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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 0-24599
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OPTICAL SYSTEMS, INC.
(Name of small business issuer in its charter)
Florida 65-0755071
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Raritan Plaza II, Raritan Center, Fieldcrest Avenue, Edison, New Jersey, 08818
(Address and telephone number of principal executive offices)
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Securities registered pursuant to Section 12(b) of the Exchange Act: None.
Securities registered to Section 12(g) of the Exchange Act: Common Stock,
$0.0001 par value.
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve months (or for such
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 [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB.
The Registrant's revenues for the fiscal year ended September 30, 1998 totaled
$2,410,966.
As of March 30, 1999 the aggregate market value of the voting stock held by
non-affiliates of the Registrant (assuming for this purpose that only directors
and officers of the Registrant are affiliates of the Registrant), based on the
average of the closing bid and asked prices on that date, was approximately
$924,075.
As of March 30, 1999 there were 6,510,320 shares of Common Stock outstanding.
As of March 30, 1999 there were 0 shares of Preferred Stock outstanding.
Documents incorporated by reference: None
Transitional Small Business Disclosure format: Yes [ ] No [X]
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INDEX TO FORM 10-KSB
OF
OPTICAL SYSTEMS, INC.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS...........................................................3
ITEM 2. DESCRIPTION OF PROPERTY..........................................................15
ITEM 3. LEGAL PROCEEDINGS................................................................15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..............................15
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDERS MATTERS.............................................................16
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION.............................................................17
ITEM 7. FINANCIAL STATEMENTS.............................................................21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE...........................................22
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A)
OF THE EXCHANGE ACT..............................................................22
ITEM 10. EXECUTIVE COMPENSATION...........................................................23
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT............................................................23
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................................24
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K............................................24
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PART I
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS FORM 10-KSB RELATING TO PRODUCT
DEVELOPMENT, REVENUE AND THE ADEQUACY OF WORKING CAPITAL ARE BASED ON CURRENT
EXPECTATIONS THAT INVOLVE UNCERTAINTIES AND RISKS ASSOCIATED WITH NEW
DEVELOPMENTS INCLUDING, BUT NOT LIMITED TO, MARKET CONDITIONS, SUCCESSFUL
PRODUCT INTEGRATION AND ACCEPTANCE. THE INTRODUCTION OF COMPETITIVE PRODUCTS,
ECONOMIC CONDITIONS, AND THE TIMING OF ORDERS FOR PRODUCTS AND SERVICES. THE
COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM CURRENT EXPECTATIONS.
READERS ARE CAUTIONED NOT TO PUT UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS.
THE COMPANY DISCLAIMS ANY INTENT OR OBLIGATION TO UPDATE PUBLICLY THESE
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
ITEM 1. DESCRIPTION OF BUSINESS
OVERVIEW
Optical Systems, Inc. ("OSI" or the "Company") is an integrator of high
performance client/server, imaging software as well as software for
managing business-to-business commerce transactions. The Company also
markets services to complete and document Y2K compliance. The Company
owns and markets SafeCD(TM) a product that migrates data from magnetic
tapes and cartridges to optical media preserving the original data
formats.
HISTORY
OSI was formed in 1992 and the founders are the senior management
today. OSI was incorporated in the State of New Jersey and was the
successor in a reverse merger transaction effective June 30, 1997 and
is now a Florida corporation. Optical Systems, Inc., a Florida
Corporation, was incorporated on May 29, 1997 and was not the successor
to a predecessor corporation.
Concurrent with the merger the Company completed a private sale of
stock and warrants. The Company completed another private sale of
common stock and warrants in July 1997. These efforts as well as other
steps recapitalized the Company with almost $1,000,000 of new capital.
OSI became a reporting company on July 7, 1998 and trades on the OTC
Bulletin Board system using the symbol OPSY.
THE INDUSTRY
The market for the Company's products is intensely competitive and can
be significantly affected by new product introductions and other market
activities of industry participants. The Company's competitors offer a
variety of products and services to address the emerging market for
imaging software solutions. Numerous software vendors also compete in
each product area. Potential competitors include providers of document
management system software, providers of document archiving products
and relational database management systems vendors. The Company also
faces competition from OEMs (original equipment manufacturers),
distributors and systems integrators.
Document Management
OSI operates within the document management industry which the Company
believes to be in excess of $8 billion worldwide. Industry suppliers
provide products and services used in the conversion, storage, and
retrieval of computer data and images. Users of these solutions must
balance the ease of accessibility of information with the cost of
storing and accessing that information.
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Document image processing systems allow documents to be electronically
stored, retrieved and routed, and generally include the following five
basic functions: (i) document capture, (ii) optical storage, (iii)
retrieval and display, (iv) document management and (v) automated
transaction processing (workflow). Document capture is the conversion
of paper documents into digitized images and generally includes batch
preparation, scanning, image enhancement, quality assurance and
indexing of images to long-term storage, including optical disks,
CD-ROM and magnetic media. Optical storage is the storage of images on
optical drives and jukeboxes and includes platter management, volume
management and hierarchical storage management. Retrieval and display
is the retrieval of document images via either standard searches (using
the indices stored during capture) or full-text indexing for display,
annotation and routing. Document management is the centralized
management and administration of large volumes of documents and
typically provides a file cabinet and file folder metaphor for
retrieving documents. Workflow is the automation of routine work
processes, usually performed by the automatic routing of images as a
replacement for the manual routing of paper.
For paper-intensive industries such as healthcare, financial services,
insurance and retail, electronic document image processing offers
several advantages over paper or microfilm, including: (i) faster and
easier access, because document images are located and retrieved by
entering a few key words into a computer database rather than by
searching through file cabinets for paper folders or microfilm; (ii)
fewer misfiled documents, because database software is used to track
the location of document images; (iii) concurrent file access, since
multiple users have the ability to access a document simultaneously:
(iv) remote distribution and access, because document images are easily
transmitted to standard facsimile equipment or remote computer
terminals over commercial telephone lines; and (v) less expensive
storage, because electronic storage generally requires less floor space
and clerical overhead than paper-based storage, thereby reducing
overall document storage costs. Once documents have been converted to
an electronic format, they can be automatically routed from one
workgroup or task to another. By implementing the automated workflow
approach companies can improve operating efficiencies, compared to
traditional paper-based document processing tasks.
Over the past few years, there has been an increasing convergence of
document management, imaging, C.O.L.D. (Computer Output to Laser Disk)
and workflow technologies, according to industry market research firms
such as International Data Corporation. As a result of this technology
convergence, new market categories such as knowledge management and
management of business-to-business transactions have emerged.
Optical Storage
The Information Delivery Life Cycle, commonly describes the
relationship between the age of information, the frequency and speed of
access, and the type of media upon which the information is stored. In
general, as information ages, customer requirements for frequency of
retrieval and speed of delivery decline. To achieve the greatest degree
of cost-effectiveness and efficiency, organizations migrate their
information across several different delivery systems over the life of
the information.
Generally, newly created information is the most frequently accessed,
requiring a high-speed storage media such as magnetic disk (i.e., DASD,
Direct Access Storage Disk). As the information begins to age, it often
is first migrated to optical disk or CD, which offers high storage
capacity and quick access to information at a lower cost than DASD. As
the need to access information becomes more infrequent, the information
often is next migrated to magnetic tape that provides somewhat slower,
yet readily accessible, information deliver. SafeCD(TM) is a product
that migrates data from magnetic media to optical media.
Y2K
The year 2000 problem (Y2K) is the inability of certain computer
systems to properly interpret dates for the year 2000 and beyond.
To make applications "year 2000 compliant," organizations will be
required to devote considerable resources, including investment in
software tools and processes, personnel, time and other resources, to
undertake large-scale mass change initiatives.
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A typical year 2000 renovation project includes: an Assessment Phase,
where an enterprise performs an inventory of its code, analyzes the
impact and exposure of the year 2000 problem on its business and plans
the renovation of the affected code; a Correction Phase, which entails
the implementation of source code renovation, including the
identification of all date-sensitive variables, correction of the code,
and generation of bridges and data converters so the corrected code
will still function with non-compliant code, and verification of the
corrected code; and a Testing Phase, which ensures the integrity of a
year 2000 renovation by performing unit and systems tests prior to
re-deploying the code into production. During the process or when it is
completed, OSI believes there is a demand to document the entire effort
as an audit trail for management, accountants, attorneys, et al. This
service is marketed by OSI as Y2K Discovery.
PRINCIPAL PRODUCTS AND SERVICES
Document Management
The Company's document management services use software products to
simplify the management and maintenance of electronic documents and
other unstructured information, ensuring the right information is
always available. Needed information is readily accessible, providing
total manageability and security.
Y2K Services
Many computer software systems containing date sensitive data were
structured to utilize a two-digit date field such that they may not be
able to recognize dates properly in the year 2000.
OSI, acting as a licensee, uses a product that assists companies to
analyze computer code, identify date sensitive data and correct the
field to be year 2000 compliant. OSI, acting as a licensee, uses a tool
that will analyze computer code that has been altered to be year 2000
compliant to test that the code has been effectively corrected.
Service Bureau Operation
The Service Bureau Operation is OSI's commitment to build a repetitive
source of revenues versus project oriented assignments primarily
imaging and C.O.L.D. (Computer Output to Laser Disk). The Service
Bureau also presents the opportunity to develop the client base more
rapidly. Management has found that for IT solutions the selling/closing
cycle is generally 18 months or longer.
IT solutions oftentimes requires clients to obtain capital funds and
budget approvals that may be approved only annually. Service bureau
projects, on the other hand, do not require capital expenditures and
can be terminated on 60 days notice or sooner. Most of the managers
that OSI presents to have the authority to approve service bureau
agreements thereby reducing the selling/closing cycle to several weeks
rather than 18 months or more. While service bureau assignments
generate lower per-project revenues, the work tends to last a period of
months. OSI has been invoicing six accounts monthly since 1995.
SafeCD(TM)
For many years major banking, insurance and commercial companies have
used magnetic tapes to store their data. Invoices, accounting records,
policy numbers and addresses are all embedded on these tapes. Estimates
of tapes now being kept in the USA range as high as 50 million. Tapes
are large (about the size of a dinner plate) and one and a half inches
thick. To access data on them someone must retrieve them from library
storage shelves and mount them on a tape reader (a machine about the
size of a small refrigerator). Magnetic tapes degrade and have a
limited life, need to be kept at the right temperature and humidity and
cost an average of $4.50 per year just to store them. Optical discs can
store several full magnetic tapes on one disc, but tapes are rarely
full of data and often 25 tapes will fit on one disc. Discs are robust,
do not require special storage conditions, can be copied for $10, and
have an indefinite lifetime. Devices like a CD-ROM Juke Box can be
connected online with a computer network and provide online access to
hundreds of optical discs. OSI offers its specially developed product
SafeCD(TM). SafeCD(TM) stores magnetic tape images on optical discs so
that it still "looks like" tape to the processing software. This means
companies can conveniently convert to
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optical disc storage and get all the benefits of an e-Business
connection without any modifications to their computer programs.
SALES AND MARKETING
The Company conducts its sales and marketing efforts through several
channels, including its own sales force, marketing alliances, and
marketing communications. The Company's sales force receives direct
support from the Company's technical staff. Consulting service leads
are provided to the Company by its licensors. The Company believes this
diversity of sales and marketing channels permits it to distribute its
products and sell its services in an efficient and effective manner,
while reducing reliance on any one sales channel.
Company Sales Force. The Company has a marketing and sales force of
four people, including field sales, telemarketing, and sales
management. The telemarketing staff qualifies prospective customers,
schedules product demonstrations, and refers prospective customers to
the Company's sales force. The Company's sales force also sells
upgrades and add-on products, and refers leads to licensors.
Marketing Alliances. The Company is a VAR (value added reseller) of
products from other software companies, including Optical Technologies,
Gentext, CCD Online, McCabe and others. The Company incorporates these
products into its document management and Y2K services. The Company
earns a reseller commission ranging from 10% to 40% on sales of these
licensors and receives fees for all customized and integration
services.
The Company entered into a joint venture agreement with NewSoft GmbH as
of April 8, 1998. Under the joint venture agreement, the Company and
NewSoft formed an alliance by which each would facilitate the sales of
the others products and services.
Marketing Communications. The Company generates awareness of, and
interest in, its products and consulting services through public
relations, telemarketing, periodic direct mail campaigns, seminars,
trade shows and other marketing efforts. In 1998, the Company exhibited
at Y2K trade shows.
The Company is generally required to provide a significant level of
education to prospective purchasers of its SafeCD(TM) and systems
solutions services regarding the use and benefits of the Company's
product and services, resulting in a lengthy sales cycle (typically
between six and nine months). Additionally, the implementation by
customers of the Company's products may involve a significant
commitment of resources by such customers over an extended period of
time. For these and other reasons, the sales and customer
implementation cycles are subject to a number of significant delays
over which the Company has little or no control. Delay in the sale or
customer implementation of the Company's product and services could
have a material adverse effect on the Company's business and operations
and cause the company's operating results to vary significantly from
quarter to quarter. The Company believes that its quarterly operating
results are likely to vary in the future.
The sales cycle for initial sales of SafeCD(TM) has ranged from three
to nine months. The Company believes that the sales cycle for repeat
sales may be shorter. SafeCD(TM) is licensed at an introductory price
of $19,995 per server. The Company plans to increase the price of
SafeCD(TM) in the first half of 1999. The Company also provides support
packages and extension products at an additional price. The Company
offers annual maintenance for SafeCD(TM) at a cost of 20% of the
purchase price.
Lengthy and Complex Sales and Implementation Cycles; Dependence on
Capital Spending. The license of the Company's software products is
typically an executive-level decision by prospective end-users, and
generally requires the Company to engage in a lengthy and complex sales
cycle (typical between six and twelve months from the initial contact
date). In addition, the implementation by customers or imaging products
and services offered by the Company may involve a significant
commitment of resources by such customers over an extended period of
time. For these and other reasons, the sales and customer
implementation cycles are subject to a number of significant delays
over which the Company has little or no control. The Company's future
performance also depends upon the capital expenditure budgets of its
customers and the demand by such
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customers for the Company's products. The Company's operations may in
the future be subject to substantial period-to-period fluctuations as a
consequence of industry patterns, domestic and foreign economic and
other conditions, and other factors affecting capital spending. There
can be no assurance that such factors will not have a material adverse
effect on the Company's business, results of operations, and financial
condition.
Many of the Company's current and potential competitors are
substantially larger than the Company, have significantly greater
financial, technical and marketing resources and have established more
extensive channels of distribution. As a result, such competitors may
be able to respond more rapidly to new or emerging technologies and
changes in customer requirements, or to devote greater resources to the
development, promotion and sale of their products than the Company.
Because the Company's products are designed to operate in
non-proprietary computing environments and because of low barriers to
entry in the imaging software market, the Company expects additional
competition from established and emerging companies, as the market for
integrated imaging produces continues to evolve. The Company expects
its competitors to continue to improve the performance of their current
products and to introduce new products or new technologies that provide
added functionality and other features. Successful new product
introductions or enhancements by the Company's competitors could cause
a significant decline in sales or loss of market acceptance of the
Company's products and services, result in continued intense price
competition, or make the Company's products and services or
technologies obsolete or noncompetitive.
To be competitive, the Company will be required to continue to invest
significant resources in sales and marketing. There can be no assurance
that the Company will have sufficient resources to make such
investments.
In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third
parties, to increase the ability of their products to address the needs
of the Company's prospective customers. In addition, several
competitors have recently made, or attempted to make, acquisitions to
enter the market or increase their market presence. Accordingly, it is
possible that new competitors or alliance among competitors may emerge
and rapidly acquire significant market share. Increased competition is
likely to result in price reductions, reduced gross margins and loss of
market share, any of which would have a material adverse effect on the
Company's business, results of operations and financial condition.
There can be no assurance that the Company will be able to compete
successfully against current or future competitors, or that competitive
pressures will not have a material adverse effect on the Company's
business, results of operations, and financial condition.
CUSTOMERS
OSI generally performs its work for its customers on a
project-by-project basis or under short-term letter agreements referred
to as "Statement of Work" (SOW). The SOW may be accepted by the
customer as submitted by OSI or amended by the customer. Generally, the
customer then issues a purchase order or other acknowledgement to
indicate that it agrees that OSI should perform services or sell
product.
During 1998, three customers accounted for 83% of the Company's
revenues but were not factors in 1997, and were not likely to be
factors in 1999. Revenues for the European market were 6% in 1998 and
0% in 1997.
During 1998 the Company's sales were concentrated among three primary
customers. The Company expects that, due to the relatively large size
of the contracts as compared to the size of the Company's operations, a
limited number of customers will provide the majority of the Company's
sales. Therefore, the Company's sales will continue to be concentrated
among a few customers and demand swings from any one or all of these
customers, e.g., a decrease in sales to a customer, could have a
material adverse effect on the Company's operating results.
The Company has repeat business from a number of its customers, and
management believes that there is a high degree of customer
satisfaction with its products, services and solutions. The Company's
existing services, training, and products provide a base of business
that the Company expects will complement SafeCD(TM) product sales.
Developing custom solutions for customers keeps the Company's technical
professionals abreast of client needs, which facilitates the conception
and development of new products and the improvement of SafeCD(TM).
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COMPETITION
The market for the Company's products is intensely competitive and can
be significantly affected by new product introductions and other market
activities of industry participants. The Company believes that the
principal competitive factors affecting its market include product
features such as adaptability, scalability, ability to integrate with
third-party products, functionality, ease of use, product reputation,
quality, performance, price, customer service and support,
effectiveness of sales and marketing efforts, and company reputation.
Although the Company believes that it currently competes favorably with
respect to such factors, there can be no assurance the Company can
maintain its competitive position against current and potential
competitors. The Company competes with industry-specific application
vendors. Potential competitors include, without limitation, providers
of document management software products, providers of document
archiving products, and RDBMS ("Relational Database Management System")
vendors. Many of the Company's current and potential competitors have
longer operating histories, significantly greater resources and name
recognition, and a larger installed base of customers than the Company.
As a result, these competitors may be able to respond more quickly to
new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development, promotion and sale of
their products, than can the Company. (See "Business Risks--Intense
Competition")
The Company's competitors offer a variety of products and services to
address the emerging market for imaging software solutions. Numerous
software vendors also compete in each product area. Potential
competitors include providers of document management system software,
providers of document archiving products and relational database
management systems vendors. The Company also faces competition from
OEMs, distributors and systems integrators.
PROPRIETARY RIGHTS
The Company relies on a combination of trade secret, copyright and
trademark laws, software licenses and nondisclosure agreements, to
establish and protect its proprietary rights in its products. The
Company enters into confidentiality and/or license agreements with all
of its employees and distributors, as well as with its customers and
potential customers seeking proprietary information, and limits access
to and distribution of, its software, documentation and other
proprietary information. Despite these precautions, it may be possible
for unauthorized third parties to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. The Company has certain registered and other trademarks.
The Company believes that its products, trademarks and other
proprietary rights do not infringe the proprietary rights of third
parties. There can be no assurance, however, that third parties will
not assert infringement claims in the future.
Dependence on Proprietary Technologies. The Company's performance
depends in part on its ability to protect its proprietary rights to the
technologies used in its principal products. The Company relies on a
combination of copyright and trademark laws, trade secrets,
confidentiality provisions and other contractual provisions to protect
its proprietary rights, which are measures that afford only limited
protection. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the
Company's products, or to obtain and use information that the Company
regards as proprietary. In addition, the laws of some foreign countries
do not protect the Company's proprietary rights as fully as do the laws
of the United States. There can be no assurance that the Company's
means of protecting its proprietary rights in the United States or
abroad will be adequate, or that competitors will not independently
develop similar technologies.
The Company also licenses software from third parties. These licenses
expire from time to time. There can be no assurances that these
third-party software licenses will continue to be available to the
Company on commercially reasonable terms. While the Company believes
that all of such third-party software is available from alternate
vendors and the Company maintains standard software escrow agreements
with each of such parties agreements which provide the Company with
access to the source code in the event of their bankruptcy
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or insolvency, the loss of or inability to maintain any such software
licenses could result in shipment delays or reductions until equivalent
software could be developed, identified, licensed and integrated, which
in turn could materially and adversely affect the Company's business,
results of operations, and financial condition. In addition, the
Company generally does not have access to source code for the software
supplied by these third parties, absent bankruptcy or insolvency.
Certain of these third parties are small companies that do not have
extensive financial and technical resources. If any of these
relationships were terminated or if any of these third parties were to
cease doing business, the Company may be forced to expend significant
time and development resources to replace the licensed software. Such
an event would have a material adverse effect upon the Company's
business, results of operations, and financial condition. The Company
has entered into source code escrow agreements with a limited number of
its customers requiring release of source code in certain
circumstances.
EMPLOYEES
At September 30, 1998 the Company had 21 employees. All of its
employees are full-time employees, working in its headquarters
facilities. Of these employees, 4 were involved in sales and marketing,
14 in technical support and training, and 3 in administration and
finance. Employees are not covered by any collective bargaining
agreements. The Company believes that its relationship with its
employees is good.
Dependence on Key Personnel. The Company's future performance depends
to a significant degree upon the continuing contributions of its key
management, sales, marketing, customer support, and product development
personnel. The Company has at times experienced, and continues to
experience, difficulty in recruiting qualified personnel, particularly
in software development and customer support. The Company believes that
there may be only a limited number of persons with the requisite skills
to serve in those positions, and that it may become increasingly
difficult to hire such persons. Competitors and others have in the
past, and may in the future, attempt to recruit the Company's
employees. The loss of key management or technical personnel, or the
failure to attract and retain key personnel, could have a material
adverse effect on the Company's business, results of operations and
financial condition.
EXECUTIVE OFFICERS
The Company's executive officers and key employees and their ages as of
January 1, 1999 are:
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Name Age Position
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Warren R. Zimmerman 50 President, CEO and Chairman of the
Board of Directors
Derwood Plyler 56 Senior Vice President, Technology
Christine E. Jacobs 33 Vice President, Customer Relations
John F. Carlson 59 Vice President, CFO
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Warren R. Zimmerman, Founder, Director, President & CEO, has more than
29 years in positions of increasing responsibilities in the computer
field. Mr. Zimmerman spent 14 years managing the consolidated computer
center for Rutgers University (NJ). Mr. Zimmerman has served as
consultant to AT&T Information Services, Westinghouse Co., and Citibank
International. For seven years, Mr. Zimmerman managed the technical
support team for First Investors Corporation.
Derwood G. Plyler, Founder, Senior Vice President Technical Services,
has over 32 years of experience in computers, networking and
telecommunications. This experience includes responsibilities in
executive, line and staff management, technical consulting,
computer/communications operations management, software development and
project leadership, systems and applications programming and sales.
John F. Carlson, Vice President, Chief Financial Officer, joined the
Company in May 1998. Prior to joining OSI, Mr. Carlson was Executive
Vice President and CFO of Ocurest Laboratories, Palm Beach Gardens, FL
which is a marketer and manufacturer of ophthalmic products. Mr.
Carlson has held positions involving significant financial
responsibility in Viacom International, Inc., and American Cyanamid
Corp. Mr. Carlson began his career with Price Waterhouse & Co.
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Christine E. Jacobs, Vice President, Customer Relations, has six years
experience as a telecommunications specialist with a major Wall Street
financial firm. Ms. Jacobs is an expert at defining business
application solutions that integrate electronic document management,
computers and networking into enterprise systems. For the past five
years, Ms. Jacobs has completed integration studies, system designs,
participated in installations and trained several hundred users in
OSI's document management solutions.
Management Changes; No Assurance of Successful Expansion of Operations.
There can be no assurance that the Company's senior management team
will be able to achieve and manage growth, if any, or build an
infrastructure necessary to operate the Company. The Company's ability
to compete effectively and to manage any future growth will require
that the Company continue to assimilate new personnel and to expand,
train and manage its work force. The Company intends to continue to
increase the scale of its operations significantly to support
anticipated increases in revenues and to address critical
infrastructure and other requirements. These increases have included
and may include the leasing of new space, the opening of additional
offices, and potential acquisitions, and the hiring of additional
personnel in sales and marketing.
The increased scale of operations has resulted in significantly higher
operating expenses, which are expected to continue to increase
significantly in the future. If the Company's revenues do not
correspondingly increase, the Company's results of operations would be
materially and adversely affected. Expansion of the Company's
operations has caused, and is continuing to impose, a significant
strain on the Company's management, financial and other resources. The
Company's ability to manage its recent, and any future, growth (should
it occur) will depend upon a significant expansion of its internal
management systems and the implementation and subsequent improvement of
a variety of systems, procedures and controls. Any failure to expand
these areas and implement and improve such systems, procedures and
controls in an efficient manner at a pace consistent with the Company's
business, could have a material adverse effect on the Company's
business, financial condition and results of operations. In this
regard, any significant revenue growth will be dependent in significant
part upon the Company's expansion of its marketing, sales and support
capabilities. This expansion will continue to require significant
expenditures to build the necessary infrastructure. There can be no
assurance that the Company's efforts to expand its marketing, sales and
customer support efforts will be successful or will result in
additional revenues or profitability in any future period.
Control by Existing Stockholders; Effects of Certain Anti-Takeover
Provisions. Members of the Board of Directors, and the executive
officers of the Company, together with members of their families and
entities that may be deemed affiliates of, or related to, such persons
or entities, beneficially own approximately 70% of the outstanding
shares of Common Stock of the Company. Accordingly, these stockholders
would, if acting in concert, be able to elect all members of the
Company's Board of Directors and determine the outcome of corporate
actions requiring stockholder approval, such as mergers and
acquisitions. Certain provisions of the Company's Certificate of
Incorporation, equity incentive plans, Bylaws, and Florida law may also
discourage certain transactions involving a change in control of the
Company. This level of ownership by such persons and entities, when
combined with the Company's classified Board of Directors and the
ability of the Board of Directors to issue "blank check" preferred
stock without further stockholder approval, may have the effect of
delaying, deferring or preventing a change in control of the Company
and may adversely affect the voting and other rights of other holders
of Common Stock.
ENVIRONMENTAL PROTECTION COMPLIANCE
The Company has no knowledge of any federal, state or local
environmental compliance regulations which affect its business
activities. The Company has not expended any capital to comply with
environmental protection statutes and does not anticipate that such
expenditures will be necessary in the future.
GOVERNMENT REGULATION
The Company is not subject to any material pending or threatened
government regulation.
10
<PAGE> 11
BUSINESS RISKS
IN EVALUATING THE COMPANY'S BUSINESS, READERS SHOULD CAREFULLY CONSIDER
THE BUSINESS RISKS DISCUSSED IN THIS SECTION, IN ADDITION TO THE OTHER
INFORMATION PRESENTED IN THIS ANNUAL REPORT ON FORM 10-KSB.
History of Operating Losses. Since its inception, the Company has incurred
operating losses. The Company expects to incur additional operating losses
as well as negative cash flow from operations at least into 1999. There
can be no assurance that the Company will ever become profitable. The
Company's ability to increase revenues and achieve profitability likely
depends in part upon its ability to raise additional capital. There can be
no assurance that the Company will be able to increase revenues. The same
factors which are described below as contributing to significant
fluctuations in the Company's operating results also may contribute to the
Company incurring additional operating losses.
No Assurance of Additional Necessary Capital. The Company intends to
expend additional funds for working capital and general corporate
purposes. Although the Company believes that its anticipated cash flow
from future operations will be sufficient to fund ongoing operations, the
Company expects that it will also require additional financing in the near
future. While a minority shareholder has committed to provide financing,
failure to raise additional capital when needed could have a material
adverse effect on the Company's business, financial condition and results
of operations. There can be no assurance that such financing, if required,
will be available on terms satisfactory to the Company, if at all. If
adequate funds are not available, the Company expects it will be required
to scale back or eliminate one or more of the products or services it
offers.
Significant Fluctuations in Operating Results. The Company's sales and
other operating results have varied significantly in the past and will
vary significantly in the future as a result of factors such as: the size
and timing of significant orders and their fulfillment; demand for the
Company's products; changes in pricing policies by the Company or its
competitors; the number, timing and significance of product enhancements
and new products announcements by the Company and its competitors; changes
in the level of operating expenses; customer order deferrals in
anticipation of new products or otherwise; warranty and customer support
expenses; changes in its end-users' financial condition and budgetary
processes; changes in the Company's sales, marketing and distribution
channels; delays or deferrals of customer implementation; product life
cycles; software bugs and other product quality problems; discounts; the
cancellation of licenses during the warranty period or nonrenewal of
maintenance agreements; customization and integration problems with the
end-user's legacy system; changes in the Company's strategy; the level of
international expansion; and seasonal trends.
A significant portion of the Company's revenues has been, and the Company
believes will continue to be, derived from a limited number of orders, and
the timing of such orders and their fulfillment have caused, and are
expected to continue to cause, material fluctuations in the Company's
operating results. Revenues are also difficult to forecast because the
markets for the Company's products and services are rapidly evolving, and
the sales cycle of the Company, from initial evaluation purchase, is
lengthy and varies substantially from end-user to end-user. To achieve its
quarterly revenue objectives the Company depends upon obtaining orders in
any given quarter for shipment in that quarter. Product orders are
typically shipped shortly after receipt; consequently, order backlog at
the beginning of any quarter has in the past represented only a small
portion of that quarter's revenues. Furthermore, the Company has often
recognized most of its revenues in the last month or even in the last
weeks or days, of a quarter. Accordingly, a delay in shipment near the end
of a particular quarter may cause revenues in a particular quarter to fall
significantly below the Company's expectations and may materially
adversely affect the Company's operating results for such quarter.
Conversely, to the extent that significant revenues occur earlier than
expected, operating results for subsequent quarters may fail to keep pace
with results of previous quarters or even decline. The Company also has
recorded generally lower sales in the first quarter than in the
immediately preceding quarter, as a result of, among other factors,
end-users' purchasing and budgeting and the Company expects this pattern
to continue in future years. A significant portion of the Company's
expenses are relatively fixed in the short term. Accordingly, if revenue
levels fall below expectations, operating results are likely to be
disproportionately and adversely affected. As a result of these and other
factors, the Company believes that its quarterly operating results will
vary in the future, and that period-to-period comparisons of its results
of operations are not necessarily meaningful and should not be relied upon
as indications of future performance.
11
<PAGE> 12
Furthermore, due to all of the foregoing factors, it is likely that in
some future quarter the Company's operating results will be below the
expectations of public market analysts and investors. In such event, the
price of the Company's Common Stock would likely be materially adversely
affected.
Rapid Technological Change, Dependence on New Product Development. The
market for imaging software is characterized by rapid technological
change, changes in customer requirements, frequent new product
introductions and enhancements, and emerging industry standards. The
Company's future performance will depend in significant part upon its
ability to respond effectively to these developments. The introduction of
products embodying new technologies and the emergence of new industry
standards can render existing products obsolete, unmarketable or
noncompetitive. For example, new operating systems being introduced by
Microsoft this year, such as Microsoft Windows NT 5.0 could alter
generally accepted conventions for document creation, distribution and
management. The Company is unable to predict the future impact of such
technology changes. Moreover, the life cycles of the Company's products
are difficult to estimate. The Company's future performance will depend in
significant part upon its ability to enhance current products, and to
develop and introduce new products and enhancements that respond to
evolving customer requirements. The inability of the Company, for
technological or other reasons, to develop and introduce new products or
enhancements in a timely manner in response to changing customer
requirements for technological change or emerging industry standards, or
maintain compatibility with heterogeneous computing environments, would
have a material adverse effect on the Company's business, results of
operations and financial condition.
Lengthy and Complex Sales and Implementation Cycles; Dependence on Capital
Spending. The license of the Company's software products is typically an
executive-level decision by prospective end-users, and generally requires
the Company to engage in a lengthy and complex sales cycle (typical
between six and twelve months from the initial contact date). In addition,
the implementation by customers or imaging products and services offered
by the Company may involve a significant commitment of resources by such
customers over an extended period of time. For these and other reasons,
the sales and customer implementation cycles are subject to a number of
significant delays over which the Company has little or no control. The
Company's future performance also depends upon the capital expenditure
budgets of its customers and the demand by such customers for the
Company's products. Certain industries to which the Company sells its
products, such as the financial services industry, are highly cyclical.
The Company's operations may in the future be subject to substantial
period-to-period fluctuations as a consequence of such industry patterns,
domestic and foreign economic and other conditions, and other factors
affecting capital spending. There can be no assurance that such factors
will not have a material adverse effect on the Company's business, results
of operations, and financial condition.
Intense Competition. The market for the Company's products is intensely
competitive and can be significantly affected by new product introductions
and other market activities of industry participants. The Company's
competitors offer a variety of products and services to address the
emerging market for imaging software solutions. Numerous software vendors
also compete in each product area. Potential competitors include providers
of document management system software, providers of document archiving
products and relational database management systems vendors. The Company
also faces competition from OEMs, distributors and systems integrators.
