-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, V5JOCm/4UVKD46ezT4ZUqcjdfhGTsF0ZZ4sSC0hnSado6XhiSFIZbs3WNihe9JFa IyidNVDq+IuDWJm/61bR/g== 0000804312-97-000003.txt : 19970124 0000804312-97-000003.hdr.sgml : 19970124 ACCESSION NUMBER: 0000804312-97-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19961025 FILED AS OF DATE: 19970123 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: OPTEK TECHNOLOGY INC CENTRAL INDEX KEY: 0000804312 STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674] IRS NUMBER: 751962405 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-16304 FILM NUMBER: 97509340 BUSINESS ADDRESS: STREET 1: 1215 W CROSBY RD STREET 2: MS 400 CITY: CARROLLTON STATE: TX ZIP: 75006 BUSINESS PHONE: 2143232200 MAIL ADDRESS: STREET 1: 1215 W CROSBY RD CITY: CARROLLTON STATE: TX ZIP: 75006 10-K 1 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 25, 1996 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 25, 1996 was: $28,198,539 (* see note on index page). The number of shares outstanding of each class of registrant's common stock as of October 25, 1996 was: Common Stock, par value $0.01 per share, 3,912,915 shares. ___________________ Documents Incorporated by Reference Portions of the registrant's definitive proxy statement to be furnished to stockholders in connection with its Annual Meeting of Stockholders to be held on March 19, 1997 are incorporated by reference in Part III of this Form 10-K. 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 8 ITEM 8. Financial Statements and Supplemental Data 10 ITEM 9. Changes in and Disagreements on Accounting and Financial Disclosure 10 PART III ITEM 10. Directors and Executive Officers of the Registrant 10 ITEM 11. Executive Compensation 10 ITEM 12. Security Ownership of Certain Beneficial Owners and Management 10 ITEM 13. Certain Relationships and Related Transactions 11 PART IV AND SIGNATURES ITEM 14. Exhibits, Financial Statements & Financial Statement Schedules and Reports on Form 8-K 11 INDEPENDENT AUDITORS' REPORT F-1 SIGNATURES * The figure indicated on the cover page as to the aggregate market value of shares of registrant's voting stock held by nonaffiliates represents the registrant's best good faith estimate for purposes of this annual report on Form 10-K. The aggregate market value indicated is based upon the average of the high and low trading prices of the registrant's common stock as reported by the Nasdaq National Market System, as of October 25, 1996. 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 registrant's 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. i PART I ITEM 1. Business. Introduction Optek Technology, Inc. ("Optek" or "the Company") markets, designs and manufactures sensor products which are based on either optoelectronic or magnetic field sensing technologies. These products react to changes in infrared light or magnetic fields which indicate physical events such as position, speed or rotation and convert this information into an electrical signal which can then be communicated to control devices such as microprocessors capable of processing and responding to that signal. Because optoelectronic and magnetic sensors operate without physical contact, they are capable of more accurate, 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. Optek's optoelectronic components and assemblies are used in business machines, such as mailing machines, in which they determine envelope position, and photo copy machines, in which they sense location of paper and toner levels; in computer peripherals, such as disk and tape drives, in which they sense the beginning position of the data storage area; in communication products, in which they transmit and receive data over fiber optic cables; in industrial products, such as security systems, in which they sense the interruption of a beam of light; and in military applications, such as missile guidance systems, in which they assist the projectile in tracking its target. Optek's magnetic sensors are used in automotive applications and in various industrial applications where harsh environments prevent the use of optoelectronics. For example, magnetic sensors detect rotation of shafts and gears in automobiles where the presence of dirt and oil would make the application of optoelectronic technology impractical. Optoelectronic Products The largest portion of the Company's current business is the design, manufacture and sale of custom devices which use optoelectronics technology to satisfy customers' sensing application requirements. Optoelectronics technology uses light to measure or sense position or motion. A familiar example of the use of this technology is its application in certain burglar alarm systems which emit a beam of light which is received by a sensor. The interruption of this beam causes an electrical response in the sensor which activates the alarm. These principles may be applied using either visible or nonvisible (eg., infrared) light as a means of sensing motion, speed or position. The optoelectronic products made by Optek primarily use infrared light. Optek specializes in customized optoelectronic solutions for its customers' applications. The Company applies its specific engineering and manufacturing expertise to the design and manufacture of components and assemblies which meet the physical and technical requirements demanded for the intended use by the customer. This application-based design requires the integration of mechanical, electrical and optical technologies. Based upon the Company's expertise and knowledge of the optoelectronics industry, the Company does not believe any patents currently govern the basic optoelectronics technology used by the Company. As a result, development of new applications for this technology has proceeded without the impediment of obtaining licenses for the underlying technology. Further, the Company believes that companies desiring to enter the optoelectronics industry may do so without obtaining licenses or permits relating to the use of such technology and that competition is not impeded by such constraints. However, Optek has sought to protect confidential information which is used in the Company's operations by restricting its employees from using, disseminating or disclosing confidential information not generally known in the industry. Optek is vertically integrated and manufactures: (1) Infrared emitting and light sensing semiconductor chips; (2) Discrete components, which are plastic or metal packages housing the light emitting or light sensing chips described above; (3) 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 (4) Fiber optic products, which use LED and sensor technologies to transmit and receive light signals for data transmission through fiber. This integrated manufacturing structure offers Optek the necessary flexibility to satisfy customers' specialized requirements. The following paragraphs describe these optoelectronic devices and their basic principles of operation. Semiconductor Chips Light emitting and light sensing semiconductor chips are the basic elements in Optek's optoelectronic product range. Both types of chips are manufactured by Optek, which has a complete semiconductor processing operation from engineering, through all processing steps, to final testing. A light emitting diode (LED) chip emits light as the result of the application of direct current at a low voltage. Such chips can be made to produce light in a wide range of wavelengths extending from the near ultraviolet region of the electromagnetic spectrum to the far infrared. Optek's light emitting chips are manufactured from gallium arsenide 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 include photodiodes, phototransistors and photodarlingtons, which have varying speed and sensitivity. Phototransistors and photodarlingtons incorporate transistors as an integral part of the chip, thus providing in a single unit the ability to detect the light and amplify the signal received. The Company uses a substantial portion of the semiconductor chips it manufactures in its discrete components. On occasion, however, the Company has designed and manufactured custom semiconductor chips for specific customer applications. Most of the light sensing chips manufactured by Optek produce an analog output which must then be interpreted by a microprocessor. However, the Company has developed a family of more sophisticated light sensing integrated circuits for these applications. These Photologic chips developed by Optek incorporate into the chip all the functions necessary to produce a digital output. The versatility of the chip's output geometry allows it to drive multiple outputs, resulting in savings to the customer in system processing circuitry. A Photologic chip has also been developed with increased sensitivity, low level input detection and on-chip voltage regulation which enables the chip to function under fluctuating power conditions. The former characteristic is particularly useful in fiber optics where the signal transmitted may be a very low level signal. The latter characteristic finds a wide range of applications, for example, with battery powered devices or under conditions of heavy electrical interference. Discrete Components Discrete components incorporate LED or sensor chips in either plastic or metal packages which protect the chip and allow light to pass to or from the chip. These components form an integral part of the assemblies manufactured by Optek. In manufacturing discrete components, LED or sensor chips are mounted on lead frames or headers, a wire is bonded from the chip to the lead, and the device is housed in a plastic or metal package. While most of Optek's discrete components are used in its own assembly manufacturing operations, the Company also manufactures and sells discrete components to original equipment manufacturers ("OEMs") which integrate them into their own products 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. These assemblies generally fall into three product groups: (1) interrupter and reflective assemblies, which use LED and sensor discrete components in combination and detect objects interrupting or completing the light path; (2) detector assemblies and displays, which incorporate specifically designed semiconductor chips capable of sensing position in physical packaging suitable for aerospace/defense applications; and (3) isolators or couplers which transmit signals while "isolating" high voltage circuits. Discrete LED and sensor components are generally used in combination with one another in interruptive or reflective assemblies. Each of these assemblies includes a discrete emitter, a light transmission path and a discrete sensor. The sensing occurs when an object interrupts the light transmission path from emitter to sensor or reflects the emitted light back to the sensor. Optek manufactures various types of detector assemblies and displays which are used in military and aerospace 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 be used to isolate electrical noise or high voltage from an electrical circuit. In an isolator or coupler, the light path from emitter to sensor is totally enclosed and cannot be modified externally. Placing an isolator between an input and output circuit can eliminate the possibility of high voltage or electrical noise reaching the output circuit. These devices are used to protect computers and other sensitive circuits from potentially damaging electrical surges or electrical noise. Fiber Optic Products As a complement to its other optoelectronic devices, Optek manufactures fiber optic LED's and sensors. Optek uses its LED and sensor technology to provide the light signal and receiver products for data transmission through fiber. Fiber optics are currently widely used in modems, multiplexers and local area networks. These products allow electronic equipment, such as energy management systems, computers and even telephones, to communicate over thin lightweight cables of glass or plastic fiber. 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 for the ignition system of an automobile. This application is the subject of a patent and the Company has been licensed to manufacture such devices only for one automobile manufacturer. 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 which is used in an automotive security system. Because of the presence of oil and dirt characteristic of automotive applications, magnetic sensing devices are particularly useful and the Company has sought to expand upon the expertise and familiarity gained through its initial automotive programs to identify and participate in additional sensor programs. 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. The Company's engineering expertise in sensor technologies has facilitated its identification of additional 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. Product Development In the past, the optoelectronics industry has not been as subject to rapid technological change as other semiconductor- based industries. Consequently, the Company's efforts have been primarily directed toward enhancing the functions of its existing product base to permit a wider range of applications and to identification of new applications for optoelectronic devices rather than research and development related to technological advances. In order to expand the range of applications which can be addressed with its magnetic sensor devices, the Company anticipates applying a portion of its research activities to development of new magnetic sensor technology having different sensitivities and capabilities. If successful, this effort would permit the Company to introduce new lines of products for applications which are difficult or impossible to address with available sensors. No assurance can be given that the Company will succeed in expanding these technologies. The Company recently began developing magnetoresistive technology as an 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. Products utilizing magnetoresistive technology are still under development at Optek. Motion and position sensors for electronic ignition systems in automobiles are potential applications for magnetoresistive sensors. In order to address certain fiber optic applications requiring higher data transmission speeds, the Company anticipates applying a portion of its research activities 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. Raw Materials The principal raw materials used by the Company in the manufacture of its semiconductor chips, components and assemblies are silicon wafers, gallium wafers, chemicals and gases used in processing wafers, gold wire, copper lead frames, metal and plastic for packages that house the chip and the various custom assemblies, and magnets used in certain Hall Effect applications. All of these raw materials can be obtained from several suppliers. From time to time, particularly during periods of increased industry-wide demand, silicon wafers and other materials have been in short supply. However, the Company has not been materially affected by such shortages. As is typical in the industry, the Company allows for a significant lead time between order and delivery of raw materials. Customers In fiscal 1996 Optek's ten largest customers accounted for approximately 62% of net sales. Two customers, General Motors Corporation and Pitney Bowes, made purchases which accounted for 11% and 11%, respectively, of the Company's net sales. Optek's customers normally purchase the Company's products and incorporate them in products that they in turn sell into their own markets on an ongoing basis. As a result, Optek's sales are dependent upon the success of its customers' products, and its future performance is dependent upon its success in finding new customers and receiving new orders from existing customers. In addition, sales of the Company's automotive products are susceptible to labor strikes against the Company's automotive customers. Sales orders are made on the Company's standard form, which permits the customer to cancel the order in whole or in part. In such event, the standard form obligates the customer to pay the Company the purchase price of finished goods, a price adjustment based on the quantity of goods actually shipped and all costs, direct or indirect, incurred by the Company with respect to the order, including a reasonable allowance for prorated expenses and anticipated profits. However, no assurance can be given that such amounts will be received by the Company after cancellation. Marketing Optek markets its products through its own technical sales staff, independent sales representatives, and independent stocking distributors. At October 25, 1996, Optek employed seven 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 approximately 130 independent sales representatives in geographic territories throughout the United States. Independent sales representatives are typically paid a 2% to 5% commission on sales within their geographical territory. The initial customer contact is usually made by either a member of Optek's technical sales staff, 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 includes pricing terms, which usually include a one-time tooling charge and a unit price for the product over a specified period based on an estimated production volume. The marketing process takes approximately four to eighteen months from initial customer contact to purchase order, depending on the complexity of the customer's requirements. Once a purchase order is placed by the manufacturer with Optek, the typical lead time to delivery of a prototype is approximately twelve weeks, with production quantities available approximately six to eight weeks later. Subsequent production releases typically require lead times of six to eight weeks. During fiscal 1996, foreign sales accounted for approximately $18.9 million, or approximately 28% of net sales, as compared to $16.9 million, or approximately 27% of net sales for fiscal 1995, and $14.4 million, or approximately 26% of net sales during 1994. Backlog Optek's order backlog was approximately $18.4 million at October 25, 1996 and approximately $20.1 million at November 22, 1996 compared with a backlog of approximately $23.2 million at October 27, 1995 and approximately $15.6 million at October 28, 1994. The Company's backlog is comprised of orders which customers have released and scheduled for delivery within one year. However, by industry practice, orders may be canceled or modified at any time, with the customer being responsible for all finished goods, all costs, direct and indirect, incurred by the Company and a reasonable allowance for anticipated profits. No assurance can be given that such amounts will be received by the Company after cancellation. Competition The Company is a leading supplier of custom optoelectronic and magnetic sensing devices for sale to original equipment manufacturers and automotive parts suppliers. Optek competes with a range of companies for the custom optoelectronic and magnetic sensor requirements of vendors of general business machines, automotive products, computer peripherals, a variety of industrial products and specialized military applications. The Company believes that its principal competitor for sales of custom devices is Honeywell Optoelectronics, a division of Honeywell, Inc. Because the Company specializes in custom devices requiring a high degree of engineering expertise to meet the requirements of specific applications, it generally does not compete to any significant degree with other large United States, European or Far Eastern manufacturers of standard "off-the-shelf" optoelectronic components. Optek believes that the production of quality products, expertise in the design and development of custom products, timely delivery of such products and price are the most significant factors in the segment of the market in which it competes. Optek believes that generally it competes favorably with respect to these factors. Foreign Manufacturing Operations In order to realize significantly reduced labor costs, virtually all of Optek's discrete components and assemblies for commercial use, which accounted for approximately 81% of Optek's net sales in its last fiscal year, are produced in facilities operated by the Company in Juarez, Mexico. Mexico has enacted legislation to promote the use of such manufacturing operations by foreign companies and continuation of these operations depends upon: compliance with applicable laws and regulations of the United States of America and Mexico; the availability of less expensive labor; and the continuation of favorable exchange rates. These operations are authorized to operate as Maquiladoras by the Ministry of Commerce and Industrial Development of Mexico. Maquiladora status allows Optek to wholly own its Mexican subsidiaries and to import items into Mexico duty free, provided that such items, after processing, are re-exported from Mexico within six months. Maquiladora status, which must be renewed every two years, is subject to various restrictions and requirements, including: compliance with the terms of the Maquiladora program; proper utilization of imported materials; hiring and training of Mexican personnel; compliance with tax, labor, exchange control and notice provisions and regulations; and compliance with locational constraints. The Company anticipates that the North American Free Trade Agreement ("NAFTA"), when fully implemented, will further facilitate its operations in Mexico and reduce the restrictions applicable to those operations. Except for a moderate devaluation of the peso at the beginning of the year, exchange rates have remained fairly stable. Although assembly operations in Mexico continue to be less expensive than comparable operations in the United States of America, additional investment in automated equipment may become necessary to offset rising labor costs. The Company's foreign manufacturing operations could be adversely affected by interruptions in the trade relations between these two countries. Employees As of October 25, 1996, the Company employed 1,700 persons, including 1,559 in manufacturing and assembly (1,369 in Mexico and 190 in Carrollton), 95 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. ITEM 2. Properties. The Company's administrative offices, engineering facilities, silicon and gallium arsenide chip manufacturing, high reliability and hybrid assembly manufacturing, as well as tooling and plastic molding operations, are located in a Company-owned building containing 205,000 square feet on a 15.5 acre site in Carrollton, Texas. The Company also leases approximately 6,250 square feet of warehouse space in El Paso, Texas. This lease expires in January of 1998. Virtually all of the Company's non-military discrete components, interrupter and reflective assemblies and isolators/couplers are assembled at the facilities of the Company's subsidiaries located in Juarez, Mexico. The Mexican subsidiaries beneficially own a 24,000 square foot building and a 45,000 square foot building in Jaurez, Mexico through trust agreements with Banca Serfin, Sociedad Nacional de Credito, as required by Mexican law. 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 1997 with aggregate annual lease payments of $291,000. The lease provides for four one-year renewals exercisable on at least 180 days notice. This plant is adjacent to the 45,000 square foot building owned by the Company's subsidiaries. Additional buildings aggregating 56,000 square feet are owned by Optek in Mineral Wells, Texas which formerly housed the manufacturing and assembly operations of Optek's Aerospace division. The Company is currently seeking to sell such plant and other land held in Mineral Wells. The Company believes that its existing facilities and equipment are well-maintained and are in good operating condition. The Company anticipates that its current facilities will be suitable and adequate for its operations through 1997. The Company anticipates a need for additional capital spending during 1997 to support potential increases in demand during 1998 and 1999. 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 25, 1996 to a vote of the Company's security holders through the solicitation of proxies or otherwise. PART II ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters. The following table sets forth the quarterly high and low closing sales prices (to the nearest 1/8) of the Common Stock, as quoted by Nasdaq (symbol OPTT) for each quarterly period subsequent to relisting on the Nasdaq system on April 22, 1996, and the high and low bid prices since the first quarter of 1995 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.
High Low 1996 Quarter Ended 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 1995 Quarter Ended October 27, 1995 $ 7 3/4 $ 5 July 28, 1995 5 2 1/2 April 28, 1995 2 5/8 1 1/2 January 27, 1995 1 5/8 1 1/4
At October 25, 1996, the Company had approximately 177 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 agreements contain covenants which prohibit the Company from declaring dividends on its Common Stock unless such covenants are waived in writing. ITEM 6. Selected Financial Data. The following table summarizes certain selected consolidated financial data for the periods indicated. This information is derived from the Company's consolidated financial statements and is qualified in its entirety by, and should be read in conjunction with, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and Notes thereto included elsewhere in this Form 10-K.
(In thousands, except per share amounts) Oct. 25, Oct. Oct. Oct. Oct. Operating 1996 27, 28, 29, 30, statement data: 1995 1994 1993 1992 Net sales $67,395 $62, $55, $55, $58, 542 625 878 403 Cost of sales 39,010 38,5 38,2 46,4 43,1 13 69 99 51 Gross 28,385 24,0 17,3 9,37 15,2 profit 29 56 9 52 Product 4,933 3,84 3,59 3,96 4,08 development and 1 1 8 9 engineering expenses Selling, general 8,266 7,09 6,53 7,49 9,05 and administrative 0 6 8 7 expenses Provision for - - - 2,29 3,60 restructuring 2 0 costs Reduction in value - - 893 of deferred costs - - Operating 15,186 13,0 (5,2 (1,4 income (loss) 98 7,22 72) 94) 9 Other expense: Interest 1,292 2,96 3,68 3,95 3,78 expense 0 5 2 8 Other (income) (145) 835 615 expense 142 365 Total 1,147 other expenses 3,10 4,05 4,78 4,40 2 0 7 3 Earnings 14,039 9,99 3,17 (10, (5,8 (loss) before 6 9 059) 97) income taxes Income tax expense 1,144 158 - - - Net $12,895 $9,8 $3,1 $(10 $(5, earnings (loss) 38 79 ,059 897) ) Earnings (loss) $ 1.69 $ $ $ $ per common share 1.40 .47 (3.1 (1.8 2) 1) Weighted average number of common and common 7,627 7,02 7,10 3,22 3,25 equivalent shares 7 8 4 0 outstanding Balance sheet data: Working capital $ 6,658 $ $ $ $(25 (deficit) 4,02 4,83 6,86 ,081 8 0 5 ) Total assets 26,359 26,0 27,8 32,1 48,6 65 27 46 51 Total current liabilities, including current maturities of 8,455 9,17 8,15 7,92 50,7 long-term debt 5 9 0 89 Long-term debt, 3,428 15,9 28,6 36,4 111 less current 96 92 72 maturities Stockholders' 14,067 810 (9,1 (12, (2,3 equity (deficit) 48) 340) 02)
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Net sales for 1996 were $67.4 million versus $62.5 million in 1995 and $55.6 million in 1994. The increase from 1995 to 1996 is attributed to higher commercial net sales volume of $1.9 million, higher automotive net sales volume of $3.4 million and a slightly lower net sales volume of high-reliability optoelectronic products of $.4 million. The increase from 1994 to 1995 was a result of higher commercial net sales volume of $4.5 million, higher automotive net sales volume of $1.2 million and an increase in high-reliability optoelectronics product net sales of $1.2 million. Cost of sales in 1996 was 58% of net sales versus 62% in 1995 and 69% in 1994. The improvements in 1996 and 1995 are the result of higher production volumes resulting in lower unabsorbed fixed costs, continued efforts to reduce manufacturing cycle times, favorable Mexico exchange rates as well as cost reduction and yield improvement programs. In addition, 1995 showed an improvement of $1.3 million, or 2% of net sales, resulting from the absence of additional provisions for excess and obsolete inventories versus 1994. Product development and engineering expenses in 1996 were $4.9 million or 7.3% of net sales compared to $3.8 million or 6.1% of net sales in 1995 and $3.6 million or 6.5% in 1994. These expenses are related to the development of new products and processes as well as sustaining engineering. The increase in 1996 relates to additional development costs for fiber optic connectors, used in telecommunications, and magnetoresistive technologies, used primarily in automotive applications. In addition, certain expenses were incurred relative to a refurbishment of the engineering and product development labs. The improvement in the percent to net sales in 1995 was due to net sales increasing at a greater rate than expenses. In 1997, the Company will continue to emphasize development of new products in support of its strategic growth plan. Selling, general and administrative expenses in 1996 were $8.3 million or 12.3% of net sales, versus 11.3% in 1995 and 11.8% in 1994. The increase in expenses over 1995 was primarily attributable to sales commission rates and expenses related to refurbishment of the sales and customers service areas. Operating income was $15.2 million in 1996, $13.1 million in 1995 and $7.2 million in 1994. The improvements in 1996 and 1995 were the result of the aforementioned increase in sales volume and improvements in cost of sales as discussed above. Other expenses consist primarily of interest expense which decreased in 1996 and 1995 due to the continued reduction of long- term debt. Income tax expense was $1.1 million, or 1.7% of net sales in 1996 versus $.2 million, or 0.3%, in 1995. This is the result of the Company fully utilizing its tax loss carryforward during 1996. As a result of the factors discussed above, net earnings for 1996 were $12.9 million versus $9.8 million in 1995 and $3.2 million in 1994. Liquidity and Capital Resources As reflected in the Company's consolidated statements of cash flows, Optek generated approximately $14 million in cash from operations in fiscal year 1996. The largest single use of cash flow continued to be the reduction of the Company's outstanding debt, approximately $13 million in fiscal year 1996. The remainder of approximately $1 million was used for the purchase of manufacturing equipment. Operating cash flows were $14 million in 1995 and $8 million in 1994. The year-to-year improvements were a direct result of the factors discussed above under the caption titled Results of Operations. The Company anticipates a need for additional capital spending in 1997 to support potential increases in demand during 1998 and 1999. The Company also anticipates higher expenditures for federal income taxes in 1997 due to the Company's full utilization of tax loss carryforward during 1996. A credit agreement with a financial institution at January 20, 1994, provided a $38.8 million line of credit consisting of a $10.5 million working capital line and a $28.3 million revolving term loan. Amounts drawn on the working capital line bear interest at 1 ?? percentage points over the reference rate announced from time to time by the First National Bank of Chicago, Chicago, Illinois and mature on October 31, 1997, with a one year extensions if no default exists under the loan documents at maturity. Interest accrues on the revolving line of credit at various rates by tranche, a summary of which is set forth in Note 5 to the Consolidated Financial Statements included herein. Subsequent to October 25, 1996, the effective interest rate was reduced from 1.5 percentage points over the reference rate to .5 percentage points over. Availability on the revolving term loan was reduced to $8,000 as of November 1, 1995. On November 1, 1996, the revolving line was retired using the available working capital line. The Company was in compliance during 1996 with the financial and other covenants contained in its loan documents. Although Optek's ability to fund research and development and capital expenditures is constrained by the terms of the loan documents, management believes that its working relationship with its lender is good and that these facilities will be adequate to finance the Company's needs for the foreseeable future. Management believes that cash flow from operations will be adequate to retire its outstanding balance of long term debt during fiscal 1997. Recently Issued Accounting Pronouncements The Financial Accounting Standards Board recently issued two standards which will be applicable to the Company, but which the Company has not yet adopted. No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" is not expected to have a significant impact on the Company. No. 123, "Accounting for Stock-Based Compensation," which is effective for the Company beginning in 1997, gives companies the option to adopt the fair value method for expense recognition of employee stock options or to continue to account for stock options and stock based awards using the intrinsic value method as outlined under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") and to make pro forma disclosures of net income and net income per share as if the fair value method had been applied. The Company expects to continue to apply APB 25 for future stock options and stock based awards. ITEM 8. Financial Statements and Supplemental Data. Included on pages F-1 through F-11 hereof. ITEM 9. Changes in and Disagreements on Accounting and Financial Disclosure. None. PART III ITEM 10. Directors and Executive Officers of the Registrant. Information relating to the Company's Directors and executive officers is set forth under the heading "Election of Directors and Information as to Directors, Nominees and Executive Officers" in the Company's definitive proxy statement relating to the Company's Annual Meeting of Stockholders to be held March 19, 1997, which will be filed with the Securities and Exchange Commission on or about January 29, 1997, and such information is incorporated herein by reference. ITEM 11. Executive Compensation. Information relating to executive compensation is set forth under the heading "Executive Compensation" in the Company's definitive proxy statement relating to the Company's Annual Meeting of Stockholders to be held March 19, 1997, which will be filed with the Securities and Exchange Commission on or about January 29, 1997, 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 19, 1997, which will be filed with the Securities and Exchange Commission on or about January 29, 1997, and such information is incorporated herein by reference. ITEM 13. Certain Relationships and Related Transactions. Information relating to the business relationships and related transactions with respect to the Company and certain Directors and nominees for election as Directors is set forth under the heading "Certain Transactions" in the Company's definitive proxy statement relating to the Company's Annual Meeting of Stockholders to be held March 19, 1997, which will be filed with the Securities and Exchange Commission on or about January 29, 1997, and such information is incorporated herein by reference. PART IV ITEM 14. Exhibits, Financial Statements & Financial Statement Schedules and Reports on Form 8-K. 1.Financial Statements included in Part II (Item 8) of this report: Independent Auditors' Report; Consolidated Balance Sheets as of October 25, 1996 and October 27, 1995; Consolidated Statements of Income for the three years ended October 25, 1996; Consolidated Statements of Stockholders' Equity (Deficit) for the three years ended October 25, 1996; Consolidated Statements of Cash Flows for the three years ended October 25, 1996; Notes to Consolidated Financial Statements. 2.Financial Statement Schedules included in Part IV (Item 14) of this report for the three fiscal years ended October 25, 1996: Independent Auditors' Report; Schedule II - Valuation and Qualifying Accounts; All other schedules are omitted, as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes. No. 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). 10.33First Amended and Restated Registration Rights Agreement dated as of July 1, 1988 among Optek Technology, Inc., Allstate Insurance Company, Metropolitan Life Insurance Company, Burch Venture Investors, The Confederate Venture Fund, James D. Crownover, Jack C. Massey, Rauscher Pierce Refsnes, Inc., Equitable Enskilda Securities Limited and Household Commercial Financial Services, Inc. (3). 10.38 Form of Director Warrant to Purchase Common Stock (4). 10.47 Long-Term Stock Investment Plan (5). 10.48 Directors' Formula Award Plan (5). 10.49Amended and Restated Secured Credit Agreement dated January 20, 1994 between Optek Technology, Inc. and Household Commercial Financial Services, Inc. (6). 10.52 Warrant to Purchase Common Stock of Optek Technology, Inc. dated May 20, 1993 (7). 10.53 Warrant to Purchase Common Stock of Optek Technology, Inc. dated November 22, 1993 (7). 10.54 Warrant to Purchase Common Stock of Optek Technology, Inc. dated November 22, 1993 (7). 10.59 Form of Stock Option Agreement (7). 10.60Amended and Restated Warrant to Purchase Common Stock of Optek Technology, Inc. Dated December 13, 1995 (8). 10.61Employment Agreement between Optek Technology, Inc. and Thomas R. Filesi. 10.62Consulting Agreement between Optek Technology, Inc. and Grant A. Dove. 10.63Employment Agreement between Optek Technology, Inc. and William J. Collinsworth. 10.64Employment Agreement between Optek Technology, Inc. and Richard Dahlberg. 10.65Employment Agreement between Optek Technology, Inc. and Thomas Garrett. 10.66Employment Agreement between Optek Technology, Inc. and Robert Kosobucki. 10.67Amended and restated Optek Technology, Inc. 401(k) Plan. 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 Exhibit 4 to Schedule 13D dated July 21, 1988 filed on behalf of Household Commercial Financial Services, Inc., and incorporated herein by reference. (4)Previously filed as Exhibit 10.38 to registrant's Annual Report on Form 10-K for the fiscal year ended October 28, 1988 and incorporated herein by reference. (5)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. (6)Previously filed as Exhibits 10.49 to registrant's Annual Report on Form 10-K for the fiscal year ended October 29, 1993 and incorporated herein by reference. (7)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 by reference. (8)Previously filed as Exhibit 10.60 to registrant's Annual Report on Form 10-K for the fiscal year ended October 27, 1995 and incorporated by reference. (b) Reports on Form 8-K. The Company filed no reports on Form 8-K during the quarter ended October 25, 1996. 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 25, 1996 and October 27, 1995, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the years in the three-year period ended October 25, 1996. 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 25, 1996 and October 27, 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended October 25, 1996, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Dallas, Texas December 6, 1996 OPTEK TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data)
Octob Octob er er 25, 27, 1996 1995 ASSETS Current assets: < < C C > > Cash $ $ 594 928 Accounts receivable, net of allowance for doubtful accounts and customer returns of $1,095 in 1996 and 7,288 6,931 $975 in 1995 Inventories (note 2) 6,007 5,284 Deferred income taxes (note 7) 1,142 - Prepaid expenses 82 60 Total current assets 15,11 13,20 3 3 Property, plant and equipment, net (note 3) 11,15 12,66 0 4 Other assets 96 198 $26,3 $26,0 59 65 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ $ 2,331 2,339 Accrued expenses (note 4) 5,345 5,857 Checks not presented for payment 779 979 Total current liabilities 8,455 9,175 Long-term debt (note 5) 3,428 15,99 6 Other liabilities 100 84 Deferred income taxes (note 7) 309 - Stockholders' equity (notes 5 and 6): Preferred stock, $.01 par value. - - Authorized 1,000,000 shares; none issued Common stock, $.01 par value. Authorized 12,000,000 shares; issued and outstanding 3,912,915 shares in 1996 and 3,444,624 shares 39 34 in 1995 Additional paid-in-capital 13,37 13,01 3 6 Retained earnings (accumulated deficit) (12,2 655 40) Total stockholders' equity 14,06 7 810 $26,3 $26,0 59 65
See accompanying notes to consolidated financial statements. OPTEK TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share data)
Year ended Octobe Octobe Octobe r 25, r 27, r 28, 1996 1995 1994 Net sales $67,39 $62,54 $55,62 5 2 5 Costs and expenses: Cost of sales 39,010 38,513 38,269 Product development expenses 1,348 650 582 Engineering expenses 3,585 3,191 3,009 Selling expenses 5,087 4,245 3,950 General and administrative expenses 3,179 2,845 2,586 Total costs and expenses 52,209 49,444 48,396 Operating income 15,186 13,098 7,229 Other expenses: Interest expense 1,292 2,960 3,685 Other expense (income), net (145) 142 365 Total other expenses 4,050 1,147 3,102 Earnings before income taxes 14,039 9,996 3,179 Income tax expense (note 7) 1,144 158 - Net earnings $12,89 $ $ 5 9,838 3,179 Earnings per common and common share $ $ $ equivalents 1.69 1.40 .47 Average common and common share 7,626, 7,027, 7,108, equivalents 914 181 016
See accompanying notes to consolidated financial statements. OPTEK TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (in thousands, except share data)
Retain Total Addi- ed stock- Common Common tion earnin holders Stock stock al gs ' paid- (accum- equity in ulated Shares Amount capi (defici tal defici t) t) Balance at October 29, 3,222, $ 32 $12, $(25,2 $(12,34 1993 305 885 57) 0) Exercise of incentive 10,556 - 13 - 13 stock options Net earnings - - - 3,179 3,179 Balance at October 28, 3,232, 32 12,8 (22,07 (9,148) 1994 861 98 8) Exercise of incentive stock options 211,76 2 118 - 120 and warrants 3 Net earnings - - - 9,838 9,838 Balance at October 27, 3,444, 34 13,0 (12,24 810 1995 624 16 0) Exercise of incentive stock options and warrants 468,29 5 357 - 362 1 Net earnings - - - 12,895 12,895 Balance at October 25, 3,912, $ 39 $13, $ $14,067 1996 915 373 655
See accompanying notes to consolidated financial statements. OPTEK TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
YearsE nded Octo Octobe Octobe ber r 27, r 28, 25, 1995 1994 1996 Cash flows from operating activities: Net earnings $12, $ $ 895 9,838 3,179 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization 2,94 2,722 2,705 4 Gain on sale of property, plant - (25) (220) and equipment Deferred income taxes (833 - - ) Changes in assets and liabilities: Accounts receivable (357 (242) 259 ) Inventories, prepaid (643 607 1,881 expenses and other assets ) Accounts payable, accrued expenses and other liabilities (504 746 169 ) Net cash provided by 13,5 operating activities 02 13,646 7,973 Cash flows from investing activities: Purchase of property, plant and (1,4 (1,121 (898) equipment 32) ) Proceeds from sale of property, plant and equipment 2 25 681 Net cash used in investing activities (1,4 (1,096 (217) 30) ) Cash flows from financing activities: Net repayment under long-term bank (12, (12,69 (7,780 debt 568) 6) ) Net proceeds from exercise of 362 120 13 stock options and warrants Other financing activities 100 (200 230 ) Net cash used in (12, (12,34 financing activities 406) 6) (7,667 ) Effect of exchange rate changes on cash - 2 (25) Net increase (decrease) in cash (334 206 64 ) Cash at beginning of year 928 722 658 Cash at end of year $ $ $ 594 928 722 Interest payments $ $ $ 1,34 3,075 3,719 6 Income tax payments $ $ $ 2,08 123 - 9
See accompanying notes to consolidated financial statements. OPTEK TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended October 25, 1996, October 27, 1995 and October 28, 1994 (dollars in thousands except share data) (1) Summary of Significant Accounting Policies (a) General Information Optek Technology, Inc. and subsidiaries (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 $6,334 at October 25, 1996, and $6,852 at October 27, 1995. The Company uses a fiscal year ending on the last Friday in October. (b) Principles of Consolidation The accompanying consolidated financial statements include the accounts of Optek Technology, Inc. and its 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 revenues 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) Depreciation 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 3 to 20 years. (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 1996, 1995, and 1994. Weighted average common shares and common share equivalents when dilutive were 7,626,914, 7,027,181, and 7,108,016 during fiscal 1996, 1995 and 1994, respectively. The calculation of net earnings per share in 1996, 1995 and 1994 uses the modified treasury stock method. OPTEK TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (dollars in thousands) (h) 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. (i) 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. (j) Reclassifications Certain amounts in the 1995 and 1994 consolidated financial statements have been reclassified to conform with the current year's presentation. (2) Inventories A summary of inventories at October 25, 1996 and October 27, 1995 follows:
1996 1995 < < C C > > Finished goods $1,109 $1,186 Work in process 3,323 3,393 Raw materials 3,381 3,158 Reserve for excess and obsolete (1,806) (2,453) inventory $6,007 $5,284
The Company made provisions for excess and obsolete inventories during fiscal 1995 and 1994 in the amounts of $63 and $1,298 respectively. During fiscal 1996, additional provisions were not required due to the Company's utilization of a portion of the inventories previously identified as excess. (3) Property, Plant and Equipment A summary of property, plant and equipment at October 25, 1996 and October 27, 1995 follows:
1996 1995 Land $ 3,137 $ 3,137 Buildings and 5,288 8,886 improvements Equipment 18,238 21,259 26,663 33,282 Accumulated (15,513) (20,618) depreciation $11,150 $12,664
(4) Accrued Expenses A summary of accrued expenses at October 25, 1996 and October 27, 1995 follows:
1996 1995 Employee related $2,778 $2,729 accruals Property taxes 322 283 Customer tooling 290 278 Other 1,955 2,567 $5,345 $5,857
OPTEK TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (dollars in thousands) (5) Long-term Debt The following is a summary of long-term debt at October 25, 1996 and October 27, 1995:
1996 1995 $10,500 working capital line of credit from a financial institution; interest at the corporate base rate at the First $ $ National Bank of Chicago (8.25% at 1 1 October 25, 1996) plus 1.5%; interest payable monthly (a) $21,900 revolving term loan from a financial institution with annual scheduled principal reductions through October 31, 1998; interest rates and associated outstanding amounts are as follows: Corporate base rate at the First National Bank of Chicago - 1,080 plus 2.0%, interest payable monthly (b) Corporate base rate at the First National Bank of Chicago 3,427 6,000 plus 4.0%; interest payable monthly (b) 12.20%; interest payable monthly (b) - 6,915 12.34%; interest payable monthly (b) - 2,000 $3,428 $15,99 6
(a) The working capital commitment is scheduled to expire October 31, 1997 and is renewable at the option of the Company for a one-year term, provided no event of default has occurred, and will be renewable after October 31, 1998 at the option of the lender. Subsequent to October 25, 1996, the effective interest rate on the working capital line was reduced from 1.5 points over the corporate base lending rate to .5 points over. (b) The financial institution is entitled to additional contingent interest in the event of a future sale of the Company or third party refinancing of the Company's loans. The additional interest would be equal to the difference between 18% and the applicable interest rate on the outstanding balance on certain portions of the debt for the period January 20, 1994 through the date of the event. The Company must comply with specific affirmative and negative covenants which require the Company, among other things, to maintain minimum net worth, as defined, and to satisfy certain financial ratios. The covenants also restrict investments, capital expenditures and additional debt and prohibit payment of dividends. The Company was in compliance with all debt covenants during fiscal 1996. All loans from the financial institution are secured by all real and personal property of the Company. For loans from the financial institution, a commitment fee accrues at .5 percent per annum on the daily average balance of the unused commitment. The Company has granted the financial institution a warrant, as amended on December 13, 1995, to purchase 3,150,000 shares of the Company's common stock at an exercise price of $.50 per share which expires on October 31, 1998. The exercise price may decrease to $.01 if the Company's cumulative adjusted operating profit is less than stipulated minimums through the earlier of the date the warrants are exercised, the date the Company is sold or October 31, 1998. The Company was in compliance with minimum adjusted operating profit requirement during fiscal 1996. The warrant also contains certain antidilutive provisions, certain registration rights upon the occurrence of a public offering and certain demand rights for such a registration. OPTEK TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (dollars in thousands) The Company has entered into bank agency agreements with the financial institution which specify that throughout the term of the credit agreement, the agent bank shall be pledgee-in- possession (for the benefit of the lender) of lock boxes, master accounts and all cash instruments of the Company. Available cash balances in excess of $300 are applied against long-term debt and are available for re-borrowing according to the terms of the agreement. Availability on the revolving term loan was reduced to $8,000 as of November 1, 1995. On November 1, 1996, the revolving line was retired using the available working capital line. (6) Stockholders' Equity During fiscal 1992, the Company implemented a long-term stock investment plan (Investment Plan) which allows the granting of options to key employees and non-employee advisors to the Company to purchase up to 1,000,000 shares of the Company's authorized but unissued common stock at an exercise price equal to the fair market value on the date of grant. During fiscal 1995, the Company increased the authorized but unissued common stock available for this plan to 1,500,000 shares. The Investment Plan allows the granting of rights to receive cash or to acquire shares of common stock equal to the difference between the exercise price and the current market price of stock issuable pursuant to exercisable options. No rights to receive cash in lieu of common stock have been granted as of October 25, 1996. During fiscal 1996, 156,000 options were granted, 370,202 were exercised and 17,665 were terminated. A summary of option activity under the Investment Plan since inception follows:
