SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: May 1, 1998
Commission File Number: 0-16304
OPTEK TECHNOLOGY, INC.
- - --------------------------------------------------------------
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE
--------------------------------------------
(State or other jurisdiction of incorporation or organization)
75-1962405
---------------------------------------------------------------
(I.R.S. Employer Identification No.)
1215 WEST CROSBY ROAD CARROLLTON, TEXAS 75006
---------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(972) 323-2200
---------------------------------------------------------------
(Registrant's telephone number, including area code)
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.
X
-------- -------
Yes No
Number of common shares outstanding as of May 20, 1998:
7,706,574 with par value $.01 per share
<PAGE>
OPTEK TECHNOLOGY, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Optek Technology, Inc. Consolidated Balance Sheets as of May 1,
1998 and October 31, 1997.
Optek Technology, Inc. Consolidated Statements of Income for the
Three Months Ended May 1, 1998 and May 2, 1997.
Optek Technology, Inc. Consolidated Statements of Income for the
Six Months Ended May 1, 1998 and May 2, 1997.
Optek Technology, Inc. Consolidated Statements of Cash Flows for
the Six Months Ended May 1, 1998 and May 2, 1997.
Notes to Consolidated Financial Statements
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<PAGE>
FORM 1O-Q
PART I
OPTEK TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands except share and per share data)
<TABLE>
<CAPTION> May 1, 1998 October 31,1997
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $12,215 $ 9,815
Accounts receivable, net of
allowance for doubtful accounts
and customer returns of $1,942
in 1998 and $1,653 in 1997 9,564 9,196
Inventories (Note 2) 7,779 6,491
Deferred income taxes 2,113 2,113
Prepaid expenses 143 109
Total current assets 31,814 27,724
Property, plant and equipment, net 13,473 11,135
Other assets 54 77
-------- -------
$45,341 $38,936
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,878 $ 3,109
Accrued expenses 8,572 9,547
------- -------
Total current liabilities 11,450 12,656
Other liabilities 162 117
Stockholders' equity:
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 4,554,159 shares
in 1998 and 4,259,534 shares
in 1997 46 43
Additional paid-in-capital 14,920 13,963
Retained earnings 18,763 12,157
-------- --------
Total stockholders' equity 33,729 26,163
-------- --------
$45,341 $38,936
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION> THREE MONTHS ENDED
May 1,1998 May 2,1997
<S> <C> <C>
Net sales $23,092 $18,251
Costs and expenses:
Cost of sales 13,429 10,750
Product development expenses 318 342
Engineering expenses 1,271 978
Selling expenses 1,434 1,295
General and administrative
expenses 1,124 856
-------- -------
Total costs and expenses 17,576 14,221
-------- -------
Operating income 5,516 4,030
Other (income) expense, net:
Interest income (149) (2)
Other expense 25 5
-------- -------
Total other (income)
expense, net (124) 3
-------- -------
Income before income taxes 5,640 4,027
Income tax expense 1,974 1,408
-------- -------
Net income $ 3,666 $ 2,619
======== =======
Basic earnings per share (Note 4) $ 0.81 $ 0.63
======== =======
Shares used in computing basic
earnings per share 4,554 4,172
======== =======
Diluted earnings per share (Note 4 $ 0.46 $ 0.34
======== =======
Shares used in computing diluted
earnings per share 7,979 7,642
-------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION> SIX MONTHS ENDED
May 1,1998 May 2,1997
<S> <C> <C>
Net sales $43,511 $34,940
Costs and expenses:
Cost of sales 25,534 20,849
Product development expenses 572 660
Engineering expenses 2,475 1,987
Selling expenses 2,891 2,590
General and administrative
expenses 2,095 1,722
-------- --------
Total costs and expenses 33,567 27,808
-------- --------
Operating income 9,944 7,132
Other (income) expense, net:
Interest (income) expense, net: (260) 81
Other expense 40 81
-------- --------
Total other (income)
expense, net (220) 162
-------- --------
Income before income taxes 10,164 6,970
Income tax expense 3,558 2,439
-------- --------
Net income $ 6,606 $ 4,531
======== ========
Basic earnings per share (Note 4) $ 1.50 $ 1.09
======== ========
Shares used in computing basic
earnings per share 4,413 4,161
======== ========
Diluted earnings per share (Note 4) $ 0.83 $ 0.60
======== ========
Shares used in computing diluted
earnings per shares 7,930 7,588
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION> SIX MONTHS ENDED
May 1,1998 May 2,1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,606 $ 4,531
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 898 1,090
Gain on sale of property, plant
and equipment (6) -
Changes in assets and liabilities:
Accounts receivable (368) 1,029
Inventories (1,288) (109)
Prepaid expenses and
other assets (11) 15
Accounts payable, accrued
expenses and other liabilities(1,161) (296)
-------- --------
Net cash provided by operating
activities 4,670 6,260
Cash flows from investing activities:
Purchase of property, plant and
equipment (3,236) (567)
Proceeds from sale of property,
plant and equipment 6 -
-------- --------
Net cash used in investing
activities (3,230) (567)
Cash flows from financing activities:
Net repayment of long-term bank
debt - (3,427)
Net proceeds from exercise of stock
options and warrants 960 319
-------- --------
Net cash provided by (used in)
financing activities 960 (3,108)
Net increase in cash and cash
equivalents 2,400 2,585
Cash and cash equivalents at
beginning of period 9,815 121
-------- --------
Cash and cash equivalents at end
of period $12,215 $ 2,706
======== ========
Interest payments $ 6 $ 132
======== ========
Income tax payments $ 3,680 $ 1,675
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
FORM 10-Q
PART I
OPTEK TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 1, 1998
NOTE 1
The consolidated financial statements of Optek Technology, Inc.