Many of the Company's current and potential competitors are substantially
larger than the Company, have significantly greater financial, technical
and marketing resources and have established more extensive channels of
distribution. As a result, such competitors may be able to respond more
rapidly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion
and sale of their products than the Company. Because the Company's
products are designed to operate in non-proprietary computing environments
and because of low barriers to entry in the imaging software market, the
Company expects additional competition from established and emerging
companies, as the market for integrated imaging products continues to
evolve. The Company expects its competitors to continue to improve the
performance of their current products and to introduce new products or new
technologies that provide added functionality and other features.
Successful new product introductions or enhancements by the Company's
competitors could cause a significant decline in sales or loss of market
acceptance of the Company's products and services, result in continued
intense price competition, or make the Company's products and services or
technologies obsolete or noncompetitive. To be competitive, the Company
will be required to continue to invest significant resources in sales and
marketing. There can be no assurance that the Company will have sufficient
resources to make such
12
<PAGE> 13
investments. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or
with third parties, to increase the ability of their products to address
the needs of the Company's prospective customers. In addition, several
competitors have recently made, or attempted to make, acquisitions to
enter the market or increase their market presence. Accordingly, it is
possible that new competitors or alliance among competitors may emerge and
rapidly acquire significant market share. Increased competition is likely
to result in price reductions, reduced gross margins and loss of market
share, any of which would have a material adverse effect on the Company's
business, results of operations and financial condition. There can be no
assurance that the Company will be able to compete successfully against
current or future competitors, or that competitive pressures will not have
a material adverse effect on the Company's business, results of
operations, and financial condition.
Management Changes; No Assurance of Successful Expansion of Operations.
Currently the Company has two Directors and is actively seeking to fill at
least one more position on its Board of Directors. There is no assurance
that the Company will be able to attract and retain qualified Directors.
There can be no assurance that the Company's senior management team will
be able to achieve and manage growth, if any, or build an infrastructure
necessary to operate the Company. The Company's ability to compete
effectively and to manage any future growth will require that the Company
continue to assimilate new personnel and to expand, train and manage its
work force. The Company intends to continue to increase the scale of its
operations significantly to support anticipated increases in revenues and
to address critical infrastructure and other requirements. These increases
have included and may include the leasing of new space, the opening of
additional offices, and potential acquisitions, and the hiring of
additional personnel in sales and marketing. The increased scale of
operations has resulted in significantly higher operating expenses, which
are expected to continue to increase significantly in the future. If the
Company's revenues do not correspondingly increase, the Company's results
of operations would be materially and adversely affected. Expansion of the
Company's operations has caused, and is continuing to impose, a
significant strain on the Company's management, financial and other
resources. The Company's ability to manage its recent, and any future,
growth (should it occur) will depend upon a significant expansion of its
internal management systems and the implementation and subsequent
improvement of a variety of systems, procedures and controls. Any failure
to expand these areas and implement and improve such systems, procedures
and controls in an efficient manner at a pace consistent with the
Company's business, could have a material adverse effect on the Company's
business, financial condition. and results of operations. In this regard,
any significant revenue growth will be dependent in significant part upon
the Company's expansion of its marketing, sales and support capabilities.
This expansion will continue to require significant expenditures to build
the necessary infrastructure. There can be no assurance that the Company's
efforts to expand its marketing, sales and customer support efforts will
be successful or will result in additional revenues or profitability in
any future period.
Dependence on Key Personnel. The Company's future performance depends to a
significant degree upon the continuing contributions of its key
management, sales, marketing, customer support, and product development
personnel. The Company has at times experienced, and continues to
experience, difficulty in recruiting qualified personnel, particularly in
software development and customer support. The Company believes that there
may be only a limited number of persons with the requisite skills to serve
in those positions, and that it may become increasingly difficult to hire
such persons. Competitors and others have in the past, and may in the
future, attempt to recruit the Company's employees. The loss of key
management or technical personnel, or the failure to attract and retain
key personnel, could have a material adverse effect on the Company's
business, results of operations and financial condition.
Dependence on Proprietary Technologies. The Company's performance depends
in part on its ability to protect its proprietary rights to the
technologies used in its principal products. The Company relies on a
combination of copyright and trademark laws, trade secrets,
confidentiality provisions and other contractual provisions to protect its
proprietary rights, which are measures that afford only limited
protection. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products, or to obtain and use information that the Company regards as
proprietary. In addition, the laws of some foreign countries do not
protect the Company's proprietary rights as fully as do the laws of the
United States. There can be no assurance that the Company's means of
protecting its proprietary rights in the United States or abroad will be
adequate, or that competitors will not independently develop similar
technologies. The Company is not aware that it is infringing any
proprietary rights of third parties.
13
<PAGE> 14
Dependence on Certain Sources of Products. The Company also licenses
software from third parties. These licenses expire from time to time.
Additionally, its relationship with certain of its key suppliers may not
continue or the terms of such arrangements may change due to the Company's
current financial position and particularly, its slowness in paying
amounts owed to suppliers. While the Company believes that its
relationships with its suppliers are good and will continue, there can be
no assurances that these third-party software licenses will continue to be
available to the Company on commercially reasonable terms.
While the Company believes that all of such third-party software is
available from alternate vendors and the Company maintains standard
software escrow agreements with each of such parties agreements which
provide the Company with access to the source code in the event of their
bankruptcy or insolvency, the loss of or inability to maintain any such
software licenses could result in shipment delays or reductions until
equivalent software could be developed, identified, licensed and
integrated, which in turn could materially and adversely affect the
Company's business, results of operations, and financial condition. In
addition, the Company generally does not have access to source code for
the software supplied by these third parties. Certain of these third
parties are small companies that do not have extensive financial and
technical resources. If any of these relationships were terminated or if
any of these third parties were to cease doing business, the Company may
be forced to expend significant time and development resources to replace
the licensed software. Such an event would have a material adverse effect
upon the Company's business, results of operations, and financial
condition. The Company has entered into source code escrow agreements with
a limited number of its customers requiring release of source code in
certain circumstances.
Product Liability; Risk of Product Defects. The Company's license
agreements with its customers typically contain provisions designed to
limit the Company's exposure to potential product liability claims.
However, it is possible that the limitation of liability provisions
contained in the Company's license agreements may not be effective under
the laws of certain jurisdictions. Although the Company has not
experienced any product liability claims to date, the sale and support of
products by the Company may entail the risk of such claims, and there can
be no assurance that the Company will not be subject to such claims in the
future. A successful product liability action brought against the Company
could have a material adverse effect upon the Company's business, results
of operations, and financial condition. Software products such as those
offered by the Company frequently contain errors or failures, especially
when first introduced or when new versions are released. The Company's
products are typically intended for use in applications that may be
critical to a customer's business. As a result, the Company expects that
its customers and potential customers have a greater sensitivity to
product defects than the market for general software product. Although the
Company's business has not been materially and adversely affected by any
such errors, or by defects or failure to meet specifications, to date,
there can be no assurance that, despite testing by the Company and by
current and potential customers, errors or defects will not be found in
new products or releases after commencement of commercial shipments, or
that such products will meet customer specifications, resulting in loss or
deferral of revenues, diversion of resources, damage to the Company's
reputation, or increased service and warranty and order costs, any of
which could have a material adverse effect upon the Company's business,
operating results, and financial condition.
Potential Volatility of Stock Price. The market price of shares of Common
Stock is likely to be highly volatile and may be significantly affected by
factors such as: actual or anticipated fluctuations in the Company's
operating results; announcements of technological innovations; new
products or new contracts by the Company or its competitors; sales of
Common Stock by management; sales of significant amounts of Common Stock
into the market; developments with respect to proprietary rights;
conditions and trends in the software and other technology industries;
adoption of new accounting standards affecting the software industry;
changes in financial estimates by securities analysts and others; general
market conditions; and other factors that may be unrelated to the Company
or its performance. In addition, the stock market has from time to time
experienced significant price and volume fluctuations that have
particularly affected the market prices for the common stock of technology
companies. These broad market fluctuations may adversely affect the market
price of the Company's Common Stock. In the past, following periods of
volatility in the market price of a particular company's securities,
securities class action litigation has often been brought against such
company. There can be no assurance that such litigation will not occur in
the future with respect to the Company. Such litigation, regardless of its
outcome, would result in substantial costs and a diversion of management's
attention and resources which could have a material adverse effect upon
the Company's business, results of operations, and financial condition.
14
<PAGE> 15
Control by Existing Stockholders; Effects of Certain Anti-Takeover
Provisions. Members of the Board of Directors, and the executive officers
of the Company, together with members of their families and entities that
may be deemed affiliates of, or related to, such persons or entities,
beneficially own approximately 70% of the outstanding shares of Common
Stock of the Company. Accordingly, these stockholders would, if acting in
concert, be able to elect all members of the Company's Board of Directors
and determine the outcome of corporate actions requiring stockholder
approval, such as mergers and acquisitions. Certain provisions of the
Company's Certificate of Incorporation, equity incentive plans, Bylaws,
and Florida law may also discourage certain transactions involving a
change in control of the Company. This level of ownership by such persons
and entities, when combined with the Company's classified Board of
Directors and the ability of the Board of Directors to issue "blank check"
preferred stock without further stockholder approval, may have the effect
of delaying, deferring or preventing a change in control of the Company
and may adversely affect the voting and other rights of other holders of
Common Stock.
YEAR 2000 DISCLOSURE
Many computer software systems, as well as certain hardware and
equipment containing date sensitive data, were structured to utilize a
two-digit date field such that they may not be able to recognize dates
properly in the Year 2000. This could result in significant system and
equipment failures. The Company has implemented a Year 2000 compliance
program designed to ensure that the Company's computer systems,
hardware and equipment will function properly beyond 1999. The Company
believes that it has allocated adequate resources for this purpose and
expects its Year 2000 compliance program to be completed on a timely
basis. Based on its assessments to date, the Company believes that it
will not experience any material disruption as a result of Year 2000
issues with any of its computer software systems, hardware or
equipment. However, there can be no assurance that the systems of other
companies on which the Company's systems rely will not experience Year
2000 disruptions and that such disruptions will not have an adverse
affect on the Company's systems.
The Company has completed its review of the software products that it
has developed and sells and where appropriate, modifications to certain
products are being made to ensure that they will be Year 2000 compliant
in their next release or version. Although the Company believes that
the identified modifications will make the selected products Year 2000
compliant, no assurance can be given that additional modifications for
Year 2000 compliance will not be necessary. In addition, as the
Company's software is typically installed with a customer's other
software which may not be Year 2000 compliant, Year 2000 issues may
arise which could be attributed to the Company's software products. The
Company may incur additional costs in ascertaining the cause of these
problems.
The majority of the costs related to the Year 2000 compliance program
will be expensed as incurred and are expected to be funded through
operating cash flows. In the aggregate, these costs have so far not
been and are not expected to be substantially different from normal,
recurring costs that are incurred for system development and
implementation. As a result, these costs are not expected to have a
material adverse effect on the Company's overall results of operations
or cash flows.
The assessment of the costs of the Company's Year 2000 compliance
effort, and the timetable for the Company's planned completion of the
Year 2000 compliance program, are management's best estimates. There
can be no guarantee that these estimates will prove accurate, and
actual results could differ from those estimated if these assumptions
prove inaccurate. Based upon progress to date, however, the Company
believes that it is unlikely that the foregoing factors will cause
actual results to differ significantly from those estimated.
It is also recognized that the purchasing patterns of software
customers and thus the demand for software may be affected by the Year
2000 in a number of different ways. Some portion of the current demand
for software may be generated by customers in the process of replacing
or upgrading software not designed to accommodate the Year 2000. Once
such customers have completed their preparations for the Year 2000, the
15
<PAGE> 16
software industry, generally, and the Company, specifically, may
experience deceleration from the strong annual growth rates recently
experienced in the software marketplace. In addition, as certain
customers expend significant amounts of time and money on resolving
their Year 2000 issues, they may reduce or completely cancel
expenditures that had been allocated for the Company's products. No
assurance can be given that general market conditions such as these
will not have a material affect on the Company's operations.
ITEM 2. DESCRIPTION OF PROPERTY
The Company presently leases approximately 6,100 square feet in an
office building located at Raritan Plaza II, Raritan Center, Fieldcrest
Avenue, Edison, New Jersey. The building is exclusively business
executive offices. The facility is leased from a non-affiliated party
pursuant to a non-cancelable five (5) year lease which expires January
20, 2000. The present minimum monthly rent is $9,107 and there are no
additional escalation charges. The lease does not have an option to
renew. Management believes it can negotiate a renewal of the lease on
comparable terms before its expiration date.
The Company paid $36,000 to the majority stockholder in consideration
for the lease of a Florida based rental facility. The lease payment is
being amortized over 60 months term of the lease expiring March 15,
2003.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material litigation, and is currently
not aware of any pending or threatened litigation that could have a
material adverse effect upon the Company's business, operating results,
or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended September 30, 1998, no matters were placed
before the stockholders of the Company for consideration.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
The Company's Common Stock is quoted on the OTC Electronic Bulletin
board and is traded under the symbol OPSY.
The following table sets forth, for the periods indicated, the reported
high and low bid and asked price quotations for the Common Stock for
the fiscal years ended September 30, 1997, and 1998. Such quotations
reflect inter-dealer prices, without retail mark-up, markdown or
commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
Common Stock
Bid ($) Asked ($)
Period of Quote High Low High Low
-------------- ----------------
<S> <C> <C> <C> <C>
Fiscal 1997:
-----------
Fourth Quarter $3.750 $2.750 $4.125 $3.250
Fiscal 1998:
------------
First Quarter $4.500 $3.375 $5.000 $3.875
Second Quarter $3.937 $2.125 $4.250 $2.750
Third Quarter $3.187 $1.250 $3.250 $1.562
Fourth Quarter $3.187 $1.250 $3.250 $1.562
</TABLE>
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<PAGE> 17
At September 30, 1998, there were 150 holders of record of Common
Stock. The foregoing is based in part upon information furnished by
National Quotation Bureau and Interwest Transfer Company, the transfer
agent for the Company's Common Stock.
On September 26, 1997, the Company issued 811,513 Series A Preferred
Shares to Raymond Sery in consideration of his assumption and payment
of $605,000 of a promissory note payable to First Union Bank and the
cancellation of $70,000 in loan principal due him. In addition, on
January 15, 1998, the Company issued an additional 200,000 shares of
Series A Preferred Stock to Mr. Sery in consideration of $200,000 paid
to the Company on January 29, 1998. The terms of Mr. Sery's investment
provided that if the Company does not undertake a secondary public
offering of its securities under the Securities Act of 1933 by December
31, 1998, Mr. Sery shall have the right to require the Company to
repurchase any or all equity securities of the Company (including all
shares of common stock) then owned by him; provided, however, the
Company shall only be required to repurchase shares with an aggregate
repurchase price paid to Mr. Sery not to exceed more than $1,200,000.
That agreement was canceled on September 15, 1998.
Mr. Sery does receive at the Company's option cash or unregistered
shares equal to $30,000 per quarter commencing October 1998 for
services to the Company.
There have been no cash dividends paid in fiscal years 1997 and 1998
due to lack of liquidity. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OR PLAN OF OPERATION--Liquidity and Capital
Resources".
SERIES A PREFERRED STOCK ISSUANCES
On September 26, 1997 the Company issued 811,513 shares of Series A
preferred stock in a private placement to accredited investors in a
transaction exempt from registration under Section 4(2) of the
Securities Act.
On January 15, 1998 the Company agreed to issue an additional 200,000
shares of Series A preferred stock in a private placement to accredited
investors in a transaction exempt from registration under Section 4(2)
of the Securities Act.
The Series A preferred stock has no voting rights but does carry
preference over common shares to the extent of liquidation value of
$11.60 per share of preferred stock and 5% dividends declared on a
non-cumulative basis. The preferred stock is convertible into common
stock at the rate of one share of common stock for each share of
preferred stock, which conversion shall occur on the earlier of June
30, 1998 or the Company's filing of a registration statement with the
Securities & Exchange Commission. The preferred stock issued in
September 1997 was converted into common stock on November 18, 1998 and
subsequently canceled.
On June 15, 1997, the Company completed a Regulation D 504 Offering in
which it issued 500,000 shares of common stock and 450,000 common stock
redeemable stock purchase warrants for an aggregate offering price of
$25,000. Each Warrant entitles the holder to one share of Common Stock
at a price of $1.60 per common share. The expiration date of the
Warrants purchased is as follows: 250,000 Warrants expired on December
31, 1997; and 200,000 Warrants expire on December 31, 1998. In
addition, on July 21, 1997, the Company completed a second Regulation D
504 Offering in which it received $105,800 in exchange for 105,800
shares of common stock and 52,900 Warrants with an exercise price of
$1.35 per share. The warrants issued on July 21, 1997, had an
expiration date of June 15, 1998, and expired.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS WHICH REFLECT THE
COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES,
INCLUDING THOSE DISCUSSED BELOW AND THOSE UNDER THE CAPTION "BUSINESS RISKS" IN
ITEM 1, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL
RESULTS OR THOSE ANTICIPATED.
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<PAGE> 18
OVERVIEW
OSI was formed in 1992 and the founders are the senior management
today. OSI was incorporated in the state of New Jersey in 1992 and was
the successor in a reverse merger transaction effective June 30, 1997.
OSI is a reporting company trading on NASDAQ's Bulletin Board system
using the symbol OPSY.
At the outset, OSI was conceived to market document management services
that would create the "paperless office" by substituting
electronic/optical media and directories for hard copy reports. The
name Optical Systems was chosen to communicate this marketing emphasis.
Six years later, the Company has evolved into a marketer of a broad
range of IT Solutions: document management, imaging and network
support, C.O.L.D. (Computer Output to Laser Disk), SafeCD(TM)--a data
migration product, e-Commerce applications, Internet/Intranet services,
CD-ROM Service Bureau, and Year 2000 solutions.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
AUDITED
--------------------------
FISCAL YEAR FISCAL YEAR
END END
($000's) 9/30/98 9/30/97
- -------- ----------- -----------
<S> <C> <C>
Gross Revenues $ 2,411 $ 887
Cost of Revenues 1,139 254
------- -------
Gross Profit 1,271 632
Payroll 852 501
Selling & Marketing 269 82
General Administration 581 270
Depreciation 79 61
------- -------
(Loss) from Operations (510) (282)
Other Income 11 5
Interest (expense) Net (13) (65)
------- -------
Net Loss $ (512) $ (342)
</TABLE>
GROSS REVENUES
The Company is an Information Technology Solutions Provider marketing
products and services in the areas of document management, service
bureau operations, custom programming, consulting for network, Internet
and Intranet environments and identifying and remediating the "Year
2000" (Y2K) program code. The revenues from these businesses for fiscal
year 1998 increased 2.7 times over fiscal year 1997.
In September 1997 the Company made a strategic decision to allocate
resources to market products and services dedicated to the "Year 2000
Solutions". These efforts in the current fiscal year created revenues
of $1,686,000. During the same period there was a reduction in revenues
from the general consulting business of $158,000 as the result of the
reallocation of resources.
COST OF REVENUES
For the fiscal year ended September 1998, virtually the total increase
in cost of revenues ($885,000) above the same period for 1997 is
attributable to the Y2K business. The labor component for processing
Y2K work is $565,000 and for royalties $181,000 with no comparable
costs in 1997. Higher software and hardware costs (+$139,000) were
incurred to complete general consulting contracts.
PAYROLL EXPENSES
Payroll expenses for 1998 increased $350,000 or 70% above 1997. The
major component was $215,000 in salesmen costs for Y2K business
development that has no comparable expense in 1997. Administrative
18
<PAGE> 19
salaries +$40,000 and the annualized impact +$95,000 of prior period
salary adjustments and staff additions accounts for the balance of the
increase.
SELLING & MARKETING
Selling and marketing expenses for 1998 increased $187,000 primarily
attributable to Y2K business development. Trade show participation
costs increased $141,000. Sales materials accounted for the balance of
$46,000 year-to-year increase.
GENERAL & ADMINISTRATION
General and administration expenses for 1998 increased $310,000 over
1997. Of this increase $213,000 was for professional fees--accountants,
lawyers, etc.,--associated with obtaining financing and complying with
reporting requirements for public companies. The balance of the
increase $97,000 is spread over 29 classifications of expense.
DEPRECIATION
For the year ended September 1998, the increase in depreciation expense
reflects period-to-period added investment in fixed assets of $100,000
or +33%. The Company purchased new computer equipment to build "factory
sites" to process Y2K conversions. Depreciation expense for the fiscal
year ending September 1998 versus September 1997 increased 30%.
INTEREST EXPENSE
For the year ended September 1998, interest expense decreased $49,000
as the result of the recapitalization started in June 1997. (See
Liquidity and Capital Resources).
LIQUIDITY AND CAPITAL RESOURCES
Optical Systems Holdings, Inc. (OSHI) was incorporated on May 29, 1997
in the State of Florida. This Company acquired through merger, 100% of
the issued and outstanding common stock of Optical Systems, Inc., a New
Jersey corporation (OSI-NJ) effective June 30, 1997. Immediately
thereafter, the OSHI changed its legal name to Optical Systems, Inc.
For financial reporting purposes the acquisition has been treated as a
recapitalization of OSI-NJ.
The recapitalization included the substitution of interest bearing
installment debt instruments amounting to $675,000 with the issuance of
preferred stock. Cash used in operations consumed the balance. In
fiscal 1998, the Company received $200,000 from the issuance of Series
A Preferred Stock and $396,765 from the exercise of warrants relating
to a Regulation D 504 Offering.
The Company is also seeking to raise additional capital through the
sale of common stock in the private investor market of approximately
$3,000,000. There can be no assurance that these efforts will succeed.
The Company is projecting a substantial acceleration of the Y2K
business and the newly added revenues will reduce if not eliminate the
working capital deficiency. Should the revenue growth not occur, the
Company has a plan to downsize payroll and operating costs in line with
income. Consequently, the Company believes it will have sufficient cash
flow to sustain operations over the next twelve months.
The Company's liquidity requirements include working capital needs,
interest payments and capital investments. The company intends to
finance its current operating activities with cash from operations and
to finance its capital investments with the proceeds of any private
placements of its securities.
Additionally, a minority shareholder of the Company has committed to
provide financing to the Company through September 1999.
The short-term and long-term liquidity of the Company is dependent upon
several factors, including availability of capital, competitive end
market forces, capital expenditures and general economic conditions. In
addition, because of the Company's current financial position, its
financial flexibility is limited.
19
<PAGE> 20
Although the Company believes the anticipated cash for future
operations will provide sufficient liquidity for future operations,
there can be no assurance this or other possible sources will be
adequate. See BUSINESS RISKS.
The Company expects to continue to recognize losses during 1999 due to
its operating performance. The Company is aggressively working to
expand its customer base and services. Should the Company incur greater
than anticipated losses during 1999, the Company would have to consider
financial alternatives to enable it to adequately fund its operations
and meet all of its obligations. Such alternatives would include
reorganization or bankruptcy protection.
There can be no assurances that the Company will be able to
satisfactorily resolve all of these concerns in the near term. No
assurances can be given that the Company will not continue to
experience operational difficulties, will increase sales to its
customers or that financing will be available if required or if
available, whether such financing will be on terms satisfactory to the
Company.
INFLATION
While inflation has not had a material effect on the Company's
operations in the past, there can be no assurance that the Company will
be able to continue to offset the effects of inflation on the costs of
its products or services through price increases to its customers
without experiencing a reduction in the demand for its services and
products; or that inflation will not have an overall effect on the
Information Technology market that would have a material affect on the
Company.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company has determined that the adoption of the recently issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share", No. 129, "Disclosures of Information about Capital
Structure," No. 130, "Reporting Comprehensive Income," and No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
will not have a material impact on the Company's footnote disclosures.
SEAS No. 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Accordingly, basic and
diluted earnings per share have been reflected in the Financial
Statements included herein.
Statement of Position 97-2, "Software Revenue Recognition" (SOP 97-2)
was issued in October 1997 and is effective for transactions entered
into by the Company during 1998 and thereafter. If the Company's future
business practices involve the granting of upgrade rights to future
releases, extended payment terms, rights to additional products,
subscription licensing arrangements or other provisions impacted by SOP
97-2, the SOP may have a material impact on the timing of the Company's
revenue recognition and could result in the deferral of significant
amounts of revenues.
20
<PAGE> 21
ITEM 7. FINANCIAL STATEMENTS
OPTICAL SYSTEMS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants..........................F-2
Balance Sheets..............................................................F-3
Statement of Operations.....................................................F-4
Statement of Stockholders' Equity (Deficit).................................F-5
Statement of Cash Flows.....................................................F-8
Notes to the Financial Statements...........................................F-9
</TABLE>
21
<PAGE> 22
[MAURILLO, FRANKLIN & LoBRACE LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Optical Systems, Inc.:
We have audited the accompanying balance sheet of Optical Systems, Inc.
as of September 30, 1998 and 1997 and the related statements of operations,
stockholders' deficiency, and cash flows for the two years ended September 30,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 financial statements referred to above present
fairly, in all material respects, the financial position of Optical Systems,
Inc. as of September 30, 1998 and 1997 and the results of its operations and its
cash flows for the two years then ended in conformity with generally accepted
accounting principles.
November 2, 1998, except for Note 2 and 3
which is as of April 8, 1999
F-2
<PAGE> 23
OPTICAL SYSTEMS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30,
---------------------------
ASSETS 1998 1997
------ ---------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 81,765 $ 85,927
Accounts receivable--trade, net of allowance
for doubtful accounts of $3,000 336,083 29,020
Loan receivable-officer 52,136 -0-
Prepaid expenses and other current assets 19,708 1,062
----------- -----------
Total current assets $ 489,692 $ 116,009
----------- -----------
Property and equipment (Note 1):
Office furniture and equipment $ 36,515 $ 22,198
Computer hardware and software 343,966 258,678
Vehicle 24,654 24,654
----------- -----------
Total cost $ 405,135 $ 305,530
Accumulated depreciation 222,401 143,257
----------- -----------
Total property and equipment $ 182,734 $ 162,273
----------- -----------
Deferred rental expense $ 24,600 $ -0-
----------- -----------
Total assets $ 697,026 $ 278,282
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
5% convertible notes payable (Note 5) $ 40,000 $ 60,000
5% demand note payable 35,000 -0-
8% debenture bonds payable (Note 7) -0- 28,500
Current maturities of long-term debt (Note 7) 6,295 17,592
Loans payable - shareholders (Note 6) 34,461 31,832
Accounts payable - trade 486,120 164,006
Accrued expenses 81,437 62,805
----------- -----------
Total current liabilities $ 683,313 $ 364,735
Long-term debt (Note 7) 57,997 37,114
----------- -----------
Total liabilities $ 741,310 $ 401,849
----------- -----------
Stockholders' deficiency:
Convertible preferred stock, $0.0001 par value,
authorized 10,000,000 shares; issued and outstanding -
1,011,513 and 811,513 shares respectively (Note 4) $ 101 $ 81
Common stock, $0.0001 par value, authorized
50,000,000 shares; issued and outstanding - 5,174,557 and
4,372,712 shares, respectively 517 437
Additional paid in capital 1,571,363 980,030
Accumulated deficit (1,616,265) (1,104,115)
----------- -----------
Total stockholders' deficiency $ (44,284) $ (123,567)
----------- -----------
Total liabilities and stockholders' deficiency $ 697,026 $ 278,282
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-3
<PAGE> 24
OPTICAL SYSTEMS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended
September 30,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Gross revenue $ 2,410,966 $ 886,735
Cost of revenue 1,139,589 253,885
----------- -----------
Gross profit $ 1,271,377 $ 632,850
----------- -----------
Operating expenses:
Payroll and related fringe costs $ 851,691 $ 500,999
Selling and marketing 269,264 82,383
Administrative 581,129 270,875
Depreciation 79,143 60,957
----------- -----------
Total operating expenses $ 1,781,227 $ 915,214
----------- -----------
Loss from operations $ (509,850) $ (282,364)
----------- -----------
Other income (expense):
Interest expense $ (15,842) $ (64,795)
Interest income 2,542
Miscellaneous income 11,000 5,145
----------- -----------
Total other income (expense) $ (2,300) $ (59,650)
----------- -----------
Net loss $ (512,150) $ (342,014)
=========== ===========
Net loss per share (Note 1) $ (.11) $ (.09)
=========== ===========
Weighted average common shares outstanding 4,776,374 3,597,874
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-4
<PAGE> 25
OPTICAL SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
TWO YEARS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Shares of Additional Total
Common Common Preferred Paid-In Accumulated Stockholders'
Stock Stock Stock Capital Deficit Deficiency
--------- ------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1996 2,129 $39,500 $(762,456) $(722,956)
Issuances of common stock by
predecessor NJ entity for cash
of $.20 per share 111 22 22
Issuance of common stock by successor
entity prior to reorganization to
founders for services rendered @
$.0001 per share 300,000 30 30
Exchange of common stock of
predecessor NJ entity for common
stock of successor entity under (2,240) (39,522) (39,522)
reverse acquisition 3,500,012 350 38,817 355 39,522
Issuance of common stock by
successor entity for cash @
$.05 per share 500,000 50 24,950 25,000
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-5
<PAGE> 26
OPTICAL SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
TWO YEARS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Shares of Additional Total
Common Common Preferred Paid-In Accumulated Stockholders'
Stock Stock Stock Capital Deficit Deficiency
--------- ------ --------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Retirement and cancellation of
founders stock (200,000) (20) 20
Issuance of common stock
by successor entity for cash
@ $1.00 per share 105,800 11 105,789 105,800
Issuance of common stock
by successor entity based on
exercise of 125,000 warrants
@ $1.60 per common share 125,000 12 199,988 200,000
Issuance of common stock by
successor entity based on
exercise of 41,900 warrants @
$1.35 per common share 41,900 4 56,561 56,565
Issuance of preferred stock in
exchange for assumption of
bank debt of $605,000 and
stockholder loan of $70,000 81 674,919 675,000
Stock issuance costs (121,014) (121,014)
Net loss for year ended
September 30, 1997 (342,014) (342,014)
--------- ---- --- --------- ----------- ---------
Balance, September 30, 1997 4,372,712 $437 $81 $ 980,030 $(1,104,115) $(123,567)
========= ==== === ========= =========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-6
<PAGE> 27
OPTICAL SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' DEFICIENCY
TWO YEARS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Shares of Additional Total
Common Common Preferred Paid-In Accumulated Stockholders'
Stock Stock Stock Capital Deficit Deficiency
--------- ------ --------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
based on exercise of 625
warrants @ $1.35 per share 625 $ 844 $ 844
Issuance of common stock
based on exercise of 125,000
warrants @ $1.60 per share 125,000 12 199,988 200,000
Issuance of 200,000 shares of
Series A preferred stock for cash 20 199,980 200,000
Issuance of common stock for stock
issuance costs 89,553 9 67,156 67,165
Issuance of common stock for
investor relation services 66,667 7 49,993 50,000
Issuance of common stock based
on exercise of special warrant @
$.60 per share 250,000 25 149,975 150,000
Issuance of common stock for
financial services @ $.48 per share 15,000 1 7,199 7,200
Issuance of common stock for legal
compliance services @ $.48
per share 25,000 3 11,997 12,000
Issuance of common stock for stock
issuance costs @ $.48 per share 230,000 23 110,377 110,400
Stock issuance costs (206,176) (206,176)
Net loss for year ended
September 30, 1998 (512,150) (512,150)
--------- ---- ---- ---------- ----------- --------
Balance, September 30, 1998 5,174,557 $517 $101 $1,571,363 $(1,616,265) $(44,284)
========= ==== ==== ========== =========== ========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-7
<PAGE> 28
OPTICAL SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended
September 30,
----------------------
1998 1997
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(512,150) $(342,014)
--------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation $ 79,143 $ 60,957
Financial and legal services 69,200 -0-
Interest expense 4,456 -0-
Provision for bad debts 2,000 1,000
Increase (decrease) in cash resulting from
changes in current operating assets and liabilities:
Accounts receivable (309,063) 16,302
Loan receivable-officer (52,136) -0-
Prepaid expenses (8,246) 35,535
Deferred lease payments (35,000) -0-
Accounts payable-trade 302,030 (90,097)
Accrued expenses 18,632 55,667
--------- ---------
Total adjustments $ 71,016 $ 79,364
--------- ---------
Net cash provided by (used in)
operating activities $(441,134) $(262,650)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment $ (99,604) $ (24,069)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from 5% notes payable $ 35,000 $ -0-
Repayment of 5% convertible notes payable (20,000) 60,000
Proceeds from note payable--bank -0- 55,000
Proceeds from loan from shareholder -0- 20,000
Repayment of long-term debt (20,741) (97,364)
Issuances of common stock by successor entity 550,844 387,395
Issuance of common stock by predecessor entity -0- 22
Stock issuance costs (8,527) (54,578)
--------- ---------
Net cash provided by financing activities $ 536,576 $ 370,475
--------- ---------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (Note 11) $ (4,162) $ 83,756
Cash and cash equivalents, beginning of year 85,927 2,171
--------- ---------
Cash and cash equivalents, end of year $ 81,765 $ 85,927
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
F-8
<PAGE> 29
OPTICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies
Organization, Nature of Business, and Customer Concentrations
Optical Systems Holdings, Inc. (The Company) was incorporated
on May 29, 1997 in the State of Florida. The Company acquired, through
merger, 100% of the issued and outstanding common stock of Optical
Systems, Inc., a NJ corporation (OSI-NJ) effective June 30, 1997.
