratio, and is
able to detect very slow motion which is required in certain
applications. Motion and position sensors for electronic ignition
systems in automobiles are applications for magnetoresistive
sensors for which the Company has been awarded additional
programs by an automotive OEM.
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
7% 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 to develop new products and to more effectively
compete. Integrated capabilities enable the
Company to exercise better control through all manufacturng
cycles
and to effectively respond to customer requests for development
of new
products and design changes to existing products. The Company's
manufacturing capabilities allow the Company to produce 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 principal raw materials used by the Company in the
manufacture of its semiconductor chips, components 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. All of these raw materials can be obtained from
several suppliers. From time to time, particularly during
periods of increased industry-wide demand, silicon wafers and
other materials have been in short supply. As is typical in the
industry, the Company allows for a significant lead-time between
order and delivery of raw materials. 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.
Over eighty percent of the Company s components and
assemblies are produced 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: compliance 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
processing, are re-exported from Mexico within six months.
Maquiladora status, which must be renewed every two years, is
subject to various restrictions and requirements, including:
compliance with the terms of the Maquiladora program; proper
utilization of imported materials; hiring and training of Mexican
personnel; compliance with tax, labor, exchange control and
notice provisions and regulations; and compliance with locational
constraints.
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
could result in increased labor costs. The Company may be
required to make additional investments in automated 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.
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Customers
In fiscal 1997, Optek 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 accounted for 13%, 13% and 10%,
respectively, of the Company s net sales during fiscal 1997.
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.
Optek s customers normally purchase the Company s products
and incorporate them in products that they in turn sell into
their own markets on an ongoing basis. As a result, Optek s
sales are dependent upon the success of its customers products,
and its future performance is dependent upon its success in
finding new customers and receiving new orders from existing
customers.
During fiscal 1997, foreign 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.
Backlog
Opteks 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.
Competition
The Company competes with a range of 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. Certain of its competitors are
companies which are larger, more diversified and have greater
financial resources than the Company. The Company believes that
its principal competitor for sales of custom sensor components
and assemblies is Honeywell, Inc. Competition in the sensor
markets served by the Company is primarily based upon custom
design capabilities, quality, technology, responsiveness and
timely delivery. While the Company believes that its custom
design capabilities, quality, responsiveness, engineering and
operating efficiencies are competitive advantages, no assurance
can be given that the Company will be able to successfully
compete with its competitors.
Employees
As of October 31, 1997, the Company employed 1,971 persons,
including 1,821 in manufacturing and assembly (1,633 in Mexico
and 188 in Carrollton), 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.
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Certain Factors
Numerous factors may affect the Company's future
performance, including the following:
Dependence on Automotive Industry. 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.
Product Life Cycles. Many products sold by the Company are
application specific and have life cycles generally ranging from
three to fifteen years. Product development cycles from four
months to three years or more requiring substantial design and
qualification requirements are customary in the sourcing
decisions of OEMs. If the Company is unable to develop new
products to replace products whose life cycles come to an end,
the Company's business could be adversely affected.
Pricing Pressure. There is continuing pressure from
OEMs to reduce costs, including costs associated with outside
suppliers 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 may reduce the
Company's product gross margin.
Customer Concentration. In fiscal 1997, Optek 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
accounted for 13%, 13% and 10%, respectively, of the Company s
net sales during that year. Loss of, or the failure to replace,
any significant portion of sales to any significant customer
could have a material adverse effect on the Company.
Foreign Manufacturing Operations. Over eighty percent of
the Company's components and assemblies are produced 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: compliance 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 processing, are re-exported from Mexico
within six months. Maquiladora status, which must be renewed
every two years, is subject to various restrictions and
requirements, including: compliance with the terms of the
Maquiladora program; proper utilization of imported materials;
hiring and training of Mexican personnel; compliance with tax,
labor, exchange control and notice provisions and regulations;
and compliance with locational constraints.
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
could 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.
<PAGE>
Competition. The Company competes with a range of 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. Certain of its competitors are
companies which are larger, more diversified and have greater
financial resources than the Company. The Company believes that
its principal competitor for sales of custom sensor components
and assemblies is Honeywell, Inc. Competition in the sensor
markets served by the Company is primarily based upon custom
design capabilities, quality, technology, responsiveness and
timely delivery. Although the Company believes that its custom
design capabilities, quality, responsiveness, engineering and
operating efficiencies are competitive advantages, no assurance
can be given that the Company will be able to successfully
compete with its competitors.
Technological Change. There can be no assurance that the
Company will be able, for financial or other reasons, to
anticipate and respond to technological changes which may be
necessary to satisfy customer needs. While the Company is
currently unaware of any 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.
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 beneficially 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 stockholder, 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.
ITEM 2. Properties.
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 eighty percent of the Companys discrete components and
assemblies 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
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>
ITEM 3. Legal Proceedings.
The Company is not involved in any material current or
pending legal proceedings, other than ordinary routine litigation
incidental to its business.
ITEM 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted by the Company during the fourth
quarter of the fiscal year ended October 31, 1997 to a vote of
the Company s security holders through the solicitation of
proxies or otherwise.
PAGE
<PAGE>
PART II
ITEM 5. Market for Registrant s Common Equity and Related
Stockholder Matters.
The Company s common stock is traded on the Nasdaq National
Market under the trading symbol OPTT . The following table sets
forth the quarterly high and low sales prices (to the nearest
1/8) of a share of 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
commissions, and may not necessarily represent actual
transactions.
1997 Quarter Ended High Low
October 31, 1997 $19 3/4 $15 3/4
August 1, 1997 16 11
May 2, 1997 14 1/8 10 1/2
January 31, 1997 13 7/8 9
1996 Quarter Ended High Low
October 25, 1996 $11 1/4 $9
July 26, 1996 15 3/4 9 5/8
April 26, 1996 14 9
January 26, 1996 8 1/4 7
At October 31, 1997, the Company had approximately 164
stockholders of record. The Company believes that a significant
number of shares of the Company s Common Stock are held in street
name and, consequently, the Company is unable to determine the
actual number of beneficial owners thereof.
The Company has never paid a cash dividend on its Common
Stock, currently intends to retain any earnings for use in its
business and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. The Company s loan
agreement contains covenants restricting the Company from
paying dividends on its Common Stock exceeding 50% of its net
profit during any fiscal year.
PAGE
<PAGE>
ITEM 6. Selected Financial Data.
The following table summarizes certain selected consolidated
financial data for the periods indicated. This information is
derived from the Company s consolidated financial statements and
is qualified in its entirety by, and should be read in
conjunction with, Management s Discussion and Analysis of
Financial Condition and Results of Operations and the
Consolidated Financial Statements and Notes thereto included
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
Fiscal Year Ended
Oct 31, Oct. 25, Oct 27, Oct. 28, Oct. 29,
1997 1996 1995 1994 1993
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Operating statement data:
Net sales $75,572 $67,395 $62,542 $55,625 $55,878
Cost of sales 43,423 39,010 38,513 38,269 46,499
Gross profit 32,149 28,385 24,029 17,356 9,379
Product development
and engineering
expenses 5,246 4,933 3,841 3,591 3,968
Selling, general and
administrative
expenses 9,145 8,266 7,090 6,536 7,498
Provision for
restructuring costs - - - - 2,292
Reduction in value
of deferred costs - - - - 893
Operating income
(loss) 17,758 15,186 13,098 7,229 (5,272)
Other (income) expense:
Interest (income)
expense (65) 1,292 2,960 3,685 3,952
Other (income)
expense 59 (145) 142 365 835
Total other, net (6) 1,147 3,102 4,050 4,787
Income (loss)
before income
taxes and
extraordinary
item 17,764 14,039 9,996 3,179 (10,059)
Income tax expense 5,259 1,144 158 - -
Net income before
extraordinary item 12,505 12,895 9,838 3,179 (10,059)
Extraordinary item,
net of income taxes 1,003 - - - -
Net income (loss)$11,502 $12,895 $9,838 $3,179 $(10,059)
Earnings (loss) per
share before
extraordinary item $1.63 $1.69 $1.40 $0.47 $(3.12)
Extraordinary item (0.13) - - - -
Net earnings (loss)
per share $1.50 $1.69 $1.40 $0.47 $(3.12)
Weighted average
common and
common share
equivalents
outstanding 7,677 7,627 7,027 7,108 3,224
Balance sheet data:
Working capital $15,068 $ 6,658 $ 4,028 $4,830 $ 6,865
Total assets 38,936 25,886 26,065 27,827 32,146
Total current
liabilities 12,656 7,982 9,175 8,159 7,920
Long-term debt - 3,428 15,996 28,692 36,472
Stockholders' equity
(deficit) 26,163 14,067 810 (9,148)(12,340)
</TABLE>
PAGE
<PAGE>
ITEM 7. Management s Discussion and Analysis of Financial
Condition and Results of Operations.
General
The following table sets forth the Company s net sales by
product group for the last three fiscal years:
Fiscal Year Ended
Oct. 31, Oct. 25, Oct. 27,
1997 1996 1995
(in millions)
Office equipment $25.4 $24.7 $24.8
Automotive 19.2 12.9 9.5
Industrial 18.7 17.7 16.0
Aerospace/defense 5.9 5.9 6.4
Medical 4.4 4.0 4.1
Communications 2.0 2.2 1.7
Total $75.6 $67.4 $62.5
The Company views automotive products as its prime
opportunity for growth over the next several years due to the
proliferation of sensors in automobiles resulting from the
expanded use of microprocessors. The Company expects sales of
office equipment, industrial and medical products to experience
growth related to growth in the economy in general. Sales in the
communications market consist primarily of fiber optic
transmitters and receivers and offer opportunities for additional
growth. Sales to the aerospace/defense market are expected to
remain relatively flat or decline slightly, but opportunities for
growth in certain applications may arise as high volume producers
of aerospace/defense components exit this relatively low volume
market.
Gross margins have increased from 31.2% in fiscal 1994 to
42.5% in fiscal 1997. In addition to developing new products and
increasing sales levels, the Company's ability to maintain
margins at current levels will depend on its ability to work with
its customers to reduce costs on existing products and to
continue to control its own operating expenses.
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 $3.8 million and
$3.2 million, respectively. All such carryforwards were fully
utilized during fiscal 1996.
Results of Operations
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 (office equipment, industrial,
medical and communications) net sales of $2.0 million. The
increase in automotive net sales was primarily attributable to
the implementation of a new theft deterrent system on trucks and
sport utility vehicles for the first time on model year 1998.
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 decrease in aerospace/defense optoelectronic product
net sales of $400,000.
<PAGE>
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 is primarily
attributable to the higher net sales volume in automotive and
commercial products as discussed above. The increase from fiscal
1995 to fiscal 1996 was the result of higher net sales volumes,
as discussed above, higher production volumes resulting in lower
unabsorbed fixed costs, continued 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, compared 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 from 1996 to 1997,
the percentage of net sales is lower due to the increase in net
sales. The increase in fiscal 1996 compared to fiscal 1995
relates to additional development expenses for fiber optic
connector products, used in telecommunications, and
magnetoresistive technologies, used primarily in automotive
applications. In addition, certain expenses were incurred to
refurbish the Company's engineering and product development labs.
The Company anticipates expenditures to increase in absolute
dollars in fiscal 1998 primarily to support the development of
new products.
Selling, general and administrative expenses in fiscal 1997
were $9.1 million, or 12.1% of net sales. This compares 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 expenses
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 areas.
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 20.9% of net sales, in fiscal
1995. The improvements in fiscal 1997 and fiscal 1996 were the
result of the aforementioned increases in net sales volume and
overall improvements in manufacturing costs and operating
expenses, relative to the increase in net sales, as discussed
above.
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.
Income tax expense 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, fiscal 1997 was on a fully taxed basis net of,
primarily, experimentation tax credits.
In the fourth quarter of fiscal 1997, the Company agreed to
pay its former lender, First Source Financial, LLP, $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.
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.
Liquidity and Capital Resources
As reflected in the Company s consolidated statements of
cash flows, the Company generated approximately $14.3 million in
cash from operations during fiscal 1997. The largest 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.
<PAGE>
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 future growth in demand for the Company s products. The
timing and amount of such expenditures is subject to adjustment
based upon continued evaluation of the necessity therefor by
management.
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.
The Company anticipates that it will generate sufficient
cash flow from operations to meet its obligations, including
capital requirements, for the next twelve 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 financing.
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 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.
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 PC s, 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.
The cost of the Year 2000 project is not expected to have a
material adverse effect on the Company s results of operations.
New Accounting Standards
In February 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 128 ( SFAS
128 ), Earnings per Share, which establishes new standards for
computing and presenting earnings per share. SFAS 128 is
effective for financial statements issued for periods ending
after December 15, 1997 and requires restatement of all
prior-period earnings per share data. Early application of SFAS
128 is not permitted. The Company s adoption of the provisions
of SFAS 128 will result in the dual presentation of basic and
diluted earnings per share on the Company s consolidated
statements of income. Diluted earnings per share as calculated
under SFAS 128 is not expected to materially differ from primary
earnings per share amounts previously presented.
In June 1997, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 130 ( SFAS
130 ), Reporting Comprehensive Income, and Statement of Financial
Accounting Standards No. 131 ( SFAS 131 ), Disclosures About
Segments of an Enterprise and Related Information. SFAS 130 and
SFAS 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.
ITEM 8. Financial Statements and Supplemental Data.
Included on pages F-1 through F-12 hereof.
ITEM 9. Changes in and Disagreements on Accounting and Financial
Disclosure.
None.
PAGE
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant.
Information relating to the Company s Directors and
executive officers is set forth under the heading Election of
Directors and Information as to Directors, Nominees and Executive
Officers in the Company s definitive proxy statement relating to
the Company s Annual Meeting of Stockholders to be held March 17,
1998, which will be filed with the Securities and Exchange
Commission on or about February 9, 1998, and such information is
incorporated herein by reference.
ITEM 11. Executive Compensation.
Information relating to executive compensation is set forth
under the heading Executive Compensation in the Company s
definitive proxy statement relating to the Company s Annual
Meeting of Stockholders to be held March 17, 1998, which will be
filed with the Securities and Exchange Commission on or about
February 9, 1998, and such information is incorporated herein by
reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management.
Information relating to the ownership of certain beneficial
owners and management of the Company s Common Stock is set forth
under the heading Securities Ownership of Certain Beneficial
Owners and Management in the Company s definitive proxy
statement relating to the Company s Annual Meeting of
Stockholders to be held March 17, 1998, which will be filed with
the Securities and Exchange Commission on or about February 9,
1998, and such information is incorporated herein by reference.
ITEM 13. Certain Relationships and Related Transactions.
Information relating to the business relationships and
related transactions with respect to the Company and certain
Directors and nominees for election as Directors is set forth
under the heading Certain Transactions in the Company s
definitive proxy statement relating to the Company s Annual
Meeting of Stockholders to be held March 17, 1998, which will be
filed with the Securities and Exchange Commission on or about
February 9, 1998, and such information is incorporated herein by
reference.
PART IV
ITEM 14. Exhibits, Financial Statements and Financial Statement
Schedules and Reports on Form 8-K.
(a) Financial Statements included in Part II (Item 8) of this
report:
Independent Auditors Report;
Consolidated Balance Sheets as of October 31, 1997 and
October 25, 1996;
Consolidated Statements of Income for the three years ended
October 31, 1997;
Consolidated Statements of Stockholders Equity for the
three years ended October 31, 1997;
Consolidated Statements of Cash Flows for the three years
ended October 31, 1997;
Notes to Consolidated Financial Statements.
Financial Statement Schedules included in Part IV (Item 14) of
this report for the three fiscal years ended October 31, 1997:
Independent Auditors Report;
Schedule II - Valuation and Qualifying Accounts;
All other schedules are omitted, as the required information
is inapplicable or the information is presented in the
consolidated financial statements or related notes.
<PAGE>
No. Exhibits
3.7 Bylaws of Optek Technology, Inc. (1).
3.8 Restated Certificate of Incorporation of Optek
Technology, Inc. dated August 27, 1987 (2).
10.1 Restated and Amended 1983 Incentive Stock Option Plan
(1).
10.2 Form of Incentive Stock Option Agreement (1).
10.47 Long-Term Stock Investment Plan (3).
10.48 Directors Formula Award Plan (3).
10.52 Warrant to Purchase Common Stock of Optek Technology,
Inc. dated May 20, 1993 (4).
10.53 Warrant to Purchase Common Stock of Optek Technology,
Inc. dated November 22, 1993 (4).
10.54 Warrant to Purchase Common Stock of Optek Technology,
Inc. dated November 22, 1993 (4).
10.61 Employment Agreement between Optek Technology, Inc.
and Thomas R. Filesi (5).
10.62 Consulting Agreement between Optek Technology, Inc.
and Grant A. Dove (5).
10.63 Employment Agreement between Optek Technology, Inc.
and William J. Collinsworth (5).
10.64 Employment Agreement between Optek Technology, Inc.
and Richard Dahlberg (5).
10.65 Employment Agreement between Optek Technology, Inc.
and Thomas Garrett (5).
10.66 Employment Agreement between Optek Technology, Inc.
and Robert Kosobucki (5).
10.67 Amended and Restated Optek Technology, Inc. 401(k)
Plan (5).
10.68 Directors Formula Compensation Plan (6).
10.69 Termination Agreement dated as of October 31, 1997
between Optek Technology, Inc. and First Source
Financial, L.P.
10.70 Second Amended and Restated Warrant to Purchase Common
Stock of Optek Technology, Inc. dated October 31,
1997.
10.71 Loan Agreement dated January 29, 1998 between
NationsBank of Texas, N.A. and Optek Technology, Inc.
10.72 Lease Agreement between Equipos Climatec, S.A. de C.V.
and Optron de Mexico, S.A. de C.V.
11.1 Statement Regarding Computation of Per Share Earnings.
22 Subsidiaries of the Registrant.
23 Independent Auditors Consent.
(1) Previously filed as Exhibits 3.7, 10.1 and 10.2, to
registrant s Registration Statement on Form S-1, No. 33-14885,
and incorporated herein by reference.
(2) Previously filed as Exhibit 3.8 to registrant s
Registration Statement on Form 8-A filed on October 15, 1987, and
incorporated herein by reference.
(3) Previously filed as Exhibits 10.47 and 10.48 to
registrant s Annual Report on Form 10-K for the fiscal year ended
October 25, 1991 and incorporated herein by reference.
(4) Previously filed as Exhibits 10.52, 10.53 and 10.54 to
registrant s Annual Report on Form 10-K for the fiscal year ended
October 28, 1994 and incorporated herein by reference.
(5) Previously filed as Exhibits 10.61, 10.62, 10.63,
10.64, 10.65, 10.66, and 10.67 to registrant s Annual Report on
Form 10-K for the fiscal year ended October 25, 1996 and
incorporated herein by reference.
(6) Previously filed as Exhibit 10.68 to registrant s
Quarterly Report on Form 10-Q for the fiscal quarter ended May 2,
1997 and incorporated herein by reference.
(b) Reports on Form 8-K.
The Company filed no reports on Form 8-K
during the quarter ended October 31, 1997.
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 disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Optek Technology, Inc. and subsidiaries as
of October 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
F-1
PAGE
<PAGE>
<TABLE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
October 31, 1997 October 25, 1996
ASSETS
<CAPTION>
<S> <C> <C>
Current assets:
Cash and cash equivalents $9,815 $ 121
Accounts receivable, net of
allowance for doubtful
accounts and customer
returns of $1,653 in 1997
and $1,095 in 1996 9,196 7,288
Inventories (note 2) 6,491 6,007
Deferred income taxes (note 7) 2,113 1,142
Prepaid expenses 109 82
Total current assets 27,724 14,640
Property, plant and equipment,
net (note 3) 11,135 11,150
Other assets 77 96
$38,936 $25,886
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Accounts payable $ 3,109 $ 2,637
Accrued expenses (note 4) 9,547 5,345
Total current liabilities 12,656 7,982
Long-term debt (note 5) - 3,428
Other liabilities 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 4,259,534
shares in 1997 and 3,912,915
shares in 1996 43 39
Additional paid-in-capital 13,963 13,373
Retained earnings 12,157 655
Total stockholders equity 26,163 14,067
$38,936 $25,886
See accompanying notes to consolidated financial statements.
F-2
</TABLE>
PAGE
<PAGE>
<TABLE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
Year ended
Oct. 31, Oct. 25, Oct. 27,
1997 1996 1995
<S> <C> <C> <C>
Net Sales $75,572 $67,395 $62,542
Cost and expenses:
Cost of sales 43,423 39,010 38,513
Product development expenses 1,233 1,348 650
Engineering expenses 4,013 3,585 3,191
Selling expenses 5,289 5,087 4,245
General and administrative
expenses 3,856 3,179 2,845
Total costs and expenses 57,814 52,209 49,444
Operating income 17,758 15,186 13,098
Other (income) expense:
Interest (income) expense (65) 1,292 2,960
Other (income) expense 59 (145) 142
Total other, net (6) 1,147 3,102
Income before income taxes
and extraordinary item 17,764 14,039 9,996
Income tax expense (note 7) 5,259 1,144 158
Net income before
extraordinary item 12,505 12,895 9,838
Extraordinary item (net of
income tax benefit of
$542 - note 5) 1,003 - -
Net income $11,502 $12,895 $9,838
Earnings per common and
common share equivalents:
Earnings before extraordinary
item $1.63 $1.69 $1.40
Extraordinary item (0.13) - -
Net earnings per share $1.50 $1.69 $1.40
Weighted average common and
common share equivalents 7,677,242 7,626,914 7,027,181
See accompanying notes to consolidated financial statements.
F-3
</TABLE>
PAGE
<PAGE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
(in thousands, except share data)
<TABLE>
Retained Total
Addi- earnings stock
tional (accumu- 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
See accompanying notes to consolidated financial statements.
F-4
</TABLE>
PAGE
<PAGE>
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Year ended
Oct. 31. Oct. 25, Oct. 27,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $11,502 $12,895 $ 9,838
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 2,038 2,944 2,722
Gain on sale of property, plant and
equipment (204) - (25)
Provision for deferred taxes (1,280) (833) -
Changes in assets and liabilities:
Accounts receivable (1,908) (357) (242)
Inventories, prepaid expenses and
other assets (492) (643) 607
Accounts payable, accrued expenses
and other liabilities 4,691 (310) 733
Net cash provided by operating
activities 14,347 13,696 13,633
Cash flows from investing activities:
Purchase of property, plant and
equipment (2,034) (1,432) (1,121)
Proceeds from sale of property,
plant and equipment 215 2 25
Net cash used in investing activities (1,819) (1,430) (1,096)
Cash flows from financing activities:
Net repayment under long-term bank
debt (3,428) (12,568) (12,696)
Net proceeds from exercise of stock
options and warrants 594 362 120
Net cash used in financing activities (2,834) (12,206) (12,576)
Net increase (decrease) in cash and
cash equivalents 9,694 60 (39)
Cash and cash equivalents at
beginning of year 121 61 100
Cash and cash equivalents at end of
year $ 9,815 $121 $61
Interest payments $171 $1,346 $3,075
Income tax payments $4,258 $2,089 $123
See accompanying notes to consolidated financial statements.
F-5
</TABLE>
<PAGE>
<PAGE>
OPTEK TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended October 31, 1997, October 25, 1996 and October 27,
1995
(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 portion 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.
F-6
<PAGE>
<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. Recoverability 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
Earnings per common share is based on the weighted
average number of shares and, when dilutive, equivalent shares
outstanding during each of the periods presented. Primary
earnings per share and fully diluted earnings per share were
substantially the same in fiscal 1997, 1996, and 1995. The
calculation of net earnings per share in 1997, 1996, and 1995
uses the modified treasury stock method.
(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
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
F-7
<PAGE>
(m) Reclassifications
Certain amounts in the 1996 and 1995 consolidated
financial statements have been reclassified to conform with the
current year s presentation.
(2) Inventories
A summary of inventories at October 31, 1997 and
October 25, 1996 follows:
1997 1996
Finished goods $1,503 $1,109
Work in process 4,003 3,323
Raw materials 3,140 3,381
Reserve for excess
and obsolete
inventory (2,155) (1,806)
$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
Buildings 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 1,544 -
Other 2,965 2,567
$9,547 $5,345
(5) Long-term Debt
At October 25, 1996, the Company had borrowings outstanding
of $3,428 under a credit facility with First Source Financial,
LLP ( First Source ). The facility provided for a $10,500
working capital line of credit and an $8,000 revolving term loan.
Substantially 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.
F-8
<PAGE>
In the fourth quarter of fiscal 1997, the Company agreed to
pay First Source $1,545 to release all 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, 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 market 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 even 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
Investment Plan follows:
Weighted
Average
Number of Exercise
Shares 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
At October 31, 1997, the range of exercise prices and
weighted average remaining contractual life of outstanding
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.