(the "Company") are unaudited and reflect all adjustments,
consisting only of normal recurring adjustments, which are, in the
opinion of management, necessary for a fair presentation of the
results for the interim periods. These consolidated financial
statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended October 31, 1997.
The results of operations for the three months and six months ended
May 1, 1998 are not necessarily indicative of the results for the
entire year ending October 30, 1998.
NOTE 2 The components of inventories, in thousands of dollars,
are as follows:
<TABLE>
<CAPTION>
May 1, 1998 October 31,1997
<S> <C> <C>
Finished goods $ 1,293 $ 1,503
Work-in-process 4,384 4,003
Raw materials 4,438 3,140
Reserves for excess and obsolete
inventory (2,336) (2,155)
-------- ---------
$ 7,779 $ 6,491
========= =========
</TABLE>
NOTE 3 The registrant has no material pending legal proceedings.
NOTE 4 On November 1, 1997 the Company adopted Financial
Accounting Standards Statement No. 128, "Earnings per Share." All
share and per share amounts, including those of the prior year,
have been restated to comply with the new provisions.
Shares used in calculating basic and diluted earnings per share for
the three months ended May 1, 1998 and May 2, 1997 are as follows:
<TABLE>
<CAPTION>
May 1, 1998 May 2, 1997
<S> <C> <C>
Weighted average common shares
outstanding used in computing
basic earnings per share 4,554 4,172
Warrants to purchase common shares
held by First Source Financial,
LLP 3,150 3,150
Other warrants to purchase common
shares - 195
Common stock options 504 689
Assumed repurchase of common shares (229) (564)
------- ---------
Shares used in computing diluted
earnings per share 7,979 7,642
========= =========
<PAGE>
FORM 10-Q
PART I
Shares used in calculating basic and diluted earnings per
share for the six months ended May 1, 1998 and May 2, 1997 are as
follows:
</TABLE>
<TABLE>
<CAPTION>
May 1, 1998 May 2, 1997
<S> <C> <C>
Weighted average common shares
outstanding used in computing
basic earnings per share 4,413 4,161
Warrants to purchase common shares
held by First Source
Financial, LLP 3,150 3,150
Other warrants to purchase
common shares 89 195
Common stock options 556 524
Assumed repurchase of common shares (278) (442)
------- ---------
Shares used in computing diluted
earnings per share 7,930 7,588
========= =========
</TABLE>
NOTE 5 Other notes have been omitted pursuant to Rule 10-01 (a)
(5) of Regulation S-X.
<PAGE>
FORM 10-Q
PART I
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Results of Operations
Three Months Ended May 1, 1998 Compared to Three Months Ended May
2, 1997
Net sales for the three months ended May 1, 1998 were $23.1
million, up $4.8 million, or 27%, compared to net sales of $18.3
million for the three months ended May 2, 1997. The increase was
primarily the result of higher net sales volume in automotive
products, up $3.4 million or 85%, attributed to sales of sensor
assemblies for use in a theft deterrent system on model year 1998
trucks and sport utility vehicles. Commercial products sold
primarily to office and industrial equipment markets, also
contributed to the increase with net sales up $1.4 million or 11%
over the prior year. The automotive industry, which accounted for
approximately 32% of the Company's net sales during the three
months ended May 1, 1998, has in recent years represented the
fastest area of growth for the Company. The Company's growth rate
has been more significantly impacted by the addition of new
programs than growth in existing programs. Therefore, the
Company's quarter-to-quarter and year-to- year growth rates depend
largely upon the number, size and timing of new program additions.
Gross profit for the three months ended May 1, 1998 was $9.7
million, or 41.8% of net sales, compared to $7.5 million, or 41.1%
of net sales, in the comparable period of fiscal 1997. The
increase was primarily the result of the higher net sales volume in
automotive and commercial products combined with higher absorption
of fixed costs associated therewith.
Product development and engineering expenses during the three
months ended May 1, 1998 were $1.6 million, or 6.9% of net sales,
compared to $1.3 million, or 7.2% of net sales, during the
comparable period of the prior fiscal year. Although expenses in
absolute dollars were up slightly from the prior year, they are
down as a percentage of net sales due to the increase in net sales
for the period. These expenses were primarily related to the
development of new products and processes as well as ongoing
engineering support. The Company anticipates expenditures to
increase in absolute dollars from fiscal 1997 to fiscal 1998 in
order to support new product development and expand ongoing
engineering support.
Selling, general and administrative expenses during the three
months ended May 1, 1998 were $2.6 million, or 11.1% of net sales,
compared to $2.2 million, or 11.8% of net sales, in the three
months ended May 2, 1997. Although expenses in absolute dollars
were up from the prior year due to sales commissions on higher
sales volume, they are down as a percentage of net sales due to the
increase in net sales for the period.
Operating income for the three months ended May 1, 1998 was
$5.5 million, or 23.9% of net sales, versus $4.0 million, or 22.1%
of net sales, during the comparable period of fiscal 1997. The
increase in operating income resulted from the factors discussed
above. The Company's expense levels are based, in part, on its
expectations as to future net sales and to some extent are fixed in
the short term. Accordingly, the Company may be unable to adjust
spending in a timely manner to compensate for an unexpected
shortfall in revenues, and any significant shortfall of demand in
relation the Company's expectations or any material delay or
deferral of customer orders would have a material adverse effect on
the Company's business, operating results and financial condition.
Other (income) expense consisted primarily of net interest
income of $149,000 in the three months ended May 1, 1998 compared
to net interest income of $2,000 in the comparable period of fiscal
1997. During the three months ended May 2, 1997, the Company repaid
the remaining balance of long-term debt and has earned interest
income on accumulated cash balances since that time.
Income tax expense for the three months ended May 1, 1998 was
$2.0 million, or 8.5% of net sales, compared to $1.4 million, or
7.7% of net sales, in the same period of fiscal 1997. The increase
in tax expense for the period was attributable to higher income.