1996 1995 1994 Options outstanding at 818,82 867,82 89,070 beginning of year 5 0 Granted 156,00 200,65 799,60 0 0 0 Exercised (370,2 (177,2 - 02) 80) Canceled (17,66 (72,36 (20,85 5) 5) 0) Options outstanding at year 586,95 818,82 867,82 end 8 5 0 Option price range for options granted during the year $7.66 $1.80 $0.19 to to to $11.97 $6.05 $1.38 Options exercisable at year 152,58 253,73 52,430 end 0 2 Options available for grant 365,56 503,89 132,18 at year end 0 5 0
During fiscal 1983, the Company implemented an incentive stock option plan (Incentive Plan) which allowed the granting of options, exercisable for up to ten years after the date of grant, to key employees to purchase the Company's authorized but unissued common stock at an exercise price equal to the fair market value on the date of grant. The Incentive Plan expired during fiscal 1993. During fiscal 1996, options to purchase 84,089 shares of common stock were exercised. Under the Incentive Plan, options outstanding and exercisable totaled 63,866 at exercise prices of $1.13 to $5.18 per share at October 25, 1996. During fiscal 1993 and 1994, the Company granted warrants to purchase up to 8,759 and 170,042 shares of common stock, respectively, to a director in partial consideration for consulting services. Previous grants, in the amount of 82,500 shares, were made to certain non-employee directors and advisors. During fiscal 1995, warrants to purchase 16,000 shares of common stock were exercised. During fiscal 1996, 11,500 warrants expired. Excluding warrants granted to financial institutions, the Company, at October 25, 1996, had 233,801 warrants outstanding and exercisable at $.19 to $6.00 per share expiring December 1996 through November 1998. During fiscal 1992, the Company adopted a directors' formula award plan (Directors' Plan) which provides for the granting of options to directors of the Company to purchase up to 200,000 shares of the Company's OPTEK TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (dollars in thousands) authorized but unissued common stock at an exercise price equal to the fair market value on the date of grant. Each individual elected or reelected to serve as a director of the Company who is not a full-time employee of the Company will automatically be awarded options to purchase up to 3,500 shares of common stock. Options granted under the Directors' Plan vest if such individual continues to serve as a Director of the Company until the next annual meeting of the Company's stockholders and are exercisable for a period of ten years from the date of grant. During fiscal 1996, 14,000 options to purchase common stock were exercised. At October 25, 1996 there are 59,500 director options outstanding of which 45,500 are currently exercisable from $.44 to $11.97 per share. (7) Income Taxes Income tax expense differs from the "expected" tax expense computed by applying the U.S. corporate income tax rate of 35% for fiscal 1996 and 34% for fiscal 1995 and 1994 to earnings before income taxes as follows:
1996 1995 1994 Expected tax expense $ $ $ 4,914 3,399 1,081 Realization of benefits of tax loss (3,238 (3,853 (305) carryforwards ) ) Change in valuation allowance net of loss carryforward (209) 410 (804) realized Other, net (323) 202 28 Income tax expense $ $ $ 1,144 158 -
The provision for income taxes is comprised of the following:
1996 1995 1994 Current: U.S. $1,88 $ $ Federal 7 158 - Foreign 90 - - Deferred (833) - - $1,14 $ $ 4 158 -
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liabilities at October 25, 1996 and October 27, 1995 are presented below:
1995 1996 Deferred tax assets: Net operating loss carryforwards $ $ 3,238 - Accounts receivable allowances 372 332 Inventory allowances 525 724 Accrued expenses and other 603 838 Less valuation allowance (358) (3,805) Deferred tax assets 1,142 1,327 Deferred tax liabilities: Differences between book and tax (309) (1,327) basis of assets Net deferred tax assets $ 833 $ -
OPTEK TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (dollars in thousands) The valuation allowance for deferred tax assets at October 25, 1996 was $358. The net change in the valuation allowance for the year ended October 25, 1996 and October 27, 1995 was a decrease of $3,447 and $3,443, 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 25, 1996. (8) Operating Leases The Company and its subsidiaries lease certain manufacturing facilities and equipment under noncancellable operating leases. Future minimum lease payments as of October 25, 1996 under all such operating leases are as follows: 1997, $381; 1998, $110; 1999, $43; 2000, $20; and 2001, $3. Rental expense was $399 in 1996, $412 in 1995, and $382 in 1994. (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 1996, the Company's ten largest customers accounted for approximately 62% of net sales. Such customers are involved primarily in the automotive and office equipment industries. During fiscal 1996, sales to one customer in the automotive industry were 11% of sales, versus 13% in 1995 and 14% in 1994, and sales to one customer in the office equipment industry was 11% of sales versus 13% in 1995 and 15% in 1994. Aggregate export sales to unaffiliated customers were $18,865 in 1996, $16,856 in 1995 and $14,406 in 1994. Export sales were primarily to customers in Western Europe. (10) Employee Benefit Plan All U.S. paid employees of the Company are entitled to participate in the Optek Technology, Inc. Profit-Sharing Plan and Trust (Profit-Sharing Plan). Pursuant to the Profit-Sharing Plan, employees may request the Company to deduct and contribute up to 15% of their salary. 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 1996, the Company provided for contributions to the Profit-Sharing Plan totaling $140 to be paid the first quarter of fiscal 1997. During fiscal 1995 and 1994 the Company contributed $139 and $118, 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 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 22, 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 Thomas R. Filesi Officer and Director (Principal Executive Officer) /s/ William J. Collinsworth . Vice President - Finance William J. Collinsworth Treasurer and Assistant Secretary (Principal Financial and Accounting Officer) /s/ Grant A. Dove . Chairman of the Board Grant A. Dove and Director January 22, 1997 /s/ Rodes Ennis . Director Rodes Ennis /s/ Michael E. Cahr . Director Michael E. Cahr /s/ William H. Daughtrey . Director William H. Daughtrey /s/ Wayne Stevenson . Director Wayne Stevenson EX-10 2 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") effective the 28th day of October, 1996, by and between OPTEK TECHNOLOGY, INC., a Delaware corporation, with principal executive offices at 1215 West Crosby Road, Carrollton, Texas 75006 (hereinafter referred to as the "Company") and THOMAS R. FILESI, an individual residing at 632 Hawthorn Circle, Highland Village, Texas 75067 (hereinafter referred to as "Executive"); W I T N E S S E T H: WHEREAS, Executive wishes to continue to be employed by the Company, and Executive and the Company desire to enter into an agreement relating to such employment; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, it is agreed as follows: 1. Employment. The Company employs Executive, and Executive accepts employment by the Company, subject to the terms and conditions set forth herein. 2. Term. Subject to the provisions hereof, the term of Executive's employment by the Company under this Agreement shall be for a period of three (3) years commencing on the date hereof; provided, however, that at the end of each year of employment, the term of employment shall be extended for an additional one-year period unless, on or prior to the date six (6) months prior to the end of such year of employment, the Company shall give written notice to Executive or Executive shall give written notice to the Company of an intention to terminate this Agreement, in which event the term of employment shall comprise only the remaining two years and six months of the then existing term of employment. The term of Executive's employment hereunder, including any continuation or extension of the original term, is hereinafter referred to as the "Employment Period." 3. Position and Duties. During the Employment Period, Executive shall serve as President and Chief Executive Officer of the Company, with such assignments, powers and duties as are assigned or delegated to him by the Board of Directors of the Company. Such assignments, powers and duties may, from time to time, be modified by the Company, as needs may require. Executive shall also, at the request of the Company, perform similar services for any Affiliate (as hereinafter defined) of the Company without additional compensation. Executive agrees to devote his full time, skill, attention and energy to the business affairs of the Company and its Affiliates to advance the best interests of the Company and its Affiliates and shall not hold any other salaried position during the Employment Period. Nothing contained herein shall be construed to prevent Executive from investing his assets in any form or manner or from serving on the Boards of other corporations or charitable organiza- tions or holding uncompensated positions with professional, academic or industry organizations, provided such investments and activities do not unreasonably interfere with Executive's perfor- mance of services on behalf of Company hereunder. As used in this Agreement, the term "Affiliate" of the Company means any person or corporation that, directly or indirectly through one or more intermediaries, is controlled by the Company. 4. Compensation. (a) For all services rendered by Executive to the Company during the Employment Period, the Company shall pay Executive a salary at the rate of One Hundred Eighty-Five Thousand Dollars ($185,000.00) per year, payable, subject to such withholding as may be required by law, in installments in accordance with the Company's customary payroll practices. (b) In addition, Executive shall be entitled to receive such bonuses, based upon the performance of the Company as compared to its annual budget, as shall be determined by duly adopted resolu- tion of the Board of Directors of the Company or its duly autho- rized Committees (the "Board"), which resolution may be adopted either before or after actual performance against the budget has been determined. (c) Executive shall be entitled to such salary increases, further compensation and reasonable expenses incurred in connection with business of the Company, if any, as shall be authorized by the Board. 5. Office Facilities. During the Employment Period, the Company will furnish Executive, without charge, suitable office facilities for the purpose of performing his duties hereunder, which facilities shall include secretarial, telephone, clerical and support personnel and services and shall be similar to those furnished to employees of the Company having comparable positions. 6. Fringe Benefits; Vacations. (a) During the Employment Period, Executive shall be entitled to participate in or receive benefits under such pension, medical and life insurance and other employee benefit plans of the Company which may be in effect from time to time, to the extent he is eligible under the terms of those plans, on the same basis as other employees of the Company having comparable positions. (b) Executive shall be entitled to twenty days of vacation with pay during each year of employment, which vacation time shall accrue pro rata during each year of employment according to the portion of such year of employment during which Executive has served. (c) During the Employment Period, the Company shall provide for the Executive's exclusive use a General Motors automobile in the STS or similar class at the Company's expense, including insurance and maintenance. 7. Expenses. Subject to such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Company and compliance therewith by Executive, Executive is authorized to incur reasonable and necessary expenses in the performance of his duties hereunder, and the Company will reimburse Executive for such reasonable out-of-pocket expenses upon the presentation by Executive of a reasonably itemized account and receipts satisfactory to the Company. 8. Termination by Company. (a) If Executive dies during the Employment Period, Company shall pay to: (i) the surviving spouse of Executive in the event of his death, for so long as she survives; or, (ii) the estate of Executive if Executive's spouse does not survive him, or dies before expiration of the Employment Period, all amounts payable to Executive hereunder through the date of death and the amounts which would otherwise be payable to Executive pursuant to Section 4(a) hereof during the thirty (30) day period immediately following the date of death, less any amounts payable to Executive (or such spouse or estate) pursuant to any insurance programs provided for Executive's benefit with premiums paid by Company. All other rights of Executive under this Agreement shall terminate concurrently with his death. (b) The Company may terminate the employment of Executive at any time upon written notice to Executive if Executive has (i) breached an express term or provision of this Agreement and has failed to remedy such breach within thirty (30) days of receipt by Executive of notice of such breach; (ii) habitually neglected the duties that Executive is required to perform under the terms of this Agreement at any time within ninety (90) days after having received a written notice from the Company that Executive has so neglected such duties; or (iii) willfully violated reasonable and substantial rules governing employee performance at any time within ninety (90) days after having received a written notice from the Company that Executive has so violated such rules. In the event of termination of Executive's employment pursuant to this Section 8(b), Executive shall continue to receive salary at the rate specified in Section 4(a) and, to the extent permitted by the applicable plans, to participate in the benefits described in Section 6 on a month-to-month basis thereafter until (i) Executive shall have obtained subsequent employment or (ii) the expiration of an additional period of three months from the date of such termination, whichever time period is shorter. (c) If Executive commits any act of criminal misconduct, whether or not related to Executive's duties hereunder, or any clearly dishonest, disloyal or criminal act toward the Company or its Affiliates, the Employment Period and Executive's salary and other rights under this Agreement or as an employee of the Company shall terminate without severance pay or other obligation on the part of Company upon written notice from the Company to Executive, but such termination shall not affect the liability of Executive by reason of his misconduct or dishonest, disloyal or criminal conduct. (d) Notwithstanding anything to the contrary contained herein, the Employment Period and the Executive's salary and other rights under this Agreement or as an employee of the Company shall not be deemed to have been terminated pursuant to either Section 8(b) or (c) unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the Pre-change Directors of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in Section 8(b) or (c). (e) Nothing herein shall be construed to reduce or abrogate any rights Executive may have pursuant to the Consolidated Omnibus Budget Reduction Act of 1985. 9. Termination by Executive. (a) The Employment Period may be terminated by Executive, if the Company fails to perform its duties hereunder or fails to comply with any of the provisions hereof, thirty (30) days after giving written notice to Company stating the nature of such non- performance or non-compliance, unless Company shall have remedied such non-performance or non-compliance with such thirty (30) days notice period. (b) The Executive shall be entitled to terminate his employment hereunder at any time that (A) a change in control of the Company (as defined below) has occurred and (B) there has occurred, without the express written consent of the Executive: (i) a substantial alteration in the nature or status of the title, position, duties or responsibilities of Executive from those in effect immediately prior to the change in control of the Company; (ii) a reduction by the Company in the Executive's salary as in effect on the date hereof or as the same may be in- creased from time to time; (iii) the relocation of the Company's principal executive offices to a location outside the Dallas Metropolitan Area or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with the Executive's business travel obligations prior to the change in control of the Company; (iv) the failure by the Company to continue in effect any compensation plan in which the Executive was participating immediately prior to the change in control, or the failure by the Company to continue the Executive's participation therein; (v) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's employee stock ownership, life insurance, medical, health-and-accident, or disability plans, as well as vacation, travel and club privileges in which the Executive was participating at the time of a change in control of the Company or the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Execu- tive of any material fringe benefits enjoyed by the Executive immediately before the time of the change in control of the Company; or (vi) any purported termination of the Executive's employment which is not effected in accordance with the requirements of Section 8 and, for purposes of this Agreement, no such purported termination shall be effective. (c) Upon termination of the Employment Period pursuant to Section 9(a) or 9(b), the Company shall pay to Executive in one lump sum on the fifth (5th) day following such termination, cash in an amount equal to the lesser of (i) the total compensation provided for under this Agreement for the balance of the then effective Employment Period and (ii) the amount that is one dollar ($1.00) less than the amount which would be deemed a "parachute payment" to Executive under the Internal Revenue Code of 1986, as amended, to be paid in consideration of Executive's election to terminate his employment with the Company and to release in full all rights as an employee of the Company. (d) Upon the occurrence of any change in control of the Company, all options awarded to Executive under the Company's Long- Term Stock Investment Plan which are not then vested shall become fully vested. (e) For purposes of this Agreement, a "change in control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement, or any other actual change in the control of the Company (whether by merger, consolida- tion, acquisition of assets or stock or otherwise); provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of the Company's common stock as of the date of this Agreement, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than forty-five percent (45%) of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors, (ii) a change occurs in ownership of more than forty-five percent (45%) in book value of the Company's assets, or (iii) during any period of two (2) consecutive years, individuals who at the beginning of such two year period constituted the Board of Directors of the Company, including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period (collectively, "Pre-Change Directors"), cease for any reason to constitute a majority of the Company's Board of Directors. 10. Intellectual Property Rights. (a) Executive hereby assigns, transfers, and conveys his entire right, title, and interest in any and all Intellectual Property which he makes or conceives, whether as a sole inventor or originator or as a joint inventor or originator with others, whether made within or out of usual working hours or upon the premises or elsewhere, during the Employment Period. Executive understands that "Intellectual Property" as used herein includes information of a technical or a business nature such as ideas, discoveries, designs, inventions, improvements, trade secrets, know-how, manufacturing processes, product formulae, design specifications, writings and other works of authorship, computer programs, financial figures, marketing plans, customer lists and data, business plans or methods and the like, which relate in any manner to the actual or anticipated business or the actual or anticipated areas of research and development of the Company, or its divisions, subsidiaries, Affiliates, or related entities. (b) Either during or subsequent to Executive's employment, upon the request and at the expense of the Company, and for no remuneration in addition to that due Executive pursuant to this Agreement, but at no expense to him, Executive agrees to execute, acknowledge, and deliver to the Company, its nominee, or its attorneys any and all instruments which in the judgment of the Company, its nominee, or its attorneys may be necessary or desirable to secure or maintain for the benefit of the Company or its nominee adequate patent, copyright, and other property rights in the United States and foreign countries with respect to any Intellectual Property embraced within this Agreement, including but not limited to: (1) domestic and foreign patents and copyright applications, (2) any other applications for securing, protecting, or registering any property rights embraced within this Agreement, and (3) powers of attorney, assignments, oaths, affirmations, supplemental oaths and sworn statements; and further agrees to assist the Company, its nominee, or its attorneys as required to draft said instruments, to obtain said rights, and to enforce said rights. (c) Executive further agrees to disclose to the Company promptly in writing any and all ideas, designs, inventions, improvements, and developments, when conceived or made in whole or in part, by him and to maintain adequate and current records thereof. (d) Any ideas, designs, inventions, improvements, dis- coveries, and developments disclosed by Executive within one year following termination of his employment shall be deemed to have been assigned, transferred, and conveyed under the terms of paragraphs (a) and (b), unless proved to have been conceived after termination. 11. Covenant Not to Disclose. Executive covenants and agrees that he will not, at any time during or after the termination of his employment by the Company, communicate or disclose to any person, or use for his own account, or advise, discuss with, or in any way assist any other person or firm in obtaining or learning about, without the prior written consent of the Company, informa- tion concerning any inventions, processes, programs, systems, flow charts or equipment used in, or any secret or confidential or proprietary information, trade secrets or know-how (including, without limitation, any customer lists, trade secrets or informa- tion concerning any work done by the Company for its customers or done in an effort to solicit or obtain customers) concerning, the products, services, business or affairs of the Company or any of its Affiliates which is not generally available to the public and which has become known to Executive at any time he has been employed by the Company. Executive further covenants and agrees that he shall retain all such knowledge and information concerning the foregoing in trust for the sole benefit of the Company and its Affiliates and their respective successors and assigns. Upon termination of his employment with Company, all documents, records, notebooks, and similar repositories of or containing secret or confidential or proprietary information, including copies thereof, then in Executive's possession, whether prepared by him or others, will be left with Company. 12. Protection of Company Goodwill and Proprietary Informa- tion (a) The following provisions of this Agreement contain substantial restrictions on Executive's post-employment activities. As evidenced by his initials affixed to this and subsequent pages, Executive acknowledges that he has read and understands such provisions. (b) Executive recognizes and acknowledges that the lists of the Company's customers, as well as information pertaining to customer personnel, product preferences and buying habits as such lists or information may exist, whether same are ever actually committed to writing or otherwise compiled in one or more docu- ments, or are merely memorized by Executive, are also valuable, special and unique assets of the Company's business. Executive will not, during or after the term of this Agreement, disclose, directly or indirectly any of said customer lists or information of or pertaining to customers or any part thereof, to any person, firm, corporation, association or other entity for any reason or purpose whatsoever. (c) Further, Executive agrees: (i) that Executive shall not, during the one (1) year period immediately following the date upon which his employ- ment by Company is terminated, directly or indirectly, for himself or for any other person, firm, corporation, associa- tion or other entity, as an owner, independent contractor, principal, agent, officer, director, partner, stockholder, employee, consultant or otherwise, within any state of the United States of America or any foreign country in which the Company has sold goods or services within one (1) year prior to such termination, sell, solicit or accept orders, or assist or aid in the selling or solicitation or acceptance of orders for products similar to or which can be used in substitution for or replacement of the Company's to any party with whom Executive had contact while in the employ of Company and (A) who is or has been a customer or client of the Company at the date of such termination or within a period of one (1) year prior thereto, or (B) who has been identified as a potential customer or client of the Company as of the date of such termination; (ii) that Executive shall not during the one (1) year period immediately following the date upon which his employ- ment or engagement by Company is terminated, directly or indirectly, for himself or for any other person, firm, corporation, association or other entity as owner, independent contractor, principal, agent, officer, director, partner, stockholder, employee, consultant or otherwise, within any state of the United States of America or any foreign country in which the Company has purchased or obtained goods or services within one (1) year prior to such termination, employ or attempt to employ, or engage or attempt to engage, or solicit or encourage to leave the employment of Company or otherwise cease, curtail or modify his relationship with Company, any employee, salesman, independent contractor or agent employed or engaged by Company as of the date of Executive's termination, unless such person's employment or engagement with Company shall have been terminated by Company prior thereto or Company shall have consented to such employ- ment, engagement, solicitation or encouragement in writing. (d) While the restrictions set forth in this Section 12 are considered by the parties to be reasonable in all circumstances, it is agreed that if any of such restrictions shall be adjudged to be void or ineffective for whatever reason, but would be adjudged to be valid and effective if part of the wording thereof were deleted or the periods thereof reduced, the said restrictions shall apply with such modifications as may be necessary to make the same valid and effective. 13. Essential Nature of Covenants. The existence of any claim or cause of action of Executive against the Company or any of its Affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants contained in Sections 10, 11 and 12 hereof. Executive understands that the covenants contained in Sections 10, 11 and 12 are essential elements of the transactions contemplated by this Agreement and, but for the agreement of Executive to Sections 10, 11 and 12, the Company would not have agreed to enter into such transactions. Executive has had the opportunity to consult with counsel and to be advised in all respects concerning the reasonableness and propriety of Sections 10, 11 and 12 with specific regard to the nature of the business conducted by the Company, and Executive acknowledges that Sections 10, 11 and 12 are reasonable in all respects. 14. Remedies. Notwithstanding Section 15 of this Agreement, in the event of a breach or threatened breach by Executive of Sections 10, 11 or 12, the Company shall be entitled to obtain from any court having jurisdiction of the parties a temporary restrain- ing order and an injunction restraining Executive from the commission of such breach. Nothing contained in this Section 14 shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery money damages. 15. Arbitration. Except as provided in Section 14 of this Agreement, the Company and Executive agree to submit to binding arbitration any controversy or claim arising out of or relating to this Agreement or the breach thereof or any other matter relating in any manner to the relationship between the Company and Executive or the termination of such relationship or otherwise arising from or relating to any practices or procedures of the Company or conduct of the Company or its agents toward Executive, including but not limited to tortious claims and statutory claims. Such arbitration shall be conducted in the City of Dallas, Texas, in accordance with the Model Employment Arbitration Procedures then in effect or, if such have been repealed, the rules then obtaining of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. 16. Certain Arbitration Procedures. (a) The parties shall cooperate to the fullest extent practicable in the voluntary exchange of documents and information to expedite any such arbitration. Any request for documents or other information should be specific, relate to the matter in controversy, and afford the party to whom the request is made a reasonable period of time to respond without interfering with the time set for the hearing. (b) Document Production and Information Exchange. (i) Any party may serve a written request for infor- mation or documents ("information request") upon another party twenty (20) business days or more after the non-complaining party has received notice of the institution of arbitration proceedings. The requesting party shall serve the information request on all parties and file a copy with the arbitrator(s). The parties shall endeavor to resolve disputes regarding an information request prior to serving any objection to the request. Such efforts shall be set forth in the objection. (ii) Unless a greater time is allowed by the requesting party, information requests shall be satisfied or objected to within thirty (30) calendar days from the date of service. Any objection to an information request shall be served by the objecting party on all parties and filed with the arbitrator(s). (iii) Any response to objections to an information re- quest shall be served on all parties and filed with the arbitrator(s) within ten (10) calendar days of receipt of the objection. (iv) Upon the written request of a party whose infor- mation request is unsatisfied, the matter will be referred by the arbitrator(s) to either a pre-hearing conference under subsection (d) of this section or to a selected arbitrator under subsection (f) of this section. (c) At least ten (10) calendar days prior to the first scheduled hearing date, all parties shall serve on each other copies of documents in their possession they intend to present at the hearing and shall identify witnesses they intend to present at the hearing. The arbitrators may exclude from the arbitration any documents not exchanged or witnesses not identified. This paragraph does not require service of copies of documents or identification of witnesses which parties may use for cross- examination or rebuttal. (d)(i) Upon the written request of a party or an arbitrator, a pre-hearing conference shall be scheduled. The arbitrator(s) shall set the time and place of a pre-hearing conference and appoint a person to preside. The pre-hearing conference may be held by telephone conference call. The presiding person shall seek to achieve agreement among the parties on any issue which relates to the pre-hearing process or to the hearing, including but not limited to exchange of information, exchange or production of documents, identification of witnesses, identification and exchange of hearing documents, stipulation of facts, identification and briefing of contested issues, and any other matters which will expedite the arbitration proceedings. (ii) Any issues raised at the pre-hearing conference that are not resolved may be referred to a single member of the arbitration panel for decision. (e) The arbitrator(s) shall apply such rules of procedure in addition to the preceding rules as the arbitrator(s) think appropriate under the circumstances, provided that both parties shall be entitled to representation by counsel, to appear and present written and oral evidence and argument, and to cross- examine witnesses presented by the other party, and the arbitrator(s) shall provide written reasons for the determination rendered. (f) The arbitrators (if more than one) may appoint a single member of the arbitration panel to decide all unresolved issues under this Section 16. Such arbitrator shall be authorized to act on behalf of the panel to issue subpoenas, direct appearances of witnesses and production of documents, set deadlines for compli- ance, and issue any other ruling which will expedite the arbitra- tion proceedings. Decisions under this section shall be made upon the papers submitted by the parties, unless the arbitrator calls a hearing. The arbitrator may elect to refer any issue under this section to the full panel. 17. Waiver of Breach. The waiver by the either party of a breach of any provision of this Agreement by the other party shall not operate nor be construed as a waiver of any subsequent breach by the other party. 18. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors, assigns, heirs and legal representatives. 19. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect the construction or interpretation of this Agreement. 20. Severability. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibi- tion or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 21. Governing Law. This Agreement shall be construed (both as to validity and performance) and enforced in accordance with and governed by the laws of the State of Texas. 22. Notice. All notices which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or three (3) days after being mailed by registered or certified first class mail, postage prepaid, return receipt requested, at the address listed above for such party, or to such other address as such party shall have specified by notice to the other party hereto as provided in this Section. 23. Entire Agreement. Except as specifically set forth below, this Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 24. Amendment. This Agreement may not be changed orally, but only in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. 25. Limitations. No suit, action, arbitration or other proceeding based upon or arising out of this Agreement shall be maintainable in any court of law or equity or before any arbitra- tor(s) or other adjudicator(s) unless the same be commenced within two (2) years after the calendar date upon which the claim giving rise to such suit, action, arbitration or other proceeding arose. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and date first above written. OPTEK TECHNOLOGY, INC. By: Print Name: Title: THOMAS R. FILESI EX-10 3 CONSULTING AGREEMENT CONSULTING AGREEMENT (this "Agreement") effective the 28th day of October, 1996, between OPTEK TECHNOLOGY, INC., a Delaware corporation (hereinafter called the "Company"), and GRANT DOVE, an individual residing in Dallas, Texas (hereinafter called "Consultant"); W I T N E S S E T H: WHEREAS the Company desires to retain Consultant as an independent contractor to perform certain duties described herein; NOW THEREFORE, in consideration of the mutual agreements herein made, the Company and Consultant do hereby agree as follows: 1. Retainer as Consultant. The Company hereby designates and appoints Consultant as an independent contractor to provide services described herein for the Company, and Consultant hereby accepts such appointment upon the terms and conditions hereinafter set forth. 2. Status of Consultant as an Independent Contractor. (a) In exercising the duties and obligations arising under the terms of this Agreement, Consultant shall at all times be and remain an independent contractor and nothing in this Agreement will constitute Consultant a general partner or joint venturer of the Company. Consultant shall have full discretion and authority as to the manner in which Consultant carries out his duties and obligations hereunder and the time at which Consultant carries out his duties and obligations. (b) The parties agree that by the execution of this Agreement and the performance of his responsibilities as an independent contractor hereunder, Consultant is not assuming and shall not assume any of the Company's corporate obligations. (c) Consultant shall be solely responsible for paying all taxes, including social security, which may be or become due as a result of remuneration payable to him under this Agreement. 3. Remuneration. (a) For all services rendered by Consultant under the terms of this Agreement, Consultant shall receive compensation at the rate of $25,000 per fiscal quarter of the Company, payable in cash within ten (10) days after the end of each fiscal quarter of the Company during which Consultant shall have provided services hereunder. In the event that Consultant shall serve for a portion but not the entirety of any fiscal quarter of the Company, the amount paid to Consultant shall be adjusted proportionately. (b) Consultant shall also be entitled to reimbursement by the Company of all reasonable, ordinary and necessary business expenses incurred by Consultant in carrying out the duties of his appointment hereunder, provided that Consultant accounts promptly for such expenses to the Company in the manner prescribed from time to time by the Company's Board of Directors. 4. Term of Appointment. The term of Consultant's appointment (hereinafter referred to as the "term of appointment") shall commence on the date hereof and terminate on May 30, 1998. 5. Termination by Company. (a) If Consultant dies during the term of appointment, Company shall pay to: (i) the surviving spouse of Consultant in the event of his death, for so long as she survives; or, (ii) the estate of Consultant if Consultant's spouse does not survive him, or dies before expiration of the term of appointment, all amounts payable to Consultant hereunder through the date of death and the amounts which would otherwise be payable to Consultant pursuant to Section 4 hereof during the ninety (90) day period immediately following the date of death, less any amounts payable to Consultant (or such spouse or estate) pursuant to any insurance programs provided for Consultant's benefit with premiums paid by Company. All other rights of Consultant under this Agreement shall terminate concurrently with his death. (b) The Company may terminate the employment of Consultant at any time upon written notice to Consultant if Consultant has (i) breached an express term or provision of this Agreement and has failed to remedy such breach within thirty (30) days of receipt by Consultant of notice of such breach or (ii) habitually neglected the duties that Consultant is required to perform under the terms of this Agreement at any time within ninety (90) days after having received a written notice from the Company that Consultant has so neglected such duties. In the event of termination of Consultant's employment pursuant to this Section 5(b), Consultant shall be entitled to receive all amounts payable to Consultant through the date of termination and the amounts which would otherwise be payable to Consultant pursuant to Section 4 hereof during the ninety (90) day period immediately following the date of termination. (c) If Consultant commits any act of criminal misconduct, whether or not related to Consultant's duties hereunder, or any clearly dishonest, disloyal or criminal act toward the Company or its Affiliates, the term of appointment and Consultant's remuneration and other rights under this Agreement or as an employee of the Company shall terminate without severance pay or other obligation on the part of Company upon written notice from the Company to Consultant, but such termination shall not affect the liability of Consultant by reason of his misconduct or dishonest, disloyal or criminal conduct. (d) Notwithstanding anything to the contrary contained herein, the term of appointment and the Consultant's remuneration and other rights under this Agreement or as an employee of the Company shall not be deemed to have been terminated pursuant to either Section 5(b) or (c) unless and until there shall have been delivered to the Consultant a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the Pre-change Directors of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Consultant and an opportunity for the Consultant, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Consultant was guilty of conduct set forth above in Section 5(b) or (c). 6. Termination by Consultant. (a) The term of appointment may be terminated by Consultant, if the Company fails to perform its duties hereunder or fails to comply with any of the provisions hereof, thirty (30) days after giving written notice to Company stating the nature of such non-performance or non- compliance, unless Company shall have remedied such non- performance or non-compliance with such thirty (30) days notice period. (b) The Consultant shall be entitled to terminate the term of appointment hereunder at any time that (A) a change in control of the Company (as defined below) has occurred and (B) there has occurred, without the express written consent of the Consultant: (i) a substantial alteration in the nature or status of the title, position, duties or responsibilities of Consultant from those in effect immediately prior to the change in control of the Company; (ii) a reduction by the Company in the Consultant's remuneration as in effect on the date hereof or as the same may be increased from time to time; (iii) the failure by the Company to continue in effect any compensation plan in which the Consultant was participating immediately prior to the change in control, or the failure by the Company to continue the Consultant's participation therein; or (iv) any purported termination of the Consultant's term of appointment which is not effected in accordance with the requirements of Section 5 and, for purposes of this Agreement, no such purported termination shall be effective. (c) Upon termination of the term of appointment pursuant to Section 6(a) or 6(b), the Company shall pay to Consultant in one lump sum on the fifth (5th) day following such termina- tion, cash in an amount equal to the lesser of (i) the total compensation provided for under this Agreement for the balance of the term of appointment and (ii) the amount that is one dollar ($1.00) less than the amount which would be deemed a "parachute payment" to Consultant under the Internal Revenue Code of 1986, as amended, to be paid in consideration of Consultant's election to release in full all rights under this Agreement. (d) For purposes of this Agreement, a "change in control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement, or any other actual change in the control of the Company (whether by merger, consolidation, acquisition of assets or stock or otherwise); provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of the Company's common stock as of the date of this Agreement, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than forty-five percent (45%) of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors, (ii) a change occurs in ownership of more than forty-five percent (45%) in book value of the Company's assets, or (iii) during any period of two (2) consecutive years, individuals who at the beginning of such two year period constituted the Board of Directors of the Company, including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period (collectively, "Pre-Change Directors"), cease for any reason to constitute a majority of the Company's Board of Directors. 7. Duties; Extent of Service. Consultant, as an independent contractor, agrees to serve as Chairman of the Board of the Company during his term of appointment and to perform the normal functions and duties of that position as contemplated by the Company's Certificate of Incorporation and Bylaws and applicable law. Consultant may during the term of this Agreement be engaged in any other business activity. 8. Confidential Information; Covenant Not to Disclose. Consultant recognizes and acknowledges that he will have access to certain Confidential Information of the Company, and that such information constitutes valuable, special and unique property of the Company. Consultant agrees that he will not during the term of appointment or at any time thereafter use, disseminate or disclose any such Confidential Information to any party not associated with the Company for any reason or purpose whatsoever. Nothing herein shall be construed as prohibiting the Company from pursuing any other remedies available to the Company for such breach or threatened breach. Upon termination of his appointment by the Company, all documents, records, notebooks and similar repositories of or containing confidential information, including copies thereof, then in Consultant's possession, whether prepared by him or other, will be left with the Company. As used herein, "Confidential Information" means information disclosed to Consultant or known by Consultant as a consequence of or through his association with the Company, not generally known in the industry in which the Company is or may become engaged, about the Company's products, processes or services, including information relating to research, development, inventions, manufacturing, purchasing, accounting, engineering, marketing, merchandising and selling. 9. Indemnification; Insurance. The Company agrees to indemnify Consultant against any liability asserted against Consultant by reason of the fact that he is or has been a Director, officer or agent of the Company, or is or has served as a Director, officer or agent of another corporation at the request of the Company to the fullest extent permitted by Delaware law, and the Company shall use its best efforts to obtain officers' and Directors' liability insurance concerning the same. 10. Contents of Agreement, Parties in Interest, Assignment, Etc. This Agreement sets forth the entire understanding of the parties with respect to the matters contemplated hereby and any previous agreements or understandings between the parties regarding the subject matter hereof are merged into and superseded by this Agreement. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, legal representatives, successors and assigns. Consultant may not assign, transfer, convey, mortgage, hypothecate, pledge or otherwise encumber the remuneration or other benefits payable to him or any right which he may have under the provisions of this Agreement. This Agreement may and shall be assigned or transferred to, and shall be binding upon and inure to the benefit of, any successor of the Company and any successor shall be deemed substituted for all purposes of the Company under the terms of this Agreement. 11. Waiver. Any waiver by any party of any of the terms or conditions of this Agreement in any instance shall not be deemed or construed to be a waiver of such term or condition for the future, or any subsequent breach thereof. 12. Amendment of Agreement. Notwithstanding anything to the contrary in this Agreement, to the extent permitted by law, this Agreement may be amended, supplemented or interpreted at any time by written instrument duly executed by each of the parties hereto. 13. Receipt of Agreement. Each of the parties hereto acknowledges that he has read this Agreement in its entirety and does hereby acknowledge receipt of a fully executed copy thereof. A fully executed copy shall be an original for all purposes and is a duplicate original. 14. Captions and Section Headings. Captions and Section headings used herein are for convenience only and are not a part of this Agreement and shall not be used in construing it. 15. Invalid Provisions. Should any part of this Agreement for any reason be declared invalid, the validity and binding effect of any remaining portion shall not be affected, and the remaining portion of this Agreement shall remain in force and effect as if this Agreement had been executed with the invalid provision eliminated. 16. Jurisdiction and Venue. Each of the parties hereto hereby irrevocably submits to the jurisdiction and venue of the state and federal courts sitting in the County of Dallas, State of Texas, with respect to any legal proceedings arising out of this Agreement. 17. Notices. Any notice required or permitted to be given under the terms of this Agreement shall be in writing and shall be deemed to have been delivered when sent postage prepaid by registered or certified mail, return receipt requested, in the case of Consultant, to his last place of residence as shown on the records of the Company, or in the case of the Company, to its principal office in the City of Carrollton, Texas. 18. Miscellaneous. This Agreement shall be subject to and governed by the laws of the State of Texas. IN WITNESS WHEREOF, the parties have executed this Agreement on the date first appearing above. THE COMPANY: OPTEK TECHNOLOGY, INC. By: Thomas R. Filesi President INDEPENDENT CONTRACTOR: GRANT DOVE EX-10 4 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") effective the 28th day of October, 1996, by and between OPTEK TECHNOLOGY, INC., a Delaware corporation, with principal executive offices at 1215 West Crosby Road, Carrollton, Texas 75006 (hereinafter referred to as the "Company") and B.J. COLLINSWORTH, an individual residing at (hereinafter referred to as "Executive"); W I T N E S S E T H: WHEREAS, Executive wishes to continue to be employed by the Company, and Executive and the Company desire to enter into an agreement relating to such employment; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, it is agreed as follows: 1. Employment. The Company employs Executive, and Executive accepts employment by the Company, subject to the terms and conditions set forth herein. 2. Term. Subject to the provisions hereof, the term of Executive's employment by the Company under this Agreement shall be for a period of two (2) years commencing on the date hereof; provided, however, that at the end of each year of employment, the term of employment shall be extended for an additional one-year period unless, on or prior to the date three (3) months prior to the end of such year of employment, the Company shall give written notice to Executive or Executive shall give written notice to the Company of an intention to terminate this Agreement, in which event the term of employment shall comprise only the remaining one year and three months of the then existing term of employment. The term of Executive's employment hereunder, including any continuation or extension of the original term, is hereinafter referred to as the "Employment Period." 