F-9
<PAGE>
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 totaled 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 currently
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
Director s 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
director 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
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
F-10
<PAGE>
Net earnings per share:
As reported $1.50 $1.69
Proforma 1.47 1.68
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 net 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 occurrence 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:
1997 1996 1995
Expected tax expense $6,217 $4,914 $3,399
Realization of benefits
of tax - (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
F-11
<PAGE>
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 versus 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 equipment
industry were 10% of total net sales versus 11% in fiscal 1996
and 13% in fiscal 1995.
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.
F-12
<PAGE>
(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 totaling $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.
F-11
PAGE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunder duly authorized.
OPTEK TECHNOLOGY, INC.
By /s/ Thomas R. Filesi.
Thomas R. Filesi, President and Chief Executive
Officer
Dated: January 29, 1997
Pursuant to the requirements of The Securities Exchange Act
of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
/s/ Thomas R. Filesi President, Chief Executive
Officer and Director
Thomas R. Filesi (Principal Executive Officer)
/s/ William J.
Collinsworth Vice President - Finance,
Treasurer and
William J. Collinsworth Assistant Secretary (Principal
Financial and Accounting Officer
/s/ Grant A. Dove Chairman of the Board and Director
Grant A. Dove
/s/ Rodes Ennis Director January 29,1998
Rodes Ennis
/s/ Michael E. Cahr Director
Michael E. Cahr
/s/ William H. Daughtrey Director
William H. Daughtrey
/s/ Wayne Stevenson Director
Wayne Stevenson
TERMINATION AGREEMENT
This Termination Agreement (this "Agreement") dated as of
October 31, 1997 by and between First Source Financial LLP, an
Illinois limited liability partnership ("First Source"), and
Optek
Technology, Inc., a Delaware corporation ("Optek");
WITNESSETH:
WHEREAS, Optek and its then subsidiary Optron, Inc. entered
into a Secured Credit Agreement dated as of July 1, 1988 with
Household Commercial Financial Services, Inc., a Delaware
corporation ("Household"), pursuant to which Household loaned
amounts to Optek to acquire the business of the Optoelectronics
Division of TRW, Inc., which indebtedness was secured by
substantially all of the assets of Optek; and
WHEREAS, to evidence the security granted the parties
entered
into the Collateral Documents (as defined in the Secured Credit
Agreement);
WHEREAS, after several amendments, the Secured Credit
Agreement was amended and restated by Amended and Restated
Secured
Credit Agreement dated as of January 20, 1994 between Optek and
Household; and
WHEREAS, Household subsequently assigned its rights and
obligations under the Amended and Restated Secured Credit
Agreement, as amended, and the Collateral Documents to First
Source
by instruments dated March 28, 1995; and
WHEREAS, Optek has paid in full all amounts borrowed under
the
above described loan documents (the "Loan Documents") and desires
to obtain a release of all remaining obligations under the Loan
Documents, except as set forth herein;
NOW, THEREFORE, in consideration of the release by First
Source of its rights under the Loan Documents, including the
release of all claims it may have or could now or in the future
assert under Section 4.7 of the Amended and Restated Secured
Credit
Agreement, the mutual agreements herein contained, and other good
and valuable consideration among the parties, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Additional Payment. Optek agrees to pay to First
Source
in cash the sum of $1,545,000.00 to be paid as follows: (i)
$750,000 to be paid to First Source no later than March 31, 1998;
and (ii) the balance to be paid not later than June 30, 1998.
<PAGE>
2. Termination of Loan Documents. The Loan Documents are
hereby terminated and of no further force and effect, except the
obligations of Optek arising under Section 14.4 and Section 14.5
of
the Amended and Restated Secured Credit Agreement, which
expressly
survive termination of the Amended and Restated Secured Loan
Agreement.
3. Release. First Source for itself and its successors
and
assigns, hereby fully, finally and forever releases, discharges,
quitclaims and covenants not to sue Optek, its officers,
directors,
agents, employees, attorneys, stockholders, predecessors-in-
interest, successors-in-interest, subsidiaries, and indemnitees
of,
from or with respect to any and all claims, counterclaims, debts,
covenants, contracts, promises, agreements, liabilities, actions,
demands or causes of action of any kind or character, whether now
known or unknown, suspected or unsuspected, arising out of the
Loan
Documents, except the obligations of Optek arising under Section
14.4 and Section 14.5 of the Amended and Restated Secured Credit
Agreement. First Source warrants and represents that it has not
sold, assigned, granted or transferred to any other person, firm
or
corporation any claim, counterclaim, demand or cause of action
covered by the terms of this Agreement.
4. Further Assurances. From time to time, as and when
requested by Optek or by its successors and assigns, First Source
shall execute and deliver such releases and other documents and
instruments and shall take or cause to be taken all such further
and other actions as shall be appropriate or necessary in order
to
terminate and release all liens, pledges, security interests or
claims granted, held or asserted by First Source against the
assets
of Optek and otherwise to carry out the purposes of this
Agreement.
5. Parties in Interest. All the terms and provisions of
this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the successors and assigns of First Source
and Optek.
6. Law to Govern. THIS AGREEMENT IS BEING MADE IN
ILLINOIS
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF
THAT STATE WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
7. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be considered an
original for all purposes, and each of which shall be binding
upon
each executing party regardless of whether each party named
herein
shall sign the same counterpart. Executed signature pages may be
detached from one or more counterparts and affixed to a single
document, which shall constitute the original counterpart
instrument.
<PAGE>
8. Entire Agreement. This Agreement contains the entire
understanding of the parties hereto and supersedes all prior
agreements of the parties with respect to the subject matter
contained herein. Nothing in this Agreement, express or implied,
is intended to confer upon any other person other than First
Source
or Optek rights or remedies under or by reason of this Agreement.
9. Amendment; Waiver. Any amendment or waiver to this
Agreement may be made by, and shall require, the written
agreement
of each party whose rights are adversely affected thereby.
FIRST SOURCE FINANCIAL LLP
BY FIRST SOURCE FINANCIAL, INC.,
ITS AGENT/ MANAGER
By:
Name:
Title:
OPTEK TECHNOLOGY, INC.
By:
Name:
Title:
NEITHER THIS WARRANT NOR THE SECURITIES ISSUABLE UPON
EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE TRANSFERRED
EXCEPT IN ACCORDANCE WITH SUCH REGISTRATION REQUIREMENTS OR AN
AVAILABLE EXEMPTION THEREFROM AND EXCEPT IN ACCORDANCE WITH THE
PROVISIONS OF THIS WARRANT.
SECOND AMENDED AND RESTATED WARRANT
To Purchase Common Stock of
OPTEK TECHNOLOGY, INC.
This SECOND AMENDED AND RESTATED WARRANT (the "Warrant"),
entered
into as of the 31st day of October, 1997, between Optek
Technology, Inc., a Delaware
corporation (the "Company") and First Source Financial LLP, an
Illinois limited liability
partnership ("First Source");
WITNESSETH THAT:
WHEREAS, First Source is currently the holder of an Amended
and Restated Warrant
to Purchase Common Stock of the Company dated as of December 12,
1995 which was an
amendment and restatement of a warrant dated as of January 20,
1994 (the "Original Warrant");
WHEREAS, the Company issued the Original Warrant to First
Source, as successor-in-
interest to Household Commercial Financial Services, Inc.
pursuant to that certain Amended and
Restated Secured Credit Agreement dated as of January 20, 1994
among the Company and First
Source, as successor-in-interest to Household Commercial
Financial Services, Inc. in
consideration of the loans by Household Commercial Financial
Services, Inc.;
WHEREAS, the Original Warrant was an amendment and
restatement of, and was issued
in replacement of, a warrant dated as of November 27, 1991,
which, in turn, was an amendment
and restatement of, and was issued in replacement of, the warrant
dated as of January 31, 1991,
which in turn replaced rights granted under a Conversion
Agreement dated July 1, 1988, all of
which were issued to Household Commercial Financial Services,
Inc.; and
WHEREAS the parties desire to amend and restate the Amended
and Restated Warrant
as set forth herein;
NOW, THEREFORE, in consideration of the foregoing
provisions, the mutual
covenants and agreements set forth below, and for other good and
valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
Company and First Source hereby
amend and restate the Amended and Restated Warrant in its
entirety as follows:
PAGE
<PAGE>
THIS IS TO CERTIFY that First Source, as
successor-in-interest to Household
Commercial Financial Services, Inc., or registered assigns, is
entitled upon the due exercise
hereof at any time during the Exercise Period (as hereinafter
defined) to purchase, in whole or
in part, from Optek Technology, Inc., a Delaware corporation (the
"Company'), the number of
shares of Common Stock, $0.01 par value, of the Company as
provided in Section 2.1 (subject
to adjustment) at the price for each share of such Common Stock
so purchased as provided in
Section 2.1 (subject to adjustment) and to exercise the other
rights, powers and privileges
hereinafter provided, all on the terms and conditions and
pursuant to the provisions hereinafter
set forth.
Dated as of October 31, 1997.
PAGE
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . .
. . . . 1
ARTICLE II EXERCISE OF WARRANT . . . . . . . . . . . . . . . . .
. . . . 5
2.1 Right to Exercise, Number of Shares and Exercise
Price. . . . 5
2.2 Notice of Exercise; Issuance of Common Stock. . . . .
. . . . 5
2.3 Fractional Shares . . . . . . . . . . . . . . . . . .
. . . . 5
2.4 Continued Validity. . . . . . . . . . . . . . . . . .
. . . . 6
ARTICLE III REGISTRATION, TRANSFER AND EXCHANGE . . . . . . .
. . . . 6
ARTICLE IV ANTIDILUTION PROVISIONS AND RIGHTS UPON
EXTRAORDINARY TRANSACTIONS. . . . . . . . . . . . . .
. . . . 7
4.1 Adjustment of Number of Shares Purchasable and
Exercise Price 7
(a) Adjustment to Number of Shares Issuable Pursuant
to this
Warrant . . . . . . . . . . . . . . . . . . . . .
. . . . 7
(b) Minimum Adjustment. . . . . . . . . . . . . . . .
. . . . 7
4.2 Diluting Events and Related Matters . . . . . . . . .
. . . . 8
(a) Issuance of Stock . . . . . . . . . . . . . . . .
. . . . 8
(b) Issuance of Warrants, Options or Other Rights . .
. . . . 8
(c) Issuance of Convertible Securities. . . . . . . .
. . . . 9
(d) Reorganization, Reclassification,
Recapitalization, Merger or
Sale of Company . . . . . . . . . . . . . . . . .
. . . . 10
(e) Readjustments . . . . . . . . . . . . . . . . . .
. . . . 10
(f) Determination of Consideration for Rights or
Options. . . 11
(g) Determination of Consideration upon Payment of
Cash, Property
or Merger . . . . . . . . . . . . . . . . . . . .
. . . . 11
(h) Date of Determination . . . . . . . . . . . . . .
. . . . 11
4.3 Rights of the Holder upon Rights Offering, Mergers,
Reorganizations
and Certain Other Transactions. . . . . . . . . . . .
. . . . 11
(a) Participation in Rights Offerings . . . . . . . .
. . . . 11
(b) Participation in Stock Dispositions . . . . . . .
. . . . 12
(c) Dividends . . . . . . . . . . . . . . . . . . . .
. . . . 12
(d) Other Distribution. . . . . . . . . . . . . . . .
. . . . 13
(e) Dividends in Securities; Splits and Combinations.
. . . . 13
(f) Record Date . . . . . . . . . . . . . . . . . . .
. . . . 13
(g) Shares Outstanding. . . . . . . . . . . . . . . .
. . . . 14
4.4 Certificates, Notices and Consents. . . . . . . . . .
. . . . 14
4.5 No Adjustment After Exercise. . . . . . . . . . . . .
. . . . 15
PAGE
<PAGE>
ARTICLE V COVENANTS OF THE COMPANY. . . . . . . . . . . . . . .
. . . . 15
5.1 No Impairment . . . . . . . . . . . . . . . . . . . .
. . . . 15
5.2 Affirmative Covenants . . . . . . . . . . . . . . . .
. . . . 15
5.2.1 Delivery of Financial and Business Information . . . .
. . . . . . . . . . . . .15
5.2.2 Disputed Financial Statements . . . . . . . . . . . .
. . . . 17
5.2.3 Budget. . . . . . . . . . . . . . . . . . . . . .
. . . . 17
5.2.4 Auditors' Reports . . . . . . . . . . . . . . . .
. . . . 17
5.2.5 Lender Information. . . . . . . . . . . . . . . .
. . . . 17
5.2.6 Litigation. . . . . . . . . . . . . . . . . . . .
. . . . 17
5.2.7 Default . . . . . . . . . . . . . . . . . . . . .
. . . . 18
5.2.8 Material Adverse Developments . . . . . . . . . .
. . . . 18
5.2.9 Other Information . . . . . . . . . . . . . . . .
. . . . 18
5.2.10 Auditors. . . . . . . . . . . . . . . . . . . . .
. . . . 18
5.2.11 Inspection and Meeting Rights; Budget Review. . .
. . . . 18
5.2.12 Accounting. . . . . . . . . . . . . . . . . . . .
. . . . 18
5.2.13 Insurance . . . . . . . . . . . . . . . . . . . .
. . . . 18
5.2.14 Payment of Taxes. . . . . . . . . . . . . . . . .
. . . . 18
5.2.15 Compliance With Laws. . . . . . . . . . . . . . .
. . . . 19
5.2.16 Preservation of Corporate Existence and Property;
Operations 19
5.2.17 Holder as Observer. . . . . . . . . . . . . . . .
. . . . 19
5.2.18 Confidential Information. . . . . . . . . . . . .
. . . . 19
ARTICLE VI RESERVATION OF STOCK ISSUABLE ON EXERCISE OF
WARRANT; PREEMPTIVE RIGHTS. . . . . . . . . . . . . .
. . . . 20
ARTICLE VII LISTING ON SECURITIES EXCHANGE. . . . . . . . . .
. . . . 20
ARTICLE VIII RESTRICTIONS ON TRANSFER. . . . . . . . . . . . .
. . . . 20
8.1 Notice of Proposed Transfer; Transfers Without
Registration . 20
8.2 Registration and Qualification. . . . . . . . . . . .
. . . . 21
(a) Piggyback Registration. . . . . . . . . . . . . .
. . . . 21
(b) Demand Registration . . . . . . . . . . . . . . .
. . . . 23
8.3 Registration and Qualification Procedures . . . . . .
. . . . 24
8.4 Allocation of Expenses. . . . . . . . . . . . . . . .
. . . . 25
8.5 Indemnification . . . . . . . . . . . . . . . . . . .
. . . . 26
8.6 Legend on Certificates. . . . . . . . . . . . . . . .
. . . . 28
8.7 Supplying Information . . . . . . . . . . . . . . . .
. . . . 28
8.8 Damages . . . . . . . . . . . . . . . . . . . . . . .
. . . . 28
8.9 Holdback Agreements . . . . . . . . . . . . . . . . .
. . . . 29
8.10 Rule 144 Reporting. . . . . . . . . . . . . . . . . .
. . . . 29
8.11 Consent for Additional Registration Rights. . . . . .
. . . . 30
PAGE
<PAGE>
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . .
. . . . 30
9.1 Nonwaiver and Expenses. . . . . . . . . . . . . . . .
. . . . 30
9.2 Holder Not a Stockholder. . . . . . . . . . . . . . .
. . . . 30
9.3 Notice Generally. . . . . . . . . . . . . . . . . . .
. . . . 30
9.4 Payment of Certain Expenses . . . . . . . . . . . . .
. . . . 30
9.5 Successors and Assigns. . . . . . . . . . . . . . . .
. . . . 31
9.6 Amendment . . . . . . . . . . . . . . . . . . . . . .
. . . . 31
9.7 Headings. . . . . . . . . . . . . . . . . . . . . . .
. . . . 31
9.8 GOVERNING LAW . . . . . . . . . . . . . . . . . . . .
. . . . 31
9.9 Subsidiaries. . . . . . . . . . . . . . . . . . . . .
. . . . 31
9.10 No Section 338 Election or Step-Up in Asset Value on
Books of the
Company . . . . . . . . . . . . . . . . . . . . . . .
. . . . 31
9.11 Replacement . . . . . . . . . . . . . . . . . . . . .
. . . . 31
9.12 Termination Agreement . . . . . . . . . . . . . . . .
. . . . 31
NOTICE OF EXERCISE FORM
ASSIGNMENT FORM
PAGE
<PAGE>
ARTICLE I
DEFINITIONS
The terms defined in this ARTICLE I, whenever used in this
Warrant, shall have the
respective meanings hereinafter specified. Whenever used in this
Warrant, any noun or pronoun
shall be deemed to include both the singular and plural and to
cover all genders.
"Adjusted Operating Profits" means an amount equal to the
Net Income of the Company and
its Subsidiaries for the period specified before deduction of any
amount which, in conformity
with generally accepted accounting principles, would be set forth
opposite the caption "income
tax expense" (including deferred income taxes) (or any like
caption) on a consolidated income
statement of the Company, and excluding any amounts which, in
conformity with generally
accepted accounting principles, would be set forth opposite the
captions, "extraordinary pre-tax
gain" and "extraordinary pre-tax loss" (or any like captions) on
such consolidated income
statement, plus the amount which, in accordance with generally
accepted accounting principles,
would be set forth opposite the caption "interest expense" (or
any like caption) on such
consolidated income statement, plus an amount which, in
conformity with generally accepted
accounting principles, is equal to any amortization or
depreciation for such fiscal period, to the
extent the same are deducted from net revenues, in conformity
with generally accepted
accounting principles, in determining Net Income for such fiscal
period.
"Affiliate" of any person means any other person which,
directly or indirectly, controls
or is controlled by or is under common control with, such person.
A person shall be deemed
to be "controlled by" any other person if such other person
possesses, directly or-indirectly,
power
(a) to vote 10% or more of the securities having ordinary
voting power, or if not
having ordinary voting power, having at the time voting
power, for the election of
directors of such person; or
(b) to direct or cause the direction of the management and
policies of such person
whether by contract or otherwise.
"Assignment" means the form of Assignment appearing at the
end of this Warrant.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's authorized Common Stock,
$0.01 par value, and
any class of capital stock of the Company now or hereafter
authorized having the right to share
in distributions either of earnings or assets of the Company
without limit as to amount or
percentage.
<PAGE>
"Common Stock on a Fully Diluted Basis" means, at any date
as at which the number
of shares thereof is to be determined, all issued shares of
Common Stock, except shares then
owned or held by or for the account of the Company, and shall
include all shares issuable in
respect of outstanding scrip or any certificates representing
fractional interests in shares of
Common Stock (which issued and outstanding shares shall be
approximately 4,259,534 shares
on the date this Warrant is issued), and all shares issuable
pursuant to the Company's incentive
stock option plan, long-term stock investment plan, director's
formula award plan or directors
formula compensation plan, all as in effect on the date hereof,
or pursuant to an employee or
director stock option plan, restricted stock bonus or ownership
plan, stock appreciation plan or
similar equity appreciation plan which the Company may implement
after receiving written
approval of a majority of the Holders in their sole discretion
(which approval must include First
Source if First Source is a Holder) (whether or not options or
awards with respect to such shares
have been granted) or issuable upon exercise of any warrant
(including this Warrant and
warrants previously issued to Directors of the Company), rights
to subscribe for or options
(whether or not vested) to purchase Common Stock or Convertible
Securities or upon the
conversion of any Convertible Securities. On the date hereof,
the number of shares of Common
Stock on a Fully Diluted Basis shall be 8,214,496 shares,
including 3,150,000 shares of
Common Stock initially issuable pursuant to this Warrant.
"Common Stock Valuation Price" in effect as of any date
shall mean a per share value equal
to the result obtained by dividing
(a) an amount equal to (i) the product of the
Company's Adjusted Operating Profits
for the four most recent Quarterly Fiscal Periods of the Company
(at the end of the Quarterly
Fiscal Period of the Company immediately preceding such date) and
seven (7) less (ii) the
amount of Funded Indebtedness (at the end of the Quarterly Fiscal
Period of the Company
immediately preceding such date), plus (iii) the proceeds that
would be received by the Company
upon exercise of all warrants, rights to subscribe for or options
to purchase Common Stock or
Convertible Securities or upon conversion of any Convertible
Securities, plus (iv) the fair market
value of proceeds received by the Company (other than proceeds in
the form of services of
employees of the Company and cash proceeds, which are reflected
in the amount of Funded
Indebtedness in clause (ii) above) upon any issuances or sales by
it of Common Stock,
Convertible Securities or warrants, rights to subscribe for or
options to purchase Common Stock
or Convertible Securities, multiplied by a fraction the numerator
of which (which shall never
be less than zero) is four minus the number of full Quarterly
Fiscal Periods since such issuance
or sale and the denominator of which is four, by
(b) the number of shares of Common Stock on a Fully
Diluted Basis on such date,
all as determined by a firm of independent public accountants of
recognized standing selected
by the Company and reasonably acceptable to the Holder.
"Company" means Optek Technology, Inc., a Delaware
corporation.
"Convertible Securities" means evidences of indebtedness,
shares of stock or other
securities which are convertible into or exchangeable for, with
or without payment of additional
consideration in cash or property, shares of Common Stock, either
immediately or upon the
arrival of a specified date or the happening of a specified
event.
<PAGE>
"Default Rate" means at any time 4.50% plus the rate per
annum then most recently
announced by The First National Bank of Chicago, a national
banking association ("FNBC"),
as its corporate base rate at Chicago, Illinois (or if such rate
is not being quoted by FNBC, the
rate which is the successor to such rate, and if FNBC is not
quoting any such rate, the rate
conceptually equivalent to such rate which the domestic
commercial bank having the highest
combined capital and surplus of any bank having its principal
office in Chicago, Illinois is
quoting).
"Diluting Event" means any transaction or event which is
identified as a Diluting Event
in Section 4.2(a) - (d).
"Exercise Period" means the period commencing on the date
hereof and terminating at
5:00 p.m., Chicago time, on October 31, 1998.
"Exercise Price" means the price per share of Common Stock
as set forth in Section 2.1
as such price may be adjusted from time to time pursuant to
Article IV.
"First Source" means First Source Financial LLP, an Illinois
registered limited liability
partnership.
"Funded Indebtedness" means all indebtedness of the Company
and its Subsidiaries, on
a consolidated basis, if appropriate, solely for money borrowed
and owing, less the aggregate
amount of all cash and cash equivalents of the Company and its
Subsidiaries but not including
the amount of any indebtedness of the Company represented by
Convertible Securities.
"Holder" means the person in whose name this Warrant is
registered on the books of the
Company maintained for such purpose.
"Independent Counsel" means counsel to the Company, unless
counsel to the Holder
disagrees in writing with the opinion or advice of such counsel
with respect to the issue in
question within 15 days after receipt of such opinion or advice,
in which case the Company and
Holder shall select another counsel, not the regular counsel of
the Company or the Holder and
experienced in Securities Act matters, who shall render an
opinion with respect to the issue in
question. The opinion or advice of such other counsel so given
shall be conclusive and binding
on the Company and the Holder. The legal fees and expenses of
such other counsel incurred
in connection with the rendering of such opinion shall be borne
equally by the Holder and the
Company.
<PAGE>
"Market Value" per share of Common Stock on any date shall
mean average of the daily
market prices for the 10 consecutive trading days preceding such
date. The market price for
each such trading day shall be the last sales price on such day
on such stock exchange on which
such stock is listed or admitted to trading, or, if no sale takes
place on such day on any such
exchange, the average of the closing bid and asked prices on such
day and officially quoted on
any such exchange, or, if the Common Stock is not then listed or
admitted to trading on any
stock exchange, the market price for each such business day shall
be the last sale price on such
day if reported by the National Association of Securities Dealers
Automated Quotation System
("NASDAQ") or, if not so reported, the average of the reported
closing bid and asked price
quotations for such day, as reported by NASDAQ. Notwithstanding
the foregoing, if Market
Value cannot be determined as set forth above because the Common
Stock is not then listed or
admitted to trading on a stock exchange, nor reported by NASDAQ,
then "Market Value" as
used in this Warrant shall have the same meaning as "Common Stock
Valuation Price."
"Net Income" for any fiscal period of the Company shall mean
consolidated net income
or loss of the Company and its Subsidiaries, if any, as it would
appear on the consolidated
statement of income of the Company for such fiscal period
prepared in accordance with
generally accepted accounting principles and as it may be
adjusted pursuant to Section 5.2.
"Notice of Exercise" means the form of Notice of Exercise
appearing at the end of this
Warrant.
"Organic Change" shall have the meaning provided in Section
4.3(b).
"Quarterly Fiscal Period" means a period comprised of
thirteen or fourteen weeks, as
applicable, representing a fiscal quarter of the Company, the
first of which in any fiscal year
shall begin on the first day of the Company's fiscal year and the
remainder of which in such
year shall begin on the day following the termination of the
preceding Quarterly Fiscal Period.
"Registration Agreement" shall have the meaning provided in
Section 8.2.
"Securities Act" means the Securities Act of 1933, as
amended, or any similar Federal
statute, and the rules and regulations of the Commission
promulgated thereunder, all as the same
shall be in effect from time to time.
"Shares" shall have the meaning provided in Section 2.1.