The effective tax rate for both periods was 35%.
<PAGE>
As a result of the factors discussed above, net income for the
three months ended May 1 1998 was $3.7 million, or 15.9% of net
sales, compared to $2.6 million, or 14.4% of net sales, in the
comparable period of fiscal 1997.
First Six Months Ended May 1, 1998 Compared to First Six Months
Ended May 2, 1997
During the first six months of fiscal 1998, net sales were
$43.5 million, up $8.6 million or 25%, compared to net sales of
$34.9 million for the first six months of fiscal 1997. The
increase was primarily attributed to higher net sales volume in
automotive products, up $7.1 million or 94%, resulting from sales
of sensor assemblies for use in a theft deterrent system on model
year 1998 trucks and sport utility vehicles. Also contributing to
the increase in net sales were commercial products, primarily
office and industrial equipment markets, which were up $1.6 million
or 6% over the prior year. The automotive industry, which accounted
for approximately 33% of the Company's net sales during the first
six months of 1998, has in recent years represented the fastest
area of growth for the Company. The Company's growth rate has been
more significantly impacted by the addition of new programs than
growth in existing programs. Therefore, the Company's
quarter-to-quarter and year-to-year growth rates depend largely
upon the number, size and timing of new program additions.
Gross profit in the first six months of fiscal 1998 was $18.0
million, or 41.3% of net sales, compared to $14.1 million, or 40.3%
of net sales, in the comparable period of fiscal 1997. The
increase was primarily the result of the higher net sales volume in
automotive and commercial products combined with higher absorption
of fixed cost associated therewith.
Product development and engineering expenses during the first
six months of fiscal 1998 were $3.0 million, or 7.0% of net sales,
compared to $2.6 million, or 7.6% of net sales, during the
comparable period of the prior fiscal year. Although expenses in
absolute dollars were up slightly from the prior year, they are
down as a percentage of net sales due to the increase in net sales
for the period. These expenses were primarily related to the
development of new products and processes as well as ongoing
engineering support. The Company anticipates expenditures to
increase in absolute dollars from fiscal 1997 to fiscal 1998 in
order to support new product development and expand ongoing
engineering support.
Selling, general and administrative expenses during the first
six months of fiscal 1998 were $5.0 million, or 11.5% of net sales,
compared to $4.3 million, or 12.3% of net sales, in the first six
months of fiscal 1997. Expenses in absolute dollars were up from
the prior year due primarily to sales commissions from increased
net sales. Expenses as a percentage of net sales are down due to
net sales increasing at a higher rate than expenses during the
period.
Operating income for the first six months of fiscal 1998 was
$9.9 million, or 22.9% of net sales, versus $7.1 million, or 20.4%
of net sales, during the comparable period of fiscal 1997. The
increase in operating income resulted from the factors discussed
above. The Company's expense levels are based, in part, on its
expectations as to future net sales and to some extent are fixed in
the short term. Accordingly, the Company may be unable to adjust
spending in a timely manner to compensate for an unexpected
shortfall in revenues, and any significant shortfall of demand in
relation the Company's expectations or any material delay or
deferral of customer orders would have a material adverse effect on
the Company's business, operating results and financial condition.
The Company has commenced expenditures to increase manufacturing
capacity and engineering resources in anticipation of additional
potential net sales. In the event that such additional net sales
do not materialize when and as anticipated, such expenditures could
adversely affect the Company's gross margins and operating margins.
Other (income) expense consisted primarily of net interest
income of $260,000 in the first six months of fiscal 1998 compared
to net interest expense of $81,000 in the comparable period of
fiscal 1997. The Company repaid the remaining balance of long-term
debt during the second quarter of fiscal 1997 and has earned
interest income on accumulated cash balances since that time.
Income tax expense for the first six months of fiscal 1998 was
$3.6 million, or 8.2% of net sales, compared to $2.4 million, or
7.0% of net sales, in the same period of fiscal 1997. The increase
in tax expense for the period was attributable to higher income.
The effective tax rate for both periods was 35%.
<PAGE>
As a result of the factors discussed above, net income for the
first six months of fiscal 1998 was $6.6 million, or 15.2% of net
sales, compared to $4.5 million, or 13.0% of net sales, in the
first six months of fiscal 1997.
Liquidity and Capital Resources
- - ---------------------------------
The Company generated approximately $4.7 million in cash from
operations during the first six months of fiscal 1998. The largest
use of operating cash flows was the purchase of manufacturing
equipment in the amount of $3.2 million. At the end of the first
six months of fiscal 1998, the Company's working capital was $20.4
million, including $12.2 million of cash and cash equivalents.
The Company anticipates that additional manufacturing capacity,
primarily in Mexico, will be required to support growth over the
next several years. Therefore, capital expenditures are planned at
a total of approximately $10 to $15 million to be expended over the
next two to three fiscal years to support anticipated future growth
in demand for the company's products. The timing and amount of
such expenditures is subject to adjustment based upon continued
evaluation by management.
In January 1998, the Company obtained a three-year $10.0
million unsecured line of credit from NationsBank NA. Borrowings
under this facility bear interest, at the option of the Company,
either at (i) a LIBOR-based rate plus a margin ranging from 1.00%
per annum to 1.50% per annum, depending upon the Company's ratio of
indebtedness to operating income, or (ii) a base rate equal to a
reference rate plus a margin ranging from -1.00% to 0%, depending
upon the Company's ratio of indebtedness to operating income. This
facility contains customary covenants that, among other things:
require the maintenance of certain financial ratios relating to
fixed charges and interest coverage and debt and equity amounts;
require the maintenance of certain net worth levels; restrict liens
on Company and subsidiary assets; and limit the payment of cash
dividends.