Immediately thereafter, the Company changed its legal name to Optical
Systems, Inc. For financial reporting purposes the acquisition has been
treated as a recapitalization of OSI-NJ. Further OSI-NJ is deemed the
acquiring corporation under a reverse acquisition. The historical
financial statements prior to June 30, 1997 are those of OSI-NJ. The
Florida corporation had no assets or operations prior to the
acquisition. Pro forma information giving effect to the acquisition as
if it took place October 1, 1996 is not presented since the transaction
is a recapitalization and not a business combination.
The Company is principally engaged in rendering document
management, Year 2000 program source code services, networking and
Intra/Internet services, rendering optical storage and retrieval
products and services, and selling related hardware and software
products to information processing customers. Approximately 83% and 38%
of gross revenue for the years ended September 30, 1998 and 1997 was
derived from three customers. Further the Company has a 24-month joint
venture agreement with New Soft GMBH effective April 8, 1998 to jointly
market and sell Year 2000 and other services to customers based outside
the United States.
Use of Estimates
The preparation of 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 financial statements and the reported amounts of
revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is
computed using both straight-line and accelerated methods over the
estimated service lives which range from 5 to 7 years. Expenditures for
maintenance and repairs are charged to operations. Given the rapid
technology changes and obsolescence that is occurring with computer
hardware and software, it is reasonably possible that the Company's
estimate that it will recover the carrying amount of this equipment
from future operations will change in the near term.
With respect to costs incurred to develop software for its
information processing services, the Company's policy is to capitalize
such costs only after technological feasibility has been established.
No software development costs have been capitalized in the accompanying
financial statements.
F-9
<PAGE> 30
OPTICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 1--Summary of Significant Accounting Policies (Continued)
Revenue recognition
Information processing services are reported as earned when
services are performed. Sales of information processing hardware and
turnkey systems are reported as earned when systems have been delivered
and accepted by the customer.
Income from the joint venture is recognized after the services
are rendered and billed and related expenses incurred by the joint
venture. Income of $115,558 has been reported as earned in the current
reporting year.
Income Taxes
Provision for income taxes is based on income reported in the
accompanying financial statements.
Loss Per Share
Loss per share is based on the weighted average of common
shares outstanding during the reporting periods. Shares issuable upon
the conversion of preferred stock and notes payable, and exercise of
warrants have not been included since their effect would be
anti-dilutive.
Cash and Cash Equivalents
For cash flow reporting purposes, cash and cash equivalents
include money market fund investments with an initial maturity of three
months or less.
Note 2--Stockholder Commitment to Provide Working Capital
The Company has incurred operating losses since inception. The ability
of the Company to pay its creditors in the normal course of business is
contingent upon cash flow from operations or management's plans to raise monies
through a private placement of debt or equity securities. If sufficient funds
are not generated through operations or management's plans, a minority
shareholder has committed to provide financing to the Company to fund
operations.
Note 3--Regulation D Rule 504 Stock Offerings
On June 15, 1997, the Company completed a Regulation D Rule 504 private
offering in which the Company received $25,000 in exchange for 500,000 shares of
common stock and 450,000 warrants with an exercise price of $1.60 per share.
250,000 of these warrants have an expiration date of December 31, 1997. The
remaining 200,000 warrants expire on December 31, 1998. On July 21, 1997 the
Company completed another Regulation D Rule 504 private offering in which the
Company received $105,800 in exchange for 105,800 shares of common stock and
52,900 warrants with an exercise price of $1.35 per share. These warrants have
an expiration date of June 15, 1998.
F-10
<PAGE> 31
OPTICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 3--Regulation D Rule 504 Stock Offerings (Continued)
During the year ended September 30, 1997 the Company received $200,000
from the exercise of 78,125 of the $1.60 warrants and $56,565 from the exercise
of 41,900 of the $1.35 warrants.
During the year ended September 30, 1998 the Company received $844
representing the exercise of 625 warrants @ $1.35 per share and $200,000 from
the exercise of 125,500 warrants @ $1.60 per share. As of the current date, all
unexercised warrants had expired.
Note 4--Series A Preferred Stock Issuances
On September 26, 1997 the Company issued 811,513 shares of Series A
preferred stock to the minority shareholder reflected in Note 2 in consideration
for his assumption and payment of $605,000 of note principal due First Union
Bank and the cancellation of $70,000 in loan principal due him.
On January 15, 1998 the Company agreed to issue an additional 200,000
shares of Series A preferred stock to the same shareholder in consideration for
cash of $200,000 which was received in full on January 29, 1998.
The Series A preferred stock has no voting rights but does carry
preference over common shares to the extent of liquidation value of $11.60 per
share of preferred stock and 5% dividends declared on a non-cumulative basis.
The preferred stock is convertible into common stock at the rate of one share of
common stock for each share of preferred stock, which conversion shall occur on
the earlier of June 30, 1998 or the Company's filing of a registration statement
with the Securities & Exchange Commission. The preferred stock was converted
into common stock on November 18, 1998.
In the event the Company does not effect an initial public offering of
its securities under the Securities Act of 1933, as amended on or before
December 31, 1998, the minority shareholder shall have the right to require the
Company to repurchase any or all equity securities of the Company (including
without limitation all shares of Common Stock, Preferred Stock and Conversion
Shares) then owned by him (collectively, the "Put Shares"); provided, however,
the Company shall only be obligated to repurchase that number of Put Shares
which, when taken together with all prior Put Shares repurchased by the Company,
result in an aggregate repurchase price paid to Sery of not more than
$1,200,000. The Put was mutually canceled on September 15, 1998.
Note 5--Convertible Notes Payable
In August 1997, the Company issued $60,000 of private investor notes
payable either 1) on March 31, 1998 together with interest of 5% per annum or 2)
convertible, at the option of the holder, into $54,000 of Series A preferred
stock which are then convertible into 54,000 shares of unissued common stock at
$1.00 per share. On February 10, 1998 the Company repaid $20,000 of the notes
together with accrued interest of $501. No investors elected to convert their
note into stock and the conversion feature lapsed.
F-11
<PAGE> 32
OPTICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 6--Loans Payable - Stockholders
<TABLE>
<CAPTION>
September 30,
-------------------------
1998 1997
-------------------------
<S> <C> <C>
These loans are due two minority stockholders as follows:
A. Unsecured loan dated September 30, 1997 due on demand.
Interest of 8% per annum has been accrued. $20,000 $20,000
B. Loan payable minority shareholder in original amount
of $50,000 borrowed May, 1995 and payable in equal
monthly principal installments of $2,833 commencing
June 1995 with the final payment of $1,833 due November
1997. Interest of 12% per annum has been imputed to
April 15, 1997. Thereafter interest of 12% per annum
has been accrued. 14,461 11,832
$34,461 $31,832
======= =======
</TABLE>
Note 7--Long Term Debt
<TABLE>
<CAPTION>
Long-term debt consists as follows: September 30,
-------------------------
1998 1997
-------------------------
<S> <C> <C>
A. Loan payable minority stockholder pursuant to debt
restructure agreements wherein unpaid capital lease
obligations of $21,136 and the two years accrued
interest of $3,518 were consolidated into one loan
obligation of $24,654. The loan is to be repaid in 24
equal principal payments of $1,115 together with
interest of 8% per annum commencing October 15, 1999
with the final payment due September 15, 2001. $24,654 $22,827
B. 8% debenture bonds payable. The bonds matured
September 15, 1998 and all bondholders consented to
the extension of the payment maturity to September
15, 2000 in consideration for an increase in the
interest rate to 10% per annum effective October 1,
1998. 28,500 -0-
C. 8% loan payable majority stockholder. Annual interest
of $3,224 has been accrued to September 30, 1997. -0- 14,625
</TABLE>
F-12
<PAGE> 33
OPTICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 7--Long Term Debt (Continued)
<TABLE>
<S> <C> <C>
D. Note payable Ford Motor Credit Company in original
amount of $24,654 dated May 31, 1996 to be repaid in
48 equal monthly payments of $545 inclusive of 2.9%
per annum commencing June 30, 1996 with the final
payment due May 31, 2000. The note is secured by a
corporate-owned vehicle. 11,138 17,254
------- -------
Total debt $64,292 $54,706
Current maturities 6,295 17,592
------- -------
Long-term debt $57,997 $37,114
======= =======
</TABLE>
Current maturities of long-term debt for the five years ended September
30, 2003 are as follows:
<TABLE>
<S> <C>
1999 $ 6,295
2000 44,493
2001 13,504
2002 -0-
2003 -0-
-------
$64,292
=======
</TABLE>
Based on the borrowing rates currently available to the Company for
loans with similar terms and average maturities, the fair value of the notes and
loans payable described in Notes 5, 6, and 7 are approximately equal to the face
value of the debt.
Note 8--Income Taxes
No provision has been made for income taxes to be paid currently due to
the current and prior year net operating losses incurred. As of September 30,
1998 the Company had net operating loss carryforwards of approximately
$1,549,000 to be used to offset future taxable income through 2005 for state
reporting purposes and through 2018 for federal reporting purposes. A deferred
tax asset arising from such loss carryforwards of $666,000 has not been
recognized since it is more likely than not that the asset will not be realized.
Note 9--Related Party Transactions
The Company engaged in the following transactions with stockholders:
<TABLE>
<CAPTION>
Year Ended
September 30,
-------------------
1998 1997
-------------------
<S> <C> <C>
Incurred interest expense on loans and
notes payable of which $9,707 and $5,501 was
payable as of September 30, 1998 and 1997. $14,046 $12,765
Paid $36,000 to the majority stockholder in
consideration for the lease of a Florida based
rental facility. The lease payment is being
amortized over the 60 month term of the lease expiring
March 15, 2003.
</TABLE>
F-13
<PAGE> 34
OPTICAL SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Note 10--Lease Commitments
The Company leases its office premises in Edison, New Jersey under a
non-cancelable five-year operating lease which expires January 20, 2000. The
present minimum monthly rent is $7,522 which does not include utilities and
escalation expenses which the Company is obligated to pay. There is no option to
renew.
Future minimum lease commitments for all operating leases with
non-cancelable terms in excess of one year as of September 30, 1998 are as
follows:
<TABLE>
<S> <C>
1999 $104,619
2000 36,614
2001 995
2002 -0-
2003 -0-
Thereafter -0-
--------
$142,228
========
</TABLE>
The Company reported lease expense of $120,188 and $101,188 for the
years ended September 30, 1998 and 1997 respectively.
Note 11--Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended
September 30,
-------------------------
1998 1997
-------------------------
<S> <C> <C>
Supplementary cash flow data:
Interest paid $ 2,631 $ 67,369
Income taxes paid -0- -0-
Non-cash transactions:
Issuance of preferred stock in consideration
for assumption of bank debt of $605,000 and
stockholder loan of $70,000 675,000
Issuance of common stock in consideration for
stock issuance services 177,565
Unpaid stock issuance costs 20,084 66,436
</TABLE>
F-14
<PAGE> 35
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting, financial disclosure or other matters which would require disclosure
herein.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions held with
respect to each director and executive officer of the Company as of September
30, 1998:
<TABLE>
<CAPTION>
Name Age Position with the Company
---- --- -------------------------
<S> <C> <C>
Warren R. Zimmerman 50 Founder, President, Chief
Executive Officer and Director
Raymond Sery 53 Director
John F. Carlson 59 Vice President, CFO
</TABLE>
All officers and directors listed above will remain in office until the
next annual meeting of the stockholders, and until their successors
have been duly elected and qualified. There are no agreements with
respect to the election of Directors. The Company has not compensated
its Directors for service on the Board of Directors, any committee
thereof, or reimbursed for expenses incurred for attendance at meetings
of the Board of Directors and/or any committee of the Board of
Directors. Officers are appointed annually by the Board of Directors
and each Executive Officer serves at the discretion of the Board of
Directors. The Company does not have any standing committees.
The Company's Board of Directors took action to elect Surrender Kumar
to the Board of Directors and the Company announced that Mr. Kumar had
been elected to the Board. Mr. Kumar, however, declined to serve as a
Director, and therefore never acted as a Director of the Company.
On July 16, 1998, Mr. Luckman resigned from the Board of Directors for
personal reasons.
On January 27, 1999, Richard Hoynes resigned from the Board of
Directors.
Currently the Company has two Directors. The Company's By-Laws state
that the Company shall have three Directors. The Company is actively
seeking to fill at least one more position on its Board of Directors.
The Board of Directors may in the future determine to pay Director's
fees and reimburse Directors for expenses related to their activities.
None of the Officers and/or Directors of the Company have filed any
bankruptcy petition, been convicted of or been the subject of any
criminal proceedings or the subject of any order, judgement or decree
involving the violation of any state or federal securities laws within
the past five (5) years.
22
<PAGE> 36
The business experience of each of the persons listed above during the
past five (5) years is as follows:
1. Warren R. Zimmerman has more than 29 years in positions of
increasing responsibilities in the computer field. Mr. Zimmerman
spent 14 years managing the consolidated computer center for Rutgers
University (NJ). Mr. Zimmerman has served as consultant to AT&T
Information Services, Westinghouse Co., and Citibank International.
For sever years, Mr. Zimmerman managed the technical support team
for First Investors Corporation.
2. Raymond Sery has over 25 years of management experience after
obtaining his Masters in Business Administration from the Stern
School, New York University. He is presently the Vice President and
Chief Financial Officer of Federal Business Centers located in
Edison, New Jersey. He has held such position since July 1991.
3. John F. Carlson joined the Company in May 1998. Prior to joining
OSI, Mr. Carlson was Executive Vice President and CFO of Ocurest
Laboratories, Palm Beach Gardens, FL which is a marketer and
manufacturer of ophthalmic products. Mr. Carlson has held positions
involving significant financial responsibility in Viacom
International, Inc., and American Cyanamid Corp. Mr. Carlson began
his career with Price Waterhouse & Co.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of the forms required to be filed pursuant to
Section 16 of the Securities Exchange Act, the Company is aware that
the Forms 3, 4 and 5 required to be filed by its directors and officers
were not timely filed.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following sets forth the aggregate cash compensation paid to the
Company's Officers for services rendered to the Company during the
fiscal year indicated. None of the Company's executive officers who
served as such at the end of the last fiscal year earned in excess of
$100,000 during the fiscal years indicated.
<TABLE>
<CAPTION>
Name and Position Year Annual Compensation Position
----------------- ---- ------------------- --------
<S> <C> <C> <C>
Warren R. Zimmerman 1998 $80,000 President/Chief Executive Officer/Director
1997 $80,000 President/Chief Executive Officer/Director
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Mr. Zimmerman
dated October 1, 1997. Such employment agreement terminates on October
1, 2002. It provides for an annual salary of $80,000 and increases in
annual salary based on Gross Revenues as follows: a Base Revenue Amount
of $1,116,000 has been set--if the Gross Revenues for the first fiscal
year exceed the Base Revenue Amount before April 1, 1998, then the base
salary increases to $125,000 per year for the remainder of the first
year; after such initial year if the Company's Gross Revenues for a
fiscal year shall be between $3,000,000 and $5,000,000 then Mr.
Zimmerman's annual salary shall be $200,000; if the Company's Gross
Revenues for a fiscal year shall be between $5,000,001 and $10,000,000,
then Mr. Zimmerman's annual salary shall be $300,000; and if the
Company's Gross Revenues for a fiscal year shall be in excess of
$10,000,001, then Mr. Zimmerman's annual salary shall be $350,000. In
addition, the employment agreement provides for bonuses based on Gross
Revenues (Mr. Zimmerman can earn up to an additional $150,000) and Net
Earnings (Mr. Zimmerman can earn up to an additional $200,000).
Specifically, for each $100,000 in excess of the Base Revenue Amount
(see above), Mr. Zimmerman shall receive a $5,000 Gross Revenue Bonus,
not to exceed $150,000 in any given fiscal year; in addition, the Net
Earnings Bonus shall be based on Net Earnings for the prior fiscal
year. Therefore, for each $25,000 increase in Net Earnings from the
previous fiscal year, Mr. Zimmerman shall receive a $2,000 Net Earnings
Bonus, not to exceed $200,000. Mr. Zimmerman has waived the Company's
obligation to pay his bonus for fiscal year 1998.
23
<PAGE> 37
Additionally, the Company has entered into employment agreements with Derwood
G. Plyler, its Vice President of Technical Services and Christine E.
Jacobs, its Senior Manger of Document Management Solutions. These
agreements provided for an annual salaries of $70,000 and $75,000
respectively, and increases in annual salary based upon the Company's
revenues. They also provide for bonuses based upon the Company's
revenues. Each of Mr. Plyler and Ms. Jacobs have not received bonus
compensation in accordance with the terms of their respective
employment agreements and have waived the Company's compliance with
certain of the terms of the agreements, primarily those involving cash
compensation and bonus payments for the fiscal year ended 1998. While
the Company and each of these employees have not formally revoked the
agreements, neither the Company nor the employees consider the
agreements to be in full force and effect.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SECURITY HOLDERS
The following table sets forth, at September 30, 1998, certain
information with respect to stock ownership of (i) all persons known by
the Company to be beneficial owners of 5% or more of its outstanding
Common Stock, (ii) each of the Company's directors and executive
officers, and (iii) all directors and executive officers as a group.
Unless otherwise indicated, the beneficial owners have sole voting and
investment power over the shares of Common Stock listed below. As of
September 1998 there were 5,174,557 shares of Common Stock outstanding
and 1,011,513 shares of Preferred Stock outstanding.
<TABLE>
<CAPTION>
Number of Shares % of Shares of Common
Name and Address of Beneficial Owner(1) Beneficially Owned (2) Stock Beneficially Owned
---------------------------------------- ---------------------------- ------------------------
<S> <C> <C>
Warren R. Zimmerman 2,810,122 Common Shares 54.3% Common Shares
Raymond F. Sery 369,557 Common Shares 7.14% Common Shares
1,011,513 Series A Preferred
</TABLE>
All Executive Officers & Directors as a Group (2 Persons) 3,179,679
Common Shares, 61.45% Common Shares
(1) The address of each person and entity named in the above table is c/o the
company, Raritan Plaza II, Raritan Center, Fieldcrest Avenue, Edison, New
Jersey 08818.
(2) The persons and entities named in this table have sole voting and investment
power with respect to all shares of common stock and Series A Preferred
Stock reflected as beneficially owned by each.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 26, 1997, the company issued 811,513 Series A Preferred
Shares to Raymond Sery in consideration of his assumption and payment
of $605,000 of a promissory note payable to First Union Bank and the
cancellation of $70,000 in loan principal due him. In addition, on
January 15, 1998, the Company issued an additional 200,000 shares of
Series A Preferred Stock to Mr. Sery in consideration of $200,000 paid
to the Company on January 29, 1998. The terms of Mr. Sery's investment
provided that if the Company does not undertake a secondary public
offering of its securities under the Securities Act of 1933 by December
31, 1998, Mr. Sery shall have the right to require the Company to
repurchase any or all equity securities of the Company (including all
shares of common stock) then owned by him; provided, however, the
Company shall only be required to repurchase shares with an aggregate
repurchase price paid to Mr. Sery not to exceed more than $1,200,000.
That agreement was mutually canceled on September 15, 1998. Mr. Sery
does receive at the Company's option cash or unregistered shares equal
to $30,000 per quarter commencing October 1998.
24
<PAGE> 38
The Company paid $36,000 to Warren Zimmerman, the majority stockholder,
in consideration for the lease of a Florida based rental facility. The
lease payment is being amortized over 60 months term of the lease
expiring March 15, 2003.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 10-KSB.
Exhibit
Number Title of Exhibit
3.1+ Certificate of Incorporation of Optical Systems, Inc. (Filed
as Exhibit 3(i) to the Company's Form 10SB dated July 8,
1998.)
3.2+ By-Laws of Optical Systems, Inc. (Filed as Exhibit 3(ii) to
the Company's Form 10SB dated July 8, 1998.)
10.1* Form of Statement of Work
10.2* Software License Agreement dated July 1997, between Optical
Systems, Inc. and CCD Online Systems, Inc.
10.3* Optical Systems, Inc. & NewSoft GmbH Joint Venture Agreement
dated April 8, 1998, between Optical Systems, Inc. and
NewSoft GmbH
10.4* Employment Agreeement dated October 1, 1997 between Optical
Systems, Inc. and Warren Zimmerman
10.5* Employment Agreement dated December 1, 1997 between Optical
Systems, Inc. and Christine E. Jacobs
10.6* Employment Agreement dated November 1, 1997 between Optical
Systems, Inc. and Derwood G. Plyler
10.7* Stock Repurchase Agreement dated as of January 15, 1998
between Optical Systems, Inc. and Raymond F. Sery
10.8* Revocation of Agreement dated September 15, 1998 between
Raymond F. Sery and Optical Systems, Inc.
10.9* Letter dated September 30, 1998 between Optical Systems, Inc.
and Raymond F. Sery
10.10* Lease dated August 9, 1993 between New Jersey Carpenters
Pension Fund and Optical Systems, Inc.
10.11* Letter Addendum No. 2 dated April 15, 1998 between New Jersey
Carpenters Pension Fund and Optical Systems, Inc.
10.12* Residential Lease dated February 28, 1998 between Warren R.
Zimmerman and Optical Systems, Inc.
25
<PAGE> 39
17.1* Letter dated July 16, 1998 from William H. Luckman
23.1* Auditor's Consent Letter from Mauriello, Franklin & LoBrace
dated April 12, 1999
27.1* Financial Data Schedule
99.1+ Articles of Merger (Filed as Exhibit 99.1 to the Company's
Form 10SB dated July 8, 1998).
99.2+ Agreement and Plan of Merger (Filed as Exhibit 99.2 to the
Company's Form 10SB dated July 8, 1998.)
+Incorporated by reference from the filing indicated.
*Filed herewith.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fiscal year
ended September 30, 1998.
26
<PAGE> 40
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, on April 13th, 1999.
Optical Systems, Inc.
By:/s/ Warren R. Zimmerman
----------------------------
Warren R. Zimmerman, President
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant, in the capacities and on the
dates indicated.
SIGNATURE TITLE DATE
/s/ Warren R. Zimmerman President and Director April 13th, 1999
- ----------------------------
Warren Zimmerman
/s/ Raymond Sery Director April 13th, 1999
- ----------------------------
Raymond Sery
/s/ John F. Carlson Chief Financial Officer April 13th, 1999
- ----------------------------
John F. Carlson
27
<PAGE> 1
EXHIBIT 10.1
================================================================================
OPTICAL SYSTEMS, INC.
STATEMENT OF WORK FOR PROJECT SUPPORT SERVICES
================================================================================
This Statement of Work for Project Support Services ("STATEMENT OF WORK") is
made and entered into this 27th day of October, 1997 ("EFFECTIVE DATE"), by and
between Optical Systems, Inc., a Florida corporation with a place of business at
Raritan Plaza II, Fieldcrest Avenue, Edison, New Jersey 08818 ("OSI"), and
__________, a Delaware corporation with a place of business at ___________
("CLIENT").
================================================================================
DESCRIPTION OF PROJECT/SERVICES:
OSI shall provide all of the services, support, implementation and equipment
described in the document entitled [Final Software Document Management Work Flow
System] a copy of which is attached hereto and incorporated herein by reference
(the "PROJECT DESCRIPTION") in accordance with the provisions set forth in this
Statement of Work and in the Project Description.
================================================================================
FEES: (Check One)
[ ] OSI shall provide up to ______ hours of services at the rate of $________
per hour to assist Client with the project described above.
[ ] OSI shall provide up to ______ days of services at the rate of $________ per
hour to assist Client with the project described above.
[ ] OSI shall provide the software, certain hardware and services necessary to
complete the project described above for a fixed fee of $__________.
================================================================================
This Statement of Work for Project Support Services constitutes the entire
agreement between OSI and Client with respect to the subject matter hereof and
supersedes all prior agreements and understandings relating to the same subject
matter. No modification, amendment or supplement to this Statement of Work shall
be effective for any purpose unless agreed to in writing and signed by
authorized representatives of OSI and Client.
BY SIGNING BELOW, CLIENT ACKNOWLEDGES AND AGREES THAT IT HAS READ THE TERMS AND
CONDITIONS CONTAINED ON THE REVERSE SIDE OF THIS STATEMENT OF WORK AND AGREES TO
BE BOUND BY SUCH TERMS AND CONDITIONS.
OPTICAL SYSTEMS, INC.
----------------------------
By: By:
-------------------------------- -------------------------
Authorized Signature Authorized Signature
Its: Its:
------------------------------- ------------------------
Date: Date:
------------------------------ -----------------------
================================================================================
<PAGE> 2
PAYMENT OF INVOICES. Client acknowledges and agrees that it shall pay all OSI
invoices within thirty (30) calendar days of the date of such invoice. If Client
fails to remit payment within ten (10) calendar days following receipt of
written notice of failure to pay within such thirty (30) calendar day period,
OSI shall be entitled, in addition to any other rights and remedies that may be
available to it under this Statement of Work, to suspend its performance
hereunder and Client shall pay interest on all such amounts at the rate of two
percent (2%) per month, or the highest rate permitted by applicable law,
whichever is lower.
TAXES. Client shall pay all personal property, sales, use and other taxes
(excluding taxes based upon OSI's net income) that are imposed as a result of
the execution or performance of this Statement of Work. Any amount due from
Client for taxes shall be paid directly by Client, where appropriate, or shall
be reimbursed by Client upon payment thereof by OSI.
CLIENT'S RESPONSIBILITIES. In order to facilitate prompt and efficient
completion of work, Client and its personnel shall cooperate fully with OSI and
its personnel in all reasonable respects including, without limitation,
providing information regarding Client's requirements, providing access to
Client's facilities and systems and providing access to all appropriate Client
personnel.
LIMITED WARRANTY. OSI represents and warrants that it shall perform the services
required under this Statement of Work in accordance with industry standards and
practices generally applicable to such services. In the event OSI fails to
perform any services as provided herein, OSI's sole and exclusive obligation
shall be to promptly take such action as may be reasonably necessary to correct
such failure. This warranty shall remain in effect for a period of one (1) year
following OSI's performance of any services hereunder. OSI MAKES NO OTHER
EXPRESS OR IMPLIED REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE SERVICES TO
BE PERFORMED BY OSI OR ANY PRODUCTS THAT MAY RESULT THEREFROM. OSI DISCLAIMS ALL
OTHER WARRANTIES, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE INCLUDING,
WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
OSI represents that the warranty granted by the vendor(s) of the hardware
purchased by OSI pursuant to this Statement of Work is capable of being and
shall hereby be passed through and made available to Client as if Client were
the direct customer of the hardware vendor(s). OSI further represents that the
Deposit Agreement identified in EXHIBIT 1 by and between [______], and OSI dated
_________ is in full force and effect and, provided Client continues to obtain
software support and maintenance services from OSI, OSI shall be diligent in
enforcing such Deposit Agreement for the benefit of Client. If OSI is entitled
to receive the source code pursuant to the terms of the Deposit Agreement, OSI
shall continue to maintain and support the software at no additional charge to
Client, excluding applicable software support and maintenance fees.
TERM AND TERMINATION. This Statement of Work shall commence on the Effective
Date and shall remain in effect until both parties have completed performance of
their obligations under this Statement of Work, unless earlier terminated by a
party for cause as provided below. The parties acknowledge and agree that the
following events shall constitute a material breach of this Statement of Work
("EVENTS OF Default"): (a) failure of Client to pay any amount owed to OSI when
due, provided that such failure is not cured within ten (10) calendar days
following receipt of written notice of such failure; (b) OSI fails to correct
the System within the timeframes described in "Acceptance Testing" of the
Project Description; (c) failure of a party to perform any other material
obligation under this Statement of Work that is not cured within thirty (30)
calendar days following receipt of written notice of such failure; (d) the
institution of bankruptcy, receivership, insolvency, reorganization or other
similar proceedings by or against Client under any section or chapter of the
United States Bankruptcy Code, as amended, or under any similar laws or statutes
of the United States or any state thereof, if such proceedings have not been
dismissed or discharged within thirty (30) calendar days after they are
instituted; and (e) appointment of a receiver for all or substantially all of
Client's assets. Each party shall be excused from performing its obligations
hereunder during any period of time when such party is prevented from performing
its obligations as a result of the delay or non-performance of the other party.
Upon the occurrence of an Event of Default by or with respect to a party,
subject to the terms of this Statement of Work, the non-defaulting party shall
be entitled to: (a) suspend its performance hereunder; (b) declare this
Statement of Work terminated; and/or (c) seek any and all rights and remedies
that may be available to it at law and in equity. Any terms of this Statement of
Work that would, by their nature, survive the expiration or termination of this
Statement of Work, shall survive the expiration or termination of this Statement
of Work.
OSI'S TOTAL LIABILITY TO CLIENT OR TO ANY THIRD PARTY FOR ANY CLAIMS THAT ARISE
OUT OF OR RELATE IN ANY WAY TO THE TERMS OF THIS STATEMENT OF WORK, REGARDLESS
OF THE FORM OF ACTION, WHETHER FOR BREACH OF CONTRACT, BREACH OF WARRANTY OR
TORT (INCLUDING NEGLIGENCE), SHALL IN NO EVENT EXCEED THE AMOUNT ACTUALLY PAID
BY CLIENT UNDER THIS AGREEMENT FOR THE SERVICES AND/OR SOFTWARE THAT GAVE RISE
TO SUCH LIABILITY. OSI SHALL IN NO EVENT BE LIABLE FOR ANY CONSEQUENTIAL,
INCIDENTAL, INDIRECT, EXEMPLARY, PUNITIVE, SPECIAL OR SIMILAR DAMAGES INCLUDING,
WITHOUT LIMITATION, LOSS OF PROFITS, LOSS OF REVENUES, LOSS OF DATA, OR FOR
COVER AND THE LIKE, EVEN IF OSI HAS BEEN ADVISED OF THE LIKELIHOOD OF THE
OCCURRENCE OF SUCH DAMAGES.
INDEMNIFICATION. Each party shall indemnify, defend and hold harmless the other
and such party's shareholders, directors, officers, employees, representatives,
agents, successors and assigns, and shall pay any and all damages, costs and
expenses (including reasonable attorneys' fees) incurred by such party as a
result of, or arising out of, claims, suit, or demands of third parties for loss
of life, personal injury and/or damage to real or tangible personal property, to
the extent such loss or damage is caused by the gross negligence or willful or
reckless conduct of the other party.
FORCE MAJEURE. Each party shall be excused from performance under this Statement
of Work and shall have no liability to the other party for any period it is
prevented from performing any of its obligations (other than payment
obligations), in whole or in part, by an act of God, war, civil disturbance,
court order, labor dispute, third party performance or nonperformance, or other
cause beyond its reasonable control, including failures or fluctuations in
electrical power, heat, light, or telecommunications, and such nonperformance
shall not be a default under, or grounds for termination of, this Statement of
Work. Notwithstanding the foregoing, if any of the above-enumerated
circumstances prevent, hinder or delay performance of either party's obligations
hereunder for more than ninety (90) calendar days, the party not prevented from
performing may, at its option, terminate this Statement of Work without penalty
or liability as of a date specified by such party in a written notice of
termination to the other party.
GOVERNING LAW EXCLUSIVE JURISDICTION. This Statement of Work shall be governed
by and enforced in accordance with the laws of the State of New Jersey. Any suit
or proceeding arising from or relating in any way to the subject matter of this
Statement of Work shall be brought only in the courts, state and federal,
located in the City of New Brunswick, County of Middlesex, State of New Jersey,
and the parties hereby consent to the exclusive personal jurisdiction and venue
of such courts.
NOTICES. Any written notice required or permitted to be delivered pursuant to
this Statement of Work shall be in writing and shall be deemed delivered: (a)
upon delivery if delivered in person; (b) three (3) business days after deposit
in the United States mail, registered or certified mail, return receipt
requested, postage prepaid; (c) upon transmission if sent via telecopier, with a
confirmation copy sent via overnight mail; or (d) one (1) business day after
deposit with a national overnight courier, in each case addressed to the address
set forth on the reverse side of this Statement of Work.
NON-SOLICITATION OF EMPLOYEES. During the term of this Statement of Work and for
a period of one (1) year following the termination or expiration of this
Statement of Work, Client shall not make an offer of employment to nor enter
into a consulting relationship with any person employed by OSI that provided any
services to Client during the preceding one (1) year period.
AGENCY. Neither party hereto shall make any representations or warranties or
incur any liability on behalf of the other. Neither party is the agent,
representative or partner of the other party.
<PAGE> 3
SEVERABILITY. If any provision of this Statement of Work is found by any court
of competent jurisdiction to be invalid or unenforceable, the invalidity of such
provision shall not affect the other provisions of this Statement of Work, and
all provisions not affected by such invalidity shall remain in full force and
effect.