3. Position and Duties. During the Employment Period, Executive shall serve as Vice President - Finance and Chief Financial Officer of the Company, with such assignments, powers and duties as are assigned or delegated to him by the Board of Directors of the Company. Such assignments, powers and duties may, from time to time, be modified by the Company, as needs may require. Executive shall also, at the request of the Company, perform similar services for any Affiliate (as hereinafter defined) of the Company without additional compensation. Executive agrees to devote his full time, skill, attention and energy to the business affairs of the Company and its Affiliates to advance the best interests of the Company and its Affiliates and shall not hold any other salaried position during the Employment Period. Nothing contained herein shall be construed to prevent Executive from investing his assets in any form or manner or from serving on the Boards of other corporations or charitable organiza- tions or holding uncompensated positions with professional, academic or industry organizations, provided such investments and activities do not unreasonably interfere with Executive's perfor- mance of services on behalf of Company hereunder. As used in this Agreement, the term "Affiliate" of the Company means any person or corporation that, directly or indirectly through one or more intermediaries, is controlled by the Company. 4. Compensation. (a) For all services rendered by Executive to the Company during the Employment Period, the Company shall pay Executive a salary at the rate of One Hundred Thirty-Five Thousand Dollars ($135,000.00) per year, payable, subject to such withholding as may be required by law, in installments in accordance with the Company's customary payroll practices. (b) In addition, Executive shall be entitled to receive such bonuses, based upon the performance of the Company as compared to its annual budget, as shall be determined by duly adopted resolu- tion of the Board of Directors of the Company or its duly autho- rized Committees (the "Board"), which resolution may be adopted either before or after actual performance against the budget has been determined. (c) Executive shall be entitled to such salary increases, further compensation and reasonable expenses incurred in connection with business of the Company, if any, as shall be authorized by the Board. 5. Office Facilities. During the Employment Period, the Company will furnish Executive, without charge, suitable office facilities for the purpose of performing his duties hereunder, which facilities shall include secretarial, telephone, clerical and support personnel and services and shall be similar to those furnished to employees of the Company having comparable positions. 6. Fringe Benefits; Vacations. (a) During the Employment Period, Executive shall be entitled to participate in or receive benefits under such pension, medical and life insurance and other employee benefit plans of the Company which may be in effect from time to time, to the extent he is eligible under the terms of those plans, on the same basis as other employees of the Company having comparable positions. (b) Executive shall be entitled to twenty days of vacation with pay during each year of employment, which vacation time shall accrue pro rata during each year of employment according to the portion of such year of employment during which Executive has served. 7. Expenses. Subject to such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Company and compliance therewith by Executive, Executive is authorized to incur reasonable and necessary expenses in the performance of his duties hereunder, and the Company will reimburse Executive for such reasonable out-of-pocket expenses upon the presentation by Executive of a reasonably itemized account and receipts satisfactory to the Company. 8. Termination by Company. (a) If Executive dies during the Employment Period, Company shall pay to: (i) the surviving spouse of Executive in the event of his death, for so long as she survives; or, (ii) the estate of Executive if Executive's spouse does not survive him, or dies before expiration of the Employment Period, all amounts payable to Executive hereunder through the date of death and the amounts which would otherwise be payable to Executive pursuant to Section 4(a) hereof during the thirty (30) day period immediately following the date of death, less any amounts payable to Executive (or such spouse or estate) pursuant to any insurance programs provided for Executive's benefit with premiums paid by Company. All other rights of Executive under this Agreement shall terminate concurrently with his death. (b) The Company may terminate the employment of Executive at any time upon written notice to Executive if Executive has (i) breached an express term or provision of this Agreement and has failed to remedy such breach within thirty (30) days of receipt by Executive of notice of such breach; (ii) habitually neglected the duties that Executive is required to perform under the terms of this Agreement at any time within ninety (90) days after having received a written notice from the Company that Executive has so neglected such duties; or (iii) willfully violated reasonable and substantial rules governing employee performance at any time within ninety (90) days after having received a written notice from the Company that Executive has so violated such rules. In the event of termination of Executive's employment pursuant to this Section 8(b), Executive shall continue to receive salary at the rate specified in Section 4(a) and, to the extent permitted by the applicable plans, to participate in the benefits described in Section 6 on a month-to-month basis thereafter until (i) Executive shall have obtained subsequent employment or (ii) the expiration of an additional period of three months from the date of such termination, whichever time period is shorter. (c) If Executive commits any act of criminal misconduct, whether or not related to Executive's duties hereunder, or any clearly dishonest, disloyal or criminal act toward the Company or its Affiliates, the Employment Period and Executive's salary and other rights under this Agreement or as an employee of the Company shall terminate without severance pay or other obligation on the part of Company upon written notice from the Company to Executive, but such termination shall not affect the liability of Executive by reason of his misconduct or dishonest, disloyal or criminal conduct. (d) Notwithstanding anything to the contrary contained herein, the Employment Period and the Executive's salary and other rights under this Agreement or as an employee of the Company shall not be deemed to have been terminated pursuant to either Section 8(b) or (c) unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the Pre-change Directors of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in Section 8(b) or (c). (e) Nothing herein shall be construed to reduce or abrogate any rights Executive may have pursuant to the Consolidated Omnibus Budget Reduction Act of 1985. 9. Termination by Executive. (a) The Employment Period may be terminated by Executive, if the Company fails to perform its duties hereunder or fails to comply with any of the provisions hereof, thirty (30) days after giving written notice to Company stating the nature of such non- performance or non-compliance, unless Company shall have remedied such non-performance or non-compliance with such thirty (30) days notice period. (b) The Executive shall be entitled to terminate his employment hereunder at any time that (A) a change in control of the Company (as defined below) has occurred and (B) there has occurred, without the express written consent of the Executive: (i) a substantial alteration in the nature or status of the title, position, duties or responsibilities of Executive from those in effect immediately prior to the change in control of the Company; (ii) a reduction by the Company in the Executive's salary as in effect on the date hereof or as the same may be in- creased from time to time; (iii) the relocation of the Company's principal executive offices to a location outside the Dallas Metropolitan Area or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with the Executive's business travel obligations prior to the change in control of the Company; (iv) the failure by the Company to continue in effect any compensation plan in which the Executive was participating immediately prior to the change in control, or the failure by the Company to continue the Executive's participation therein; (v) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's employee stock ownership, life insurance, medical, health-and-accident, or disability plans, as well as vacation, travel and club privileges in which the Executive was participating at the time of a change in control of the Company or the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Execu- tive of any material fringe benefits enjoyed by the Executive immediately before the time of the change in control of the Company; or (vi) any purported termination of the Executive's employment which is not effected in accordance with the requirements of Section 8 and, for purposes of this Agreement, no such purported termination shall be effective. (c) Upon termination of the Employment Period pursuant to Section 9(a) or 9(b), the Company shall pay to Executive in one lump sum on the fifth (5th) day following such termination, cash in an amount equal to the lesser of (i) the total compensation provided for under this Agreement for the balance of the then effective Employment Period and (ii) the amount that is one dollar ($1.00) less than the amount which would be deemed a "parachute payment" to Executive under the Internal Revenue Code of 1986, as amended, to be paid in consideration of Executive's election to terminate his employment with the Company and to release in full all rights as an employee of the Company. (d) Upon the occurrence of any change in control of the Company, all options awarded to Executive under the Company's Long- Term Stock Investment Plan which are not then vested shall become fully vested. (e) For purposes of this Agreement, a "change in control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement, or any other actual change in the control of the Company (whether by merger, consolida- tion, acquisition of assets or stock or otherwise); provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of the Company's common stock as of the date of this Agreement, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than forty-five percent (45%) of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors, (ii) a change occurs in ownership of more than forty-five percent (45%) in book value of the Company's assets, or (iii) during any period of two (2) consecutive years, individuals who at the beginning of such two year period constituted the Board of Directors of the Company, including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period (collectively, "Pre-Change Directors"), cease for any reason to constitute a majority of the Company's Board of Directors. 10. Intellectual Property Rights. (a) Executive hereby assigns, transfers, and conveys his entire right, title, and interest in any and all Intellectual Property which he makes or conceives, whether as a sole inventor or originator or as a joint inventor or originator with others, whether made within or out of usual working hours or upon the premises or elsewhere, during the Employment Period. Executive understands that "Intellectual Property" as used herein includes information of a technical or a business nature such as ideas, discoveries, designs, inventions, improvements, trade secrets, know-how, manufacturing processes, product formulae, design specifications, writings and other works of authorship, computer programs, financial figures, marketing plans, customer lists and data, business plans or methods and the like, which relate in any manner to the actual or anticipated business or the actual or anticipated areas of research and development of the Company, or its divisions, subsidiaries, Affiliates, or related entities. (b) Either during or subsequent to Executive's employment, upon the request and at the expense of the Company, and for no remuneration in addition to that due Executive pursuant to this Agreement, but at no expense to him, Executive agrees to execute, acknowledge, and deliver to the Company, its nominee, or its attorneys any and all instruments which in the judgment of the Company, its nominee, or its attorneys may be necessary or desirable to secure or maintain for the benefit of the Company or its nominee adequate patent, copyright, and other property rights in the United States and foreign countries with respect to any Intellectual Property embraced within this Agreement, including but not limited to: (1) domestic and foreign patents and copyright applications, (2) any other applications for securing, protecting, or registering any property rights embraced within this Agreement, and (3) powers of attorney, assignments, oaths, affirmations, supplemental oaths and sworn statements; and further agrees to assist the Company, its nominee, or its attorneys as required to draft said instruments, to obtain said rights, and to enforce said rights. (c) Executive further agrees to disclose to the Company promptly in writing any and all ideas, designs, inventions, improvements, and developments, when conceived or made in whole or in part, by him and to maintain adequate and current records thereof. (d) Any ideas, designs, inventions, improvements, dis- coveries, and developments disclosed by Executive within one year following termination of his employment shall be deemed to have been assigned, transferred, and conveyed under the terms of paragraphs (a) and (b), unless proved to have been conceived after termination. 11. Covenant Not to Disclose. Executive covenants and agrees that he will not, at any time during or after the termination of his employment by the Company, communicate or disclose to any person, or use for his own account, or advise, discuss with, or in any way assist any other person or firm in obtaining or learning about, without the prior written consent of the Company, informa- tion concerning any inventions, processes, programs, systems, flow charts or equipment used in, or any secret or confidential or proprietary information, trade secrets or know-how (including, without limitation, any customer lists, trade secrets or informa- tion concerning any work done by the Company for its customers or done in an effort to solicit or obtain customers) concerning, the products, services, business or affairs of the Company or any of its Affiliates which is not generally available to the public and which has become known to Executive at any time he has been employed by the Company. Executive further covenants and agrees that he shall retain all such knowledge and information concerning the foregoing in trust for the sole benefit of the Company and its Affiliates and their respective successors and assigns. Upon termination of his employment with Company, all documents, records, notebooks, and similar repositories of or containing secret or confidential or proprietary information, including copies thereof, then in Executive's possession, whether prepared by him or others, will be left with Company. 12. Protection of Company Goodwill and Proprietary Informa- tion (a) The following provisions of this Agreement contain substantial restrictions on Executive's post-employment activities. As evidenced by his initials affixed to this and subsequent pages, Executive acknowledges that he has read and understands such provisions. (b) Executive recognizes and acknowledges that the lists of the Company's customers, as well as information pertaining to customer personnel, product preferences and buying habits as such lists or information may exist, whether same are ever actually committed to writing or otherwise compiled in one or more docu- ments, or are merely memorized by Executive, are also valuable, special and unique assets of the Company's business. Executive will not, during or after the term of this Agreement, disclose, directly or indirectly any of said customer lists or information of or pertaining to customers or any part thereof, to any person, firm, corporation, association or other entity for any reason or purpose whatsoever. (c) Further, Executive agrees: (i) that Executive shall not, during the one (1) year period immediately following the date upon which his employ- ment by Company is terminated, directly or indirectly, for himself or for any other person, firm, corporation, associa- tion or other entity, as an owner, independent contractor, principal, agent, officer, director, partner, stockholder, employee, consultant or otherwise, within any state of the United States of America or any foreign country in which the Company has sold goods or services within one (1) year prior to such termination, sell, solicit or accept orders, or assist or aid in the selling or solicitation or acceptance of orders for products similar to or which can be used in substitution for or replacement of the Company's to any party with whom Executive had contact while in the employ of Company and (A) who is or has been a customer or client of the Company at the date of such termination or within a period of one (1) year prior thereto, or (B) who has been identified as a potential customer or client of the Company as of the date of such termination; (ii) that Executive shall not during the one (1) year period immediately following the date upon which his employ- ment or engagement by Company is terminated, directly or indirectly, for himself or for any other person, firm, corporation, association or other entity as owner, independent contractor, principal, agent, officer, director, partner, stockholder, employee, consultant or otherwise, within any state of the United States of America or any foreign country in which the Company has purchased or obtained goods or services within one (1) year prior to such termination, employ or attempt to employ, or engage or attempt to engage, or solicit or encourage to leave the employment of Company or otherwise cease, curtail or modify his relationship with Company, any employee, salesman, independent contractor or agent employed or engaged by Company as of the date of Executive's termination, unless such person's employment or engagement with Company shall have been terminated by Company prior thereto or Company shall have consented to such employ- ment, engagement, solicitation or encouragement in writing. (d) While the restrictions set forth in this Section 12 are considered by the parties to be reasonable in all circumstances, it is agreed that if any of such restrictions shall be adjudged to be void or ineffective for whatever reason, but would be adjudged to be valid and effective if part of the wording thereof were deleted or the periods thereof reduced, the said restrictions shall apply with such modifications as may be necessary to make the same valid and effective. 13. Essential Nature of Covenants. The existence of any claim or cause of action of Executive against the Company or any of its Affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants contained in Sections 10, 11 and 12 hereof. Executive understands that the covenants contained in Sections 10, 11 and 12 are essential elements of the transactions contemplated by this Agreement and, but for the agreement of Executive to Sections 10, 11 and 12, the Company would not have agreed to enter into such transactions. Executive has had the opportunity to consult with counsel and to be advised in all respects concerning the reasonableness and propriety of Sections 10, 11 and 12 with specific regard to the nature of the business conducted by the Company, and Executive acknowledges that Sections 10, 11 and 12 are reasonable in all respects. 14. Remedies. Notwithstanding Section 15 of this Agreement, in the event of a breach or threatened breach by Executive of Sections 10, 11 or 12, the Company shall be entitled to obtain from any court having jurisdiction of the parties a temporary restrain- ing order and an injunction restraining Executive from the commission of such breach. Nothing contained in this Section 14 shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery money damages. 15. Arbitration. Except as provided in Section 14 of this Agreement, the Company and Executive agree to submit to binding arbitration any controversy or claim arising out of or relating to this Agreement or the breach thereof or any other matter relating in any manner to the relationship between the Company and Executive or the termination of such relationship or otherwise arising from or relating to any practices or procedures of the Company or conduct of the Company or its agents toward Executive, including but not limited to tortious claims and statutory claims. Such arbitration shall be conducted in the City of Dallas, Texas, in accordance with the Model Employment Arbitration Procedures then in effect or, if such have been repealed, the rules then obtaining of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. 16. Certain Arbitration Procedures. (a) The parties shall cooperate to the fullest extent practicable in the voluntary exchange of documents and information to expedite any such arbitration. Any request for documents or other information should be specific, relate to the matter in controversy, and afford the party to whom the request is made a reasonable period of time to respond without interfering with the time set for the hearing. (b) Document Production and Information Exchange. (i) Any party may serve a written request for infor- mation or documents ("information request") upon another party twenty (20) business days or more after the non-complaining party has received notice of the institution of arbitration proceedings. The requesting party shall serve the information request on all parties and file a copy with the arbitrator(s). The parties shall endeavor to resolve disputes regarding an information request prior to serving any objection to the request. Such efforts shall be set forth in the objection. (ii) Unless a greater time is allowed by the requesting party, information requests shall be satisfied or objected to within thirty (30) calendar days from the date of service. Any objection to an information request shall be served by the objecting party on all parties and filed with the arbitrator(s). (iii) Any response to objections to an information re- quest shall be served on all parties and filed with the arbitrator(s) within ten (10) calendar days of receipt of the objection. (iv) Upon the written request of a party whose infor- mation request is unsatisfied, the matter will be referred by the arbitrator(s) to either a pre-hearing conference under subsection (d) of this section or to a selected arbitrator under subsection (f) of this section. (c) At least ten (10) calendar days prior to the first scheduled hearing date, all parties shall serve on each other copies of documents in their possession they intend to present at the hearing and shall identify witnesses they intend to present at the hearing. The arbitrators may exclude from the arbitration any documents not exchanged or witnesses not identified. This paragraph does not require service of copies of documents or identification of witnesses which parties may use for cross- examination or rebuttal. (d)(i) Upon the written request of a party or an arbitrator, a pre-hearing conference shall be scheduled. The arbitrator(s) shall set the time and place of a pre-hearing conference and appoint a person to preside. The pre-hearing conference may be held by telephone conference call. The presiding person shall seek to achieve agreement among the parties on any issue which relates to the pre-hearing process or to the hearing, including but not limited to exchange of information, exchange or production of documents, identification of witnesses, identification and exchange of hearing documents, stipulation of facts, identification and briefing of contested issues, and any other matters which will expedite the arbitration proceedings. (ii) Any issues raised at the pre-hearing conference that are not resolved may be referred to a single member of the arbitration panel for decision. (e) The arbitrator(s) shall apply such rules of procedure in addition to the preceding rules as the arbitrator(s) think appropriate under the circumstances, provided that both parties shall be entitled to representation by counsel, to appear and present written and oral evidence and argument, and to cross- examine witnesses presented by the other party, and the arbitrator(s) shall provide written reasons for the determination rendered. (f) The arbitrators (if more than one) may appoint a single member of the arbitration panel to decide all unresolved issues under this Section 16. Such arbitrator shall be authorized to act on behalf of the panel to issue subpoenas, direct appearances of witnesses and production of documents, set deadlines for compli- ance, and issue any other ruling which will expedite the arbitra- tion proceedings. Decisions under this section shall be made upon the papers submitted by the parties, unless the arbitrator calls a hearing. The arbitrator may elect to refer any issue under this section to the full panel. 17. Waiver of Breach. The waiver by the either party of a breach of any provision of this Agreement by the other party shall not operate nor be construed as a waiver of any subsequent breach by the other party. 18. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors, assigns, heirs and legal representatives. 19. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect the construction or interpretation of this Agreement. 20. Severability. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibi- tion or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 21. Governing Law. This Agreement shall be construed (both as to validity and performance) and enforced in accordance with and governed by the laws of the State of Texas. 22. Notice. All notices which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or three (3) days after being mailed by registered or certified first class mail, postage prepaid, return receipt requested, at the address listed above for such party, or to such other address as such party shall have specified by notice to the other party hereto as provided in this Section. 23. Entire Agreement. Except as specifically set forth below, this Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 24. Amendment. This Agreement may not be changed orally, but only in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. 25. Limitations. No suit, action, arbitration or other proceeding based upon or arising out of this Agreement shall be maintainable in any court of law or equity or before any arbitra- tor(s) or other adjudicator(s) unless the same be commenced within two (2) years after the calendar date upon which the claim giving rise to such suit, action, arbitration or other proceeding arose. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and date first above written. OPTEK TECHNOLOGY, INC. By: Print Name: Title: B.J. COLLINGSWORTH EX-10 5 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") effective the 28th day of October, 1996, by and between OPTEK TECHNOLOGY, INC., a Delaware corporation, with principal executive offices at 1215 West Crosby Road, Carrollton, Texas 75006 (hereinafter referred to as the "Company") and RICHARD DAHLBERG, an individual residing at 2732 Greywood Lane, Plano, Texas 75057 (hereinafter referred to as "Executive"); W I T N E S S E T H: WHEREAS, Executive wishes to continue to be employed by the Company, and Executive and the Company desire to enter into an agreement relating to such employment; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, it is agreed as follows: 1. Employment. The Company employs Executive, and Executive accepts employment by the Company, subject to the terms and conditions set forth herein. 2. Term. Subject to the provisions hereof, the term of Executive's employment by the Company under this Agreement shall be for a period of two (2) years commencing on the date hereof; provided, however, that at the end of each year of employment, the term of employment shall be extended for an additional one-year period unless, on or prior to the date three (3) months prior to the end of such year of employment, the Company shall give written notice to Executive or Executive shall give written notice to the Company of an intention to terminate this Agreement, in which event the term of employment shall comprise only the remaining one year and three months of the then existing term of employment. The term of Executive's employment hereunder, including any continuation or extension of the original term, is hereinafter referred to as the "Employment Period." 3. Position and Duties. During the Employment Period, Executive shall serve as Vice President, Engineering of the Company, with such assignments, powers and duties as are assigned or delegated to him by the Board of Directors of the Company. Such assignments, powers and duties may, from time to time, be modified by the Company, as needs may require. Executive shall also, at the request of the Company, perform similar services for any Affiliate (as hereinafter defined) of the Company without additional compensation. Executive agrees to devote his full time, skill, attention and energy to the business affairs of the Company and its Affiliates to advance the best interests of the Company and its Affiliates and shall not hold any other salaried position during the Employment Period. Nothing contained herein shall be construed to prevent Executive from investing his assets in any form or manner or from serving on the Boards of other corporations or charitable organiza- tions or holding uncompensated positions with professional, academic or industry organizations, provided such investments and activities do not unreasonably interfere with Executive's perfor- mance of services on behalf of Company hereunder. As used in this Agreement, the term "Affiliate" of the Company means any person or corporation that, directly or indirectly through one or more intermediaries, is controlled by the Company. 4. Compensation. (a) For all services rendered by Executive to the Company during the Employment Period, the Company shall pay Executive a salary at the rate of One Hundred Thousand Dollars ($100,000.00) per year, payable, subject to such withholding as may be required by law, in installments in accordance with the Company's customary payroll practices. (b) In addition, Executive shall be entitled to receive such bonuses, based upon the performance of the Company as compared to its annual budget, as shall be determined by duly adopted resolu- tion of the Board of Directors of the Company or its duly autho- rized Committees (the "Board"), which resolution may be adopted either before or after actual performance against the budget has been determined. (c) Executive shall be entitled to such salary increases, further compensation and reasonable expenses incurred in connection with business of the Company, if any, as shall be authorized by the Board. 5. Office Facilities. During the Employment Period, the Company will furnish Executive, without charge, suitable office facilities for the purpose of performing his duties hereunder, which facilities shall include secretarial, telephone, clerical and support personnel and services and shall be similar to those furnished to employees of the Company having comparable positions. 6. Fringe Benefits; Vacations. (a) During the Employment Period, Executive shall be entitled to participate in or receive benefits under such pension, medical and life insurance and other employee benefit plans of the Company which may be in effect from time to time, to the extent he is eligible under the terms of those plans, on the same basis as other employees of the Company having comparable positions. (b) Executive shall be entitled to twenty days of vacation with pay during each year of employment, which vacation time shall accrue pro rata during each year of employment according to the portion of such year of employment during which Executive has served. 7. Expenses. Subject to such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Company and compliance therewith by Executive, Executive is authorized to incur reasonable and necessary expenses in the performance of his duties hereunder, and the Company will reimburse Executive for such reasonable out-of-pocket expenses upon the presentation by Executive of a reasonably itemized account and receipts satisfactory to the Company. 8. Termination by Company. (a) If Executive dies during the Employment Period, Company shall pay to: (i) the surviving spouse of Executive in the event of his death, for so long as she survives; or, (ii) the estate of Executive if Executive's spouse does not survive him, or dies before expiration of the Employment Period, all amounts payable to Executive hereunder through the date of death and the amounts which would otherwise be payable to Executive pursuant to Section 4(a) hereof during the thirty (30) day period immediately following the date of death, less any amounts payable to Executive (or such spouse or estate) pursuant to any insurance programs provided for Executive's benefit with premiums paid by Company. All other rights of Executive under this Agreement shall terminate concurrently with his death. (b) The Company may terminate the employment of Executive at any time upon written notice to Executive if Executive has (i) breached an express term or provision of this Agreement and has failed to remedy such breach within thirty (30) days of receipt by Executive of notice of such breach; (ii) habitually neglected the duties that Executive is required to perform under the terms of this Agreement at any time within ninety (90) days after having received a written notice from the Company that Executive has so neglected such duties; or (iii) willfully violated reasonable and substantial rules governing employee performance at any time within ninety (90) days after having received a written notice from the Company that Executive has so violated such rules. In the event of termination of Executive's employment pursuant to this Section 8(b), Executive shall continue to receive salary at the rate specified in Section 4(a) and, to the extent permitted by the applicable plans, to participate in the benefits described in Section 6 on a month-to-month basis thereafter until (i) Executive shall have obtained subsequent employment or (ii) the expiration of an additional period of three months from the date of such termination, whichever time period is shorter. (c) If Executive commits any act of criminal misconduct, whether or not related to Executive's duties hereunder, or any clearly dishonest, disloyal or criminal act toward the Company or its Affiliates, the Employment Period and Executive's salary and other rights under this Agreement or as an employee of the Company shall terminate without severance pay or other obligation on the part of Company upon written notice from the Company to Executive, but such termination shall not affect the liability of Executive by reason of his misconduct or dishonest, disloyal or criminal conduct. (d) Notwithstanding anything to the contrary contained herein, the Employment Period and the Executive's salary and other rights under this Agreement or as an employee of the Company shall not be deemed to have been terminated pursuant to either Section 8(b) or (c) unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the Pre-change Directors of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in Section 8(b) or (c). (e) Nothing herein shall be construed to reduce or abrogate any rights Executive may have pursuant to the Consolidated Omnibus Budget Reduction Act of 1985. 9. Termination by Executive. (a) The Employment Period may be terminated by Executive, if the Company fails to perform its duties hereunder or fails to comply with any of the provisions hereof, thirty (30) days after giving written notice to Company stating the nature of such non- performance or non-compliance, unless Company shall have remedied such non-performance or non-compliance with such thirty (30) days notice period. (b) The Executive shall be entitled to terminate his employment hereunder at any time that (A) a change in control of the Company (as defined below) has occurred and (B) there has occurred, without the express written consent of the Executive: (i) a substantial alteration in the nature or status of the title, position, duties or responsibilities of Executive from those in effect immediately prior to the change in control of the Company; (ii) a reduction by the Company in the Executive's salary as in effect on the date hereof or as the same may be in- creased from time to time; (iii) the relocation of the Company's principal executive offices to a location outside the Dallas Metropolitan Area or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with the Executive's business travel obligations prior to the change in control of the Company; (iv) the failure by the Company to continue in effect any compensation plan in which the Executive was participating immediately prior to the change in control, or the failure by the Company to continue the Executive's participation therein; (v) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's employee stock ownership, life insurance, medical, health-and-accident, or disability plans, as well as vacation, travel and club privileges in which the Executive was participating at the time of a change in control of the Company or the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Execu- tive of any material fringe benefits enjoyed by the Executive immediately before the time of the change in control of the Company; or (vi) any purported termination of the Executive's employment which is not effected in accordance with the requirements of Section 8 and, for purposes of this Agreement, no such purported termination shall be effective. (c) Upon termination of the Employment Period pursuant to Section 9(a) or 9(b), the Company shall pay to Executive in one lump sum on the fifth (5th) day following such termination, cash in an amount equal to the lesser of (i) the total compensation provided for under this Agreement for the balance of the then effective Employment Period and (ii) the amount that is one dollar ($1.00) less than the amount which would be deemed a "parachute payment" to Executive under the Internal Revenue Code of 1986, as amended, to be paid in consideration of Executive's election to terminate his employment with the Company and to release in full all rights as an employee of the Company. (d) Upon the occurrence of any change in control of the Company, all options awarded to Executive under the Company's Long- Term Stock Investment Plan which are not then vested shall become fully vested. (e) For purposes of this Agreement, a "change in control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement, or any other actual change in the control of the Company (whether by merger, consolida- tion, acquisition of assets or stock or otherwise); provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of the Company's common stock as of the date of this Agreement, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than forty-five percent (45%) of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors, (ii) a change occurs in ownership of more than forty-five percent (45%) in book value of the Company's assets, or (iii) during any period of two (2) consecutive years, individuals who at the beginning of such two year period constituted the Board of Directors of the Company, including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period (collectively, "Pre-Change Directors"), cease for any reason to constitute a majority of the Company's Board of Directors. 10. Intellectual Property Rights. (a) Executive hereby assigns, transfers, and conveys his entire right, title, and interest in any and all Intellectual Property which he makes or conceives, whether as a sole inventor or originator or as a joint inventor or originator with others, whether made within or out of usual working hours or upon the premises or elsewhere, during the Employment Period. Executive understands that "Intellectual Property" as used herein includes information of a technical or a business nature such as ideas, discoveries, designs, inventions, improvements, trade secrets, know-how, manufacturing processes, product formulae, design specifications, writings and other works of authorship, computer programs, financial figures, marketing plans, customer lists and data, business plans or methods and the like, which relate in any manner to the actual or anticipated business or the actual or anticipated areas of research and development of the Company, or its divisions, subsidiaries, Affiliates, or related entities. (b) Either during or subsequent to Executive's employment, upon the request and at the expense of the Company, and for no remuneration in addition to that due Executive pursuant to this Agreement, but at no expense to him, Executive agrees to execute, acknowledge, and deliver to the Company, its nominee, or its attorneys any and all instruments which in the judgment of the Company, its nominee, or its attorneys may be necessary or desirable to secure or maintain for the benefit of the Company or its nominee adequate patent, copyright, and other property rights in the United States and foreign countries with respect to any Intellectual Property embraced within this Agreement, including but not limited to: (1) domestic and foreign patents and copyright applications, (2) any other applications for securing, protecting, or registering any property rights embraced within this Agreement, and (3) powers of attorney, assignments, oaths, affirmations, supplemental oaths and sworn statements; and further agrees to assist the Company, its nominee, or its attorneys as required to draft said instruments, to obtain said rights, and to enforce said rights. (c) Executive further agrees to disclose to the Company promptly in writing any and all ideas, designs, inventions, improvements, and developments, when conceived or made in whole or in part, by him and to maintain adequate and current records thereof. 11. Arbitration. The Company and Executive agree to submit to binding arbitration any controversy or claim arising out of or relating to this Agreement or the breach thereof or any other matter relating in any manner to the relationship between the Company and Executive or the termination of such relationship or otherwise arising from or relating to any practices or procedures of the Company or conduct of the Company or its agents toward Executive, including but not limited to tortious claims and statutory claims. Such arbitration shall be conducted in the City of Dallas, Texas, in accordance with the Model Employment Arbitra- tion Procedures then in effect or, if such have been repealed, the rules then obtaining of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. 12. Certain Arbitration Procedures. (a) The parties shall cooperate to the fullest extent practicable in the voluntary exchange of documents and information to expedite any such arbitration. Any request for documents or other information should be specific, relate to the matter in controversy, and afford the party to whom the request is made a reasonable period of time to respond without interfering with the time set for the hearing. (b) Document Production and Information Exchange. (i) Any party may serve a written request for infor- mation or documents ("information request") upon another party twenty (20) business days or more after the non-complaining party has received notice of the institution of arbitration proceedings. The requesting party shall serve the information request on all parties and file a copy with the arbitrator(s). The parties shall endeavor to resolve disputes regarding an information request prior to serving any objection to the request. Such efforts shall be set forth in the objection. (ii) Unless a greater time is allowed by the requesting party, information requests shall be satisfied or objected to within thirty (30) calendar days from the date of service. Any objection to an information request shall be served by the objecting party on all parties and filed with the arbitrator(s). (iii) Any response to objections to an information re- quest shall be served on all parties and filed with the arbitrator(s) within ten (10) calendar days of receipt of the objection. (iv) Upon the written request of a party whose infor- mation request is unsatisfied, the matter will be referred by the arbitrator(s) to either a pre-hearing conference under subsection (d) of this section or to a selected arbitrator under subsection (f) of this section. (c) At least ten (10) calendar days prior to the first scheduled hearing date, all parties shall serve on each other copies of documents in their possession they intend to present at the hearing and shall identify witnesses they intend to present at the hearing. The arbitrators may exclude from the arbitration any documents not exchanged or witnesses not identified. This paragraph does not require service of copies of documents or identification of witnesses which parties may use for cross- examination or rebuttal. (d)(i) Upon the written request of a party or an arbitrator, a pre-hearing conference shall be scheduled. The arbitrator(s) shall set the time and place of a pre-hearing conference and appoint a person to preside. The pre-hearing conference may be held by telephone conference call. The presiding person shall seek to achieve agreement among the parties on any issue which relates to the pre-hearing process or to the hearing, including but not limited to exchange of information, exchange or production of documents, identification of witnesses, identification and exchange of hearing documents, stipulation of facts, identification and briefing of contested issues, and any other matters which will expedite the arbitration proceedings. (ii) Any issues raised at the pre-hearing conference that are not resolved may be referred to a single member of the arbitration panel for decision. (e) The arbitrator(s) shall apply such rules of procedure in addition to the preceding rules as the arbitrator(s) think appropriate under the circumstances, provided that both parties shall be entitled to representation by counsel, to appear and present written and oral evidence and argument, and to cross- examine witnesses presented by the other party, and the arbitrator(s) shall provide written reasons for the determination rendered. (f) The arbitrators (if more than one) may appoint a single member of the arbitration panel to decide all unresolved issues under this Section 11. Such arbitrator shall be authorized to act on behalf of the panel to issue subpoenas, direct appearances of witnesses and production of documents, set deadlines for compli- ance, and issue any other ruling which will expedite the arbitra- tion proceedings. Decisions under this section shall be made upon the papers submitted by the parties, unless the arbitrator calls a hearing. The arbitrator may elect to refer any issue under this section to the full panel. 13. Waiver of Breach. The waiver by the either party of a breach of any provision of this Agreement by the other party shall not operate nor be construed as a waiver of any subsequent breach by the other party. 14. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors, assigns, heirs and legal representatives. 15. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect the construction or interpretation of this Agreement. 16. Severability. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibi- tion or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 17. Governing Law. This Agreement shall be construed (both as to validity and performance) and enforced in accordance with and governed by the laws of the State of Texas. 18. Notice. All notices which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or three (3) days after being mailed by registered or certified first class mail, postage prepaid, return receipt requested, at the address listed above for such party, or to such other address as such party shall have specified by notice to the other party hereto as provided in this Section. 19. Entire Agreement. Except as specifically set forth below, this Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 20. Amendment. This Agreement may not be changed orally, but only in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. 21. Limitations. No suit, action, arbitration or other proceeding based upon or arising out of this Agreement shall be maintainable in any court of law or equity or before any arbitra- tor(s) or other adjudicator(s) unless the same be commenced within two (2) years after the calendar date upon which the claim giving rise to such suit, action, arbitration or other proceeding arose. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and date first above written. OPTEK TECHNOLOGY, INC. By: Print Name: Title: RICHARD DAHLBERG EX-10 6 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") effective the 28th day of October, 1996, by and between OPTEK TECHNOLOGY, INC., a Delaware corporation, with principal executive offices at 1215 West Crosby Road, Carrollton, Texas 75006 (hereinafter referred to as the "Company") and THOMAS GARRETT, an individual residing at Rt. 1, Box 415-1, Buchanan Dam, Texas 78609 (hereinafter referred to as "Executive"); W I T N E S S E T H: WHEREAS, Executive wishes to continue to be employed by the Company, and Executive and the Company desire to enter into an agreement relating to such employment; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, it is agreed as follows: 1. Employment. The Company employs Executive, and Executive accepts employment by the Company, subject to the terms and conditions set forth herein. 2. Term. Subject to the provisions hereof, the term of Executive's employment by the Company under this Agreement shall be for a period of two (2) years commencing on the date hereof; provided, however, that at the end of each year of employment, the term of employment shall be extended for an additional one-year period unless, on or prior to the date three (3) months prior to the end of such year of employment, the Company shall give written notice to Executive or Executive shall give written notice to the Company of an intention to terminate this Agreement, in which event the term of employment shall comprise only the remaining one year and three months of the then existing term of employment. The term of Executive's employment hereunder, including any continuation or extension of the original term, is hereinafter referred to as the "Employment Period." 