"Subsidiary" means a corporation, partnership or other
entity of which a person and/or
such person's other Subsidiaries, individually or in the
aggregate, own, directly or indirectly,
such number of outstanding shares or other interests as have more
than 50% of the ordinary
voting power (or, at the time extraordinary powers are available
to holders of shares or other
interests, such number of outstanding shares or other interests
as have more than 50% of voting
power) for the election of directors or the members of any
similar governing body.
"Warrant" and "Warrants," including "this Warrant," mean (a)
the warrant dated as of
October 31, 1997 issued to First Source and (b) all warrants
issued upon the partial exercise,
transfer or division of or in substitution for such warrant.
"Warrant Valuation Price" in effect as of any date shall
mean a per share value equal to
the difference between the Market Value and the Exercise Price
then in effect.
PAGE
<PAGE>
ARTICLE II
EXERCISE OF WARRANT
2.1 Right to Exercise, Number of Shares and Exercise Price.
Subject to and upon
compliance with the conditions of this ARTICLE II, the Holder
shall have the right, at its
option, at any time and from time to time during the Exercise
Period, to exercise this Warrant
in whole or in part. The aggregate number of shares of Common
Stock which may be
purchased from time to time during the Exercise Period by the
Holder upon exercise of this
Warrant shall be 3,150,000 subject to adjustment as provided in
ARTICLE IV hereof (the
"Shares"), and the initial Exercise Price shall be fifty cents
($0.50) (subject to adjustment as
provided in Section 4.3(e)). Notwithstanding the foregoing, the
aggregate exercise price for the
shares issuable under this Warrant shall not exceed One Million
Five Hundred Seventy Five
Thousand Dollars ($1,575,000.00).
2.2 Notice of Exercise; Issuance of Common Stock. (a) To
exercise this Warrant,
the Holder shall deliver to the Company at its principal office
at 1215 West Crosby Road,
Carrollton, Texas 75006 Attention: President (i) a Notice of
Exercise duly executed by the
Holder and specifying the number of shares of Common Stock to be
purchased and (ii) this
Warrant.
(b) Payment of the Exercise Price shall be made at the
option of the Holder, (A) by
wire transfer to an account in a bank located in the United
States designated for such purpose
by the Company or (B) by certified or official bank check payable
to the order of the Company
and drawn on a member of the Chicago or New York Clearing House.
Upon receipt of the cash
payment, the Company shall, as promptly as practicable, and in
any event within five days
thereafter, cause to be issued and delivered to the Holder, or,
subject to ARTICLE VIII, the
transferee designated in the Notice of Exercise, a certificate or
certificates representing the
aggregate number of full shares of Common Stock issuable upon
such exercise registered in the
name of the Holder or the name of the transferee so designated.
(c) Unless otherwise requested by the Holder, this Warrant
shall be deemed to have
been exercised and such certificate or certificates shall be
deemed to have been issued, and the
Holder or transferee so designated in the Notice of Exercise
shall be deemed to have become
the holder of record of such shares for all purposes, as of the
close of business on the date the
Notice of Exercise, together with payment as herein provided, and
this Warrant, are received
by the Company.
(d) If this Warrant is exercised in part, the Company
shall, at the time of delivery of
the certificate or certificates for Common Stock, unless the
Exercise Period has then expired,
issue and deliver to the Holder or the transferee so designated
in the Notice of Exercise a new
Warrant evidencing the rights of the Holder or such transferee to
purchase the aggregate number
of shares of Common Stock for which this Warrant shall not have
been exercised, and this
Warrant shall be cancelled.
<PAGE>
2.3 Fractional Shares. The Company shall not issue
fractional shares of Common
Stock or scrip representing fractional shares of Common Stock
upon exercise of this Warrant.
As to any fractional share of Common Stock which the Holder would
otherwise be entitled to
purchase upon such exercise, the Company shall purchase from the
Holder such unissued
fractional share at a price equal to an amount calculated by
multiplying such fractional share
(calculated to the nearest 1/100th of a share) by the Market
Value. Payment of such amount
shall be made in cash or by check payable to the order of the
Holder at the time of delivery of
any certificate or certificates arising upon such exercise.
2.4 Continued Validity. A holder of shares of Common Stock
issued upon the
exercise of this Warrant, in whole or in part, shall continue to
be entitled to all rights provided
to holders of Common Stock issuable on the exercise of this
Warrant, whether or not this
Warrant has been fully exercised, except where such holder
acquires the shares through a public
market. The Company will, at the time of the exercise of this
Warrant, in whole or in part,
upon the request of the holder of the shares of Common Stock
issued upon the exercise thereof,
acknowledge in writing, in form reasonably satisfactory to such
holder, its continuing obligation
to afford to such holder all rights to which such holder shall
continue to be entitled after such
exercise in accordance with the provisions of this Warrant;
provided, however, that if such
holder shall fail to make any such request, such failure shall
not affect the continuing obligation
of the Company to afford to such holder all such rights.
ARTICLE III
REGISTRA TION,
TRANSFER AND EXCHANGE
The Company shall keep at the Company's principal office
referred to in Section 2.2 or
at the offices of Hewitt & Hewitt, P.C. in Dallas, Texas or at
such other address as shall be
specified in a written notice to the Holder a register in which,
subject to such reasonable
regulations as it may prescribe, the Company shall provide for
the registration, transfer and
exchange of this Warrant. The Company will not at any time,
except upon the dissolution,
liquidation or winding up of the Company, close such register so
as to result in preventing or
delaying the exercise or transfer of this Warrant.
Upon surrender for registration of transfer of this Warrant
at such office, the Company
shall execute and deliver, in the name of the designated
transferee or transferees, one or more
new Warrants representing the right to purchase a like aggregate
number of shares of Common
Stock. At the option of the Holder, this Warrant may be
exchanged for other Warrants
representing the right to purchase a like aggregate number of
shares of Common Stock upon
surrender of this Warrant at such office. Whenever this Warrant
is so surrendered for exchange,
the Company shall execute and deliver the Warrants which the
Holder making the exchange is
entitled to receive.
Every Warrant presented or surrendered for registration of
transfer or exchange shall be
accompanied by an Assignment duly executed by the holder thereof
or its attorney duly
authorized in writing.
All warrants issued upon any registration of transfer or
exchange of warrants shall be the
valid obligations of the Company, evidencing the same rights, and
entitled to the same benefits
as the warrants surrendered upon such registration of transfer or
exchange.
<PAGE>
Upon receipt by the Company of evidence satisfactory to it
(in the exercise of reasonable
discretion) of the ownership of and the loss, theft, destruction
or mutilation of this Warrant and
(in case of loss, theft or destruction) the written agreement of
the Holder to indemnify the
Company (or, if the Holder is not First Source and if the Company
reasonably requests, a bond)
against any resulting loss or expense and in case of mutilation
upon surrender and cancellation
thereof, the Company will execute and deliver in lieu thereof a
new Warrant.
No service charge shall be made for any registration of
transfer or exchange of Warrants,
but the Company may require payment of a sum sufficient to cover
any tax or other
governmental charge that may be imposed in connection with any
registration of transfer as
provided in Section 9.4.
The Company and any agent of the Company may treat the
person in whose name this
Warrant is registered as the owner of this Warrant for all
purposes whatsoever, and neither the
Company nor any agent of the Company shall be affected by notice
to the contrary. This
Warrant, if properly assigned, may be exercised by a new holder
without first having a new
Warrant issued.
ARTICLE IV
ANTIDILUTION PROVISIONS AND RIGHTS UPON
EXTRAORDINARY TRANSACTIONS
4.1 Adjustment of Number of Shares Purchasable and Exercise
Price. Subject to the
provisions of this ARTICLE IV, the Exercise Price and the number
of shares of Common Stock
issuable upon exercise of this Warrant shall be subject to
adjustment from time to time as set
forth below.
(a) Adjustment to Number of Shares Issuable Pursuant to
this Warrant. If a Diluting
Event, as identified in Section 4.2, occurs (unless otherwise
specified in Section 4.2), the Holder
shall thereafter be entitled upon exercise of this Warrant under
Section 2.1 to receive, at the
same Exercise Price per share, the number of shares of Common
Stock calculated by multiplying
the number of shares of Common Stock issuable upon exercise of
this Warrant immediately prior
to such Diluting Event by a fraction (a) the numerator of which
shall be the Market Value
immediately prior to such Diluting Event, and (b) the denominator
of which is (x) the sum of
(i) the number of shares of Common Stock on a Fully Diluted Basis
immediately prior to such
Diluting Event (but not including shares of Common Stock issuable
upon exercise of this
Warrant) multiplied by the Market Value immediately prior to such
Diluting Event plus (ii) the
aggregate consideration, if any, deemed to be received by the
Company upon such Diluting
Event, divided by (y) the total number of shares of Common Stock
on a Fully Diluted Basis
immediately after such Diluting Event (but not including shares
of Common Stock issuable upon
exercise of this Warrant).
<PAGE>
(b) Minimum Adjustment. In the event any adjustment
pursuant to this Section 4.l
shall result in an adjustment of less than 100 shares of Common
Stock, no such adjustment shall
be made, but any such lesser adjustment shall be carried forward
and shall be made at the time
and together with the next subsequent adjustment which, together
with any adjustments so
carried forward, shall amount to 100 or more shares of Common
Stock; provided, however, that
upon any adjustment resulting from (i) the declaration of a
dividend upon, or the making of any
distribution in respect of, any stock of the Company payable in
Common Stock or Convertible
Securities or (ii) the reclassification, by subdivision,
combination or otherwise, of the Common
Stock into a greater or smaller number of shares, the foregoing
figure of 100 shares (or such
figure as last adjusted) shall be proportionately adjusted; and
provided further, that upon exercise
of this Warrant, the Company shall make all necessary adjustments
not theretofore made to the
number of Shares up to and including the date upon which this
Warrant is exercised.
4.2 Diluting Events and Related Matters. Except as
otherwise expressly provided,
upon the occurrence of a Diluting Event, as identified in
subsections (a)-(d) below, the number
of shares subject to this Warrant shall be adjusted as set forth
in Section 4.1:
(a) Issuance of Stock. If the Company shall issue or sell
any shares of Common Stock
(including any treasury shares but excluding (i) any shares
issued pursuant to warrants or options
outstanding on the date hereof (at prices not less than the
prices at which such warrants and
options are exercisable on the date hereof), (ii) any shares
issued pursuant to the Company's
existing incentive stock option plan, directors formula award
plan, directors formula
compensation plan or long term stock investment plan, in each
case as in effect and in an amount
permitted on the date hereof, whether or not options or awards
with respect to such shares have
been granted and (iii) any shares issuable pursuant to an
employee or director stock option plan,
restricted stock bonus or ownership plan, stock appreciation plan
or similar equity appreciation
plan which the Company may implement after receiving the written
approval of a majority of
the Holders in their sole discretion (which approval must include
First Source if First Source is
a Holder) whether or not options or awards with respect to such
shares have been granted) for
consideration per share less than the Market Value in effect
immediately prior to the time of
such issue or sale, then a Diluting Event shall have occurred and
the number of Shares subject
to this Warrant shall be adjusted as set forth in Section 4.1.
(b) Issuance of Warrants, Options or Other Rights.
(i) Characterization of Transaction for
Antidilution Adjustment. In
case the Company shall in any manner grant (whether
directly or by assumption
in a merger or otherwise) any rights to subscribe for
or to purchase, or any
options for the purchase of Common Stock or for the
purchase of Convertible
Securities (but excluding options or awards granted
pursuant to the Company's
existing incentive stock option plan, directors'
formula award plan, directors
formula compensation plan or long term stock investment
plan, in each case as
in effect and in an amount permitted on the date
hereof, or granted pursuant to
an employee or director stock option plan, restricted
stock bonus or ownership
plan, stock appreciation plan or similar equity
appreciation plan which the
Company may implement after receiving the written
approval of a majority of the
Holders in their sole discretion (which approval must
include First Source if First
Source is a Holder) in amounts permitted pursuant to
the approval described
above), whether or not such rights or options or the
right to convert or exchange
any such Convertible Securities are immediately
exercisable, and the price per
share for which shares of Common Stock are issuable
upon the exercise of such
rights or options or upon conversion or exchange of
such Convertible Securities
shall be less than the Market Value existing
immediately prior to the time of such
granting of such rights or options, then a Diluting
Event shall have occurred and
the maximum number of shares of Common Stock issuable
upon the exercise of
such rights or options or upon conversion or exchange
of the maximum amount
of such Convertible Securities issuable upon the
exercise of such rights or options
shall (as of the date for adjustment required by
subsection (h) below) be deemed
to be outstanding and to have been issued for such
price per share. Except as
otherwise specified in Section 4.2 (e), no further
adjustments described in Section
4.1 shall be made upon the actual issuance of such
Common Stock or of such
rights or options or upon the actual issuance of such
Common Stock upon
conversion or exchange of such Convertible Securities.
(ii) Determination of Price. The price per share
for which shares of
Common Stock are issuable upon the exercise of such
rights or options or upon
conversion or exchange of such Convertible Securities
shall be determined by
dividing (1) the total amount, if any, received or
receivable by the Company as
consideration for the granting of such rights or
options, plus the minimum
aggregate amount of additional consideration payable to
the Company upon the
exercise of such rights or options, plus, in the case
of such Convertible
Securities, the minimum aggregate amount of additional
consideration if any,
payable upon the conversion or exchange thereof plus
the net amount received or
receivable upon the issuance of such Convertible
Securities (in each case without
double counting), by (2) the total maximum number of
shares of Common Stock
issuable upon the exercise of such rights or options or
upon the conversion or
exchange of all such Convertible Securities issuable
upon the exercise of such
rights or options.
(c) Issuance of Convertible Securities.
(i) Characterization of Transaction for
Antidilution Adjustment. In
case the Company shall in any manner issue or sell
(whether directly or by
assumption in a merger or otherwise) any Convertible
Securities, (but excluding
options or awards granted pursuant to the Company's
existing incentive stock
option plan, directors' formula award plan, directors
formula compensation plan
or long term stock investment plan, in each case as in
effect and in an amount
permitted on the date hereof, or granted pursuant to an
employee or director stock
option plan, restricted stock bonus or ownership plan,
stock appreciation plan or
similar equity appreciation plan which the Company may
implement after
receiving the written approval of a majority of the
Holders in their sole discretion
(which approval must include First Source if First
Source is a Holder) in amounts
permitted pursuant to the approval described above),
whether or not the rights to
convert or exchange thereunder are immediately
exercisable, and the price per
share for which shares of Common Stock are issuable
upon such conversion or
exchange shall be less than the Market Value existing
immediately prior to the
time of such issuance or sale, then a Diluting Event
shall have occurred and the
maximum number of shares of Common Stock issuable upon
conversion or
exchange of all such Convertible Securities shall (as
of the date for adjustment
required by subsection (h) below) be deemed to be
outstanding and to have been
issued for such price per share. Except as otherwise
specified in Section 4.2(e),
(x) no further adjustments shall be made upon the
actual issue of such Common
Stock upon conversion or exchange of such Convertible
Securities and (y) if any
such issue or sale of such Convertible Securities is
made upon exercise of any
rights to subscribe for or to purchase or any option to
purchase any such
Convertible Securities for which adjustments have been
or are to be made
pursuant to other provisions of Sections 4.1 and 4.2,
no further adjustment shall
be made by reason of such issue or sale.
(ii) Determination of Price. The price per share
for which shares of
Common Stock are issuable upon such conversion or
exchange shall be
determined by dividing (1) the total amount received or
receivable by the
Company as consideration for the issue or sale of such
Convertible Securities,
plus the minimum aggregate amount of additional
consideration, if any, payable
to the Company upon the conversion or exchange thereof,
by (2) the total
maximum number of shares of Common Stock issuable upon
the conversion or
exchange of all such Convertible Securities.
(d) Reorganization, Reclassification, Recapitalization,
Merger or Sale of Company.
In case the Company or a successor thereto issues Common Stock,
options, other rights or
Convertible Securities in connection with any consolidation or
merger of the Company or any
of its Subsidiaries with or into another corporation or in
connection with the sale or other
disposition of all or substantially all of the business or assets
of the Company or any of its
Subsidiaries and the consideration per share realized by the
Company by reason of any such
transaction, determined as applicable in accordance with
subsection (g) of this Section 4.2, is
less than the Market Value in effect immediately prior to such
event, then a Diluting Event shall
have occurred and the number of Shares subject to this Warrant
shall be adjusted as set forth in
Section 4.1.
(e) Readjustments. In the event (i) the purchase price
provided for in any rights or
options referred to in subsection (b) above, or (ii) the
additional consideration, if any, payable
upon the conversion or exchange of Convertible Securities
referred to in subsection (b) or (c)
above or (iii) the rate at which any Convertible Securities
referred to in subsection (b) or (c)
above are convertible into or exchangeable for Common Stock shall
change (other than under
or by reason of provisions designed to protect against dilution),
the number of Shares in effect
at the time of such event shall forthwith be readjusted to the
number of Shares which would have
been in effect at such time had such rights, options or
Convertible Securities still outstanding
provided for such changed purchase price, additional
consideration or exercise rate, as the case
may be, at the time initially granted, issued or sold. On the
expiration of any such option or
right or the termination of any such right to convert or exchange
such Convertible Securities,
the number of Shares then in effect hereunder shall forthwith be
readjusted to the number of
Shares which would have been in effect at the time of such
expiration or termination had such
right, option or Convertible Security never been issued, and the
Common Stock issuable
thereunder shall no longer be deemed to be outstanding.
<PAGE>
(f) Determination of Consideration for Rights or Options.
In case any rights or
options to purchase any shares of Common Stock or Convertible
Securities shall be issued in
connection with the issue or sale of other securities of the
Company, together comprising one
integral transaction, in which no specific consideration is
allocated to the rights or options, such
rights or options shall be deemed to have been issued without
consideration.
(g) Determination of Consideration upon Payment of Cash,
Property or Merger. In
case any shares of Common Stock or Convertible Securities or any
rights or options to purchase
any such Common Stock or Convertible Securities shall be issued
or sold for cash, the
consideration received therefor shall be deemed to be the net
amount received by the Company
therefor, after deduction of any accrued interest, dividends or
any expenses incurred or any
underwriting commissions or concessions paid or allowed by the
Company in connection
therewith. In case any shares of Common Stock or Convertible
Securities or any rights or
options to purchase any such Common Stock or Convertible
Securities shall be issued for a
consideration other than cash, the amount of the consideration
other than cash received by the
Company shall be deemed to be the fair market value of such other
consideration on the date
of issue of such securities, as determined by the Board of
Directors of the Company in the
exercise of their business judgment, less any expenses incurred
by the Company in connection
therewith. In case any shares of Common Stock or Convertible
Securities or any rights or
options to purchase such Common Stock or Convertible Securities
shall be issued in connection
with any merger or consolidation in which the Company and its
Subsidiaries, if applicable,
survive, the amount of consideration therefor shall be deemed to
be the fair market value thereof
on the date of issue, as determined by the Board of Directors of
the Company in the exercise
of their business judgment, or such portion of the assets and
business of the non-surviving
corporation as the Board of Directors shall attribute to such
Common Stock, Convertible
Securities, rights or options, as the case may be. In the event
of any consolidation or merger
of the Company or any of its Subsidiaries in which the Company or
its Subsidiaries, if
applicable, does not survive or in the event of any sale or other
disposition of all or substantially
all of the business or assets of the Company or any of its
Subsidiaries for stock or other
securities of any corporation, the Company shall be deemed to
have issued a number of shares
of its Common Stock for stock or securities of the other
corporation computed on the basis of
the actual exchange ratio on which the transaction was predicated
and for a consideration equal
to the fair market value on the date of such transaction of such
stock or securities of the other
corporation.
(h) Date of Determination. For purposes of Section 4.1 and
4.2, the date as of which
the number of shares shall be adjusted shall be the earlier of
the date upon which the Company
shall (1) enter into a firm contract for the issuance of shares
of Common Stock, rights or other
options or Convertible Securities, as the case may be, or (2)
issue such shares of Common
Stock, rights or other options or Convertible Securities, as the
case may be.
<PAGE>
4.3 Rights of the Holder upon Rights Offering, Mergers,
Reorganizations and Certain
Other Transactions.
(a) Participation in Rights Offerings. In the event the
Company shall effect an
offering of Common Stock or other stock pro rata among its
stockholders, the Holder shall be
entitled, at the Holder's option, regardless of whether the
Warrant is otherwise then exercisable,
in lieu of the adjustments set forth in Sections 4.1 and 4.2 to
the extent that such option is
exercised by the Holder, to elect to participate in each and
every such offering as though this
Warrant had been exercised and the holder were, at the time of
any such rights offering, then
a holder of that number of shares of Common Stock to which the
Holder is then entitled on the
exercise hereof.
(b) Participation in Stock Dispositions. In the event that
the Company shall offer,
approve, accept or recommend an offering, sale, transfer,
redemption, cancellation or other
disposition of Common Stock (including without limitation, by way
of any merger, capital
reorganization, or reclassification or recapitalization of the
capital stock of the Company) to any
person (other than in any offering described in subsection (a)
above) or in the event that the
Company liquidates or dissolves following a sale or transfer of
all or substantially all of its
assets to any entity, the Company shall arrange as part of such
offering, sale or other disposition
for the participation of the Holder, with respect to including
this Warrant or the Shares issuable
upon exercise hereof in such offering, sale or other disposition
upon identical terms, without
such Holder incurring any liability under Section 16(b) of the
Securities Exchange Act of 1934,
as amended, and after taking into account the Exercise Price.
Such participation shall be at the
Holder's option, regardless of whether the Warrant is otherwise
then exercisable, in lieu of the
adjustments set forth in Sections 4.1 and 4.2, to the extent such
option is exercised by the
Holder.
In case of the consolidation or merger of the Company or any
of its Subsidiaries with or
into another corporation (each such event is herein called an
"Organic Change") and in which
the Holder does not participate as contemplated by the preceding
paragraph, then after any
required adjustment on account of such Organic Change, there
shall thereafter be deliverable
upon the exercise of this Warrant or any portion hereof (in lieu
of or in addition to the number
of shares of Common Stock theretofore deliverable) the number of
shares of stock or other
securities or property to which a holder of the number of shares
of Common Stock represented
by that portion of this Warrant so exercised would have been
entitled upon such Organic
Change, and at the same aggregate Exercise Price, as adjusted.
Prior to and as a condition of
the consolidation of any Organic Change described, the Company
shall make appropriate, written
adjustments in the application of the provisions herein set forth
satisfactory to the holders of the
Warrants entitled to not less than a majority of the shares of
Common Stock issuable upon the
exercise thereof with respect to the rights and interests of the
holders of the Warrants so that the
provisions set forth herein shall thereafter be applicable, as
nearly as possible, in relation to any
shares of stock or other securities or other property thereafter
deliverable upon exercise of the
Warrants. Any such adjustment shall be made by and set forth in
a supplemental agreement
between the Company and the successor entity and be approved by
the holders of the Warrants
entitled to not less than a majority of the shares of Common
Stock issuable upon the exercise
thereof.
<PAGE>
(c) Dividends. In case the Company shall declare, in
any 12-month period,
dividends upon the Common Stock (excluding a dividend payable in
Common Stock or
Convertible Securities referred to in subsection (e) below) which
in the aggregate is in excess
of either 50% of net income for such 12-month period or 15% of
the net worth of the Company
(as shown on the most recent year end consolidated balance sheet
to be delivered pursuant to
ARTICLE V hereof) ("Net Worth"), then the Company shall make
provision to pay to Holder,
upon exercise of the Warrant, an amount per share acquired upon
exercise (adjusted in inverse
proportion to any adjustment made thereafter in the number of
shares pursuant to this ARTICLE
IV) the amount equal to the aggregate amount of such dividends in
excess of (x) the lesser of
(a) 50% of net income for such 12-month period and (b) 15% of Net
Worth divided by (y) all
outstanding shares of Common Stock with respect to which such
dividend is payable. Such
provision shall take effect as of the date on which a record date
is established for the purpose
of such dividend, or, if a record date is not established, the
date as of which the holders of
Common Stock of record entitled to such dividend are to be
determined.
(d) Other Distribution. In case the Company shall
distribute or grant to the holders
of shares of Common Stock (whether or not on a pro rata basis)
any evidence of its indebtedness
or any assets (including any such distribution made in connection
with a consolidation or merger
in which the Company is the continuing corporation) or rights or
options to subscribe or
purchase any such evidence of its indebtedness or assets
(excluding rights or options to subscribe
or purchase Common Stock or Convertible Securities), then the
Company shall make provision
to pay to Holder, upon exercise of the Warrant, an amount per
share acquired upon exercise
(adjusted in inverse proportion to any adjustment made thereafter
in the number of shares
pursuant to this ARTICLE IV) the amount equal to the aggregate
amount of such distribution
or grant in excess of (x) the lesser of (a) 50% of net income for
such 12-month period and (b)
15% of Net Worth divided by (y) all outstanding shares of Common
Stock with respect to which
such distribution or grant is payable. Such provision shall take
effect as of the date on which
a record date is established for the purpose of such distribution
or grant, or, if a record date is
not established, the date as of which the holders of Common Stock
of record entitled to such
distribution or grant are to be determined.