WAIVER. The waiver of a breach or default in any of the provisions of this
Statement of Work by a party shall not be construed as a waiver of any other
breach or default. No delay or omission on the part of either party to exercise
or avail itself of any right, power or privilege that it has or may have
hereunder shall operate as a waiver in connection with any other breach or
default.
<PAGE> 1
EXHIBIT 10.2
SOFTWARE LICENSE AGREEMENT
I.
INTRODUCTION
1.1 Parties. This Software License Agreement, dated as of July 1997,
("Agreement") is between CCD ONLINE SYSTEMS, INC. ("Company"), a California
corporation with its principal place of business at 411 East Huntington Drive,
Suite 208, Arcadia, California 91006, and Optical Systems, Inc. ("Consultant"),
a Florida corporation, with its principal place of business at Raritan Plaza II,
Fieldcrest Ave., Edison N.J. 08818.
1.2 Software. Company is the owner of certain software, and possesses
certain proprietary information and know-how (collectively, the "Software") as
more particularly defined in this Agreement.
1.3 Purpose. Consultant wishes to obtain, and Company is willing to grant
to Consultant, on the terms and conditions set forth herein, a non-exclusive
license to use the Software for the benefit of Consultant's customers in order
to convert its computer programs.
1.4 Consideration. In consideration of the mutual promises contained in
this Agreement, the parties agree as follows:
II.
DEFINITIONS
Capitalized terms used in this Agreement shall have the meanings set forth
as follows:
2.1 "Company" means the entity identified as such in Article I. Section 1.
1 of this Agreement.
2.2 "Consultant" means the entity identified as such in Article I. Section
1.1 of this Agreement.
2.3 "Customer" means those companies, businesses, and entities specifically
identified by Consultant upon whose computer programs the Software will be used.
2.4 "Documentation" means all manuals, workbooks, and other supporting
materials furnished together with or intended to be used in connection with
the Software, specifically excluding marketing materials.
<PAGE> 2
2.5 "End User" means the Customer of Consultant, as more particularly
defined in paragraph 2.3 hereof, and excludes affiliates, parents, and
subsidiaries, or any other company directly or indirectly related to Customer or
Consultant.
2.6 "License" means the rights granted pursuant to Article III. of this
Agreement.
2.7 "License Fee" means the compensation to be paid by Consultant to
Company pursuant to Article VI. and Exhibit 3 to this Agreement.
2.8 "Maintenance" means those services provided by Company for the benefit
of Consultant, and others, pursuant to Article XIII. Section 13.2 of this
Agreement.
2.9 "Maintenance Fee" means the compensation payable by Consultant to
Company pursuant to Article XIII. Section 13.3 of this Agreement, for the
Maintenance services provided in Article XIII. Section 13.2 of this Agreement.
2.10 "Sublicense Agreement" means the contract between Consultant and a
Customer whereby the Customer is granted the right to use all or a part of the
Software.
2.11 "Software" refers collectively to the computer program in object code
only and the user manuals described in the specification set forth in Exhibit 1,
which are subject to the grants contained in Article III. of this Agreement.
Additionally, this term shall include any corrections. Improvements, updates or
other modification to such computer programs and user manuals, but specifically
excludes any new or separately priced products.
2.12 "Territory" means the geographical area described in Exhibit 2 in
which Consultant may sublicense the Software on a non-exclusive basis.
III.
LICENSE GRANTS
3.1 Scope of Grant of License. Company hereby grants to Consultant, and
Consultant hereby accepts a non-exclusive, non-transferable License to the
Software subject to all of the terms, conditions, and restrictions herein
contained. Consultant knowingly and voluntarily accepts the Software subject to
all of the terms, conditions, and restrictions of this Agreement including all
shrink-wrap terms and conditions.
3.2 Ownership of Software. Company possesses sufficient rights to the
intellectual property associated with the Software to enter into this Agreement,
and grants the License hereunder with full corporate right and authority to
enter into this Agreement and perform its obligations hereunder.
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3.3 Right to sublicense. Subject to the terms of this Agreement. Company
grants Consultant a non-exclusive, non-transferable, non-delegable License to
sublicense Customers located in the Territory to use the Software to convert
said Customer's computer programs provided that:
A. The Software is sublicensed for use only in the Territory and only
Consultant's Customer, specifically excluding affiliates,
subsidiaries, and parent companies of Customer.
B. Consultant has obtained Company's permission to sublicense the
Software to the Customer designated in writing by Consultant; and
C. Consultant has its Customer execute a Sublicense Agreement and
forwards a copy of such Sublicense Agreement to Company.
IV.
TERRITORY
4.1 Scope of Territory. The territory in which Consultant may sublicense
the Software, on a non-exclusive, non-transferable, non-delegable basis as
contained in Exhibit 2 to this Agreement.
V.
TERM OF LICENSE
5.1 Effective Date. The term of the License granted hereunder shall
commence upon full execution of this Agreement by both parties, and payment of
the License Fee as Provided for in Article VI, hereof, whichever later occurs.
5.2 Term. The term of this Agreement shall commence upon the effective
date, and expire precisely three years thereafter, subject to the provisions of
paragraph 5.3 of this Agreement, and Article XIV of this Agreement.
5.3 Renewal. Absent a material breach by either party, this Agreement
shall renew automatically for successive one year terms, unless terminated in
writing by either party no more than thirty (30) days before the expiration of
the prior term. All of the provisions and conditions of this Agreement shall
remain in effect during each successive term hereof, save and except payment,
which shall be at Company's then existing rate.
VI.
PAYMENT FOR LICENSED SOFTWARE
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<PAGE> 4
6.1 Payment. In consideration of the License granted hereunder, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
Consultant agrees to, and shall pay Company the License Fee set forth in Exhibit
3 to this Agreement.
6.2 Additional code. The License Fee set forth in Exhibit 3 to this
Agreement applies only to the number of lines of code purchased by Consultant.
Consultant acknowledges that it is authorized to use the Software only for the
number of lines of code purchased. Use of the Software for additional lines of
code requires additional payment.
6.3 Time for Payment. The License Fee is payable in full, in United States
Dollars, upon full execution of this Agreement, unless other payment terms are
specifically specified in Exhibit 3 to this Agreement. Payment shall be deemed
made when actually received by Company, or upon direct deposit or wire transfer
into Company's designated bank, as the case may be.
6.4 Late Charges. Any payment or part of a payment that is not paid when
due shall bear interest at the rate of one and a half percent (1 1/2 %) per
month, or at the highest contract rate allowed by law, whichever is less, from
its due date until paid.
6.5 Records and audit. Consultant shall maintain accurate records relating
to the distribution and sublicensing of the Software, so as to establish the
payments due to Company hereunder, to identify the location of the Software, to
identify all sublicensees and to otherwise verify Consultant's compliance with
the terms of this Agreement. Such books and records shall be available at their
place of keeping for inspection by Company or an independent auditor chosen and
Paid by Company for the purpose of determining whether the correct payment of
License Fees has been made to Company and whether Consultant has otherwise
complied with the terms of this Agreement.
VII.
WARRANTIES AND REPRESENTATIONS OF COMPANY
Company warrants and represents to Consultant as follows:
7.1 The execution and delivery of this Agreement, and the performance by
Company of its obligations hereunder, including the grant of the Improvements,
have been duly authorized by all necessary corporate and other action on the
part of Company, and no consents, waivers or permissions that have not already
been granted are required for such actions. This Agreement constitutes the valid
and binding obligation of Company, enforceable against it in accordance with its
terms.
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<PAGE> 5
7.2 Owner of Software. Company is the sole owner of the Software, free and
clear of all known claims, liens, and demands of any other person or entity.
7.3 Right to grant. To the best of Company's knowledge, Company has full
power, authority, and right to grant to Consultant all of the rights granted by
this Agreement, and the grant of such rights and License does not violate the
rights of any other person or entity.
7.4 No conflict. To the best of Company's knowledge, the grant of the
rights and License to Consultant under this Agreement does not and will not
constitute a default, breach or violation of the charter or by-laws of Company,
any statute, law, or decree of any court or legislative or governmental agency
applicable to Company or Software, or under any contract, agreement, or
instrument binding on or applicable to Company or the Software.
7.5 EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, COMPANY AND ITS
DIRECTORS, OFFICERS, AND EMPLOYEES EACH MAKE NO REPRESENTATION AND EXTEND NO
WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED
TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND THE
ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE WITH RESPECT TO
THE SOFTWARE. COMPANY FURTHER MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND
OR NATURE THAT THE SOFTWARE WILL CONVERT ALL CODE.
VIII.
REPRESENTATIONS AND OBLIGATIONS OF CONSULTANT
Consultant warrants and represents to Company as follows:
8.1 Authorization. The execution and delivery of this Agreement, and the
performance by Consultant of its obligations hereunder, including the grant of
the license, have been duly authorized by all necessary corporate and other
action on the part of Consultant, and no consents, waivers or permissions that
have not already been granted are required for such actions. This Agreement
constitutes the valid and binding obligation of Consultant, enforceable against
it in accordance with its terms.
8.2 No violation. Consultant's use of the Software as contemplated by this
Agreement does not and will not constitute a default, breach or violation of the
charter or by-laws of Consultant, any statute, law, rule, or decree of any court
or legislative or governmental agency applicable to Consultant, or under any
contract, agreement, instrument, or document binding on or applicable to
Consultant.
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<PAGE> 6
8.3 Qualified personnel. Consultant has in its employ, or otherwise
available to it, personnel who are qualified to learn how to, and properly use
the Software.
8.4 Acknowledgement of no representations. No representative of Company
has made any statement, promise, or inducement to Consultant other than those
specifically contained in this Agreement.
8.5 Limitations on sublicense. Consultant will not sell, convey, assign,
disseminate, or sublicense in any way whatsoever the Software, or any of its
components without Company's written permission first had and obtained.
IX.
RESTRICTIONS ON USE OF SOFTWARE
9.1 No modification. Consultant shall not modify, alter, disassemble, copy
or reverse engineer the Software.
9.2 Authorized Customers only. Notwithstanding any provision herein
contained to the contrary, consultant shall not assign, disseminate, sell,
convey, hypothecate or sublicense the Software to any Customer without company's
permission first had and obtained, which consent shall not be unreasonably
withheld or delayed. Consent to one assignment shall not be deemed consent to
subsequent assignments. Violation of this paragraph shall render any attempted
assignment null and void, and give rise to Company's remedies as provided for in
Article XIV of this Agreement.
9.3 Sublicense Agreements. Consultant shall present to Company Sublicense
Agreements with its Customers, for approval by Company. All said Agreements
shall be on forms prepared or approved by Company. All Sublicense Agreements
shall incorporate by reference the terms of this Agreement, and the term of any
Sublicense shall not extend beyond the term hereof, or any extension pursuant to
paragraph 5.3 of this Agreement.
X.
DELIVERY
10.1 Delivery. Company shall deliver, or cause to be delivered the Software
to the location designated by Consultant within ten (10) days of full execution
of this Agreement, and payment in full of the License Fee, unless otherwise
specified in Exhibit 3 to this Agreement.
10.2 Data conversion. Consultant shall be solely responsible for program
and data conversion, data and code entry, and verification of data.
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<PAGE> 7
XI.
TRAINING AND MAINTENANCE
11.1 Training. Company shall provide a training program at a location
designated by it, the nature, scope, content, an extent of which shall be within
Company's sole discretion. There shall be no charge for said training program
for the number of employees of Consultant in accordance with the schedule
contained on Exhibit 4.
11.2 Maintenance services. Provided Consultant has paid the Maintenance
Fee as hereinafter provided, and is not otherwise in default under the terms of
this Agreement, Consultant shall have the right to access the Maintenance
services provided by Company, which consist of a telephone hotline, and periodic
Improvements to the Software.
11.3 Maintenance Fee. The Maintenance Fee payable for said Maintenance
services as hereinabove described, shall be percent ( %) of the License
Fee described in Exhibit 3, or the then current License Fee, whichever is
greater.
11.4 Maintenance Fee for first year.
11.5 Failure to pay License Fee. In the event the License Fee is not paid
in full when due, or within a twenty (20) day, non-cumulative grace period,
Consultant shall not be entitled to any Maintenance services provided for by
Company. If, subsequent to a lapse of the Maintenance services, Consultant
desires to reinstate same, Company may, in its sole and absolute discretion,
permit a reinstatement of its Maintenance services for Consultant upon terms and
conditions it deems appropriate.
XII.
OWNERSHIP
12.1 Company owns Software. Consultant acknowledges that Company owns all
proprietary rights, including patent, copyright, trade secret, trademark, and
other proprietary rights, in and to the Software, and any corrections, fixes,
enhancements, updates, versions, or other modifications, including custom
modifications, to the Software, whether made by Company or any third party.
12.2 Confidentiality of Software. Consultant agrees that the Software
contains proprietary information, including trade secrets, know-how and
confidential information, that is the exclusive property of Company. During the
period this Agreement is in effect and at all times after its termination,
Consultant and its employees,
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<PAGE> 8
officers, and directors, shall maintain the confidentiality of this information
and not sell, license, publish, display, distribute, disclose or otherwise make
available this information to any third party, nor use any such information
except as authorized by this Agreement. Consultant shall not disclose any such
proprietary information concerning the Software, including any flow charts,
logic diagrams, user manuals and screens, to persons not an employee of
Consultant without the prior written consent of Company.
12.3 Confidentiality for Consultant. Company acknowledges that
Consultant's Customer lists, pricing, and business practices constitute
proprietary and confidential information. Company agrees that it will not
disclose this information to anyone other than its own employees or professional
advisors who require access, and that it will maintain and protect the
confidentiality of this Agreement, and will take all necessary and proper
precautions to prevent any unauthorized use or disclosure of this information.
XIII.
INDEMNIFICATION
13.1 Company's indemnification. In the event that any suit is brought
against Consultant or any of its Customers based exclusively on a claim that the
unmodified version of the Software originally delivered by Company infringes any
existing patent, copyright, or trade secret, Company agrees that it will:
A. Defend the suit at its expense, as long as Company is notified
promptly in writing and its given complete authority and information
required to defend the suit;
B. Pay all damages and costs awarded against Consultant or its
Customer, provided that Company's obligation to pay damages and costs
shall not exceed the total sum paid by Consultant to Company
hereunder, and provided that Company will not be responsible for any
costs, expense, or compromise made by Consultant or its Customer
without Company's prior written consent; and
C. Allow consultant or its Customer to participate in the defense of
the suit at its own expense, if it so elects.
13.2 Indemnification by Consultant. Consultant shall indemnify and hold
harmless Company from all claims, losses, and damages, including attorney's
fees, which may arise from its marketing, installation, support, or training of
the Software, including claims based on representations, warranties, or
misrepresentations made by Consultant, inadequate or improper installation,
support or assistance by Consultant, or any other act or failure to act on the
part of Consultant. Since Company is not responsible for the proper functioning
of the Software, as disclosed in paragraph 7.5 hereof, Consultant shall further
indemnify and hold harmless Company from all claims, losses, and damages,
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<PAGE> 9
including attorney's fees which any of Consultant's Customers may claim is a
result of improper or lack of functioning of the Software. This indemnification
shall further be for the benefit of all Company's officers, directors,
shareholders, employees, successors, and assigns.
XIV.
TERMINATION
14.1 Termination by Company. Company may terminate this Agreement on the
occurrence of any of the following events:
A. Failure of Consultant to pay any sum due hereunder within fifteen
(15) days of the date due;
B. Consultant's material violation of the confidentiality provisions
of this Agreement;
C. Consultant sublicensing or in any way assigning any of the
Software without Company's prior written consent first had and
obtained;
D. Any other material default by Consultant which has not been cured
within thirty (30) days of written notice given to Consultant by
Company; and
E. If consultant ceases to do business or becomes insolvent.
14.2 Termination by Consultant. Consultant may terminate this Agreement at
any time after all payments accrued hereunder to the effective date of
termination have been paid, by giving sixty (60) days written notice to Company
of Consultant's intentions to terminate this Agreement.
14.3 Duties on termination. Upon expiration or termination of this
Agreement, consultant agrees to cease marketing and sublicensing the Software,
and to return to Company all Software and Documentation in its possession.
Notwithstanding the foregoing, however, in the event this Agreement is
terminated at a time when Consultant has projects under way with any of its
Customers, the termination of this Agreement shall not be effective until the
completion of said projects. The obligation of confidentiality set forth herein
shall remain in effect notwithstanding any termination of this Agreement.
14.4 Customer rights on termination. Termination of this Agreement
shall not affect the rights of any Customer to use the Software.
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XV.
FORCE MAJEURE
Either party shall be in default or otherwise liable for any delay in
or failure of its performance under this Agreement if such delay or failure
arises by any reason beyond its reasonable control, including any act of God,
any acts of the common enemy, the elements, earthquakes, floods, fires,
epidemics, riots, failures or delay in transportation or communications, or any
act or failure to act by the other party or such other party's employees, agents
or contractors; provided, however, that lack of funds shall not be deemed to be
a reason beyond a party's reasonable control. The parties will promptly inform
and consult with each other as to any of the above causes which in their
judgment may or could be the cause of a delay in the performance of this
Agreement.
XVI.
ARBITRATION
The parties shall settle any controversy arising out of this Agreement
by arbitration in accordance with the rules of the American Arbitration
Association. Any arbitration shall be held in the county of the principal place
of business of Company. The number of arbitrators shall be selected in
consonance with the American Arbitration Association's rules. The arbitrator may
award attorney's fees and costs as part of the award. The award of the
arbitrator shall be binding and may be entered as a Judgment in any Court of
competent jurisdiction.
XVII.
NOTICES
All Notices under the Agreement are to be delivered by (i) depositing
the Notice in the mail, using certified mail, return receipt requested,
addressed to the address below or to any other address as the party may
designate by providing notice, (ii) the Notice by using the telephone number
set forth below or any other telephone number as the party may designate by
providing Notice, (iii) overnight delivery service addressed to the address
below or to any other address as the party may designate by providing Notice, or
(iv) hand deliver to the individual designated below or to any other as the
party may designate by providing Notice. Notice shall be deemed delivered (i) if
by certified mail, three days after the Notice is deposited in the mail, (ii) if
by telecopy, on the date the Notice is delivered, (iii) if by overnight delivery
service, on the day of delivery, and (iv) if by hand delivery, on the date of
hand delivery.
COMPANY: Attn: Jim Peterson, Vice President
CCD On Line Systems, Inc. Facsimile #(818) 821-8648
411 East Huntington Drive, Suite 208
Arcadia, CA 91006
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CONSULTANT:
XVIII.
GENERAL PROVISIONS
18.1 Complete agreements. The parties agree that this Agreement is
the complete and exclusive statement of the Agreement between the parties, which
supersedes and merges all prior proposals, understandings and all other
agreements, oral or written, between the parties relating to the subject matter
herein contained.
18.2 Amendment. This Agreement may not be modified, altered or amended
except by a written instrument duly executed by both parties.
18. 3 Waiver. The waiver of failure of either party to exercise in any
respect any right provided for in this Agreement shall not be deemed a waiver
of any further right under this Agreement.
18.4 Severability. If any provision of this Agreement is invalid,
illegal or unenforceable under any applicable statute or rule of law, it is to
that extent to be deemed omitted. The remainder of the Agreement shall be valid
and enforceable to the maximum extent possible.
18.5 Governing law. This Agreement in performance hereunder shall be
governed by the laws of the State of California.
18.6 Read and understood. Each party acknowledges that it has read and
understands this Agreement and agrees to be bound by its terms.
COMPANY CONSULTANT
CCD ONLINE SYSTEMS, INC. Optical Systems, Inc.
By: /s/ Jim Peterson By: /s/ Warren R. Zimmerman
----------------------------- ---------------------------------
Its: Vice President Its: President
---------------------------- --------------------------------
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<PAGE> 1
EXHIBIT 10.3
OPTICAL SYSTEMS, INC. AND NEWSOFT GmbH
JOINT VENTURE AGREEMENT
AGREEMENT, dated as of this 8th day of April, 1998, by and among
Optical Systems, Inc., a Florida corporation having offices located at Raritan
Plaza II, Raritan Center, Fieldcrest Avenue, Edison, New Jersey 08818 ("OSI"),
and NewSoft GmbH, having its place of business at Am Altenrod 7, 35321 Laubach,
("NEWSOFT").
WHEREAS, OSI and NEWSOFT recognize the mutual benefits of entering into
this Joint Venture Agreement and based on the foregoing, OSI and NEWSOFT have
agreed to formalize their agreement to form a Joint Venture.
1. INTRODUCTION
a. NEWSOFT GmbH, is an international company that was established in
1996 and has successfully provided solutions for disaster recovery
services and has been in the year 2000 market for the past 1 1/2 years.
NewSoft also provides consulting services in the area of mainframe and
client server applications throughout Europe.
b. OPTICAL SYSTEMS, INC. Optical Systems Inc. which became a publicly
traded entity on September 15th, 1997, through a "504" public
offering, is an Information Technology (IT) solutions provider with
proven capabilities in network consulting, internet/intranet services,
imaging and document management. The company has been assisting
corporations in moving, storing and accessing information in an
effective low cost manner. OSI has recently introduced its proprietary
magnetic media migration tool "SafeCD(TM)". OSI has fortuitously
aligned itself with major Year 2000 tool vendors.
2. PARTIES OBLIGATIONS
a. NEWSOFT's OBLIGATIONS NewSoft agrees to provide approximately 50
sq. meters of office space for the implementation of an OSI/NEWSOFT
Year 2000 Code Conversion Factory for source code renovation for their
customers. OSI will use a portion of the space for office space to be
used by its own staff when necessary. NewSoft will
<PAGE> 2
authorize OSI to have a presence at this location by allowing the use
of an OSI company sign and allow OSI to have the use of the current
address for advertising and mail delivery. NewSoft will make available
the ability for OSI to have a telephone line, at OSI's expense, to be
used for incoming and outgoing OSI calls.
NewSoft will be responsible for all marketing and sales activities
throughout Europe, the Middle East and future agreed upon markets for
all the products and services which OSI can provide.
NewSoft will also be able and willing to participate in the marketing
and establishment of other operations in countries where OSI is not
currently represented, but where NewSoft has both the contacts and in
some cases partners, or where both parties may deem to establish joint
efforts.
b. OSI'S OBLIGATIONS OSI agrees to provide all necessary software to
successfully implement a year 2000 code conversion factory. OSI will
provide the appropriate training, for those year 2000 products which
OSI is contractually bound, necessary for the NEWSOFT staff.
OSI will provide all the necessary software, and training necessary to
perform a comprehensive demonstration for the SafeCD(TM) product so
NEWSOFT can perform demonstrations of the product on demand.
c. JOINT OBLIGATIONS Both OSI and NewSoft agree to jointly
participate in advertising via media, trade shows, or in any other
manner that would further the success of the venture.
OSI and NewSoft will jointly provide materials, software, training, and
installation support for any products agreed to be marketed, installed
and supported by either party in agreed upon markets. These products to
be defined and either party to provide the other with approval from the
original product manufacturers to sell, install, and support such
products in the agreed upon markets.
3. TERM OF JOINT VENTURE This Joint Venture will remain in effect for an
initial twenty-four (24) months. NEWSOFT and OSI will, at the end of
the twenty-four (24) month term, evaluate whether and on what terms
they will continue their Joint Venture.
<PAGE> 3
4. REVENUE/COMPENSATION STREAMS
a. REVENUE FROM SAFECD(TM) SALES
If NEWSOFT closes an account without having OSI be involved
(meaning onsite) then NEWSOFT will receive % of the
revenue from the sale price of the software.
If NEWSOFT requires OSI to take part in the closing of the
sale (meaning OSI must provide onsite help) the NEWSOFT will
receive % of the revenue from the sale price of the
software.
Training and installation will be either the responsibility of
NEWSOFT at their current rates or if OSI has to perform
installation and or training OSI will charge their current
billing rates plus any travel.
b. REVENUE FROM Y2K FACTORY
Any business that comes in through a NewSoft customer contact,
the OSI/NewSoft factory will pay the current royalty costs to
the software supplier through OSI, under the same payment
terms as indicated in the appropriated software agreement, as
specified in the then existing contract (agreement)
negotiated, and pay out any direct overhead costs and then
split of the remaining revenue between OSI and NewSoft.
Other revenue split can be negotiated between OSI and NewSoft
on a project by project basis.
C. REVENUE FROM OTHER JOINT SERVICES
Revenue sharing for these services will be prepared and
negotiated on a project by project basis.
5. OWNERSHIP OF PROPRIETARY MATERIALS
a. OSI's PROPRIETARY MATERIALS NEWSOFT acknowledges that OSI is and
will remain the owner of all right, title and interest in and to its
proprietary materials, whether previously existing or hereinafter
conceived,
<PAGE> 4
created, developed, made or acquired by OSI. NEWSOFT shall
obtain no right or title in and to OSI's proprietary materials.
b. NEWSOFT'S PROPRIETARY MATERIALS OSI acknowledges that NEWSOFT is
and will remain the owner of all right, title and interest in and to
its proprietary materials, whether previously existing or hereinafter
conceived, created, developed, made or acquired by NewSoft. OSI shall
obtain no right or title in and to NewSoft's proprietary materials.
6. CONFIDENTIALITY Each party agrees that it will maintain the
confidentiality of any information or materials designated by the other party as
constituting confidential information including, without limitation, customer
lists, trade secrets and other proprietary and confidential information.
If the foregoing correctly sets forth the understanding between us, please sign
the form of acceptance on the enclosed copy of this letter and return the signed
copy to me.
Very truly yours,
/s/ Warren R. Zimmerman
- -----------------------------------------
Warren R. Zimmerman
President/CEO
OPTICAL SYSTEMS, INC.
ACKNOWLEDGED AND AGREED:
Nigel M. Kaufman
Director
NEWSOFT GMBH, INC.
By: /s/ Nigel M. Kaufman
-------------------------------------
Printed Name:
----------------------------
Title: Director
---------------
Date: 8/4/98
-------------
<PAGE> 1
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of October 1, 1997 (the "Agreement"), by
and between Optical Systems, Inc., a Florida corporation (the "Company"), and
Warren R. Zimmerman ("Executive").
RECITALS:
WHEREAS, Executive is the founder of the Company; and
WHEREAS, Executive has devoted his entire business time and attention
to securing financing for the Company and to developing the activities and
policies of the Company, and has served as its President, Chief Executive
Officer and Chairman of the Board of Directors (the "Board") since the Company's
inception; and
WHEREAS, the Company has recently issued shares of its common stock,
par value $.0001 per share ("Common Stock"), and warrants to purchase shares of
Common Stock (the "Warrants") pursuant to a private placement of securities (the
"504 Offering") in accordance with the provisions of Rule 504 of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities Act");
and
WHEREAS, the Board has approved, in connection with the 504 Offering,
the Company's grant to Executive of incentive compensation in the form of shares
of Common Stock ("Incentive Shares") issuable upon the Company's attainment of
certain economic goals; and
WHEREAS, the Company and Executive wish to set forth in writing the
terms of Executive's employment with the Company, including the terms of the
issuance of Incentive Shares to Executive, and the terms of severance payments
to Executive in the event of the termination of his employment with the Company
under certain circumstances.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto hereby agree as follows:
1. Employment.
1.1 General. The Company hereby employs Executive in the
capacity of President, Chief Executive Officer and Chairman of the Board of the
Company, and Executive hereby accepts such employment subject to the terms and
conditions herein contained. In such capacities, Executive will perform and
carry out such duties and responsibilities as may be reasonably assigned to him
from time to time by the Board. Subject to the foregoing, Executive shall not be
required to report to or take direction from any particular individual.
Executive shall have such powers, rights, duties and obligations as are
commensurate with his positions.
<PAGE> 2
1.2 Board and Board Committees. The Company shall cause
Executive to be nominated for election, and use its best efforts to cause
Executive to be elected and re-elected to the Board throughout the Employment
Period (as such term is defined in Section 3.1 hereof). Executive will serve, if
elected, on the Board and on any committee thereof to which he may be appointed
by action of the Board, all without further compensation.
1.3 Full-Time Positions. Executive hereby agrees that, during
the Employment Period, he shall devote substantially all of his business time,
attention and skills to the business and affairs of the Company.
2. Compensation and Benefits.
2.1 Salary. The Company will pay to Executive, and Executive
will accept, a base salary during the Employment Period pursuant to the
following schedule:
(i) at the annual rate of $80,000 for the period
commencing upon the execution of this Employment Agreement;
(a) provided, however, that if aggregate
gross revenues for the first fiscal year of this Agreement
exceeds the Base Revenue Amount, as that term is defined in
paragraph 2.3(a) below, on or before April 1st, 1998, the base
salary paid to Executive shall be at an annual rate of
$125,000 for the remainder of that first fiscal year and
thereafter.
(ii) at the annual rate of $200,000 from and after
such time as the Company's Gross Revenues (as hereinafter defined) for
a fiscal year shall equal between 3,000,000 and $5,000,000;
(iii) at the annual rate of $300,000 from and after
such time as the Company's Gross Revenues for a fiscal year shall equal
between $5,000,001 and $10,000,000;
(iv) at the annual rate of $350,000 from and after
such time as the Company's Gross Revenues for a fiscal year shall
exceed $10,000,001 and at all times thereafter or at such higher rates
as the Board, in its sole discretion, may hereafter from time to time
grant to executive (the "Base Salary").
Provided, however, that no salary increases pursuant to this paragraph will
occur unless the Company enjoys positive net earnings in the fiscal year for
which the increase is granted.
2.2 The Base Salary shall be payable in accordance with the
regular payroll practices of the Company applicable to senior executives;
provided, however, that in the event the Base Salary increases in any given
fiscal year by reason of increased Gross Revenues pursuant to paragraph 2.1
above, the additional Base Salary shall be considered earned on the last
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<PAGE> 3
day of the fiscal year and shall be paid to Executive on or before the thirtieth
day after the last day of the fiscal year.
2.3 Bonus. In addition to the Base Salary, Executive shall be
entitled to receive the following bonus payments:
(a) Gross Revenue Bonus. In each fiscal year during
the Employment Period, commencing with the Company's fiscal year ending
September 30, 1997 ("Fiscal 1997"), in which the Company's gross
revenues, determined in accordance with Section 2.3(c) hereof ("Gross
Revenues"), equal or exceed the Base Revenue Amount (as hereinafter
defined), the Company shall pay to Executive $5,000 for each $100,000
increment of such excess; provided, however, that the aggregate bonus
payable to Executive pursuant to this Section 2.3(a) shall not exceed
$150,000 in any given fiscal year. For purposes of this Agreement, the
"Base Revenue Amount" shall mean $1,116,000, the amount of the
Company's gross revenues over the nine-month period ended June 30,
1997, annualized to September 30, 1997, based on financial statements
prepared by the Company's independent public accountants (the "Company
Accountants") in accordance with generally accepted accounting
principles ("GAAP") applied consistently with the practices of the
Company (the "Gross Revenue Bonus").
(b) Net Earnings Bonus. In each fiscal year during
the Employment Period, commencing with Fiscal 1997, in which the
Company's net earnings, determined in accordance with Section 2.3(c)
hereof ("Net Earnings"), exceed its Net Earnings for the prior fiscal
year, the Company shall pay to Executive $2,000 for each $25,000
increment of such excess; provided, however, that the aggregate bonus
payable to Executive pursuant to this Section 2.3(b) shall not exceed
$200,000 (the "Net Earnings Bonus"). Provided, however, that no bonus
shall be paid in excess of positive net earnings.
(c) Determination of Gross Revenues and Net Earnings.
The amount of the Company's Gross Revenues and Net Earnings in any
fiscal year shall be determined by the Board of the Company based on
audited financial statements prepared by the Company's regular
independent certified public accountants in accordance with GAAP,
applied consistently with the practices of the Company (the "Audited
Financial Statements").
(d) Payment of Bonus. Any Gross Revenue Bonus or Net
Earnings Bonus due hereunder shall be paid within thirty (30) days
following the delivery of the Audited Financial Statements to the
Company with respect to the applicable fiscal year.
(e) Pro Rata Payment. In determining the amount of
any annual bonus payable under this Section 2.3, if Executive shall
have been employed under this Agreement for less than an entire fiscal
year of the Company for which a bonus is calculated, such bonus shall
be reduced proportionately to reflect the portion of such fiscal year
that Executive was employed hereunder.
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2.4 Executive Benefits.
(a) Expenses. The Company will promptly reimburse
Executive for expenses he reasonably incurs in connection with the
performance of his duties (including business travel and entertainment
expenses) hereunder, all in accordance with the Company's policies with
respect thereto as in effect from time to time.
(b) Company Benefit Plans. Executive will be entitled
to participate in such employee benefit and welfare plans and programs
as the Company may from time to time offer or provide to its executive
officers, including, but not limited to, participation in life
insurance, health and accident, medical plans and programs and profit
sharing and retirement plans.
(c) Vacation. Executive will be entitled to such
vacation time as may be determined to be in the best interests of
Executive and the Company, but in no case less than four weeks vacation
for each twelve (12) month period Executive is employed by the Company.