The Company anticipates that it will generate sufficient cash
flows from operations to meet its obligations, including capital
requirements, for the next 12 months. However, an unanticipated
expansion or contraction of its business or future acquisitions may
require the Company to draw upon its existing credit line or obtain
other financing.
Subsequent to May 1, 1998, the Company's former lender, First
Source Financial (First Source), exercised warrants to purchase
3,150,000 shares of the Company's common stock. The Company
assisted First Source with the sale of 2,500,000 of those shares at
a price of $22.50 in an offering underwritten by Prudential
Securities Incorporated, BancAmerica Robertson Stephens and ABN
AMRO, Incorporated. The Company did not receive any proceeds from
the sale of common shares by First Source, but did receive the
aggregate exercise price of $1.58 million upon exercise of the
3,150,000 warrants less offering costs.
Statements contained in this quarterly report on Form 10-Q that are
not historical facts are forward looking and therefore include risks
and uncertainties. Significant factors that may affect results are
described herein and in the Company's other public filings.
<PAGE>
Recent Accounting Pronouncements
- - --------------------------------
Statement of Position ("SOP") 98-1, "Accounting for the Cost
of Computer Software Developed or Obtained for Internal Use," was
issued in March 1998 and is effective for fiscal years beginning
after December 15, 1998. The SOP requires that certain costs
related to the development or purchase of internal use software be
capitalized and amortized over the estimated useful life of the
software. The SOP also requires that costs related to the
preliminary project stage and post-implementation operations stage
of an internal-use computer software development be expensed as
incurred. The Company does not expect the adoption of the SOP to
have a significant impact on the Company's financial position or
results of operations.
<PAGE>
PART II. - OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of stockholders of Optek Technology, Inc.
was held on May 17, 1998, at which time the stockholders were asked
to vote upon election of Directors and approval of the Optek
Technology, Inc. 1998 Stock Option Plan (the "Plan").
All Directors of the Company were reelected. The votes cast in
such election were tabulated as follows:
<TABLE>
<CAPTION>
Nominee For Votes Withheld
<S> <C> <C>
Grant A. Dove 3,544,035 2,700
Thomas R. Filesi 3,544,035 2,700
Rodes Ennis 3,539,035 7,700
Michael E. Cahr 3,544,035 2,700
William H. Daughtrey 3,531,385 15,350
Wayne Stevenson 3,537,335 9,400
</TABLE>
The Plan was also duly approved. The votes to approve the Plan were
tabulated as follows:
<TABLE>
<S> <C> <C> <C>
For Against Abstain Brokers Non-Vote
2,203,435 686,685 29,100 627,515
</TABLE>
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K.
10.74 1998 Stock Option Plan.
<PAGE>
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf
of the undersigned thereunto duly authorized.
Optek Technology, Inc.
Date: June 2, 1998 By: /s/ Thomas R. Filesi
Thomas R. Filesi
Chairman and CEO
(Principal Executive
Officer)
Date: June 2, 1998 By: /s/ William J.Collinsworth
William J. Collinsworth
Vice President - Finance
and CFO (Principal
Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
registrant's Form 10-Q for the quarter ended May 1, 1998 and is
qualified in its entirety by reference to such financial statement.
All numbers are in thousands, except per share amounts.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-30-1998
<PERIOD-END> MAY-01-1998
<CASH> 12215
<SECURITIES> 0
<RECEIVABLES> 11506
<ALLOWANCES> 1942
<INVENTORY> 7779
<CURRENT-ASSETS> 31814
<PP&E> 35063
<DEPRECIATION> 21590
<TOTAL-ASSETS> 45341
<CURRENT-LIABILITIES> 11450
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 45341
<SALES> 23092
<TOTAL-REVENUES> 23092
<CGS> 13429
<TOTAL-COSTS> 17576
<OTHER-EXPENSES> 25
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (149)
<INCOME-PRETAX> 5640
<INCOME-TAX> 1974
<INCOME-CONTINUING> 3666
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3666
<EPS-PRIMARY> .81
<EPS-DILUTED> .46
</TABLE>
OPTEK TECHNOLOGY, INC.
1998 STOCK OPTION PLAN
ARTICLE I - GENERAL
1.1. Establishment of the Plan. Optek Technology, Inc., a
Delaware corporation (hereinafter referred to as the "Company"),
hereby establishes a stock option plan to be known as the Optek
Technology, Inc. 1998 Stock Option Plan (hereinafter referred to as
the "Plan"), as set forth in this document.
The Plan shall become effective upon approval by the Company's
stockholders (the "Effective Date") and shall remain in effect as
provided in Section 1.3 hereof.
1.2. Purpose. The purposes of this Plan are to: (1) better
align the interests of the management of Optek Technology, Inc.
("Optek") and its subsidiaries and affiliates (collectively
referred to as the "Company") with the stockholders by reinforcing
the relationship between participants' reward and stockholder
gains; (2) provide management with an equity ownership in the
Company which will fluctuate with and reflect Company performance;
(3) maintain competitive compensation levels; and (4) provide an
incentive to management to continue employment with the Company.
1.3. Administration.
(a) The Plan shall be administered by a Committee appointed
by the Board of Directors of Optek (the "Committee"), as constitut-
ed from time to time, which shall consist of two or more members of
the Board who are Non-Employee Directors, as defined by Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended.
(b) The Committee shall have the authority, in its sole
discretion and from time to time to:
(i) designate the employees or classes of employees and
independent contractors eligible to participate in the Plan;
(ii) grant awards provided in the Plan in such form and
amount as the Committee shall determine;
(iii) impose such limitations, restrictions and condi-
tions upon any such award as the Committee shall deem appro-
priate; and
(iv) interpret the Plan, adopt, amend and rescind rules
and regulations relating to the Plan, and make all other
determinations and take all other action necessary or advis-
able for the implementation and administration of the Plan.