(e) Dividends in Securities; Splits and Combinations. In
case the Company shall at
any time (i) declare a dividend or make any other distribution
upon any stock of the Company
payable in either case in Common Stock or Convertible Securities,
(ii) subdivide its outstanding
shares of Common Stock into a greater number of shares or (iii)
combine its outstanding shares
of Common Stock into a smaller number of shares, then the
Exercise Price in effect immediately
prior to such events shall be adjusted as follows: the Exercise
Price in effect immediately after
such event shall equal the product of (a) the Exercise Price in
effect immediately prior to such
event and (b)(i) the number of outstanding shares of Common Stock
immediately prior to such
event, divided by (ii) the number of outstanding shares of Common
Stock immediately after such
event. The number of shares of Common Stock issuable upon the
exercise of the Warrant
immediately after such event shall equal the product of (c) the
number of shares of Common
Stock issuable upon the exercise of the Warrant immediately prior
to such event and (d) (i) the
number of outstanding shares of Common Stock immediately after
such event, divided by (ii)
the number of shares of outstanding Common Stock immediately
prior to such event.
<PAGE>
(f) Record Date. In case the Company shall establish a
record date of the holders
of the Common Stock for the purpose of entitling them (i) to
receive a dividend or other
distribution payable in Common Stock or in Convertible Securities
or (ii) to subscribe for or
purchase Common Stock or Convertible Securities, then effective
as of such record date such
Common Stock or Convertible Securities shall be deemed to have
been issued or sold.
Appropriate readjustment of the Exercise Price shall be made in
the event that any dividend,
distribution or subscription referred to in this subsection (f)
shall be lawfully abandoned.
(g) Shares Outstanding. Except as provided to the contrary
herein, the number of
shares of Common Stock deemed to be outstanding for purposes of
Section 4.3(c), (d) and (e)
at any given time shall be the number of shares of Common Stock
actually issued and
outstanding at such time, plus any shares of Common Stock
issuable in respect of scrip
certificates which have been issued in lieu of fractional shares
of Common Stock.
4.4 Certificates, Notices and Consents.
(a) Upon the occurrence of any Diluting Event requiring
adjustments of the Exercise
Price pursuant to Sections 4.1, 4.2 and/or 4.3, a certificate
signed (i) by the President or a Vice
President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant
Secretary of the Company or (ii) by any independent firm of
certified public accountants of
recognized standing selected by, and at the expense of, the
Company setting forth in reasonable
detail the events requiring the adjustment and the method by
which such adjustment was
calculated, shall be mailed (by first class mail, postage
prepaid) to the Holder specifying the
adjusted Exercise Price after giving effect to the adjustment(s).
The certificate of any independent firm of certified public
accountants of recognized
standing selected by the Board of Directors of the Company and
reasonably acceptable to the
Holder shall be conclusive evidence, absent manifest error, of
the correctness of any
computation made under Sections 4.1, 4.2 and/or 4.3.
(b) In case the Company after the date hereof shall propose
to (i) pay any dividend
payable in stock to the holders of shares of Common Stock or to
make any other distribution to
the holders of shares of Common Stock, (ii) offer to the holders
of shares of Common Stock
rights to subscribe for or purchase any additional shares of any
class of stock or any other rights
or options or (iii) effect any reclassification involving merely
the subdivision or combination of
outstanding shares of Common Stock, or (iv) any capital
reorganization or any consolidation or
merger, or any sale or other disposition of all or substantially
all of the business or assets of the
Company, or the liquidation, dissolution or winding up of the
Company or (v) engage in any
Diluting Event not otherwise mentioned in this subsection (b),
then, in each such case, the
Company shall mail (by first class mail, postage prepaid) to the
Holder notice of such proposed
action, which shall specify the date on which the books of the
Company shall close, or a record
date shall be established, for determining holders of Common
Stock entitled to receive such
stock dividends or other distribution of such rights or options,
or the date on which such
reclassification, reorganization, consolidation, merger, sale,
transfer, other disposition,
liquidation, dissolution or winding up shall take place or
commence, as the case may be, and
the date as of which it is expected that holders of Common Stock
of record shall be entitled to
receive securities or other property deliverable upon such
action, if any such date is to be fixed.
Such notice shall be mailed, in the case of any action covered by
clause (i) or (ii) above, at least
30 days prior to the date upon which such action takes place,
and, in the case of any action
covered by clause (iv) above, at lease 30 days prior to the date
upon which such action takes
place and 30 days prior to any record date to determine holders
of Common Stock entitled to
receive such securities or other property.
<PAGE>
(c) Failure to file any certificate or notice or to mail
any notice, or any defect in any
certificate or notice, pursuant to this Section 4.4, shall not
affect the legality or validity of the
adjustment of the number of shares purchasable upon exercise of
this Warrant, or any transaction
giving rise thereto.
4.5 No Adjustment After Exercise. After this Warrant is
exercised in whole or in
part, the holder of any Common Stock so acquired shall not be
entitled to any adjustment in the
price or number of shares so acquired by reason of any subsequent
occurrence which would
result in an adjustment of the Exercise Price, number of shares
or other adjustments by operation
of this Article IV.
ARTICLE V
COVENANTS OF THE COMPANY
5.1 No Impairment. The Company shall not, and shall not
permit its Subsidiaries
to, directly or indirectly, by any action, including, without
limitation, amending its Certificate
of Incorporation or through any reorganization, transfer of
assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant,
but will at all times in good faith
assist in the carrying out of all such terms and in the taking of
all such action as may be
necessary or appropriate to protect the rights of the Holder
against impairment. Without limiting
the generality of the foregoing, the Company will (a) not
increase the par value of any shares
of Common Stock receivable upon the exercise of this Warrant
above the amount payable
therefor upon such exercise, (b) take all such action as may be
necessary or appropriate in order
that the Company may validly and legally issue fully paid and
nonassessable shares of Common
Stock upon the exercise of this Warrant and any required issuance
of additional shares of
Common Stock pursuant to Sections 4.1 and 4.2, (c) obtain all
such authorizations, exemptions
or consents from any public regulatory body having jurisdiction
thereof as may be necessary to
enable the Company to perform its obligations under this Warrant
(except that compliance with
applicable securities and blue sky laws shall be governed by the
provisions of Article VIII of this
Warrant), (d) not undertake any reverse stock split, combination,
reorganization or other
reclassification of its capital stock which would have the effect
of making this Warrant
exercisable for less than one share of Common Stock, (e) not take
or permit the taking of any
action which could subject the holder of this Warrant or shares
of Common Stock issuable upon
exercise thereof to liability under Section 16(b) of the
Securities Exchange Act of 1934, as
amended, and (f) not change the Company's fiscal year from a
fiscal year ended at the end of
October.
5.2 Affirmative Covenants. So long as the Holder is the
owner of or is entitled
upon the due exercise hereof during the Exercise Period to
purchase at least 1,039,500 shares
of the Company's Common Stock, the Company shall comply with the
requirements of this
Section 5.2:
<PAGE>
5.2.1 Delivery of Financial and Business
Information. The Company will
deliver to the Holder:
(a) As soon as practicable after the end of each of the
first three Quarterly Fiscal
Periods in each fiscal year of the Company, and in any event
within 45 days thereafter, two
copies of:
(i) a consolidated balance sheet of the Company and
its Subsidiaries as at
the end of such quarter, and
(ii) consolidated statements of income, retained
earnings and cash flow of
the Company and its Subsidiaries for such quarter and (in
the case of the second and
third quarters) for the portion of the fiscal year ending
with such quarter, setting forth
in each case in comparative form the figures for the
corresponding periods in the
previous fiscal year. Such statements shall be (1) prepared
in accordance with generally
accepted accounting principles consistently applied, (2) in
reasonable detail and (3)
certified as complete and correct by the principal financial
or accounting officer of the
Company;
(b) As soon as practicable after the end of each fiscal
year of the Company, and in
any event within 90 days thereafter, two copies of:
(i) a consolidated balance sheet of the Company and
its Subsidiaries as at
the end of such year, and
(ii) consolidated statements of income, retained
earnings and cash flow of
the Company and its Subsidiaries for such year;
setting forth in each case in comparative form the figures for
the previous fiscal year, all in
reasonable detail and accompanied by a report thereon by a firm
of independent certified public
accountants of recognized standing selected by the Company, which
report shall state that such
financial statements fairly present the financial position of the
company being reported upon at
the end of such year and the results of its operations and
changes in its financial position for
such year in conformity with generally accepted accounting
principles applied consistently
(except for changes in accounting principles with which such
accountants concur) and that their
examination of such financial statements has been made in
accordance with generally accepted
auditing standards and accordingly included such tests of the
accounting records and other
auditing procedures as they considered necessary in the
circumstances;
(c) Promptly upon their becoming available one copy of each
report, notice or proxy
statement sent by the Company to its stockholders generally, and
of each regular or periodic
report (pursuant to the Securities Exchange Act of 1934, as
amended) and any registration
statement, prospectus or written communication (other than
transmittal letters) (pursuant to the
Securities Act), filed by the Company with (i) the Commission or
(ii) any securities exchange
on which shares of the Common Stock are listed;
(d) With reasonable promptness, such other data and
information as from time to time
may be reasonably requested by the Holder; and
<PAGE>
(e) Promptly upon, and in any event within 10 days after,
the adoption, initiation or
undertaking of any plan, arrangement, negotiations, intention or
commitment to enter into any
of the transactions described in Sections 4.1, 4.2, or 4.3,
notice of any such transactions,
including information in reasonable detail pertaining to the
terms, conditions and consummation
of any such transactions.
5.2.2 Disputed Financial Statements. If the Common
Stock of the Company
is not then listed or admitted to trading on a stock exchange nor
reported by NASDAQ, the
Holder shall have the right at any time after receipt thereof to
object to any financial statements
delivered to the Holder pursuant to subsections (a) or (b) of
Section 5.2.1 by specifying in
writing to the Company the nature of its objection, and, unless
such objection is resolved by
agreement of the Company and the Holder, the Company and the
Holder shall each have the
right to submit the disputed financial statements to separate
firms of independent accountants of
recognized standing for a joint resolution (based upon written
submissions) of the objection of
the Holder (which firms of independent accountants may, in either
case, be the firm of
accountants regularly retained by the Company or the Holder). If
such firms cannot jointly
resolve the objection of the Holder, then, unless otherwise
directed by agreement of the
Company and the Holder, such firms shall in their sole discretion
choose another firm of
independent certified public accountants of recognized standing
not the regular auditor of the
Holder or of the Company, which firm shall resolve such
objection. In either case, the
determination so made shall be conclusive and binding on the
Company solely for purposes of
this Warrant, the Holder and all persons claiming under or
through either of them, and any
adjustment in the disputed financial statements and the Common
Stock Valuation Price resulting
from such determination shall be made. The cost of any such
determination shall be borne by
the Company if it results in an increase in the applicable Common
Stock Valuation Price or by
the Holder if it results in no adjustment or a decrease in the
Common Stock Valuation Price;
5.2.3 Budget. The Company will deliver to the Holder
not less than thirty (30)
days prior to the commencement of each fiscal year, an annual
business plan, including a budget
and detailed financial projections for the Company and its
Subsidiaries (the "Budget"), all in
reasonable detail, together with underlying assumptions and
approved by a majority of the entire
Board;
5.2.4 Auditors' Reports. The Company will deliver to
the Holder promptly
upon receipt thereof, copies of all other material reports, if
any, submitted to the Company by
independent public accountants in connection with any annual or
interim audit of the books of
the Company and its Subsidiaries made by such accountants;
5.2.5 Lender Information. The Company will deliver to
the Holder a copy
of each material financial statement, report, notice or
communication that the Company or any
Subsidiary delivers to any of their lenders or creditors;
<PAGE>
5.2.6 Litigation. The Company will deliver to the
Holder promptly upon the
Company's learning thereof, notice of any litigation, suit or
administrative proceeding that could
reasonably be expected to have a material adverse affect on the
Company's or any Subsidiary's
business, affairs, assets, prospects, operations, employee
relations or condition, financial or
otherwise, whether or not the claim is considered by the Company
to be covered by insurance;
5.2.7 Default. The Company will deliver to the Holder
notice of any default
under any senior or subordinated loan agreements promptly upon
the occurrence thereof;
5.2.8 Material Adverse Developments. The Company will
deliver to the
Holder promptly upon the occurrence thereof, notice of any event
which has had, or could
reasonably be expected to have, a material adverse impact on the
business, affairs, assets,
prospects, operations, employee relations or condition, financial
or otherwise, of the Company
or any Subsidiary, including, without limitation, the institution
or threat of any material litigation
or investigation with respect to the Company or any Subsidiary;
5.2.9 Other Information. The Company will deliver to
the Holder with
reasonable promptness, all press releases issued by the Company
or any Subsidiary, any filings
made with the Commission by the Company or any Subsidiary and
such other data and
information as from time to time may be reasonably requested by
the Holder or such other data
as the Company may from time to time furnish to any of the
holders of its securities;
5.2.10 Auditors. The Company will deliver to the
Holder promptly after the
occurrence thereof, notice of the engagement or termination of
any individual or firm that
provides accounting advice to the Company;
5.2.11 Inspection and Meeting Rights; Budget Review.
The Company will
permit First Source to visit and inspect the properties of the
Company and its Subsidiaries,
including, without limitation, its and their books and records
(and to make extracts therefrom)
and to discuss its and their affairs, finances and accounts with
its and their officers and
personnel, all at such reasonable times and as often as such
party may reasonably request. First
Source also shall have the right to meet with the Company's key
management, including, without
limitation, the Company's Chief Executive Officer and Chief
Financial Officer, on a quarterly
basis, to discuss the state of the Company's finances, business
operations and prospects, and any
other matters relating to the affairs of the Company and its
Subsidiaries;
5.2.12 Accounting. The Company will maintain and will
cause each of its
Subsidiaries to maintain a system of accounting established and
administered in accordance with
GAAP and all financial statements or information delivered under
Section 5.2.1(a) and (b) (in
the case of 5.2.1(b) exclusive of footnote disclosures) will be
prepared in accordance with
GAAP;
5.2.13 Insurance. The Company agrees to maintain or
cause to be maintained,
with financially sound and reputable insurers, insurance with
respect to its assets and business
and the assets and business of its Subsidiaries against loss or
damage of the kinds customarily
insured against by similarly situated corporations of established
reputation engaged in the same
or similar businesses, in adequate amounts, and at the request of
the Holder shall furnish the
Holder with evidence of the same;
<PAGE>
5.2.14 Payment of Taxes. The Company agrees to pay or
cause to be paid all
taxes, assessments and other governmental charges levied upon any
of its assets or those of its
Subsidiaries or in respect of its or their respective franchises,
businesses, income or profits,
which if unpaid might become a lien upon any asset of the Company
or any Subsidiary, before
the same become delinquent, except that (unless and until
foreclosure, distraint, sale or other
similar proceedings shall have been commenced) no such charge
need be paid if being contested
in good faith and by appropriate measures promptly initiated and
diligently conducted if (a) a
reserve or other appropriate provision, if any, as shall be
required by sound accounting practice
shall have been made therefor, and (b) such contest does not have
a material adverse effect on
the financial condition of the Company and no material assets are
in imminent danger of
forfeiture;
5.2.15 Compliance With Laws. The Company agrees to use
its best efforts to
comply, and shall use its best efforts to cause each Subsidiary
to comply, with all laws, rules,
regulations, judgments, orders and decrees of any governmental or
regulatory authority
applicable to it and its respective assets, and with all
contracts, and agreements to which it is
a party or shall become a party, and to perform all obligations
which it has or shall incur, the
violation of which would reasonably be anticipated to have a
material adverse effect on the
business, affairs, assets, prospects, operations or condition,
financial or otherwise, of the
Company and its Subsidiaries taken as a whole;
5.2.16 Preservation of Corporate Existence and
Property; Operations. The
Company agrees to preserve, protect, and maintain, and cause each
Subsidiary to preserve,
protect, and maintain, (a) its corporate existence, and (b) all
rights, franchises, accreditations,
privileges, and properties the failure of which to preserve,
protect, and maintain would
reasonably be anticipated to have a material adverse effect on
the business, affairs, assets,
prospects, operations, or condition, financial or otherwise, of
the Company and its Subsidiaries
taken as a whole;
5.2.17 Holder as Observer. The Company agrees at all
times to permit a
representative of Holder to attend and observe all meetings of
Company's Board of Directors
and each committee thereof, and cause Holder to receive
reasonably adequate notice of all such
meetings; provided, however, that Holder shall not be entitled to
attend or observe any portion
of a meeting relating solely and exclusively to action proposed
to be taken by Company with
respect to Company's relationship with Holder. The Company
acknowledges and agrees that
attendance by a designee of Holder at any meeting of Company's
Board of Directors or any
committee thereof shall not constitute approval by Holder of or
consent by Holder to any action
authorized at such meeting, or constitute a waiver or
modification of any provision of this
Warrant or any right hereunder. The Company agrees to reimburse
Holder for all reasonable
travel, lodging, and meal expenses incurred in connection with
the foregoing; and
5.2.18 Confidential Information. Holder acknowledges
that pursuant to the
provisions of this Section 5.2, Holder may receive insider
information concerning the Company
which Holder may be precluded from acting upon by applicable
securities and other laws.
Except as otherwise required by law or judicial order or decree
or by any governmental agency
or authority, each Person entitled to receive information
regarding the Company and its
Subsidiaries under this Section 5.2 shall use its best efforts to
maintain the confidentiality of all
nonpublic information obtained by it hereunder; provided that
each such Person may disclose
such information in connection with the sale or transfer or
proposed sale or transfer of this
Warrant or of any Common Stock, provided such Person's transferee
or proposed transferee
agrees in writing to be bound by the provisions of this Warrant
and such disclosure would not
materially and adversely affect the Company.
ARTICLE VI
RESERVATION OF S TOCK ISSUABLE
ON EXERCISE OF
WARRANT; PREEMPT IVE RIGHTS
The Company will at all times reserve and keep available,
solely for issuance, sale and
delivery upon the exercise of this Warrant, a number of shares of
Common Stock equal to the
number of full shares of Common Stock issuable upon the exercise
of this Warrant. All shares
of Common Stock issuable upon the exercise of this Warrant shall,
when issued upon such
exercise, (a) be duly and validly authorized and issued, fully
paid and nonassessable, and (b) be
free from all taxes, liens and charges with respect to the issue
thereof other than any stock
transfer taxes in respect of any transfer occurring
contemporaneously with such issue. No
stockholder of the Company has or shall have any preemptive
rights to subscribe for such shares
of Common Stock.
ARTICLE VII
LISTING ON SECURITIES EXCHANGE
If the Company shall list any shares of Common Stock on any
securities exchange, it will
during the Exercise Period, at its expense, list thereon,
maintain and, when necessary, increase
such listing of, all shares of Common Stock issued or, to the
extent permissible under the rules
of the applicable securities exchange or automated quotation
system, issuable upon the exercise
of this Warrant so long as any shares of Common Stock shall be so
listed.
ARTICLE VIII
RESTRICTIONS ON TRANSFER
The conditions contained in the following sections of this
ARTICLE VIII are intended
to insure compliance with the Securities Act in respect of the
transfer of Warrants or Common
Stock issuable upon the exercise of Warrants. Reference in this
ARTICLE VIII to shares of
Common Stock issuable upon the exercise of Warrants includes
shares of Common Stock
theretofore issued upon the exercise of any Warrants which are
then evidenced by certificates
required to bear the legend set forth in Section 8.6.
8.1 Notice of Proposed Transfer; Transfers Without
Registration. The Holder or the
holder of any shares of Common Stock issuable upon the exercise
of this Warrant, by acceptance
hereof or thereof, agrees to give written notice to the Company,
prior to any transfer of this
Warrant, such shares of Common Stock or any portion thereof which
bear the legend described
in Section 8.6, of its intention to make such transfer, which
notice shall include a brief
description of such proposed transfer. A copy of such notice
shall be sent to Independent
Counsel.
<PAGE>
If in the opinion of Independent Counsel the proposed
transfer may be effected without
registration or qualification under any Federal or State law,
such counsel shall, as promptly as
practicable, notify the Company and the Holder of such opinion
and of the terms and conditions,
if any, to be observed in such transfer, whereupon the Holder
shall be entitled to transfer such
shares of Common Stock in accordance with the terms of the notice
delivered to the Company
and the opinion of Independent Counsel. In the event this Warrant
shall be exercised as an
incident to such transfer, such exercise shall relate back and
for all purposes of this Warrant be
deemed to have occurred as of the date of such notice regardless
of delays incurred by reason
of the provisions of this ARTICLE VIII which may result in the
actual exercise on any later
date.
8.2 Registration and Qualification. The provisions of
Section 8.2 (a), 8.2 (b), and
8.9 below are subject to the terms of the First Amended and
Restated Registration Rights
Agreement, dated as of July 1, 1988 (the "Original Registration
Agreement"), among the
Company, First Source and the stockholders listed therein, as the
same may be amended,
modified or supplemented from time to time with the consent
required by Section 8.11 (the
"Registration Agreement"), and if, prior to an amendment of the
Original Registration
Agreement as amended by any effective amendment thereof, any
conflict exists between the
provisions of the Original Registration Agreement as amended by
any effective amendment
thereof, and Section 8.2 (a), 8.2 (b) and 8.9, the applicable
conflicting provisions of the Original
Registration Agreement as amended by any effective amendment
thereof shall control, but only
to the extent of the conflict, and the holder of any Warrant and
the shares of Common Stock
issuable upon exercise thereof shall have the applicable
conflicting rights contained in the
Original Registration Agreement as amended by any effective
amendment thereof but only to the
extent of the conflict, until such time as the Original
Registration Agreement as amended by any
effective amendment thereof is so amended.
(a) Piggyback Registration. If the Company proposes
(whether on its own behalf or
at the request of any other person or entity) to register any
security under the Securities Act on
any registration form (otherwise than for the registration of
securities to be offered and sold
pursuant to (a) an employee benefit plan, (b) a dividend or
interest reinvestment plan, (c) other
similar plans or (d) reclassifications of securities, mergers,
consolidations and acquisitions of
assets on Form S-4 or any successor thereto) prescribed by the
Commission permitting a
secondary offering or distribution, not less than 60 days prior
to each such registration, the
Company shall give to the holders of the Warrants or shares of
Common Stock issuable upon
the exercise thereof written notice of such proposal which shall
describe in detail the proposed
registration and distribution (including those jurisdictions
where registration or qualification
under the securities or blue sky laws is intended) and, upon the
written request of any holder
of a Warrant or shares of Common Stock issuable upon the exercise
thereof given within 30 days
after the date of any such notice, proceed to include in such
registration such shares of Common
Stock as have been requested by any such holder to be included in
such registration; provided,
however, that the Company shall not be required to include fewer
than 50,000 shares (subject
to adjustment upon any combination or split of shares or similar
event) of Common Stock in any
such registration pursuant to this Section 8.2(a). Any holder of
a Warrant or shares of Common
Stock issuable upon the exercise thereof shall in its request
describe briefly the proposed
disposition of such shares of Common Stock. The Company will in
each instance use its best
efforts to cause any shares of Common Stock issuable upon the
exercise of the Warrants (the
holders of which shall have so requested registration thereof) to
be registered under the
Securities Act and qualified under the securities or blue sky
laws of any jurisdiction requested
by a prospective seller, all to the extent necessary to permit
the sale or other disposition thereof
(in the manner stated in such request) by a prospective seller of
the securities so registered.
If the managing underwriter, who shall be selected by the
Company (subject to the
approval, not unreasonably withheld, of a majority of the holders
that have requested registration
(which must include First Source if First Source is then a holder
and requesting registration))
to manage the distribution of the shares of Common Stock being
registered, advises the
Company in writing that, in its opinion, the inclusion of the
shares of Common Stock requested
to be included in such registration by a holder of a Warrant or
shares of Common Stock issuable
upon the exercise thereof with the securities being registered by
the Company and other
prospective sellers would materially adversely affect the
distribution of all such securities, then:
(a) (i) if such registration has been initially proposed by the
Company, the Company shall
include in such registration the number of shares proposed to be
registered by the Company and
by the holders of the Warrants or shares of Common Stock issuable
upon the exercise thereof
before including any other securities in the registration, and,
if an additional reduction in the
number of securities being registered is necessary, the Company
shall include in such
registration such shares of the Company and the holders of the
Warrants or shares of Common
Stock issuable upon the exercise thereof pro rata based on the
number of shares originally
proposed to be registered by the Company and by the holders of
the Warrants or shares of
Common Stock issuable upon the exercise thereof or (ii) if such
registration has been initially
proposed by a holder of securities other than the Company or the
holders of Warrants or shares
of Common Stock issuable upon exercise thereof, the Company shall
include in such registration
the number of shares proposed to be registered by such other
holder and the holders of Warrants
or shares of Common Stock issuable upon exercise thereof before
including any other securities
in the registration and, if an additional reduction in the number
of securities being registered is
necessary, the Company shall include in such registration such
shares of such other holder and
the holders of Warrants or shares of Common Stock issuable upon
exercise thereof pro rata
based on the number of shares originally proposed to be
registered by such other holder and by
each holder of Warrants or shares of Common Stock issuable upon
exercise thereof; or (b) any
holder of a Warrant or shares of Common Stock issuable upon the
exercise thereof may, at its
sole option, delay its offering and sale for a period not to
exceed 120 days after the effective
date of such registration as such managing underwriter shall
reasonably request. In the event
of such delay, the Company: (i) shall use its best efforts to
effect any registration or qualification
under the Securities Act and the securities or blue sky laws of
any jurisdiction as may be
necessary to permit such prospective seller to make its proposed
offering and sale following the
end of such period of delay; and (ii) during such period of delay
and for at least 90 days
thereafter, shall not file or cause to be effected any other
registration of its capital stock or
securities convertible into or exchangeable or exercisable for
any such capital stock, whether on
its own behalf or at the request of any other person or entity,
and shall not sell any shares of
its capital stock or securities convertible into or exchangeable
or exercisable for any such capital
stock.