3. Employment Period; Termination.
3.1 Employment Period. Executive's employment by the Company
hereunder shall commence on the date hereof (the "Effective Date") and shall
continue until October 1, 2002 (the "Initial Period"); provided, however, that,
commencing on October 1, 2002, and on each October 1st thereafter (each a
"Renewal Date"), the term of this Agreement shall be automatically extended by
an additional period of one year unless Executive or the Company shall elect by
written notice to the other given no later than sixty (60) days prior to any
Renewal Date that he or it does not wish the term of this Agreement to be so
extended (the Initial Period, together with any subsequent employment period,
being referred to herein as the "Employment Period"). The Employment Period may
be terminated, prior to its scheduled expiration date, as provided in Section
3.2 hereof. Upon termination of the Employment Period pursuant to Sections
3.2(a) through 3.2(f) hereof, inclusive, Executive will be released from any
duties hereunder (except as set forth in Section 5 hereof) and the obligations
of the Company to Executive will be as set forth in Section 3.3 and Section 4
hereof.
The parties hereto agree that the failure to extend the
Employment Period on any Renewal Date in accordance with the provisions of this
Section 3.1 shall not constitute a termination of the Employment Period pursuant
to Section 3.2 hereof.
3.2 Events of Termination. The Employment Period will
terminate upon the occurrence of any one or more of the following events:
(a) Death. In the event of Executive's death, the
Employment Period will terminate on the date of his death.
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(b) Without Cause By Executive. Executive may
terminate the Employment Period at any time for any reason whatsoever
by giving a Notice of Termination (as such term is defined in Section
3.5 hereof) to the Company. The date of termination of the Employment
Period pursuant to this Section 3.2(b) shall be the earlier of (i) the
date, following the date of the Notice of Termination, upon which a
suitable replacement for Executive is found by the Company; or (ii) 30
days after the date of receipt by the Company of the Notice of
Termination.
(c) Disability. In the event of Executive's
Disability (as hereinafter defined), the Company will have the right to
terminate the Employment Period by giving a Notice of Termination to
Executive. The Notice of Termination shall specify the date of
termination, which date shall not be earlier than thirty (30) days
after the Notice of Termination is given. For purposes of this
Agreement, "Disability" means the inability of Executive for 180
consecutive days to substantially perform his duties hereunder as a
result of a physical or mental illness, all as determined in good faith
by the Board of the Company.
(d) Cause. The Company may, at its option, terminate
the Employment Period for "Cause" by giving a Notice of Termination to
Executive. For purposes of this Agreement, "Cause" shall mean any of
the following that is materially detrimental to the goodwill of the
Company or materially damaging to the relationship of the Company with
its customers or employees: (i) an act of willful misconduct or gross
negligence by Executive in the performance of his material duties or
obligations to the Company; (ii) conviction of Executive of a felony or
of a misdemeanor involving moral turpitude; or (iii) a material act of
dishonesty or breach of trust on the part of Executive resulting or
intended to result directly or indirectly in personal gain or
enrichment at the expense of the Company. No purported termination of
Executive's employment for Cause shall be effective without a Notice of
Termination.
(e) Without Cause By The Company. The Company may, at
its option, terminate the Employment Period for any reason or no reason
whatsoever (other than for the reasons set forth elsewhere in this
Section 3.2) by giving a Notice of Termination to Executive. The Notice
of Termination shall specify the date of termination of the Employment
Period, which date shall not be earlier than thirty (30) days after the
Notice of Termination is given.
(f) The Company's Material Breach. Executive may, at
his option, terminate the Employment Period upon the Company's material
breach of this Agreement and the continuation of such breach for more
than thirty (30) days after written demand for cure of said breach is
given to the Company by Executive (which demand will identify the
manner in which the Company has materially breached this Agreement);
provided, however, that no such demand will be required if Executive
determines in good faith that such material breach is not capable of
being cured by the Company within said thirty (30) day period. The
Company's material breach of this Agreement shall include, but not be
limited to (i) the failure of the Company to make any payment which it
is
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required to make hereunder to Executive when such payment is due or
within five (5) business days thereafter; (ii) the assignment to
Executive without Executive's express written consent of any duties
inconsistent with his positions, duties, responsibilities and status
with the Company, or a change in Executive's reporting
responsibilities, titles or offices or any plan, act, scheme or design
to constructively terminate Executive, or any removal of Executive from
or any failure to use its best efforts to re-elect Executive to any of
such positions, except in connection with the termination of the
Employment Period by the Company for Cause or Disability or as a result
of Executive's death or voluntary resignation or by Executive other
than pursuant to this Section 3.2(f); and (iii) a reduction by the
Company in Executive's Base Salary.
3.3 Certain Obligations of the Company Following Termination
of the Employment Period. Following termination of the Employment Period under
the circumstances described below, the Company will pay to Executive the
following compensation and provide the following benefits, in addition to any
Incentive Shares issuable to Executive in accordance with the terms and
conditions of Section 4 hereof, in full satisfaction and final settlement of any
and all claims and demands that Executive then has or hereafter may have
hereunder against the Company.
(a) Death; Disability; For Cause. In the event that
the Employment Period is terminated pursuant to Section 3.2(a), 3.2(c)
or 3.2(d) hereof, the Company will pay to Executive or his estate or
legal representatives, as the case may be, his (i) Base Salary through
the Date of Termination in accordance with its regular payroll
practices; and (ii) Gross Revenue Bonus and Net Earnings Bonus, in
accordance with the terms of Section 2.2 hereof. In the event that the
Employment Period is terminated pursuant to Section 3.2(c) hereof,
Executive will also be entitled to receive any unpaid disability
benefits under any insurance program in effect on the date of
termination.
(b) Without Cause by the Company; Material Breach by
the Company. In the event that the Employment Period is terminated
pursuant to Section 3.2(e) or Section 3.2(f) hereof, the Company will
pay to Executive:
(i) the Base Salary through the Date of
Termination at the rate in effect at the time the Notice of
Termination is received;
(ii) in lieu of any further salary or other
payments to Executive for periods subsequent to the Date of
Termination, the Company will pay as severance pay to
Executive, on the 10th business day following the Date of
Termination (the "Payment Date"), a lump sum equal to the
higher of (A) $1,500,000, or (B) two (2) times the sum of (I)
Executive's then current annual Base Salary (unless the
Employment Period has been terminated by Executive pursuant to
Section 3.2(f) hereof by reason of a reduction by the Company
of Executive's Base Salary, in which case Executive's Base
Salary immediately prior to such reduction shall be used), and
(II) the sum of Executive's most recent Gross Revenue Bonus
and Net Earnings Bonus; provided, however, that in the
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event of the imposition of an excise tax on Executive under
Section 4999 or 280(G) of the Internal Revenue Code of 1986,
as amended, as the same may be amended or renumbered from time
to time, the Company shall reimburse Executive for the full
amount of such excise tax;
(iii) the Company will reimburse Executive
for all reasonable legal fees and expenses incurred by
Executive in enforcing any right or benefit provided by this
Section 3.3(b); and
(iv) the Company will maintain all life
insurance, medical, health and accident, and disability plans
and programs in which Executive was entitled to participate
immediately prior to the Date of Termination in full force and
effect, for Executive's continued benefit until the earlier of
(A) twenty-four (24) months from the Date of Termination, or
(B) the date on which Executive is covered for such benefits
by reason of his being employed with any other person or
entity; provided, however, that Executive's continued
participation is possible under the general terms and
provisions of the Company's plans and programs. In the event
that Executive's participation in any such plan or program is
barred, the Company, at its sole cost and expense, will use
its reasonable efforts to provide Executive with benefits
substantially similar to those which Executive was entitled to
receive under such plans and programs.
(c) Without Cause By Executive. In the event that the
Employment Period is terminated by Executive pursuant to Section 3.2(b)
hereof, the Company will pay to Executive the Base Salary and the
benefits set forth in Sections 2.3(a) and 2.3(b) hereof through the
Date of Termination.
3.4 "Notice of Termination" Defined. For purposes of this
Agreement, "Notice of Termination" shall mean a written notice which (a)
indicates the specific termination provision relied upon by the Company or
Executive, (b) except in the case of termination pursuant to Sections 3.2(b) or
3.2(e) hereof, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employment Period under the
termination provision so indicated, and (c) if the Date of Termination is to be
other than the date of receipt of such notice, specifies the termination date;
provided, however, that in the case of a termination of Executive's employment
pursuant to Section 3.2(d) hereof, the Notice of Termination shall include a
copy of a resolution duly adopted by the Board at a meeting called and held for
such purpose, finding that, in the reasonable and good faith opinion of the
Board, Executive was guilty of conduct constituting Cause.
3.5 "Date of Termination" Defined. For purposes of this
Agreement, "Date of Termination" shall mean such date as the Employment Period
is terminated in accordance with Section 3.2 hereof; provided, however, that in
the event that within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination will be the
date on which the dispute is finally determined.
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4. Issuance of Incentive Shares. In addition to the compensation and
benefits set forth in Section 2 hereof, the Company shall issue to Executive
Incentive Shares in accordance with the terms and conditions of this Section 4.
4.1 Number of Incentive Shares to be Issued.
(a) Gross Revenue Goals. In each fiscal year during
the Employment Period, commencing with Fiscal 1997, in which the
Company's Gross Revenues equal or exceed the Base Revenue Amount, the
Company hereby agrees to issue to Executive 8,333 Incentive Shares,
subject to adjustment as provided in Section 4.3 hereof, for each
$100,000 increment of such excess; provided, however, that the
aggregate number of Incentive Shares to be issued pursuant to this
Section 4.1(a) shall not exceed 400,000 Shares.
(b) Net Earnings Goals. In each fiscal year during
the Employment Period, commencing with Fiscal 1997, in which the
Company's Net Earnings exceed its Net Earnings for the prior fiscal
year, the Company hereby agrees to issue to Executive 8,333 Incentive
Shares, subject to adjustment as provided in Section 4.3 hereof, for
each $25,000 increment of such excess; provided, however, that the
aggregate number of Incentive Shares to be issued pursuant to this
Section 4.1(b) shall not exceed 183,333 Shares.
(c) Termination of Employment. In the event that the
Employment Period is terminated prior to the expiration thereof for any
reason except by Executive pursuant to Section 3.2(b) hereof, the
Company will issue to Executive or his estate or legal representatives,
as the case may be, a number of Incentive Shares determined by
multiplying the aggregate number of Incentive Shares issuable to
Executive pursuant to Sections 4.1(a) and 4.1(b) hereof by a fraction,
the numerator of which shall be the number of days which have elapsed
prior to the Date of Termination during the employment year in which
such Date of Termination shall occur, and the denominator of which
shall be 365.
4.2 Taxes. To the extent that any grant of Incentive Shares
hereunder shall result in the imposition of any tax(es) on Executive, the
Company shall cause a bonus to be paid to Executive in an amount equal to the
amount of such tax(es) plus the amount of any additional tax(es) imposed as a
result of the payment of such bonus(es).
4.3 Adjustments. In the event of a capital adjustment
resulting from a stock dividend, stock split, reverse stock split,
reorganization, merger, consolidation or a combination or exchange of the
Company's shares of Common Stock, the number of Incentive Shares issuable to
Executive pursuant to Section 4.1 hereof shall be adjusted consistently with
such capital adjustment. The agreement to issue Incentive Shares to Executive
under the terms and conditions hereof shall not affect in any way the right or
power of the Company to make
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adjustments, reorganizations, reclassifications or changes of its capital or
business structure, or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
4.4 Delivery of Incentive Shares. The Company shall deliver a
certificate or certificates representing the number of Incentive Shares to be
issued to Executive for each fiscal year calculated in accordance with Section
4.1 hereof within thirty (30) days following the delivery of the Audited
Financial Statements to the Company with respect to the applicable fiscal year.
4.5 Additional Documents. The Board may require, as a
condition of the issuance of the Incentive Shares, that Executive deliver to the
Company such documents, including such appropriate investment representations,
as may reasonably be required by counsel for the Company to effectuate
compliance with applicable securities laws.
4.6 Piggyback Registration Rights. If the Company at any time
proposes to register any of its securities under the Securities Act for sale to
the public, whether for its own account or for the account of other security
holders or both (except with respect to registration statements on Forms S-4,
S-8, or another form not available for registering the Incentive Shares for sale
to the public), each such time it will give written notice to such effect to
Executive at least thirty (30) days prior to such filing. Upon the written
request of Executive received by the Company within twenty (20) days after the
giving of any such notice by the Company, to register any outstanding
unregistered Incentive Shares, the Company will cause the Incentive Shares as to
which registration shall have been so requested to be included in the securities
to be covered by the registration statement proposed to be filed by the Company,
all to the extent requisite to permit the sale or other disposition by Executive
of the Incentive Shares so registered.
Notwithstanding the foregoing, in the event that any
registration pursuant to this Section 4.6 shall be, in whole or in part, an
underwritten public offering of Common Stock, the number of Incentive Shares to
be included in such an underwriting may be reduced if and to the extent that
such inclusion would reduce the number of shares to be offered by the Company;
provided, however, that such number of Incentive Shares shall not be reduced if
any shares of Common Stock are to be included in such underwriting for the
account of any person other than the Company or Executive.
4.7 Restriction on Transfer of Incentive Shares. Executive
acknowledges that the Incentive Shares have not been registered under the
Securities Act and that, subject to Section 4.6 hereof, the Company is not
obligated to register such securities under the Securities Act. Anything in this
Agreement to the contrary notwithstanding, Executive hereby agrees that he shall
not sell, transfer by any means or otherwise dispose of the Incentive Shares
acquired by him without registration under the Securities Act, or in the event
that they are not so registered, unless (i) an exemption from registration under
the Securities Act is available thereunder; and (ii) Executive has furnished the
Company with notice of such proposed transfer and the Company's legal counsel,
in its reasonable opinion, shall deem such proposed transfer to be so exempt.
Executive further acknowledges that in the event the Incentive Shares are not
registered under
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the Securities Act, the certificates evidencing the Incentive Shares shall bear
the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS. THE SHARES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY
EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.
5. Confidentiality and Nonsolicitation.
5.1 "Confidential Information" Defined. For purposes of this
Agreement, "Confidential Information" shall mean any and all information (oral
or written) relating to the Company or any person controlling, controlled by, or
under common control with the Company or any of its activities, including, but
not limited to, information relating to: technology, research, test procedures
and results, trade secrets, machinery and equipment; manufacturing processes;
financial information; products; identity and description of materials and
services used; purchasing; costs; pricing; customers and prospects; advertising,
promotion and marketing; and selling, servicing and information pertaining to
any governmental investigation, except such information which is generally in
the public domain (such information not being deemed to be in the public domain
merely because it is embraced by more general information which is in the public
domain), other than as a result of a breach of the provisions of Section 5.2
hereof.
5.2 Non-Disclosure of Confidential Information. Executive will
not at any time (other than as may be required or appropriate directly in
connection with the performance by him of his duties hereunder), directly or
indirectly, use, communicate, disclose or disseminate any Confidential
Information in any manner whatsoever (except as may be required under legal
process by subpoena or other court order).
5.3 Non-Solicitation. Executive will not, during the
Employment Period and for a period of one (1) year following the termination or
expiration thereof, directly or indirectly, hire, offer to hire, solicit, entice
away or in any other manner persuade or attempt to persuade any officer,
employee, agent, lessor, lessee, licensor, licensee, customer, prospective
customer or supplier of the Company to discontinue or alter his or its
relationship with the Company.
5.4 Non-Competition. Executive will not, during the Employment
Period and for a period of one (1) year following the termination or expiration
thereof, engage or participate in, directly or indirectly (whether as an
officer, director, employee, partner, consultant, equityholder, lender or
otherwise), any business competitive with that in which the Company is then
engaged.
5.5 Injunctive Relief. The parties hereby acknowledge and
agree that (a) the Company will be irreparably injured in the event of a breach
by Executive of any of his obligations under this Section 5; (b) monetary
damages will not be an adequate remedy for any
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such breach; (c) the Company will be entitled to injunctive relief, in addition
to any other remedy which it may have, in the event of any such breach,
including, but not limited to, termination of the Employment Period for Cause;
and (d) the existence of any claims which Executive may have against the
Company, whether under this Agreement or otherwise, will not be a defense to the
enforcement by the Company of any of its rights under this Section 5.
5.6 Non-Exclusivity and Survival. The covenants of Executive
contained in this Section 5 are in addition to, and not in lieu of, any
obligations which Executive may have with respect to the subject matter hereof,
whether by contract, as a matter of law or otherwise, and such covenants and
their enforceability will survive any termination of the Employment Period by
either party and any investigation made with respect to the breach thereof by
the Company at any time.
6. Miscellaneous Provisions.
6.1 Severability. If, in any jurisdiction, any term or
provision hereof is determined to be invalid or unenforceable, (a) the remaining
terms and provisions hereof shall be unimpaired, (b) any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction, and (c) the invalid or
unenforceable term or provision shall, for purposes of such jurisdiction, be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.
6.2 Execution in Counterparts. This Agreement may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement (and all signatures
need not appear on any one counterpart), and this Agreement shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
6.3 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed duly given when
delivered by hand, or when delivered if mailed by registered or certified mail
or private courier service, postage prepaid, return receipt requested, or via
facsimile (with confirmed answerback) as follows:
If to the Company, to:
Optical Systems, Inc.
Raritan Plaza II, Raritan Center
Fieldcrest Avenue
Edison, New Jersey 08818
Attn: Board of Directors
Telecopy No.: (908) 417-1824
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If to Executive, to:
Warren R. Zimmerman
c/o Optical Systems, Inc.
Raritan Plaza II, Raritan Center
Fieldcrest Avenue
Edison, New Jersey 08818
Telecopy No.: (908) 417-1824
or to such other address(es) as a party hereto shall have designated by like
notice to the other parties hereto.
6.4 Amendment. No provision of this Agreement may be modified,
amended, waived or discharged in any manner except by a written instrument
executed by both the Company and Executive.
6.5 Entire Agreement; Effectiveness. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings of
the parties hereto, oral or written.
6.6 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois applicable to
contracts made and to be wholly performed therein, without regard to its
conflicts or choice of law provisions.
6.7 Headings. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
6.8 Binding Effect; Successors and Assigns. Executive may not
delegate any of his duties or assign any of his rights hereunder. This Agreement
will inure to the benefit of, and be binding upon, the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns. The
Company shall require any successor (whether direct or indirect and whether by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by an agreement in form and substance
reasonably satisfactory to Executive, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place.
6.9 Waiver, Etc. The failure of either of the parties hereto
to at any time enforce any of the provisions of this Agreement shall not be
deemed or construed to be a waiver of any such provision, nor to in any way
affect the validity of this Agreement or any provision hereof or the right of
either of the parties hereto thereafter to enforce each and every provision of
this Agreement. No waiver of any breach of any of the provisions of this
Agreement shall be effective unless set forth in a written instrument executed
by the party against whom or which
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enforcement of such waiver is sought, and no waiver of any such breach shall be
construed or deemed to be a waiver of any other or subsequent breach.
6.10 Representations and Warranties.
(a) Executive hereby represents and warrants to the
Company that:
(i) he has full capacity to execute and
deliver this Agreement, and to perform his obligations
hereunder;
(ii) such execution, delivery and
performance will not (and with the giving of notice or lapse
of time or both would not) result in the breach of any
agreements or other obligations to which he is a party or he
is otherwise bound;
(iii) this Agreement is his valid and
binding obligation in accordance with its terms;
(iv) he will acquire any Incentive Shares
issued to him for his own account and not with a view towards
the distribution thereof;
(v) he must bear the economic risk of
investment in the Incentive Shares, which cannot be sold by
him unless they are registered under the Securities Act or an
exemption therefrom is available thereunder;
(vi) in his position with the Company, as an
officer of the Company, he has had both the opportunity to ask
questions of and receive answers from the officers and
directors of the Company and all persons acting on its behalf
concerning the terms and conditions of the issuance of
Incentive Shares hereunder and to obtain any additional
information with respect thereto; and
(vii) he is aware that the Company shall
place stop-transfer orders with its transfer agent against the
transfer of Incentive Shares in the absence of registration
under the Securities Act or an exemption therefrom as provided
herein.
(b) The Company hereby represents and warrants to
Executive that:
(i) it has full power and authority to
execute and deliver this Agreement, and to perform its
obligations hereunder;
(ii) such execution, delivery and
performance will not (and with the giving of notice or lapse
of time or both would not) result in the breach of any
agreements or other obligations to which it is a party or it
is otherwise bound;
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(iii) this Agreement is its valid and
binding obligation in accordance with its terms; and
(iv) any Incentive Shares, when issued and
delivered by the Company to Executive in accordance with the
terms and conditions hereof, will be duly and validly issued
and fully paid and non-assessable.
6.11 Enforcement. If any party institutes legal action to
enforce or interpret the terms and conditions of this Agreement, the prevailing
party shall be awarded reasonable attorneys' fees at all trial and appellate
levels, and the expenses and costs incurred by such prevailing party in
connection therewith.
6.12 Approval by Certain Board Members. The effectiveness of
this Agreement is conditioned upon its approval by all of the members of the
Company's Board who are not employed by the Company on the date hereof.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
OPTICAL SYSTEMS, INC.
By: /s/ William H. Luckman
-----------------------------------
Name: William H. Luckman
---------------------------------
Title: Treasurer
--------------------------------
/s/ Warren R. Zimmerman
--------------------------------------
Warren R. Zimmerman
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EXHIBIT 10.5
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of December 1st, 1997 (the "Agreement"),
by and between Optical Systems, Inc., a Florida corporation (the "Company"), and
Christine E. Jacobs ("Executive").
RECITALS:
WHEREAS, Executive is a key employee who has been instrumental in
achieving the success of the Company; and
WHEREAS, Executive has devoted his entire business time and attention
to securing the technology for the Company and helping to develop the activities
and policies of the Company, and has served as its Director, Communications and
Information Services, since the Company's inception; and
WHEREAS, the Company has recently issued shares of its common stock,
par value $.0001 per share ("Common Stock"), and warrants to purchase shares of
Common Stock (the "Warrants") pursuant to a private placement of securities (the
"504 Offering") in accordance with the provisions of Rule 504 of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities Act");
and
WHEREAS, the Board has approved, in connection with the 504 Offering,
the Company's grant to Executive of incentive compensation in the form of shares
of Common Stock ("Incentive Shares") issuable upon the Company's attainment of
certain economic goals; and
WHEREAS, the Company and Executive wish to set forth in writing the
terms of Executive's employment with the Company, including the terms of the
issuance of Incentive Shares to Executive, and the terms of severance payments
to Executive in the event of the termination of his employment with the Company
under certain circumstances.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto hereby agree as follows:
1. Employment.
1.1 General. The Company hereby employs Executive in the
capacity of Sr. Manager, Document Management Solutions of the Company, and
Executive hereby accepts such employment subject to the terms and conditions
herein contained. In such capacities, Executive will perform and carry out such
duties and responsibilities as may be reasonably assigned to him from time to
time by the Board. Subject to the foregoing, Executive shall be required to
report to or take direction from the President or his designate. Executive shall
have such powers, rights, duties and obligations as are commensurate with his
positions.
<PAGE> 2
1.2 Full-Time Positions. Executive hereby agrees that, during
the Employment Period, he shall devote substantially all of his business time,
attention and skills to the business and affairs of the Company.
2. Compensation and Benefits.
2.1 Salary. The Company will pay to Executive, and Executive
will accept, a base salary during the Employment Period pursuant to the
following schedule:
(i) at the annual rate of $75,000 for the period
commencing upon the execution of this Employment Agreement;
(a) provided, however, that if aggregate
gross revenues for the first fiscal year of this Agreement
exceeds the Base Revenue Amount, as that term is defined in
paragraph 2.3(a) below, on or before April 1st, 1998, the base
salary paid to Executive shall be at an annual rate of $80,000
for the remainder of that first fiscal year and thereafter.
(ii) at the annual rate of $90,000 from and after
such time as the Company's Gross Revenues (as hereinafter defined) for
a fiscal year shall equal between 3,000,000 and $5,000,000;
(iii) at the annual rate of $100,000 from and after
such time as the Company's Gross Revenues for a fiscal year shall equal
between $5,000,001 and $10,000,000;
(iv) at the annual rate of $110,000 from and after
such time as the Company's Gross Revenues for a fiscal year shall
exceed $10,000,001 and at all times thereafter or at such higher rates
as the President, in its sole discretion, may hereafter from time to
time grant to executive (the "Base Salary"); provided, however, that no
salary increases pursuant to this paragraph will occur unless the
Company enjoys positive net earnings in the fiscal year for which the
increase is granted.
2.2 The Base Salary shall be payable in accordance with the
regular payroll practices of the Company applicable to senior executives.
Provided, however, that in the event the Base Salary increases in any given
fiscal year by reason of increased Gross Revenues pursuant to paragraph 2.1
above, the additional Base Salary shall be considered earned on the last day of
the fiscal year and shall be paid to Executive on or before the thirtieth day
after the last day of the fiscal year.
2.3 Bonus. In addition to the Base Salary, Executive shall be
entitled to receive the following bonus payments:
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(a) Gross Revenue Bonus. In each fiscal year during
the Employment Period, commencing with the Company's fiscal year ending
September 30, 1997 ("Fiscal 1997"), in which the Company's gross
revenues, determined in accordance with Section 2.3(c) hereof ("Gross
Revenues"), equal or exceed the Base Revenue Amount (as hereinafter
defined), the Company shall pay to Executive $5,000 for each $100,000
increment of such excess; provided, however, that the aggregate bonus
payable to Executive pursuant to this Section 2.3(a) shall not exceed
$7,500 in any given fiscal year. For purposes of this Agreement, the
"Base Revenue Amount" shall mean $1,116,000, the amount of the
Company's gross revenues over the nine-month period ended June 30,
1997, annualized to September 30, 1997, based on financial statements
prepared by the Company's independent public accountants (the "Company
Accountants") in accordance with generally accepted accounting
principles ("GAAP") applied consistently with the practices of the
Company (the "Gross Revenue Bonus").
(b) Net Earnings Bonus. In each fiscal year during
the Employment Period, commencing with Fiscal 1997, in which the
Company's net earnings, determined in accordance with Section 2.3(c)
hereof ("Net Earnings"), exceed its Net Earnings for the prior fiscal
year, the Company shall pay to Executive $ 250 for each $25,000
increment of such excess; provided, however, that the aggregate bonus
payable to Executive pursuant to this Section 2.3(b) shall not exceed
$2,500 (the "Net Earnings Bonus"). Provided, however, that no bonus
shall be paid in excess of positive net earnings.
(c) Determination of Gross Revenues and Net Earnings.
The amount of the Company's Gross Revenues and Net Earnings in any
fiscal year shall be determined by the Board of the Company based on
audited financial statements prepared by the Company's regular
independent certified public accountants in accordance with GAAP,
applied consistently with the practices of the Company (the "Audited
Financial Statements").
(d) Payment of Bonus. Any Gross Revenue Bonus or Net
Earnings Bonus due hereunder shall be paid within thirty (30) days
following the delivery of the Audited Financial Statements to the
Company with respect to the applicable fiscal year.
(e) Pro Rata Payment. In determining the amount of
any annual bonus payable under this Section 2.3, if Executive shall
have been employed under this Agreement for less than an entire fiscal
year of the Company for which a bonus is calculated, such bonus shall
be reduced proportionately to reflect the portion of such fiscal year
that Executive was employed hereunder.
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<PAGE> 4
2.4 Executive Benefits.
(a) Expenses. The Company will promptly reimburse
Executive for expenses he reasonably incurs in connection with the
performance of his duties (including business travel and entertainment
expenses) hereunder, all in accordance with the Company's policies with
respect thereto as in effect from time to time.
(b) Company Benefit Plans. Executive will be entitled
to participate in such employee benefit and welfare plans and programs
as the Company may from time to time offer or provide to its executive
officers, including, but not limited to, participation in life
insurance, health and accident, medical plans and programs and profit
sharing and retirement plans.
(c) Vacation. Executive will be entitled to such
vacation time as may be determined to be in the best interests of
Executive and the Company, but in no case less than three weeks
vacation for each twelve (12) month period Executive is employed by the
Company.
3. Employment Period; Termination.
3.1 Employment Period. Executive's employment by the Company
hereunder shall commence on the date hereof (the "Effective Date") and shall
continue until _______, 2002 (the "Initial Period"); provided, however, that,
commencing on _______, 2002, and on each _______ thereafter (each a "Renewal
Date"), the term of this Agreement shall be automatically extended by an
additional period of one year unless Executive or the Company shall elect by
written notice to the other given no later than sixty (60) days prior to any
Renewal Date that he or it does not wish the term of this Agreement to be so
extended (the Initial Period, together with any subsequent employment period,
being referred to herein as the "Employment Period"). The Employment Period may
be terminated, prior to its scheduled expiration date, as provided in Section
3.2 hereof. Upon termination of the Employment Period pursuant to Sections
3.2(a) through 3.2(f) hereof, inclusive, Executive will be released from any
duties hereunder (except as set forth in Section 5 hereof) and the obligations
of the Company to Executive will be as set forth in Section 3.3 and Section 4
hereof.
The parties hereto agree that the failure to extend the
Employment Period on any Renewal Date in accordance with the provisions of this
Section 3.1 shall not constitute a termination of the Employment Period pursuant
to Section 3.2 hereof.
3.2 Events of Termination. The Employment Period will
terminate upon the occurrence of any one or more of the following events:
(a) Death. In the event of Executive's death, the
Employment Period will terminate on the date of his death.
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<PAGE> 5
(b) Without Cause By Executive. Executive may
terminate the Employment Period at any time for any reason whatsoever
by giving a Notice of Termination (as such term is defined in Section
3.5 hereof) to the Company. The date of termination of the Employment
Period pursuant to this Section 3.2(b) shall be the earlier of (i) the
date, following the date of the Notice of Termination, upon which a
suitable replacement for Executive is found by the Company; or (ii) 30
days after the date of receipt by the Company of the Notice of
Termination.
(c) Disability. In the event of Executive's
Disability (as hereinafter defined), the Company will have the right to
terminate the Employment Period by giving a Notice of Termination to
Executive. The Notice of Termination shall specify the date of
termination, which date shall not be earlier than thirty (30) days
after the Notice of Termination is given. For purposes of this
Agreement, "Disability" means the inability of Executive for 180
consecutive days to substantially perform his duties hereunder as a
result of a physical or mental illness, all as determined in good faith
by the Board of the Company.
(d) Cause. The Company may, at its option, terminate
the Employment Period for "Cause" by giving a Notice of Termination to
Executive. For purposes of this Agreement, "Cause" shall mean any of
the following that is materially detrimental to the goodwill of the
Company or materially damaging to the relationship of the Company with
its customers or employees: (i) an act of willful misconduct or gross
negligence by Executive in the performance of his material duties or
obligations to the Company; (ii) conviction of Executive of a felony or
of a misdemeanor involving moral turpitude; or (iii) a material act of
dishonesty or breach of trust on the part of Executive resulting or
intended to result directly or indirectly in personal gain or
enrichment at the expense of the Company. No purported termination of
Executive's employment for Cause shall be effective without a Notice of
Termination.
(e) Without Cause By The Company. The Company may, at
its option, terminate the Employment Period for any reason or no reason
whatsoever (other than for the reasons set forth elsewhere in this
Section 3.2) by giving a Notice of Termination to Executive. The Notice
of Termination shall specify the date of termination of the Employment
Period, which date shall not be earlier than thirty (30) days after the
Notice of Termination is given.
(f) The Company's Material Breach. Executive may, at
his option, terminate the Employment Period upon the Company's material
breach of this Agreement and the continuation of such breach for more
than thirty (30) days after written demand for cure of said breach is
given to the Company by Executive (which demand will identify the
manner in which the Company has materially breached this Agreement);
provided, however, that no such demand will be required if Executive
determines in good faith that such material breach is not capable of
being cured by the Company within said thirty (30) day period. The
Company's material breach of this Agreement shall include, but not be
limited to (i) the failure of the Company to make any payment which it
is
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<PAGE> 6
required to make hereunder to Executive when such payment is due or
within five (5) business days thereafter; (ii) the assignment to
Executive without Executive's express written consent of any duties
inconsistent with his positions, duties, responsibilities and status
with the Company, or a change in Executive's reporting
responsibilities, titles or offices or any plan, act, scheme or design
to constructively terminate Executive, or any removal of Executive from
or any failure to use its best efforts to re-elect Executive to any of
such positions, except in connection with the termination of the
Employment Period by the Company for Cause or Disability or as a result
of Executive's death or voluntary resignation or by Executive other
than pursuant to this Section 3.2(f); and (iii) a reduction by the
Company in Executive's Base Salary.
3.3 Certain Obligations of the Company Following Termination
of the Employment Period. Following termination of the Employment Period under
the circumstances described below, the Company will pay to Executive the
following compensation and provide the following benefits, in addition to any
Incentive Shares issuable to Executive in accordance with the terms and
conditions of Section 4 hereof, in full satisfaction and final settlement of any
and all claims and demands that Executive then has or hereafter may have
hereunder against the Company.