<PAGE>
(c) Decisions and determinations of the Committee on all
matters relating to the Plan shall be in its sole discretion and
shall be conclusive. No member of the Committee shall be liable
for any action taken or decision made in good faith relating to the
Plan or any award thereunder.
1.4. Eligibility for Participation. Participants in the Plan
shall be selected by the Committee from the executive officers and
other key employees of the Company who occupy responsible manageri-
al or professional positions and who have the capability of making
a substantial contribution to the success of the Company. The
Committee may also make awards under this Plan (other than
Incentive Stock Options) to independent contractors, such as
managerial consultants and financial or legal advisors, whom the
Committee believes may contribute significantly to the success of
the Company. In making this selection and in determining the form
and amount of awards, the Committee shall consider any factors
deemed relevant, including the individual's functions, responsibil-
ities, value of services to the Company and past and potential
contributions to the Company's profitability and sound growth.
1.5. Types of Awards Under Plan. Awards under the Plan may
be in the form of any one or more of the following:
(i) Stock Options;
(ii) Incentive Stock Options;
(iii) Reload Options;
(iv) Alternative Appreciation Rights; and/or
(v) Limited Rights.
1.6. Aggregate Limitation on Awards.
(a) Shares of stock which may be issued under the Plan shall
be authorized and unissued or treasury shares of Common Stock of
Optek ("Common Stock"). The maximum number of shares of Common
Stock which may be issued under the Plan shall be 750,000.
(b) For purposes of calculating the maximum number of shares
of Common Stock which may be issued under the Plan:
(i) all the shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted
when cash or shares of Common Stock are used as full or
partial payment for shares issued upon exercise of a Stock
Option, Incentive Stock Option or Reload Option; and
(ii) only the shares issued (including the shares, if
any, withheld for tax withholding requirements) as a result of
an exercise of Alternative Appreciation Rights shall be
counted.
<PAGE>
(c) In addition to shares of Common Stock actually issued
pursuant to the exercise of Stock Options, Incentive Stock Options,
Reload Options or Alternate Appreciation Rights, there shall be
deemed to have been issued a number of shares equal to the number
of shares of Common Stock in respect of which Limited Rights (as
described in Article IV) shall have been exercised.
(d) Shares tendered by a participant as payment for shares
issued upon exercise of a Stock Option, Incentive Stock Option or
Reload Option shall not be available for issuance under the Plan.
(e) Any shares of Common Stock subject to a Stock Option,
Incentive Stock Option or Reload Option which for any reason is
terminated unexercised or expires shall again be available for
issuance under the Plan, but shares subject to a Stock Option,
Incentive Stock Option or Reload Option which are not issued as a
result of the exercise of Limited Rights shall not again be
available for issuance under the Plan.
(f) Upon the granting of any award hereunder, the maximum
number of shares which might be acquired pursuant thereto shall be
deducted from the total amount available for award until such time
as the award is actually exercised, at which time the amount
available shall be adjusted for the actual amount calculated
hereunder upon such exercise.
1.7. Effective Date and Term of Plan.
(a) The Plan shall become effective on the date approved by
the holders of a majority of the shares of Common Stock present in
person or by proxy and entitled to vote at the 1998 Annual Meeting
of Stockholders of Optek.
(b) No awards shall be made under the Plan after the last day
of the Company's 2007 fiscal year provided, however, that the Plan
and all awards made under the Plan prior to such date shall remain
in effect until such awards have been satisfied or terminated in
accordance with the Plan and the terms of such awards.
ARTICLE II - OPTIONS
2.1. Awards of Options.
(a) The Committee may from time to time, and subject to the
provisions of the Plan and such other terms and conditions as the
Committee may prescribe, grant to any participant in the Plan one
or more options to purchase for cash or shares the number of shares
of Common Stock ("Stock Options") allotted by the Committee. The
date a Stock Option is granted shall mean the date selected by the
Committee as of which the Committee allots a specific number of
shares to a participant pursuant to the Plan.
<PAGE>
(b) The Committee also may, from time to time and subject to
the provisions of the Plan and such other terms and conditions as
the Committee may prescribe, grant to any participant in the Plan
one or more "incentive stock options" (intended to qualify as such
under the provisions of Section 422 of the Internal Revenue Code of
1986, as amended ("Incentive Stock Options")) to purchase for cash
or shares the number of shares of Common Stock allotted by the
Committee. The date an Incentive Stock Option is granted shall mean
the date selected by the Committee as of which the Committee allots
a specific number of shares to a participant pursuant to the Plan.
(c) Concurrently with the award of Stock Options and/or the
award of Incentive Stock Options to any participant in the Plan,
the Committee may authorize reload options ("Reload Options") to
purchase for cash or shares a number of shares of Common Stock.
The number of Reload Options shall equal
(i) the number of shares of Common Stock used to exercise the
underlying Stock Options or Incentive Stock Options; and
(ii) to the extent authorized by the Committee, the number of
shares of Common Stock used to satisfy any tax withhold-
ing requirement incident to the exercise of the underly-
ing Stock Options or Incentive Stock Options.
The grant of a Reload Option will become effective upon the
exercise of underlying Stock Options, Incentive Stock Options or
Reload Options through the use of shares of Common Stock held by
the optionee for at least 12 months. Notwithstanding the fact that
the underlying option may be an Incentive Stock Option, a Reload
Option is not intended to qualify as an "incentive stock option"
under Section 422 of the Internal Revenue Code of 1986.
(d) The term "Option" shall mean Stock Option, Incentive
Stock Option or Reload Option, as the context requires.
2.2. Stock Option Agreements. Each grant of a Stock Option
or an Incentive Stock Option shall be evidenced by a written agree-
ment, executed by the Company and the holder of the Option (the
"optionee"), stating the number of shares of Common Stock subject
to the Option evidenced thereby, and in such form as the Committee
may from time to time determine. Each Stock Option Agreement and
Incentive Stock Option Agreement shall state whether the Committee
has authorized Reload Options with respect to the underlying Stock
Options and/or Incentive Stock Options. Upon the exercise of an
underlying Stock Option, Incentive Stock Option or other Reload
Option, the Reload Option will be evidenced by an amendment to the
underlying Stock Option Agreement or Incentive Stock Option
Agreement.