<PAGE>
The holder of a Warrant or shares of Common Stock issuable
upon the exercise thereof
who has requested shares of Common Stock to be included in a
registration pursuant to this
Section 8.2(a) by acceptance hereof or thereof, agrees to execute
an underwriting agreement with
such underwriter that is (i) reasonably satisfactory to such
holder and (ii) in customary form.
Nothing in this Section 8.2(a) shall be deemed to require
the Company to proceed with
any registration of its securities after giving the notice herein
provided.
(b) Demand Registration. The holders of the Warrants and
of any shares of Common
Stock issuable upon the exercise thereof may, on up to four
separate occasions (unless such
request is withdrawn in accordance with the terms hereof) (the
"Demands"), require the
Company to effect the registration of the Shares pursuant to the
provisions of this Section 8.2(b).
Such Demands shall consist of two demands for which the Company
shall pay all the fees and
expenses as set forth in Section 8.4 (the "Free Demands") and two
demands for which the
holders shall pay their proportionate share of the fees and
expenses set forth in Section 8.4 (the
"Charged Demands"). If the holders of the Warrants and of any
shares of Common Stock
issuable upon the exercise thereof representing a total of more
than 50% of the shares of
Common Stock then issued and issuable upon the exercise of the
Warrants (which must include
First Source if First Source is then a holder) shall give notice
to the Company to the effect that
such holders intend to (i) transfer all or any part of the Shares
or (ii) exercise all or any part of
the Warrants and transfer all or any part of the Shares under
such circumstances that a public
distribution (within the meaning of the Securities Act) of the
Shares will be involved, then the
Company shall (A) within 10 days after receipt of such notice,
give written notice of the
proposed registration to the other holders of Warrants and shares
of Common Stock issuable
upon exercise thereof, and (B) within 30 days after receipt of
such notice, file a registration
statement pursuant to the Securities Act to the effect that such
shares may be sold under the
Securities Act as promptly as is practicable thereafter and the
Company will use its best efforts
to cause any such registration to become effective and to keep
the prospectus included therein
current for at least six months after the effective date thereof
or until the distribution shall have
been completed, whichever first occurs; provided, however, that
such holders shall furnish the
Company with such appropriate information (relating to the
intention of such holders) in
connection therewith as the Company may reasonably request in
writing; and provided, further,
that the Company shall not be required to register fewer than
200,000 (subject to adjustment
upon any combination or split of shares or similar event) shares
of Common Stock in any
registration pursuant to this Section 8.2(b). As long as the
Company is not in default on its
obligations under Section 5.2.1(a) and (b), the Company's
obligation to file a registration
statement, at any time when it is impossible or impracticable to
include the Company's fiscal
year-end financial statements as the most recent certified
financial statements required to be
included therein, shall be suspended until the Company's next
fiscal year-end financial statements
are due in accordance with Section 5.2.1(b), unless the request
for registration pursuant to this
Section 8.2(b) has been withdrawn. The managing underwriter for
offerings made pursuant to
this Section 8.2(b) shall be selected by the parties requiring
registration hereunder (which must
include First Source if First Source is then a holder and
requesting registration), subject to the
consent, not unreasonably withheld, of the Company.
<PAGE>
If the managing underwriter for any offering made pursuant
to this Section 8.2(b) advises
the Company in writing that, in its opinion, the inclusion of all
of the shares of Common Stock
requested to be included in such registration by the holders of
Warrants and shares of Common
Stock issuable upon the exercise thereof would materially
adversely affect the distribution of all
such securities, then (a) there shall be included in such
registration shares of the holders of
Warrants or shares of Common Stock issuable upon the exercise
thereof pro rata based on the
number of shares originally proposed to be registered by each
holder of Warrants or shares of
Common Stock issuable upon the exercise thereof or (b) any holder
of a Warrant or shares of
Common Stock issuable upon the exercise thereof may, at its sole
option, delay its offering and
sale for a period not to exceed 120 days after the effective date
of such registration as such
managing underwriter shall reasonably request. In the event of
such delay, the Company (i)
shall use its best efforts to effect any registration or
qualification under the Securities Act and
the securities or blue sky laws of any jurisdiction as may be
necessary to permit such prospective
seller to make its proposed offering and sale following the end
of such period of delay; and (ii)
during such period of delay and for at least 90 days thereafter,
shall not file or cause to be
effected any other registration of its capital stock or
securities convertible into or exchangeable
or exercisable for any such capital stock, whether on its own
behalf or at the request of any
other person or entity, and shall not otherwise sell any of its
capital stock or securities
convertible into or exchangeable or exercisable for any such
capital stock. A registration shall
not reduce the number of Demands available to the holders under
this Section 8.2(b) until such
registration has become effective and the holders of the Warrants
or shares of Common Stock
issuable upon the exercise thereof participating in the demand
registration are able to register
and sell at least 80% of the shares of Common Stock originally
requested to be included in such
registration; provided, however, that if in connection with a
proposed Demand made pursuant
to Section 8.2(b) the holders of the Warrants or shares of Common
Stock issuable upon the
exercise thereof participating in the demand registration are
able to register and sell more than
50% but less than 80% of the shares of Common Stock originally
requested to be included in
such registration, the number of Free Demands shall be reduced by
one, and the number of
Charged Demands shall be increased by one.
8.3 Registration and Qualification Procedures. Whenever
the Company is required
by the provisions of Section 8.2 to use its best efforts to
effect the registration of any of its
securities under the Securities Act, the Company will, as
expeditiously as is possible:
(a) prepare and file with the Commission a registration
statement with respect to such
securities;
(b) prepare and file with the Commission such amendments
and supplements to such
registration statement and the prospectus used in connection
therewith as may be necessary to
keep such registration statement effective and the prospectus
current and to comply with the
provisions of the Securities Act with respect to the sale of all
securities covered by such
registration statement whenever the seller of such securities
shall desire to sell the same,
including the offering or sale of such securities on a continuous
or delayed basis pursuant to
Rule 415 under the Securities Act as the same shall be in effect
from time to time;
<PAGE>
(c) furnish to each seller such number of copies of
preliminary prospectuses and
prospectuses and each supplement or amendment thereto and such
other documents as each seller
may reasonably request in order to facilitate the sale or other
disposition of the securities owned
by such seller in conformity with (i) the requirements of the
Securities Act and (ii) the seller's
proposed method of distribution;
(d) register or qualify the securities covered by such
registration statement under the
securities or blue sky laws of such jurisdictions within the
United States as each seller shall
reasonably request, and do such other reasonable acts and things
as may be required of it to
enable each seller to consummate the sale or other disposition in
such jurisdictions of the
securities owned by such seller; provided, however, that the
Company shall not be required to
(i) qualify as a foreign corporation or consent to a general and
unlimited service of process in
any such jurisdictions, (ii) qualify as a dealer in securities or
(iii) register or qualify at its own
expense securities of such seller in any jurisdiction not
described in the notice of the Company
referred to in the first paragraph of Section 8.2(a), in any case
in order to accomplish any of the
foregoing;
(e) furnish, at the request of any seller on the date such
securities are delivered to the
underwriters for sale pursuant to such registration or, if such
securities are not being sold
through underwriters, on the date the registration statement with
respect to such securities
becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for
the purposes of such registration, addressed to the underwriters,
if any, and to the seller making
such request, covering such legal matters with respect to the
registration in respect of which such
opinion is being given as the seller of such securities may
reasonably request and are customarily
included in such opinion and (ii) letters, dated, respectively,
(1) the effective date of the
registration statement and (2) the date such securities are
delivered to the underwriters, if any,
for sale pursuant to such registration, from a firm of
independent certified public accountants
of recognized standing selected by the Company, addressed to the
underwriters, if any, and to
the seller making such request, covering such financial,
statistical and accounting matters with
respect to the registration in respect of which such letters are
being given as the seller of such
securities may reasonably request and are customarily included in
such letters;
(f) otherwise use its best efforts to comply with all
applicable rules and regulations
of the Commission, and make available to its security holders as
soon as reasonably practicable,
but not later than 16 months after the effective date of the
registration statement, an earnings
statement covering a period of at least 12 months beginning after
the effective date of the
registration statement, which earnings statement shall satisfy
the provisions of Section 11(a) of
the Securities Act;
(g) enter into and perform an underwriting agreement with
the managing underwriter,
if any, selected as provided in Section 8.2, as the case may be,
containing customary terms of
offer and sale of the securities, payment provisions,
underwriting discounts and commissions,
representations, warranties, covenants, indemnities, terms and
conditions; and
(h) keep each seller advised in writing as to the
initiation and progress of any
registration under Section 8.2, as the case may be.
<PAGE>
8.4 Allocation of Expenses. If the Company is required by
the provisions of Section
8.2 to use its best efforts to effect the registration or
qualification under the Securities Act or
any state securities or blue sky laws of any of the shares of
Common Stock issuable upon the
exercise of the Warrants, the Company will pay all expenses in
connection therewith, including,
without limitation, (a) all expenses incident to filing with the
National Association of Securities
Dealers, Inc., (b) registration fees, (c) printing expenses, (d)
the Company's accounting and
legal fees and expenses, (e) expenses of any special audits
incident to or required by any such
registration or qualification, (f) premiums for insurance in such
amount, if any, deemed
appropriate by the managing underwriter and (g) expenses of
complying with the securities or
blue sky laws of any jurisdictions in connection with such
registration or qualification; provided,
however, that the holders of any Warrant or shares of Common
Stock issuable upon exercise
thereof participating in a Charged Demand shall be liable for the
amount of such expenses in
connection with such Charged Demand made pursuant to Section
8.2(b) equal to the product of
(a) all such expenses and (b) the proportion which the number of
shares of Common Stock
issuable upon exercise of the Warrants for which registration has
become effective and which
are sold pursuant to Section 8.2(b) bears to the total number of
all shares included in such
registration; and provided, further, that the Company shall not
be liable for (1) any discounts
or commissions to any underwriter or (2) any stock transfer taxes
incurred in respect of the
shares of Common Stock issuable upon the exercise of the Warrants
sold by the sellers.
8.5 Indemnification. In connection with any registration or
qualification of securities
under Section 8.2 or 8.3, the Company hereby indemnifies the
Holder and the holders of any
shares of Common Stock issuable upon the exercise of the Warrants
and each underwriter
thereof, including each person, if any, who controls the Holder
or such stockholder or
underwriter within the meaning of Section 15 of the Securities
Act, against all losses, claims,
damages, liabilities and expenses (including reasonable costs of
investigation) caused by any
untrue, or alleged untrue, statement of a material fact contained
in any registration statement,
preliminary prospectus, prospectus or notification or offering
circular (as amended or
supplemented if the Company shall have furnished any amendments
or supplements thereto) or
caused by any omission, or alleged omission, to state therein a
material fact required to be stated
therein or necessary to make the statements therein not
misleading, except insofar as such losses,
claims, damages, liabilities or expenses are caused by any untrue
statement or alleged untrue
statement or omission or alleged omission made in reliance upon
and in conformity with
information furnished in writing to the Company by the Holder or
any such stockholder or
underwriter expressly for use therein. The Holder and the
holders of any shares of Common
Stock issuable upon the exercise of the Warrants hereby indemnify
the Company and each
officer, director and controlling person of the Company or
underwriter within the meaning of
Section 15 of the Securities Act against all losses, claims,
damages, liabilities and expenses
(including reasonable costs of investigation) caused by any
untrue, or alleged untrue, statement
of a material fact contained in any registration statement,
preliminary prospectus or notification
or offering circular (as amended or supplemented if the Company
shall have furnished any
amendments or supplements thereto) or caused by any omission, or
alleged omission, to state
therein a material fact required to be stated therein or
necessary to make the statements therein
not misleading, but only to the extent that such untrue statement
or alleged untrue statement or
omission or alleged omission was made in reliance upon and in
conformity with information
furnished in writing to the Company by the Holder or any such
stockholder expressly for use
therein.
<PAGE>
Promptly upon receipt by a party indemnified under this
Section 8.5 of notice of the
commencement of any action against such indemnified party in
respect of which indemnity or
reimbursement may be sought against any indemnifying party under
this Section 8.5, such
indemnified party shall notify the indemnifying party in writing
of the commencement of such
action, but the failure so to notify the indemnifying party shall
not relieve it of any liability
which it may have to any indemnified party, unless such failure
shall materially adversely affect
the defense of such action. In case notice of commencement of
any such action shall be given
to the indemnifying party as above provided, the indemnifying
party shall be entitled to
participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly
notified, to assume the defense of such action at its own
expense, with counsel chosen by it and
satisfactory to such indemnified party. The indemnified party
shall have the right to employ
separate counsel in any such action and participate in the
defense thereof, but the fees and
expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the
indemnified party unless (a) the indemnifying party agrees to pay
the same, (b) the indemnifying
party fails to assume the defense of such action with counsel
reasonably satisfactory to the
indemnified party or (c) the named parties to any such action
(including any impleaded parties)
have been advised by such counsel that representation of such
indemnified party and the
indemnifying party by the same counsel would be inappropriate
under applicable standards of
professional conduct (in which case the indemnifying party shall
not have the right to assume
the defense of such action on behalf of such indemnified party);
provided that the indemnifying
party shall not be required to pay the fees and expenses of more
than one counsel to indemnified
parties claiming indemnification pursuant to this Section 8.5.
No indemnifying party shall be
liable for any settlement entered into without its consent.
If the indemnification provided for in this Section 8.5
shall for any reason be
unenforceable by an indemnified party, although otherwise
available in accordance with its
terms, then each indemnifying party shall, in lieu of
indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified
party as a result of the losses,
claims, damages, liabilities or expenses with respect to which
such indemnified party has
claimed indemnification, in such proportion as is appropriate to
reflect the relative fault of the
indemnified party on the one hand and the indemnifying party on
the other in connection with
the statements or omissions which resulted in such losses,
claims, damages, liabilities or
expenses, as well as any other relevant equitable considerations.
The Company, each holder of
the Warrants and each holder of Shares of Common Stock issued
upon the exercise thereof agree
that it would not be just and equitable if contribution pursuant
hereto were to be determined by
pro rata allocation or by any other method of allocation which
does not take into account such
equitable considerations. The amount paid or payable by an
indemnified party as a result of the
losses, claims, damages, liabilities or expenses referred to
herein shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified
party in connection with
investigating or defending against any action or claim which is
the subject hereof. No person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not
guilty of such fraudulent
misrepresentation.
<PAGE>
Each Holder of the Warrants and each holder of shares of
Common Stock issued upon
the exercise thereof and bearing the legend required by Section
8.6, by acceptance thereof,
agrees to the indemnification provisions of this Section 8.5.
8.6 Legend on Certificates. In case any shares of Common
Stock are issued upon the
exercise in whole or in part of the Warrants or are thereafter
transferred, in either case under
such circumstances that no registration under the Securities Act
is required, each certificate
representing such shares shall bear on the face thereof the
following legend:
The shares represented by this certificate have not been
registered under the Securities
Act of 1933, as amended, and any transfer thereof is subject
to the conditions specified
in the Warrant, dated as of October 31, 1997, which is an
amendment and restatement
of the Warrant originally issued by Optek Technology, Inc.
(the "Company") to First
Source Financial LLP, dated as of January 31, 1991. A copy
of the form of such
Warrant is on file with the Secretary of the Company at 1215
West Crosby Road,
Carrollton, Texas 75006 and will be furnished without charge
by the Company to the
holder of this certificate upon written request to the
Secretary of the Company at such
address.
In case (a) a registration statement covering shares of
Common Stock represented by a
certificate bearing the legend specified above becomes effective
under the Securities Act or (b)
the Company receives an opinion of Independent Counsel that such
legend is no longer necessary
on such certificate to protect the Company from a violation of
the Securities Act, the Company
shall, or shall instruct its transfer agent and registrar to,
issue in lieu thereof a new certificate
or certificates for such shares in the name of the holder of such
shares without such legend on
the face thereof.
8.7 Supplying Information. The Company, the Holder and
each holder of shares of
Common Stock issuable upon the exercise of the Warrant shall
cooperate with each other in
supplying such information as may be necessary for any of such
parties to complete and file any
information reporting forms presently or hereafter required by
the Commission or any
commissioner or other authority administering the blue sky or
securities laws of any jurisdiction
where shares of Common Stock are proposed to be sold pursuant to
Section 8.2 or 8.3.
8.8 Damages. In the event the Company fails to comply with
any provision of Section
8.2 or 8.3, upon written request of the Holder of the Warrant or
any holder of shares of
Common Stock issuable upon the exercise thereof, the Company
shall promptly obtain from an
independent investment banking firm acceptable to such person an
opinion estimating the net
proceeds which such person would have received (after deducting
underwriting commissions and
discounts and any other expenses that would have been for the
account of such Holder or holder
of shares of Common Stock in connection with the registration or
qualification of such shares
of Common Stock) upon the sale of shares of Common Stock proposed
to be sold pursuant to
such registration or qualification. Such opinion of the
independent investment banking firm shall
be (a) delivered in writing to the Company, with a copy to such
person, within 15 days after the
date of the request of such person to the Company and (b)
conclusive and binding on the
Company and such person.
<PAGE>
Within 21 days of receipt by the Company of such estimate,
if such person so elects, the
Company shall pay to such person an amount, equal to such
estimated net proceeds related to
the Warrants or shares of Common Stock, as the case may be.
Payment of such amount shall
be made at the option of such person, by (i) wire transfer to an
account in a bank located in the
United States designated by such person for such purpose or (ii)
a certified or official bank
check drawn on a member of the Chicago or New York Clearing House
payable to the order of
such person. Upon payment to such person of such amount, such
person shall assign to the
Company this Warrant and, if issued, the shares of Common Stock
issued upon the exercise of
this Warrant proposed to be sold pursuant to the registration or
qualification in question without
any representation or warranty (other than that such Holder has
good and valid title thereto free
and clear of liens, claims, encumbrances and restrictions of any
kind arising by or through such
Holder). If less than all of the shares of Common Stock issuable
upon exercise of this Warrant
were proposed to be sold pursuant to the registration or
qualification in question, the Company
shall cancel the Warrant and issue in the name of, and deliver
to, the Holder, pursuant to
Section 2, a new Warrant for the shares of Common Stock issuable
upon the exercise thereof
not required to be assigned to the Company pursuant to the
provisions of the preceding sentence.
The Company agrees that the amount of actual damages that would
be sustained by the Holder
as a result of the failure of the Company to comply with any
provisions of Section 8.2 or 8.3
is not capable of ascertainment on any other basis.
8.9 Holdback Agreements. The Company agrees: (i) not to
effect any public sale or
distribution of or otherwise dispose of any of its capital stock
or securities convertible into or
exchangeable or exercisable for any such capital stock during the
seven days prior to or 135 days
after the date any registration pursuant to Section 8.2(a) or
8.2(b) has become effective, except
as part of such registration and except pursuant to any
registration of securities to be offered and
sold pursuant to (A) an employee benefit plan, (B) a dividend or
interest reinvestment plan, (C)
other similar plans or (D) reclassifications of securities,
mergers, consolidations and acquisitions
of assets on Form S-4 or any successor thereto; and (ii) to cause
each person or entity which
owns any capital stock of the Company as of the date of this
Warrant (other than persons or
entities holding nonrestricted stock that can be freely traded
pursuant to Section 4(1) of the
Securities Act and persons or entities who obtained stock
pursuant to a registration described in
Section 8.9(i)(A), (B), (C) or (D)) and each person or entity
which purchases the Company's
capital stock or securities convertible into or exchangeable or
exercisable for any such capital
stock at any time after the date of this Warrant (other than in a
public offering and other than
persons or entities holding nonrestricted stock that can be
freely traded pursuant to Section 4(1)
of the Securities Act and persons or entities who obtained stock
pursuant to a registration
described in Section 8.9(i)(A), (B), (C) or (D)) to agree not to
effect any such public sale or
distribution during such period.
8.10 Rule 144 Reporting. With a view to making available to
the holders of Warrants
and of shares of Common Stock issuable upon exercise thereof the
benefits of certain rules and
regulations of the Commission which may permit the sale of
Warrants or shares of Common
Stock issuable upon exercise thereof to the public without
registration, the Company agrees to:
(a) make and keep public information available as those terms are
understood and defined in
Rule 144 under the Securities Act or any successor rule or
regulation from time to time in
effect; (b) file with the Commission in a timely manner all
reports and other documents required
of the Company under the Securities Act and the Exchange Act; and
(c) furnish to the Holder
or a holder of Common Stock issuable upon exercise of Warrants
forthwith upon request a
written statement by the Company as to its compliance with the
reporting requirements of Rule
144 and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company
filed with the Commission and such other reports and documents of
the Company and other
information in the possession of or reasonably obtainable by the
Company as the Holder or such
holders may reasonably request in availing themselves of any rule
or regulation of the
Commission allowing them to sell securities without registration
under the Securities Act.
8.11 Consent for Additional Registration Rights. The
Company shall not grant rights
to register any of its securities under the Securities Act to any
person or entity, and shall not
permit the amendment, supplement or modification of any such
rights existing as of the Closing
Date, without the consent of the holders of Warrants and shares
of Common Stock issuable upon
exercise thereof representing more than 50% of the shares of
Common Stock issued or issuable
upon exercise of the Warrants (which must include First Source if
First Source is then a
Holder), except for the rights described by the Registration
Agreement.
ARTICLE IX
MISCELLAN
EOUS
9.1 Nonwaiver and Expenses.
No course of dealing or any delay or failure to
exercise any right hereunder on the part of the Holder shall
operate as a waiver of such right
or otherwise prejudice the Holder's rights, power or remedies.
If the Company fails to make,
when due, any payments provided for herein or fails to comply
with any other provision of this
Warrant, the Company shall pay to the Holder (a) interest at the
Default Rate on any amounts
due and owing to the Holder and (b) such further amounts as shall
be sufficient to cover any
costs and expenses including, but not limited to, reasonable
attorneys fees, incurred by the
Holder in collecting any amounts due pursuant to this Warrant or
in otherwise enforcing any of
its rights, powers or remedies hereunder.
9.2 Holder Not a Stockholder. Except as otherwise provided
herein, prior to the
exercise of this Warrant as hereinbefore provided, the Holder
shall not be entitled to any of the
rights of a stockholder of the Company, including, without
limitation, the right as a stockholder
to (a) vote or consent, or (b) receive dividends or any other
distributions made to stockholders.
9.3 Notice Generally. Any notice, demand or delivery to be
made pursuant to the
provisions of this Warrant shall be sufficiently given or made if
sent by first class mail, postage
prepaid, addressed to (a) the Holder at its last known address
appearing on the books of the
Company maintained for such purpose or (b) the Company at its
principal office referred to in
Section 2.2. The Holder and the Company may each designate a
different address by notice to
the other pursuant to this Section 9.3.
9.4 Payment of Certain Expenses. The Company shall pay all
expenses in connection
with, and all taxes (other than stock transfer taxes and income
taxes) and other governmental
charges that may be imposed in respect of, the issue, sale and
delivery of (a) the shares of
Common Stock issuable upon the exercise of this Warrant or (b)
this Warrant. The Company
shall reimburse First Source for all reasonable expenses incurred
by First Source in monitoring
the Company's compliance with the covenants of this Warrant.
<PAGE>
9.5 Successors and Assigns. This Warrant and the rights
evidenced hereby shall inure
to the benefit of and be binding upon the successors of the
Company and the Holder. The
provisions of this Warrant are intended to be for the benefit of
all Holders from time to time of
this Warrant, and shall be enforceable by any such Holder.
9.6 Amendment. This Warrant may not be modified or amended
except by an
instrument in writing signed by the party against which
enforcement is sought.
9.7 Headings. The headings of the Articles and Sections of
this Warrant are for
convenience of reference only and shall not, for any purpose, be
deemed a part of this Warrant.
9.8 GOVERNING LAW. THIS WARRANT SHALL BE GOVERNED BY THE
LAWS OF THE STATE OF ILLINOIS FOR CONTRACTS ENTERED INTO AND TO
BE PERFORMED IN SUCH STATE.