3. Position and Duties. During the Employment Period, Executive shall serve as Vice President, Operations of the Company, with such assignments, powers and duties as are assigned or delegated to him by the Board of Directors of the Company. Such assignments, powers and duties may, from time to time, be modified by the Company, as needs may require. Executive shall also, at the request of the Company, perform similar services for any Affiliate (as hereinafter defined) of the Company without additional compensation. Executive agrees to devote his full time, skill, attention and energy to the business affairs of the Company and its Affiliates to advance the best interests of the Company and its Affiliates and shall not hold any other salaried position during the Employment Period. Nothing contained herein shall be construed to prevent Executive from investing his assets in any form or manner or from serving on the Boards of other corporations or charitable organiza- tions or holding uncompensated positions with professional, academic or industry organizations, provided such investments and activities do not unreasonably interfere with Executive's perfor- mance of services on behalf of Company hereunder. As used in this Agreement, the term "Affiliate" of the Company means any person or corporation that, directly or indirectly through one or more intermediaries, is controlled by the Company. 4. Compensation. (a) For all services rendered by Executive to the Company during the Employment Period, the Company shall pay Executive a salary at the rate of One Hundred Twenty-One Thousand Dollars ($121,000.00) per year, payable, subject to such withholding as may be required by law, in installments in accordance with the Company's customary payroll practices. (b) In addition, Executive shall be entitled to receive such bonuses, based upon the performance of the Company as compared to its annual budget, as shall be determined by duly adopted resolu- tion of the Board of Directors of the Company or its duly autho- rized Committees (the "Board"), which resolution may be adopted either before or after actual performance against the budget has been determined. (c) Executive shall be entitled to such salary increases, further compensation and reasonable expenses incurred in connection with business of the Company, if any, as shall be authorized by the Board. 5. Office Facilities. During the Employment Period, the Company will furnish Executive, without charge, suitable office facilities for the purpose of performing his duties hereunder, which facilities shall include secretarial, telephone, clerical and support personnel and services and shall be similar to those furnished to employees of the Company having comparable positions. 6. Fringe Benefits; Vacations. (a) During the Employment Period, Executive shall be entitled to participate in or receive benefits under such pension, medical and life insurance and other employee benefit plans of the Company which may be in effect from time to time, to the extent he is eligible under the terms of those plans, on the same basis as other employees of the Company having comparable positions. (b) Executive shall be entitled to twenty days of vacation with pay during each year of employment, which vacation time shall accrue pro rata during each year of employment according to the portion of such year of employment during which Executive has served. 7. Expenses. Subject to such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Company and compliance therewith by Executive, Executive is authorized to incur reasonable and necessary expenses in the performance of his duties hereunder, and the Company will reimburse Executive for such reasonable out-of-pocket expenses upon the presentation by Executive of a reasonably itemized account and receipts satisfactory to the Company. 8. Termination by Company. (a) If Executive dies during the Employment Period, Company shall pay to: (i) the surviving spouse of Executive in the event of his death, for so long as she survives; or, (ii) the estate of Executive if Executive's spouse does not survive him, or dies before expiration of the Employment Period, all amounts payable to Executive hereunder through the date of death and the amounts which would otherwise be payable to Executive pursuant to Section 4(a) hereof during the thirty (30) day period immediately following the date of death, less any amounts payable to Executive (or such spouse or estate) pursuant to any insurance programs provided for Executive's benefit with premiums paid by Company. All other rights of Executive under this Agreement shall terminate concurrently with his death. (b) The Company may terminate the employment of Executive at any time upon written notice to Executive if Executive has (i) breached an express term or provision of this Agreement and has failed to remedy such breach within thirty (30) days of receipt by Executive of notice of such breach; (ii) habitually neglected the duties that Executive is required to perform under the terms of this Agreement at any time within ninety (90) days after having received a written notice from the Company that Executive has so neglected such duties; or (iii) willfully violated reasonable and substantial rules governing employee performance at any time within ninety (90) days after having received a written notice from the Company that Executive has so violated such rules. In the event of termination of Executive's employment pursuant to this Section 8(b), Executive shall continue to receive salary at the rate specified in Section 4(a) and, to the extent permitted by the applicable plans, to participate in the benefits described in Section 6 on a month-to-month basis thereafter until (i) Executive shall have obtained subsequent employment or (ii) the expiration of an additional period of three months from the date of such termination, whichever time period is shorter. (c) If Executive commits any act of criminal misconduct, whether or not related to Executive's duties hereunder, or any clearly dishonest, disloyal or criminal act toward the Company or its Affiliates, the Employment Period and Executive's salary and other rights under this Agreement or as an employee of the Company shall terminate without severance pay or other obligation on the part of Company upon written notice from the Company to Executive, but such termination shall not affect the liability of Executive by reason of his misconduct or dishonest, disloyal or criminal conduct. (d) Notwithstanding anything to the contrary contained herein, the Employment Period and the Executive's salary and other rights under this Agreement or as an employee of the Company shall not be deemed to have been terminated pursuant to either Section 8(b) or (c) unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the Pre-change Directors of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in Section 8(b) or (c). (e) Nothing herein shall be construed to reduce or abrogate any rights Executive may have pursuant to the Consolidated Omnibus Budget Reduction Act of 1985. 9. Termination by Executive. (a) The Employment Period may be terminated by Executive, if the Company fails to perform its duties hereunder or fails to comply with any of the provisions hereof, thirty (30) days after giving written notice to Company stating the nature of such non- performance or non-compliance, unless Company shall have remedied such non-performance or non-compliance with such thirty (30) days notice period. (b) The Executive shall be entitled to terminate his employment hereunder at any time that (A) a change in control of the Company (as defined below) has occurred and (B) there has occurred, without the express written consent of the Executive: (i) a substantial alteration in the nature or status of the title, position, duties or responsibilities of Executive from those in effect immediately prior to the change in control of the Company; (ii) a reduction by the Company in the Executive's salary as in effect on the date hereof or as the same may be in- creased from time to time; (iii) the relocation of the Company's principal executive offices to a location outside the Dallas Metropolitan Area or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with the Executive's business travel obligations prior to the change in control of the Company; (iv) the failure by the Company to continue in effect any compensation plan in which the Executive was participating immediately prior to the change in control, or the failure by the Company to continue the Executive's participation therein; (v) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's employee stock ownership, life insurance, medical, health-and-accident, or disability plans, as well as vacation, travel and club privileges in which the Executive was participating at the time of a change in control of the Company or the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Execu- tive of any material fringe benefits enjoyed by the Executive immediately before the time of the change in control of the Company; or (vi) any purported termination of the Executive's employment which is not effected in accordance with the requirements of Section 8 and, for purposes of this Agreement, no such purported termination shall be effective. (c) Upon termination of the Employment Period pursuant to Section 9(a) or 9(b), the Company shall pay to Executive in one lump sum on the fifth (5th) day following such termination, cash in an amount equal to the lesser of (i) the total compensation provided for under this Agreement for the balance of the then effective Employment Period and (ii) the amount that is one dollar ($1.00) less than the amount which would be deemed a "parachute payment" to Executive under the Internal Revenue Code of 1986, as amended, to be paid in consideration of Executive's election to terminate his employment with the Company and to release in full all rights as an employee of the Company. (d) Upon the occurrence of any change in control of the Company, all options awarded to Executive under the Company's Long- Term Stock Investment Plan which are not then vested shall become fully vested. (e) For purposes of this Agreement, a "change in control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement, or any other actual change in the control of the Company (whether by merger, consolida- tion, acquisition of assets or stock or otherwise); provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of the Company's common stock as of the date of this Agreement, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than forty-five percent (45%) of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors, (ii) a change occurs in ownership of more than forty-five percent (45%) in book value of the Company's assets, or (iii) during any period of two (2) consecutive years, individuals who at the beginning of such two year period constituted the Board of Directors of the Company, including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period (collectively, "Pre-Change Directors"), cease for any reason to constitute a majority of the Company's Board of Directors. 10. Intellectual Property Rights. (a) Executive hereby assigns, transfers, and conveys his entire right, title, and interest in any and all Intellectual Property which he makes or conceives, whether as a sole inventor or originator or as a joint inventor or originator with others, whether made within or out of usual working hours or upon the premises or elsewhere, during the Employment Period. Executive understands that "Intellectual Property" as used herein includes information of a technical or a business nature such as ideas, discoveries, designs, inventions, improvements, trade secrets, know-how, manufacturing processes, product formulae, design specifications, writings and other works of authorship, computer programs, financial figures, marketing plans, customer lists and data, business plans or methods and the like, which relate in any manner to the actual or anticipated business or the actual or anticipated areas of research and development of the Company, or its divisions, subsidiaries, Affiliates, or related entities. (b) Either during or subsequent to Executive's employment, upon the request and at the expense of the Company, and for no remuneration in addition to that due Executive pursuant to this Agreement, but at no expense to him, Executive agrees to execute, acknowledge, and deliver to the Company, its nominee, or its attorneys any and all instruments which in the judgment of the Company, its nominee, or its attorneys may be necessary or desirable to secure or maintain for the benefit of the Company or its nominee adequate patent, copyright, and other property rights in the United States and foreign countries with respect to any Intellectual Property embraced within this Agreement, including but not limited to: (1) domestic and foreign patents and copyright applications, (2) any other applications for securing, protecting, or registering any property rights embraced within this Agreement, and (3) powers of attorney, assignments, oaths, affirmations, supplemental oaths and sworn statements; and further agrees to assist the Company, its nominee, or its attorneys as required to draft said instruments, to obtain said rights, and to enforce said rights. (c) Executive further agrees to disclose to the Company promptly in writing any and all ideas, designs, inventions, improvements, and developments, when conceived or made in whole or in part, by him and to maintain adequate and current records thereof. (d) Any ideas, designs, inventions, improvements, dis- coveries, and developments disclosed by Executive within one year following termination of his employment shall be deemed to have been assigned, transferred, and conveyed under the terms of paragraphs (a) and (b), unless proved to have been conceived after termination. 11. Covenant Not to Disclose. Executive covenants and agrees that he will not, at any time during or after the termination of his employment by the Company, communicate or disclose to any person, or use for his own account, or advise, discuss with, or in any way assist any other person or firm in obtaining or learning about, without the prior written consent of the Company, informa- tion concerning any inventions, processes, programs, systems, flow charts or equipment used in, or any secret or confidential or proprietary information, trade secrets or know-how (including, without limitation, any customer lists, trade secrets or informa- tion concerning any work done by the Company for its customers or done in an effort to solicit or obtain customers) concerning, the products, services, business or affairs of the Company or any of its Affiliates which is not generally available to the public and which has become known to Executive at any time he has been employed by the Company. Executive further covenants and agrees that he shall retain all such knowledge and information concerning the foregoing in trust for the sole benefit of the Company and its Affiliates and their respective successors and assigns. Upon termination of his employment with Company, all documents, records, notebooks, and similar repositories of or containing secret or confidential or proprietary information, including copies thereof, then in Executive's possession, whether prepared by him or others, will be left with Company. 12. Protection of Company Goodwill and Proprietary Informa- tion (a) The following provisions of this Agreement contain substantial restrictions on Executive's post-employment activities. As evidenced by his initials affixed to this and subsequent pages, Executive acknowledges that he has read and understands such provisions. (b) Executive recognizes and acknowledges that the lists of the Company's customers, as well as information pertaining to customer personnel, product preferences and buying habits as such lists or information may exist, whether same are ever actually committed to writing or otherwise compiled in one or more docu- ments, or are merely memorized by Executive, are also valuable, special and unique assets of the Company's business. Executive will not, during or after the term of this Agreement, disclose, directly or indirectly any of said customer lists or information of or pertaining to customers or any part thereof, to any person, firm, corporation, association or other entity for any reason or purpose whatsoever. (c) Further, Executive agrees: (i) that Executive shall not, during the one (1) year period immediately following the date upon which his employ- ment by Company is terminated, directly or indirectly, for himself or for any other person, firm, corporation, associa- tion or other entity, as an owner, independent contractor, principal, agent, officer, director, partner, stockholder, employee, consultant or otherwise, within any state of the United States of America or any foreign country in which the Company has sold goods or services within one (1) year prior to such termination, sell, solicit or accept orders, or assist or aid in the selling or solicitation or acceptance of orders for products similar to or which can be used in substitution for or replacement of the Company's to any party with whom Executive had contact while in the employ of Company and (A) who is or has been a customer or client of the Company at the date of such termination or within a period of one (1) year prior thereto, or (B) who has been identified as a potential customer or client of the Company as of the date of such termination; (ii) that Executive shall not during the one (1) year period immediately following the date upon which his employ- ment or engagement by Company is terminated, directly or indirectly, for himself or for any other person, firm, corporation, association or other entity as owner, independent contractor, principal, agent, officer, director, partner, stockholder, employee, consultant or otherwise, within any state of the United States of America or any foreign country in which the Company has purchased or obtained goods or services within one (1) year prior to such termination, employ or attempt to employ, or engage or attempt to engage, or solicit or encourage to leave the employment of Company or otherwise cease, curtail or modify his relationship with Company, any employee, salesman, independent contractor or agent employed or engaged by Company as of the date of Executive's termination, unless such person's employment or engagement with Company shall have been terminated by Company prior thereto or Company shall have consented to such employ- ment, engagement, solicitation or encouragement in writing. (d) While the restrictions set forth in this Section 12 are considered by the parties to be reasonable in all circumstances, it is agreed that if any of such restrictions shall be adjudged to be void or ineffective for whatever reason, but would be adjudged to be valid and effective if part of the wording thereof were deleted or the periods thereof reduced, the said restrictions shall apply with such modifications as may be necessary to make the same valid and effective. 13. Essential Nature of Covenants. The existence of any claim or cause of action of Executive against the Company or any of its Affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants contained in Sections 10, 11 and 12 hereof. Executive understands that the covenants contained in Sections 10, 11 and 12 are essential elements of the transactions contemplated by this Agreement and, but for the agreement of Executive to Sections 10, 11 and 12, the Company would not have agreed to enter into such transactions. Executive has had the opportunity to consult with counsel and to be advised in all respects concerning the reasonableness and propriety of Sections 10, 11 and 12 with specific regard to the nature of the business conducted by the Company, and Executive acknowledges that Sections 10, 11 and 12 are reasonable in all respects. 14. Remedies. Notwithstanding Section 15 of this Agreement, in the event of a breach or threatened breach by Executive of Sections 10, 11 or 12, the Company shall be entitled to obtain from any court having jurisdiction of the parties a temporary restrain- ing order and an injunction restraining Executive from the commission of such breach. Nothing contained in this Section 14 shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery money damages. 15. Arbitration. Except as provided in Section 14 of this Agreement, the Company and Executive agree to submit to binding arbitration any controversy or claim arising out of or relating to this Agreement or the breach thereof or any other matter relating in any manner to the relationship between the Company and Executive or the termination of such relationship or otherwise arising from or relating to any practices or procedures of the Company or conduct of the Company or its agents toward Executive, including but not limited to tortious claims and statutory claims. Such arbitration shall be conducted in the City of Dallas, Texas, in accordance with the Model Employment Arbitration Procedures then in effect or, if such have been repealed, the rules then obtaining of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. 16. Certain Arbitration Procedures. (a) The parties shall cooperate to the fullest extent practicable in the voluntary exchange of documents and information to expedite any such arbitration. Any request for documents or other information should be specific, relate to the matter in controversy, and afford the party to whom the request is made a reasonable period of time to respond without interfering with the time set for the hearing. (b) Document Production and Information Exchange. (i) Any party may serve a written request for infor- mation or documents ("information request") upon another party twenty (20) business days or more after the non-complaining party has received notice of the institution of arbitration proceedings. The requesting party shall serve the information request on all parties and file a copy with the arbitrator(s). The parties shall endeavor to resolve disputes regarding an information request prior to serving any objection to the request. Such efforts shall be set forth in the objection. (ii) Unless a greater time is allowed by the requesting party, information requests shall be satisfied or objected to within thirty (30) calendar days from the date of service. Any objection to an information request shall be served by the objecting party on all parties and filed with the arbitrator(s). (iii) Any response to objections to an information re- quest shall be served on all parties and filed with the arbitrator(s) within ten (10) calendar days of receipt of the objection. (iv) Upon the written request of a party whose infor- mation request is unsatisfied, the matter will be referred by the arbitrator(s) to either a pre-hearing conference under subsection (d) of this section or to a selected arbitrator under subsection (f) of this section. (c) At least ten (10) calendar days prior to the first scheduled hearing date, all parties shall serve on each other copies of documents in their possession they intend to present at the hearing and shall identify witnesses they intend to present at the hearing. The arbitrators may exclude from the arbitration any documents not exchanged or witnesses not identified. This paragraph does not require service of copies of documents or identification of witnesses which parties may use for cross- examination or rebuttal. (d)(i) Upon the written request of a party or an arbitrator, a pre-hearing conference shall be scheduled. The arbitrator(s) shall set the time and place of a pre-hearing conference and appoint a person to preside. The pre-hearing conference may be held by telephone conference call. The presiding person shall seek to achieve agreement among the parties on any issue which relates to the pre-hearing process or to the hearing, including but not limited to exchange of information, exchange or production of documents, identification of witnesses, identification and exchange of hearing documents, stipulation of facts, identification and briefing of contested issues, and any other matters which will expedite the arbitration proceedings. (ii) Any issues raised at the pre-hearing conference that are not resolved may be referred to a single member of the arbitration panel for decision. (e) The arbitrator(s) shall apply such rules of procedure in addition to the preceding rules as the arbitrator(s) think appropriate under the circumstances, provided that both parties shall be entitled to representation by counsel, to appear and present written and oral evidence and argument, and to cross- examine witnesses presented by the other party, and the arbitrator(s) shall provide written reasons for the determination rendered. (f) The arbitrators (if more than one) may appoint a single member of the arbitration panel to decide all unresolved issues under this Section 16. Such arbitrator shall be authorized to act on behalf of the panel to issue subpoenas, direct appearances of witnesses and production of documents, set deadlines for compli- ance, and issue any other ruling which will expedite the arbitra- tion proceedings. Decisions under this section shall be made upon the papers submitted by the parties, unless the arbitrator calls a hearing. The arbitrator may elect to refer any issue under this section to the full panel. 17. Waiver of Breach. The waiver by the either party of a breach of any provision of this Agreement by the other party shall not operate nor be construed as a waiver of any subsequent breach by the other party. 18. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors, assigns, heirs and legal representatives. 19. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect the construction or interpretation of this Agreement. 20. Severability. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibi- tion or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 21. Governing Law. This Agreement shall be construed (both as to validity and performance) and enforced in accordance with and governed by the laws of the State of Texas. 22. Notice. All notices which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or three (3) days after being mailed by registered or certified first class mail, postage prepaid, return receipt requested, at the address listed above for such party, or to such other address as such party shall have specified by notice to the other party hereto as provided in this Section. 23. Entire Agreement. Except as specifically set forth below, this Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 24. Amendment. This Agreement may not be changed orally, but only in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. 25. Limitations. No suit, action, arbitration or other proceeding based upon or arising out of this Agreement shall be maintainable in any court of law or equity or before any arbitra- tor(s) or other adjudicator(s) unless the same be commenced within two (2) years after the calendar date upon which the claim giving rise to such suit, action, arbitration or other proceeding arose. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and date first above written. OPTEK TECHNOLOGY, INC. By: Print Name: Title: THOMAS GARRETT EX-10 7 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement") effective the 28th day of October, 1996, by and between OPTEK TECHNOLOGY, INC., a Delaware corporation, with principal executive offices at 1215 West Crosby Road, Carrollton, Texas 75006 (hereinafter referred to as the "Company") and ROBERT J. KOSOBUCKI, an individual residing at 9607 E. Valley Ranch Parkway #2088, Irving, Texas 75063 (hereinaf- ter referred to as "Executive"); W I T N E S S E T H: WHEREAS, Executive wishes to continue to be employed by the Company, and Executive and the Company desire to enter into an agreement relating to such employment; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein set forth, it is agreed as follows: 1. Employment. The Company employs Executive, and Executive accepts employment by the Company, subject to the terms and conditions set forth herein. 2. Term. Subject to the provisions hereof, the term of Executive's employment by the Company under this Agreement shall be for a period of two (2) years commencing on the date hereof; provided, however, that at the end of each year of employment, the term of employment shall be extended for an additional one-year period unless, on or prior to the date three (3) months prior to the end of such year of employment, the Company shall give written notice to Executive or Executive shall give written notice to the Company of an intention to terminate this Agreement, in which event the term of employment shall comprise only the remaining one year and three months of the then existing term of employment. The term of Executive's employment hereunder, including any continuation or extension of the original term, is hereinafter referred to as the "Employment Period." 3. Position and Duties. During the Employment Period, Executive shall serve as Vice President, Marketing and Sales of the Company, with such assignments, powers and duties as are assigned or delegated to him by the Board of Directors of the Company. Such assignments, powers and duties may, from time to time, be modified by the Company, as needs may require. Executive shall also, at the request of the Company, perform similar services for any Affiliate (as hereinafter defined) of the Company without additional compensation. Executive agrees to devote his full time, skill, attention and energy to the business affairs of the Company and its Affiliates to advance the best interests of the Company and its Affiliates and shall not hold any other salaried position during the Employment Period. Nothing contained herein shall be construed to prevent Executive from investing his assets in any form or manner or from serving on the Boards of other corporations or charitable organiza- tions or holding uncompensated positions with professional, academic or industry organizations, provided such investments and activities do not unreasonably interfere with Executive's perfor- mance of services on behalf of Company hereunder. As used in this Agreement, the term "Affiliate" of the Company means any person or corporation that, directly or indirectly through one or more intermediaries, is controlled by the Company. 4. Compensation. (a) For all services rendered by Executive to the Company during the Employment Period, the Company shall pay Executive a salary at the rate of One Hundred Thousand Dollars ($100,000.00) per year, payable, subject to such withholding as may be required by law, in installments in accordance with the Company's customary payroll practices. (b) In addition, Executive shall be entitled to receive such bonuses, based upon the performance of the Company as compared to its annual budget, as shall be determined by duly adopted resolu- tion of the Board of Directors of the Company or its duly autho- rized Committees (the "Board"), which resolution may be adopted either before or after actual performance against the budget has been determined. (c) Executive shall be entitled to such salary increases, further compensation and reasonable expenses incurred in connection with business of the Company, if any, as shall be authorized by the Board. 5. Office Facilities. During the Employment Period, the Company will furnish Executive, without charge, suitable office facilities for the purpose of performing his duties hereunder, which facilities shall include secretarial, telephone, clerical and support personnel and services and shall be similar to those furnished to employees of the Company having comparable positions. 6. Fringe Benefits; Vacations. (a) During the Employment Period, Executive shall be entitled to participate in or receive benefits under such pension, medical and life insurance and other employee benefit plans of the Company which may be in effect from time to time, to the extent he is eligible under the terms of those plans, on the same basis as other employees of the Company having comparable positions. (b) Executive shall be entitled to twenty days of vacation with pay during each year of employment, which vacation time shall accrue pro rata during each year of employment according to the portion of such year of employment during which Executive has served. 7. Expenses. Subject to such policies regarding expenses and expense reimbursement as may be adopted from time to time by the Company and compliance therewith by Executive, Executive is authorized to incur reasonable and necessary expenses in the performance of his duties hereunder, and the Company will reimburse Executive for such reasonable out-of-pocket expenses upon the presentation by Executive of a reasonably itemized account and receipts satisfactory to the Company. 8. Termination by Company. (a) If Executive dies during the Employment Period, Company shall pay to: (i) the surviving spouse of Executive in the event of his death, for so long as she survives; or, (ii) the estate of Executive if Executive's spouse does not survive him, or dies before expiration of the Employment Period, all amounts payable to Executive hereunder through the date of death and the amounts which would otherwise be payable to Executive pursuant to Section 4(a) hereof during the thirty (30) day period immediately following the date of death, less any amounts payable to Executive (or such spouse or estate) pursuant to any insurance programs provided for Executive's benefit with premiums paid by Company. All other rights of Executive under this Agreement shall terminate concurrently with his death. (b) The Company may terminate the employment of Executive at any time upon written notice to Executive if Executive has (i) breached an express term or provision of this Agreement and has failed to remedy such breach within thirty (30) days of receipt by Executive of notice of such breach; (ii) habitually neglected the duties that Executive is required to perform under the terms of this Agreement at any time within ninety (90) days after having received a written notice from the Company that Executive has so neglected such duties; or (iii) willfully violated reasonable and substantial rules governing employee performance at any time within ninety (90) days after having received a written notice from the Company that Executive has so violated such rules. In the event of termination of Executive's employment pursuant to this Section 8(b), Executive shall continue to receive salary at the rate specified in Section 4(a) and, to the extent permitted by the applicable plans, to participate in the benefits described in Section 6 on a month-to-month basis thereafter until (i) Executive shall have obtained subsequent employment or (ii) the expiration of an additional period of three months from the date of such termination, whichever time period is shorter. (c) If Executive commits any act of criminal misconduct, whether or not related to Executive's duties hereunder, or any clearly dishonest, disloyal or criminal act toward the Company or its Affiliates, the Employment Period and Executive's salary and other rights under this Agreement or as an employee of the Company shall terminate without severance pay or other obligation on the part of Company upon written notice from the Company to Executive, but such termination shall not affect the liability of Executive by reason of his misconduct or dishonest, disloyal or criminal conduct. (d) Notwithstanding anything to the contrary contained herein, the Employment Period and the Executive's salary and other rights under this Agreement or as an employee of the Company shall not be deemed to have been terminated pursuant to either Section 8(b) or (c) unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than two-thirds of the Pre-change Directors of the Board at a meeting of the Board called and held for the purpose (after reasonable notice to the Executive and an opportunity for the Executive, together with his counsel, to be heard before the Board), finding that in the good faith opinion of the Board the Executive was guilty of conduct set forth above in Section 8(b) or (c). (e) Nothing herein shall be construed to reduce or abrogate any rights Executive may have pursuant to the Consolidated Omnibus Budget Reduction Act of 1985. 9. Termination by Executive. (a) The Employment Period may be terminated by Executive, if the Company fails to perform its duties hereunder or fails to comply with any of the provisions hereof, thirty (30) days after giving written notice to Company stating the nature of such non- performance or non-compliance, unless Company shall have remedied such non-performance or non-compliance with such thirty (30) days notice period. (b) The Executive shall be entitled to terminate his employment hereunder at any time that (A) a change in control of the Company (as defined below) has occurred and (B) there has occurred, without the express written consent of the Executive: (i) a substantial alteration in the nature or status of the title, position, duties or responsibilities of Executive from those in effect immediately prior to the change in control of the Company; (ii) a reduction by the Company in the Executive's salary as in effect on the date hereof or as the same may be in- creased from time to time; (iii) the relocation of the Company's principal executive offices to a location outside the Dallas Metropolitan Area or the Company's requiring the Executive to be based anywhere other than the Company's principal executive offices except for required travel on the Company's business to an extent substantially consistent with the Executive's business travel obligations prior to the change in control of the Company; (iv) the failure by the Company to continue in effect any compensation plan in which the Executive was participating immediately prior to the change in control, or the failure by the Company to continue the Executive's participation therein; (v) the failure by the Company to continue to provide the Executive with benefits substantially similar to those enjoyed by the Executive under any of the Company's employee stock ownership, life insurance, medical, health-and-accident, or disability plans, as well as vacation, travel and club privileges in which the Executive was participating at the time of a change in control of the Company or the taking of any action by the Company which would directly or indirectly materially reduce any of such benefits or deprive the Execu- tive of any material fringe benefits enjoyed by the Executive immediately before the time of the change in control of the Company; or (vi) any purported termination of the Executive's employment which is not effected in accordance with the requirements of Section 8 and, for purposes of this Agreement, no such purported termination shall be effective. (c) Upon termination of the Employment Period pursuant to Section 9(a) or 9(b), the Company shall pay to Executive in one lump sum on the fifth (5th) day following such termination, cash in an amount equal to the lesser of (i) the total compensation provided for under this Agreement for the balance of the then effective Employment Period and (ii) the amount that is one dollar ($1.00) less than the amount which would be deemed a "parachute payment" to Executive under the Internal Revenue Code of 1986, as amended, to be paid in consideration of Executive's election to terminate his employment with the Company and to release in full all rights as an employee of the Company. (d) Upon the occurrence of any change in control of the Company, all options awarded to Executive under the Company's Long- Term Stock Investment Plan which are not then vested shall become fully vested. (e) For purposes of this Agreement, a "change in control of the Company" shall mean a change in control of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), whether or not the Company is then subject to such reporting requirement, or any other actual change in the control of the Company (whether by merger, consolida- tion, acquisition of assets or stock or otherwise); provided that, without limitation, such a change in control shall be deemed to have occurred if (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) other than a "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), of the Company's common stock as of the date of this Agreement, becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing more than forty-five percent (45%) of the combined voting power of the Company's then outstanding securities entitled to vote in the election of directors, (ii) a change occurs in ownership of more than forty-five percent (45%) in book value of the Company's assets, or (iii) during any period of two (2) consecutive years, individuals who at the beginning of such two year period constituted the Board of Directors of the Company, including for this purpose any new director whose election or nomination for election by the Company's stockholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who were directors at the beginning of the period (collectively, "Pre-Change Directors"), cease for any reason to constitute a majority of the Company's Board of Directors. 10. Intellectual Property Rights. (a) Executive hereby assigns, transfers, and conveys his entire right, title, and interest in any and all Intellectual Property which he makes or conceives, whether as a sole inventor or originator or as a joint inventor or originator with others, whether made within or out of usual working hours or upon the premises or elsewhere, during the Employment Period. Executive understands that "Intellectual Property" as used herein includes information of a technical or a business nature such as ideas, discoveries, designs, inventions, improvements, trade secrets, know-how, manufacturing processes, product formulae, design specifications, writings and other works of authorship, computer programs, financial figures, marketing plans, customer lists and data, business plans or methods and the like, which relate in any manner to the actual or anticipated business or the actual or anticipated areas of research and development of the Company, or its divisions, subsidiaries, Affiliates, or related entities. (b) Either during or subsequent to Executive's employment, upon the request and at the expense of the Company, and for no remuneration in addition to that due Executive pursuant to this Agreement, but at no expense to him, Executive agrees to execute, acknowledge, and deliver to the Company, its nominee, or its attorneys any and all instruments which in the judgment of the Company, its nominee, or its attorneys may be necessary or desirable to secure or maintain for the benefit of the Company or its nominee adequate patent, copyright, and other property rights in the United States and foreign countries with respect to any Intellectual Property embraced within this Agreement, including but not limited to: (1) domestic and foreign patents and copyright applications, (2) any other applications for securing, protecting, or registering any property rights embraced within this Agreement, and (3) powers of attorney, assignments, oaths, affirmations, supplemental oaths and sworn statements; and further agrees to assist the Company, its nominee, or its attorneys as required to draft said instruments, to obtain said rights, and to enforce said rights. (c) Executive further agrees to disclose to the Company promptly in writing any and all ideas, designs, inventions, improvements, and developments, when conceived or made in whole or in part, by him and to maintain adequate and current records thereof. (d) Any ideas, designs, inventions, improvements, dis- coveries, and developments disclosed by Executive within one year following termination of his employment shall be deemed to have been assigned, transferred, and conveyed under the terms of paragraphs (a) and (b), unless proved to have been conceived after termination. 11. Covenant Not to Disclose. Executive covenants and agrees that he will not, at any time during or after the termination of his employment by the Company, communicate or disclose to any person, or use for his own account, or advise, discuss with, or in any way assist any other person or firm in obtaining or learning about, without the prior written consent of the Company, informa- tion concerning any inventions, processes, programs, systems, flow charts or equipment used in, or any secret or confidential or proprietary information, trade secrets or know-how (including, without limitation, any customer lists, trade secrets or informa- tion concerning any work done by the Company for its customers or done in an effort to solicit or obtain customers) concerning, the products, services, business or affairs of the Company or any of its Affiliates which is not generally available to the public and which has become known to Executive at any time he has been employed by the Company. Executive further covenants and agrees that he shall retain all such knowledge and information concerning the foregoing in trust for the sole benefit of the Company and its Affiliates and their respective successors and assigns. Upon termination of his employment with Company, all documents, records, notebooks, and similar repositories of or containing secret or confidential or proprietary information, including copies thereof, then in Executive's possession, whether prepared by him or others, will be left with Company. 12. Protection of Company Goodwill and Proprietary Informa- tion (a) The following provisions of this Agreement contain substantial restrictions on Executive's post-employment activities. As evidenced by his initials affixed to this and subsequent pages, Executive acknowledges that he has read and understands such provisions. (b) Executive recognizes and acknowledges that the lists of the Company's customers, as well as information pertaining to customer personnel, product preferences and buying habits as such lists or information may exist, whether same are ever actually committed to writing or otherwise compiled in one or more docu- ments, or are merely memorized by Executive, are also valuable, special and unique assets of the Company's business. Executive will not, during or after the term of this Agreement, disclose, directly or indirectly any of said customer lists or information of or pertaining to customers or any part thereof, to any person, firm, corporation, association or other entity for any reason or purpose whatsoever. (c) Further, Executive agrees: (i) that Executive shall not, during the one (1) year period immediately following the date upon which his employ- ment by Company is terminated, directly or indirectly, for himself or for any other person, firm, corporation, associa- tion or other entity, as an owner, independent contractor, principal, agent, officer, director, partner, stockholder, employee, consultant or otherwise, within any state of the United States of America or any foreign country in which the Company has sold goods or services within one (1) year prior to such termination, sell, solicit or accept orders, or assist or aid in the selling or solicitation or acceptance of orders for products similar to or which can be used in substitution for or replacement of the Company's to any party with whom Executive had contact while in the employ of Company and (A) who is or has been a customer or client of the Company at the date of such termination or within a period of one (1) year prior thereto, or (B) who has been identified as a potential customer or client of the Company as of the date of such termination; (ii) that Executive shall not during the one (1) year period immediately following the date upon which his employ- ment or engagement by Company is terminated, directly or indirectly, for himself or for any other person, firm, corporation, association or other entity as owner, independent contractor, principal, agent, officer, director, partner, stockholder, employee, consultant or otherwise, within any state of the United States of America or any foreign country in which the Company has purchased or obtained goods or services within one (1) year prior to such termination, employ or attempt to employ, or engage or attempt to engage, or solicit or encourage to leave the employment of Company or otherwise cease, curtail or modify his relationship with Company, any employee, salesman, independent contractor or agent employed or engaged by Company as of the date of Executive's termination, unless such person's employment or engagement with Company shall have been terminated by Company prior thereto or Company shall have consented to such employ- ment, engagement, solicitation or encouragement in writing. (d) While the restrictions set forth in this Section 12 are considered by the parties to be reasonable in all circumstances, it is agreed that if any of such restrictions shall be adjudged to be void or ineffective for whatever reason, but would be adjudged to be valid and effective if part of the wording thereof were deleted or the periods thereof reduced, the said restrictions shall apply with such modifications as may be necessary to make the same valid and effective. 13. Essential Nature of Covenants. The existence of any claim or cause of action of Executive against the Company or any of its Affiliates, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants contained in Sections 10, 11 and 12 hereof. Executive understands that the covenants contained in Sections 10, 11 and 12 are essential elements of the transactions contemplated by this Agreement and, but for the agreement of Executive to Sections 10, 11 and 12, the Company would not have agreed to enter into such transactions. Executive has had the opportunity to consult with counsel and to be advised in all respects concerning the reasonableness and propriety of Sections 10, 11 and 12 with specific regard to the nature of the business conducted by the Company, and Executive acknowledges that Sections 10, 11 and 12 are reasonable in all respects. 14. Remedies. Notwithstanding Section 15 of this Agreement, in the event of a breach or threatened breach by Executive of Sections 10, 11 or 12, the Company shall be entitled to obtain from any court having jurisdiction of the parties a temporary restrain- ing order and an injunction restraining Executive from the commission of such breach. Nothing contained in this Section 14 shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery money damages. 