(a) Death; Disability; For Cause. In the event that
the Employment Period is terminated pursuant to Section 3.2(a), 3.2(c)
or 3.2(d) hereof, the Company will pay to Executive or his estate or
legal representatives, as the case may be, his (i) Base Salary through
the Date of Termination in accordance with its regular payroll
practices; [and (ii) Gross Revenue Bonus and Net Earnings Bonus, in
accordance with the terms of Section 2.2 hereof]. In the event that the
Employment Period is terminated pursuant to Section 3.2(c) hereof,
Executive will also be entitled to receive any unpaid disability
benefits under any insurance program in effect on the date of
termination.
(b) Without Cause by the Company; Material Breach by
the Company. In the event that the Employment Period is terminated
pursuant to Section 3.2(e) or Section 3.2(f) hereof, the Company will
pay to Executive:
(i) the Base Salary through the Date of
Termination at the rate in effect at the time the Notice of
Termination is received;
(ii) in lieu of any further salary or other
payments to Executive for periods subsequent to the Date of
Termination, the Company will pay as severance pay to
Executive, on the 10th business day following the Date of
Termination (the "Payment Date"), a lump sum equal to the
higher of (A) $250,000, or (B) two (2) times the sum of (I)
Executive's then current annual Base Salary (unless the
Employment Period has been terminated by Executive pursuant to
Section 3.2(f) hereof by reason of a reduction by the Company
of Executive's Base Salary, in which case Executive's Base
Salary immediately prior to such reduction shall be used), and
(II) the sum of Executive's most recent Gross Revenue Bonus
and Net Earnings Bonus; provided, however, that in the
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<PAGE> 7
event of the imposition of an excise tax on Executive under
Section 4999 or 280(G) of the Internal Revenue Code of 1986,
as amended, as the same may be amended or renumbered from time
to time, the Company shall reimburse Executive for the full
amount of such excise tax;
(iii) the Company will reimburse Executive
for all reasonable legal fees and expenses incurred by
Executive in enforcing any right or benefit provided by this
Section 3.3(b); and
(iv) the Company will maintain all life
insurance, medical, health and accident, and disability plans
and programs in which Executive was entitled to participate
immediately prior to the Date of Termination in full force and
effect, for Executive's continued benefit until the earlier of
(A) twelve (12) months from the Date of Termination, or (B)
the date on which Executive is covered for such benefits by
reason of his being employed with any other person or entity;
provided, however, that Executive's continued participation is
possible under the general terms and provisions of the
Company's plans and programs. In the event that Executive's
participation in any such plan or program is barred, the
Company, at its sole cost and expense, will use its reasonable
efforts to provide Executive with benefits substantially
similar to those which Executive was entitled to receive under
such plans and programs.
(c) Without Cause By Executive. In the event that the
Employment Period is terminated by Executive pursuant to Section 3.2(b)
hereof, the Company will pay to Executive the Base Salary and the
benefits set forth in Sections 2.3(a) and 2.3(b) hereof through the
Date of Termination.
3.4 "Notice of Termination" Defined. For purposes of this
Agreement, "Notice of Termination" shall mean a written notice which (a)
indicates the specific termination provision relied upon by the Company or
Executive, (b) except in the case of termination pursuant to Sections 3.2(b) or
3.2(e) hereof, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employment Period under the
termination provision so indicated, and (c) if the Date of Termination is to be
other than the date of receipt of such notice, specifies the termination date;
provided, however, that in the case of a termination of Executive's employment
pursuant to Section 3.2(d) hereof, the Notice of Termination shall include a
copy of a resolution duly adopted by the Board at a meeting called and held for
such purpose, finding that, in the reasonable and good faith opinion of the
Board, Executive was guilty of conduct constituting Cause.
3.5 "Date of Termination" Defined. For purposes of this
Agreement, "Date of Termination" shall mean such date as the Employment Period
is terminated in accordance with Section 3.2 hereof; provided, however, that in
the event that within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination will be the
date on which the dispute is finally determined.
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<PAGE> 8
4. Issuance of Incentive Shares. In addition to the compensation and
benefits set forth in Section 2 hereof, the Company shall issue to Executive
Incentive Shares in accordance with the terms and conditions of this Section 4.
4.1 Number of Incentive Shares to be Issued.
(a) Gross Revenue Goals. In each fiscal year during
the Employment Period, commencing with Fiscal 1997, in which the
Company's Gross Revenues equal or exceed the Base Revenue Amount, the
Company hereby agrees to issue to Executive 8,333 Incentive Shares,
subject to adjustment as provided in Section 4.3 hereof, for each
$100,000 increment of such excess; provided, however, that the
aggregate number of Incentive Shares to be issued pursuant to this
Section 4.1(a) shall not exceed 400,000 Shares.
(b) Net Earnings Goals. In each fiscal year during
the Employment Period, commencing with Fiscal 1997, in which the
Company's Net Earnings exceed its Net Earnings for the prior fiscal
year, the Company hereby agrees to issue to Executive 8,333 Incentive
Shares, subject to adjustment as provided in Section 4.3 hereof, for
each $25,000 increment of such excess; provided, however, that the
aggregate number of Incentive Shares to be issued pursuant to this
Section 4.1(b) shall not exceed 183,333 Shares.
(c) Termination of Employment. In the event that the
Employment Period is terminated prior to the expiration thereof for any
reason except by Executive pursuant to Section 3.2(b) hereof, the
Company will issue to Executive or his estate or legal representatives,
as the case may be, a number of Incentive Shares determined by
multiplying the aggregate number of Incentive Shares issuable to
Executive pursuant to Sections 4.1(a) and 4.1(b) hereof by a fraction,
the numerator of which shall be the number of days which have elapsed
prior to the Date of Termination during the employment year in which
such Date of Termination shall occur, and the denominator of which
shall be 365.
4.2 Taxes. To the extent that any grant of Incentive Shares
hereunder shall result in the imposition of any tax(es) on Executive, the
Company shall cause a bonus to be paid to Executive in an amount equal to the
amount of such tax(es) plus the amount of any additional tax(es) imposed as a
result of the payment of such bonus(es).
4.3 Adjustments. In the event of a capital adjustment
resulting from a stock dividend, stock split, reverse stock split,
reorganization, merger, consolidation or a combination or exchange of the
Company's shares of Common Stock, the number of Incentive Shares issuable to
Executive pursuant to Section 4.1 hereof shall be adjusted consistently with
such capital adjustment. The agreement to issue Incentive Shares to Executive
under the terms and conditions hereof shall not affect in any way the right or
power of the Company to make
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<PAGE> 9
adjustments, reorganizations, reclassifications or changes of its capital or
business structure, or to merge, consolidate, dissolve, liquidate or sell or
transfer all or any part of its business or assets.
4.4 Delivery of Incentive Shares. The Company shall deliver a
certificate or certificates representing the number of Incentive Shares to be
issued to Executive for each fiscal year calculated in accordance with Section
4.1 hereof within thirty (30) days following the delivery of the Audited
Financial Statements to the Company with respect to the applicable fiscal year.
4.5 Additional Documents. The Board may require, as a
condition of the issuance of the Incentive Shares, that Executive deliver to the
Company such documents, including such appropriate investment representations,
as may reasonably be required by counsel for the Company to effectuate
compliance with applicable securities laws.
4.6 Piggyback Registration Rights. If the Company at any time
proposes to register any of its securities under the Securities Act for sale to
the public, whether for its own account or for the account of other security
holders or both (except with respect to registration statements on Forms S-4,
S-8, or another form not available for registering the Incentive Shares for sale
to the public), each such time it will give written notice to such effect to
Executive at least thirty (30) days prior to such filing. Upon the written
request of Executive received by the Company within twenty (20) days after the
giving of any such notice by the Company, to register any outstanding
unregistered Incentive Shares, the Company will cause the Incentive Shares as to
which registration shall have been so requested to be included in the securities
to be covered by the registration statement proposed to be filed by the Company,
all to the extent requisite to permit the sale or other disposition by Executive
of the Incentive Shares so registered.
Notwithstanding the foregoing, in the event that any
registration pursuant to this Section 4.6 shall be, in whole or in part, an
underwritten public offering of Common Stock, the number of Incentive Shares to
be included in such an underwriting may be reduced if and to the extent that
such inclusion would reduce the number of shares to be offered by the Company;
provided, however, that such number of Incentive Shares shall not be reduced if
any shares of Common Stock are to be included in such underwriting for the
account of any person other than the Company or Executive.
4.7 Restriction on Transfer of Incentive Shares. Executive
acknowledges that the Incentive Shares have not been registered under the
Securities Act and that, subject to Section 4.6 hereof, the Company is not
obligated to register such securities under the Securities Act. Anything in this
Agreement to the contrary notwithstanding, Executive hereby agrees that he shall
not sell, transfer by any means or otherwise dispose of the Incentive Shares
acquired by him without registration under the Securities Act, or in the event
that they are not so registered, unless (i) an exemption from registration under
the Securities Act is available thereunder; and (ii) Executive has furnished the
Company with notice of such proposed transfer and the Company's legal counsel,
in its reasonable opinion, shall deem such proposed transfer to be so exempt.
Executive further acknowledges that in the event the Incentive Shares are not
registered under
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<PAGE> 10
the Securities Act, the certificates evidencing the Incentive Shares shall bear
the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS. THE SHARES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY
EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.
5. Confidentiality and Nonsolicitation.
5.1 "Confidential Information" Defined. For purposes of this
Agreement, "Confidential Information" shall mean any and all information (oral
or written) relating to the Company or any person controlling, controlled by, or
under common control with the Company or any of its activities, including, but
not limited to, information relating to: technology, research, test procedures
and results, trade secrets, machinery and equipment; manufacturing processes;
financial information; products; identity and description of materials and
services used; purchasing; costs; pricing; customers and prospects; advertising,
promotion and marketing; and selling, servicing and information pertaining to
any governmental investigation, except such information which is generally in
the public domain (such information not being deemed to be in the public domain
merely because it is embraced by more general information which is in the public
domain), other than as a result of a breach of the provisions of Section 5.2
hereof.
5.2 Non-Disclosure of Confidential Information. Executive will
not at any time (other than as may be required or appropriate directly in
connection with the performance by him of his duties hereunder), directly or
indirectly, use, communicate, disclose or disseminate any Confidential
Information in any manner whatsoever (except as may be required under legal
process by subpoena or other court order).
5.3 Non-Solicitation. Executive will not, during the
Employment Period and for a period of one (1) year following the termination or
expiration thereof, directly or indirectly, hire, offer to hire, solicit, entice
away or in any other manner persuade or attempt to persuade any officer,
employee, agent, lessor, lessee, licensor, licensee, customer, prospective
customer or supplier of the Company to discontinue or alter his or its
relationship with the Company.
5.4 Non-Competition. Executive will not, during the Employment
Period and for a period of one (1) year following the termination or expiration
thereof, engage or participate in, directly or indirectly (whether as an
officer, director, employee, partner, consultant, equityholder, lender or
otherwise), any business competitive with that in which the Company is then
engaged.
5.5 Injunctive Relief. The parties hereby acknowledge and
agree that (a) the Company will be irreparably injured in the event of a breach
by Executive of any of his obligations under this Section 5; (b) monetary
damages will not be an adequate remedy for any
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such breach; (c) the Company will be entitled to injunctive relief, in addition
to any other remedy which it may have, in the event of any such breach,
including, but not limited to, termination of the Employment Period for Cause;
and (d) the existence of any claims which Executive may have against the
Company, whether under this Agreement or otherwise, will not be a defense to the
enforcement by the Company of any of its rights under this Section 5.
5.6 Non-Exclusivity and Survival. The covenants of Executive
contained in this Section 5 are in addition to, and not in lieu of, any
obligations which Executive may have with respect to the subject matter hereof,
whether by contract, as a matter of law or otherwise, and such covenants and
their enforceability will survive any termination of the Employment Period by
either party and any investigation made with respect to the breach thereof by
the Company at any time.
6. Miscellaneous Provisions.
6.1 Severability. If, in any jurisdiction, any term or
provision hereof is determined to be invalid or unenforceable, (a) the remaining
terms and provisions hereof shall be unimpaired, (b) any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction, and (c) the invalid or
unenforceable term or provision shall, for purposes of such jurisdiction, be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.
6.2 Execution in Counterparts. This Agreement may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement (and all signatures
need not appear on any one counterpart), and this Agreement shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
6.3 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed duly given when
delivered by hand, or when delivered if mailed by registered or certified mail
or private courier service, postage prepaid, return receipt requested, or via
facsimile (with confirmed answerback) as follows:
If to the Company, to:
Optical Systems, Inc.
Raritan Plaza II, Raritan Center
Fieldcrest Avenue
Edison, New Jersey 08818
Attn: Board of Directors
Telecopy No.: (908) 417-1824
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If to Executive, to:
Christine E. Jacobs
c/o Optical Systems, Inc.
Raritan Plaza II, Raritan Center
Fieldcrest Avenue
Edison, New Jersey 08818
Telecopy No.: (908) 417-1824
or to such other address(es) as a party hereto shall have designated by like
notice to the other parties hereto.
6.4 Amendment. No provision of this Agreement may be modified,
amended, waived or discharged in any manner except by a written instrument
executed by both the Company and Executive.
6.5 Entire Agreement; Effectiveness. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings of
the parties hereto, oral or written.
6.6 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois applicable to
contracts made and to be wholly performed therein, without regard to its
conflicts or choice of law provisions.
6.7 Headings. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
6.8 Binding Effect; Successors and Assigns. Executive may not
delegate any of his duties or assign any of his rights hereunder. This Agreement
will inure to the benefit of, and be binding upon, the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns. The
Company shall require any successor (whether direct or indirect and whether by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by an agreement in form and substance
reasonably satisfactory to Executive, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place.
6.9 Waiver, Etc. The failure of either of the parties hereto
to at any time enforce any of the provisions of this Agreement shall not be
deemed or construed to be a waiver of any such provision, nor to in any way
affect the validity of this Agreement or any provision hereof or the right of
either of the parties hereto thereafter to enforce each and every provision of
this Agreement. No waiver of any breach of any of the provisions of this
Agreement shall be effective unless set forth in a written instrument executed
by the party against whom or which
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enforcement of such waiver is sought, and no waiver of any such breach shall be
construed or deemed to be a waiver of any other or subsequent breach.
6.10 Representations and Warranties.
(a) Executive hereby represents and warrants to the
Company that:
(i) he has full capacity to execute and
deliver this Agreement, and to perform his obligations
hereunder;
(ii) such execution, delivery and
performance will not (and with the giving of notice or lapse
of time or both would not) result in the breach of any
agreements or other obligations to which he is a party or he
is otherwise bound;
(iii) this Agreement is his valid and
binding obligation in accordance with its terms;
(iv) he will acquire any Incentive Shares
issued to him for his own account and not with a view towards
the distribution thereof;
(v) he must bear the economic risk of
investment in the Incentive Shares, which cannot be sold by
him unless they are registered under the Securities Act or an
exemption therefrom is available thereunder;
(vi) in his position with the Company, as an
officer of the Company, he has had both the opportunity to ask
questions of and receive answers from the officers and
directors of the Company and all persons acting on its behalf
concerning the terms and conditions of the issuance of
Incentive Shares hereunder and to obtain any additional
information with respect thereto; and
(vii) he is aware that the Company shall
place stop-transfer orders with its transfer agent against the
transfer of Incentive Shares in the absence of registration
under the Securities Act or an exemption therefrom as provided
herein.
(b) The Company hereby represents and warrants to
Executive that:
(i) it has full power and authority to
execute and deliver this Agreement, and to perform its
obligations hereunder;
(ii) such execution, delivery and
performance will not (and with the giving of notice or lapse
of time or both would not) result in the breach of any
agreements or other obligations to which it is a party or it
is otherwise bound;
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(iii) this Agreement is its valid and
binding obligation in accordance with its terms; and
(iv) any Incentive Shares, when issued and
delivered by the Company to Executive in accordance with the
terms and conditions hereof, will be duly and validly issued
and fully paid and non-assessable.
6.11 Enforcement. If any party institutes legal action to
enforce or interpret the terms and conditions of this Agreement, the prevailing
party shall be awarded reasonable attorneys' fees at all trial and appellate
levels, and the expenses and costs incurred by such prevailing party in
connection therewith.
6.12 Approval by Certain Board Members. The effectiveness of
this Agreement is conditioned upon its approval by all of the members of the
Company's Board who are not employed by the Company on the date hereof.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
OPTICAL SYSTEMS, INC.
By: /s/ William H. Luckman
-------------------------------------
Name: William H. Luckman
-----------------------------------
Title: Treasurer
----------------------------------
/s/ Christine E. Jacobs
----------------------------------------
Christine E. Jacobs
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of November 1, 1997 (the "Agreement"),
by and between Optical Systems, Inc., a Florida corporation (the "Company"), and
Derwood G. Plyler ("Executive").
RECITALS:
WHEREAS, Executive is a key employee who has been instrumental in
achieving the success of the Company; and
WHEREAS, Executive has devoted his entire business time and attention
to securing technology for the Company and helping to develop the activities and
policies of the Company, and has served as its Vice President of Technical
Services since the Company's inception; and
WHEREAS, the Company has recently issued shares of its common stock,
par value $.0001 per share ("Common Stock"), and warrants to purchase shares of
Common Stock (the "Warrants") pursuant to a private placement of securities (the
"504 Offering") in accordance with the provisions of Rule 504 of Regulation D
promulgated under the Securities Act of 1933, as amended (the "Securities Act");
and
WHEREAS, the Board has approved, in connection with the 504 Offering,
the Company's grant to Executive of incentive compensation in the form of shares
of Common Stock ("Incentive Shares") issuable upon the Company's attainment of
certain economic goals; and
WHEREAS, the Company and Executive wish to set forth in writing the
terms of Executive's employment with the Company, including the terms of the
issuance of Incentive Shares to Executive, and the terms of severance payments
to Executive in the event of the termination of his employment with the Company
under certain circumstances.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the parties hereto hereby agree as follows:
1. Employment.
1.1 General. The Company hereby employs Executive in the
capacity of Vice President of Technical Services, of the Company, and Executive
hereby accepts such employment subject to the terms and conditions herein
contained. In such capacities, Executive will perform and carry out such duties
and responsibilities as may be reasonably assigned to him from time to time by
the Board. Subject to the foregoing, Executive shall be required to report to or
take direction from the President. Executive shall have such powers, rights,
duties and obligations as are commensurate with his positions.
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1.2 Full-Time Positions. Executive hereby agrees that, during
the Employment Period, he shall devote substantially all of his business time,
attention and skills to the business and affairs of the Company.
2. Compensation and Benefits.
2.1 Salary. The Company will pay to Executive, and Executive
will accept, a base salary during the Employment Period pursuant to the
following schedule:
(i) at the annual rate of $70,000 for the period
commencing upon the execution of this Employment Agreement;
(a) provided, however, that if aggregate
gross revenues for the first fiscal year of this Agreement
exceeds the Base Revenue Amount, as that term is defined in
paragraph 2.3(a) below, on or before April 1st, 1998, the base
salary paid to Executive shall be at an annual rate of $90,000
for the remainder of that first fiscal year and thereafter.
(ii) at the annual rate of $110,000 from and after
such time as the Company's Gross Revenues (as hereinafter defined) for
a fiscal year shall equal between 3,000,000 and $5,000,000;
(iii) at the annual rate of $120,000 from and after
such time as the Company's Gross Revenues for a fiscal year shall equal
between $5,000,001 and $10,000,000;
(iv) at the annual rate of $150,000 from and after
such time as the Company's Gross Revenues for a fiscal year shall
exceed $10,000,001 and at all times thereafter or at such higher rates
as the President, in its sole discretion, may hereafter from time to
time grant to executive (the "Base Salary"); provided, however, that no
salary increases pursuant to this paragraph will occur unless the
Company enjoys positive net earnings in the fiscal year for which the
increase is granted.
2.2 The Base Salary shall be payable in accordance with the
regular payroll practices of the Company applicable to senior executives;
provided, however, that in the event the Base Salary increases in any given
fiscal year by reason of increased Gross Revenues pursuant to paragraph 2.1
above, the additional Base Salary shall be considered earned on the last day of
the fiscal year and shall be paid to Executive on or before the thirtieth day
after the last day of the fiscal year.
2.3 Bonus. In addition to the Base Salary, Executive shall be
entitled to receive the following bonus payments:
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(a) Gross Revenue Bonus. In each fiscal year during
the Employment Period, commencing with the Company's fiscal year ending
September 30, 1997 ("Fiscal 1997"), in which the Company's gross
revenues, determined in accordance with Section 2.3(c) hereof ("Gross
Revenues"), equal or exceed the Base Revenue Amount (as hereinafter
defined), the Company shall pay to Executive $1,000 for each $100,000
increment of such excess; provided, however, that the aggregate bonus
payable to Executive pursuant to this Section 2.3(a) shall not exceed
$15,000 in any given fiscal year. For purposes of this Agreement, the
"Base Revenue Amount" shall mean $1,116,000, the amount of the
Company's gross revenues over the nine-month period ended June 30,
1997, annualized to September 30, 1997, based on financial statements
prepared by the Company's independent public accountants (the "Company
Accountants") in accordance with generally accepted accounting
principles ("GAAP") applied consistently with the practices of the
Company (the "Gross Revenue Bonus").
(b) Net Earnings Bonus. In each fiscal year during
the Employment Period, commencing with Fiscal 1997, in which the
Company's net earnings, determined in accordance with Section 2.3(c)
hereof ("Net Earnings"), exceed its Net Earnings for the prior fiscal
year, the Company shall pay to Executive $ 500 for each $25,000
increment of such excess; provided, however, that the aggregate bonus
payable to Executive pursuant to this Section 2.3(b) shall not exceed
$5,000 (the "Net Earnings Bonus"). Provided, however, that no bonus
shall be paid in excess of positive net earnings.
(c) Determination of Gross Revenues and Net Earnings.
The amount of the Company's Gross Revenues and Net Earnings in any
fiscal year shall be determined by the Board of the Company based on
audited financial statements prepared by the Company's regular
independent certified public accountants in accordance with GAAP,
applied consistently with the practices of the Company (the "Audited
Financial Statements").
(d) Payment of Bonus. Any Gross Revenue Bonus or Net
Earnings Bonus due hereunder shall be paid within thirty (30) days
following the delivery of the Audited Financial Statements to the
Company with respect to the applicable fiscal year.
(e) Pro Rata Payment. In determining the amount of
any annual bonus payable under this Section 2.3, if Executive shall
have been employed under this Agreement for less than an entire fiscal
year of the Company for which a bonus is calculated, such bonus shall
be reduced proportionately to reflect the portion of such fiscal year
that Executive was employed hereunder.
2.4 Executive Benefits.
(a) Expenses. The Company will promptly reimburse
Executive for expenses he reasonably incurs in connection with the
performance of his duties (including business travel and entertainment
expenses) hereunder, all in accordance with the Company's policies with
respect thereto as in effect from time to time.
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(b) Company Benefit Plans. Executive will be entitled
to participate in such employee benefit and welfare plans and programs
as the Company may from time to time offer or provide to its executive
officers, including, but not limited to, participation in life
insurance, health and accident, medical plans and programs and profit
sharing and retirement plans.
(c) Vacation. Executive will be entitled to such
vacation time as may be determined to be in the best interests of
Executive and the Company, but in no case less than four weeks vacation
for each twelve (12) month period Executive is employed by the Company.
3. Employment Period; Termination.
3.1 Employment Period. Executive's employment by the Company
hereunder shall commence on the date hereof (the "Effective Date") and shall
continue until _______, 2002 (the "Initial Period"); provided, however, that,
commencing on _______, 2002, and on each _______ thereafter (each a "Renewal
Date"), the term of this Agreement shall be automatically extended by an
additional period of one year unless Executive or the Company shall elect by
written notice to the other given no later than sixty (60) days prior to any
Renewal Date that he or it does not wish the term of this Agreement to be so
extended (the Initial Period, together with any subsequent employment period,
being referred to herein as the "Employment Period"). The Employment Period may
be terminated, prior to its scheduled expiration date, as provided in Section
3.2 hereof. Upon termination of the Employment Period pursuant to Sections
3.2(a) through 3.2(f) hereof, inclusive, Executive will be released from any
duties hereunder (except as set forth in Section 5 hereof) and the obligations
of the Company to Executive will be as set forth in Section 3.3 and Section 4
hereof.
The parties hereto agree that the failure to extend the
Employment Period on any Renewal Date in accordance with the provisions of this
Section 3.1 shall not constitute a termination of the Employment Period pursuant
to Section 3.2 hereof.
3.2 Events of Termination. The Employment Period will
terminate upon the occurrence of any one or more of the following events:
(a) Death. In the event of Executive's death, the
Employment Period will terminate on the date of his death.
(b) Without Cause By Executive. Executive may
terminate the Employment Period at any time for any reason whatsoever
by giving a Notice of Termination (as such term is defined in Section
3.5 hereof) to the Company. The date of termination of the Employment
Period pursuant to this Section 3.2(b) shall be the earlier of (i) the
date, following the date of the Notice of Termination, upon which a
suitable replacement for Executive is found by the Company; or (ii) 30
days after the date of receipt by the Company of the Notice of
Termination.
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(c) Disability. In the event of Executive's
Disability (as hereinafter defined), the Company will have the right to
terminate the Employment Period by giving a Notice of Termination to
Executive. The Notice of Termination shall specify the date of
termination, which date shall not be earlier than thirty (30) days
after the Notice of Termination is given. For purposes of this
Agreement, "Disability" means the inability of Executive for 180
consecutive days to substantially perform his duties hereunder as a
result of a physical or mental illness, all as determined in good faith
by the Board of the Company.
(d) Cause. The Company may, at its option, terminate
the Employment Period for "Cause" by giving a Notice of Termination to
Executive. For purposes of this Agreement, "Cause" shall mean any of
the following that is materially detrimental to the goodwill of the
Company or materially damaging to the relationship of the Company with
its customers or employees: (i) an act of willful misconduct or gross
negligence by Executive in the performance of his material duties or
obligations to the Company; (ii) conviction of Executive of a felony or
of a misdemeanor involving moral turpitude; or (iii) a material act of
dishonesty or breach of trust on the part of Executive resulting or
intended to result directly or indirectly in personal gain or
enrichment at the expense of the Company. No purported termination of
Executive's employment for Cause shall be effective without a Notice of
Termination.
(e) Without Cause By The Company. The Company may, at
its option, terminate the Employment Period for any reason or no reason
whatsoever (other than for the reasons set forth elsewhere in this
Section 3.2) by giving a Notice of Termination to Executive. The Notice
of Termination shall specify the date of termination of the Employment
Period, which date shall not be earlier than thirty (30) days after the
Notice of Termination is given.
(f) The Company's Material Breach. Executive may, at
his option, terminate the Employment Period upon the Company's material
breach of this Agreement and the continuation of such breach for more
than thirty (30) days after written demand for cure of said breach is
given to the Company by Executive (which demand will identify the
manner in which the Company has materially breached this Agreement);
provided, however, that no such demand will be required if Executive
determines in good faith that such material breach is not capable of
being cured by the Company within said thirty (30) day period. The
Company's material breach of this Agreement shall include, but not be
limited to (i) the failure of the Company to make any payment which it
is required to make hereunder to Executive when such payment is due or
within five (5) business days thereafter; (ii) the assignment to
Executive without Executive's express written consent of any duties
inconsistent with his positions, duties, responsibilities and status
with the Company, or a change in Executive's reporting
responsibilities, titles or offices or any plan, act, scheme or design
to constructively terminate Executive, or any removal of Executive from
or any failure to use its best efforts to re-elect Executive to any of
such positions, except in connection with the termination of the
Employment Period by the Company for Cause or Disability or as a result
of Executive's death or
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voluntary resignation or by Executive other than pursuant to this
Section 3.2(f); and (iii) a reduction by the Company in Executive's
Base Salary.
3.3 Certain Obligations of the Company Following Termination
of the Employment Period. Following termination of the Employment Period under
the circumstances described below, the Company will pay to Executive the
following compensation and provide the following benefits, in addition to any
Incentive Shares issuable to Executive in accordance with the terms and
conditions of Section 4 hereof, in full satisfaction and final settlement of any
and all claims and demands that Executive then has or hereafter may have
hereunder against the Company.
(a) Death; Disability; For Cause. In the event that
the Employment Period is terminated pursuant to Section 3.2(a), 3.2(c)
or 3.2(d) hereof, the Company will pay to Executive or his estate or
legal representatives, as the case may be, his (i) Base Salary through
the Date of Termination in accordance with its regular payroll
practices; [and (ii) Gross Revenue Bonus and Net Earnings Bonus, in
accordance with the terms of Section 2.2 hereof]. In the event that the
Employment Period is terminated pursuant to Section 3.2(c) hereof,
Executive will also be entitled to receive any unpaid disability
benefits under any insurance program in effect on the date of
termination.
(b) Without Cause by the Company; Material Breach by
the Company. In the event that the Employment Period is terminated
pursuant to Section 3.2(e) or Section 3.2(f) hereof, the Company will
pay to Executive:
(i) the Base Salary through the Date of
Termination at the rate in effect at the time the Notice of
Termination is received;
(ii) in lieu of any further salary or other
payments to Executive for periods subsequent to the Date of
Termination, the Company will pay as severance pay to
Executive, on the 10th business day following the Date of
Termination (the "Payment Date"), a lump sum equal to the
higher of (A) $250,000, or (B) two (2) times the sum of (I)
Executive's then current annual Base Salary (unless the
Employment Period has been terminated by Executive pursuant to
Section 3.2(f) hereof by reason of a reduction by the Company
of Executive's Base Salary, in which case Executive's Base
Salary immediately prior to such reduction shall be used), and
(II) the sum of Executive's most recent Gross Revenue Bonus
and Net Earnings Bonus; provided, however, that in the event
of the imposition of an excise tax on Executive under Section
4999 or 280(G) of the Internal Revenue Code of 1986, as
amended, as the same may be amended or renumbered from time to
time, the Company shall reimburse Executive for the full
amount of such excise tax;
(iii) the Company will reimburse Executive
for all reasonable legal fees and expenses incurred by
Executive in enforcing any right or benefit provided by this
Section 3.3(b); and
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(iv) the Company will maintain all life
insurance, medical, health and accident, and disability plans
and programs in which Executive was entitled to participate
immediately prior to the Date of Termination in full force and
effect, for Executive's continued benefit until the earlier of
(A) twelve (12) months from the Date of Termination, or (B)
the date on which Executive is covered for such benefits by
reason of his being employed with any other person or entity;
provided, however, that Executive's continued participation is
possible under the general terms and provisions of the
Company's plans and programs. In the event that Executive's
participation in any such plan or program is barred, the
Company, at its sole cost and expense, will use its reasonable
efforts to provide Executive with benefits substantially
similar to those which Executive was entitled to receive under
such plans and programs.
(c) Without Cause By Executive. In the event that the
Employment Period is terminated by Executive pursuant to Section 3.2(b)
hereof, the Company will pay to Executive the Base Salary and the
benefits set forth in Sections 2.3(a) and 2.3(b) hereof through the
Date of Termination.
3.4 "Notice of Termination" Defined. For purposes of this
Agreement, "Notice of Termination" shall mean a written notice which (a)
indicates the specific termination provision relied upon by the Company or
Executive, (b) except in the case of termination pursuant to Sections 3.2(b) or
3.2(e) hereof, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Employment Period under the
termination provision so indicated, and (c) if the Date of Termination is to be
other than the date of receipt of such notice, specifies the termination date;
provided, however, that in the case of a termination of Executive's employment
pursuant to Section 3.2(d) hereof, the Notice of Termination shall include a
copy of a resolution duly adopted by the Board at a meeting called and held for
such purpose, finding that, in the reasonable and good faith opinion of the
Board, Executive was guilty of conduct constituting Cause.
3.5 "Date of Termination" Defined. For purposes of this
Agreement, "Date of Termination" shall mean such date as the Employment Period
is terminated in accordance with Section 3.2 hereof; provided, however, that in
the event that within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination will be the
date on which the dispute is finally determined.
4. Issuance of Incentive Shares. In addition to the compensation and
benefits set forth in Section 2 hereof, the Company shall issue to Executive
Incentive Shares in accordance with the terms and conditions of this Section 4.
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4.1 Number of Incentive Shares to be Issued.
(a) Gross Revenue Goals. In each fiscal year during
the Employment Period, commencing with Fiscal 1997, in which the
Company's Gross Revenues equal or exceed the Base Revenue Amount, the
Company hereby agrees to issue to Executive 8,333 Incentive Shares,
subject to adjustment as provided in Section 4.3 hereof, for each
$100,000 increment of such excess; provided, however, that the
aggregate number of Incentive Shares to be issued pursuant to this
Section 4.1(a) shall not exceed 400,000 Shares.