9.9 Subsidiaries. The provisions of this Warrant referring
to "Subsidiaries" of the
Company or to "consolidated" financial statements shall only
apply during such times as the
Company has one or more Subsidiaries.
9.10 No Section 338 Election or Step-Up in Asset Value on
Books of the Company.
The Company acknowledges that the definition of Adjusted
Operating Profits is based upon the
assumption that neither the Company nor any of its Subsidiaries
will (or will be deemed to)
make a Section 336 election under the Internal Revenue Code of
1986, as amended, or otherwise
write-up the value of any of its assets on its books used for
computing Adjusted Operating
Profits. The Company hereby agrees and covenants that neither it
nor any of its Subsidiaries
will (or will be deemed to) make any such election or write-up.
9.11 Replacement. This Warrant is an amendment and
restatement of, and is issued
in replacement of, the warrant dated as of December 12, 1995
which was issued to First Source
Financial, Inc., and that warrant and its predecessors and all
rights thereunder are hereby
cancelled and terminated.
9.12 Termination Agreement. Nothing in that certain
Termination Agreement dated
as of October 31, 1997 between the parties hereto is intended to
or shall release any obligations
of the Company to First Source under this Warrant.
PAGE
<PAGE>
Dated as of October 31, 1997.
OPTEK TECHNOLOGY, INC.
By:
Its:
Attest:
Secretary
(AFFIX CORPORATE SEAL)
AGREED AND ACCEPTED TO:
FIRST SOURCE FINANCIAL LLP
By:
Its:
PAGE
<PAGE>
NOTICE OF EXERCISE FORM
(To be executed only upon partial
or full exercise of the within Warrant)
The undersigned registered Holder of the within Warrant
irrevocably exercises the within
Warrant for and purchases _____________ shares of Common Stock of
Optek Technology, Inc.
and agrees to make payment therefor in the amount of $__________,
all at the price and on the
terms and conditions specified in the within Warrant and requests
that a certificate (or
______________ certificates in denominations of __________
shares) for the shares of Common
Stock of Optek Technology, Inc. hereby purchased be issued in the
name of and delivered to
(choose one) (a) the undersigned or (b) ___________________,
whose address is
____________________, and if such shares of Common Stock shall
not include all the shares
of Common Stock issuable as provided in the within Warrant, that
a new Warrant of like tenor
for the number of shares of Common Stock of Optek Technology,
Inc. not being purchased
hereunder be issued in the name of and delivered to [choose one]
(a) the undersigned or (b)
_________________ whose address is _____________________.
Dated:_______________________, 19___
By
(Signature of Registered
Holder)
Signature Guaranteed:
By
[Title]
NOTICE: The signature of this Notice of Exercise must
correspond exactly with the name
of the Holder as specified on the face of the within
Warrant.
The signature to this Notice of Exercise must be
guaranteed by a commercial
bank or trust company in the United States or a member
firm of the New York
Stock Exchange of business).
1/29/98
Loan Agreement
January 29, 1998
Between
BORROWER
OPTEK TECHNOLOGY, INC.
1215 West Crosby Road
Carrollton, Texas 75006
BANK
NATIONSBANK OF TEXAS, N.A.
901 Main Street, 7th Floor
Dallas, Texas 75202
In consideration of the creation of the revolving
facility described below and the mutual
covenants and agreements contained herein, and intending to be
legally bound hereby, Bank and
Borrower agree as follows:
1.0 Certain Definitions. The terms
"Floating Base Rate", "LIBO Rate", "LIBO Business
Day" and "LIBO Interest Period" are defined in the Note referred
to below. In addition, the
following terms shall have the meaning set forth with respect
thereto:
"Adjusted Current Liabilities": see
Section 5.2.
"Agreement" means this Loan Agreement
and all subsequent modifications and
amendments hereto.
"Commitment" means the obligation of
Bank, subject to the terms and conditions of
this Agreement, to make Loans which shall not exceed
at any one time outstanding
$10,000,000.
"Contested in Good Faith" means, as to
any payment, tax, assessment, charge, levy,
lien, encumbrance or claim, contesting the amount,
applicability or validity thereof in good
faith by appropriate proceedings or other
appropriate actions promptly initiated and diligently
conducted in a manner satisfactory to Bank, provided
(a) adequate reserves satisfactory to
Bank have been established, and (b) the enforcement
of the contested payment, tax,
assessment, charge, levy, lien, encumbrance or claim
is stayed in a manner satisfactory to
Bank pending the resolution of such contest.
"EBITDA": see Section 5.1.
"ERISA" means the Employee Retirement
Income Security Act of 1974, as amended,
and the regulations promulgated thereunder, as in
effect as of the date hereof and any
subsequent provisions which are amendatory thereof,
supplemental thereto or substituted
therefor. In addition, the terms "Commonly
Controlled Entity," "Multiemployer Plan,"
"PBGC," "Plan," "Prohibited Transaction," and
"Reportable Event" have the same means as
provided therefor in ERISA.
<PAGE>
"GAAP" means generally accepted
accounting principles as in effect from time to
time, applied on a basis consistent (except for
changes approved by Borrower s independent
public accountant) with the most recent financial
statements of Borrower delivered to Bank.
"Guarantor" means each subsidiary
executing a Guaranty Agreement.
"Guaranty Agreement": see Section 2.4.
"Hazardous Materials" include all
materials defined as hazardous materials or
substances under any local, state or federal
environmental laws, rules or regulations, and
petroleum, petroleum products, oil and asbestos.
"Loan Documents" means this Agreement,
the Note, the Negative Pledge Agreement,
the Guaranty Agreements, the Officer's Certificates,
the Section 26.02 Notice, and all other
documents, instruments, guarantees, security
agreements, deeds of trust, pledge agreements,
certificates and agreements executed and/or
delivered by Borrower, or any guarantor or third
party in connection with any Loan.
"Loans": see Section 2.0.
"Material Adverse Effect" means a set
of circumstances or events any one of which
(i) has or could have a material and adverse effect
upon the validity or enforceability of or
would result in a Potential Default under any of the
Loan Documents, (ii) is material and
adverse to the business, operations, affairs,
financial condition, assets or properties of
Borrower or any Guarantor, (iii) could materially
and adversely impair the ability of
Borrower or any Guarantor to fulfill its obligations
under the Loan Documents, or (iv) could
materially and adversely impair the value of any
collateral or the ability of the secured party
to realize thereon.
"Maturity Date" means January 15, 2001.
"Mexican Subsidiaries" mean Optron De
Mexico, S.A. de C.V., and Semicondores
Opticos, S.A. de C.V.
"Negative Pledge Agreement": see
Section 2.3
"Net Depreciation": see Section 5.1.
"Net Income": see Section 5.1.
"No Cure Period Covenants" mean any
term, covenant or agreement set forth in
Sections 5.1 through 5.4, Sections 6.1 and 6.2,
Sections 7.1 through 7.12, Section 9.1,
Section 9.2, Section 12.0 and Section 13.9 hereof.
"Note" means that certain promissory
note made by Borrower payable to the order of
Bank in the original principal sum of $10,000,000
dated January 29, 1998, and all renewals,
extensions, modifications and amendments thereto,
and substitutions therefor.
<PAGE>
"Obligations" means the obligations of
Borrower:
(a) to pay all indebtedness
arising out of this Agreement, any future
advances under this Agreement, and all
renewals, extensions or amendments of such
indebtedness or any part thereof or any
such future advances;
(b) to pay the principal of
and interest on the Note in accordance with the
terms thereof, and all renewals,
extensions, modifications and amendments of such
Note or any part thereof, and any
future advances made pursuant thereto;
(c) to repay to Bank all
amounts advanced by Bank hereunder or under
the other Loan Documents on behalf of
Borrower, including, without limitation,
advances for principal or interest
payments to prior secured parties, mortgagees, or
lienors, or for taxes, levies,
insurance, rent, repairs to or maintenance or storage of
any of the collateral;
(d) to pay any and all other
indebtedness of Borrower to Bank of every
kind, nature and description, direct or
indirect, primary or secondary, secured or
unsecured (including overdrafts), joint
or several, absolute or contingent, due or to
become due, now existing or hereafter
arising, regardless of how it may be evidenced,
including without limitation all future
advances, whether or not presently contemplated
by the parties hereto;
(e) to perform fully all of
the terms and provisions of each of the
instruments constituting the Loan
Documents; and
(f) to reimburse Bank, on
demand, for all of Bank's expenses and costs,
which Borrower and Guarantors are
obligated to pay pursuant to the terms of the
Loan Documents.
"Permitted Liens" mean (i) liens for
current taxes not delinquent or for taxes being
Contested in Good Faith, (ii) liens arising in the
ordinary course of business for sums being
Contested in Good Faith, or for sums not due, and in
either case not involving any deposits
or advances for borrowed money or the deferred
purchase of property or services, (iii) liens
incurred in the ordinary course of business for
amounts not yet due and payable in connection
with worker s compensation, unemployment insurance
or other forms of governmental
insurance or benefits, (iv) mechanic s, worker s,
materialmen s and other like liens arising in
the ordinary course of business in respect of
obligations which are not delinquent or which are
being Contested in Good Faith, (v) liens and
security interests, if any, in favor of Bank,
(vi) purchase-money liens and security interests on
any property acquired after the date of this
Agreement securing Purchase Money Debt up to
$500,000 in the aggregate at any time
outstanding, (vii) liens securing lease expenditures
permitted by Section 7.2 hereof, and
(viii) minor defects and irregularities which
neither (1) are liens or security interests which
secure other indebtedness or obligations, nor (2)
materially impair the value of such asset or
the use thereof for the purposes for which such
asset is held.
"Plan" means, at any time, any employee
benefit plan which is covered by ERISA
and in respect of which Borrower or any Commonly
Controlled Entity is (or, if such plan
were terminated at such time, would under ERISA be
deemed to be) an "employer" as defined
in ERISA.
<PAGE>
"Potential Default" means any
condition, event or act, which with the giving of
notice of the lapse of time, or both, will
constitute an Event of Default hereunder.
"Principal Debt": see Section 2.2.
"Quick Assets": see Section 5.2.
"Section 26.02 Notice": see Section
4.6.
"subsidiary" means, with respect to
Borrower, any corporation, limited liability
company, partnership, limited partnership,
association or other entity the accounts of which
would be consolidated with those of Borrower if such
financial statements were prepared with
accordance with GAAP, including without limitation,
the Mexican Subsidiaries.
"Tangible Net Worth": see Section 5.3.
"Total Funded Debt": see Section 5.1.
2.0 Loans. Bank agrees, subject to the
terms and conditions hereof, to lend Borrower at
any time and from time to time on or before the Maturity Date
sums (each year-end called a "Loan"
and collectively the "Loans") which may be repaid and reborrowed
pursuant to the terms hereof and
which shall not exceed at any one time outstanding the amount of
the Commitment. Whenever
Borrower desires a Loan hereunder, Borrower shall give Bank
notice in the form of Exhibit "A"
attached hereto (a "Borrowing and Interest Notice Request")
specifying (a) the date (which shall be a
Business Day in the case of a Loan based upon the Floating Base
Rate or a LIBO Business Day in the
case of a Loan based upon the LIBO Rate) of the proposed
borrowing, (b) the amount to be
borrowed, (c) the portion of the borrowing constituting a Loan
based upon the Floating Base Rate
and/or a Loan based upon the LIBO Rate (which LIBO Rate based
Loan may only be in integral
multiples of $500,000), and (d) if any portion of the proposed
borrowing constitutes a LIBO Rate
based Loan, the initial LIBO Interest Period selected by Borrower
(thirty days, sixty days or ninety
days). Such notice shall be given by 10 a.m. (Dallas, Texas
time) on the date of the proposed
borrowing in the case of a Floating Base Rate Loan, and by 10
a.m. (Dallas, Texas time) two (2)
Business Days prior to the date of the proposed borrowing in the
case of a LIBO Rate based Loan.
The notice required may be given telephonically by Borrower to
Bank, but upon giving such
telephonic notice Borrower shall immediately thereafter provide
Bank with the written notice attached
hereto as Exhibit A. All notices given under this Section shall
be irrevocable. Not later than 12
noon (Dallas, Texas time) on the date of the proposed borrowing
and upon fulfillment of all other
conditions required by this Agreement, Bank will make such Loan
available to Borrower by crediting
the amount thereof to Borrower's account with Bank or otherwise
disbursing it as Borrower shall
request in writing. No Loans may be obtained after the Maturity
Date.
2.1 Use of Proceeds. The
proceeds of Loans may be used solely for general
corporate purposes.
<PAGE>
2.2 Promissory Note. The
obligation of Borrower to repay the aggregate
principal balance of all Loans hereunder outstanding
at any one time (the "Principal Debt")
shall be evidenced by the Note which (a) shall be
payable as to principal on or before the
Maturity Date for the amount of $10,000,000, or the
Principal Debt then outstanding,
whichever is less, (b) shall bear interest and be
payable as to interest in the manner therein
provided, (c) be entitled to the benefits of this
Agreement in the security provided for herein,
and (d) be in such form as is acceptable to Bank.
2.3 Negative, Negative
Pledge. The Obligations shall be unsecured. However,
except for liens expressly permitted by Section 7.5
hereof, until full payment and performance
of all Obligations of Borrower under the Loan
Documents, all assets of Borrower shall be
maintained by Borrower free and clear of all liens,
encumbrances, pledges or commitments to
pledge or not to pledge Borrower s assets to another
creditor. This obligation shall be further
evidenced by an agreement (the "Negative Pledge
Agreement"), which shall be in form and
substance satisfactory to Bank.
2.4 Guaranties. If the
combined Tangible Net Worth of all subsidiaries exceeds
25% of the Tangible Net Worth of Borrower, then the
payment and performance of the Note
and all of the other Obligations hereunder and under
the Loan Documents shall be
unconditionally guaranteed by all subsidiaries then
in existence and thereafter formed or
acquired pursuant to the terms of one or more
guaranty agreements (each a "Guaranty
Agreement"), which shall be in form and substance
satisfactory to Bank. Borrower shall pay
the reasonable fees and expenses of counsel for Bank
incurred in connection with the
preparation of the Guaranty Agreements.
2.5 Unused Commitment Fee.
Borrower agrees to pay Bank an unused
commitment fee for the period commencing with the
date of this Agreement to the Maturity
Date, computed at the rate of 3/8's of one percent
(0.375%) per annum on the average daily
unused portion of the Commitment. The phrase
"unused portion of the Commitment" as used
in the preceding sentence means the difference
between (a) $10,000,000, and (b) the
Principal Debt. The unused commitment fee shall be
payable quarterly in arrears
commencing with the calendar quarter ending March
31, 1998. Borrower authorizes Bank to
effect payment of the unused commitment fee by
debiting Borrower s account specified in
Section 5 of the Note for automatic payment. This
authorization shall not affect the obligation
of Borrower to pay such sum when due, without
notice, if there are insufficient funds in such
account to make such payment in full on the due date
thereof, or if Bank fails to debit the
account.
3.0 Conditions Precedent to Closing. The
obligations of Bank as set forth herein are
subject to the satisfaction, unless waived in writing by Bank, of
each of the following conditions:
3.1 Loan Origination Fee.
Borrower shall have paid Bank a loan origination fee
of $30,000.
3.2 Effectiveness of Loan
Documents. Each of the Loan Documents shall be in
full force and effect.
<PAGE>
3.3 Termination of First
Source Financial Credit Facility. Borrower shall
provide documentation satisfactory to Bank
evidencing the termination of lending relationships
with First Source Financial, Inc., and all other
lenders in existence immediately prior to the
date hereof, excluding lease arrangements by
Borrower and its subsidiaries previously
disclosed to Bank in writing.
3.4 Credit Opinion. There
shall have been delivered a favorable credit opinion
of counsel for Borrower covering organization,
authority, enforceability and such other
matters incident to the Loan as Bank may reasonably
request.
3.5 Insurance Certificate.
Bank shall have received evidence that Borrower has
obtained the policies of insurance specified and
required by Section 6.6 hereof.
3.6 Documentation and
Proceedings. Borrower shall have delivered resolutions
of its boards of directors authorizing its
execution, delivery and performance of the Loan
Documents to which they are parties.
3.7 Section 26.02 Notice.
Borrower shall have executed a notice in compliance
with the provisions of Section 26.02 of the Texas
Business and Commerce Code (the "Section
26.02 Notice").
3.8 Representations and
Warranties. All representations and warranties
contained herein or in the documents referred to
herein or otherwise made in writing in
connection herewith or therewith shall be true and
correct with the same force and effect as
though such representations and warranties have been
made on and as of this date.
4.0 Conditions Precedent to All Loans. The
obligation of Bank to make all Loans to
Borrower is subject, at the time of the funding of each such Loan
(the "Funding Date"), to the
satisfaction, unless waived in writing by Bank, of each of the
following conditions:
4.1 Borrowing and Interest
Notice Request. Borrower shall have delivered to
Bank, within the time frame specified in Section 2.0
hereof, a Borrowing and Interest Notice
Request appropriately completed in compliance
herewith.
4.2 Availability of
Commitment. The then Principal Debt plus the amount of
the requested Loan shall be equal to or less than
the Commitment.
4.3 Expenses. Borrower shall
have paid all reasonable expenses of Bank in
connection with the making of the Loan (other than
those specified in the first sentence of
Section 12.0 hereof).
4.4 Representations and
Warranties. All representations and warranties
contained herein shall be true and correct in all
material respects as though such
representations and warranties have been made on and
as of the Funding Date (except to the
extent that such representations and warranties
relate solely to an earlier date).
4.5 No Default. There shall
exist no Event of Default or Potential Default
hereunder.
4.6 Change in Condition. No
change in the condition (financial or otherwise) of
Borrower or Guarantors or any other event shall have
occurred which has had or is likely to
have a Material Adverse Effect.
4.7 (a)0 Financial
Covenants.
<PAGE>
4.8 Leverage Ratio. Borrower
will not permit its ratio of Total Funded Debt as
of the last day of each fiscal quarter to EBITDA for
the period of four consecutive fiscal
quarters ending on such day, to be greater than 2.0
to 1.0. "Total Funded Debt" means, as
of any date of determination, without duplication,
the aggregate principal amount of all
indebtedness of Borrower and its subsidiaries
outstanding as of such date determined on a
consolidated basis in accordance with GAAP.
"EBITDA" means, for any period, Net Income
for such period, plus, without duplication and to
the extent deducted from revenues in
determining Net Income, the sum of (a) the aggregate
amount of Consolidated Interest
Expense for such period, (b) the aggregate amount of
letter of credit fees paid during such
period, (c) the aggregate amount of income tax
expense for such period, (d) all amounts
attributable to Net Depreciation and amortization
for such period, and (e) all other non-cash
charges, minus, all cash dividends paid during such
period, all determined on a consolidated
basis with respect to Borrower and its subsidiaries
in accordance with GAAP. "Net Income"
means, for any period, net income or loss (after
income taxes) of Borrower and its
subsidiaries for such period determined on a
consolidated basis in accordance with GAAP,
provided, there shall be excluded (a) extraordinary
gains, (b) gains due to sales or write-up of
assets, (c) earnings of any entity newly acquired,
if earned prior to acquisition, and (d) gains
due to acquisitions of any securities of any entity.
"Interest Expense" means, for any period,
the interest expense, both expensed and capitalized
(including the interest component in
respect of capital lease obligations), accrued or
paid by Borrower and its subsidiaries during
such period, determined on a consolidated basis in
accordance with GAAP. Net
Depreciation means depreciation expense during such
period determined on a consolidated
basis in accordance with GAAP, less $500,000 for
capital expenditures.
4.9 Quick Asset Ratio.
Borrower shall maintain at all times a ratio of Quick
Assets to Adjusted Current Liabilities of not less
than .75 to 1.0. "Quick Assets" means the
sum of (a) cash on hand or on deposit in banks, (b)
readily marketable securities issued by the
United States, (c) readily marketable commercial
paper rated "A-1" by Standard & Poors
Corporation (or a similar rating by any similar
organization which rates commercial paper),
(d) certificates of deposit or banker s acceptances
issued by commercial banks of recognized
standing operating in the United States, and (e)
receivables not more than 90 days overdue.
"Adjusted Current Liabilities" means current
liabilities determined in accordance with GAAP
excluding the Principal Debt outstanding at any
time.
4.10 Minimum Tangible Net
Worth. Borrower shall maintain at all times a
Tangible Net Worth of not less than the sum of the
following:
(a) $20,000,000; plus
(b) 50% of Net Income for which purpose
Net Income is a
positive number measured cumulatively
for each fiscal year beginning
with the fiscal year ending October 30,
1998; plus
(c) 100% of the net proceeds of any
offering of any equity
securities sold for the account of
Borrower and otherwise permitted by
the terms hereof and consummated after
the date hereof; plus
<PAGE>
(d) 100% of any capital contributions
made to Borrower after
the date hereof.
Tangible Net Worth means the amount by which total
assets exceed total liabilities, total
assets and total liabilities each being determined
on a consolidated basis in accordance with
GAAP consistent with those applied in the
preparation of the financial statements previously
furnished to Bank referred to in Section 8.2,
excluding however, from the determination of
total assets all assets which would be classified as
intangible assets under GAAP, including
without limitation, good will, licenses, patents,
trademarks, trade names, copyrights, and
franchises.
4.11 Consecutive Losses.
Borrower will not realize any negative Net Income in
any two consecutive fiscal quarters.
5.0 Affirmative Covenants. Until full
payment and performance of all Obligations of
Borrower under the Loan Documents, Borrower will, unless Bank
consents otherwise in writing (and
without limiting any requirement of any other Loan Document):
5.1 Financial Statements and
Other Information. Deliver or cause to be
delivered to Bank (a) quarterly consolidated and
consolidating financial statements of
Borrower within forty-five (45) days after the end
of the first three fiscal quarters of each
fiscal year, and annual audited consolidated
financial statements of Borrower within one
hundred twenty (120) days after the end of each
fiscal year, in each instance to include a
balance sheet, an income statement, a statement of
cash flows and such other financial
statements and supporting schedules or documentation
reasonably requested by Bank, prepared
in accordance with generally accepted accounting
principles consistently applied and presented
in a format reasonably acceptable to Bank, and (b)
such additional information, reports and
statements with respect to the business operations
and financial condition of Borrower as Bank
may reasonably request from time to time, and (c)
within one hundred twenty (120) days after
the end of each fiscal year, and within forty-five
(45) days after the end of the first three
fiscal quarters of each fiscal year, a compliance
certificate in the form of Exhibit B attached
hereto, and (d) immediately after the filing
thereof, copies of any report, proxy statement,
financial statement, or other filing made by
Borrower with the Securities and Exchange
Commission, any state securities agency, or any
national stock exchange or quotation service,
and promptly upon receipt thereof, copies of any
notices received from the Securities and
Exchange Commission or any state securities agency
relating to any order, rule, statute, or
other laws or information that could have a Material
Adverse Effect.
<PAGE>
5.2 Adverse Conditions or
Events. Promptly advise Bank in writing of (i) any
condition, event or act which comes to its attention
that could or can reasonably be expected
to have a Material Adverse Effect, (ii) any
litigation filed by or against Borrower or any
Guarantor involving an amount in excess of $500,000,
(iii) the occurrence of any Event of
Default, or of any Potential Default, or the failure
of Borrower or any Guarantor to observe
any of its undertakings hereunder or under any of
the other Loan Documents, (iv) any
uninsured or partially uninsured loss through fire,
theft, liability or property damage in excess
of an aggregate of $500,000, (v) any and all
enforcement, cleanup, remedial, removal or
other governmental or regulatory actions instituted,
completed or threatened pursuant to any
applicable federal, state or local laws, ordinances
or regulations relating to any Hazardous
Materials affecting the business operations of
Borrower or any Guarantor, (vi) all claims made
or threatened by any third party against Borrower or
any Guarantor relating to damages,
contribution, cost recovery, compensation, loss or
injury resulting from any Hazardous
Materials, (vii) any circumstances that constitute
grounds entitling the PBGC to institute
proceedings to terminate a Plan subject to ERISA,
and the receipt of any notice to Borrower
or any Commonly Controlled Entity that the PBGC
intends to terminate a Plan, and the
receipt of notice concerning the imposition of
withdrawal liability in excess of $25,000 with
respect to Borrower or any Commonly Controlled
Entity; and (viii) the formation or
acquisition of any subsidiary and the occurrence of
any event which will require the execution
of Guaranty Agreements pursuant to Section 2.4
hereof.
5.3 Taxes and Other
Obligations. Pay all of its taxes, assessments and other
obligations, including, but not limited to taxes,
costs or other expenses arising out of this
transaction, as the same become due and payable,
except to the extent the same are being
contested in good faith by appropriate proceedings
in a diligent manner.
5.4 Insurance. Maintain insurance with responsible insurance
companies on
such of its properties, in such amounts and against such
risks as is customarily maintained
by similar businesses operating in the same vicinity,
specifically to include fire and extended
coverage insurance covering all assets, business interruption
insurance, workers
compensation insurance and liability insurance, all providing
for at least 30 days prior
notice to Bank of any cancellation thereof. Satisfactory
evidence of such insurance will be
supplied to Bank at closing, thereafter as and when requested
by Bank, and 30 days prior to
each policy renewal.