15. Arbitration. Except as provided in Section 14 of this Agreement, the Company and Executive agree to submit to binding arbitration any controversy or claim arising out of or relating to this Agreement or the breach thereof or any other matter relating in any manner to the relationship between the Company and Executive or the termination of such relationship or otherwise arising from or relating to any practices or procedures of the Company or conduct of the Company or its agents toward Executive, including but not limited to tortious claims and statutory claims. Such arbitration shall be conducted in the City of Dallas, Texas, in accordance with the Model Employment Arbitration Procedures then in effect or, if such have been repealed, the rules then obtaining of the American Arbitration Association, and judgment upon the award rendered may be entered in any court having jurisdiction thereof. 16. Certain Arbitration Procedures. (a) The parties shall cooperate to the fullest extent practicable in the voluntary exchange of documents and information to expedite any such arbitration. Any request for documents or other information should be specific, relate to the matter in controversy, and afford the party to whom the request is made a reasonable period of time to respond without interfering with the time set for the hearing. (b) Document Production and Information Exchange. (i) Any party may serve a written request for infor- mation or documents ("information request") upon another party twenty (20) business days or more after the non-complaining party has received notice of the institution of arbitration proceedings. The requesting party shall serve the information request on all parties and file a copy with the arbitrator(s). The parties shall endeavor to resolve disputes regarding an information request prior to serving any objection to the request. Such efforts shall be set forth in the objection. (ii) Unless a greater time is allowed by the requesting party, information requests shall be satisfied or objected to within thirty (30) calendar days from the date of service. Any objection to an information request shall be served by the objecting party on all parties and filed with the arbitrator(s). (iii) Any response to objections to an information re- quest shall be served on all parties and filed with the arbitrator(s) within ten (10) calendar days of receipt of the objection. (iv) Upon the written request of a party whose infor- mation request is unsatisfied, the matter will be referred by the arbitrator(s) to either a pre-hearing conference under subsection (d) of this section or to a selected arbitrator under subsection (f) of this section. (c) At least ten (10) calendar days prior to the first scheduled hearing date, all parties shall serve on each other copies of documents in their possession they intend to present at the hearing and shall identify witnesses they intend to present at the hearing. The arbitrators may exclude from the arbitration any documents not exchanged or witnesses not identified. This paragraph does not require service of copies of documents or identification of witnesses which parties may use for cross- examination or rebuttal. (d)(i) Upon the written request of a party or an arbitrator, a pre-hearing conference shall be scheduled. The arbitrator(s) shall set the time and place of a pre-hearing conference and appoint a person to preside. The pre-hearing conference may be held by telephone conference call. The presiding person shall seek to achieve agreement among the parties on any issue which relates to the pre-hearing process or to the hearing, including but not limited to exchange of information, exchange or production of documents, identification of witnesses, identification and exchange of hearing documents, stipulation of facts, identification and briefing of contested issues, and any other matters which will expedite the arbitration proceedings. (ii) Any issues raised at the pre-hearing conference that are not resolved may be referred to a single member of the arbitration panel for decision. (e) The arbitrator(s) shall apply such rules of procedure in addition to the preceding rules as the arbitrator(s) think appropriate under the circumstances, provided that both parties shall be entitled to representation by counsel, to appear and present written and oral evidence and argument, and to cross- examine witnesses presented by the other party, and the arbitrator(s) shall provide written reasons for the determination rendered. (f) The arbitrators (if more than one) may appoint a single member of the arbitration panel to decide all unresolved issues under this Section 16. Such arbitrator shall be authorized to act on behalf of the panel to issue subpoenas, direct appearances of witnesses and production of documents, set deadlines for compli- ance, and issue any other ruling which will expedite the arbitra- tion proceedings. Decisions under this section shall be made upon the papers submitted by the parties, unless the arbitrator calls a hearing. The arbitrator may elect to refer any issue under this section to the full panel. 17. Waiver of Breach. The waiver by the either party of a breach of any provision of this Agreement by the other party shall not operate nor be construed as a waiver of any subsequent breach by the other party. 18. Binding Effect. This Agreement shall inure to the benefit of and shall be binding upon the parties hereto and their respective successors, assigns, heirs and legal representatives. 19. Headings. The headings contained in this Agreement are for reference purposes only and shall not affect the construction or interpretation of this Agreement. 20. Severability. Whenever possible each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibi- tion or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 21. Governing Law. This Agreement shall be construed (both as to validity and performance) and enforced in accordance with and governed by the laws of the State of Texas. 22. Notice. All notices which are required or may be given under this Agreement shall be in writing and shall be deemed to have been duly given when delivered in person or three (3) days after being mailed by registered or certified first class mail, postage prepaid, return receipt requested, at the address listed above for such party, or to such other address as such party shall have specified by notice to the other party hereto as provided in this Section. 23. Entire Agreement. Except as specifically set forth below, this Agreement constitutes the entire agreement between the parties hereto and supersedes all prior agreements, understandings and arrangements, oral or written, between the parties hereto with respect to the subject matter hereof. 24. Amendment. This Agreement may not be changed orally, but only in writing signed by the party against whom enforcement of any waiver, change, modification, extension, or discharge is sought. 25. Limitations. No suit, action, arbitration or other proceeding based upon or arising out of this Agreement shall be maintainable in any court of law or equity or before any arbitra- tor(s) or other adjudicator(s) unless the same be commenced within two (2) years after the calendar date upon which the claim giving rise to such suit, action, arbitration or other proceeding arose. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and date first above written. OPTEK TECHNOLOGY, INC. By: Print Name: Title: ROBERT J. KOSOBUCKI EX-10 8 OPTEK TECHNOLOGY 401(K) PLAN as amended and restated effective October 1, 1996 PREAMBLE The purpose of this Plan and Trust is to provide, in accordance with its provisions, a defined contribution plan providing retirement and other related benefits for those Employees of the Employer who are eligible to participate hereunder. This document is a complete amendment and restatement of the Optek Technology 401(k) Plan, which was originally effective as of May 1, 1985. It is intended that the Plan qualify for approval under Sections 401 and 410 through 417 of the Internal Revenue Code. It is intended that the Trust qualify for approval under Section 501 of the Code. It is further intended that the Plan comply with the provisions of the Employee Retirement Income Security Act of 1974 (ERISA). In case of any ambiguity in the Plan's language, it will be interpreted to accomplish the Plan's intent of qualifying under the Code and complying with ERISA. This Plan and Trust is exclusively for the benefit of the eligible Employees and their Beneficiaries. Neither the Employer, the Plan Administrator nor the Trustee will apply or interpret the terms of the Plan in any manner that permits discrimination in favor of Highly Compensated Employees. All Employees under similar circumstances will be treated alike. The undersigned Employer and Trustee hereby adopt this restatement of the Optek Technology 401(k) Plan to be effective as of October 1, 1996. TABLE OF CONTENTS ARTICLE 1 - DEFINITIONS 1-1 ARTICLE 2 - PARTICIPATION 2-1 ARTICLE 3 - PARTICIPANT ACCOUNTS 3-1 ARTICLE 4 - ACCOUNTING AND VALUATION 4-1 ARTICLE 5 - RETIREMENT BENEFITS 5-1 ARTICLE 6 - DEATH BENEFIT 6-1 ARTICLE 7 - LIMITATIONS ON BENEFITS 7-1 ARTICLE 8 - MISCELLANEOUS 8-1 ARTICLE 9 - ADMINISTRATION 9-1 ARTICLE 10 - AMENDMENT OR TERMINATION OF PLAN 10-1 ARTICLE 11 - TRUSTEE AND TRUST FUND 11-1 ARTICLE 1 DEFINITIONS As used in this document, unless otherwise defined or required by the context, the following terms have the meanings set forth in this Article 1. Some of the terms used in this document are not defined in Article 1, but for convenience are defined as they are introduced in the text. 1.01 uAccount Account means a separate account maintained for each Participant reflecting applicable contributions, applicable forfeitures, investment income (loss) allocated to the account and distributions. 1.02 Accounting Date, Valuation Date The term Accounting Date means the last day of each Accounting Period and any other days within the Accounting Period upon which, consistent with established methods and guidelines, the Plan Administrator applies the accounting procedures specified in Section 4.02. The term Valuation Date, unless otherwise specified, means any business day on which the New York Stock Exchange is open. 1.03 Accounting Period Accounting Period means each of the 3-month periods which end on March 31st, June 30th, September 30th and December 31st. 1.04 Accrued Benefit A Participant's Accrued Benefit means the total value, as of a given date, of his Accounts determined as of the Valuation Date immediately preceding the date of determination. A Participant's Accrued Benefit will not be reduced solely on account of any increase in the Participant's age or service or on account of an amendment to the Plan. A Participant's Vested Accrued Benefit is equal to his Vested Percentage of that portion of his Accrued Benefit which is subject to the Vesting Schedule plus 100% of the remaining portion of his Accrued Benefit. 1.05 Beneficiary Beneficiary means the person, persons, trust or other entity who is designated to receive any amount payable upon the death of a Participant. 1.06 ~uCash-Out Distribution~w Cash-Out Distribution means, as described in Article 5, a distribution to a Participant upon termination of employment of his Vested Accrued Benefit. 1.07 Code and ERISA Code means the Internal Revenue Code of 1986, as it may be amended from time to time, and all regulations issued thereunder. Reference to a section of the Code includes that section and any comparable section or sections of any future legislation that amends, supplements or supersedes such section and any regulations issued thereunder. ERISA means Public Law No. 93-406, the Employee Retirement Income Security Act of 1974, as it may be amended from time to time, and all regulations issued thereunder. Reference to a section of ERISA includes that section and any comparable section or sections of any future legislation that amends, supplements or supersedes such section and any regulations issued thereunder. 1-1 1.08 Compensation Except where otherwise specifically provided in this Plan, Compensation means Aggregate Compensation as defined in Section 7.03(a). Compensation also includes any amounts contributed by the Employer or any Related Employer on behalf of any Employee pursuant to a salary reduction agreement which are not includable in the gross income of the Employee due to Code Section 125, 402(e)(3), 402(h) or 403(b). Notwithstanding the foregoing, for all purposes under this Plan, Compensation in excess of the Statutory Compensation Limit will be disregarded. For purposes of applying this compensation limit, a Family Member of a Highly Compensated Employee is subject to the single aggregate compensation limit imposed on the Highly Compensated Employee if the Family Member is either the Employee's spouse or is a lineal descendant who has not attained the age of 19 by the end of the Plan Year. Statutory Compensation Limit means $150,000 ($200,000 for Plan Years beginning before 1994), as adjusted in accordance with Code Section 401(a)(17)(B). 1.09 ~uEffective Date~w The Effective Date of the Plan is May 1, 1985. Except as specified elsewhere in this document, the effective date of this restatement of the Plan is October 1, 1996. Sections 1.08, 1.12, 1.18, 1.32, 1.33, 1.36, and Article 7 are effective January 1, 1987. Section 4.05 is effective January 1, 1987. 1.10 Eligible Employee Classification An Eligible Employee Classification is a classification of Employees, the members of which are eligible to participate in the Plan. The Plan covers all employee classifications except Leased Employees. 1.11 Eligible Participant An Eligible Participant is a Participant who is eligible to share in the allocation of a given Employer contribution; Eligible Participant means any Participant who: * is actively employed on the last day of the Plan Year; or * retires, dies or becomes disabled during the Plan Year. 1.12 Employee (a) In General An Employee is any person who is employed by the Employer or a Participating Employer. (b) Leased Employee A Leased Employee means any person who, pursuant to an agreement between the Employer or any Related Employer ("Recipient Employer") and any other person ("leasing organization"), has performed services for the Recipient Employer on a substantially full-time basis for a period of at least one year and such services are of a type historically performed by employees in the business field of the Recipient Employer. Any Leased Employee will be treated as an Employee of the Recipient Employer; however, 1-2 contributions or benefits provided by the leasing organization which are attributable to the services performed for the Recipient Employer will be treated as provided by the Recipient Employer. If all Leased Employees constitute less than 20% of the Employer's non-highly-compensated work force within the meaning of Code Section 414(n)(1)(C)(ii), then the preceding sentence will not apply to any Leased Employee if such Employee is covered by a money purchase pension plan ("Safe Harbor Plan") which provides: (1) a nonintegrated employer contribution rate of at least 10% of compensation, (2) immediate participation, and (3) full and immediate vesting. Years of Service for purposes of eligibility to participate in the Plan and Years of Service for purposes of determining a Participant's Vested Percentage include service by an Employee as a Leased Employee. 1.13 Employer The Employer and Plan Sponsor is Optek Technology, Inc. A Participating Employer is any organization which has adopted this Plan and Trust in accordance with Section 8.07. The term Predecessor Employer means any prior employer to which the Employer is the successor, including any Predecessor Employer for which the Employer maintains the obligations of a Predecessor Plan established by the Predecessor Employer. Service with a Predecessor Employer will be included as Service with the Employer for all purposes under this Plan. 1.14 ~uEmployment Commencement Date~w The date an Employee first performs an Hour of Service for the Employer is his Employment Commencement Date. 1.15 Entry Date Entry Date means the first day of the month which coincides with or next follows the date upon which the eligibility requirements are met. 1.16 Fiscal Year Fiscal Year means the taxable year of the Plan Sponsor. The Fiscal Year of the Plan Sponsor is the 12 month period beginning October 1 and ending September 30. 1.17 Forfeiture The term Forfeiture refers to that portion, if any, of a Participant's Accrued Benefit which is in excess of his Vested Accrued Benefit following the termination of the Participant's employment. A Forfeiture is considered to occur as of the earlier of (a) the date of the occurrence of the fifth of 5 consecutive One Year Breaks-in-Service or (b) the date a Cash-Out Distribution occurs in accordance with the provisions of Article 5. 1.18 Highly Compensated Definitions (a) Compensation For purposes of this Section, Compensation means Aggregate Compensation as defined in Section 7.03(a) plus amounts contributed by the Employer pursuant to a salary reduction agreement which are excludable from the gross income of the Employee under Code Section 125, 402(e)(3), 402(h) or 403(b). Compensation in excess of the Statutory Compensation Limit will be disregarded. 1-3 (b) Determination Year Determination Year means the Plan Year for which the determination of who is Highly Compensated is being made. (c) Family Member Family Member means an Employee who is the spouse, a lineal ascendant or descendant, or the spouse of a lineal ascendant or descendant of: * a 5-percent owner (within the meaning of Code Section 416(i)) of the Employer or any Related Employer who is an active or former Employee; or * a Highly Compensated Employee who is one of the 10 most highly compensated employees ranked on the basis of Compensation paid by the Employer during the Determination Year or the Lookback Year. For purposes of this Section, the Family Member and the Highly Compensated Employee will be considered one Employee. A Family Member's Compensation and benefits will be aggregated with those of the Highly Compensated Employee irrespective of whether the Family Member would otherwise be treated as a Highly-Compensated Employee or is in a category of Employees which may be excluded in determining the number of Employees in the Top-Paid Group. If an Employee is required to be aggregated as a member of more than one family group, all eligible employees who are members of those family groups which include that employee will be aggregated as one family group. For purposes of applying the compensation limit under Code Section 401(a)(17), a Family Member is subject to the single aggregate compensation limit imposed on the Highly Compensated Employee if the Family Member is either the Employee's spouse or is a lineal descendant who has not attained the age of 19 by the end of the Plan Year. (d) Highly Compensated Employee Highly Compensated Employee means any individual who is a Highly Compensated Active Employee or a Highly Compensated Former Employee within the meaning of Code Section 414(q) and the regulations thereunder. (e) Highly Compensated Active Employee Highly Compensated Active Employee means any individual who during the Determination Year or the Lookback Year: (1) Was at any time a 5-percent Owner (within the meaning of Code Section 416(i)) of the Employer or any Related Employer; (2) Received Compensation from the Employer and all Related Employers in excess of $75,000 (or any greater amount determined by regulations issued by the Secretary of the Treasury under Code Section 415(d)); (3) Received Compensation from the Employer and all Related Employers in excess of $50,000 (or any greater amount determined by regulations issued by the Secretary of the Treasury under Code Section 415(d)) and was in the Top-Paid Group of Employees; or (4) Was an Officer of the Employer or any Related Employer (as that term is defined in the regulations under Code Section 416(i)) and received Compensation greater than 50% of the Defined Benefit Dollar Limit described in Section 7.03(f) for the applicable 1-4 year. For this purpose, if no Officer received enough Compensation to be a Highly Compensated Employee under the preceding sentence, the highest-paid Officer will be treated as a Highly Compensated Employee. The maximum number of Officers who will be treated as Highly Compensated Active Employees under this paragraph is equal to 10% of all Employees determined without regard to statutory or other exclusions, subject to a minimum of 3 Employees and a maximum of 50 Employees. No individual described in subparagraphs (2), (3) or (4) above will be treated as a Highly Compensated Active Employee for the Determination Year unless he (i) was a Highly Compensated Active Employee for the Lookback Year (or would have been except that he was not among the 100 most highly compensated Employees of the Employer and all Related Employers for the Lookback Year) or (ii) was among the 100 most highly compensated Employees of the Employer and all Related Employers for the Determination Year. (f) Highly Compensated Former Employee Highly Compensated Former Employee means any Former Employee who had a Separation Year (within the meaning of Treasury Regulation Section 1.414(q)-1T Q&A-5) and was a Highly Compensated Active Employee for either the Separation Year or any Determination Year ending on or after the Employee's 55th birthday. (g) Highly Compensated Group Highly Compensated Group means all Highly Compensated Employees. (h) Lookback Year Lookback Year means the 12-month period immediately preceding the Determination Year. (i) Non-Highly Compensated Employee Non-Highly Compensated Employee means an Employee who is neither a Highly Compensated Employee nor a Family Member. (j) Non-Highly Compensated Group Non-Highly Compensated Group means all Non-Highly Compensated Employees. (k) Top-Paid Group Top-Paid Group means those individuals who are among the top 20 percent of Employees of the Employer and all Related Employers when ranked on the basis of Compensation received during the year. In determining the number of individuals in the Top-Paid Group (but not the identity of those individuals), the following individuals may be excluded: (1) Employees who have not completed 6 months of Service by the end of the year. For this purpose, an Employee who has completed One Hour of Service in any calendar month will be credited with one month of Service; (2) Employees who normally work fewer than 17 1/2 hours per week; (3) Employees who normally work fewer than 6 months during any year. For this purpose, an Employee who has worked on one day of a month is treated as having worked for the whole month; (4) Employees who have not reached age 21 by the end of the year; (5) Nonresident aliens who received no earned income (which constitutes income from sources within the United States) within the year from the Employer or any Related Employer; and 1-5 (6) Employees covered by a collective bargaining agreement negotiated in good faith between the employee representatives and the Employer or a group of employers of which the Employer is a member if (i) 90% or more of all employees of the Employer and all Related Employers are covered by collective bargaining agreements, and (ii) this Plan covers only Employees who are not covered under a collective bargaining agreement. 1.19 Hour of Service An Hour of Service means: (a) Each hour for which an Employee is paid, or entitled to payment, for the performance of duties for the Employer. These hours will be credited to the Employee for the computation period in which the duties are performed; (b) Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service will be credited under this paragraph for any 12-month period. Hours under this paragraph will be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which are incorporated herein by this reference; and (c) Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service will not be credited both under paragraphs (a) or (b), as the case may be, and under this paragraph (c). These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement or payment is made. Hours of Service for all Employees will be determined on the basis of actual hours for which an Employee is paid or is entitled to payment. Hours of Service will be credited for employment with any Related Employer or any Predecessor Employer. Hours of Service will be credited for any individual considered an employee under Code Section 414(n) or 414(o) and the regulations thereunder. Solely for purposes of determining whether a One Year Break-in-Service has occurred, a Participant who is absent from work on an authorized Leave of Absence or by reason of the Participant's pregnancy, birth of the Participant's child, placement of a child with the Participant in connection with the adoption of such child, or for the purpose of caring for such child for a period immediately following such birth or placement, will receive credit for the Hours of Service which otherwise would have been credited to the Participant but for such absence. The Hours of Service credited under this paragraph will be credited in the Plan Year in which the absence begins if such crediting is necessary to prevent a One Year Break-in-Service in such Plan Year; otherwise, such Hours of Service will be credited in the following Plan Year. The Hours of Service credited under this paragraph are those which would normally have been credited but for such absence; in any case in which the Plan Administrator is unable to determine such hours normally credited, 8 Hours of Service per day will be credited. No more than 501 Hours of Service will be credited under this paragraph for any 12-month period. The Date of Severance is the second anniversary of the date on which the absence begins. The period between the initial date of absence and the first anniversary of the initial date of absence is deemed to be a period of Service. The period between the first and second anniversaries of the initial date of absence is neither a period of service nor a period of severance. 1-6 1.20 Investment Fund An Investment Fund means any portion of the assets of the Trust Fund which the Plan Administrator designates as an Investment Fund and for which the Plan Administrator maintains a set of accounts separate from the remaining assets of the Trust Fund. (a) Specific Investment Fund means an Investment Fund which is designated as a Specific Investment Fund by the Plan Administrator in a manner and form acceptable to the Trustee. (b) ~uGeneral Investment Fund~w means all assets of the Trust Fund excluding the assets of any Specific Investment Funds. 1.21 Leave of Absence An authorized Leave of Absence means a period of time of one year or less granted to an Employee by the Employer due to illness, injury, temporary reduction in work force, or other appropriate cause or due to military service during which the Employee's reemployment rights are protected by law, provided the Employee returns to the service of the Employer on or before the expiration of such leave, or in the case of military service, within the time his reemployment rights are so protected or within 60 days of his discharge from military service if no federal law is applicable. All authorized Leaves of Absence are granted or denied by the Employer in a uniform and nondiscriminatory manner, treating Employees in similar circumstances in a like manner. If the Participant does not return to active service with the Employer on or prior to the expiration of his authorized Leave of Absence he will be considered to have had a Date of Severance as of the earlier of the date on which his authorized Leave of Absence expired, the first anniversary of the last date he worked at least one hour as an Active Participant, or the date on which he resigned or was discharged. 1.22 Reserved 1.23 Normal Retirement Age A Participant's Normal Retirement Age is age 65. 1.24 ~uNormal Retirement Date~w A Participant's Normal Retirement Date is the date on which the Participant attains Normal Retirement Age. 1.25 ~uOne Year Break-in-Service~w One Year Break-in-Service is defined in Section 1.42(a). 1.26 ~uParticipant~w The term Participant means an Employee or former Employee who is eligible to participate in this Plan and who is or who may become eligible to receive a benefit of any type from this Plan or whose Beneficiary may be eligible to receive any such benefit. (a) ~uActive Participant~w means a Participant who is currently an Employee in an Eligible Employee Classification. (b) ~uDisabled Participant~w means a Participant who has terminated his employment with the Employer due to his Disability and who is receiving or is entitled to receive benefits from the Plan. (c) ~uRetired Participant~w means a Participant who has terminated his employment with the 1-7 Employer after meeting the requirements for his Normal Retirement Date and who is receiving or is entitled to receive benefits from the Plan. (d) ~uVested Terminated Participant~w means a Participant who has terminated his employment with the Employer and who has a nonforfeitable right to all or a portion of his or her Accrued Benefit and who has not received a distribution of the value of his or her Vested Accrued Benefit. (e) ~uInactive Participant~w means a Participant who has (i) interrupted his status as an Active Participant without becoming a Disabled, Retired or Vested Terminated Participant and (ii) has a non-forfeitable right to all or a portion of his Accrued Benefit and has not received a complete distribution of his benefit. (f) ~uFormer Participant~w means a Participant who has terminated his employment with the Employer and who currently has no nonforfeitable right to any portion of his or her Accrued Benefit. 1.27 ~uPayroll Withholding Agreement~w If a written Payroll Withholding Agreement is required pursuant to the provisions of Article 3, then each Participant who elects to participate in the Plan will file such agreement on or before the first day of the payroll period for which the agreement is applicable (or at some other time as specified by the Plan Administrator). Such agreement will be effective for each payroll period thereafter until modified or amended. The terms of such agreement will provide that the Participant agrees to have the Employer withhold, each payroll period, any whole percentage of his Compensation (or such other amount as allowed by the Plan Administrator under rules applied on a uniform and nondiscriminatory basis), not to exceed the limitations of Article 7. In consideration of such agreement, the Employer periodically will make a contribution to the Participant's proper Account(s) in an amount equal to the total amount by which the Participant's Compensation from the Employer was reduced during applicable payroll periods pursuant to the Payroll Withholding Agreement. Notwithstanding the above, Payroll Withholding Agreements will be governed by the following general guidelines: (a) A Payroll Withholding Agreement will apply to each payroll period during which an effective agreement is on file with the Employer. Upon termination of employment, such agreement will become void. (b) The Plan Administrator will establish and apply guidelines concerning the frequency and timing of amendments or changes to Payroll Withholding Agreements. Notwithstanding the foregoing, a Participant may revoke his Payroll Withholding Agreement at any time and discontinue all future withholding. (c) The Plan Administrator may amend or revoke its Payroll Withholding Agreement with any Participant at any time, if the Employer determines that such revocation or amendment is necessary to insure that a Participant's Annual Additions for any Plan Year will not exceed the limitations of Article 7 or to insure that the requirements of Sections 401(k) and 401(m) of the Code have been satisfied with respect to the amount which may be withheld and contributed on behalf of the Highly Compensated Group. (d) Except as provided above, a Payroll Withholding Agreement may not be revoked or amended by the Participant or the Employer. 1-8 1.28 ~uPlan, Plan and Trust, Trust~w The terms Plan, Plan and Trust and Trust mean Optek Technology 401(k) Plan. The Plan Identification Number is 001. The Plan is a profit sharing plan. The term Predecessor Plan means any qualified plan previously established and maintained by the Employer and to which this Plan is the successor. 1.29 ~uPlan Administrator~w The Plan Administrator is Optek Technology, Inc. 1.30 ~uPlan Year~w The Plan Year is the 12 month period beginning January 1 and ending December 31. Prior to December 31, 1996, Plan Year means the 12 month period beginning October 1 and ending September 30. The period beginning October 1, 1996 and ending December 31, 1996 is a short Plan Year. The Limitation Year coincides with the Plan Year. 1.31 ~uReserved~w 1.32 ~uQualified Election~w Qualified Election means the designation of a specific Beneficiary other than the Participant's Surviving Spouse. Such Qualified Election must be in writing and must be consented to by the Participant's spouse. The spouse's written consent to a Qualified Election must be witnessed by a representative of the Plan Administrator or a notary public. Such consent will not be required if the Participant establishes to the satisfaction of the Plan Administrator that such written consent may not be obtained because there is no spouse, the spouse cannot be located or other circumstances that may be prescribed by Treasury Regulations. Any consent necessary under this provision will be valid only with respect to the spouse who signs the consent (or in the event of a deemed Qualified Election, the designated spouse). Additionally, a revocation of a prior Qualified Election may be made by a Participant without the consent of the spouse at any time before the commencement of benefits; however, any Qualified Election which follows such revocation must be in writing and must be consented to by the Participant's spouse. The number of Qualified Elections or revocations of such Qualified Elections will not be limited. 1.33 ~uRelated Employer~w The terms Related Employer and Affiliated Employer are used interchangeably and mean any other corporation, association, company or entity on or after the Effective Date which is, along with the Employer, a member of a controlled group of corporations (as defined in Code Section 414(b)), a group of trades or businesses which are under common control (as defined in Code Section 414(c)), an affiliated service group (as defined in Code Section 414(m)), or any organization or arrangement required to be aggregated with the Employer by Treasury Regulations issued under Code Section 414(o). 1.34 ~uRequired Beginning Date~w A Participant's Required Beginning Date for the commencement of benefit payments from the Plan is the April 1 immediately following: o the later of 1989 or the calendar year in which he attained age 70-1/2 if he attained age 70-1/2 after December 31, 1987; 1-9 o the calendar year in which he attains age 70-1/2 if he is or was a Five Percent Owner at any time during the Plan Year ending with or within the calendar year in which he attains age 66-1/2 or any later Plan Year; or o the later of the calendar year in which he attains age 70-1/2 or the calendar year in which he retires for any other Participant. 1.35 ~uSurviving Spouse~w Surviving Spouse means a deceased Participant's spouse who was married to the Participant on the Participant's date of death. The Plan Administrator and the Trustee may rely conclusively on a Participant's written statement of his marital status. Neither the Plan Administrator nor the Trustee is required at any time to inquire into the validity of any marriage, the effectiveness of a common-law relationship or the claim of any alleged spouse which is inconsistent with the Participant's report of his marital status and the identity of his spouse. 1.36 ~uTop-Heavy Definitions~w (a) ~uAggregate Account~w Aggregate Account means, with respect to each Participant, the value of all accounts maintained on behalf of the Participant, whether attributable to Employer or Employee contributions, used to determine Top-Heavy Plan status under the provisions of a defined contribution plan. A Participant's Aggregate Account as of the Determination Date will be the sum of: o the balance of his Account(s) as of the most recent valuation date occurring within a 12-month period ending on the Determination Date (excluding any amounts attributable to deductible voluntary employee contributions); plus o contributions that would be allocated as of a date not later than the Determination Date, even though those amounts are not yet made or required to be made; plus o any Plan Distributions made within the Plan Year that includes the Determination Date or within the four preceding Plan Years. (b) ~uAggregation Group~w Aggregation Group means either a Required Aggregation Group or a Permissive Aggregation Group as hereinafter determined. (1) ~uRequired Aggregation Group~w Each plan of the Employer in which a Key Employee is a Participant, and each other plan of the Employer which enables any plan in which a Key Employee participates to meet the requirements of Code Section 401(a)(4) or 410, will be aggregated and the resulting group will be known as a Required Aggregation Group. Each plan in the Required Aggregation Group will be considered a Top-Heavy Plan if the Required Aggregation Group is a Top-Heavy Group. No plan in the Required Aggregation Group will be considered a Top-Heavy Plan if the Required Aggregation Group is not a Top-Heavy Group. (2) ~uPermissive Aggregation Group~w The Employer may also include any other plan not required to be included in the Required Aggregation Group, provided the resulting group (to be known as a Permissive Aggregation Group), taken as a whole, would continue to satisfy the provisions of Code 1-10 Sections 401(a)(4) and 410. Only a plan that is part of the Required Aggregation Group will be considered a Top-Heavy Plan if the Permissive Aggregation Group is a Top-Heavy Group. No plan in the Permissive Aggregation Group will be considered a Top-Heavy Plan if the Permissive Aggregation Group is not a Top-Heavy Group. Only those plans of the Employer in which the Determination Dates fall within the same calendar year will be aggregated in order to determine whether the plans are Top-Heavy Plans. (c) ~uDetermination Date~w Determination Date means the last day of the preceding Plan Year, or, in the case of the first Plan Year, the last day of the first Plan Year. (d) ~uKey Employee~w Key Employee means any Employee or former Employee (and his Beneficiary) who, at any time during the Plan Year or any of the preceding four Plan Years, was: (1) A "Five Percent Owner" of the Employer. "Five Percent Owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than 5% of the value of the outstanding stock of the Employer or stock possessing more than 5% of the total combined voting power of all stock of the Employer. If the Employer is not a corporation, Five Percent Owner means any person who owns more than 5% of the capital or profits interest in the Employer. In determining percentage ownership hereunder, Related Employers will be treated as separate Employers; or (2) A "One Percent Owner" of the Employer having Compensation from the Employer of more than $150,000. "One Percent Owner" means any person who owns (or is considered as owning within the meaning of Code Section 318) more than 1% of the value of the outstanding stock of the Employer or stock possessing more than 1% of the total combined voting power of all stock of the Employer. If the Employer is not a corporation, One Percent Owner means any person who owns more than 1% of the capital or profits interest in the Employer. In determining percentage ownership hereunder, Related Employers will be treated as separate Employers. However, in determining whether an individual has Compensation of more than $150,000, Compensation from each Related Employer will be taken into account. (3) One of the 10 Employees having Compensation not less than the Defined Contribution Dollar Limit (as defined in Section 7.03(j) for the Plan Year) who owns (or is considered as owning within the meaning of Code Section 318) both greater than 1/2% interest and the largest interests in all Employers required to be aggregated under Code Sections 414(b), (c), (m) and (o); (4) An officer (within the meaning of the regulations under Code Section 416) of the Employer having Compensation greater than 50% of the Defined Benefit Dollar Limit as defined in Section 7.03(f) for the Plan Year; For purposes of this Section, Compensation means Aggregate Compensation as defined in Section 7.03(a) plus any amounts contributed by the Employer pursuant to a salary reduction agreement which are excludable from the gross income of the Employee under Code Section 125, 402(e)(3), 402(h) or 403(b). Compensation in excess of the Statutory Compensation Limit is disregarded. 1-11 (e) ~uNon-Key Employee~w Non-Key Employee means any Employee (and his Beneficiaries) who is not a Key Employee. (f) ~uPlan Distributions~w Plan distributions include distributions made before January 1, 1984, and distributions under a terminated plan which, if it had not been terminated, would have been required to be included in an aggregation group. However, distributions made after the valuation date and before the Determination Date are not included to the extent that they are already included in the Participant's Single Sum Benefit as of the valuation date. With respect to "unrelated" rollovers and plan-to-plan transfers (those which are both initiated by an employee and made from a plan maintained by one employer to a plan maintained by another employer), if such a rollover or plan-to-plan transfer is made from this Plan, it will be considered as a distribution for purposes of this Section. If such a rollover or plan-to-plan transfer is made to this Plan, it will not be considered as part of the Participant's Single Sum Benefit. However, an unrelated rollover or plan-to-plan transfer accepted before January 1, 1984, will be considered as part of the Participant's Single Sum Benefit. With respect to "related" rollovers and plan-to-plan transfers (those which are either not initiated by an employee or are made from one plan to another plan maintained by the same employer), if such a rollover or plan-to-plan transfer is made from this Plan, it will not be considered as a distribution for purposes of this Section. If such a rollover or plan-to-plan transfer is made to this Plan, it will be considered as part of the Participant's Single Sum Benefit. (g) ~uPresent Value of Accrued Benefit~w In the case of the defined benefit plan, a Participant's Present Value of Accrued Benefit, for Top-Heavy determination purposes, will be determined using the following rules: (1) The Present Value of Accrued Benefit will be determined as of the most recent "valuation date" within a 12-month period ending on the Determination Date. (2) For the first Plan Year, the Present Value of Accrued Benefit will be determined as if (A) the Participant terminated service as of the Determination Date; or (B) the Participant terminated service as of the valuation date, but taking into account the estimated Present Value of Accrued Benefits as of the Determination Date. (3) For any other Plan Year, the Present Value of Accrued Benefit will be determined as if the Participant terminated service as of the valuation date. (4) The valuation date must be the same date used for computing the defined benefit plan minimum funding costs, regardless of whether a calculation is performed that plan year. (5) A Participant's Present Value of Accrued Benefit as of a Determination Date will be the sum of: o the present value of his Accrued Benefit determined using the actuarial assumptions which are specified below; plus o any Plan Distributions made within the Plan Year that includes the Determination Date or within the four preceding Plan Years; plus 1-12 o any employee contributions, whether voluntary or mandatory. However, amounts attributable to qualified voluntary employee contributions, as defined in Code Section 219(e)(2) will not be considered to be a part of the Participant's Present Value of Accrued Benefit. For purposes of this Section, the present value of a Participant's Accrued Benefit will be equal to the greater of the present value determined using the actuarial assumptions which are specified for Actuarial Equivalent purposes or the present value determined using the "Applicable Interest Rate." The Applicable Interest Rate is the rate or rates that would be used by the Pension Benefit Guaranty Corporation for a trusteed single-employer plan to value a Participant's or Beneficiary's benefit on the date of distribution (the "PBGC Rate"). If the present value using the PBGC Rate exceeds $25,000, the Applicable Interest Rate is 120% of the PBGC Rate. However, the use of 120% of the PBGC Rate will never result in a present value less than $25,000. (6) Solely for the purpose of determining if this Plan (or any other plan included in a Required Aggregation Group of which this Plan is a part) is Top- Heavy, the Accrued Benefit of any Employee other than a Key Employee will be determined under (A) the method, if any, that uniformly applies for accrual purposes under all plans maintained by the Employer or any Related Employer, or (B) if there is no such method, as if the benefit accrued no more rapidly than the slowest accrual rate permitted under the fractional accrual rate of Code Section 411(b)(1)(C). (h) ~uSingle Sum Benefit~w The Single Sum Benefit for any Participant in a defined benefit pension plan will be equal to his Present Value of Accrued Benefit. The Single Sum Benefit for any Participant in a defined contribution plan will be equal to his Aggregate Account. (i) ~uTop-Heavy Group~w Top-Heavy Group means an Aggregation Group in which, as of the Determination Date, the Single Sum Benefits of all Key Employees under all plans included in the group exceeds 60% of a similar sum determined for all Participants. Super Top-Heavy Group means an Aggregation Group in which, as of the Determination Date, the sum of (1) the Single Sum Benefits of all Key Employees under all defined benefit plans included in the group, plus (2) the Single Sum Benefit of all Key Employees under all defined contribution plans included in the group exceeds 90% of a similar sum determined for all Participants. (j) ~uTop-Heavy Plan~w This Plan will be a Top-Heavy Plan for any Plan Year beginning after December 31, 1983, in which, as of the Determination Date, the Single Sum Benefits of all Key Employees exceed 60% of the Single Sum Benefits of all Participants under this Plan. This Plan will be a Super Top-Heavy Plan for any Plan Year beginning after December 31, 1983, in which, as of the Determination Date, the Single Sum Benefits of all Key Employees exceed 90% of the Single Sum Benefits of all Participants under this Plan. If any Participant is a Non-Key Employee for a given Plan Year, but was a Key Employee for any prior Plan Year, the Participant's Single Sum Benefit will not be taken into account 1-13 for purposes of determining whether this Plan is a Top-Heavy or Super Top-Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy or Super Top-Heavy Group). If an individual has performed no services for the Employer at any time during the 5-year period ending on the Determination Date, any Single Sum Benefit of such individual will not be taken into account for purposes of determining whether this Plan is a Top-Heavy or Super Top-Heavy Plan (or whether any Aggregation Group which includes this Plan is a Top-Heavy Group or Super Top-Heavy Group). 1.37 ~uTrust Fund, Trust~w These terms mean the total cash, securities, real property, insurance contracts and any other property held by the Trustee. 1.38 ~uTrustee~w The Trustee is Charles Schwab Trust Company or any successor Trustee. 1.39 ~uVested Percentage~w A Participant's Vested Percentage as of a given date will be that percentage determined in accordance with the Vesting Schedule. Notwithstanding the preceding, a Participant will be 100% vested upon reaching the earlier of (a) his Normal Retirement Age or (b) the later of the date upon which the Participant attains age 65 or reaches the 5th anniversary of the date he commenced participation in the Plan. 1.40 ~uVesting Schedule~w A Participant's Vested Percentage will be determined in accordance with the following table: ~u Years of Vesting Service ~w ~uVested Percentage~w Less than 1 Year 0% 1 Year 20% 2 Years 40% 3 Years 60% 4 Years 80% 5 Years or more 100% 1.41 ~uWritten Resolution~w The terms Written Resolution and Written Consent are used interchangeably and reflect decisions, authorizations, etc. by the Employer. 1.42 ~uYear of Service~w (a) ~uCrediting Years of Service~w Years of Service are determined using the Elapsed Time Method and/or the Hours of Service Method as specified in this Section. (1) ~uElapsed Time Method~w Under the Elapsed Time Method, Years of Service are based upon an Employee's Elapsed Time of employment irrespective of the number of hours actually worked during such period; a Year of Service (including a fraction thereof) will be credited for each completed 365 days of Elapsed Time which need not be consecutive. The following terms are used in determining Years of Service under the Elapsed Time Method: (A) Date of Severance (Termination) - means the earlier of (i) the actual date an 1-14 Employee resigns, is discharged, dies or retires, or (ii) the first anniversary of the date an Employee is absent from work (with or without pay) for any other reason, e.g., disability, vacation, leave of absence, layoff, etc. (B) Elapsed Time - means the total period of service which has elapsed between a Participant's Employment Commencement Date and Date of Termination including Periods of Severance where a One Year Break-in-Service does not occur. (C) Employment Commencement Date - means the date an Employee first performs one Hour of Service for the Employer. (D) One Year Break-in-Service - means any 365-day period following an Employee's Date of Termination as defined above in which the Employee does not complete at least one Hour of Service. (E) Period of Severance - is the time between the actual Date of Severance as defined above and the subsequent date, if any, on which the Employee performs an Hour of Service. All periods of employment will be aggregated including Periods of Severance unless there is a One Year Break-in-Service. (2) ~uHours of Service Method~w Under the Hours of Service Method, a Year of Service is credited for each 12 consecutive month Computation Period during which an Employee is credited with a specified number of Hours of Service. Under the Hours of Service Method, a One Year Break-in-Service means any Computation Period during which an Employee completes 500 or fewer Hours of Service. Years of Eligibility Service for purposes of determining eligibility to participate in the Plan and Years of Vesting Service for purposes of determining a Participant's Vested Percentage include service with any organization which is a Related Employer with respect to the Employer. (b) ~uFor Eligibility Purposes~w Years of Service for purposes of eligibility to participate in the Plan are referred to as Years of Eligibility Service and are determined using the Hours of Service Method. A Year of Eligibility Service is credited for each Computation Period during which an Employee is credited with at least 1,000 Hours of Service. The initial Computation Period is the 12 consecutive month period beginning with the Employee's Employment Commencement Date. Thereafter, the Computation Period is the Plan Year beginning with the Plan Year in which the initial Computation Period ends. All of an Employee's Years of Eligibility Service are taken into account in determining his eligibility to participate. (c) ~uFor Vesting Purposes~w Years of Service for purposes of computing a Participant's Vested Percentage are referred to as Years of Vesting Service and are determined using the Elapsed Time Method. All of a Participant's Years of Vesting Service are taken into account in determining his Vested Percentage. 