<PAGE>
2.3. Stock Option Price. The option price per share of
Common Stock deliverable upon the exercise of a Stock Option or an
Incentive Stock Option shall be 100% of the fair market value of a
share of Common Stock on the date the Option is granted, except
that, if an Incentive Stock Option is awarded to any employee who
owns stock possessing more than 10 percent of the combined voting
power of all classes of Optek's stock, then the option price per
share shall be 110% of the fair market value of a share of Common
Stock on the date the Incentive Stock Option is granted. The
option price per share of Common Stock deliverable upon the
exercise of a Reload Option shall be the fair market value of a
share of Common Stock on the date the grant of the Reload Option
becomes effective.
2.4. Term and Exercise. Each Stock Option or Incentive Stock
Option shall be fully exercisable at such time or times (but not
less than six months from the date of its grant) and in such
increments (which may be cumulative or non-cumulative) as shall be
determined by the Committee and, unless a shorter period is
provided by the Committee or another Section of this Plan, may be
exercised during a period of ten years from the date of grant
thereof, except that, if an Incentive Stock Option is awarded to
any employee who owns stock possessing more than 10 percent of the
combined voting power of all classes of Optek's stock, then the
Incentive Stock Option may be exercised during a period of five
years from the date of grant thereof. The term of any Reload
Option shall be equal to the remaining option term of the underly-
ing Stock Option and/or Incentive Stock Option. No Option shall be
exercisable after the expiration of its option term.
2.5. Maximum Amount of Incentive Stock Option Grant. The
aggregate fair market value (determined on the date the option is
granted) of Common Stock subject to an Incentive Stock Option
granted to an optionee by the Committee which became exercisable
for the first time in any calendar year shall not exceed $100,000.
2.6. Manner of Payment. Each Option agreement shall set
forth the procedure governing the exercise of the Option granted
thereunder, and shall provide that, upon such exercise in respect
of any shares of Common Stock subject thereto, the optionee shall
pay to the Company, in full, the option price for such shares with
cash or with previously owned Common Stock valued at its fair
market value on the date of exercise.
2.7. Delivery of Shares. As soon as practicable after
receipt of payment, the Company shall deliver to the optionee a
certificate or certificates for such shares of Common Stock. The
optionee shall become a stockholder of the Company with respect to
Common Stock represented by share certificates so issued and as
such shall be fully entitled to receive dividends, to vote and to
exercise all other rights of a stockholder.
<PAGE>
2.8. Death of Optionee.
(a) Upon the death of an optionee, any rights to the extent
exercisable on the date of death may be exercised by the optionee's
estate, or by a person who acquires the right to exercise such
Stock Option by bequest or inheritance or by reason of the death of
the optionee, provided that such exercise occurs within both the
remaining effective term of the Stock Option and one year after the
optionee's death.
(b) The provisions of this Section shall apply notwithstand-
ing the fact that the optionee's employment may have terminated
prior to death, but only to the extent of any rights exercisable on
the date of death.
2.9. Retirement or Disability. Upon the termination of an
optionee's employment by reason of permanent disability or
retirement (as each is determined by the Committee), the optionee
may, within 36 months from the date of such termination of
employment, exercise any Options to the extent such Options were
exercisable at the date of such termination of employment.
Notwithstanding the foregoing, the tax treatment available pursuant
to Section 422 of the Internal Revenue Code of 1986 upon the
exercise of an Incentive Stock Option will not be available to an
optionee who exercises any Incentive Stock Option more than (i) 12
months after the date of termination of employment due to permanent
disability or (ii) three months after the date of termination of
employment due to retirement.
2.10. Termination for Other Reasons. Except as provided in
Section 2.8 and 2.9, or except as otherwise determined by the
Committee, all Options shall terminate upon the termination of the
optionee's employment.
2.11. Effect of Termination - Reload Options Further, no
additional Reload Options shall be granted to optionees when Stock
Options, Incentive Stock Options and/or Reload Options are
exercised pursuant to the terms of this Plan following termination
of the optionee's employment.
2.12. Effect of Exercise. The exercise of any Option shall
cancel that number of related Alternate Appreciation Rights and/or
Limited Rights, if any, which is equal to the number of shares of
Common Stock purchased pursuant to said option.
PAGE
<PAGE>
ARTICLE III - ALTERNATE APPRECIATION RIGHTS
3.1. Award of Alternate Rights. Concurrently with or subse-
quent to the award of any Stock Option, Incentive Stock Option or
Reload Option to purchase one or more shares of Common Stock, the
Committee may, subject to the provisions of the Plan and such other
terms and conditions as the Committee may prescribe, award to the
optionee with respect to each share of Common Stock, a related
alternate appreciation right ("Alternate Right"), permitting the
optionee to be paid the appreciation on the option in lieu of
exercising the option.
3.2. Alternate Rights Agreement. Alternate Rights shall be
evidenced by written agreements in such form as the Committee may
from time to time determine.
3.3. Exercise. An optionee who has been granted Alternate
Rights may, from time to time, in lieu of the exercise of an equal
number of options, elect to exercise one or more Alternate Rights
and thereby become entitled to receive from the Company payment in
Common Stock of the number of shares determined pursuant to Section
3.4. Alternate Rights shall be exercisable only to the same extent
and subject to the same conditions as the options related thereto
are exercisable, as provided in this Plan. The Committee may, in
its discretion, prescribe additional conditions to the exercise of
any Alternate Rights.