5.5 Existence and Compliance. (a) Maintain its existence,
good standing and
qualification to do business, in each jurisdiction in which,
under then applicable law, the
nature of its business and the ownership of its properties
require such qualification and the
failure to so qualify would have a Material Adverse Effect;
and (b) comply with all laws,
regulations and governmental requirements including, without
limitation, environmental laws
applicable to it or to any of its property, business
operations and transactions, a breach of
which (when considered alone or when aggregated with the
effect of other breaches) could
have a Material Adverse Effect.
5.6 Maintenance. Maintain all of its tangible property in
good condition and
repair and make all necessary replacements thereof, and
preserve and maintain all licenses,
trademarks, privileges, permits, franchises, certificates and
the like necessary for the
operation of its business.
5.7 Inspection of Books and Records. Allow any
representative of Bank to
examine its books of record and account and to discuss its
affairs, finances and accounts with
any of its officers, directors, employees and agents, all at
such reasonable times and as often
as Bank may reasonably request.
5.8 Audits. Submit to, and bear the expense of (except that
Borrower shall not
be required to pay more than $10,000 of such expenses in any
period of 12 consecutive
months), such audits and inspections as Bank may from time to
time reasonably request.
<PAGE>
5.9 Further Assurances. Make, execute or endorse,
acknowledge and deliver or
file or cause the same to be done, all such vouchers,
invoices, notices, certifications and
additional agreements, undertakings, conveyances, deeds of
trust, mortgages, assignments,
financing statements or other assurances, and take any and
all such other action as Bank may
from time to time reasonably request in connection with this
Agreement or any of the other
Loan Documents (a) to cure any defects in the creation of the
Loan Documents, or (ii) to
correct any omissions in the Loan Documents.
6.0 Negative Covenants. Until full payment and performance
of all Obligations of
Borrower under the Loan Documents, Borrower will not, without the
prior written consent of Bank
(and without limiting any requirement of any other Loan
Documents):
6.1 Capital Expenditures. Make capital expenditures during
each fiscal year
(including capitalized leases) in excess of $7,500,000.
6.2 Lease Expenditures. Incur new obligations for the lease
or hire of real or
personal property in any fiscal year in excess of an
aggregate of $1,000,000.
6.3 Transfer of Assets. Convey, assign, transfer, sell,
lease or otherwise dispose
of in one transaction or a series of transactions (or agree
to do any of the foregoing at any
future time) all or substantially all or a substantial part
of its properties or assets (whether
now owned or hereafter acquired) or any part of such
properties or assets which are essential
to the conduct of its business substantially as now
conducted.
6.4 Merger, Etc. Enter into any merger or consolidation,
except that Borrower
may merge into or consolidate with any of its subsidiaries so
long as Borrower is the
survivor.
6.5 Liens. Grant, suffer or permit any contractual or
noncontractual lien on or
security interest in its assets, except Permitted Liens.
6.6 Extensions of Credit. Make, or permit any Guarantor to
make, any loan or
advance to any person or entity, or purchase or otherwise
acquire, or permit any Guarantor to
purchase or otherwise acquire, any capital stock, assets,
obligations or other securities of, or
make any capital contribution to, or otherwise invest in or
acquire any interest in any entity;
provided that Borrower may acquire or invest in entities
where the cumulative aggregate cash
and/or stock consideration does not exceed $10,000,000 over
the term of this Agreement.
6.7 Borrowings. Create, incur, assume or become liable in
any manner for any
indebtedness (whether direct or contingent, for borrowed
money, deferred payment for the
purchase of assets, lease payments, as surety or guarantor
for the debt for another, or
otherwise) other than to Bank, except for (i) normal trade
debts incurred in the ordinary
course of Borrower's business, (ii) purchase-money debt up to
$500,000 in the aggregate at
any time outstanding, (iii) lease expenditures permitted by
Section 7.2 hereof, and (iv)
existing indebtedness disclosed to Bank in writing and
acknowledged by Bank prior to the date
of this Agreement.
6.8 Dividends and Distributions. Make any distribution
(other than dividends
payable in capital stock of Borrower) on any shares of any
class of its capital stock, or
apply any of its property or assets to the purchase,
redemption or other retirement of any
shares of any class of capital stock of Borrower exceeding in
the aggregate 50% of net
profit per fiscal year.
<PAGE>
6.9 Change of Character of Business or Location. Change the
general
character of business as conducted at the date hereof, or
engage in any type of business not
reasonably related to its business as presently conducted, or
fail to maintain in Texas its
principal place of business, its primary administrative
office, and its billing and collection
operations.
.
6.10 Principal Debt not to Exceed Commitment. Permit at any
time the
Principal Debt to exceed the Commitment.
6.11 Change of Control. Permit the change of control of
Borrower. "Change of
control" as used in the preceding sentence means the
acquisition by a third party of more than
fifty percent (50%) of the outstanding voting stock of
Borrower.
6.12 Arm's Length Transactions. Enter into a transaction
with any affiliate (other
than services rendered by an officer, employee or director),
except a transaction upon terms
that are not less favorable to it than would be obtained in a
transaction negotiated at arm's
length with an unrelated third party.
7.0 Representations and Warranties. Borrower hereby
represents and warrants to Bank
as follows:
7.1 No Liens. Borrower and each Guarantor have good and
defensible title to all
of their assets, and none of such assets are subject to any
security interest, mortgage, deed of
trust, pledge, lien, title retention document or encumbrance
of any character, except for
Permitted Liens.
7.2 Financial Statements. The financial statements of
Borrower dated as of
July 31, 1997, have been prepared in accordance with
generally accepted accounting
principles on a consistent basis throughout the period
involved and fairly present Borrower s
financial condition as of the date or dates thereof, and
there have been no material adverse
changes in Borrower s financial condition or operation since
the date or dates thereof.
7.3 Good Standing. Borrower is a corporation, duly
organized, validly existing
and in good standing under the laws of Delaware and has the
power and authority to own its
property and to carry on its business in Texas and in every
other state in which, under
presently applicable law, the nature of its property or
business requires such qualification and
in which the failure to be so qualified would (when
considered alone or when aggregated with
the effect of failure to qualify in all other jurisdictions)
have a Material Adverse Effect.
7.4 Binding Agreements. This Agreement and the other Loan
Documents
executed by Borrower constitute valid and legally binding
obligations of Borrower,
enforceable in accordance with their terms. Each of the Loan
Documents executed by each
Guarantor constitutes the valid and binding obligation of
such Guarantor, enforceable in
accordance with its terms.
<PAGE>
7.5 Litigation. There is no proceeding involving Borrower
or any Guarantor
pending or, to the knowledge of Borrower, threatened before
any court or governmental
authority, agency or arbitration authority, except as
disclosed to Bank in writing and
acknowledged by Bank prior to the date of this Agreement.
7.6 No Conflicting Agreements. There is no charter, bylaw,
stock provision,
partnership agreement or other document pertaining to the
power or authority of Borrower or
any Guarantor and no provision of any existing agreement,
mortgage, indenture or contract
binding on Borrower or any Guarantor or affecting any
property of Borrower or any
Guarantor, which would conflict with or in any way prevent
the execution, delivery or
carrying out of the terms of this Agreement and the other
Loan Documents.
7.7 Taxes. All taxes and assessments due and payable by
Borrower and any
Guarantor have been paid or are being contested in good faith
by appropriate proceedings in a
diligent manner, and the Borrower and Guarantors have filed
all tax returns which they are
required to file.
7.8 Accuracy of Information. To the best of Borrower's
knowledge, all factual
information furnished to Bank in connection with this
Agreement and the other Loan
Documents is and will be accurate and complete in all
material respects on the date as of
which such information is delivered to Bank and is not and
will not be incomplete by the
omission of any material fact necessary to make such
information not misleading.
7.9 ERISA. Borrower is in compliance in all material
respects with all applicable
provisions of ERISA. Neither a Reportable Event nor a
Prohibited Transaction has occurred
and is continuing with respect to any Plan; no notice of
intent to terminate a Plan has been
filed, nor has any Plan been terminated; neither Borrower nor
any Commonly Controlled
Entity has completely or partially withdrawn from a
Multiemployer Plan; and Borrower and
each Commonly Controlled Entity have met their minimum
funding requirements under
ERISA with respect to all of their Plans.
7.10 Environmental. The conduct of Borrower s business
operations and the
condition of Borrower s property does not and will not
violate any federal laws, rules or
ordinances for environmental protection, or regulations of
the Environmental Protection
Agency, or any applicable local or state law, rule,
regulation or rule of common law, or any
judicial interpretation thereof relating primarily to the
environment or Hazardous Materials.
7.11 Subsidiaries. Borrower has no subsidiaries other than
the Mexican
Subsidiaries, Optek Holdings, Inc. and OTX Corporation.
7.12 Continuation of Representations and Warranties. All
representations and
warranties made under this Agreement shall be deemed to be
made at and as of the date
hereof and at and as of the date of any future Loan and in
all instances shall be true and
correct (except to the extent that such representations and
warranties relate solely to an earlier
date).
8.0 Default. Any of the following shall constitute events
of default (each an Event of
Default ):
<PAGE>
8.1 Nonpayment. (a) Borrower shall default in the due and
punctual payment of
any principal or interest of the Note when due and payable,
whether at maturity or otherwise,
or (b) Borrower or any Guarantor shall default in the due and
punctual payment of any of the
other Obligations when due and payable.
8.2 Representations and Warranties. Any representation,
warranty or statement
made by Borrower or any Guarantor herein or otherwise in
writing in connection herewith or
in connection with any of the other Loan Documents and the
agreements referred to herein or
therein or in any financial statement, certificate or
statement signed by any officer or
employee of Borrower and furnished pursuant to any provision
of the Loan Documents shall
be breached, or shall be materially false, incorrect or
incomplete when made.
8.3 Default in Covenants Under Agreement. (a) Borrower shall
default in the
due performance or observance by it of any term, covenant or
agreement set forth in the No
Cure Period Covenants; or (b) Borrower shall default in the
due performance or observance
of any term, covenant or agreement contained in this
Agreement other than the No Cure
Period Covenants, and such default continues unremedied for a
period of thirty (30) days after
notice thereof from Bank or Bank is notified of such default
or should have been so notified
pursuant to the provisions of Section 6.2 hereof, whichever
is earlier.
8.4 Default in Other Loan Documents. Borrower or any
Guarantor shall default
in the due performance of or observance by it of any term,
covenant or agreement on its part
to be performed pursuant to the terms of any of the other
Loan Documents and the default
shall continue unremedied beyond any grace or cure period
therein provided.
8.5 Default in Other Debt. An event of default shall occur
under the provisions
of any instrument (other than the Loan Documents) evidencing
indebtedness of Borrower for
the payment of borrowed money or of any agreement relating
thereto, the effect of which is to
permit the holder or holders of such instrument to cause the
indebtedness evidenced by such
instrument to become due and payable prior to its stated
maturity (whether or not the holder
actually exercises such option).
8.6 Validity of Loan Documents. Any of the Loan Documents
shall cease to be
a legal, valid and binding agreement enforceable against any
party executing the same in
accordance with the respective terms thereof, or shall in any
way be terminated, or become or
be declared ineffective or inoperative by operation of law,
or shall in any way whatsoever
cease to give or provide the respective rights, remedies,
powers and privileges intended to be
created thereby.
8.7 Bankruptcy. Borrower or any Guarantor shall suspend or
discontinue its
business operations, or shall generally fail to pay its debts
as they mature, or shall file a
petition commencing a voluntary case concerning Borrower
under any chapter of the United
States Bankruptcy Code; or a court of competent jurisdiction
enters an order or decree under
any bankruptcy law that remains unstayed and in effect for
forty-five (45) days that is for
relief against Borrower or any Guarantor in an involuntary
case or appoints a custodian of
Borrower or any Guarantor for all or substantially all of its
property; or Borrower or any
Guarantor shall become insolvent (howsoever such insolvency
may be evidenced).
<PAGE>
8.8 Judgments and Decrees. Borrower or any Guarantor shall
suffer a final
judgment for the payment of money in excess of $500,000 and
shall not discharge the same
within a period of thirty (30) days unless, pending further
proceedings, execution has not been
commenced, or, if commenced, has been effectively stayed.
Any order, judgment or decree
shall be entered in any proceeding against Borrower or any
Guarantor decreeing the
dissolution or split up of such entity and such order shall
remain undischarged or unstayed for
a period in excess of thirty (30) days.
8.9 ERISA. Any of the following events shall occur or exist
with respect to
Borrower and any Commonly Controlled Entity under ERISA and
the regulations
promulgated thereunder:
(a) any Reportable Event shall occur;
(b) complete or partial withdrawal from any
Multiemployer Plan shall
take place;
(c) any Prohibited Transaction shall occur;
(d) a notice of intent to terminate a Plan shall be
filed, or a Plan shall
be terminated; or
(e) circumstances shall exist which constitute
grounds entitling the
PBGC to institute proceedings to terminate a Plan, or
the PBGC shall institute such
proceedings;
and in each case above, such event or condition, together
with all other events or
conditions, if any, could subject Borrower to any tax,
penalty or other liability which in the
aggregate may exceed $25,000.
9.0 Remedies. Upon the occurrence of an Event of Default
described in Section 9.7
hereof, the entire principal of and accrued interest on the Note
shall forthwith be due and payable
without demand, presentment for payment, notice of nonpayment,
protest, notice of protest, notice of
intent to accelerate, notice of acceleration and all other
notices and further actions of any kind, all of
which are hereby expressly waived by Borrower. In the event that
any other Event of Default occur
and be continuing, Bank may, without demand or notice of its
election terminate its obligation to
make further Loans hereunder and/or declare the entire unpaid
balance of the Note and all other
indebtedness of Borrower to Bank, or any part thereof,
immediately due and payable, whereupon the
principal of and accrued interest on such Note and other
indebtedness shall be forthwith due and
payable without demand, presentment for payment, notice of
nonpayment, protest, notice of protest,
notice of intent to accelerate, notice of acceleration and all
other notices and further actions of any
kind, all of which are hereby expressly waived by Borrower. Upon
the occurrence and during the
continuance of any Event of Default, Bank may (a) exercise any
and all rights under or pursuant to
any of the Loan Documents, and (b) exercise any and all rights
afforded to Bank by the laws of the
State of Texas or any other applicable jurisdiction or in equity
or otherwise, as Bank may deem
appropriate, and (c) terminate the Commitment.
<PAGE>
10.0 Notices. All notices, requests or demands which any
party is required or may desire
to give to any other party under any provision of this Agreement
must be in writing (including
telegraphic, telex and facsimile transmission) delivered to the
other party at the addresses set forth on
the first page of this Agreement or to such other address as any
party may designate by written notice
to the other party. Each such notice, request and demand shall
be deemed given or made (whether
actually received or not) (a) if sent by mail, upon the earlier
of the date of receipt or five (5) days
after deposit in the U.S. Mail, first class postage prepaid, and
(b) if sent by any other means, upon
delivery. Unless otherwise changed by notice given pursuant to
this Section, the facsimile
transmission number for Borrower shall be (972) 323-2208, and the
facsimile transmission number for
Bank shall be (214) 508-3139.
11.0 Costs, Expenses and Attorneys' Fees. Each party shall
bear its own attorneys fees
incurred by it in connection with the negotiation and preparation
of this Agreement and each of the
Loan Documents executed as part of the initial closing. Borrower
shall pay to Bank immediately
upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (including
outside counsel fees but excluding any allocation of costs of
Bank s in-house counsel), incurred by
Bank in connection with (a) if initiated or requested by
Borrower, any modifications of or consents or
waivers under or amendments to this Agreement, the Note, the
other Loan Documents and the
agreements described therein, and (b) all other costs and
attorneys fees incurred by Bank for which
Borrower is obligated to pay in accordance with the terms of the
Loan Documents. Borrower further
agrees to pay on demand all costs and expenses of Bank incurred
in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of
the Loan Documents. Borrower
further agrees to indemnify Bank and its employees and agents,
from and hold it harmless against any
and all losses, liabilities, claims, damages or expenses which
any of them suffers or incurs as a result
of its entering into this Agreement, or the consummation of the
transactions contemplated by this
Agreement and the Loan Documents, or the use or contemplated use
of the proceeds of the Loan, or
due to a release or alleged release of Hazardous Materials,
including, without limitation, the fees and
disbursements of counsel incurred in connection with any
litigation, arbitration or other proceeding
arising out of or by reason of any of the aforesaid. Borrower
shall defend any claim for which an
indemnified party is entitled to seek indemnity pursuant to the
preceding sentence, and the
indemnified party shall cooperate with the defense. The
indemnified party may have separate
counsel, and Borrower will pay the expenses and reasonable fees
of such separate counsel if either
counsel for Borrower or counsel for the indemnified party shall
advise the indemnified party that the
interests of both Borrower and the indemnified party with respect
to such claim are or with reasonable
certainty will become adverse.
12.0 Miscellaneous. Borrower and Bank further covenant and
agree as follows, without
limiting any requirement of any other Loan Document:
12.1 Cumulative Rights and No Waiver. Each and every right
granted to Bank
under any Loan Document, or allowed it by law or equity shall
be cumulative of each other
and may be exercised in addition to any and all other rights
of Bank, and no delay in
exercising any right shall operate as a waiver thereof, nor
shall any single or partial exercise
by Bank of any right preclude any other or future exercise
thereof or the exercise of any other
right. Borrower expressly waives any presentment, demand,
protest or other notice of any
kind, including but not limited to notice of intent to
accelerate and notice of acceleration. No
notice to or demand on Borrower in any case shall, of itself,
entitle Borrower to any other or
future notice or demand in similar or other circumstances.
<PAGE>
12.2 Choice of Law and Venue. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS (BUT
NOT THE RULES GOVERNING CONFLICTS OF LAWS) OF THE STATE OF
TEXAS AND SHALL BE PERFORMABLE IN DALLAS COUNTY, TEXAS.
12.3 Amendment. No modification, consent, amendment or
waiver of any
provision of this Agreement, nor consent to any departure by
a party therefrom, shall be
effective unless the same shall be in writing and signed by
an officer of the other party, and
then shall be effective only in the specified instance and
for the purpose for which given.
This Agreement is binding upon the parties, their successors
and assigns, and inures to the
benefit of the parties, their successors and assigns;
however, no assignment or other transfer
of Borrower's rights or obligations hereunder shall be made
or be effective without Bank's
prior written consent, nor shall it relieve Borrower of any
obligations hereunder. There is no
third party beneficiary of this Agreement.
12.4 Documents. All documents, certificates and other items
required under this
Agreement to be executed and/or delivered to Bank shall be in
form and content satisfactory
to Bank and its counsel.
12.5 Partial Invalidity. The unenforceability or invalidity
of any provision of this
Agreement shall not affect the enforceability or validity of
any other provision herein and the
invalidity or unenforceability of any provision of any Loan
Document to any person or
circumstance shall not affect the enforceability or validity
of such provision as it may apply to
other persons or circumstances.
12.6 Survivability. All covenants, agreements,
representations and warranties
made herein or in the other Loan Documents shall survive the
making of the initial Loan and
shall continue in full force and effect so long as the
Obligations are outstanding or the
Commitment has not expired.
12.7 Accounting Terms. Unless specified elsewhere herein,
all accounting terms
used herein shall be interpreted, all accounting
determinations hereunder shall be made, and
all financial statements to be delivered hereunder shall be
prepared in accordance with GAAP.
12.8 Expiration of Commitment/Renewal. The Commitment of
Bank hereunder
shall expire on the Maturity Date. Bank is under no express
or implied duty or obligation to
renew the Note or extend the Maturity Date.
<PAGE>
12.9 Environmental. Borrower shall immediately notify Bank
of any
remedial action taken by Borrower under environmental laws
with respect to
Borrower's business operations. Borrower will not use or
permit any other party to
use any Hazardous Materials at any of Borrower's places of
business or at any
other property owned by Borrower except such materials as are
incidental to
Borrower's normal course of business, maintenance and repairs
and which are
handled in compliance with all applicable environmental laws.
Borrower agrees to
permit Bank, its agents, contractors and employees to enter
and inspect any of
Borrower's places of business or any other property of
Borrower at any reasonable
times upon three (3) days prior notice for the purposes of
conducting an
environmental investigation and audit (including taking
physical samples) to insure
that Borrower is complying with this covenant and Borrower
shall reimburse Bank
on demand for the costs of any such environmental
investigation and audit not to
exceed $10,000 per year. Borrower shall provide Bank, its
agents, contractors,
employees and representatives with access to and copies of
any and all data and
documents relating to or dealing with any Hazardous Materials
used, generated,
manufactured, stored or disposed of by Borrower's business
operations within five
(5) days of the request therefore.
13.0 Agreement Controlling. In the event of a conflict
between the terms and provisions
of this Agreement and the terms and provisions of any of the
other Loan Documents, the terms and
provisions of this Agreement shall control.
14.0 Arbitration. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG
THE
PARTIES HERETO ARISING OUT OF OR RELATING TO THIS INSTRUMENT,
AGREEMENT
OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR DOCUMENTS,
INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT,
SHALL BE
DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL
ARBITRATION ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW).
THE
RULES OF PRACTICE AND PROCEDURE FOR THE ARBITRATION OF COMMERCIAL
DISPUTES OF J.A.M.S./ENDISPUTE OR ANY SUCCESSOR THEREOF
(J.A.M.S.), AND THE
"SPECIAL RULES" SET FORTH BELOW. IN THE EVENT OF ANY
INCONSISTENCY, THE
SPECIAL RULES SHALL CONTROL. JUDGMENT UPON ANY ARBITRATION AWARD
MAY
BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING
A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY
CONTROVERSY OR CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT
HAVING JURISDICTION OVER SUCH ACTION.
14.1 Special Rules. THE ARBITRATION SHALL BE CONDUCTED IN
THE
CITY OF BORROWER S DOMICILE AT THE TIME OF THE EXECUTION OF
THIS
INSTRUMENT, AGREEMENT OR DOCUMENT, AND ADMINISTERED BY
J.A.M.S.
WHO WILL APPOINT AN ARBITRATOR; IF J.A.M.S. IS UNABLE OR
LEGALLY
PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN THE
AMERICAN
ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS
WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION;
FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE,
BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP
TO
AN ADDITIONAL 60 DAYS.
<PAGE>
14.2 Reservation of Rights. NOTHING IN THIS ARBITRATION
PROVISION
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY
OTHERWISE
APPLICABLE STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS
CONTAINED IN THIS INSTRUMENT, AGREEMENT OR DOCUMENT; OR (II)
BE A
WAIVER BY THE BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C.
SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III)
LIMIT THE
RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES
SUCH AS
(BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY
REAL OR
PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT
PROVISIONAL OR ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED
TO)
INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT OF A
RECEIVER, OR (IV) LIMIT THE RIGHTS OF THE PARTIES HERETO
UNDER THE
BANKRUPTCY CODE OR SIMILAR LAWS AFFECTING THE RIGHTS OF
CREDITORS
GENERALLY. THE BANK MAY EXERCISE SUCH SELF HELP RIGHTS,
FORECLOSE
UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY
REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY
ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR
DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES NOR
THE
INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR
PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER
OF
THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH
ACTION,
TO ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM
OCCASIONING
RESORT TO SUCH REMEDIES.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date and year
first above written.
OPTEK TECHNOLOGY, INC.
By
Title
NATIONSBANK OF TEXAS, N.A.
By
Ronald K. Baker
Senior Vice President
LIST OF EXHIBITS
A. . . . . . . . . Borrowing and Interest Notice Request . . . .
. . 2.1
B. . . . . . . . . . . . .Compliance Certificate . . . . . . . .
. . 6.1
14.3PAGE
<PAGE>
EXHIBIT A
BORROWING AND INTEREST NOTICE REQUEST
Reference is made to that certain Loan Agreement between
OPTEK TECHNOLOGY, INC.
and NATIONSBANK OF TEXAS, N.A. dated as of January 29, 1998 (the
"Loan Agreement").
The terms used herein shall have the same meanings as provided
therefor in the Loan Agreement
unless the context hereof otherwise requires or provides.
A. AVAILABILITY.
1. Enter: Amount of Commitment
$10,000,000
2. Enter: Principal Debt outstanding
as of this date.
3. Excess (deficit) available for Loans
(subtract line A2 from line A1).
4. Description of use of proceeds of Loan:
5. The Borrower hereby certifies that all
conditions precedent specified by the Loan
Agreement for this Loan have been complied with in
all respects.