1-16 ARTICLE 2 PARTICIPATION~p 2.01 ~uParticipation~w An Employee will become eligible to participate in the Plan on the Entry Date which coincides with or next follows the completion of one Year of Eligibility Service. An Employee who is eligible to participate as of the Effective Date or as of a given Entry Date will automatically become a Participant as of such date. An Employee who is otherwise eligible to participate may irrevocably elect not to participate in the Plan. Any election under this paragraph must be in writing and according to guidelines established by the Plan Administrator. 2.02 ~uParticipation After Reemployment~w An Employee who has satisfied all of the eligibility requirements but terminates employment prior to his Entry Date will participate in the Plan immediately upon returning to the employ of the Employer. A Participant or Former Participant who has terminated employment will participate as an Active Participant in the Plan immediately upon returning to the employ of the Employer. 2.03 ~uChange in Employment Classification~w In the event a Participant becomes ineligible to participate because he is no longer a member of an Eligible Employee Classification, the Participant will participate immediately upon his return to an Eligible Employee Classification. In the event an Employee who is not a member of an Eligible Employee Classification becomes a member of such a classification, such Employee will begin to participate immediately if he has satisfied the eligibility requirements which are specified in Section 2.01. 2-1 ~bARTICLE 3 PARTICIPANT ACCOUNTS~p 3.01 ~uSalary Deferral Account~w Salary Deferral Account means the Account of a Participant reflecting applicable contributions, investment income or loss allocated thereto and distributions. A Participant's Salary Deferral Account is 100% vested at all times. (a) ~uSalary Deferral Contributions~w (1) ~uAmount of Contribution~w Each Participant may elect to make a Salary Deferral Contribution each Contribution Period not to exceed 15% of the Participant's Compensation. Such contribution will be designated as a percentage of Compensation and will be equal to an even multiple of 1% or such other amount as allowed by the Plan Administrator. (2) ~uPayroll Withholding~w All Salary Deferral Contributions will be made pursuant to a Payroll Withholding Agreement in accordance with Section 1.27. (3) ~uNondiscrimination Requirements~w All Salary Deferral Contributions are Elective Contributions within the meaning of Section 4.05(a) and must satisfy the Nondiscrimination Requirements of Section 4.05. (4) ~uExcess Deferrals~w The maximum amount of Salary Deferral Contribution which can be made under the Plan on behalf of any Participant during any calendar year will be limited to that amount which would not constitute an Excess Deferral as defined in Section 4.05. The Plan Administrator will distribute any Excess Deferral, together with the income allocable to it, to the Participant no later than April 15 of the calendar year immediately following the year of the Excess Deferral. If a Participant notifies the Plan Administrator before March 1 of any calendar year that Excess Deferrals have been made on his account for the previous calendar year by reason of participation in a Cash or Deferred Arrangement maintained by another employer or employers, and if the Participant requests that the Plan Administrator distribute a specific amount to him on account of Excess Deferrals and certifies that the requested amount is an Excess Deferral, the Plan Administrator will designate the amount requested together with the income allocable to it as a distribution of Excess deferrals and distribute such amount no later than April 15 of that calendar year. The amount of Excess Deferrals to be distributed will be reduced by any Excess Contributions previously distributed or recharacterized with respect to the Plan Year beginning with or within the calendar year. The amount of income allocable to the Excess Deferral will be determined as described in Section 4.05. (5) ~uTiming of Deposits~w The Employer will deposit all Salary Deferral Contributions on the earliest date on which such contributions can reasonably be segregated from the Employer's general assets, but in no event later than 90 days after the date on which the amounts withheld would otherwise have been paid to the Participant in cash. Effective February 3, 1997, the Employer will deposit all Salary Deferral Contributions on the earliest date on which such contributions can reasonably be segregated from the 3-1 Employer's general assets, but in no event later than 15 business days following the end of the month in which the amounts withheld would otherwise have been paid to the Participant in cash. The Contribution Period for Salary Deferral Contributions is each of the semi-monthly periods which end on the 15th and the last day of each month. (b) ~uFinancial Hardship Withdrawals~w A Participant may file with the Plan Administrator a written request to withdraw, in order to avoid or alleviate a Financial Hardship, any amount not to exceed that portion of his Salary Deferral Account which represents the sum of o his total Salary Deferral Contributions made after 1988, and o his total Salary Deferral Contributions made before 1989 together with the income earned before 1989 which is allocable to those Contributions. The Plan Administrator will allow Financial Hardship withdrawals only if they are necessary to satisfy a Participant's immediate and heavy financial need. (1) ~uImmediate and Heavy Financial Need~w A withdrawal will be deemed to be made due to an immediate and heavy financial need of the Participant if it is made because of: o Expenses for medical care described in Code Section 213(d) previously incurred by the Participant, his spouse or any of his dependents (as defined in Code Section 152) or necessary for these persons to obtain medical care described in Code Section 213(d); o Costs directly related to the purchase (excluding mortgage payments) of a principal residence for the Participant; o Payment of tuition, room and board or educational fees for the next 12 months of post-secondary education for the Participant, his spouse, children or dependents (as defined in Code Section 152); o Prevention of the eviction of the Participant from his principal residence or foreclosure on the mortgage of the Participant's principal residence. (2) ~uNecessary To Satisfy Financial Need~w No withdrawal may exceed the amount necessary to satisfy the Participant's immediate and heavy financial need. However, the amount of an immediate and heavy financial need may include any amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution. The Plan Administrator will allow the withdrawal if it determines, after a full review of the Participant's written request and evidence presented by the Participant showing immediate and heavy financial need as well as the Participant's lack of other reasonably available resources, that the withdrawal is necessary to satisfy the need. No withdrawal will be treated as necessary to the extent it can be satisfied from other resources which are reasonably available to the Participant, including those of the Participant's spouse and minor children. A withdrawal will be treated as necessary to the extent the Participant demonstrates to the satisfaction of the Plan Administrator that the need cannot be relieved by any of the following: 3-2 o Reimbursement or compensation by insurance or otherwise; o Reasonable liquidation of assets to the extent the liquidation would not itself cause an immediate and heavy financial need; o Cessation of Salary Deferral Contributions or Employee After-tax Contributions (as defined in Section 4.05(a)) or both under any plan maintained by any employer; o Other distributions or nontaxable (at the time of the loan) loans from plans maintained by any employer; o Borrowing from commercial sources on reasonable commercial terms. Unless the Plan Administrator has evidence to the contrary, it may rely upon the Participant's written representation that the need cannot be relieved by any of the foregoing. (3) ~uSafe Harbor~w The Plan Administrator will not allow any withdrawal until the Participant has obtained all distributions, other than hardship distributions, and all nontaxable loans currently available to the Participant under all plans maintained by the Employer. Upon the withdrawal of any portion of a Participant's Salary Deferral Account, the Participant will become ineligible for any Elective Contribution to this Plan or any other plan maintained by the Employer, or to make any contribution to this Plan or any other plan maintained by the Employer until the first day of the first payroll period which begins not less than 12 months following the date of withdrawal. For this purpose the phrase "any other plan maintained by the Employer" means all qualified and nonqualified plans of deferred compensation maintained by the Employer. The phrase includes stock option, stock purchase, or similar plans, or a cash or deferred arrangement that is part of a cafeteria plan within the meaning of Code Section 125. It does not include the mandatory employee contribution portion of a defined benefit plan, nor does it include a health or welfare benefit plan (including one that is part of a cafeteria plan within the meaning of Code Section 125). Furthermore, the maximum amount of Salary Deferral Contributions which can be made under the Plan on behalf of any Participant during the calendar year which follows the calendar year in which the withdrawal was made will be limited to the amount which would not be treated as an Excess Deferral for that year reduced by the amount of Salary Deferral Contributions made on behalf of the Participant in the calendar year of withdrawal. (c) ~uDistributions~w No distribution may be made from the Participant's Salary Deferral Account or any account comprised of Matching Contributions or Nonelective Contributions which are treated as Elective Contributions in accordance with the provisions of Section 4.05(h) except under one of the following circumstances: o the Participant's retirement, death, disability or termination of employment; o the Participant's attaining of age 59 1/2; o the avoidance or alleviation of a Financial Hardship; o the termination of this Plan without the establishment of a successor plan within 3-3 the meaning of Treasury Regulation Section 1.401(k)-1(d)(3); o the sale or other disposition by the Employer of at least 85 percent of the assets used by the Employer in a trade or business to an unrelated corporation which does not maintain the plan, but only if the Participant continues employment with the corporation acquiring the assets and only if the Employer continues to maintain this Plan; or o the sale or other disposition by the Employer of its interest in a subsidiary to an unrelated entity which does not maintain the plan, but only if the Participant continues employment with the subsidiary and only if the Employer continues to maintain this Plan. This paragraph does not apply to distributions of Excess Deferrals, Excess Contributions, or excess Annual Additions. 3.02 ~uMatching Account~w Matching Account means the Account of a Participant reflecting applicable contributions, forfeitures, investment income or loss allocated thereto and distributions. A Participant's Matching Account is subject to the Vesting Schedule. (a) ~uMatching Contributions~w Each Plan Year, the Employer may, within the time prescribed by law for making a deductible contribution, make a Matching Contribution to the Trust. For a given Plan Year, the total Matching Contribution, if any, made by the Employer will be an amount determined and authorized by the Employer for such Plan Year; however, the Employer will not authorize Matching Contributions at such times or in such amounts that the Plan, in operation, discriminates in favor of Highly Compensated Employees. The target Matching Contribution to be made to a Participant's Matching Account is equal to 50% of that portion of the Participant's Salary Deferral Contribution which is not in excess of 4% of the Participant's Compensation. If the sum of the target Matching Contributions to be made for all Participants is less than or greater than the total Matching Contribution made by the Employer in accordance with the provisions of this Section, then the actual Matching Contribution allocated to each Eligible Participant's Matching Account will be adjusted proratably so that the sum of the actual Matching Contributions made for all Participants is equal to the total Matching Contribution made by the Employer. All Matching Contributions are Matching Contributions within the meaning of Section 4.05(a) and must satisfy the Nondiscrimination Requirements of Section 4.05. (b) ~uContribution Period~w The Contribution Period for Matching Contributions is each Plan Year. (c) ~uApplication of Forfeitures~w Forfeitures from a Participant's Matching Account will be used to reduce Matching Contributions in the Plan Year in which the Forfeitures are determined to occur. 3-4 (d) ~uWithdrawals~w A Participant who has been a Participant in the Plan for five or more years and has attained age 59 1/2 may withdraw all or any portion of his Matching Account subject to the limitations of this Section. A Participant who has not been a Participant in the Plan for five or more years or has not attained age 59 1/2 may not withdraw any portion of his Matching Account prior to the time when benefits otherwise become payable in accordance with the provisions of Article 5. (e) ~uMinimum Allocation for Top-Heavy Plan~w Notwithstanding anything contained herein to the contrary, for any Plan Year in which this Plan is determined to be Top-Heavy, a Participant who is a Non-Key Employee (including any Employee who is excluded from the Plan because his Compensation is less than a stated amount) will be entitled to a minimum allocation of employer contributions in addition to any Matching Contributions equal to 3% of the Non-Key Employee's Aggregate Compensation received during the Plan Year. This minimum allocation will allocated to the Participant's Matching Account and will be provided to each Non-Key Employee who is a Participant and is employed by the Employer on the last day of the Plan Year whether or not he or she is an otherwise Eligible Participant or fails to make any mandatory Employee contribution to the Plan. The percentage referred to in the preceding paragraph will not exceed the percentage of Aggregate Compensation at which Matching Contributions are made or allocated to the Key Employee for whom such percentage is the largest; provided, however, this sentence will not apply if the Plan is required to be included in an Aggregation Group to meet the requirements of Code Sections 401(a)(4) or 410. 3.03 ~uRollover Account~w Rollover Account means the Account of a Participant reflecting applicable contributions, investment income or loss allocated thereto and distributions. A Participant's Rollover Account is 100% vested at all times. (a) ~uRollover Contributions~w Rollover Contribution means a contribution to the Plan by a Participant where such contribution is the result of a prior distribution from an Individual Retirement Account, an Individual Retirement Annuity or another qualified plan. Such prior contribution must be a rollover amount described in Section 402(c)(4) of the Code or a contribution described in Section 408(d)(3) of the Code. Each Employee who is a member of an Eligible Employee Classification, regardless of whether he is a Participant in the Plan, will have the right to make a Rollover Contribution of cash (or other property of a form acceptable to the Plan Administrator and the Trustee) into the Plan from another qualified plan. If the Employee is not a Participant hereunder, his Rollover Account will constitute his entire interest in the Plan. In no event will the existence of a Rollover Account entitle the Employee to participate in any other benefit provided by the Plan. If specifically provided for in a Written Resolution, Rollover Contribution will also mean the amount of assets transferred, pursuant to Section 10.05, to this Plan from another plan which is qualified under Code Sections 401(a) and 501(a). 3-5 (b) ~uWithdrawals~w A Participant may withdraw all or any portion of his Rollover Account at any time. 3-6 ~bARTICLE 4 ACCOUNTING AND VALUATION~p 4.01 ~uGeneral Powers of the Plan Administrator~w The Plan Administrator will have the power to establish rules and guidelines, which will be applied on a uniform and non-discriminatory basis, as it deems necessary, desirable or appropriate with regard to accounting procedures and to the timing and method of contributions to and/or withdrawals from the Plan. 4.02 ~uValuation Procedure~w As of each Valuation Date, the Plan Administrator will determine from the Trustee the fair market value of Trust assets and will, subject to the provisions of this Article, determine the allocation of such value among the Accounts of the Participants; in doing so, the Plan Administrator will in the following order: (a) Credit or charge, as appropriate, to the proper Accounts all contributions, payments, transfers, forfeitures, withdrawals or other distributions made to or from such Accounts since the last preceding Valuation Date and that have not been previously credited or charged. (b) Credit or charge, as applicable, each Account with its pro rata portion of the appreciation or depreciation in the fair market value of the Trust Fund since the prior Valuation Date. Such appreciation or depreciation will reflect investment income, realized and unrealized gains and losses, other investment transactions and expenses paid from the Trust Fund. 4.03 ~uReserved~w 4.04 ~uParticipant Direction of Investment~w (a) ~uApplication of this Section~w Subject to the provisions of this Section, each Participant will have the right to direct the investment of all of his Accounts among the Specific Investment Funds which are made available by the Plan Administrator. (b) ~uGeneral Powers of the Trustee~w The Trustee will have the power to establish rules and guidelines as it deems necessary, desirable or appropriate with regard to the directed investment of contributions in accordance with this Section. Such rules and guidelines are intended to comply with Section 404(c) of ERISA and the regulations thereunder. Included in such powers, but not by way of limitation, are the following powers and rights. (1) To temporarily invest those contributions which are pending directed investment in a Specific Investment Fund, in the General Investment Fund or in some other manner as determined by the Trustee. (2) To establish rules with regard to the transfer of all or any part of the balance of an Account or Accounts of a given Participant from one Investment Fund to another. (3) To maintain any part of the assets of any Investment Fund in cash, or in demand or short-term time deposits bearing a reasonable rate of interest, or in a short-term investment fund that provides for the collective investment of cash balances or in 4-1 other cash equivalents having ready marketability, including, but not limited to, U.S. Treasury Bills, commercial paper, certificates of deposit, and similar types of short-term securities, as may be deemed necessary by the Trustee in its sole discretion. The Trustee will not be liable for any loss that results from a Participant's exercise of control over the investment of the Participant's Accounts. If the Participant fails to provide adequate directions, the Plan Administrator will direct the investment of the Participant's Account. The Trustee will have no duty to review or make recommendations regarding a Participant's investment directions. (c) ~uAccounting~w The Plan Administrator will maintain a set of accounts for each Investment Fund. The accounts of the Plan Administrator for each Investment Fund will indicate separately the dollar amounts of all contributions made to such Investment Fund by or on behalf of each Participant from time to time. The Plan Administrator will compute the net income from investments; net profits or losses arising from the sale, exchange, redemption, or other disposition of assets, and the prorata share attributable to each Investment Fund of the expenses of the administration of the Plan and Trust and will debit or credit, as the case may be, such income, profits or losses, and expenses to the unsegregated balance in each Investment Fund from time to time. To the extent that the expenses of the administration of the Plan and Trust are not directly attributable to a given Investment Fund, such expenses, as of a given Valuation Date, will be prorated among each Investment Fund; such allocation of expenses will, in general, be performed in accordance with the guidelines which are specified in this Article. (d) ~uFuture Contributions~w Each Participant who chooses to participate in the Plan will elect the percentage of those contributions (which are subject to Participant direction of investment) which is to be deposited to each available Investment Fund. Such election will be in effect until modified. If any Participant fails to make an election by the appropriate date, he will be deemed to have elected an Investment Fund(s) as determined by the Plan Administrator. Elections will be limited to multiples of one percent (or such other reasonable increments as determined by the Plan Administrator). (e) ~uChange in Investment of Past Contributions~w A Participant may file an election with the Plan Administrator to shift the aggregate amount or reasonable increments (as determined by the Plan Administrator) of the balance of his existing Account or Accounts which are subject to Participant direction of investment among the various Investment Funds as of the first day of each Accounting Period (or such other time or times as determined by the Plan Administrator). Elections will be limited to multiples of one percent (or such other reasonable increments as determined by the Plan Administrator). (f) ~uChanges in Investment Elections~w Elections with respect to future contributions and/or with respect to changes in the investment of past contributions will be in writing on a form provided by the Plan Administrator, except that each Participant may authorize the Plan Administrator in writing on an authorization form provided by the Plan Administrator to accept such directions as may be made by the Participant by use of a telephone voice response system maintained for such purpose. The Plan Administrator may establish additional rules and procedures with respect to investment election changes including, for example, the number of allowed changes per 4-2 specified period, the amount of reasonable fee, if any, which will be charged to the Participant for making a change, specified dates or cutoff dates for making a change, etc. (g) ~uAddition and Deletion of Specific Investment Funds~w Specific Investment Funds may be made available from time to time by the Trustee. Specific Investment Funds, as are from time to time made available by the Trustee, may be deleted or added from time to time by the Plan Administrator. The Plan Administrator will establish guidelines for the proper administration of affected Accounts when a Specific Investment Fund is added or deleted. 4.05 ~uNondiscrimination Requirements~w (a) ~uDefinitions Applicable to the Nondiscrimination Requirements~w The following definitions apply to this Section: (1) ~uAggregate Limit~w With respect to a given Plan Year, Aggregate Limit means the greater of the sum of [(A) + (B)] or the sum of [(C) + (D)] where: (A) is equal to 125% of the ~ugreater~w of DP or CP; (B) is equal to 2 percentage points plus the ~ulesser~w of DP or CP, not to exceed 2 times the ~ulesser~w of DP or CP; (C) is equal to 125% of the ~ulesser~w of DP or CP; (D) is equal to 2 percentage points plus the ~ugreater~w of DP or CP, not to exceed 2 times the ~ugreater~w of DP or CP; DP represents the Deferral Percentage for the Non-highly Compensated Group eligible under the Cash or Deferred Arrangement for the Plan Year; and CP represents the Contribution Percentage for the Non-highly Compensated Group eligible under the plan providing for the Employee After-tax Contributions or Employer Matching Contributions for the Plan Year beginning with or within the Plan Year of the Cash or Deferred Arrangement. (2) ~uCash or Deferred Arrangement (CODA)~w A Cash or Deferred Election is any election (or modification of an earlier election) by an Employee to have the Employer either: o provide an amount to the Employee in the form of cash or some other taxable benefit that is not currently available, or o contribute an amount to the Plan (or provide an accrual or other benefit) thereby deferring receipt of Compensation. A Cash or Deferred Election will only be made with respect to an amount that is not currently available to the Employee on the date of election. Further, a Cash or Deferred Election will only be made with respect to amounts that would have (but for the Cash or Deferred Election) become currently available after the later of the date on which the Employer adopts the Cash or Deferred Arrangement or the date on which the arrangement first becomes effective. 4-3 A Cash or Deferred Election does not include a one-time irrevocable election upon the Employee's commencement of employment or first becoming an Eligible Employee. (3) ~uCompensation~w For purposes of this Section, Compensation means Aggregate Compensation as defined in Section 7.03(a) plus amounts contributed by the Employer pursuant to a salary reduction agreement which are excludable from the gross income of the Employee under Code Section 125, 402(e)(3), 402(h) or 403(b). Compensation in excess of the Statutory Compensation Limit is disregarded. The period used to determine an Employee's Compensation for a Plan Year may be limited to that portion of the Plan Year in which the Employee was an Eligible Employee, provided that this method is applied uniformly to all Eligible Employees under the Plan for the Plan Year. (4) ~uContribution Percentage~w Contribution Percentage means, for any specified group, the average of the ratios calculated (to the nearest one-hundredth of one percent) separately for each Participant in the group, of the amount of Employee After-tax Contributions and Matching Contributions which are made by or on behalf of each Participant for a Plan Year to each Participant's Compensation for the Plan Year. For purposes of determining the Contribution Percentage, each Employee who is eligible under the terms of the Plan to make or to have contributions made on his behalf is treated as a Participant. The Contribution Percentage of an eligible Employee who makes no Employee After-tax Contribution and receives no Matching Contribution is zero. For purposes of determining the Contribution Percentage of a Participant who is a Highly Compensated Employee, the Compensation of and all Employee Contributions and Matching Contributions for the Participant include, in accordance with the provisions of Section 4.05(d), the Compensation of and all Employee After-tax Contributions and Matching Contributions for any Family Member of the Participant. The Contribution Percentage of a Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to make Employee After-tax Contributions or receive an allocation of Matching Contributions (including Elective Contributions and Nonelective Contributions which are treated as Employee or Matching Contributions for purposes of the Contribution Percentage Test) allocated to his accounts under two or more plans which are sponsored by the Employer will be determined as if the Employee After-tax and Matching Contributions were made under a single plan. For purposes of this paragraph, if a Highly Compensated Employee participates in two or more such plans which have different Plan Years, all plans ending with or within the same calendar year will be treated as a single plan. (5) ~uContribution Percentage Test~w The Contribution Percentage Test is a test applied on a Plan Year basis to determine whether a plan meets the requirements of Code Section 401(m). The Contribution Percentage Test may be met by either satisfying the General Contribution Percentage Test or the Alternative Contribution Percentage Test. The General Contribution Percentage Test is satisfied if the Contribution Percentage for the Highly Compensated Group does not exceed 125% of the Contribution Percentage 4-4 for the Non-highly Compensated Group. The Alternative Contribution Percentage Test is satisfied if the Contribution Percentage for the Highly Compensated Group does not exceed the lesser of: o the Contribution Percentage for the Non-highly Compensated Group plus 2 percentage points, or o the Contribution Percentage for the Non-highly Compensated Group multiplied by 2.0. If (i) one or more Highly Compensated Employees of the Employer or any Related Employer are eligible to participate in both a Cash or Deferred Arrangement and a plan which provides for Employee After-tax Contributions or Matching Contributions, (ii) the Deferral Percentage for the Highly Compensated Group does not satisfy the General Deferral Percentage Test, and (iii) the Contribution Percentage for the Highly Compensated Group does not satisfy the General Contribution Percentage Test, then the Contribution Percentage Test will be deemed to be satisfied only if the sum of the Deferral Percentage and the Contribution Percentage for the Highly Compensated Group does not exceed the Aggregate Limit. The Plan will not fail to satisfy the Contribution Percentage test merely because all of the Eligible Employees under the Plan for a Plan Year are Highly Compensated Employees. (6) ~uDeferral Percentage~w Deferral Percentage means, for any specified group, the average of the ratios calculated (to the nearest one-hundredth of one percent) separately for each Participant in the group, of the amount of Elective Contributions which are made on behalf of each Participant for a Plan Year to each Participant's Compensation for the Plan Year. For purposes of determining the Deferral Percentage, each Employee who is eligible under the terms of the Plan to have contributions made on his behalf is treated as a Participant. The Deferral Percentage of an eligible Employee who makes no Elective Contribution is zero. For purposes of determining the Deferral Percentage of a Participant who is a Highly Compensated Employee, the Compensation of and Elective Contributions for the Participant include, in accordance with the provisions of Section 4.05(d), the Compensation and all Elective Contributions for any Family Member of the Participant. The Deferral Percentage of a Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Contributions (including Nonelective Contributions or Matching Contributions which are treated as Elective Contributions for purposes of the Deferral Percentage Test) allocated to his accounts under two or more Cash or Deferred Arrangements which are maintained by the Employer will be determined as if the Elective Contributions were made under a single Arrangement. For purposes of this paragraph, if a Highly Compensated Employee participates in two or more Cash or Deferred Arrangements which have different Plan Years, all Cash or Deferred Arrangements ending with or within the same calendar year will be treated as a single Arrangement. 4-5 (7) ~uDeferral Percentage Test~w The Deferral Percentage Test is a test applied on a Plan Year basis to determine whether a plan meets the requirements of Code Section 401(k). The Deferral Percentage Test may be met by either satisfying the General Deferral Percentage Test or the Alternative Deferral Percentage Test. The General Deferral Percentage Test is satisfied if the Deferral Percentage for the Highly Compensated Group does not exceed 125% of the Deferral Percentage for the Non-highly Compensated Group. The Alternative Deferral Percentage Test is satisfied if the Deferral Percentage for the Highly Compensated Group does not exceed the lesser of: o the Deferral Percentage for the Non-highly Compensated Group plus 2 percentage points, or o the Deferral Percentage for the Non-highly Compensated Group multiplied by 2.0. If (i) one or more Highly Compensated Employees of the Employer or any Related Employer are eligible to participate in both a Cash or Deferred Arrangement and a plan which provides for Employee After-tax Contributions or Matching Contributions, (ii) the Deferral Percentage for the Highly Compensated Group does not satisfy the General Deferral Percentage Test, and (iii) the Contribution Percentage for the Highly Compensated Group does not satisfy the General Contribution Percentage Test, then the Deferral Percentage Test will be deemed to be satisfied only if the sum of the Deferral Percentage and the Contribution Percentage for the Highly Compensated Group does not exceed the Aggregate Limit. The Plan will not fail to satisfy the Deferral Percentage test merely because all of the Eligible Employees under the Plan for a Plan Year are Highly Compensated Employees. (8) ~uElective Contribution~w Elective Contribution means any contribution made by the Employer to a Cash or Deferred Arrangement on behalf of and at the election of an Employee. An Elective Contribution will be taken into account for a given Plan Year only if: o The Elective Contribution is allocated to the Participant's Account as of a date within the Plan Year to which it relates; o The allocation is not contingent upon the Employee's participation in the Plan or performance of services on any date after the allocation date; o The Elective Contribution is actually paid to the trust no later than 12 months after the end of the Plan Year to which the Elective Contribution relates; and o The Elective Contribution relates to Compensation which either (i) but for the Participant's election to defer, would have been received by the Participant in the Plan Year or (ii) is attributable to services performed by the Participant in the Plan Year and, but for the Participant's election to defer, 4-6 would have been received by the Participant within two and one-half months after the close of the Plan Year. Elective Contributions will be treated as Employer Contributions for purposes of Code Sections 401(a), 401(k), 402(a), 404, 409, 411, 412, 415, 416, and 417. (9) ~uElective Deferral~w Elective Deferral means the sum of the following: o Any Elective Contribution to any Cash or Deferred Arrangement to the extent it is not includable in the Participant's gross income for the taxable year of contribution; o Any employer contribution to a simplified employee pension as defined in Code Section 408(k) to the extent not includable in the Participant's gross income for the taxable year of contribution; o Any employer contribution to an annuity contract under Code Section 403(b) under a salary reduction agreement to the extent not includable in the Participant's gross income for the taxable year of contribution; plus o Any employee contribution designated as deductible under a trust described in Code Section 501(c)(18) for the taxable year of contribution. (10) ~uEligible Employee~w Eligible Employee means an Employee who is directly or indirectly eligible to make a Cash or Deferred Election under the Plan for all or a portion of the Plan Year. An Employee who is unable to make a Cash or Deferred Election because the Employee has not contributed to another plan is also an Eligible Employee. An Employee who would be eligible to make Elective Contributions but for a suspension due to a distribution, a loan, or an election not to participate in the Plan, is treated as an Eligible Employee for purposes of Code Section 401(k)(3) and 401(m) for a Plan Year even though the Employee may not make a Cash or Deferred Election due to the suspension. Also, an Employee will not fail to be treated as an Eligible Employee merely because the employee may receive no additional Annual Additions because of Code Section 415(c)(1) or 415(e). (11) ~uEmployee After-tax Contribution~w Employee After-tax Contribution means any contribution made by an Employee to any plan maintained by the Employer or any Related Employer which is other than an Elective Contribution and which is designated or treated at the time of contribution as an after-tax contribution. Employee After-tax Contributions include amounts attributable to Excess Contributions which are recharacterized as Employee After-tax Contributions. (12) ~uExcess Contribution~w Excess Contribution means, for each member of the Highly Compensated Group, the amount of Elective Contribution (including any Qualified Nonelective Contributions and Qualified Matching Contributions which are treated as Elective Contributions) which exceeds the maximum contribution which could be made if the Deferral Percentage Test were to be satisfied. 4-7 (13) ~uExcess Aggregate Contribution~w Excess Aggregate Contribution means, for each member of the Highly Compensated Group, the amount of Employee After-tax and Matching Contributions (including any Qualified Nonelective Contributions and Elective Contributions which are treated as Matching Contributions) which exceeds the maximum contribution which could be made if the Contribution Percentage Test were to be satisfied. (14) ~uExcess Deferral~w Excess Deferral means, for a given calendar year, that amount by which each Participant's total Elective Deferrals under all plans of all employers exceed the dollar limit in effect under Code Section 402(g) for the calendar year. (15) ~uMatching Contribution~w Matching Contribution means any contribution made by the Employer to any plan maintained by the Employer or any Related Employer which is based on an Elective Contribution or an Employee After-tax Contribution together with any forfeiture allocated to the Participant's Account on the basis of Elective Contributions, Employee After-tax Contributions or Matching Contributions. A Matching Contribution will be taken into account for a given Plan Year only if: o The Matching Contribution is allocated to a Participant's Account as of a date within the Plan Year to which it relates; o The allocation is not contingent upon the Employee's participation in the Plan or performance of services on any date after the allocation date; o The Matching Contribution is actually paid to the Trust no later than 12 months after the end of the Plan Year to which the Matching Contribution relates; and o The Matching Contribution is based on an Elective or Employee After-tax Contribution for the Plan Year. Any contribution or allocation, other than a Qualified Nonelective Contribution, which is used to meet the minimum contribution or benefit requirement of Code Section 416 is not treated as being based on Elective Contributions or Employee After-tax Contributions and therefore is not treated as a Matching Contribution. Qualified Matching Contribution means a Matching Contribution which is 100% vested and may be withdrawn or distributed only under the conditions described in Treasury Regulation 1.401(k)-1(d). (16) ~uNonelective Contribution~w Nonelective Contribution means any Employer Contribution, other than a Matching Contribution, which meets all of the following requirements: o The Nonelective Contribution is allocated to a Participant's Account as of a date within the Plan Year to which it relates; o The allocation is not contingent upon the Employee's participation in the Plan or performance of services on any date after the allocation date; 4-8 o The Nonelective Contribution is actually paid to the Trust no later than 12 months after the end of the Plan Year to which the Nonelective Contribution relates; and o The Employee may not elect to have the Nonelective Contribution paid in cash in lieu of being contributed to the Plan. Qualified Nonelective Contribution means a Nonelective Contribution which is 100% vested and may be withdrawn or distributed only under the conditions described in Treasury Regulation 1.401(k)-1(d). (b) ~uApplication of Deferral Percentage Test~w All Elective Contributions, including any Elective Contributions which are treated as Employee After-tax or Matching Contributions with respect to the Contribution Percentage Test, must satisfy the Deferral Percentage Test. Furthermore, any Elective Contributions which are not treated as Employee After-tax or Matching Contributions with respect to the Contribution Percentage Test must satisfy the Deferral Percentage Test. The Plan Administrator will determine as soon as administratively feasible after the end of the Plan Year whether the Deferral Percentage Test has been satisfied. If the Deferral Percentage Test is not satisfied, the Employer may elect to make an additional contribution to the Plan on account of the Non-highly Compensated Group. The additional contribution will be treated as a Nonelective Contribution. If the Deferral Percentage Test is not satisfied after any Nonelective Contributions, the Plan Administrator may, in its sole discretion, recharacterize all or any portion of the Excess Contribution of each Highly Compensated Employee as an Employee After-tax Contribution if Employee After-tax Contributions are otherwise allowed by the Plan. If so, the Plan Administrator will notify all affected Participants and the Internal Revenue Service of the amount recharacterized no later than the 15th day of the third month following the end of the Plan Year in which the Excess Contribution was made. Excess Contributions will be includable in the Participant's gross income on the earliest date any Elective Contribution made on behalf of the Participant during the Plan Year would have been received by the Participant had the Participant elected to receive the amount in cash. Recharacterized Excess Contributions will continue to be treated as Employer Contributions that are Elective Contributions for all other purposes under the Code, including Code Sections 401(a) (other than 401(a)(4) and 401(m)), 404, 409, 411, 412, 415, 416, 417 and 401(k)(2). With respect to the Plan Year for which the Excess Contribution was made, the Plan Administrator will treat the recharacterized amount as an Employee After-tax Contribution for purposes of the Deferral Percentage Test and the Contribution Percentage Test and for purposes of determining whether the Plan meets the requirements of Code Section 401(a)(4), but not for any other purposes under this Plan. Therefore, recharacterized amounts will remain subject to the nonforfeiture requirements and distribution limitations which apply to Elective Contributions. If the Deferral Percentage Test is still not satisfied, then after the close of the Plan Year in which the Excess Contribution arose but within 12 months after the close of that Plan Year, the Plan Administrator will distribute the Excess Contributions, together with allocable income, to the affected Participants of the Highly Compensated Group to the extent necessary to satisfy the Deferral Percentage Test. Failure to do so will cause the Plan to not satisfy the requirements of Code Section 401(a)(4) for the Plan Year for which the Excess Contribution was made and for all subsequent Plan Years for which the Excess Contribution remains uncorrected. 4-9 The amount of Excess Contribution to be distributed to a Highly Compensated Employee for a Plan Year will be reduced by any Excess Deferrals previously distributed to the Participant for the calendar year ending with or within the Plan Year in accordance with Code Section 402(g)(2). Excess Contributions will be treated as Employer Contributions for purposes of Code Sections 404 and 415 even if distributed from the Plan. (c) ~uApplication of Contribution Percentage Test~w Employee After-tax Contributions and Matching Contributions, disregarding any Matching Contributions which are treated as Elective Contributions with respect to the Deferral Percentage Test, must satisfy the Contribution Percentage Test. The Plan Administrator will determine as soon as administratively feasible after the end of the Plan Year whether the Contribution Test has been satisfied. If the Contribution Percentage Test is not satisfied, the Employer may elect to make an additional contribution to the Plan for the benefit of the Non-Highly Compensated Group. The additional contribution will be treated as a Nonelective Contribution. If the Contribution Percentage Test is still not satisfied, then after the close of the Plan Year in which the Excess Aggregate Contribution arose but within 12 months after the close of that Plan Year, the Plan Administrator will distribute (or forfeit, to the extent not vested) the Excess Aggregate Contributions, together with allocable income, to the affected Participants of the Highly Compensated Group to the extent necessary to satisfy the Contribution Percentage Test. Failure to do so will cause the Plan to not satisfy the requirements of Code Section 401(a)(4) for the Plan Year for which the Excess Aggregate Contribution was made and for all subsequent Plan Years for which the Excess Aggregate Contribution remains uncorrected. The determination of any Excess Aggregate Contributions will be made after the recharacterization of any Excess Contributions as Employee After-tax Contributions. Excess Aggregate Contributions, including forfeited Matching Contributions, will be treated as Employer Contributions for purposes of Code Sections 404 and 415 even if they are distributed from the Plan. Forfeited Matching Contributions that are reallocated to the Accounts of other Participants are treated as Annual Additions under Code Section 415 for the Participant whose Accounts they are reallocated to and for the Participants from whose Accounts they are forfeited. (d) ~uFamily Aggregation~w The Deferral Percentage or the Contribution Percentage (the "Relevant Percentage") for any Highly Compensated Employee who is subject to the family aggregation rules of Section 1.18(c) will be determined by combining the Elective Contributions, Employee After-tax Contributions, Matching Contribution, amounts treated as Elective or Matching Contributions and Compensation of all the eligible Family Members. The determination and correction of Excess Contributions and Excess Aggregate Contributions of a Highly Compensated Employee whose Relevant Percentage is determined under the family aggregation rules is accomplished by reducing the Relevant Percentage as provided for in Sections 4.05(b) and 4.05(c) and Excess Contributions or Excess Aggregate Contributions for the family group are allocated among the Family Members whose contributions were combined to determine the Relevant Percentage in proportion to the Elective Contributions or Nonelective and Matching Contributions of each Family Member. 