3.4. Shares to be Received. Upon the exercise of an
Alternate Right, the optionee shall be entitled to receive the
number of shares determined by dividing (a) the product of (i) the
number of shares with respect to which the Alternate Right is being
exercised and (ii) the amount, if any, by which (A) the fair market
value of a share of Common Stock on the exercise date exceeds (B)
the exercise price of the related option by (b) the fair market
value of a share of Common Stock on the date of exercise of such
Alternate Right. As soon as practicable after exercise, the
Company shall deliver to the optionee a certificate or certificates
for such shares of Common Stock.
3.5. Effect of Exercise. The exercise of any Alternate
Rights shall cancel the number of Stock Options, Incentive Stock
Options, Reload Options and Limited Rights, if any, to which such
Alternate Rights apply.
3.6. Retirement or Disability. Upon termination of the
optionee's employment (including employment as a director of the
Company after an optionee terminates employment as an officer or
key employee of the Company) by reason of permanent disability or
retirement (as each is determined by the Committee), the optionee
may, within six months from the date of such termination, exercise
any Alternate Rights to the extent such Alternate Rights are
otherwise exercisable during such six-month period under this Plan.
3.8. Death of Optionee or Termination for Other Reasons.
Except as provided in Section 3.7, or except as otherwise deter-
mined by the Committee, all Alternate Rights shall terminate upon
the termination of the optionee's employment or upon the death of
the optionee.
<PAGE>
ARTICLE IV - LIMITED RIGHTS
4.1. Award of Limited Rights. Concurrently with or subse-
quent to the award of any Stock Option, Incentive Stock Option,
Reload Option or Alternate Right, the Committee may, subject to the
provisions of the Plan and such other terms and conditions as the
Committee may prescribe, award to the optionee with respect to each
share of Common Stock, a related limited right permitting the
optionee, during a specified limited time period, to be paid the
appreciation on the option in lieu of exercising the option
("Limited Right").
4.2. Limited Rights Agreement. Limited Rights granted under
the Plan shall be evidenced by written agreements in such form as
the Committee may from time to time determine.
4.3. Exercise Period. Limited Rights are exercisable in full
for a period of seven months following the date of a Change in
Control of Optek if such Change in Control was not approved by the
Board of Directors serving immediately prior to the Control
Transaction or other transaction resulting in the Change of Control
(the "Exercise Period"); provided, however, that Limited Rights may
not be exercised under any circumstances until the expiration of
the six-month period following the date of grant.
As used in the Plan, a "Change in Control" shall be deemed to
have occurred if
(a) individuals who were directors of Optek immediately prior
to a Control Transaction shall cease, within one year of such
Control Transaction, to constitute a majority of the Board of
Directors of Optek (or of the Board of Directors of any successor
to Optek or to all or substantially all of its assets), or
(b) any entity, person or Group other than Optek or a
subsidiary of Optek acquires shares of Optek in a transaction or
series of transactions that result in such entity, person or Group
directly or indirectly owning beneficially fifty-one percent (51%)
or more of the outstanding shares.
As used herein, "Control Transaction" shall be (i) any tender
offer for or acquisition of capital stock of Optek, (ii) any
merger, consolidation, or sale of all or substantially all of the
assets of Optek which has been approved by the stockholders, (iii)
any contested election of directors of Optek or (iv) any combina-
tion of the foregoing which results in a change in voting power
sufficient to elect a majority of the Board of Directors of Optek.
As used herein, "Group" shall mean persons who act in concert as
described in Sections 13(d)(3) and/or 14(d)(2) of the Securities
Exchange Act of 1934, as amended.
<PAGE>
4.4. Amount of Payment. The amount of payment to which an
optionee shall be entitled upon the exercise of each Limited Right
shall be equal the product of (a) the number of shares with respect
to which the Limited Right is being exercised and (b) the amount,
if any, which is equal to the difference between (a) the Market
Price per share of Common Stock covered by the related option on
the date the Limited Right is exercised and (ii) the exercise price
of the related option. Market Price is defined to be the greater
of (i) the highest price per share of the Company's Common Stock
paid in connection with any Change in Control and (ii) the highest
price per share of the Company's Common Stock reflected in the
consolidated trading tables of the Wall Street Journal (presently
the NASDAQ National Market System) during the 60-day period prior
to the Change in Control.
4.5. Form of Payment. Payment of the amount to which an
optionee is entitled upon the exercise of Limited Rights, as
determined pursuant to Section 4.4, shall be made solely in cash.
4.6. Effect of Exercise. If Limited Rights are exercised,
the Stock Options, Incentive Stock Options, Reload Options and
Alternate Rights, if any, related to such Limited Rights cease to
be exercisable to the extent of the number of shares with respect
to which the Limited Rights were exercised. Upon the exercise or
termination of the options, and Alternate Rights, if any, related
to such Limited Rights, the Limited Rights granted with respect
thereto terminate to the extent of the number of shares as to which
the related options and Alternate Rights were exercised or
terminated.
4.7. Retirement or Disability. Upon termination of the
optionee's employment (including employment as a director of this
Company after an optionee terminates employment as an officer or
key employee of this Company) by reason of permanent disability or
retirement (as each is determined by the Committee), the optionee
may, within six months from the date of termination, exercise any
Limited Right to the extent such Limited Right is otherwise
exercisable during such six-month period under this Plan.
4.8. Death of Optionee or Termination for Other Reasons.
Except as provided in Sections 4.7 and 4.9, or except as otherwise
determined by the Committee, all Limited Rights granted under the
Plan shall terminate upon the termination of the optionee's
employment or upon the death of the optionee.