B. FLOATING BASE LOAN.
1. Amount of Floating Base Rate loan:
____________________
2. Type of Floating Base loan
New Floating Base loan
Conversion of LIBO Rate loan to
Floating Base loan
3. Date of funding or conversion
____________________
PAGE
<PAGE>
C. LIBO RATE LOAN.
1. Amount of LIBO Rate loan (minimum of $500,000
and in $100,000 increments thereafter)
____________________
2. Type of LIBO Rate loan
New LIBO Rate loan
Renewal of existing LIBO Rate loan
Conversion of Floating Base Rate loan to LIBO Rate loan
3. Date of funding or renewal or conversion
____________________
4. LIBO Interest Period (30 days, 60 days or 90
days)____________________
The Borrower hereby certifies that on the date hereof the
representations and warranties
contained the Loan Agreement are true in all material respects as
if made on the date hereof (except
to the extent that such representations and warranties relate
solely to an earlier date), and no Event of
Default or Potential Default exists.
Dated ____________, 199__.
OPTEK TECHNOLOGY, INC.
By
Title
14.4PAGE
<PAGE>
EXHIBIT B
COMPLIANCE CERTIFICATE
TO:NATIONSBANK OF TEXAS, N.A.
Reference is made to that certain Loan Agreement between OPTEK
TECHNOLOGY, INC.
and NATIONSBANK OF TEXAS, N.A. dated as of January 29, 1998 (the
"Loan Agreement").
The terms used herein shall have the same meanings as provided
therefor in the Loan Agreement,
unless the context hereof otherwise requires or provides.
The undersigned HEREBY CERTIFIES that he is the duly elected
and qualified officer of
_________________________ holding the office set forth opposite
his signature below, AND DOES
FURTHER CERTIFY, individually and on behalf of the Borrower,
that:
1. Attached hereto are complete and detailed financial
statements of the Borrower
as of, and for the period ending _________________, 199__,
which are complete and correct
in all respects.
2. A review of the activities of the Borrower during the
preceding fiscal quarter
has been made under his supervision with a view to determining
whether, during such fiscal
quarter, Borrower has kept, observed, performed and fulfilled
all of its obligations under the
Loan Documents, and that to the best of his knowledge Borrower
has kept, observed,
performed and fulfilled all of such obligations, except as set
forth in Schedule I attached
hereto. (If no Schedule I is attached, then such exception
does not apply and no such failures
exist.)
3. Set forth below is the calculation of the financial
covenants of the Loan
Agreement determined as of the last day of the immediately
preceding fiscal quarter of the
Borrower, which calculations have been made in accordance with
the requirements of the
Loan Agreement and which are true and correct in all material
respects.
A. Leverage Ratio. Borrower will not permit its ratio of
Total Funded Debt as of the last
day of each fiscal quarter to EBITDA for the period of
four consecutive fiscal quarters
ending on such day to be greater than 2.0 to 1.0 The
leverage ratio of Borrower as
of the last day of the date set forth above for the
period of four consecutive fiscal
quarters ending on such day is:
(1) Computation of EBITDA
Net Income, plus
$__________
Consolidated Interest Expense, plus
$__________
Aggregate Letter of Credit Fees, plus
$__________
Aggregate Income Tax Expense, plus
$__________
Net Depreciation, plus
$__________
15. Amortization, plus
$__________
All other non-cash charges, minus
$__________
Cash dividends, minus
$__________
Extraordinary gains
$__________
EBITDA
$__________
(2) Total Funded Debt
$__________
(3) Leverage Ratio (Total Funded Debt
divided by EBITDA)
_____ to _____
B. Quick Asset Ratio. Borrower will at all times maintain a
ratio of Quick Assets to
Adjusted Current Liabilities of not less than .75 to 1.0.
Such ratio as of the date
above is:
(1) Computation of Quick Assets
Cash on hand or on deposit, plus
$__________
Readily marketable securities issued by U.S., plus
$__________
Readily marketable commercial paper rated
"A-1", plus
$__________
Certificates of deposit/banker s acceptances, plus
$__________
Receivables not more than 90 days overdue
$__________
Quick Assets
$__________
(2) Computation of Adjusted Current Liabilities
__________
Current liabilities, less
$__________
Principal debt outstanding
$__________
Adjusted current liabilities
$__________
(3) Quick Asset Ratio (Quick Assets divided by
Adjusted Current Liabilities)
_____ to _____
C. Minimum Tangible Net Worth. Borrower must maintain at
all times a
Tangible Net Worth of not less than the sum of (a)
$20,000,000; plus (b) 50%
of Net Income for which purpose Net Income is a positive
number measured
cumulatively for each fiscal year beginning with the
fiscal year ending October
30, 1998; plus (c) 100% of the net proceeds of any
offering of any equity
securities sold for the account of Borrower and otherwise
permitted by the
terms hereof and consummated after January 29, 1998; plus
(d) 100% of any
capital contributions made to Borrower after January 29,
1998.
<PAGE>
(1) $20,000,000 Threshold
$20,000,000
(2) 50% of Net Income for which purpose Net Income is
a positive number measured cumulatively for
each fiscal year beginning with the fiscal year
ending October 30, 1998
$__________
(3) 100% of the net proceeds of any offering of any
equity securities sold for the account of Borrower
and otherwise permitted by the terms hereof and
consummated after January 29, 1998
$__________
(4) 100% of any capital contributions made to
Borrower after January 29, 1998
$__________
(5) Sum of lines (1), (2), (3) and (4)
$__________
(6) Tangible Net Worth as of the date above is (amount
on line (6) must be greater than amount on line (5)):
$__________
D. Tangible Net Worth of Mexican Subsidiaries.
(1) Tangible Net Worth of Optron De Mexico, S.A. de C.V.
$__________
(2) Tangible Net Worth of Semicondores Opticos, S.A. de
C.V.$__________
(3) Total of lines (1) and (2)
$__________
(4) Tangible Net Worth of Borrower
$__________
(5) Multiply amount on line (4) by 25%
$__________
(6) If amount on line (5) is less than
the amount on line (3), Mexican Subsidiaries
must guarantee Obligations.
4. Set forth below is the calculation of those negative
covenants contained in the
Loan Agreement which are determined as of the last day of the
fiscal year of Borrower.
These calculations have been made in accordance with the
requirements of the Loan
Agreement and are true and correct in all respects:
A. Capital Expenditures. The total of all capital
expenditures during the fiscal year
ending on the date set forth above (including capitalized
leases) were $___________.
B. Lease Expenditures. The total of all new obligations for
lease or hire of real or
personal property incurred in the fiscal year ending on
the date set forth above are
$______________.
<PAGE>
C. Fifty percent of the net profits of Borrower during the
fiscal year ending on the date
set forth above is $___________. The aggregate of all
distributions (other than
dividends payable in capital stock of Borrower) on any
shares of any class of
Borrower s capital stock made during the fiscal year
ended on the date set forth above
and the aggregate of all property or assets of Borrower
applied to the purchase or
redemption or other retirement of its shares during the
fiscal year ending on the date
set forth above, are $___________.
IN WITNESS WHEREOF, the undersigned has executed this
Certificate on
________________, 199__.
Office Signature
Printed Name
LEASE AGREENENT ENTERED INTO, BY AKD BETWEEN EQUIP08 CLINATEC,
8.A.
DE C.V,, RPsE82NTED BY IT8 ATTORsBY-IN-FACT XS8RS. DIETER E.
GRETHER AND BOBBY M.SEORNTON 5gEREINAETER REFERBED TO AS THE
"LES80R" AND BY TUE OTHER PART OPTON DE MEXICO, 8.A. DE C.V.,
REPRE8ENTED BY ITS ATTORNEY--IN-FACT MR. S ~f U) PPFF-1 _
(HEREINAFTER REFERRED TO AS TRE ";BS8BE"), PURSUANt TO THE
FOLLOWING STAtEMENT8 AND CLAU8ES:
S T A T E M E N T S
I. The LESSOR states, through its legal representative: a) That
it is a Mexican Commercial stock corporation incorporated in
accordance to the General Law of Commercial Corporations. EQUIPoS
is the owner of the entire beneficial interest in the property
and the building situated thereon through two different Real
Estate trust agreements which are effective for thirty-year terms
and renewals for additional thirtyyear terms.
b) That it is the owner and has full possession and domain of an
industrial plant with an approximate surface area of 5,400 square
meters (approximately 58,125 square feet), constructed on a plot
with surface of 19,568.43 square meters (approximately 210,634.50
square feet), located in the Rio Bravo Industrial Park, in the
City of Zargoza, Municipality of Juarez, Bravos District, State
of Chihuahua, Mexico, which characteristics are illustrated in
the plot plan and plan of premises which are attached to this
contract as Exhibit "A". (The aforementioned will be hereinafter
referred to as the "Real Estate" or the "Premises").
c) That it has the intention to lease the Real Estate, to the
LBSSEE pursuant to the terms and conditions set forth in this
instrument. d) That its representative has legal capacity for the
execution of this instrument on behalf of the LESSOR, same which
has not been limited nor revoked. e) That the LESSOR has legal
capacity to enter into this lease pursuant to the permit attached
hereto as Exhibit "B".
II. The
IzESSEE through its legal representative states: a)
That is
a commercial stock corporation incorporated in
accordance to the General Law of Commercial Corporations. b)
That its
objective is to operate light and clean industry.
c) That
it wishes to lease the Real Estate pursuant to the
terms
and conditions set forth herein. d) That its legal
representative has legal capacity for the execution of this
contract
on behalf of the LESSEE, which has not been limited
nor
revoked. e) That the LESSEE has legal capacity to enter
into
this Lease.
III. Both
parties state: That upon the execution of this
instrument there existed no error, misrepresentation nor bad
faith
between them. Having stated the foregoing, the parties
hereby
covenant and agree to the following:
2
<PAGE>
C L A U S
E S:
SECTION I LEASE 1.1. The LESSOR hereby grants to the hESSEE the
temporary use and enjoyment of the Real Estate. 1.2. The LESSEE
accepts and receives the Real Estate in lease, pursuant to the
terms and conditions set forth herein.
SECTION
2 TERM 2.1. Provided there is no uncured Event of
Default
and subject to the terms, covenants, agreements and
conditions contained herein, this Lease Agreement shall be for
a term,
binding for both parties, commencing as of the date of
execution hereof and ending on December 31, 1996, at il:59
p.m.,
Mexico city, Federal District time.
2.2.
This Lease Agreement may be extended for an additional
five (5)
consecutive terms of one year each, which extensions
shall be
exercised by the LESSEE by providing to the LESSOR a
previous
and written notice duly delivered, at least one
hundred
and eighty (180) days prior to the expiration date of
this
Agreement, expressing its intention to extend this Lease
Agreement. In the event that LESSEE does not exercise its
option
to extend the Term of this Lease for the next available
one year
term, then all rights and options of LESSEE to extend
the term
shall cease and LESSOR shall have the right during
the
remainder of the term to advertise, in any manner, the
availability of the Premises for reletting.
<PAGE>
/S.g
SECTION 3
USE OF THE REAL ESTATE 3.1. The LESSEE
shall use the ReaI Estate only for light and clean
industrial
purposes, such as the assembly or manufacture of all
kinds of
products, excluding basic chemical production and
heavy
industry, being forbidden expressly to use the Real
Estate for
basic chemical production, heavy industry,
fabrication or
storage of explosive, radioactive, inflammable
(except as
needed in day to day operations), explosive products
or any
other product which may be dangerous to persons or
the
integrity of the Real Estate. LESSEE shall comply
with the
Mexican law of Ecological Balance and Environmental
Protection
and Health Law. LESSEE states that it has the
intention of
manufacturing electrical and electronic products,
activity that
is considered a light and clean industrial operation.
Therefore, the LESSEE represents that the intended
use of the
Premises is according to the provisions set forth
above.
Notwithstanding any other provision of this Lease,
LESSOR
retains a right to ingress, egress, and access over
and across
the Premises for the benefit of other parts of the
Property or
other Real Estate in which LESSOR or its successor or
Affiliates may have an interest. SECTION 4
B~ 4.1.
The LESSEE shall pay to the LESSOR
for this Lease the rental amount of $70,143.25
(Seventy
Thousand One Hundred Forty-three and 25/loo Dollars),
legal
currency of the United States of
<PAGE>
4
X~fMl? s~
America, or pesos if
required by Hexican law, in
advance for the space
occupied for the period
thru December 31, 1991.
Beginning January l, 1992
the LESSEE shall pay $4.50
(Four and 50/100 Dollars)
per square foot per year
for the 58,125 square feet
or the amount of space not
occupied by Equipos
Climatec, S.A. de C.V.,
payable in twelve (12)
equal and monthly
installments of $21,797.00
(Twenty-one Thousand Seven
Hundred Ninety-seven and
no/100 Dollars), legal
currency of the United
States of America, or
Mexico if required by
Mexican law. Each such
payment shall be due and
payable on the first day of
each calendar month. 4.2.
The LESSEE agrees to make
payment of the rent without
the need of prior demand or
request of payment; the
LESSEE, likewise, may not
retain any part of the
rentals due to repairs or
any other reason
whatsoever. 4.3. The
installments of the Lease
price referred in paragraph
4.1. above, shall be
payable by the LESSEE to
the LESSOR, on the first
day of each month,
precisely at the payment
address of the LESSOR
located at P.O. Box 754,
Oklahoma City, Oklahoma
73101. 4.4. In case the
LESSEE does not pay on time
to the LESSOR at the
address abovementioned,
interest shall accrue at
the rate of 128 per annum
on the overdue amount, from
the rental payment due date
until the total and
comp}ete to payment is
effected, without prejudice
of the right of the LESSOR
to rescind this Agreement.
4.5. The rental amount
shall be increased each
year on the first day of
January in proportion to
the increase of the
"Consumer Prices Index@~
published by the Department
of Labor of the United|)swf
States of America, from the
prior January 1, with the
understanding the rental
amounts shall never be
reduced. 4.6. To fix the
increases of the rentals,
as set forth in paragraph
4.5 above, the LESSEE
agrees that the LESSOR
shall determine such
increases according to the
provisions set forth in
this Section and LESSOR
shall notify LESSEE in
writing of such increase.
This notice shall bind the
LESSEE to pay the new
rental amounts, unless the
LESSEE notifies LESSOR that
there is a mathematical
error in the calculation
within thirty (30) days of
such invoice. If there is a
correction to the
calculation of such amount,
LESSEE agrees to pay such
corrected amount. SECTION 5
LESSEE POSSESSION 5.1. The
LESSOR hereby delivers the
possession of the Real
Estate to LESSEE. LESSEE
receives the Real Estate in
possession and states its
agreement and full
satisfaction with respect
to its foundations,
columns, walls, exteriors,
roofs, structures and all
other components. 5.2. The
LESSEE shall permit to the
person or persons
designated by the LESSOR
the access to Real Estate
for the purpose to verify
the fulfillment of the
obligations of the LESSEE
under the terms set forth
in this Agreement, as well
as for the preservation of
the Real Estate or any
other proper purpose,
including but not limited
to the access of other
property owned by LESSOR or
its Affiliates.
$~1SECTION 6
MAINTENANCE OF LESSOR 6.1.
The LESSOR shall be bound
to maintain the structure
and integrity of the roofs
(without including the
waterproofing) and
structure of the Real
Estate, provided that such
repairs do not become
necessary due to the
negligence or misconduct of
the LESSEE or the
installation of machinery,
equipment or additions or
the placement of materials
which due to their
dangerous
nature, weight, movement,
vibrations and other
similar conditions may
produce any injury to the
Real Estate, due to the
characteristics of the
structure or roof of the
Real Estate or its actual
weight resistance. For
reason of the above stated
purposes, the LESSEE
represents to know
perfectly well the
technical characteristics
of the Real Estate and
states its full
satisfaction therewith.
SECTION 7
MAINTENANCE OF THE LESSEE
7.1 The LESSEE during the
term hereof, binds itself
to render to the Real
Estate whatever maintenance
is required and to make the
corresponding repairs, so
as to keep the Real Estate
in its normal state of
conservation, excluding its
normal wear and tear but
including the adequate
waterproofing of the roofs.
7.2. For the purpose of
carrying out repairs or
maintenance work referred
in the foregoing paragraph
on the Real Estate, when
the LESSEE is to carry out
any important maintenance
work, the LESSEE must
previously notify the
LESSOR in writing,
informing LESSOR of
W #
-
t
the
need to carry out
such
work and the
characteristics
thereof, so that LESSOR
approves such work
which
approval shall
not
be unreasonably
withheld.
SECTION 8
IMPROVEMENTS AND
INSTALLATIONS CARRY OUT
BY
LESSEE 8.1. The
LESSEE may carry out
with
the previous
authorization of the
LESSOR given in
writing, at its
expense, all
improvements to the
Real
Estate or
installations thereof
which
LESSEE considers
convenient to take full
advantage of the Real
Estate, in accordance
with
LESSEEts
activitiest with the
understanding that upon
termination hereof, all
installations,
improvements or
additions of a
permanent character,
including but not
limited to heating
ventilating and air
conditioning systems
equivalent of
whatsoever nature
("HVAC") in;stalled in
the
Premises by LESSEE
whether permanently
affixed thoreto or
otherwise and all
fixtures shall remain
for
the benefit of the
Real
Estate; LESSEE
hereby expressly waives
the
provisions of
Sections 2423 and 2424
of
the Civil Code for
the
Federal District
and
their corresponding
Section of other Civil
Codes
applicable in the
Republic of Mexico. The
LESSOR, if ift is
convenient to its
interest, shall have
the
authority to demand
from
the LESSEE, upon
termination hereof, to
remove
alldinstallations,
improvements or
additions effected by
LESSEE andXsaid LESS:EE
shall
deliver the Real
Estate to the LESSOR in
the
same state in which
LESSEE received it,
reasonable wear and
tear;#xcepted.
8 ::
X
The LESSEE may
remove the installations or improvements that
it may
have carried out on the Real Estate, which are not of a
permanent
nature, provided however, that upon removal thereof
that the
Real Estate is left in the same state in which it was
received,
with the exception of its normal wear and tear. 8.2.
LESSEE's
obligation to pay the rental amounts shall be in
force
until the LESSEE delivers to the LESSOR the Real Estate
without
any object that the LE9SEE may have on the Real
Estate.
The rental amounts shall accrue by complete months,
according
to the terms set forth in paragraph 13.3. hereof.
SECTION 9
9.1. The LESSEE shall be authorized to install, inside or
outside
of the Real Estate, without inJury to the Real Estate,
those
signs which it considers necessary, with the
understanding that they must be removed upon termination
hereof
and all damages caused thereby to the Real Estate must
be
repaired. 9.2. The LESSEE shall permit to the LESSOR the
installment of signs in the Real Estate:to offer it on Lease,
Sale, or
any other for three months before the termination f
this
Agreement or its renewal. SECTION 10 fUTILITIES
10.1. The
LESSEE shall on its own account enter into the
corresponding utilities contracts for lighting or power, gas
or water
utilities and any other utility which may be required
by
~t
the
LESSEE to carry out its activities within the Real Estate,
all
amounts charged thereof sh:ll be paid by the LESSEE. 10.2.
Upon
termination of this Agreement, the LESSEE shall cancel and
pay all
utilities contracts, as part of the termination
obligations related to the deliver of the Real Estate,
according to the terms set forth in Section 13 hereof and the
rental
amounts set forth in paragraph 8.2. shall accrue as long
as the
LESSEE does not comply with its obligations set forth
herein.
SECTIoN 11
LIABILITIES OF THE PARTIES 11.1 In conformance with applicable
law,
EQUIPOS guarantees to OPTRON the use and peacefui
enjoyment of the Premises during the fll term of the
contractF, and OPTRON covenants and agrees to use the Premises
only for
the purposes herein set forth and in accordance with
the
nature and intended usage of the Premises. The liabilities
of
EQUIPOS and of OPTRON, in each case, shall be ruled by the
following provisions: ll.l.A. Each of-EQUIPOS or OPTRON,
respectively, shall be liable for damages to the Premises
caused
by their own fault or negligence, or that of their
agents,
employees or visitors, except for losses commonly
insurable by fire insurance with extended coverage endorsement.
ll.l.B.
If the Premises are damaged or destroyed by any act of
God or
force majeure, upon OPTRON's written request, EQUIPOS
shall
have the option to restore the Premises
10
- - - with the insurance proceeds referred to below and put
them in
proper condition within 6 (six) months for
OPTRON
to use for the purposes agreed on in this
contract. However, if EQUIPOS elects not the rebuild,
this
lease shall terminate without any further
responsibility to the parties.
ll.l.C.
If the damage is attributable to the fault or
misconduct of OPTRON, or its agents, employees or
visitors, OPTRON shall be liable to EQUIPOS for all
damages
caused to the Premises and shall indemnify
EQUIPOS
for all cost to leave the Premises as they were
before
the damage occurred.
ll.l.D.
The responsibilities of the parties referred to in
the
foregoing paragraphs of this clause shall be subject to
the
provisions of Clause Twelve of this contract.
SECTIoN 12
INSURANCE 12.1. The LESSEE agrees to obtain and pay
for, as
long as this Agreement is in full force, or allow
the
LESSOR to obtain them and LESSEE shall pay all costs
thereof,
the following insurance:
The
required insurance during the term of this lease
shall be
against any loss or damage by fire and against any
loss or
damage by lighting, explosion, hurricane and hail,
airplanes, vehicles and smoke, earthquake and/or volcanic
eruption, strikes, riots and vandalism and any other risks
now or
hereafter embraced by so called "Extended Coverage"
(including glass insurance), in
11
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Doll ars) currency of the
United States of America for
prop erty damage.
12.2 .B.Insurance against
loss or damage by boiler (or
compressor), malfunction or
by i nternal explosion
by boiler (or compressor),
for any high pressure
boil er (or compressor)
installed in the Premises
whic h is part of the
Premises, in such limits as
EQUIPOS, from time to time,
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12.2.C.Rental interruption
insurance which covers the
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LESS OR ceases to receive
Computation of Per Share Earnings
Exhibit 11.1
October 31, October 25, October 27,
1997 1996 1995
Adjusted Shares Outstanding
Weighted average common
shares outstanding 4,192,530 3,767,083 3,318,649
Warrants 3,352,968 3,383,800 3,404,801
Stock Options 625,656 795,759 967,461
Total common shares and
common share equivalents 8,171,154 7,946,642 7,690,911
20% common stock limitation (493,912) (319,728) (663,730)
Adjusted weighted average
shares outstanding 7,677,242 7,626,914 7,027,181
Adjusted Net Earnings
Net earnings $11,502,000 $12,895,000 $9,838,000
Adjustment for 20% common
stock limitation - - 27,000
Adjusted earnings for computation
of earnings per share $11,502,000 $12,895,000 $9,865,000
Earnings Per Share
Adjusted earnings for computation
of earnings per share $11,502,000 $12,895,000 $9,865,000
Adjusted weighted average shares
outstanding 7,677,242 7,626,914 7,027,181
Earnings per common share $1.50 $1.69 $1.40
NOTES:
Primary earnings per share and fully diluted earnings per share
were substantially the same in all periods presented.
The modified treasury stock method is used to calculate net
earnings per common share. The calculation uses the weighted
average number of common shares outstanding and, when fully
dilutive, common equivalent shares outstanding (warrants and
stock options). Under the method, all warrants and options are
assumed to be exercised and up to 20% of common shares
outstanding are assumed to be repurchased. The remaining
proceeds, if any, are then assumed to be used to reduce debt and
the resulting reduction in interest expense is added back to net
earnings for calculation of earnings per share.
1
Subsidiaries of the Registrant
Optek Technology, Inc. (Texas)
OTX Corporation (Texas)
Semiconductores Opticos, S.A. de C.V. (Mexico)
Optron de Mexico, S.A. de C.V. (Mexico)
INDEPENDENT AUDITORS CONSENT
The Board of Directors
Optek Technology, Inc.:
We consent to incorporation by reference in the registration
statements (No. 33-60656, 33-18555 and 333-419) on Form S-8 of
Optek Technology, Inc. of our reports dated December 16, 1997,
relating to the 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, and the related
schedule which reports appear in the October 31, 1997 annual
report on Form 10-K of Optek Technology, Inc.
KPMG Peat Marwick LLP
Dallas, Texas
January 26, 1998
January 26, 1998
The Board of Directors and Stockholders
Optek Technology, Inc.:
Under date of December 16, 1997, we reported on the 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, which are included in the Annual Report on Form
10-K. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related
consolidated financial statement schedule in the Annual Report on
Form 10-K. This financial statement schedule is the
responsibility of the Company's management. Our responsibility
is to express an option on this financial statement schedule
based on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
KPMG Peat Marwick LLP
Dallas, Texas
December 16, 1997
Schedule II
OPTEK TECHNOLOGY, INC. AND SUBSIDIARIES
Valuation and Qualifying Accounts
(in thousands)
Description Balance at Additions charged Deductions Balance at
beginning to costs and end of year
of year and expenses Write-off
Year ended October 31, 1997
Allowance for doubtful accounts
and customer returns
1,095 1,331 (774) 1,653
Reserve for excess and obsolete inventory
1,806 421 (72) 2,155
Year ended October 25, 1996
Allowance for doubtful accounts
And customer returns
975 641 (521) 1,095
Reserve for excess and obsolete inventory
2,453 (151) (496) 1,806
Year ended October 25, 1995
Allowance for doubtful accounts
and customer returns
738 785 (548) 975
Reserve for excess and obsolete inventory
3,030 63 (640) 2,453