4-10 For all purposes under this Section, the contributions and compensation of eligible Family Members who are not Highly Compensated Employees without regard to family aggregation are disregarded when determining the Relevant Percentage for the Non-highly Compensated Group. (e) ~uReduction of Excess Amounts~w The total Excess Contribution or total Excess Aggregate Contribution will be reduced in a manner so that the Deferral Percentage or the Contribution Percentage (Relevant Percentage) of the affected Participant(s) with the highest Relevant Percentage will first be lowered to a point not less than the level of the affected Participant(s) with the next highest Relevant Percentage. If further overall reductions are required to satisfy the relevant test, each of the above Participants' (or groups of Participants') Relevant Percentage will be lowered to a point not less than the level of the affected Participant(s) with the next highest Relevant Percentage, and so on continuing until sufficient total reductions have occurred to achieve satisfaction of the relevant test. (f) ~uPriority of Reductions~w The Plan Administrator will determine the method and order of correcting Excess Contributions and Excess Aggregate Contributions. The method of correcting Excess Contributions and Excess Aggregate Contributions must meet the requirements of Code Section 401(a)(4). The determination of whether a rate of Matching Contribution discriminates under Code Section 401(a)(4) will be made after making any corrective distributions of Excess Deferrals, Excess Contributions and Excess Aggregate Contributions. Excess Aggregate Contributions (and any attributable income) will be corrected first, by distributing any excess Employee After-tax Contributions (and any attributable income); then by distributing vested excess Matching Contributions (and any attributable income); and finally, by forfeiting or distributing non-vested Matching Contributions (and any attributable income). The Plan will not distribute Employee After-tax Contributions while the Matching Contributions based upon those Employee After-tax Contributions remain allocated. (g) ~uIncome~w The income allocable to any Excess Contribution made to a given Account for a given Plan Year will be equal to the total income allocated to the Account for the Plan Year, multiplied by a fraction, the numerator of which is the amount of the Excess Contribution and the denominator of which is equal to the sum of the balance of the Account at the beginning of the Plan Year plus the Participant's Elective Contributions and amounts treated as Elective Contributions for the Plan Year. The income allocable to any Excess Aggregate Contribution made to a given Account for a given Plan Year will be equal to the total income allocated to the Account for the Plan Year, multiplied by a fraction, the numerator of which is the amount of the Excess Aggregate Contribution and the denominator of which is equal to the sum of the balance of the Account at the beginning of the Plan Year plus the Participant's Employee After-tax and Matching Contributions and amounts treated as Employee After-tax and Matching Contributions for the Plan Year. Notwithstanding the foregoing, the Plan may use any reasonable method for computing the income allocable to any Excess Contribution or Excess Aggregate Contribution provided the method does not violate Code Section 401(a)(4), is used consistently for all corrective distributions under the Plan for the Plan Year, and is used by the Plan for allocating 4-11 income to the Participants' Accounts. Income includes all earnings and appreciation, including interest, dividends, rents, royalties, gains from the sale of property, and appreciation in the value of stocks, bonds, annuity and life insurance contracts and other property, regardless of whether the appreciation has been realized. (h) ~uTreatment as Elective Contributions~w The Plan Administrator may, in its discretion, treat all or any portion of Qualified Nonelective Contributions or Qualified Matching Contributions or both, whether to this Plan or to any other qualified plan which has the same Plan Year and is maintained by the Employer or a Related Employer, as Elective Contributions for purposes of satisfying the Deferral Percentage Test if they meet all of the following requirements: o All Nonelective Contributions, including the Qualified Nonelective Contributions treated as Elective Contributions for purposes of the Deferral Percentage Test, satisfy the requirements of Code Section 401(a)(4); o Any Nonelective Contributions which are not treated as Elective Contributions for purposes of the Deferral Percentage Test or as Matching Contributions for purposes of the Contribution Percentage Test satisfy the requirements of Code Section 401(a)(4); o The Qualified Matching Contributions which are treated as Elective Contributions for purposes of the Deferral Percentage Test are not taken into account in determining whether any Employee After-tax Contributions or other Matching Contributions satisfy the Contribution Percentage Test; o Any Matching Contributions which are not treated as Elective Contributions for purposes of the Deferral Percentage Test satisfy the requirements of Code Section 401(m); and o The plan which includes the Cash or Deferred Arrangement and the plan or plans to which the Qualified Nonelective Contributions and Qualified Matching Contributions are made could be aggregated for purposes of Code Section 410(b). (i) ~uTreatment as Matching Contributions~w The Plan Administrator may, in its discretion, treat all or any portion of Qualified Nonelective Contributions or Elective Contributions or both, whether to this Plan or to any other qualified plan which has the same Plan Year and is maintained by the Employer or a Related Employer, as Matching Contributions for purposes of satisfying the Contribution Percentage Test if they meet all of the following requirements: o All Nonelective Contributions, including the Qualified Nonelective Contributions treated as Matching Contributions for purposes of the Contribution Percentage Test, satisfy the requirements of Code Section 401(a)(4); o Any Nonelective Contributions which are not treated as Elective Contributions for purposes of the Deferral Percentage Test or as Matching Contributions for purposes of the Contribution Percentage Test satisfy the requirements of Code Section 401(a)(4); o The Elective Contributions which are treated as Matching Contributions for purposes of the Contribution Percentage Test are not taken into account in determining 4-12 whether any other Elective Contributions satisfy the Deferral Percentage Test; o The Qualified Nonelective Contributions and Elective Contributions which are treated as Matching Contributions for purposes of the Contribution Percentage Test are not taken into account in determining whether any other contributions or benefits satisfy Code Section 401(a); and o All Elective Contributions, including those treated as Matching Contributions for purposes of the Contribution Percentage Test, satisfy the requirements of Code Section 401(k)(3); and o The plan that takes Qualified Nonelective Contributions and Elective Contributions into account in determining whether Employee After-tax and Matching Contributions satisfy the requirements of Code Section 401(m)(2)(A) and the plan or plans to which the Qualified Nonelective Contributions and Elective Contributions are made could be aggregated for purposes of Code Section 410(b). (j) ~uAggregation of Plans~w If the Employer or a Related Employer sponsors one or more other plans which include a Cash or Deferred Arrangement, the Employer may elect to treat any two or more of such plans as an aggregated single plan for purposes of satisfying Code Sections 401(a)(4), 401(k) and 410(b). The Cash of Deferred Arrangements included in such aggregated plans will be treated as a single Arrangement for purposes of this Section. However, only those plans that have the same plan year may be so aggregated. If the Employer or a Related Employer sponsors one or more other plans to which Employee After-tax Contributions or Matching Contributions are made, the Employer may elect to treat any two or more of such plans as an aggregated single plan for purposes of satisfying Code Sections 401(a)(4), 401(m) and 410(b). However, only those plans that have the same plan year may be so aggregated. Any such aggregation must be made in accordance with Treasury Regulation 1.401(k)-1(b)(3). For example, contributions and allocations under the portion of a plan described in Code Section 4975(e)(7) (an ESOP) may not be aggregated with the portion of a plan not described in Code Section 4975(e)(7) (a non-ESOP) for purposes of determining whether the ESOP or non-ESOP satisfies the requirements of Code Sections 401(a)(4), 401(k), 401(m) and 410(b). Plans that could be aggregated under Code Section 410(b) but that are not actually aggregated for a Plan Year for purposes of Code Section 410(b) may not be aggregated for purposes of Code Sections 401(k) and 401(m). 4-13 ~bARTICLE 5 RETIREMENT BENEFITS~p 5.01 ~uValuation of Accounts~w For purposes of this Article, the value of a Participant's Accrued Benefit will be determined as of the Valuation Date immediately preceding the date that benefits are to be distributed. 5.02 ~uNormal Retirement~w After an Active Participant reaches his Normal Retirement Date, he may elect to retire. Upon such retirement he will become a Retired Participant and his Accrued Benefit will become distributable to him. A Participant's Accrued Benefit will become nonforfeitable no later than the date upon which he attains his Normal Retirement Age. The form and timing of benefit payment will be governed by the provisions of Section 5.05. 5.03 ~uDisability Retirement~w In the event of a Participant's termination due to Disability, he will be entitled to begin to receive a distribution of his Accrued Benefit which will become nonforfeitable as of his date of termination. The form and timing of benefit payment will be governed by the provisions of Section 5.05. Disability means the determination by the Plan Administrator that a Participant is unable by reason of any medically determinable physical or mental impairment to perform the usual duties of his employment or of any other employment for which he is reasonably qualified based upon his education, training and experience. 5.04 ~uTermination of Employment~w (a) ~uIn General~w If a Participant's employment terminates for any reason other than retirement, death, or disability, his Accrued Benefit will become distributable to him as of the last day of the month which coincides with or next follows the last date upon which any contributions on the Participant's behalf are made to the Trust following the Participant's date of termination of employment (or as of such earlier date as determined by the Plan Administrator in a uniform and nondiscriminatory manner). The form and timing of benefit payment will be governed by the provisions of Section 5.05. (b) ~uCash-Out Distribution~w If a Participant terminates employment and receives a distribution equal to the Vested Percentage of his Matching Account, a Cash-Out Distribution will be deemed to have occurred if the following conditions are met: (1) The Participant was less than 100% vested in his Matching Account; and (2) The entire distribution is made before the last day of the second Plan Year following the Plan Year in which the Participant terminated employment. (c) ~uRestoration of Matching Account~w If, following the date of a Cash-Out Distribution, a Participant returns to an Eligible Employee Classification prior to incurring 5 consecutive One Year Breaks-in-Service, then the Participant will have the right to repay to the Trustee, within 5 years after his return date, the portion of the Cash-Out Distribution which was attributable to his Matching Account in order to restore such Account to its value as of the date of the 5-1 Cash-Out Distribution. The Plan Administrator will restore an eligible Participant's Matching Account as of the Accounting Date coincident with or immediately following the complete repayment of the Cash-Out Distribution. To restore the Participant's Matching Account, the Plan Administrator, to the extent necessary, will, under rules and guidelines applied in a uniform and nondiscriminatory manner, first allocate to the Participant's Matching Account the amount, if any, of Forfeitures which would otherwise be allocated under Article 3. To the extent such forfeitures for a particular Accounting Period are insufficient to enable the Plan Administrator to make the required restoration, the Employer will contribute such additional amount as is necessary to enable the Plan Administrator to make the required restoration. The Plan Administrator will not take into account the allocation under this Section in applying the limitation on allocations under Article 7. (d) ~uNon-Vested Participant~w If a Participant who is zero percent vested in his Matching Account terminates employment, a Cash-Out Distribution will be deemed to have occurred as of the Participant's date of termination of employment. If the Participant subsequently returns to an Eligible Employee Classification prior to incurring five consecutive One Year Breaks-in-Service, then the Participant will immediately become entitled to a complete restoration of his Matching Account as of the Accounting Date coincident with or next following his date of re-employment. Such restoration will be made in accordance with the provisions of Section 5.04(c). 5.05 ~uForm of Benefit Payment~w Subject to the provisions of Section 5.06, the Plan Administrator will direct the Trustee to make the payment of any benefit provided under this Plan upon the event giving rise to such benefit within 60 days following the receipt of a Participant's written request for the payment of benefits on a form provided by the Plan Administrator. The Plan Administrator may temporarily suspend such processing in the event of unusual or extraordinary circumstances such as the conversion of Plan records from one recordkeeper to another. The form of benefit will be a lump sum payment, unless the Participant elects a direct transfer pursuant to Section 5.07. If a Participant's Vested Accrued Benefit is in excess of $3,500, any payment of benefits prior to the Participant's Normal Retirement Date will be subject to the Participant's written consent. If the value of his Vested Accrued Benefit at the time of any distribution exceeds $3,500, the value of his Vested Accrued Benefit at any later time will be deemed to also exceed $3,500. 5.06 ~uCommencement of Benefit~w Subject to the provisions of this Article, commencement of a benefit will, unless the Participant elects otherwise in writing, begin not later than the 60th day after the later of the close of the Plan Year in which the Participant attains Normal Retirement Age or the close of the Plan Year which contains the date the Participant terminates his service with the Employer. Payment of a Participant's benefits must begin no later than his Required Beginning Date. All distributions required under this Section will be determined and made in accordance with the regulations issued under Code Section 401(a)(9), including those dealing with minimum distribution requirements. Notwithstanding the provisions of Section 5.05, an Active 5-2 Participant who has reached his Required Beginning Date will receive an annual distribution of his Accrued Benefit equal to the minimun required distribution determined under Code Section 401(a)(9). For purposes of this Section, life expectancy and joint and last survivor expectancy are to be computed by the use of the return multiples contained in Section 1.72-9 of the Income Tax Regulations. If the Participant dies after distribution of his interest has begun, the remaining portion of the interest will continue to be distributed at least as rapidly as under the method of distribution being used before the Participant's death. 5.07 ~uDirected Transfer of Eligible Rollover Distributions~w (a) ~uGeneral~w This Section applies to distributions made on or after January 1, 1993. Notwithstanding any provision of the Plan to the contrary that would otherwise limit a Distributee's election under this Section, a Distributee may elect, at the time and in the manner prescribed by the Plan Administrator, to have any portion of an Eligible Rollover Distribution paid directly to an Eligible Retirement Plan specified by the Distributee in a Direct Rollover. (b) ~uEligible Rollover Distribution~w An Eligible Rollover Distribution is any distribution of all or any portion of the balance to the credit of the Distributee, except that an Eligible Rollover Distribution does not include: any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the Distributee or the joint lives (or joint life expectancies) of the Distributee and the Distributee's designated beneficiary, or for a specified period of ten years or more; any distribution to the extent such distribution is required under section 401(a)(9) of the Code; and the portion of any distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities). (c) ~uEligible Retirement Plan~w An Eligible Retirement Plan is an individual retirement account described in section 408(a) of the Code, an individual retirement annuity described in section 408(b) of the Code, or a qualified trust described in section 401(a) of the Code, that accepts the Distributee's Eligible Rollover Distribution. However, in the case of an Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement Plan is an individual retirement account or individual retirement annuity. (d) ~uDistributee~w A Distributee includes an Employee or Former Employee. In addition, the Employee's or Former Employee's surviving spouse and the Employee's or Former Employee's spouse or former spouse who is the alternate payee under a qualified domestic relations order, as defined in section 414(p) of the Code, are Distributees with regard to the interest of the spouse or former spouse. (e) ~uDirect Rollover~w A Direct Rollover is a payment by the Plan to the Eligible Retirement Plan specified by the Distributee. 5-3 (f) ~uWaiver of 30-Day Notice~w If a distribution is one to which Code Sections 401(a)(11) and 417 do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that: o the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option); and o the Participant, after receiving the notice, affirmatively elects to receive a distribution. 5-4 ~bARTICLE 6 DEATH BENEFIT~p 6.01 ~uValuation of Accounts~w For purposes of this Article, the value of a Participant's Accrued Benefit will be determined as of the Valuation Date immediately preceding the date that benefits are to be distributed. 6.02 ~uDeath Benefit~w In the event of the death of a Participant prior to the date on which he receives a complete distribution of his benefit under the Plan, the Participant's Beneficiary will be entitled to receive the value of the Participant's Accrued Benefit. 6.03 ~uDesignation of Beneficiary~w Each Participant will be given the opportunity to designate a Beneficiary or Beneficiaries, and from time to time the Participant may file with the Plan Administrator a new or revised designation on the form provided by the Plan Administrator. If a Participant is married, any designation of a Beneficiary other than the Participant's spouse must be consented to by the Participant's spouse pursuant to a Qualified Election. If a Participant dies without designating a Beneficiary, or if the Participant is predeceased by all designated Beneficiaries and contingent Beneficiaries, the Plan Administrator will distribute all benefits which are payable in the event of the Participant's death in the following manner and to the first of the following (who are listed in order of priority) who survive the Participant by at least 30 days: o All to the Participant's Surviving Spouse; o Equally among the then living children of the Participant (by birth or adoption); o Among the Participant's then living lineal descendants, by right of representation; or o The Participant's estate. 6-1 ~bARTICLE 7 LIMITATIONS ON BENEFITS~p 7.01 ~uLimitation on Annual Additions~w The amount of the Annual Addition which may be allocated under this Plan to any Participant's Account as of any Allocation Date will not exceed the Defined Contribution Limit (based upon his Aggregate Compensation up to such Valuation Date) reduced by the sum of any allocations of annual additions made to Participant's Accounts under this Plan as of any preceding Allocation Date within the Limitation Year. If the Annual Addition under this Plan on behalf of a Participant is to be reduced as of any Allocation Date as a result of the next preceding paragraph, the reduction will be, to the extent required, effected by first reducing Participant contributions (which increase the annual addition), then Forfeitures (if any), and then Employer contributions to be allocated under this Plan on behalf of the Participant as of the Allocation Date. Any necessary reduction will be made as follows: (a) The amount of the reduction consisting of nondeductible Participant contributions will be paid to the Participant as soon as administratively feasible. (b) The amount of the reduction consisting of any other Participant contributions will be paid to the Participant as soon as administratively feasible. (c) The amount of the reduction consisting of Forfeitures will be allocated and reallocated to other Accounts in accordance with the Plan formula for allocating Forfeitures to the extent that such allocations do not cause the additions to any other Participant's Accounts to exceed the lesser of the Defined Contribution Limit or any other limitation provided in the Plan. (d) The amount of the reduction consisting of Employer contributions will be allocated and reallocated to other Accounts in accordance with the Plan formula for Employer Contributions to the extent that such allocations do not cause the additions to any other Participant's Accounts to exceed the lesser of the Defined Contribution Limit or any other limitation provided in the Plan. (e) To the extent that the reductions described in paragraph (d) cannot be allocated to other Participant's Accounts, the reductions will be allocated to a suspense account as Forfeitures and held therein until the next succeeding Allocation Date on which Forfeitures could be applied under the provisions of the Plan. All amounts held in a suspense account must be applied as Forfeitures before any additional contributions, which would constitute annual additions, may be made to the Plan. If the Plan terminates, the suspense account will revert to the Employer to the extent it may not be allocated to any Participant's Accounts. (f) If a suspense account is in existence at any time during a Limitation Year pursuant to this Section, it will not participate in the allocation of the Trust Fund's investment gains and losses. 7-1 7.02 ~uWhere Employer Maintains Another Qualified Plan~w (a) ~uWhere Employer Maintains Another Qualified Defined Contribution Plan~w If the Employer maintains this Plan and one or more other qualified defined contribution plans, one or more welfare benefit funds (as defined in Code Section 419(e)), or one or more individual medical accounts (as defined in Code Section 415(l)(2)), all of which are referred to in this Article 7 as "qualified defined contribution plans", the annual additions allocated under this Plan to any Participant's Accounts will be limited in accordance with the allocation provisions of this Section 7.02(a). The amount of the Annual Additions which may be allocated under this Plan to any Participant's Accounts as of any Allocation Date will not exceed the Defined Contribution Limit (based upon Aggregate Compensation up to the allocation date) reduced by the sum of any allocations of Annual Additions made to the Participant's Accounts under this Plan and any other qualified defined contribution plans maintained by the Employer as of any earlier Allocation Date within the Limitation Year. If a Allocation Date of this Plan coincides with a Allocation Date of any other plan described in the above paragraph, the amount of Annual Additions to be allocated on behalf of a Participant under this Plan as of such date will be an amount equal to the product of the amount described in the next preceding paragraph multiplied by a fraction (not to exceed 1.0), the numerator of which is the amount to be allocated under this Plan without regard to this Article during the Limitation Year and the denominator of which is the amount that would otherwise be allocated on this Allocation Date under all plans without regard to this Article 7. If the Annual Addition under this Plan on behalf of a Participant is to be reduced as of any Allocation Date as a result of the next preceding two paragraphs, the reduction will be, to the extent required, effected by first reducing Participant contributions (which increase the annual addition), then Forfeitures (if any), and then any Employer contributions, to be allocated under this Plan on behalf of the Participant as of the Allocation Date. If as a result of the first four paragraphs of this Section 7.02 the allocation of additions is reduced, the reduction will be treated in the manner described in the third paragraph of Section 7.01. (b) ~uWhere Employer Maintains a Qualified Defined Benefit Plan~w (1) ~uIn General~w If the Employer maintains (or has ever maintained), in addition to this Plan, one or more qualified defined benefit plans, then for any Limitation Year, the sum of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction will not exceed 1.0. If, in any Limitation Year, the sum of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction for a Participant would exceed 1.0 without adjustment to the amount of the annual benefit that can be paid to the Participant under the defined benefit plan, then the amount of annual benefit that would otherwise be paid to the Participant under the defined benefit plan will be reduced to the extent necessary to reduce the sum of the Defined Benefit Plan Fraction and the Defined Contribution Plan Fraction for the Participant to 1.0. (2) ~uTransition Rule under TRA '86~w If a plan was in existence on May 6, 1986, the numerator of the Defined Contribution Plan Fraction will be reduced (to not less than zero) as prescribed by the Secretary 7-2 of the Treasury by subtracting the amount required to decrease the sum of the Defined Contribution Plan Fraction plus the Defined Benefit Plan Fraction to 1.0. Such amount is determined (as of the first day of the first Limitation Year beginning on or after January 1, 1987) as the product of: (A) The amount by which, without this adjustment, the sum of the Defined Contribution Plan Fraction plus the Defined Benefit Plan Fraction exceeds 1.0, multiplied by (B) The denominator of the Defined Contribution Plan Fraction, as computed through the last Limitation Year beginning before January 1, 1987, disregarding any changes in the terms and conditions of the plan after May 5, 1986. This subparagraph applies only if the defined benefit plans individually and in the aggregate satisfied the requirements of Code Section 415 for all Limitation Years beginning before January 1, 1987. (3) ~uTransition Rule under TEFRA~w In the case of a plan which met the limitation of Section 415 of the Code for the last Limitation Year beginning before January 1, 1983, the numerator of the Defined Contribution Plan Fraction will be reduced (to not less than zero) as prescribed by the Secretary of the Treasury by subtracting the amount required to decrease the sum of the Defined Contribution Plan Fraction plus the Defined Benefit Plan Fraction to 1.0. Such amount is determined (as of the first day of the first Limitation Year beginning on or after January 1, 1983) as the product of: (A) The amount by which, without this adjustment, the sum of the Defined Contribution Plan Fraction plus the Defined Benefit Plan Fraction exceeds 1.0, multiplied by (B) The denominator of the Defined Contribution Plan Fraction, as computed through the last Limitation Year beginning before January 1, 1983. 7.03 ~uDefinitions Applicable to Article 7~w (a) ~uAggregate Compensation~w Aggregate Compensation means a Participant's earned income, wages, salaries, and fees for professional services, and other amounts received for personal services actually rendered in the course of employment with the employer maintaining the plan (including, but not limited to, commissions paid to salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips and bonuses), and excluding the following: o Employer contributions to a plan of deferred compensation which are not included in the employee's gross income for the taxable year in which contributed or employer contributions under a simplified employee pension plan to the extent the contributions are deductible by the employee, or any distributions from a plan of deferred compensation; o Amounts realized from the exercise of a nonqualified stock option, or when restricted stock (or property) held by the employee either becomes freely transferable or is no longer subject to a substantial risk of forfeiture; o Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and 7-3 o Other amounts which received special tax benefits, or contributions made by the employer (whether or not under a salary reduction agreement) toward the purchase of an annuity described in Code Section 403(b) (whether or not the amounts are actually excludable from the gross income of the employee). Aggregate Compensation excludes any amounts contributed by the Employer or any Related Employer on behalf of any Employee pursuant to a salary reduction agreement which are not includable in the gross income of the Employee due to Code Section 125, 402(e)(3), 402(h) or 403(b). Aggregate Compensation in excess of the Statutory Compensation Limit is disregarded. Aggregate Compensation for any Limitation Year is the Aggregate Compensation actually paid or includable in gross income in such year. (b) ~uAllocation Date~w Allocation Date means the date with respect to which all or a portion of employer contributions, employee contributions or forfeitures or both are allocated to participant accounts under a defined contribution plan. (c) ~uAnnual Additions~w For Plan Years beginning after December 31, 1986, Annual Additions are the sum of the following amounts allocated to any defined contribution plan maintained by the Employer (including voluntary contributions to any defined benefit plan maintained by the Employer) on behalf of a Participant for a Limitation Year: o All Employee and Employer contributions; o All reallocated forfeitures; o Amounts allocated after March 31, 1984, to an individual medical account, as defined in Code Section 415(l)(2) which is part of a pension or annuity plan maintained by the Employer, and amounts derived from contributions paid or accrued after December 31, 1985, in taxable years ending after that date, which are attributable to post-retirement medical benefits required by Code Section 401(h)(6) to be allocated to the separate account of a Key Employee under a welfare benefit plan (as defined in Code Section 419(e)) maintained by the Employer. Contributions or forfeitures will be treated as Annual Additions regardless of whether they constitute Excess Deferrals, Excess Contributions or Excess Aggregate Contributions within the meaning of the regulations under Code Section 401(k) or 401(m) and regardless of whether they are corrected through distribution or recharacterization. Excess deferrals distributed in accordance with Treasury Regulation 1.402(g)-1(e)(2) or (3) are not Annual Additions. The Annual Addition for any Limitation Year beginning before January 1, 1987, will not be recomputed to treat all Employee After-tax Contributions as Annual Additions. (d) ~uAnnual Benefit~w Annual Benefit means a benefit payable annually in the form of a straight life annuity (with no ancillary benefits) under a plan to which employees do not contribute and under which no rollover contributions are made. 7-4 (e) ~uDefined Benefit Compensation Limit~w The Defined Benefit Compensation Limit is equal to 100% of the Participant's average Aggregate Compensation for the three consecutive calendar years (or other twelve consecutive month periods adopted by the Employer pursuant to a Written Resolution and applied on a uniform and consistent basis) of service during which the Participant had the greatest Aggregate Compensation. Where the annual benefit is payable to a Participant in a form other than a straight life annuity or a Qualified Joint and Survivor Annuity, the Defined Benefit Compensation Limit will be the Actuarial Equivalent of a straight life annuity beginning at the same age. No adjustment is required for the following: pre-retirement disability benefits, pre-retirement death benefits and post-retirement medical benefits. For purposes of this paragraph, the interest rate used in adjusting the Defined Benefit Compensation Limit will be the greater of (1) 5%, or (2) the post-retirement interest rate specified in the plan for Actuarial Equivalent purposes. Where the annual benefit is payable to a Participant who has fewer than 10 years of service with the Employer or any Related or Predecessor Employer, the Defined Benefit Compensation Limit will be multiplied by a fraction, the numerator of which is the Participant's number of years of service with the Employer or Related or Predecessor Employer, and the denominator of which is 10. With regard to a Participant who has separated from service with a nonforfeitable right to an Accrued Benefit, the Defined Benefit Compensation Limit will be adjusted effective January 1 of each Calendar year. For any Limitation Year beginning after the separation occurs, the Defined Benefit Compensation Limit will be equal to the Defined Benefit Compensation Limit which was applicable to the Participant in the Limitation Year in which he separated from service multiplied by a fraction, the numerator of which is the Defined Benefit Dollar Limit for the Limitation Year in which the Defined Benefit Compensation Limit is being adjusted and the denominator of which is the Defined Benefit Dollar Limit for the Limitation Year in which the Participant separated from service. (f) ~uDefined Benefit Dollar Limit~w The Defined Benefit Dollar Limit is equal to $90,000 for calendar years 1984 through 1987. As of January 1, 1988 and as of January 1 of each subsequent calendar year, the dollar limitation (described in Code Section 415(b)(1)(A)) as determined by the Secretary of the Treasury for that calendar year will become effective as the Defined Benefit Dollar Limit for the calendar year. For calendar years between 1976 and 1983, the Defined Benefit Dollar Limit is $75,000 as adjusted by the Secretary of the Treasury under Code Section 415(d) for that calendar year. The Defined Benefit Dollar Limit for a calendar year applies to Limitation Years ending with or within that calendar year. Where the annual benefit is payable to a Participant in a form other than a straight life annuity or a Qualified Joint and Survivor Annuity, the Defined Benefit Dollar Limit will be the Actuarial Equivalent of a straight life annuity beginning at the same age. No adjustment is required for the following: pre-retirement disability benefits, pre-retirement death benefits, and post-retirement medical benefits. For purposes of this paragraph, the interest rate used for adjusting the Defined Benefit Dollar Limit will be the greater of (1) 5%, or (2) the post-retirement interest rate specified for Actuarial Equivalent purposes. Where the annual benefit is payable to a Participant who has fewer than 10 years of participation in the Plan, the Defined Benefit Dollar Limit will be multiplied by a fraction, the numerator of which is the Participant's number of years (or part thereof) of 7-5 participation in the Plan, and the denominator of which is 10. To the extent provided by the Secretary of the Treasury, this paragraph will be applied to each change in the benefit structure of the Plan. For a benefit commencing before a Participant's Social Security Retirement Age but at or after age 62, the Defined Benefit Dollar Limit will be adjusted in a manner which is consistent with the reduction for old-age insurance benefits commencing before Social Security Retirement Age under the Social Security Act. The reduction will be 5/9 of 1% for each of the first 36 months and 5/12 of 1% for each additional month (up to 24 months) by which benefits commence before the month of the Participant's Social Security Retirement Age. The Defined Benefit Dollar Limit for a benefit commencing before age 62 will be adjusted to the Actuarial Equivalent of the Defined Benefit Dollar Limit for a benefit commencing at age 62 based on an interest rate equal to the greater of (1) 5%, or (2) the interest rate specified in the plan for determining actuarial equivalence for early retirement. For a benefit commencing after a Participant's Social Security Retirement Age, the Defined Benefit Dollar Limit will be adjusted to the actuarial equivalent of the Defined Benefit Dollar Limit for a benefit commencing at the Participant's Social Security Retirement Age. For purposes of this paragraph, the interest rate used for adjusting the Defined Benefit Dollar Limit will be the lesser of (1) 5%, or (2) the interest rate specified in the plan for determining actuarial equivalence for early retirement. (g) ~uDefined Benefit Limit~w The Defined Benefit Limit is the lesser of the Defined Benefit Dollar Limit or the Defined Benefit Compensation Limit. (h) ~uDefined Benefit Plan Fraction Denominator~w The Defined Benefit Plan Fraction Denominator with respect to any Participant is the lesser of (1) the product of the Defined Benefit Dollar Limit multiplied by 1.25, or (2) the product of the Defined Benefit Compensation Limit multiplied by 1.4. However, for purposes of determining the Defined Benefit Plan Fraction Denominator, "years of service with the Employer or any Related or Predecessor Employer" will be substituted for "years of participation in the Plan" wherever it appears in Section 7.03(f). (i) ~uDefined Benefit Plan Fraction~w The Defined Benefit Plan Fraction is a fraction determined as of the close of a Limitation Year, the numerator of which is the Projected Annual Benefit payable to a Participant under this Plan and the denominator of which is the Defined Benefit Fraction Denominator. If a Participant has participated in more than one defined benefit plan maintained by the Employer, the numerator of the Defined Benefit Plan Fraction is the sum of the projected annual benefits payable to the Participant under all of the defined benefit plans, whether or not terminated. (j) ~uDefined Contribution Limit~w The Defined Contribution Limit for a given Limitation Year is equal to the lesser of (1) the Defined Contribution Compensation Limit, which is 25% of Aggregate Compensation applicable to the Limitation Year, or (2) the Defined Contribution Dollar Limit, which, for calendar years after 1983 is the greater of $30,000 or one-fourth of the Defined Benefit Dollar Limit for the Limitation Year, and for calendar years between 1976 and 1983 is one-third of the Defined Benefit Dollar Limit. If a short Limitation Year is created because of an amendment changing the Limitation Year to a different 12 consecutive month period, the Defined Contribution Dollar Limit is multiplied by a fraction, the numerator of which is equal to the number of months in the short Limitation Year and the denominator 7-6 of which is 12. (k) ~uDefined Contribution Plan Fraction~w The Defined Contribution Plan Fraction is a fraction determined as of the close of a Limitation Year, the numerator of which is the sum of the Annual Additions to the Participant's Accounts under all defined contribution plans of the Employer for the current and all prior Limitation Years and the denominator of which is the sum of the Annual Additions which would have been made for the Participant for the current and all prior Limitation Years (for all prior years of service with the Employer or any predecessor Employer) if in each Limitation year the Annual Additions equaled the lesser of (1) the product of the Defined Contribution Compensation Limit for the Limitation Year multiplied by 1.4, or (2) the product of the Defined Contribution Dollar Limit for the Limitation Year multiplied by 1.25. The aggregate amount in the numerator of this fraction due to years beginning before January 1, 1976 may not exceed the aggregate amount in the denominator of this fraction for all such years. For purposes of this Section 7.03(k), the Annual Addition for any Limitation Year beginning before January 1, 1987 will not be recomputed to treat all Employee After-tax Contributions as Annual Additions. (l) ~uEmployer~w The Employer is the Employer that adopts this Plan together with all Related Employers. For this purpose, the definition of Related Employer in Section 1.33 of this Plan is modified by Code Section 415(h). (m) ~uLimitation Year~w The Limitation Year will be the 12 consecutive month period which is specified in Article 1 of this Plan and which is adopted for all qualified plans maintained by the Employer pursuant to a Written Resolution adopted by the Employer. In the event of a change in the Limitation Year, the additional limitations of Treasury Regulation Section 1.415-2(b)(4)(iii) will also apply. (n) ~uProjected Annual Benefit~w For purposes of this Section, a Participant's Projected Annual Benefit is equal to the annual benefit to which a Participant in a defined benefit Plan would be entitled under the terms of the plan based on the following assumptions: o The Participant will continue employment until reaching normal retirement age as determined under the terms of the plan (or current age, if that is later); o The Participant's compensation for the Limitation Year under consideration will remain the same for all future years; o All other relevant factors used to determine benefits under the plan for the Limitation Year under consideration will remain constant for all future Limitation Years; and o The benefits resulting from any Participant Contributions or Rollover Contributions are disregarded. (o) ~uSocial Security Retirement Age~w Social Security Retirement Age means age 65 for a Participant born before January 1, 1938; age 66 for a Participant born after December 31, 1937, but before January 1, 1955; and age 67 for a Participant born after December 31, 1954. 7-7 (p) ~uTransition Rule Under TRA '86~w If at the beginning of the first Limitation Year beginning after December 31, 1986, an Employee was a Participant in a defined benefit plan of the Employer or any Related Employer that was in existence on May 6, 1986, the Defined Benefit Dollar Limit for that Participant is the greater of the Defined Benefit Dollar Limit described above or the Participant's Current Accrued Benefit on that date determined without regard to changes in the terms and conditions of the Plan or cost-of-living increases occurring after May 5, 1986. This Section 7.03(p) applies only if all defined benefit plans maintained by the Employer and all Related Employers, individually and in the aggregate, satisfied the requirements of Code Section 415 for all Limitation Years beginning before January 1, 1987. 7.04 ~uEffect of Top-Heavy Status~w (a) ~uGeneral~w Notwithstanding the provisions of Section 7.03, "1.0" will be substituted for "1.25" wherever it appears in Sections 7.03(h) and 7.03(k) for any Limitation Year in which the Plan is found to be Top-Heavy for the Plan Year which coincides with or ends within such Limitation Year. (b) ~uNon-application~w Section 7.04(a) will not apply for any Limitation Year in which, for the Plan Year which coincides with or ends within such Limitation Year, (1) the Plan is not determined to be Super Top-Heavy and (2) for any Non-Key Employee who is a Participant in both this Plan and a defined benefit plan maintained by the Employer or a Related Employer, the annual allocation of Employer contributions plus Forfeitures under this Plan is not less than 7.5% of the Non-Key Employee's Aggregate Compensation. 7-8 ~bARTICLE 8 MISCELLANEOUS~p 8.01 ~uEmployment Rights of Parties Not Restricted~w The adoption and maintenance of this Plan will not be deemed a contract between the Employer and any Employee. Nothing in this Plan will give any Employee or Participant the right to be retained in the employ of the Employer or to interfere with the right of the Employer to discharge any Employee or Participant at any time, nor will it give the Employer the right to require any Employee or Participant to remain in its employ, or to interfere with any Employee's or Participant's right to terminate his employment at any time. 8.02 ~uAlienation~w (a) ~uGeneral~w No person entitled to any benefit under this Plan will have any right to sell, assign, transfer, hypothecate, encumber, commute, pledge, anticipate or otherwise dispose of his interest in the benefit, and any attempt to do so will be void. No benefit under this Plan will be subject to any legal process, levy, execution, attachment or garnishment for the payment of any claim against such person. (b) ~uExceptions~w Section 8.02(a) will not apply to the extent a Participant or Beneficiary is indebted to the Plan under the provisions of the Plan. At the time a distribution is to be made to or for a Participant's or Beneficiary's benefit, the portion of the amount distributed which equals the indebtedness will be withheld by the Trustee to apply against or discharge the indebtedness. Before making a payment, however, the Participant or Beneficiary must be given written notice by the Plan Administrator that the indebtedness is to be so paid in whole or part from his Participant's Accrued Benefit. If the Participant or Beneficiary does not agree that the indebtedness is a valid claim against his Vested Accrued Benefit, he will be entitled to a review of the validity of the claim in accordance with procedures established by the Plan Administrator. Section 8.02(a) will not apply to a qualified domestic relations order (QDRO) as defined in Code Section 414(p), and those other domestic relations orders permitted to be so treated by the Plan Administrator under the provisions of the Retirement Equity Act of 1984. The Plan Administrator will establish a written procedure to determine the qualified status of domestic relations orders and to administer distributions under such qualified orders. Further, to the extent provided under a QDRO, a former spouse of a Participant will be treated as the spouse or Surviving Spouse for all purposes under the Plan. Where, however, because of a QDRO, more than one individual is to be treated as a Surviving Spouse, the total amount to be paid in the form of a Qualified Survivor Annuity or the survivor portion of a Qualified Joint and Survivor Annuity may not exceed the amount that would be paid if there were only one Surviving Spouse. All rights and benefits, including elections, provided to a Participant under this Plan will be subject to the rights afforded to any alternate payee as such term is defined in Code Section 414(p). This Plan specifically permits distribution to an alternate payee under a QDRO (without regard to whether the Participant has attained his or her earliest retirement age as that term is defined under Code Section 414(p)) in the same manner that is provided for a Vested Terminated Participant. 8-1 8.03 ~uQualification of Plan~w The Employer will have the sole responsibility for obtaining and retaining qualification of the Plan under the Code with respect to the Employer's individual circumstances. 8.04 ~uConstruction~w To the extent not preempted by ERISA, this Plan will be construed according to the laws of the state in which the Employer's principal place of business is located. Words used in the singular will include the plural, the masculine gender will include the feminine, and vice versa, whenever appropriate. 8.05 ~uNamed Fiduciaries~w (a) ~uAllocation of Functions~w The authority to control and manage the operation and administration of the Plan and Trust created by this instrument will be allocated between the Plan Sponsor, the Trustee, and the Plan Administrator, all of whom are designated as Named Fiduciaries with respect to the Plan and Trust as provided for by Section 402(a)(2) of ERISA. The Plan Sponsor reserves the right to allocate the various responsibilities for the present execution of the functions of the Plan, other than the Trustee's responsibilities, among its Named Fiduciaries. Any person or group of persons may serve in more than one fiduciary capacity with regard to the Plan. (b) ~uResponsibilities of the Plan Sponsor~w The Plan Sponsor, in its capacity as a Named Fiduciary, will have only the following authority and responsibility: o To appoint or remove the Plan Administrator and furnish the Trustee with certified copies of any resolutions of the Plan Sponsor with regard thereto; o To appoint and remove the Trustee; o To appoint a successor Trustee or additional Trustees; o To communicate information to the Plan Administrator and the Trustee as needed for the proper performance of the duties of each; o To appoint an investment manager (or to refrain from such appointment), to monitor the performance of the investment manager so appointed, and to terminate such appointment (more than one investment manger may be appointed and in office at any time); and o To establish and communicate to the Trustee a funding policy for the Plan. (c) ~uLimitation on Obligations of Named Fiduciaries~w No Named Fiduciary will have authority or responsibility to deal with matters other than as delegated to it under this Plan or by operation of law. A Named Fiduciary will not in any event be liable for breach of fiduciary responsibility or obligation by another fiduciary (including Named Fiduciaries) if the responsibility or authority of the act or omission deemed to be a breach was not within the scope of the Named Fiduciary's authority or delegated responsibility. (d) ~uStandard of Care and Skill~w The duties of each fiduciary will be performed with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like 8-2 character and with like objectives. 8.06 ~uStatus of Insurer~w The term Insurer refers to any legal reserve life insurance company licensed to do business in the state within which the Employer maintains its principal office. The Insurer will file such returns, keep such records, make such reports and supply such information as required by applicable law or regulation. 8.07 ~uAdoption and Withdrawal by Other Organizations~w (a) ~uProcedure for Adoption~w Subject to the provisions of this Section 8.07, any organization now in existence or hereafter formed or acquired, which is not already a Participating Employer under this Plan and which is otherwise legally eligible may, in the future, with the consent and approval of the Plan Sponsor, by formal Written Resolution (referred to in this Section as an Adoption Resolution), adopt the Plan and Trust hereby created for all or any classification of persons in its employment and thereby, from and after the specified effective date, become a Participating Employer under this Plan. Such consent will be effected by and evidenced by a formal Written Resolution of the Plan Sponsor. The Adoption Resolution may contain such specific changes and variations in Plan terms and provisions applicable to the adopting Participating Employer and its Employees as may be acceptable to the Plan Sponsor and the Trustee. However, the sole, exclusive right of any other amendment of whatever kind or extent to the Plan is reserved to the Plan Sponsor. The Adoption Resolution will become, as to the adopting organization and its Employees, a part of this Plan as then amended or thereafter amended. It will not be necessary for the adopting organization to sign or execute the original or then amended Plan and Trust Agreement or any future amendment to the Plan and Trust Agreement. The effective date of the Plan for the adopting organization will be that stated in the Adoption Resolution and from and after such effective date the adopting organization will assume all the rights, obligations and liabilities as a Participating Employer under this Plan. The administrative powers of and control by the Plan Sponsor as provided in the Plan, including the sole right of amendment or termination of the Plan, of appointment and removal of the Plan Administrator and the Trustee, and of appointment and removal of an investment manager will not be diminished by reason of the participation of the adopting organization in the Plan. (b) ~uWithdrawal~w Any Participating Employer may withdraw from the Plan at any time, without affecting the Plan Sponsor or other Participating Employers not withdrawing, by complying with the provisions of the Plan. A withdrawing Participating Employer may arrange for the continuation by itself or its successor of this Plan in separate forms for its own employees, with such amendments, if any, as it may deem proper, and may arrange for continuation of the Plan by merger with an existing plan and transfer of plan assets. The Plan Sponsor may, it its absolute discretion, terminate a Participating Employer's participation at any time when in its judgment the Participating Employer fails or refuses to discharge its obligations under the Plan. (c) ~uAdoption Contingent Upon Initial and Continued Qualifications~w The adoption of this Plan by an organization as provided is hereby made contingent and subject to the condition precedent that said adopting organization meets all the statutory requirements for qualified plans, including, but not limited to, Sections 401(a) and 501(a) of the Internal Revenue Code for its Employees. If the Plan or the Trust, in its operation, becomes disqualified, for any reason, as to the adopting organization and its Employees, the portion of the Plan assets allocable to them will be segregated as soon as 8-3 is administratively feasible, pending either the prompt (1) requalification of the Plan as to the organization and its employees to the satisfaction of the Internal Revenue Service so as not to affect the continued qualified status thereof as to other Employers, (2) withdrawal of the organization from this Plan and a continuation by itself or its successor of its plan separately from this Plan, or by merger with another existing plan, with a transfer of its said segregated portion of Plan assets, or (3) termination of the Plan as to itself and its Employees. 