(b) Net Earnings Goals. In each fiscal year during
the Employment Period, commencing with Fiscal 1997, in which the
Company's Net Earnings exceed its Net Earnings for the prior fiscal
year, the Company hereby agrees to issue to Executive 8,333 Incentive
Shares, subject to adjustment as provided in Section 4.3 hereof, for
each $25,000 increment of such excess; provided, however, that the
aggregate number of Incentive Shares to be issued pursuant to this
Section 4.1(b) shall not exceed 183,333 Shares.
(c) Termination of Employment. In the event that the
Employment Period is terminated prior to the expiration thereof for any
reason except by Executive pursuant to Section 3.2(b) hereof, the
Company will issue to Executive or his estate or legal representatives,
as the case may be, a number of Incentive Shares determined by
multiplying the aggregate number of Incentive Shares issuable to
Executive pursuant to Sections 4.1(a) and 4.1(b) hereof by a fraction,
the numerator of which shall be the number of days which have elapsed
prior to the Date of Termination during the employment year in which
such Date of Termination shall occur, and the denominator of which
shall be 365.
4.2 Taxes. To the extent that any grant of Incentive Shares
hereunder shall result in the imposition of any tax(es) on Executive, the
Company shall cause a bonus to be paid to Executive in an amount equal to the
amount of such tax(es) plus the amount of any additional tax(es) imposed as a
result of the payment of such bonus(es).
4.3 Adjustments. In the event of a capital adjustment
resulting from a stock dividend, stock split, reverse stock split,
reorganization, merger, consolidation or a combination or exchange of the
Company's shares of Common Stock, the number of Incentive Shares issuable to
Executive pursuant to Section 4.1 hereof shall be adjusted consistently with
such capital adjustment. The agreement to issue Incentive Shares to Executive
under the terms and conditions hereof shall not affect in any way the right or
power of the Company to make adjustments, reorganizations, reclassifications or
changes of its capital or business structure, or to merge, consolidate,
dissolve, liquidate or sell or transfer all or any part of its business or
assets.
4.4 Delivery of Incentive Shares. The Company shall deliver a
certificate or certificates representing the number of Incentive Shares to be
issued to Executive for each fiscal year calculated in accordance with Section
4.1 hereof within thirty (30) days following the delivery of the Audited
Financial Statements to the Company with respect to the applicable fiscal year.
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4.5 Additional Documents. The Board may require, as a
condition of the issuance of the Incentive Shares, that Executive deliver to the
Company such documents, including such appropriate investment representations,
as may reasonably be required by counsel for the Company to effectuate
compliance with applicable securities laws.
4.6 Piggyback Registration Rights. If the Company at any time
proposes to register any of its securities under the Securities Act for sale to
the public, whether for its own account or for the account of other security
holders or both (except with respect to registration statements on Forms S-4,
S-8, or another form not available for registering the Incentive Shares for sale
to the public), each such time it will give written notice to such effect to
Executive at least thirty (30) days prior to such filing. Upon the written
request of Executive received by the Company within twenty (20) days after the
giving of any such notice by the Company, to register any outstanding
unregistered Incentive Shares, the Company will cause the Incentive Shares as to
which registration shall have been so requested to be included in the securities
to be covered by the registration statement proposed to be filed by the Company,
all to the extent requisite to permit the sale or other disposition by Executive
of the Incentive Shares so registered.
Notwithstanding the foregoing, in the event that any
registration pursuant to this Section 4.6 shall be, in whole or in part, an
underwritten public offering of Common Stock, the number of Incentive Shares to
be included in such an underwriting may be reduced if and to the extent that
such inclusion would reduce the number of shares to be offered by the Company;
provided, however, that such number of Incentive Shares shall not be reduced if
any shares of Common Stock are to be included in such underwriting for the
account of any person other than the Company or Executive.
4.7 Restriction on Transfer of Incentive Shares. Executive
acknowledges that the Incentive Shares have not been registered under the
Securities Act and that, subject to Section 4.6 hereof, the Company is not
obligated to register such securities under the Securities Act. Anything in this
Agreement to the contrary notwithstanding, Executive hereby agrees that he shall
not sell, transfer by any means or otherwise dispose of the Incentive Shares
acquired by him without registration under the Securities Act, or in the event
that they are not so registered, unless (i) an exemption from registration under
the Securities Act is available thereunder; and (ii) Executive has furnished the
Company with notice of such proposed transfer and the Company's legal counsel,
in its reasonable opinion, shall deem such proposed transfer to be so exempt.
Executive further acknowledges that in the event the Incentive Shares are not
registered under the Securities Act, the certificates evidencing the Incentive
Shares shall bear the following legend:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER ANY STATE SECURITIES OR BLUE SKY LAWS. THE SHARES MAY NOT
BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR ANY
EXEMPTION THEREFROM UNDER SAID ACT OR LAWS.
5. Confidentiality and Nonsolicitation.
5.1 "Confidential Information" Defined. For purposes of this
Agreement, "Confidential Information" shall mean any and all information (oral
or written) relating to the Company or any person controlling, controlled by, or
under common control with the Company or any of its activities, including, but
not limited to, information relating to: technology, research, test procedures
and results, trade secrets, machinery and equipment; manufacturing processes;
financial information; products; identity and description of materials and
services used; purchasing; costs; pricing; customers and prospects; advertising,
promotion and marketing; and selling, servicing and information pertaining to
any governmental investigation, except such information which is generally in
the public domain (such information not being deemed to be in the public domain
merely because it is embraced by more general information which is in the public
domain), other than as a result of a breach of the provisions of Section 5.2
hereof.
5.2 Non-Disclosure of Confidential Information. Executive will
not at any time (other than as may be required or appropriate directly in
connection with the performance by him of his duties hereunder), directly or
indirectly, use, communicate, disclose or disseminate any Confidential
Information in any manner whatsoever (except as may be required under legal
process by subpoena or other court order).
5.3 Non-Solicitation. Executive will not, during the
Employment Period and for a period of one (1) year following the termination or
expiration thereof, directly or indirectly, hire, offer to hire, solicit, entice
away or in any other manner persuade or attempt to persuade any officer,
employee, agent, lessor, lessee, licensor, licensee, customer, prospective
customer or supplier of the Company to discontinue or alter his or its
relationship with the Company.
5.4 Non-Competition. Executive will not, during the Employment
Period and for a period of one (1) year following the termination or expiration
thereof, engage or participate in, directly or indirectly (whether as an
officer, director, employee, partner, consultant, equityholder, lender or
otherwise), any business competitive with that in which the Company is then
engaged.
5.5 Injunctive Relief. The parties hereby acknowledge and
agree that (a) the Company will be irreparably injured in the event of a breach
by Executive of any of his obligations under this Section 5; (b) monetary
damages will not be an adequate remedy for any such breach; (c) the Company will
be entitled to injunctive relief, in addition to any other remedy which it may
have, in the event of any such breach, including, but not limited to,
termination of the Employment Period for Cause; and (d) the existence of any
claims which Executive may
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have against the Company, whether under this Agreement or otherwise, will not be
a defense to the enforcement by the Company of any of its rights under this
Section 5.
5.6 Non-Exclusivity and Survival. The covenants of Executive
contained in this Section 5 are in addition to, and not in lieu of, any
obligations which Executive may have with respect to the subject matter hereof,
whether by contract, as a matter of law or otherwise, and such covenants and
their enforceability will survive any termination of the Employment Period by
either party and any investigation made with respect to the breach thereof by
the Company at any time.
6. Miscellaneous Provisions.
6.1 Severability. If, in any jurisdiction, any term or
provision hereof is determined to be invalid or unenforceable, (a) the remaining
terms and provisions hereof shall be unimpaired, (b) any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction, and (c) the invalid or
unenforceable term or provision shall, for purposes of such jurisdiction, be
deemed replaced by a term or provision that is valid and enforceable and that
comes closest to expressing the intention of the invalid or unenforceable term
or provision.
6.2 Execution in Counterparts. This Agreement may be executed
in one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement (and all signatures
need not appear on any one counterpart), and this Agreement shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
6.3 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed duly given when
delivered by hand, or when delivered if mailed by registered or certified mail
or private courier service, postage prepaid, return receipt requested, or via
facsimile (with confirmed answerback) as follows:
If to the Company, to:
Optical Systems, Inc.
Raritan Plaza II, Raritan Center
Fieldcrest Avenue
Edison, New Jersey 08818
Attn: Board of Directors
Telecopy No.: (908) 417-1824
11
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If to Executive, to:
Derwood G. Plyler
c/o Optical Systems, Inc.
Raritan Plaza II, Raritan Center
Fieldcrest Avenue
Edison, New Jersey 08818
Telecopy No.: (908) 417-1824
or to such other address(es) as a party hereto shall have designated by like
notice to the other parties hereto.
6.4 Amendment. No provision of this Agreement may be modified,
amended, waived or discharged in any manner except by a written instrument
executed by both the Company and Executive.
6.5 Entire Agreement; Effectiveness. This Agreement
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof, and supersedes all prior agreements and understandings of
the parties hereto, oral or written.
6.6 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois applicable to
contracts made and to be wholly performed therein, without regard to its
conflicts or choice of law provisions.
6.7 Headings. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
6.8 Binding Effect; Successors and Assigns. Executive may not
delegate any of his duties or assign any of his rights hereunder. This Agreement
will inure to the benefit of, and be binding upon, the parties hereto and their
respective heirs, legal representatives, successors and permitted assigns. The
Company shall require any successor (whether direct or indirect and whether by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business and/or assets of the Company, by an agreement in form and substance
reasonably satisfactory to Executive, to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the Company would
be required to perform if no such succession had taken place.
6.9 Waiver, Etc. The failure of either of the parties hereto
to at any time enforce any of the provisions of this Agreement shall not be
deemed or construed to be a waiver of any such provision, nor to in any way
affect the validity of this Agreement or any provision hereof or the right of
either of the parties hereto thereafter to enforce each and every provision of
this Agreement. No waiver of any breach of any of the provisions of this
Agreement shall be effective unless set forth in a written instrument executed
by the party against whom or which
12
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enforcement of such waiver is sought, and no waiver of any such breach shall be
construed or deemed to be a waiver of any other or subsequent breach.
6.10 Representations and Warranties.
(a) Executive hereby represents and warrants to the
Company that:
(i) he has full capacity to execute and
deliver this Agreement, and to perform his obligations
hereunder;
(ii) such execution, delivery and
performance will not (and with the giving of notice or lapse
of time or both would not) result in the breach of any
agreements or other obligations to which he is a party or he
is otherwise bound;
(iii) this Agreement is his valid and
binding obligation in accordance with its terms;
(iv) he will acquire any Incentive Shares
issued to him for his own account and not with a view towards
the distribution thereof;
(v) he must bear the economic risk of
investment in the Incentive Shares, which cannot be sold by
him unless they are registered under the Securities Act or an
exemption therefrom is available thereunder;
(vi) in his position with the Company, as an
officer of the Company, he has had both the opportunity to ask
questions of and receive answers from the officers and
directors of the Company and all persons acting on its behalf
concerning the terms and conditions of the issuance of
Incentive Shares hereunder and to obtain any additional
information with respect thereto; and
(vii) he is aware that the Company shall
place stop-transfer orders with its transfer agent against the
transfer of Incentive Shares in the absence of registration
under the Securities Act or an exemption therefrom as provided
herein.
(b) The Company hereby represents and warrants to
Executive that:
(i) it has full power and authority to
execute and deliver this Agreement, and to perform its
obligations hereunder;
(ii) such execution, delivery and
performance will not (and with the giving of notice or lapse
of time or both would not) result in the breach of any
agreements or other obligations to which it is a party or it
is otherwise bound;
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(iii) this Agreement is its valid and
binding obligation in accordance with its terms; and
(iv) any Incentive Shares, when issued and
delivered by the Company to Executive in accordance with the
terms and conditions hereof, will be duly and validly issued
and fully paid and non-assessable.
6.11 Enforcement. If any party institutes legal action to
enforce or interpret the terms and conditions of this Agreement, the prevailing
party shall be awarded reasonable attorneys' fees at all trial and appellate
levels, and the expenses and costs incurred by such prevailing party in
connection therewith.
6.12 Approval by Certain Board Members. The effectiveness of
this Agreement is conditioned upon its approval by all of the members of the
Company's Board who are not employed by the Company on the date hereof.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
OPTICAL SYSTEMS, INC.
By: /s/ William H. Luckman
--------------------------------
Name: William Luckman
------------------------------
Title: Treasurer/Director
-----------------------------
/s/ Derwood G. Plyler
-----------------------------------
Derwood G. Plyler
14
<PAGE> 1
EXHIBIT 10.7
STOCK REPURCHASE AGREEMENT
THIS STOCK REPURCHASE AGREEMENT is entered into as of the 15th day
of January, 1998, by and between Optical Systems, Inc., a Florida corporation
(the "Company"), and Raymond F. Sery ("Sery").
RECITALS:
A. Sery currently owns 369,557 shares of the Company's common stock,
par value $.001 per share (the "Common Stock") and 811,513 shares of the
Company's Series A Preferred Stock (the "Preferred Stock") which are convertible
into Common Stock, at the rate of one share per share of Common Stock (the
"Conversion Shares").
B. The Company desires to sell to Sery and Sery is willing to purchase
from the Company, upon the terms and subject to the conditions set forth in that
certain Stock Purchase Agreement of even date herewith, 200,000 additional
shares of Preferred Stock which are convertible into 200,000 shares of Common
Stock, provided, however, that the Company agree to repurchase all of the Common
Stock, Preferred Stock and Conversion Shares heretofore issued or to be issued
to Sery as described in these Recitals, upon the terms and subject to the
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and Sery
hereby agree as follows:
1. Company's Obligation to Repurchase. In the event the Company does
not effect an initial public offering of its securities under the Securities Act
of 1933, as amended (the "Securities Act") on or before December 31, 1998,
Sery shall have the right to require the Company to repurchase any or all equity
securities of the Company (including without limitation all shares of Common
Stock, Preferred Stock and Conversion Shares) then owned by him in accordance
with the provisions of this Agreement (collectively, the "Put Shares");
provided, however, the Company shall only be obligated to repurchase that number
of Put Shares which, when taken together with all prior Put Shares repurchased
by the Company, result in an aggregate repurchase price paid to Sery of not more
than $1,200,000 as determined in accordance with Section 3 of this Agreement.
2. Duration of "Put"; Exercise. Subject to the proviso set forth in
Section 1 hereof. Sery shall have the right to require the Company to
repurchase any or all of the Put Shares at any time and from time to time during
the period commencing January 1, 1999 and ending on the date that the Company
becomes a reporting company subject to the periodic reporting requirements under
the Securities Exchange Act of 1934 (such period being herein referred to as the
"Put Period"). Such right may be exercised by delivery of a "Put Notice" to
the Company setting forth the number of Put Shares to be repurchased by the
Company at that time, together with one or more stock certificates representing
the shares to be repurchased, in each case
1
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endorsed in blank in proper form for transfer. In the event that the
certificates so delivered represent a greater number of shares than the number
to be repurchased at such time, the Put Notice shall direct the Company to cause
the issuance of one or more certificates representing, in the aggregate, the
excess shares not being repurchased by the Company in such denominations and in
such names as Sery shall direct in his Put Notice. Each Put Notice shall contain
a representation and warranty by Sery that the shares surrendered for repurchase
are owned by him, free and clear of all liens, claims and encumbrances of any
nature whatsoever.
3. Redemption Price; Payment. With respect to each Put Notice
delivered to the Company in accordance with this Agreement, the redemption price
payable shall be the average of the closing bid price of the Company's Common
Stock over the 20-trading day period immediately preceding the date of the
applicable Put Notice as reported by the OTC Bulletin Board multiplied by the
number of Put Shares subject to such Put Notice. Subject to the proviso set
forth in Section 1 of this Agreement, payment of the redemption price as so
determined shall be made within 90 days following delivery of the Put Notice by
delivery of a cashier's or bank check in an amount equal to the aggregate
redemption price relating to the applicable Put Notice.
4. Insurance. The Company agrees that until the earlier to occur of (a)
the expiration of the Put Period and (b) the sale by Sery of and/or the
repurchase by the Company of all of the Put Shares the Company will maintain key
man insurance on the life of Warren Zimmerman in an amount not less than
$1,200,000. The first use of these insurance proceeds will be the funding of the
Company's obligations in this Agreement.
5. Miscellaneous.
(a) Notices. All notices, requests, deliveries, payments,
demands and other communications which are required or permitted to be
given under this Agreement shall be in writing and shall be either
delivered personally or by private courier, or sent by registered or
certified mail, return receipt requested, postage prepaid, properly
addressed to the parties at the following addresses:
If to Sery:
Raymond F. Sery
65 Edgewood Road
Bedminster, New Jersey 07921
Telephone: (908)234-9291
If to the Company:
Optical Systems, Inc.
Raritan Plaza II
Fieldcrest Avenue
Edison, New Jersey 08818
Attention: President
Telephone: (732)417-0023
2
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and
Michael J. Philippi, Esq.
Ungaretti & Harris
3500 Three First National Plaza
Chicago, Illinois 60602
Telephone: (312)977-4400
or to such other address as any party shall have specified by notice to the
other parties. Notice shall be deemed duly given hereunder when delivered or
three days after the date sent if mailed as provided herein.
(b) Waiver. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a
waiver of any other or subsequent breach.
(c) Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter
hereof. This Agreement may not be amended except by a writing executed
by each of the parties hereto.
(d) Binding Effect; Successors. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and, to the
extent not prohibited herein, their respective heirs, successors,
assigns and representatives. Nothing in this Agreement, expressed or
implied, is intended to confer on any person other than the parties
hereto and, as provided above, their respective heirs, successors,
permitted assigns and representatives any rights, remedies, obligations
or liabilities. The rights conferred on Sery pursuant to this Agreement
are personal to him and may not be assigned by him without the
written consent of the Company, which consent may be given or withheld
in the sole discretion of the Company.
(e) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the state of
organization of the Company.
(f) Headings. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or
affect the meaning or interpretation of any of the terms of this
Agreement.
3
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IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the day and year first above written.
OPTICAL SYSTEMS, INC.
By: /s/ [ILLEGIBLE]
---------------------------
Its: President
--------------------------
/s/ RAYMOND F. SERY
------------------------------
Raymond F. Sery
4
<PAGE> 1
EXHIBIT 10.8
[OPTICAL SYSTEMS, INC. LETTERHEAD]
REVOCATION OF AGREEMENT
I, Raymond Sery, the holder of put agreement for 200,000 shares of
common voting stock of Optical Systems, Inc., dated 15th day of January, 1998,
a copy of which is attached, do hereby revoke that agreement.
IN WITNESS WHEREOF, I do hereby execute this revocation of agreement in
duplicate on this, the 15th day of September, 1998. The original of this
revocation shall be filed in the office of Optical Systems, Inc.
/s/ RAYMOND SERY
WITNESS
Signature /s/ JOHN F. CARESON
--------------------------
Name John F. Careson
--------------------------------
Date March 25, 1999
--------------------------------
<PAGE> 1
EXHIBIT 10.9
[OPTICAL SYSTEMS, INC. LETTERHEAD]
September 30, 1998
Mr. Raymond F. Sery
Federal Business Centers
Raritan Center Parkway
Edison, NJ 08837
Dear Mr. Sery:
This confirms our agreement with you for payment of financial services fees to
assist the Company until such time as permanent financing can be obtained.
OSI agrees to compensate you at the rate of $10,000 per month commencing
November 1, 1998. Payment will be either stock of OSI or cash at our option.
The price of stock will be determined based on the closing bid price on the
last day of trading for the month as quoted by NASDAQ-BB.
If this meets with your approval, please indicate your acceptance in the place
provided below.
Sincerely,
/s/ WARREN R. ZIMMERMAN
- ---------------------------
Warren R. Zimmerman
President/CEO
Accepted: /s/ RAYMOND F. SERY
----------------------------
Raymond F. Sery
<PAGE> 1
EXHIBIT 10.10
LEASE made this 9th day of August 1993 between NEW JERSEY CARPENTERS
PENSION FUND hereinafter referred to as "Landlord", and, OPTICAL SYSTEMS INC.
hereinafter referred to as "Tenant".
WITNESSETH:
For and in consideration of the covenants herein contained, and upon
the terms and conditions herein set forth, Landlord and Tenant agree as follows:
ARTICLE I
GENERAL
1.01 DEFINITIONS: Except where the context otherwise connotes, for all
purposes of this Lease and all agreements supplemental thereto or modifying this
Lease, the following terms shall have the meanings specified:
(a) "Additional Rent" shall mean all sums payable by Tenant to Landlord
pursuant to the various Articles herein in which said term is used;
(b) "Basic Rent" shall mean the rent per annum so designated in Section
31.01 hereof, which shall be payable in equal monthly installments on the first
day of each month during the Term, In advance, in the amount per month set forth
in Section 31.01 hereof, and shall be paid at the office of Landlord, or such
other place as Landlord may designate, without any set-off or deduction
whatsoever, except that Tenant shall pay the first monthly installment
simultaneously with the execution hereof, receipt of which Landlord hereby
acknowledges;
(c) "Broker" shall mean the real estate broker, if any, named in
Section 31.02 hereof;
(d) "Building" shall mean the building located In Raritan Center,
Edison, New Jersey designated In Section 31.03 hereof;
(e) "Building Holiday" shall mean Washington's Birthday, Memorial Day,
Independance Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and
the day after, Christmas Day and New Year's Day as each of said holidays are
celebrated in the State in which the Real Property is located;
(f) "Commencement Date" shall mean the earlier to occur of:
(1) The date the Premises are substantially completed in accordance
with the provisions of Exhibit A annexed hereto, or
(2) The date on which Tenant shall take possession and occupy the
Premises.
As used herein, "substantially completed" shall mean that the premises are fully
completed as to Landlord's building standard items of materials, work and
installations, except for minor items, the incompletion of which will not
unreasonably interfere with Tenant's normal business operation;
(g) "Estimated Commencement Date" shall mean the date so designated in
Section 31.04 hereof;
(h) "Excusable Delay" shall mean a delay caused by strike, lockout, act
of God, inability to obtain labor or materials, governmental restrictions, enemy
action, civil commotion, fire, unavoidable casualty or any other cause similar
or dissimilar, beyond the reasonable control of either Landlord or Tenant, or
due to the passing of time while waiting for an adjustment of insurance
proceeds;
(i) "Governmental Authority" shall mean the town, village, city,
county, state or federal government, or any agency or quasi-governmental
agency, or any fire insurance rating organization having jurisdiction over the
Real Property;
(j) "Parking Spaces" shall mean the parking spaces, if any, dedicated
for Tenant's use, located on the Real Property as shown on Exhibit B annexed
hereto and made a part hereof;
(k) "Premises" shall mean the area cross-hatched on the floor plan of
the Building annexed hereto as Exhibit C and made a part hereof;
(1) "Real Property" shall mean the land upon which the Building is
located and the Building, collectively, said land area and building outline
being shown on Exhibit B annexed hereto;
(m) "Rentable Area of the Building" shall mean the number of square
feet so designated in Section 31.05 hereof;
(n) "Rentable Area of the Premises" shall mean the number of square
feet so designated in Section 31.06 hereof, which shall equal the sum of:
(1) the total number of square feet contained in the area shown on
Exhibit C computed by measuring from the outside finish of the exterior of the
Building to the office side of the common corridor walls and permanent walls,
and to the center of partitions that separate the Premises, from adjoining areas
in the Building, and
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(2) Tenant's Proportionate Share of the area of the Building used
for lobbies, common corridors, common toilets, air-conditioning rooms, fan
rooms, janitor's closets, electrical closets and telephone closets, and also
including stairways, elevator shafts, flues, stacks, pipe shafts and vertical
ducts with their enclosing walls.
In computing Rentable Area of the Premises and Rentable Area of the Building, no
deduction shall be made for columns and projections necessary for the structural
integrity of the Building, and the measurements provided to Landlord by
Landlord's architect shall be conclusive and binding upon the parties hereto;
(o) "Security Deposit" shall mean the sum so designated in Section
31.07 hereof which is being deposited by Tenant with Landlord simultaneously
herewith;
(p) "Structural Repairs" shall mean repairs to the roof, foundation and
permanent exterior walls and support columns of the Building;
(q) "Tenant's Proportionate Share" is the percentage set forth in
Section 31.08 hereof;
(r) "Term" shall mean a period of time beginning on the Commencement
Date containing the number of consecutive months set forth in Section 31.09
hereof;
(s) "Termination Date" shall mean the last day of the Term.
1.02 PRORATION: In the event the Commencement Date shall fall on a day
other than the first day of a month, the Basic Rent and Additional Rent payable
hereunder for the balance of the calendar month in which the Commencement Date
falls and for the portion of the calendar month in which the Termination Date
falls prior to said Termination Date, shall be apportioned based on the number
of days in those two months within the Term as compared to the number of days in
those months,
1.03 ENTIRE AGREEMENT: This Lease consists of this Lease Agreement and
the attachments enumerated in Article XXXII hereof.
ARTICLE II
LEASE & RENT
2.01 DURATION: Landlord hereby leases to Tenant and Tenant hereby hires
from Landlord the Premises for the Term.
2.02 RENT: Tenant hereby covenants and agrees to pay, when due, the
Basic Rent and all Additional Rent as herein provided.
2.03 INTEREST: Any installment or installments of Basic Rent or
Additional Rent accruing hereunder, and all other sums payable by Tenant
hereunder which are not paid when due, shall bear interest at the maximum legal
rate of interest allowed by law until the same shall be paid. If there is no
maximum rate of interest, such sums shall bear interest at the prime rate
charged by Landlord's bank plus 2% per annum.
ARTICLE III
USE
The Premises shall be used only for executive, general, and
administrative offices and for those additional uses listed in Section 31.10
hereof and for no other purpose.
ARTICLE IV
CHANGE OF COMMENCEMENT DATE
If, for any reason, the Premises are not ready for occupancy on the
Estimated Commencement Date, this Lease shall nevertheless continue in full
force and effect, and Tenant shall have no right to rescind, cancel or terminate
same, nor shall Landlord be liable for damages, if any, sustained by Tenant by
reason of inability to obtain possession thereof on such date. In such event,
Landlord will give Tenant written notice at least thirty (30) days in advance
of the date when Landlord expects the Premises to be ready for occupancy by
Tenant, which date shall be the Commencement Date.
ARTICLE V
ACCEPTANCE
When Tenant takes possession of the Premises, Tenant shall be deemed to
have accepted the Premises as being satisfactory and in good condition as of the
date of such possession.
ARTICLE VI
COMPLIANCE WITH LAWS AND INSURANCE REQUIREMENTS
Tenant shall not do, or permit anything to be done in or to the
Premises, or bring or keep anything therein which will, in any way, increase the
cost of fire or public liability insurance on the Real Property,
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<PAGE> 3
or invalidate or conflict with the fire insurance or public liability insurance
policies covering the Real Property, any Building fixtures or any personal
property kept therein, or obstruct or interfere with the rights of Landlord or
of other tenants, or in any other way injure or annoy Landlord or other tenants,
or subject Landlord to any liability for injury to persons or damage to
property, or interfere with the good order of the Building, or conflict with the
present or future laws, rules or regulations of any Governmental Authority.
Tenant agrees that any increase in fire insurance premiums on the Building or
contents caused by the occupancy of Tenant and any expense or cost incurred in
consequence of negligence, carelessness or willful action of Tenant, Tenant's
agents, servants, employees, invitees or licensees, shall be reimbursed to
Landlord within ten (10) days of demand therefor. Landlord shall have all the
rights and remedies for the collection of same as are conferred upon Landlord
for the collection of the Basic Rent provided to be paid pursuant to the terms
hereof.
ARTICLE VII
PERSONAL PROPERTY TAXES
Tenant agrees to pay all taxes imposed on the personal property of
Tenant, the conduct of its business and its use and occupancy of the Premises.
ARTICLE VIII
REAL ESTATE TAXES & OPERATING EXPENSES
8.01 REAL ESTATE TAXES: Tenant shall pay as Additional Rent increases
in real estate taxes as set forth below:
(a) For each year or part of a year occurring within the Term in which
the total annual real estate taxes, assessments, sewer rents, rates and charges
(the "Real Estate Taxes") which shall be levied, imposed or assessed upon the
Real Property shall exceed the Real Estate Taxes levied, imposed or assessed for
the "Base Tax Year", Tenant shall pay to Landlord within thirty (30) days after
Landlord's presentation of a bill to Tenant therefor, a sum equal to Tenant's
Proportionate Share of such excess. For the purposes of this Section 8.01, "Base
Tax Year" shall mean the period of time so designated in Section 31.11 hereof;
(b) Landlord may take the benefit of the provision of any statute or
ordinance permitting any Real Estate Tax to be paid over a period of time;
(c) Tenant's Proportionate Share of Real Estate Taxes in excess of the
Real Estate Taxes for the Base Tax Year shall be determined from the amount
finally determined to be legally due as a result of legal proceedings or
otherwise. In the event the Real Estate Taxes for the Base Tax Year have not
been finally determined by legal proceedings or otherwise at the time of payment
of Real Estate Taxes for any subsequent year, the actual amount of Real Estate
Taxes paid by Landlord for the Base Tax Year shall be used to calculate any
excess thereof. Upon a final determination of the Real Estate Taxes for the Base
Tax Year by legal proceedings or otherwise, Landlord shall deliver to Tenant a
statement setting forth the amount of Real Estate Taxes for the Base Tax Year as
finally determined and showing the computation of any adjustment due to Landlord
or to Tenant by reason thereof. Any payment due to Landlord or any credit due to
Tenant by reason of such adjustment shall be made as provided herein;
(d) If Landlord shall receive any tax refund in respect of any tax year
following the Base Tax Year, Landlord shall deduct from such tax refund any
expenses incurred in obtaining such tax refund, and out of the remaining balance
of such tax refund, Landlord shall credit to Tenant Tenant's Proportionate Share
of such refund. Any expenses incurred by Landlord in contesting the validity
or the amount of the assessed valuation of the Real Property or of any Real
Estate Taxes for any year after the Base Tax Year, to the extent not offset by a
tax refund, shall be included as an item of Real Estate Taxes for the tax year
in which such contest shall be finally determined for the purpose of computing
the Additional Rent due Landlord or any credit due to Tenant hereunder;
(e) If the tax year for Real Estate Taxes shall be changed, then an
appropriate adjustment shall be made in the computation of the Additional Rent
due to Landlord or any credit due to Tenant, in accordance with sound accounting
principles to effectuate the changeover to any new tax year adopted by any
taxing authority. "Real Estate Taxes" as set forth in this Article VIII shall
mean those taxes attributable to the Real Property, provided that, if because of
any change in the method of taxation of real estate, any other tax or assessment
is imposed upon Landlord or the owner of the land or the Building or both
of upon or with respect to the land or the Building or both or the rents or
income therefrom in substitution for or in lieu of any tax or assessment which
would otherwise be a Real Estate Tax, such other tax or assessment shall be
deemed Real Estate Taxes for the purposes herein;
(f) If the last year of the Term ends on any day other than the last
day of a tax year, any payment due to Landlord or credit due to Tenant by reason
of any increase in Real Estate Taxes shall be prorated and Tenant covenants to
pay any amount due to Landlord within thirty (30) days after being billed
therefor and Landlord covenants to credit any amount due to Tenant, as the case
may be. These covenants shall survive the expiration or termination of this
Lease.