<PAGE>
4.9. Termination Related to a Change in Control. The require-
ment that an optionee be terminated by reason of retirement or
permanent disability or be employed by the Company at the time of
exercise pursuant to Sections 4.7 and 4.8 respectively, is waived
during the Exercise Period as to any optionee who (i) was employed
by the Company at the time of the Change in Control and (ii) is
subsequently terminated by the Company other than for just cause or
who voluntarily terminates if such termination was the result of a
good faith determination by the optionee that as a result of the
Change in Control he is unable to effectively discharge his present
duties or the duties of the position which he occupied just prior
to the Change in Control. As used herein, "just cause" shall mean
willful misconduct or dishonesty or conviction of or failure to
contest prosecution for a felony, or excessive absenteeism
unrelated to illness.
ARTICLE V - MISCELLANEOUS
5.1. General Restriction. Each award under the Plan shall be
subject to the requirement that, if at any time the Committee shall
determine that (i) the listing, registration or qualification of
the shares of Common Stock subject or related thereto upon any
securities exchange or under any state or Federal law, or (ii) the
consent or approval of any governmental regulatory body, or (iii)
an agreement by the grantee of an award with respect to the
disposition of shares of Common Stock, is necessary or desirable as
a condition of, or in connection with, the granting of such award
or the issue or purchase of shares of Common Stock thereunder, such
award may not be consummated in whole or in part unless such
listing, registration, qualification, consent, approval or
agreement shall have been effected or obtained free of any
conditions not acceptable to the Committee.
5.2. Non-Assignability. No award under the Plan shall be
assignable or transferable by the recipient thereof, except by will
or by the laws of descent and distribution or, excluding Incentive
Stock Options, pursuant to a qualified domestic relations order as
defined by the Internal Revenue Code of 1986, as amended, or Title
I of the Employee Retirement Income Security Act, or the rules
thereunder. During the life of the recipient, such award shall be
exercisable only by such person or by such person's guardian or
legal representative.
5.3. Withholding Taxes. Whenever the Company proposes or is
required to issue or transfer shares of Common Stock under the
Plan, the Company shall have the right to require the grantee to
remit to the Company an amount sufficient to satisfy any Federal,
state and/or local withholding tax requirements (including
employment taxes) prior to the delivery of any certificate or
certificates for such shares. Alternatively, the Company may issue
or transfer such shares sufficient to satisfy the withholding tax
requirements. For withholding tax purposes, the shares of Common
Stock shall be valued on the date the withholding obligation is
incurred.
<PAGE>
5.4. Right to Terminate Employment. Nothing in the Plan or
in any agreement entered into pursuant to the Plan shall confer
upon any participant the right to continue in the employment of the
Company or effect any right which the Company may have to terminate
the employment of such participant.
5.5. Non-Uniform Determinations. The Committee's determina-
tions under the Plan (including without limitation determinations
of the persons to receive awards, the form, amount and timing of
such awards, the terms and provisions of such awards and the
agreements evidencing same) need not be uniform and may be made by
it selectively among persons who receive, or are eligible to
receive, awards under the Plan, whether or not such persons are
similarly situated.
5.6. Rights as a Shareholder. The recipient of any award
under the Plan shall have no rights as a stockholder with respect
thereto unless and until certificates for shares of Common Stock
are issued to him.
5.7. Definitions. In this Plan the following definitions
shall apply:
(a) "Subsidiary" means any corporation or other entity of
which, at the time, more than 50% of the shares or other interests
entitled to vote generally in an election of directors or persons
performing similar functions are owned directly or indirectly by
Optek or any subsidiary thereof.
(b) "Affiliate" means any person or entity which directly, or
indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with Optek.
(c) "Fair market value" as of any date and in respect of any
share of Common Stock means the amount determined in good faith by
the Committee in its sole discretion.
(d) "Option price" means the purchase price per share of
Common Stock deliverable upon the exercise of a Stock Option,
Incentive Stock Option or Reload Option.
5.8. Leaves of Absence. The Committee shall be entitled to
make such rules, regulations and determinations as it deems
appropriate under the Plan in respect of any leave of absence taken
by the recipient of any award. Without limiting the generality of
the foregoing, the Committee shall be entitled to determine (i)
whether or not any such leave of absence shall constitute a
termination of employment within the meaning of the Plan and (ii)
the impact, if any, of any such leave of absence on awards under
the Plan theretofore made to any recipient who takes such leave of
absence.
<PAGE>
5.9. Newly Eligible Persons. The Committee shall be entitled
to make such rules, regulations, determinations and awards as it
deems appropriate in respect of any person who becomes eligible to
participate in the Plan or any portion thereof after the commence-
ment of an award or incentive period.
5.10. Adjustments. In any event of any change in the
outstanding Common Stock by reason of a stock dividend or distribu-
tion, recapitalization, merger, consolidation, split-up, combina-
tion, exchange of shares or the like, the Committee may appropri-
ately adjust the number of shares of Common Stock which may be
issued under the Plan, the number of shares of Common Stock subject
to Options theretofore granted under the Plan, the option price of
Options theretofore granted under the Plan, and any and all other
matters deemed appropriate by the Committee.
5.11. Amendment of the Plan.
(a) The Committee may, without further action by the
stockholders and without receiving further consideration from the
participants, amend this Plan or condition or modify awards under
this Plan in response to changes in securities or other laws or
rules, regulations or regulatory interpretations thereof applicable
to this Plan or to comply with stock exchange rules or require-
ments.
(b) The Committee may at any time and from time to time
terminate or modify or amend the Plan in any respect, except that
without stockholder approval the Committee may not (i) materially
increase the maximum number of shares of Common Stock which may be
issued under the Plan (other than increases pursuant to Section
5.10), (ii) materially increase the benefits accruing to partici-
pants under the Plan, (iii) extend the period during which any
award may be granted or exercised, (iv) materially modify the
requirements as to eligibility for participation in the Plan, or
(v) extend the term of the Plan. The termination or any modifica-
tion or amendment of the Plan, except as provided in subsection
(a), shall not without the consent of a participant, affect his or
her rights under an award previously granted to him or her.