8.08 ~uEmployer Contributions~w Employer contributions made to the Plan and Trust are made and will be held for the sole purpose of providing benefits to Participants and their Beneficiaries. In no event will any contribution made by the Employer to the Plan and Trust or income therefrom revert to the Employer except as provided in Section 7.01(e) or as provided below. (a) Any contribution made to the Plan and Trust by the Employer because of a mistake of fact may be returned to the Employer within one year of such contribution. (b) Notwithstanding any other provision of the Plan and Trust, if the Internal Revenue Service determines initially that the Plan, as adopted by the Employer, does not qualify under applicable sections of the Code and applicable Treasury Department Regulations, and the Employer does not wish to amend this Plan and Trust so that it does qualify, the value of all assets will be distributed by the Trustee to the Employer within one year after the date such initial qualification is denied. Thereafter, the Employer's participation in this Plan and Trust will be considered rescinded and of no force or effect. (c) Any contribution made by the Employer will be conditioned on the deductibility of such contribution and may be refunded to the Employer, to the extent the contribution is determined not to be deductible, within one year after such determination is made. 8-4 ~bARTICLE 9 ADMINISTRATION~p 9.01 ~uPlan Administrator~w The Plan Administrator will have the responsibility for the general supervision and administration of the Plan and will be a fiduciary of the Plan. The Employer may, by Written Resolution, appoint one or more individuals to serve as Plan Administrator. If the Employer does not appoint an individual or individuals as Plan Administrator, the Employer will function as Plan Administrator. The Employer may at any time, with or without cause, remove an individual as Plan Administrator or substitute another individual therefor. 9.02 ~uPowers and Duties of the Plan Administrator~w The Plan Administrator will be charged with and will have delegated to it the power, duty, authority and discretion to interpret and construe the provisions of this Plan, to determine its meaning and intent and to make application thereof to the facts of any individual case; to determine in its discretion the rights and benefits of Participants or the eligibility of Employees; to give necessary instructions and directions to the Trustee and the Insurer as herein provided or as may be requested by the Trustee and the Insurer from time to time; to resolve all questions of fact relating to any of the foregoing; and to generally direct the administration of the Plan according to its terms. All decisions of the Plan Administrator in matters properly coming before it according to the terms of this Plan, and all actions taken by the Plan Administrator in the proper exercise of its administrative powers, duties and responsibilities, will be final and binding upon all Employees, Participants and Beneficiaries and upon any person having or claiming any rights or interest in this Plan. The Employer and the Plan Administrator will make and receive any reports and information, and retain any records necessary or appropriate to the administration of this Plan or to the performance of duties hereunder or to satisfy any requirements imposed by law. In the performance of its duties, the Plan Administrator will be entitled to rely on information duly furnished by any Employee, Participant or Beneficiary or by the Employer or Trustee. 9.03 ~uActions of the Plan Administrator~w The Plan Administrator may adopt such rules as it deems necessary, desirable or appropriate with respect to the conduct of its affairs and the administration of the Plan. Whenever any action to be taken in accordance with the terms of the Plan requires the consent or approval of the Plan Administrator, or whenever an interpretation is to be made of the terms of the Plan, the Plan Administrator will act in a uniform and non-discriminatory manner, treating all Employees and Participants in similar circumstances in a like manner. If the Plan Administrator is a group of individuals, all of its decisions will be made by a majority vote. The Plan Administrator will have the authority to employ one or more persons to render advice or services with regard to the responsibilities of the Plan Administrator, including but not limited to attorneys, actuaries, and accountants. Any persons employed to render advice or services will have no fiduciary responsibility for any ministerial functions performed with respect to this Plan. 9.04 ~uReliance on Plan Administrator and Employer~w Until the Employer gives notice to the contrary, the Trustee and any persons employed to render advice or services will be entitled to rely on the designation of Plan Administrator that has been furnished to them. In addition, the Trustee and any persons employed to render advice or services will be fully protected in acting upon the written directions and instructions of the Plan Administrator made in accordance with the terms of this Plan. If the Plan Administrator is a group of individuals, unless otherwise specified, any one of such individuals will be authorized to sign documents on behalf of the Plan Administrator and such authorized signatures will be recognized by all person dealing with the Plan Administrator. 9-1 The Trustee and any persons employed to render advice or services may take cognizance of any rules established by the Plan Administrator and rely upon them until notified to the contrary. The Trustee and any persons employed to render advice or services will be fully protected in taking any action upon any paper or document believed to be genuine and to have been properly signed and presented by the Plan Administrator, Employer or any agent of the Plan Administrator acting on behalf of the Plan Administrator. 9.05 ~uReports to Participants~w The Plan Administrator will report in writing to a Participant his Accrued Benefit under the Plan and the Vested Percentage of such benefit when the Participant terminates his employment or requests such a report in writing from the Plan Administrator. To the extent required by law or regulation, the Plan Administrator will annually furnish to each Participant, and to each Beneficiary receiving benefits, a report which fairly summarizes the Plan's most recent report. 9.06 ~uBond~w The Plan Administrator and other fiduciaries of the Plan will be bonded to the extent required by ERISA or other applicable law. No additional bond or other security for the faithful performance of any duties under this Plan will be required. 9.07 ~uCompensation of Plan Administrator~w The Compensation of the Plan Administrator will be left to the discretion of the Plan Sponsor; no person who is receiving full pay from the Employer will receive compensation for services as Plan Administrator. All reasonable and necessary expenses incurred by the Plan Administrator in supervising and administering the Plan will be paid from the Plan assets by the Trustee at the direction of the Plan Administrator to the extent not paid by the Plan Sponsor. 9.08 ~uClaims Procedure~w The Plan Administrator will make all determinations as to the rights of any Employee, Participant, Beneficiary or other person under the terms of this Plan. Any Employee, Participant or Beneficiary, or person claiming under them, may make claim for benefit under this Plan by filing written notice with the Plan Administrator setting forth the substance of the claim. If a claim is wholly or partially denied, the claimant will have the opportunity to appeal the denial upon filing with the Plan Administrator a written request for review within 60 days after receipt of notice of denial. In making an appeal the claimant may examine pertinent Plan documents and may submit issues and comments in writing. Denial of a claim or a decision on review will be made in writing by the Plan Administrator delivered to the claimant within 60 days after receipt of the claim or request for review, unless special circumstances require an extension of time for processing the claim or review, in which event the Plan Administrator's decision must be made as soon as possible thereafter but not beyond an additional 60 days. If no action on an initial claim is taken within 120 days, the claims will be deemed denied for purposes of permitting the claimant to proceed to the review stage. The denial of a claim or the decision on review will specify the reasons for the denial or decision and will make reference to the pertinent Plan provisions upon which the denial or decision is based. The denial of a claim will also include a description of any additional material or information necessary for the claimant to perfect the claim and an explanation of the claim review procedure herein described. The Plan Administrator will serve as an agent for service of legal process with respect to the Plan unless the Employer, through written resolution, appoints another agent. If a Participant or Beneficiary is entitled to a distribution from the Plan, the Participant or Beneficiary will be responsible for providing the Plan Administrator with his current address. If the Plan Administrator notifies the Participant or Beneficiary by registered mail 9-2 (return receipt requested) at his last known address that he is entitled to a distribution and also notifies him of the provisions of this paragraph, and the Participant or Beneficiary fails to claim his benefits under the Plan or provide his current address to the Plan Administrator within one year after such notification, the distributable amount will be forfeited and used to reduce the cost of the Plan. If the Participant or Beneficiary is subsequently located, such benefit will be restored. 9.09 ~uLiability of Fiduciaries~w Except for a breach of fiduciary responsibility due to gross negligence or willful misconduct, the Plan Administrator will not incur any individual liability for any decision, act, or failure to act hereunder. The Plan Administrator may engage agents to assist it and may engage legal counsel who may be counsel for the Employer. The Plan Administrator will not be responsible for any action taken or omitted to be taken on the advice of counsel. If there is more than one person serving as a fiduciary in any capacity (for example, co-Trustees), each will use reasonable care to prevent the other or others from committing a breach of this Plan. Nothing contained in this Section will preclude any agreement allocating specific responsibilities or obligations among the co-fiduciaries provided that the agreement does not violate any of the terms and provisions of this Plan. In those instances where any duties have been allocated between co-fiduciaries, a fiduciary will not be liable for any loss resulting to the Plan arising from any act or omission on the part of another co-fiduciary to whom responsibilities or obligations have been allocated except under the following circumstances: o If he participates knowingly in, or knowingly undertakes to conceal, an act or omission of a co-fiduciary knowing the act or omission is a breach; or o If by his failure to comply with his specific responsibilities which give rise to his status as a fiduciary, he has enabled the other fiduciary to commit a breach; or o If he has knowledge of a breach by a co-fiduciary, unless he makes reasonable efforts under the circumstances to remedy the breach. 9.10 ~uExpenses of Administration~w The Employer does not and will not guarantee the Plan assets against loss. The Employer may in its sole discretion, but will not be obligated to, pay the ordinary expenses of establishing the Plan, including the fees of consultants, accountants and attorneys in connection therewith. The Employer may, in its sole discretion (but will not be obligated to), pay other costs and expenses of administering the Plan, the taxes imposed upon the Plan, if any, and the fees, charges or commissions with respect to the purchase and sale of Plan assets. Unless paid by the Employer, such costs and expenses, taxes (if any), and fees, charges and commissions will be a charge upon Plan assets and deducted by the Trustee. 9.11 ~uDistribution Authority~w If any person entitled to receive payment under this Plan is a minor, declared incompetent or is under other legal disability, the Plan Administrator may, in its sole discretion, direct the Trustee to: o Distribute directly to the person entitled to the payment; o Distribute to the legal guardian or, if none, to a parent of the person entitled to payment or to a responsible adult with whom the person entitled to payment maintains his residence; 9-3 o Distribute to a custodian for the person entitled to payment under the Uniform Gifts to Minors Act if permitted by the laws of the state in which the person entitled to payment resides; or o Withhold distribution of the amount payable until a court of competent jurisdiction determines the rights of the parties thereto or appoints a guardian of the estate of the person entitled to payment. If there is any dispute, controversy or disagreement between any Beneficiary or person and any other person as to who is entitled to receive the benefits payable under this Plan, or if the Plan Administrator is uncertain as to who is entitled to receive benefits, or if the Plan Administrator is unable to locate the person who is entitled to benefits, the Plan Administrator may with acquittance interplead the funds into a court of competent jurisdiction in the judicial district in which the Employer maintains its principal place of business and, upon depositing the funds with the clerk of the court, be released from any further responsibility for the payment of the benefits. If it is necessary for the Plan Administrator to retain legal counsel or incur any expense in determining who is entitled to receive the benefits, whether or not it is necessary to institute court action, the Plan Administrator will be entitled to reimbursement from the benefits for the amount of its reasonable costs, expenses and attorneys' fees incurred. 9-4 ~bARTICLE 10 AMENDMENT OR TERMINATION OF PLAN~p 10.01 ~uRight of Plan Sponsor to Amend or Terminate~w The Plan Sponsor reserves the right to alter, amend, revoke or terminate this Plan. No amendment will deprive any Participant or Beneficiary of any vested right nor will it reduce the present value (determined upon an actuarial equivalent basis) of any Accrued Benefit to which he is then entitled with respect to Employer contributions previously made, except as may be required to maintain the Plan as a qualified plan under the Code. No amendment will change the duties or responsibilities of the Trustee without its express written consent thereto. A plan amendment which has the effect of (a) eliminating or reducing an early retirement benefit or a retirement-type subsidy, or (b) eliminating an optional benefit form, will, with respect to benefits attributable to service before the amendment be treated as reducing Accrued Benefits. In the case of a retirement-type subsidy, the preceding sentence will apply only with respect to a Participant who satisfies (either before or after the amendment) the preamendment conditions for the subsidy. In general, a retirement-type subsidy is a subsidy that continues after retirement but does not include a disability retirement benefit, a medical benefit, a social security supplement, a pre-retirement death benefit, or a plant shutdown benefit (that does not continue after retirement). A minimum Accrued Benefit value will apply if this Plan is or becomes a successor to a profit sharing plan, a defined contribution pension plan, a target benefit plan, or a defined benefit pension plan which was fully insured, or any plan under which the accrued benefit of a Participant was determined as a lump sum or account balance. The actuarial equivalent value of a Participant's Accrued Benefit will not be less than the actuarial equivalent value of his Accrued Benefit on the Effective Date of the Plan. 10.02 ~uAllocation of Assets Upon Termination of Plan~w If this Plan is revoked or terminated (in whole or in part) or if contributions are completely discontinued the Accounts of all affected Participants will become non-forfeitable. The Employer will then arrange for allocation of all assets among Participants so affected by the total or partial termination in accordance with the requirements of all applicable law and the regulations and requirements of the Internal Revenue Service. All allocated amounts will be retained in the Plan to the credit of the individual Participants until distribution as directed by the Employer. Distribution to Participants may be in the form of cash or other Plan assets or partly in each. 10.03 ~uExclusive Benefit~w At no time will any part of the principal or income of the Plan assets be used or diverted for purposes other than the exclusive benefit of Participants in the Plan and their Beneficiaries, nor may any portion of the Plan assets revert to the Employer except as provided in Sections 7.01(e) and 8.08. 10.04 ~uFailure to Qualify~w Notwithstanding any of the foregoing provisions, if this Plan, upon adoption by the Employer, is submitted to the Internal Revenue Service which then determines that the Plan as initially adopted by the Employer is not a qualified plan under the Code, the Employer may elect to terminate this Plan by giving written notice thereof. Such termination will have the same effect as if the Plan were never adopted, all policies and contracts will be cancelled, and all contributions, to the extent recoverable from the Trustee, will be returned to their 10-1 source. If any amendment to this Plan is submitted to the Internal Revenue Service within the period allowed under Code Section 401(b) which then determines that the Plan as amended is not a qualified plan under the Code, the Employer may cancel or modify any or all provisions of the amendment retroactive to the effective date of the amendment in order to maintain the qualified status of the Plan, whereupon written notice thereof will be furnished to all affected Employees, Participants and Beneficiaries. 10.05 ~uMergers, Consolidations or Transfers of Plan Assets~w In the event this Plan is merged or consolidated with another plan which is qualified under Code Sections 401(a) (and 501(a) if applicable), or in the event of a transfer of the assets or liabilities of this Plan to another plan which is qualified under Code Sections 401(a) (and 501(a) if applicable), the benefit which each Participant would be entitled to receive under the successor plan or other plan if it were terminated immediately after the merger, consolidation or transfer will be equal to or greater than the benefit which the Participant would have received immediately before the merger, consolidation or transfer if this Plan had then terminated. Any transfer of assets and/or liabilities to (or from) this Plan from (or to) another plan qualified under Code Sections 401(a) (and 501(a) if applicable) will be evidenced by a Written Resolution by the Plan Sponsor of each affected plan which specifically authorizes such transfer of assets and/or liabilities. Any transfer of assets to this Plan will be allowed under the provisions of this Section if such transferred assets are not required to be paid in the form of a qualified joint & survivor annuity or a qualified survivor annuity in accordance with Code Section 401(a)(11). 10.06 ~uEffect of Plan Amendment on Vesting Schedule~w No amendment to the Vesting Schedule will deprive a Participant of his nonforfeitable right to his Vested Accrued Benefit as of the date of the amendment. Further, if the Vesting Schedule of the Plan is amended, or if the Plan is amended in any way that directly or indirectly affects the computation of a Participant's non-forfeitable percentage, each Participant with at least 3 Years of Vesting Service as of the last day of the election period described below may elect, within a reasonable period after the adoption of the amendment, to have his Vested Percentage computed under the Plan without regard to such amendment. The period during which such election may be made will commence with the date the amendment is adopted and will end 60 days after the latest of: (a) the date the amendment is adopted; (b) the date the amendment becomes effective; or (c) the date the Participant is issued written notice of the amendment by the Employer. 10-2 ~bARTICLE 11 TRUSTEE AND TRUST FUND~p 11.01 ~uAcceptance of Trust~w The Trustee, by signing this Agreement, accepts this Trust and agrees to perform the duties of the Trustee in accordance with the terms and conditions set forth herein. 11.02 ~uTrust Fund~w (a) ~uPurpose and Nature~w The Trustee will establish and maintain a Trust Fund for purposes of providing a means of accumulating the assets necessary to provide the benefits which become payable under the Plan. The Trustee will receive, hold and invest all contributions made by the Employer, any Participating Employers, and the Participants, including the investment earnings thereon. The Trust Fund arising from such contributions and earnings will consist of all assets held by the Trustee under the Plan and Trust. All benefits payable under the Plan will be paid by the Trustee from the Trust Fund. Any person having any claim under the Plan will look solely to the assets of the Trust Fund for satisfaction. In no event will the Plan Administrator, the Employer, any Employees, any officer of the Employer or any agents of the Employer or the Plan Administrator be liable in their individual capacities to any person whomsoever, under the provisions of this Plan and Trust, except as provided by law. The Trust Fund will be used and applied only in accordance with the provisions of the Plan and Trust, to provide the benefits thereof, and no part of the corpus or income of the Trust Fund will be used for, or diverted to, purposes other than for the exclusive benefit of the Participants or their Beneficiaries entitled to benefits under the Plan, except to the extent specifically provided elsewhere herein. (b) ~uInvestments~w The Trustee will invest the Trust Fund in accordance with the investment policy for the Trust Fund considering the fiduciary requirements of law, the objectives of the Plan, and the liquidity needs of the Plan. (c) ~uReserved~w (d) ~uOperation of Trust Fund~w The Trust Fund will be maintained in accordance with the accounting requirements of the Plan. No Participant will have any right to any specific asset or any specific portion of the Trust Fund prior to distribution of benefits. Withdrawals from the Trust Fund will be made to provide benefits to Participants and Beneficiaries in the amounts specified by the Plan, and to pay expenses authorized by the Plan Administrator. (e) ~uPlan Sponsor Direction of Investment~w The Plan Sponsor will have the right to direct the Trustee with respect to the investment and reinvestment of assets comprising the Trust Fund. The Trustee and the Plan Sponsor (or the Plan Administrator or an Investment Committee appointed by the Plan Sponsor) will execute a letter of agreement as a part of this Plan containing such conditions, limitations and other provisions they deem appropriate before the Trustee will follow any Plan Sponsor direction with respect to the investment or reinvestment of any part of the Trust Fund. Such letter of agreement may provide for Participant direction with respect 11-1 to the investment and reinvestment of a Participant's Accounts among the Specific Investment Funds designated by the Plan Administrator. 11.03 ~uReceipt of Contributions~w The Trustee will be accountable to the Employer for the funds contributed to it, but will have no duty to see that the contributions received comply with the provisions of the Plan. The Trustee will not be obligated to collect any contributions from the Employer or the Participants. 11.04 ~uPowers of the Trustee~w Subject to the provisions and limitations contained elsewhere in this Plan, the Trustee will have full discretion and authority with regard to the investment of the Trust Fund. The Trustee is authorized and empowered, but not by way of limitation, with the following powers, rights and duties: (a) To invest any part or all of the Trust Fund in any common or preferred stocks, open-end or closed-end mutual funds, United States retirement plan bonds, corporate bonds, debentures, convertible debentures, commercial paper, U.S. Treasury bills, book entry deposits with the United States Federal Reserve Bank or System, Master Notes or similar arrangements sponsored by the Trustee or any other financial institution as permitted by law, improved or unimproved real estate situated in the United States, mortgages, notes or other property of any kind, real or personal, as a prudent man would so invest under like circumstances with due regard for the purposes of this Plan; (b) To maintain any part of the assets of the Trust Fund in cash, or in demand or short-term time deposits bearing a reasonable rate of interest (including demand or short-term time deposits of or with the Trustee), or in a short-term investment fund or in other cash equivalents having ready marketability, including, but not limited to, U.S. Treasury Bills, commercial paper, certificates of deposit (including such certificates of deposit of or with the Trustee), and similar types of short-term securities, as may be deemed necessary by the Trustee in its sole discretion; (c) To manage, sell, contract to sell, grant options to purchase, convey, exchange, transfer, abandon, improve, repair, insure, lease for any term even though commencing in the future or extending beyond the term of the Trust, and otherwise deal with all property, real or personal, in such manner, for such considerations and on such terms and conditions as the Trustee will decide; (d) To credit and distribute the Trust as directed by the Plan Administrator or any agent of the Plan Administrator. The Trustee will not be obliged to inquire as to whether any payee or distributee is entitled to any payment or whether the distribution is proper or within the terms of the Plan, or as to the manner of making any payment or distribution. The Trustee will be accountable only to the Plan Administrator for any payment or distribution made by it in good faith on the order or direction of the Plan Administrator or any agent of the Plan Administrator; (e) To borrow money, assume indebtedness, extend mortgages and encumber by mortgage or pledge; (f) To compromise, contest, arbitrate, or abandon claims and demands, in its discretion; (g) To have with respect to the Trust all of the rights of an individual owner, including the power to give proxies, to participate in any voting trusts, mergers, consolidations or liquidations, and to exercise or sell stock subscriptions or conversion rights; 11-2 (h) To hold any securities or other property in the name of the Trustee or its nominee, or in another form as it may deem best, with or without disclosing the trust relationship; (i) To perform any and all other acts in its judgment necessary or appropriate for the proper and advantageous management, investment and distribution of the Trust; (j) To retain any funds or property subject to any dispute without liability for the payment of interest, and to decline to make payment or delivery of the funds or property until final adjudication is made by a court of competent jurisdiction; (k) To file all tax forms or returns required of the Trustee; (l) To begin, maintain or defend any litigation necessary in connection with the administration of the Plan, except that the Trustee will not be obligated to or required to do so unless indemnified to its satisfaction; and (m) To keep any or all of the Trust property at any place or places within the United States or abroad, or with a depository or custodian at such place or places; provided, however, that the Trustee may not maintain the indicia of ownership of any assets of the Plan outside the jurisdiction of the District Courts of the United States, except as may be expressly authorized in U.S. Treasury or U.S. Department of Labor regulations. 11.05 ~uInvestment in Common or Collective Trust Funds~w Notwithstanding the provisions of Section 11.04, the Plan Sponsor specifically authorizes the Trustee to invest all or any portion of the assets comprising the Trust Fund in any common or collective trust fund which at the time of the investment provides for the pooling of the assets of plans qualified under Code Section 401(a). The authorization applies only if such common or collective trust fund: (a) is exempt from taxation under Code Section 584 or 501(a); (b) if exempt under Code Section 501(a), expressly limits participation to pension and profit sharing trusts which are exempt under Code Section 501(a) by reason of qualifying under Code Section 401(a); (c) prohibits that part of its corpus or income which equitably belongs to any participating trust from being used for or diverted to any purposes other than for the exclusive benefit of the Employees or their Beneficiaries who are entitled to benefits under such participating trust; (d) prohibits assignment by participating trust of any part of its equity or interest in the group trust; and (e) the sponsor of the group trust created or organized the group trust in the United States and maintains the group trust at all times as a domestic trust in the United States. The provisions of the common or collective trust fund agreement, as amended by the Trustee from time to time, are by this reference incorporated within this Plan and Trust. The provisions of the common or collective trust fund will govern any investment of Plan assets in that fund. This provision constitutes the express permission required by Section 408(b)(8) of ERISA. 11.06 ~uInvestment in Insurance Company Contracts~w The Trustee may invest any portion of the Trust Fund in a deposit administration, guaranteed investment or similar type of investment contract (hereinafter referred to as Contract); provided, however, that no such Contract may provide for an optional form of benefit which would not be provided for under the provisions hereof. The Trustee will be the complete and absolute owner of Contracts held in the Trust Fund. The Trustee may convert from one form to another any Contract held in the Trust Fund; designate any mode of settlement; sell or assign any Contract held in the Trust Fund; surrender for cash any Contract held in the Trust Fund; agree with the insurance company issuing any Contract to any release, reduction, modification or amendment thereof; and, 11-3 without limitation of any of the foregoing, exercise any and all of the rights, options and privileges that belong to the absolute owner of any Contract held in the Trust Fund that are granted by the terms of any such Contract or by the terms of this Agreement. The Trustee will hold in the Trust Fund the proceeds of any sale, assignment or surrender of any Contract held in the Trust Fund and any and all dividends and other payments of any kind received in respect to any Contract held in the Trust Fund. No insurance company which may issue any Contract based upon the application of the Trustee will be responsible for the validity of this Plan, be required to look into the terms of this Plan, be required to question any act of the Plan Administrator or the Trustee hereunder or be required to verify that any action of the Trustee is authorized by this Plan. If a conflict should arise between the terms of the Plan and any such Contract, the terms of the Plan will govern. 11.07 ~uFees and Expenses from Fund~w The Trustee will be entitled to receive reasonable annual compensation as may be mutually agreed upon from time to time between the Plan Sponsor and the Trustee. The Trustee will pay all expenses reasonably incurred by it in its administration and investment of the Trust Fund from the Trust Fund unless the Plan Sponsor pays the expenses. No person who is receiving full pay from the Plan Sponsor will receive compensation for services as Trustee. 11.08 ~uRecords and Accounting~w The Trustee will keep full and complete records of the administration of the Trust Fund which the Employer and the Plan Administrator may examine at any reasonable time. As soon as practical after the end of each Plan Year and at such other reasonable times as the Employer may direct, the Trustee will prepare and deliver to the Employer and the Plan Administrator an accounting of the administration of the Trust, including a report on the fair market value of all assets of the Trust Fund. 11.09 ~uDistribution Directions~w If no one claims a payment or distribution made from the Trust, the Trustee will notify the Plan Administrator and will dispose of the payment in accordance with the subsequent direction of the Plan Administrator. 11.10 ~uThird Party~w No person dealing with the Trustee will be obliged to see to the proper application of any money paid or property delivered to the Trustee, or to inquire whether the Trustee has acted pursuant to any of the terms of the Plan. Each person dealing with the Trustee may act upon any notice, request or representation in writing by the Trustee, or by the Trustee's duly authorized agent, and will not be liable to any person whomsoever in so doing. The certification of the Trustee that it is acting in accordance with the Plan will be conclusive in favor of any person relying on the certification. 11.11 ~uProfessional Agents, Affiliates and Arbitration~w (a) ~uProfessional Agents~w The Trustee may employ and pay from the Trust Fund reasonable compensation to agents, attorneys, accountants and other persons to advise the Trustee as in its opinion may be necessary. The Trustee may delegate to any agent, attorney, accountant or other person selected by it any non-Trustee power or duty vested in it by the Plan; the Trustee may act or refrain from acting on the advice or opinion of any agent, attorney, accountant or other person so selected. 11-4 (b) ~uUse of Affiliates~w (1) Charles Schwab Trust Company (CSTC) is authorized to contract or make other arrangements with The Charles Schwab Corporation, Charles Schwab & Co., Inc., their affiliates and subsidiaries, successors and assigns (collectively referred to as Schwab), and any other organizations affiliated with or subsidiaries of CSTC or related entities, for the provision of services to the Trust Fund or Plan, except where such arrangements are prohibited by law or regulation. As used below, authorized person means any person whose authorization is required pursuant to the provision of any prohibited transaction exemption otherwise applicable. (2) CSTC is authorized to place securities orders, settle securities trades, hold securities in custody and other related activities on behalf of the Trust Fund through or by Schwab whenever possible unless the authorized person specifically instructs the use of another Broker. Trades and related activities conducted through the Broker will be subject to fees and commissions established by the Broker, which may be paid from the Trust Fund or netted from the proceeds of trades. (3) Trades will not be executed through Schwab unless the Plan Administrator and the authorized person have received disclosure concerning the relationship of Schwab to CSTC, and the fees and commissions which may be paid to Schwab, CSTC and any affiliate or subsidiary of any of them as a result of using Schwab to execute trades or for other services. (4) CSTC is authorized to disclose such information as is necessary to the operation and administration of the Trust Fund to Schwab and to such other persons or organizations that CSTC determines have a legitimate business purpose for obtaining such information. (5) At the direction of the authorized person, CSTC may purchase shares of regulated investment companies (or other investment vehicles) advised by Schwab or CSTC ("Schwab Funds"), except to the extent that such investment is prohibited by law or regulation. Schwab Fund shares may not be purchased for or held by the Trust Fund unless the Plan Administrator has received disclosure concerning the relationship of Schwab or CSTC to the Schwab Funds, and any fees which may be paid to such entities. (6) To the extent permitted under applicable laws, CSTC may invest in deposits, long and short term debt instruments, stocks and other securities, including those of CSTC or Schwab. (7) CSTC and Schwab are authorized to tape record conversations between CSTC or Schwab and persons acting on behalf of the Plan or a Participant in order to verify data on transactions. (c) ~uArbitration~w Except as preempted by ERISA, any dispute under this agreement will be resolved by submission of the issue to a member of the American Arbitration Association who is chosen by the Employer and the Trustee. If the Employer and the Trustee cannot agree on such a choice, each will nominate a member of the American Arbitration Association, and the two nominees will then select an arbitrator. Expenses of the arbitration will be paid as decided by the arbitrator. 11-5 11.12 ~uValuation of Trust~w The Trustee will value the Trust Fund as of the last day of each Plan Year to determine the fair market value of the Trust, and the Trustee will value the Trust Fund on such other date(s) as may be necessary to carry out the provisions of the Plan. 11.13 ~uLiability of Trustee~w The Trustee will be liable only for the safeguarding and administration of the assets of this Trust Fund in accordance with the provisions hereof and any amendments hereto and no other duties or responsibilities will be implied. The Trustee will not be required to pay any interest on funds paid to or deposited with it or to its credit under the provisions of this Trust, unless pursuant to a written agreement between the Employer and the Trustee. The Trustee will not be responsible for the adequacy of the Trust Fund to meet and discharge any liabilities under the Plan and will not be required to make any payment of any nature except from funds actually received as Trustee. The Trustee may consult with legal counsel of its choice, including counsel for the Employer, upon any question or matter arising hereunder and the opinion of such counsel when relied upon by the Trustee shall be evidence the Trustee was acting in good faith. It will not be the duty of the Trustee to determine the identity or mailing address of any Participant or any other person entitled to benefits hereunder, such identity and mailing addresses to be furnished by the Employer, the Plan Administrator or an agent of the Plan Administrator. The Trustee will be under no liability in making payments in accordance with the terms of this Plan and the certification of the Plan Administrator or an agent of the Plan Administrator who has been granted such powers by the Plan Administrator. Except to the extent required by any applicable law, no bond or other security for the faithful performance of duty hereunder will be required of the Trustee. 11.14 ~uRemoval or Resignation and Successor Trustee~w A Trustee may resign at any time upon giving 30 days prior written notice to the Plan Sponsor or, with the consent of the Plan Sponsor, a Trustee may resign with less than 30 days prior written notice. The Plan Sponsor may remove a Trustee by giving at least 30 days prior written notice to the Trustee. Upon the removal or resignation of a Trustee, the Plan Sponsor will appoint and designate a successor Trustee which will be one or more individual successor Trustees or a corporate Trustee organized under the laws of the United Sates or of any state thereof with authority to accept and execute trusts. Any successor Trustee must accept and acknowledge in writing its appointment as a successor Trustee before it can act in such capacity. Title to all property and records or true copies of such records necessary to the current operation of the Trust Fund held by the Trustee hereunder will vest in any successor Trustee acting pursuant to the provisions hereof, without the execution or filing of any further instrument. Any resigning or removed Trustee will execute all instruments and do all acts necessary to vest such title in any successor Trustee of record. Each successor Trustee will have, exercise and enjoy all the powers, both discretionary and ministerial, herein conferred upon his predecessor. No successor Trustee will be obligated to examine the accounts, records and acts of any previous Trustee or Trustees, and each successor Trustee in no way or manner will be responsible for any action or omission to act on the part of any previous Trustee. Any corporation which results from any merger, consolidation or purchase to which the Trustee may be a party, or which succeeds to the trust business of the Trustee, or to which 11-6 substantially all the trust assets of the Trustee may be transferred, will be the successor to the Trustee hereunder without any further act or formality with like effect as if the successor Trustee had originally been named Trustee herein; and in any such event it will not be necessary for the Trustee or any successor Trustee to give notice thereof to any person, and any requirement, statutory or otherwise, that notice will be given is hereby waived. 11.15 ~uAppointment of Investment Manager~w One or more Investment Managers may be appointed by the Plan Sponsor (or the Plan Administrator) to exercise full investment management authority with respect to all or a portion of the Trust assets. Authorized payment of the fees and expenses of the Investment Manager(s) may be made from the Trust assets. For purposes of this agreement, any Investment Manager so appointed will, during the period of his appointment, possess fully and absolutely those powers, rights and duties of the Trustee (to the extent delegated by the Plan Sponsor or the Plan Administrator) with respect to the investment or reinvestment of that portion of the Trust assets over which the Investment Manager has investment management authority. The Investment Manager must be one of the following: (a) Registered as an investment advisor under the Investment Advisors Act of 1940; (b) A bank, as defined in the Investment Advisors Act of 1940; or (c) An insurance company qualified to manage, acquire, or dispose of such Plan assets under the laws of more than one state. Any Investment Manager will acknowledge in writing to the Plan Sponsor or the Plan Administrator and to the Trustee that he or it is a fiduciary with respect to the Plan. During any period of time when the Investment Manager is so appointed and serving, and with respect to those assets in the Plan over which the Investment Manager exercises investment management authority, the Trustee's responsibility will be limited to holding such assets as a custodian, providing accounting services, disbursing benefits as authorized, and executing such investment instructions only as directed by the Investment Manager. The Trustee will not be responsible for any acts or omissions of the Investment Manager. Any certificates or other instruments duly signed by the Investment Manager (or the authorized representative of the Investment Manager), purporting to evidence any instruction, direction or order of the Investment Manager with respect to the investment of those assets of the Plan over which the Investment Manager has investment management authority, will be accepted by the Trustee as conclusive proof thereof. The Trustee will also be fully protected in acting in good faith upon any notice, instruction, direction, order, certificate, opinion, letter, telegram or other document believed by the Trustee to be genuine and from the Investment Manager (or the authorized representative of the Investment Manager). The Trustee will not be liable for any action taken or omitted by the Investment Manager or for any mistakes of judgment or other action made, taken or omitted by the Trustee in good faith upon direction of the Investment Manager. 11.16 ~uLoans to Participants~w The Plan Administrator may authorize the Trustee to lend on a nondiscriminatory basis to a Participant an amount from the Plan as specified herein; provided, a reasonable rate of interest will be charged on the loan, the loan will be secured by 50% of the Participant's Vested Accrued Benefit in the Plan, and provision for repayment will be made. All loans will be subject to the approval of the Plan Administrator which will investigate each application for a loan. The Plan Administrator will prescribe such rules as may be necessary to provide guidelines as to under which circumstances and for what purpose loans will be permitted. The Plan Administrator will prescribe guidelines as to which Account or Accounts loans may be 11-7 made from. Each loan made to a Participant will be made from the Participant's allowable Account or Accounts. All interest and principal repayments will be credited to the Participant's Account from which the loan was made. In addition to any additional rules and regulations as the Plan Administrator may adopt all loans will comply with the following terms and conditions: (a) Only Active and Inactive Participants will be eligible to apply for a loan. Each application for a loan will be made in writing to the Plan Administrator, whose action thereon will be final. (b) Each loan will be made against collateral being the assignment of 50% of the borrower's entire right, title and interest in and to the Trust Fund, supported by the borrower's promissory note for the amount of the loan, including interest payable to the order to the Trustee, and any additional security deemed necessary to adequately secure the Loan. If a person fails to make a required payment within 90 days of the due date set forth in the loan agreement, the loan will be in default. There will be no foreclosure against a Participant's Accrued Benefit prior to his becoming entitled to a distribution of benefits in accordance with the terms of this Plan. All loans will become due and payable in full upon the termination of a Participant's employment. If a Participant with an outstanding loan terminates employment and becomes entitled to a distribution of benefits from the Plan, then the outstanding balance of the unpaid loan plus any accrued interest thereon will be deducted from the amount of otherwise distributable benefits and the Participant's promissory note will be distributed to the Participant. (c) The principal repayment will be amortized over the fixed life of a loan with installments of principal and interest to be paid not less often than quarterly. The period of repayment for each loan will be arrived at by mutual agreement between the Plan Administrator and the borrower, but in no event will such period exceed a reasonable period of time. The period of repayment will in no event exceed 5 years unless the loan is to be used to acquire, construct, reconstruct or substantially rehabilitate any dwelling unit which, within a reasonable period of time, is to be used as a principal residence of the Participant or a member of the family (spouse, brother, sister, ancestor, or lineal descendants) of the Participant. (d) The minimum amount of any loan is equal to $1,000. (e) The maximum amount of any loan is such that when the amount of the loan is added to the outstanding balance of all other loans made to the Participant from the Plan (and any other plans maintained by the Employer or any Related Employer) the total does not exceed the lesser of: (1) 50% of the Participant's Vested Accrued Benefit; or (2) $50,000, reduced by the amount, if any, of the highest balance of all outstanding loans to the Participant during the one-year period ending on the day prior to the day on which the loan in question is made. (f) Each loan will bear interest at a rate equal to the prime rate which is published in the Wall Street Journal as being representative of the base rate on corporate loans at large U.S. money center commercial banks on the first day of the month in which the loan is made, plus 1 percentage point. (g) A Participant may have no more than two loans outstanding at any time. 11-8 (h) Each loan will require the Participant (and, if the Participant is married, the Participant's spouse) to consent to the loan and the possible reduction in the Participant's Accrued Benefit. Such consent must be made in writing within the 90-day period before the making of the loan. (i) No loan will be permitted to a Participant in a year in which he is either an Owner-Employee or Shareholder-Employee as defined in Code Section 4975(d). 11-9 IN WITNESS WHEREOF, this instrument has been executed by the duly authorized and empowered officers of the Employer, this ~u________~w day of ~u_____________________~w, 19~u_____~w. Optek Technology, Inc. By:~u_____________________________________~w The Trustee agrees to continue to serve as Trustee under the terms of this instrument. Charles Schwab Trust Company By:~u_____________________________________~w EX-10 9 Computation of Per Share Earnings Exhibit 11.1
For the Fiscal Years Ended October 25, October 27, October 28, 1996 1995 1994 Adjusted shares outstanding Weighted average common shares outstanding 3,767,083 3,318,649 3,223,741 Warrants 3,383,800 3,404,801 3,408,801 Stock options 795,759 967,461 1,120,222 --------- --------- --------- Total common shares and common share equivalents 7,946,642 7,690,911 7,752,764 20% common stock limitation (319,728) (663,730) (644,748) --------- --------- --------- Adjusted weighted average shares outstanding 7,626,914 7,027,181 7,108,016 Adjusted net earnings Net earnings $12,895,000 $ 9,838,000 $ 3,179,000 Adjustment for 20% common stock limitation - 27,000 184,000 --------- --------- --------- Adjusted earnings for computation of earn- ings per share $12,895,000 $ 9,865,000 $ 3,363,000 Earnings per share Adjusted earnings for comp- utation of earnings per share $12,895,000 $ 9,865,000 $ 3,363,000 Adjusted weighted average shares outstanding 7,626,914 7,027,181 7,108,016 Earnings per common share $1.69 $1.40 $0.47 Note: 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 this method, all warrants and options are assumed to be exercised and up to 20% of common shares outstanding are assumed to be repurchased. The 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.
EX-10 10 Exhibit 22 Subsidiaries of the Registrant Optek International, Inc. (Texas) OTX corporation (Texas) Semiconductores Opticos, S.a. de C.V. (Mexico) Optron de mexico, S.A. de C.V. (Mexico) EX-10 11 Exhibit 23 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 6, 1996, relating to the consolidated balance sheets of Optek Technology, Inc. and subsidiaries as of October 25, 1996 and October 27, 1995, and the related consolidated statements of income, stockholders' equity (deficit), and cash flows for each of the years in the three-year period ended October 25, 1996, and the related schedule, which reports appear in the October 25, 1996 annual report on Form 10-K of Optek Technology, Inc. KPMG Peat Marwick LLP Dallas, Texas January 22, 1997 EX-27 12
5 1,000 12-MOS OCT-25-1996 OCT-25-1996 594 0 8383 1095 6007 15113 26663 15513 26359 8455 0 0 0 39 0 26359 67395 67395 39010 52209 (145) 0 1295 14039 1144 12895 0 0 0 12895 1.69 1.69
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