8.02 LANDLORD'S OPERATING EXPENSES: The Tenant shall pay as Additional
Rent increases in Landlord's Operating Expenses as set forth below:
(a) As used herein, the term "Landlord's Operating Expenses" shall mean
those costs or expenses paid or incurred by Landlord for operating, maintaining
and repairing the Real Property, including the cost of electricity for common
areas including outside lighting, the cost of heating, ventilating and air
conditioning the Building, water, fuel, window cleaning, janitorial service,
insurance of all kinds
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carried in good faith by Landlord and applicable to the Real Property, snow
removal, maintenance and cleaning of the parking lot, mowing and seeding of the
lawn and tree areas, repairs of any kind for which Landlord is not reimbursed,
painting, replacement of worn out mechanical or damaged equipment, uniforms,
management fees, building and janitorial supplies, sundries, sales or use tax
on supplies or services, wages and salaries of all persons engaged by Landlord
in the operation, maintenance and repair of the Real Property, expenses incurred
by Landlord under Sections 11.02 and 16.04 hereof, legal and accounting
expenses, and any other expense or cost, which, in accordance with generally
accepted accounting principles and the standard management practices for office
buildings comparable to the Building would be considered as an expense of
operating, maintaining or repairing the Real Property. Excluded from Landlord's
Operating Expenses are capital improvement costs, costs reimbursed by insurance,
the cost of work performed specifically for a tenant in the Building for which
such tenant reimburses Landlord, costs in connection with preparing space for a
new tenant and real estate brokers' commissions;
(b) Tenant shall pay to Landlord as Additional Rent Tenant's
Proportionate Share of the amount by which Landlord's Operating Expenses for any
calendar year during the Term after the "Base Operating Year" exceeds Landlord's
Operating Expenses during the Base Operating Year. For the purposes of this
Section 8.02, "Base Operating Year" shall mean the period of time so designated
in Section 31.12 hereof;
(c) No later than January 15 of each year of the Term, or within a
reasonable period of time thereafter, Landlord shall submit to Tenant a
statement ("Landlord's Statement") showing in reasonable detail Landlord's
Operating Expenses during the preceding calendar year. Within thirty (30) days
next following the submission of the Landlord's Statement which shows that
Landlord's Operating Expenses for a calendar year exceeded Landlord's Operating
Expenses for the Base Operating Year, Tenant shall pay to Landlord Tenant's
Proportionate Share of the amount by which Landlord's Operating Expenses for the
Base Operating Year were exceeded. Tenant or its representative shall have the
right to examine Landlord's books and records with respect to the items in the
foregoing Landlord's Statement during normal business hours at any time within
ten (10) days following the delivery by Landlord to Tenant of such Landlord's
Statement. Unless Tenant shall take written exception to any item contained
therein within twenty (20) days after the delivery of same, such Landlord's
Statement shall be considered as final and accepted by Tenant;
(d) On the first day of each month following the submission of any
Landlord's Statement which shows that Tenant is obligated to pay Additional Rent
pursuant to Section 8.02 herein, Tenant shall pay to Landlord, on account of its
potential obligation to pay such Additional Rent for the calendar year following
the calendar year for which such Landlord's Statement shall have been rendered,
a sum equal to one-twelfth (1/12th) of the amount which the Tenant shall have
paid as such Additional Rent for such prior calendar year. Such sum shall be due
with each monthly installment of Basic Rent until submission of the next
succeeding Landlord's Statement and shall be collectible by Landlord as
Additional Rent;
(e) If at the end of each year the Tenant's Proportionate Share of
actual increases in Operating Expenses Is greater or less than the amounts
payable by Tenant during that year on account thereof pursuant to Section 8.02
(d) hereof, the deficiency or excess, as the case may be, shall either be
payable immediately by Tenant to Landlord as Additional Rent, or credited by
Landlord against the next monthly installment of Basic Rent, respectively.
8.03 LIMITATION AND SURVIVAL: In no event shall any adjustment in
Tenant's obligation to pay Additional Rent under this Article VIII result in a
decrease in the Basic Rent payable hereunder. Tenant's obligation to pay
Additional Rent and Landlord's obligation to credit to Tenant any amount
referred to in this Article VIII, for the final year of the Term shall survive
the Termination Date.
ARTICLE IX
RULES AND REGULATIONS
Tenant, on behalf of itself and its employees, agents, servants,
invitees and licensees, agrees to comply with the Rules and Regulations with
respect to the Real Property set forth at the end of this Lease and hereby
expressly made a part hereof. Landlord shall have the right to make reasonable
amendments thereto from time to time for the safety, care and cleanliness of
the Real Property, the preservation of good order therein and the general
convenience of all the tenants and Tenant agrees to comply with such amended
Rules and Regulations, after twenty (20) days' written notice thereof from
Landlord. All such amendments shall apply to all tenants in the Building, and
will not materially interfere with the use and enjoyment of the Premises or the
parking lot by Tenant.
ARTICLE X
ENTRY
10.01 LANDLORD'S RIGHT OF ENTRY: Landlord and Landlord's agents and
representatives shall have the right to enter into or upon the Premises, or
any part thereof, at all reasonable hours for the following purposes:
(a) Examining the Premises:
(b) Making such repairs or alterations therein as may be necessary in
Landlord's sole judgement for the safety and preservation thereof, there being
no obligation, however, upon Landlord to make such repairs;
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(c) Erecting, maintaining, repairing or replacing wires, cables,
conduits, vents or plumbing equipment running in, to or through the Premises; or
(d) Showing the Premises to prospective new tenants during the last
year of the Term.
However, Landlord shall give Tenant reasonable prior written notice before
commencing any non-emergency repair or alteration.
10.02 EMERGENCIES: Landlord may enter upon the Premises at any time in
case of emergency without prior notice to Tenant.
10.03 NO EVICTION: Landlord, in exercising any of its rights under this
Article X, shall not be deemed guilty of an eviction, partial eviction or
disturbance of Tenant's use or possession of the Premises and shall not be
liable to Tenant for same.
10.04 INTERFERENCE: All work performed by or on behalf of Landlord in
or on the Premises pursuant to this Article X shall be performed with as little
inconvenience to Tenant's business as possible, and in such manner as not to
unreasonably interfere therewith.
ARTICLE XI
MAINTENANCE
11.01 MAINTENANCE BY TENANT: Tenant shall take good care of the
Premises throughout the Term and preserve same in the condition delivered to
Tenant on the Commencement Date, normal wear and tear and damage by fire or
other casualty not caused by Tenant, excepted. Tenant further agrees not to
injure, overload, deface or commit waste of the Premises. Tenant shall be
responsible for all injury or damage of any kind or character to the Real
Property, including the windows, floors, walls, ceilings, lights, electrical
equipment and HVAC equipment, caused by Tenant or by anyone using or occupying
the Premises by, through or under the Tenant. Landlord reserves the right to
repair same as necessary and Tenant shall pay as Additional Rent the costs
incurred therefor to Landlord immediately upon demand.
11.02 MAINTENANCE BY LANDLORD: Landlord shall be responsible for all
Structural Repairs and shall maintain, repair and replace all plumbing, heating,
air conditioning, electrical and mechanical fixtures (exclusive of starters,
ballasts, bulbs and lamps and electrical and mechanical fixtures installed by or
for Tenant) which shall be standard for the Building, when required, and
maintain and make repairs to the parking area and the exterior of the Building.
Landlord shall provide for regular extermination of vermin and shall replace
broken exterior windows.
11.03 CAUSATION: Nothing in this Article XI shall relieve the Tenant
from the obligation to compensate Landlord for damage or injury to the Real
Property due to or caused by Tenant's or Tenant's agent's, servant's,
employee's, licensee's or invitee's use and occupancy of the Real Property, its
or their negligent acts or omissions or its or their willful acts or failures to
act.
ARTICLE XII
ALTERATIONS
12.01 BY TENANT: Tenant shall make no changes in or to the Premises of
any nature without Landlord's prior written consent. Subject to the prior
written consent of Landlord, Tenant at Tenant's sole expense, may hire
contractors approved by Landlord to make alterations, installations, additions
or improvements in or to the Premises (collectively "Alterations") which are
non-structural and which do not affect utility services, plumbing or electrical
lines in or to the Premises or the Building. All Alterations shall, at the
option of the Landlord, become the property of Landlord and shall remain upon
and be surrendered with the Premises. Nothing in this Article XII shall be
construed to give Landlord title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment. On or before the Termination
Date, the Tenant shall remove its trade fixtures, furniture and equipment, and
any Alterations which Landlord has not elected shall remain, at Tenant's own
expense and shall repair any damage caused by such removal and, with respect to
the removal of Alterations, shall restore the Premises to the condition existing
prior to such Alteration. All property permitted or required to be removed by
Tenant at the end of the Term remaining on the Premises after the Termination
Date shall be deemed abandoned and may, at the election of Landlord, either be
retained as Landlord's property or may be removed from the Premises by Landlord
at Tenant's expense.
12.02 PERMITS: Prior to the commencement of any Alteration, Tenant
shall at its sole expense, obtain all required permits, approvals and
certificates required by all Governmental Authorities and upon completion of the
Alteration, certificates of final approval thereof. Tenant shall deliver to
Landlord promptly upon its receipt duplicates of same. Tenant shall carry and
will cause Tenant's contractors and subcontractors to carry such workmen's
compensation, general liability, personal and property damage insurance as
Landlord requires in amounts no less than the amounts set forth in Section 31.15
hereof or as required by law.
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ARTICLE XIII
TRANSFERS OF TENANT'S INTEREST
13.01 PROHIBITION: Tenant shall not assign this Lease or sublet all or
part of the Premises, or permit all or part of said Premises to be used by
others, without the express, prior written consent of the Landlord. In addition,
the Tenant shall not mortgage or otherwise encumber, or permit to be encumbered,
its right, title and interest under this Lease or in and to the Premises or
both.
13.02 CONSENT: Unless Landlord elects to cancel and terminate all or
part of this Lease as set forth in Section 13.03 hereof, Landlord covenants and
agrees that it will not unreasonably withhold its consent to Tenant's assigning
this Lease or subletting all or a part of the Premises, provided:
(a) That Tenant shall not be in default under any of the terms,
covenants, conditions, provisions and agreements of this Lease at the time of
any notice or request for consent under the terms of this Article XIII and on
the effective date of such subletting or assigning; and,
(b) That no such subleasing or assigning shall be made with a tenant
who shall be or who shall seek to use any portion of the Premises for a use not
consistent with other uses in the Building.
13.03 CONSENT PROCEDURE: If Tenant requests Landlord's consent to an
assignment of this Lease or a subletting of all or any part of the Premises,
Tenant shall submit to Landlord the name of the proposed assignee or subtenant,
the terms of the proposed assignment or subletting, the nature of the proposed
tenant's business, and such information as to the assignee's or subtenant's
financial responsibility and general reputation as Landlord may reasonably
require. Upon receipt of such request and information from Tenant, Landlord
shall have the option to be exercised in writing within thirty (30) days after
such receipt, to do one of the following:
(a) Cancel and terminate this Lease if the request is to assign this
Lease or to sublet all of the Premises; or
(b) If the request is to sublet a portion of the Premises only, to
cancel and terminate this Lease with respect to such portion; or
(c) To grant said request; or
(d) To deny the Tenant's request.
In the event Landlord shall cancel this Lease, Tenant shall surrender
possession of the Premises, or the portion of the Premises which is the subject
of the cancellation, as the case may be, on the date set forth in such notice in
accordance with the provisions of this Lease relating to surrender of the
Premises. If the Lease shall be cancelled as to a portion of the Premises only,
the Basic Rent and Additional Rent payable by Tenant hereunder shall be reduced
proportionately according to the ratio that the number of square feet in the
portion of space surrendered bears to the square feet in the Rentable Area of
the Premises. In the event that Landlord shall consent to a sublease or
assignment pursuant to the request from Tenant, Tenant shall cause to be
executed by its assignee or subtenant an agreement to perform faithfully and to
assume and be bound by all of the terms, covenants, conditions, provisions and
agreements of this Lease for the period covered by the assignment or sublease
and to the extent of the space sublet or assigned. An executed copy of each
sublease or assignment and assumption of performance by the sublessee or
assignee, on Landlord's standard form, shall be delivered to Landlord within
live (5) days prior to the commencement of occupancy set forth in such
assignment or sublease. No such assignment or sublease shall be binding on
Landlord until Landlord has received such copies as required herein.
13.04 TENANT NOT RELEASED: In no event shall any assignment or
subletting to which Landlord may consent, release or relieve Tenant from its
obligations to fully perform all of the terms, covenants and conditions of this
Lease on its part to be performed for the balance of the Term.
ARTICLE XIV
SURRENDER
On the Termination Date, or prior expiration of this Lease, Tenant
shall peaceably and quietly quit and surrender to Landlord the Premises, broom
clean, in as good condition as they were on the Commencement Date, ordinary wear
and tear, repairs and replacements by Landlord, loss by fire, casualty and other
causes beyond Tenant's control, and alterations, additions and improvements
permitted hereunder, excepted. Tenant's obligation to observe or perform this
covenant shall survive the Termination Date or prior expiration of the Term. If
the Termination Date falls on a Sunday or a legal holiday, this Lease shall
expire at 12 noon on the business day next preceding said date.
ARTICLE XV
HOLDING OVER
If Tenant holds possession of the Premises beyond the Termination Date
or prior expiration of the Term, Tenant shall become a tenant from
month-to-month at DOUBLE the Basic Rent and Additional Rent payable hereunder
and upon all other terms and conditions of this Lease, and shall continue to be
such month-to-month tenant until such tenancy shall be terminated by Landlord
and such
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possession shall cease. Nothing contained in this Lease shall be construed as a
consent by Landlord to the occupancy or possession by Tenant of the Premises
beyond the Termination Date or prior expiration of the Term, and Landlord, upon
said Termination Date or prior expiration of the Term shall be entitled to the
benefit of all legal remedies that now may be in force or may be hereafter
enacted relating to the speedy repossession of the Premises.
ARTICLE XVI
LANDLORD'S SERVICES
Landlord shall furnish to Tenant the heating, air conditioning and
electrical and cleaning services only as set forth in this Article.
16.01 HVAC: Air heating and air cooling, at the temperature set forth
in Exhibit A annexed hereto, shall be furnished only between the hours of 8:00
a.m. and 6:00 p.m., Mondays through Fridays, and, 8:00 a.m. and 1:00 p.m.,
Saturday, excluding Building Holidays. Air heating and cooling shall be provided
only when weather conditions require. If Tenant shall request the use of air
heating or cooling at any times other than the hours provided herein for such
service, Landlord shall furnish such to Tenant provided that:
(a) Tenant pays to Landlord as Additional Rent in advance, the special
overtime charge per hour set forth in Section 31.13 hereof, subject to prorated
increases in the charge of electric energy by the public utility supplying same
to the Building; and
(b) Tenant's written request shall be received by Landlord by 1:00 p.m.
on the day before such service is required.
Landlord shall not be liable for any damages which Tenant may suffer or incur
due to a failure in the heating or cooling system, the extent of Landlord's
liability being to remedy said failure as expeditiously as possible.
16.02 ELECTRICITY: Subject to Section 16.03 hereof, throughout the
Term, Landlord shall permit the Tenant to tie into the electrical distribution
system serving the Premises provided Tenant's consumption does not exceed the
maximum energy allocation to the Premises, upon the following terms and
conditions:
(a) Tenant shall pay for such electrical energy as provided herein and
for the cost of electric surveys as defined herewith, as Additional Rent;
(b) Landlord shall not be liable in any way to Tenant for any loss,
damage or expense which Tenant may sustain or incur as a result of any failure,
defect or change in the quantity or character of electricity furnished to the
premises or if such quantity or character of electricity furnished to the
Premises is no longer available or suitable for Tenant's requirements or due to
any cessation, dimunition or interuption of the supply thereof;
(c) An independant electrical engineer, selected by Landlord and
reasonably acceptable to Tenant, shall survey Tenant's electric demand for
lighting and equipment to determine Tenant's average monthly consumption. Until
the survey is completed, the Tenant shall pay an estimated monthly electrical
charge set forth in Section 31.14 hereof. Upon completion, the amount due per
the survey shall be computed, and the difference, if any, between said amount
and the estimated charge shall either be paid to Landlord, if there was an
underpayment, or credited to Tenant, if there was an overpayment. Thereafter,
until the Premises are resurveyed, Tenant shall pay Landlord each month, an
amount equal to the average monthly consumption determined by the survey times
the electric rate charged by the utility serving the Building. Landlord may
resurvey the Premises at any time, and from time-to-time, and the electrical
charges due shall be appropriately adjusted to accord with the results of the
latest survey;
(d) In the event that there shall be an increase or decrease in the
rate schedule of the public utility for the supply of electric energy to the
Building or the imposition of any tax with respect to such electric energy or
increase in such tax following the Commencement Date, the Additional Rent
payable hereunder shall be equitably adjusted to reflect the resulting increase,
decrease or tax;
(e) Tenant shall be responsible for replacing all light bulbs,
fluorescent lamps, whether or not Building standard, and all ballasts used by
Tenant in the Premises.
Tenant covenants that its use of electricity in the Premises shall be limited to
and for the operation of the building standard lighting, and electric
typewriters, calculators, copying machines and other small office machines. The
use of large copying machines and computers is specifically prohibited unless
the proposed consumption is included in the survey referred to above. Tenant
shall make no alteration to the existing electrical equipment or connect any
fixtures, appliances or equipment in addition to the equipment listed above
without the prior written consent of Landlord in each instance. Should Landlord
grant such consent, all additional risers or other equipment required therefor
shall be provided by Landlord and the cost thereof shall be paid by Tenant upon
Landlord's demand. As a condition to granting such consent, Landlord may require
an Increase in the Additional Rent by an amount which will reflect the cost of
the additional equipment and service to be furnished by Landlord. The amount of
such increase in Additional Rent shall be determined by an independent
electrical engineer, to be selected by Landlord whose services shall be paid for
by Tenant.
16.03 DISCONTINUANCE OF ELECTRICAL SERVICE: Landlord reserves the right
to discontinue furnishing
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electric energy to Tenant at any time upon not less than one hundred twenty
(120) day's written notice to Tenant. If Landlord exercises such right of
termination, this Lease shall continue in full force and effect and shall be
unaffected thereby, except only that, from and after the effective date of such
termination, Landlord shall,not be obliged to furnish electric energy to Tenant
and the Additional Rent shall be reduced by a sum per annum equal to the amount
certified by an independent electrical engineer as the cost of such electricity
to Landlord. If Landlord so discontinues furnishing electric energy to Tenant,
Tenant shall arrange to obtain electric energy directly from the public utility
company furnishing electric energy to the Building. Tenant may obtain such
electric energy by means of the then-existing Building system feeders, risers
and wiring to the extent that the same are available, suitable and safe for such
purposes. All meters and additional panel boards, feeders, risers, wiring and
other conductors and equipment which may be required to obtain electric energy
from the public utility company shall be installed and maintained by Tenant at
its sole expense.
16.04 CLEANING: Landlord shall provide cleaning services to the
Premises and the Building as set forth In Exhibit D annexed hereto.
16.05 NO LIABILITY: The failure of Landlord to furnish any service
hereunder shall not be construed as a constructive eviction of Tenant and shall
not excuse Tenant from failing to perform any of its obligations hereunder and
shall not give Tenant any claim against Landlord for damages for failure to
furnish such service.
ARTICLE XVII
QUIET ENJOYMENT
Landlord covenants and agrees that, upon the performance by Tenant of
all of the covenants, agreements and provisions hereof on Tenant's part to be
kept and performed, Tenant shall have, hold and enjoy the Premises, subject and
subordinate to the rights set forth in Article XX, free from any Interference
whatsoever by, from or through the Landlord, provided, however, that no
diminution or abatement of the Basic Rent, Additional Rent or other payment to
Landlord shall be claimed by or allowed to Tenant for inconvenience or
discomfort arising from the making of any repairs or improvements to the
Premises or the Real Property, nor for any space taken to comply with any law,
ordinance or order of any Governmental Authority, except as provided for herein.
ARTICLE XVIII
AIR AND LIGHT
This Lease does not grant any right to light and air.
ARTICLE XIX
DEFAULT
19.01 EVENT OF DEFAULT: Each of the following, whether occurring before
or after the Commencement Date, shall be deemed a Default by Tenant and a breach
of this Lease:
(a) The filing of a petition by or against Tenant for adjudication as a
bankrupt, or for reorganization, or for an arrangement or for relief under any
bankruptcy or insolvency laws;
(b) The commencement of any action or proceeding for the dissolution or
liquidation of Tenant, whether instituted by or against Tenant, or for the
appointment of a receiver or trustee of the property of Tenant under any state
or federal law or statute for relief of debtors;
(c) The making by Tenant of an assignment for the benefit of
creditors;
(d) The suspension of business by Tenant or any act by Tenant amounting
to a business failure;
(e) The filing of a tax lien or a mechanics' lien against any property
of Tenant;
(f) Tenant's causing or permitting the Premises to be vacant, or
abandonment of the Premises by Tenant, for a period in excess of ten (10) days;
(g) Failure by Tenant to pay Landlord when due the Basic Rent, the
Additional Rent herein reserved, or any other sum required to be paid by the
terms of this Lease;
(h) The creation or imposition of a lien or encumbrance on or against
the Tenant's interest under this Lease or in or to the Premises whether or not
the Tenant consents thereto;
(i) A failure by Tenant to perform any other term, covenant, agreement
or condition of this Lease on the part of Tenant to be performed;
(j) A default by Tenant under any other lease or sublease with
Landlord.
19.02 RIGHTS AND REMEDIES UPON DEFAULT: If an event of default occurs,
Landlord shall be entitled to take such action as it deems advisable, from time
to time, under any one or more of the provisions of this Section 19.02:
(a) Landlord may proceed as it deems advisable, at law or in equity, to
enforce the provisions of this Lease or to collect damages for the breach
thereof, or both;
(b) Landlord may notify Tenant that this Lease shall terminate on a
date specified in the notice,
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and this Lease shall terminate on the date so specified but, notwithstanding
such termination, Tenant's liability for its failure to comply with any
provision of this Lease shall continue;
(c) Landlord may re-enter the Premises and any improvements located
thereon, may repossess itself (by summary proceedings, ejectment or otherwise),
may dispossess Tenant, and may remove Tenant from the Premises, without further
notice to Tenant; and Tenant waives any right to the service of any notice of
Landlord's intention to re-enter provided for by any present or future law, and
any right to re-enter the Premises or restore the operation of this Lease;
(d) Landlord may relet the Premises, as a whole or in part, for such
term or terms (which may be greater or less than the period which would have
constituted the balance of the Term if the Lease had not been terminated) and on
such conditions (which may include concessions or free rent) as Landlord
determines; but Landlord shall be under no duty to relet the premises or to
collect any rent in connection with any reletting. Any expenses of reletting the
Premises such as brokers' fees, advertising, decorating, repairs, replacements
and alterations shall be payable by Tenant as Additional Rent;
(e) The Landlord may remove any subtenant of the Tenant from the
Premises, or at Landlord's election, may take over any or all subleases and
collect the rent and other charges due under any subleases;
(f) Landlord may take possession of any property, equipment or fixtures
of Tenant in or at the Premises and sell same at public or private sale and
apply the proceeds of such sale, less the expenses, to any amounts then or
thereafter due Landlord hereunder;
19.03 ADVANCES, ETC. BY LANDLORD: If any event of default occurs,
Landlord may pay any amount payable by Tenant under any provision of this Lease
or comply with any provision of this Lease on the part of Tenant to be complied
with, and make such expenditures in connection therewith (including reasonable
attorney's fees incurred by Landlord in enforcing the provisions of this Lease)
as Landlord deems advisable; and Tenant shall pay Landlord on demand, in
addition to Basic Rent, each amount so paid or expended by Landlord, with
interest as aforesaid; but no such payment or compliance by Landlord shall
constitute a waiver of Tenant's failure to make such payment or to comply with
such provision, or affect any right or remedy of Landlord with respect thereto.
19.04 ADDITIONAL REMEDIES, WAIVERS, ETC.: With respect to the rights
and remedies of, and waivers by, Landlord:
(a) The rights and remedies of Landlord under Section 19.02 shall be in
addition to every other right and remedy now or hereafter provided by law, and
all such rights and remedies shall be cumulative and not exclusive one of the
other; and Landlord may exercise such rights and remedies at such times, to such
extent, and as often, as Landlord deems advisable, and without regard to whether
the exercise of one right or remedy precedes, concurs with or succeeds the
exercise of another;
(b) A single or partial exercise of a right or remedy shall not
preclude a further exercise thereof, or the exercise of another right or remedy
from time-to-time;
(c) No delay or omission by Landlord in exercising a right or remedy
shall exhaust or impair the same, or constitute a waiver of, or acquiescence in,
a default;
(d) No waiver of a default shall extend to or affect any other default
or impair any right or remedy with respect thereto;
(e) No action or inaction by Landlord, whether it be the acceptance of
Basic Rent or otherwise, shall constitute a waiver of a default; and
(f) No waiver of a default shall be effective, unless it be in writing.
ARTICLE XX
SUBORDINATION & ESTOPPEL
20.01 SUBORDINATION: Tenant agrees that this Lease, and all of the
Tenant's right, title and interest in and to the Premises, is subject and
subordinate to all ground or underlying leases and to the lien of any mortgages
or deeds of trust now or hereafter demising or encumbering all or part of the
Real Property, and to all advances made or hereafter to be made upon the
security thereof. This subordination provision shall be self operative and no
further instrument of subordination shall be required, PROVIDED, HOWEVER,
Tenant agrees to execute and deliver, upon request, such further instrument or
Instruments confirming this subordination as shall be desired by Landlord or by
any lessor or lessee or mortgagee of the Real Property; and Tenant hereby
constitutes and appoints Landlord as Tenant's attorney-in-fact to execute any
such instrument or instruments.
20.02 ESTOPPEL CERTIFICATES: Within ten (10) days after either party
shall have requested the same, the other party shall deliver a certificate to it
certifying:
(a) That this Lease has not been supplemented or amended or, if it
shall have been supplemented or amended, specifying the manner in which it has
been supplemented or amended;
(b) That this Lease is in full force and effect, or if it be alleged
that this Lease is not in full force and effect, specifying the reasons
therefor;
(c) The date to which the Basic Rent and Additional Rent has been paid;
and
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(d) That there exists and has existed no condition which constitutes a
potential default or an event of default, or if such condition exists or has
existed, specifying the nature thereof;
Provided, that, in any such certification by Landlord it need only certify as to
facts within its knowledge; and any such certificate may be relied upon by the
party requesting it or any other person to whom the same may be exhibited or
delivered; and the contents of such certificate shall be binding on the party
which executed the same.
ARTICLE XXI
CASUALTY AND CONDEMNATION
21.01 DAMAGE BY FIRE OR OTHER CASUALTY: If the Premises shall be
damaged by fire or other casualty not arising from the fault or negligence of
Tenant, or its servants, agents, employees, invitees or licensees the following
shall apply:
(a) Except as otherwise provided in subsection (b) hereof, the damage
shall be repaired by and at the expense of Landlord, and, if any of the Premises
is unusable, the Basic Rent and Additional Rent shall be equitably abated
according to the part of the Premises which continues to be usable by Tenant
until such repairs shall be made. Tenant shall repair or replace its own
furniture, furnishings and equipment;
(b) If the Premises are totally damaged, or are rendered wholly
untenantable, or if Landlord's architect certifies that the damage cannot be
repaired within ninety (90) days of the casualty, or if Landlord shall decide
not to restore or repair the same, or if the Landlord shall decide to demolish
the Building or to rebuild it, then Landlord shall, within ninety (90) days
after such fire or other casualty, give Tenant notice of such decision, and
thereupon the Term shall expire ten (10) days after such notice is given, and
Tenant shall vacate the Premises and surrender the same to Landlord;
(c) If the Premises are to be repaired and restored, Landlord shall
complete the repair and restoration of the Premises within six (6) months from
the date of the casualty, subject, however, to Excusable Delays. If the Premises
are not repaired or restored within said period plus extensions for Excusable
Delays, Tenant shall have the right to cancel and terminate this Lease upon the
delivery of a notice to Landlord delivered within fifteen (15) days after the
expiration of the aforesaid six (6) month period, as extended;
(d) Landlord agrees that it shall diligently pursue all repair and
restoration work required on its part to be completed hereunder.
21.02 CONDEMNATION: If the Premises shall be acquired by eminent domain
proceedings, or conveyance in lieu thereof, (a "Taking"), the Term shall cease
and terminate from the date possession of the taken area is transferred to the
condemnor. If only a portion of the Premises or the Building shall be so
acquired or condemned, this Lease shall cease and terminate at Landlord's
option, but if such option is not exercised by Landlord, an equitable adjustment
of the Basic Rent and Additional Rent payable by Tenant for the remaining
portion of the Premises shall be made. In the event of a Taking, whether or not
this Lease terminates, Tenant shall have no claim against Landlord for the value
of any unexpired Term or any other losses resulting from the Taking (other than
for the adjustment of the Basic Rent and Additional Rent as hereinbefore
mentioned), nor shall Tenant be entitled to any portion of any amount that may
be awarded as damages or paid as a result of such proceedings or for a
conveyance or as the result of any agreement made by the condemning authority
with Landlord.
ARTICLE XXII
CHANGES SURROUNDING BUILDING
This Lease shall not be affected or impaired by any change in any
sidewalk, alley or street adjacent to or around the Building.
ARTICLE XXIII
TENANT'S PROPERTY
The Tenant hereby assumes the risk of loss or damage, including all
consequential losses and damage, to any real or personal property, constructed,
used, kept, placed, or stored by Tenant in or at the Premises, or real or
personal property used, kept, placed, or stored by Tenant in or at other
property of the Landlord of which the Premises form a part, including the Real
Property, caused by fire, water, theft, war, vermin, flood or any other casualty
or peril normally included in multi-peril all risk insurance with minimum
allowable specific peril or casualty exclusions, agrees not to look to the
Landlord or its allied or affiliated corporations, partnerships, or individuals
for indemnification for the same, and hereby releases the Landlord from any
liability for any such loss or damage. The Tenant agrees to look solely to third
parties, its insuror, if any, or itself for compensation for such loss or
damage. If the Tenant chooses not to self insure against any or all such perils
or casualties, and obtains insurance against such loss or damage from a
commercial carrier, or other third party, the Tenant further agrees that each
such policy shall contain the following provision, or one to similar affect:
Any written agreement or release from liability entered into by the
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insured prior to any loss hereunder shall not affect this policy or
the right of the insured to recover hereunder. The Insuror hereby
waives its right to recover from the Landlord and Landlord's allied
or affiliated corporations, partnerships, or individuals by way of
subrogation or otherwise for any loss payable under this policy.
ARTICLE XXIV
NOTICE
Notices by either party to the other shall be in writing and shall be
sent by registered or certified mail addressed to Landlord or Tenant at their
respective addresses hereinabove set forth, or to such other address as either
party shall hereafter designate by notice as aforesaid. All notices properly
addressed shall be deemed served three (3) days after the date of mailing,
except that notice of change of address shall not be deemed served until
received by the addressee.
ARTICLE XXV
DISCLAIMER BY AND INDEMNIFICATION OF LANDLORD
The Landlord shall not be responsible for the loss of or damage to
property, or injury to persons, occurring in or about the Premises and the Real
Property, by reason of any existing or future condition, defect, matter or thing
in the Premises or Real Property, or for the acts, omissions or negligence or
other persons or tenants in and about the Premises and the Real Property. The
Tenant agrees to indemnify and save the Landlord harmless from all claims and
liability for losses of or damage to property, or injuries to persons, occurring
in or about the Premises and the Real Property.
ARTICLE XXVI
TENANT'S INSURANCE
Tenant shall provide on or before the Commencement Date for the benefit
of Landlord and Tenant a comprehensive policy of liability insurance insuring
Landlord and Tenant against any liability whatsoever occasioned by accident on
or about the Premises and the Real Property or any appurtenances thereto. Such
policy is to be written by good and solvent insurance companies reasonably
satisfactory to Landlord, and the limits of liability thereunder shall not be
less than the amounts set forth in Section 31.15 hereof for personal injury,
including death, in respect of any one person, in respect of any one occurrence,
and in respect of property damage. Such insurance may be carried under a blanket
policy covering other locations of Tenant, if any. Landlord shall be a named
insured under such policy. Prior to the time such insurance is first required by
this Article XXVI to be carried by Tenant, and thereafter, at least fifteen (15)
days prior to the expiration of any such policy, Tenant agrees to deliver to
Landlord either a duplicate original of the aforesaid policy or a certificate
evidencing such insurance, which policy or certificate shall provide that such
insurance may not be cancelled except upon thirty (30) days prior notice to
Landlord. Upon failure at any time on the part of Tenant to procure and deliver
to Landlord the policy or certificate of insurance, as hereinabove provided,
stamped "Premium Paid" by the issuing company at least fifteen (15) days before
the expiration of the prior insurance policy or certificate, if any, or to pay
the premiums therefor, Landlord shall be at liberty, from time to time, as often
as such failure shall occur, to procure such insurance and to pay the premium
therefor, and any sums paid for insurance by Landlord shall be and become, and
are hereby declared, to be Additional Rent hereunder for the collection of which
Landlord shall have all the remedies provided for in this Lease or by law for
the collection of rent. Payment by Landlord of such premium or the carrying by
Landlord of any such policy shall not be deemed to waive or release the default
of Tenant with respect thereto. Tenant's failure to provide and keep in force
the aforementioned insurance shall be regarded as an Event of Default hereunder
entitling Landlord to exercise any or all of the remedies as provided in this
Lease.
ARTICLE XXVII
TENANT'S LIABILITY
in addition to the other obligations and liabilities of the Tenant set
forth herein, Tenant shall reimburse Landlord for all expenses, damages or
fines, incurred or suffered by Landlord by reason of any breach, violation or
nonperformance by Tenant, its agents, servants, employees, invitees Or licensees
of any covenant or provision of this Lease, or by reason of damage to persons or
property caused by moving property of or for Tenant in or out of the Building,
or by the installation or removal of furniture or other property of or for
Tenant, or by reason of or arising out of the carelessness, negligence or
improper conduct of Tenant, or its agents, servants, employees, invitees and
licensees in the use or occupancy of the Premises. Any such expense shall be
deemed Additional Rent, due in the next calendar month after it is incurred.
ARTICLE XXVIII
SECURITY DEPOSIT
26.01 USE AND DISPOSITION: If an Event of Default occurs, Landlord may
use, apply or retain the whole or any part of the Security Deposit to the extent
required for the payment of any Basic Rent, Additional Rent or any other sum as
to which Tenant is in default or for any sum which Landlord
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may expend or may be required to expend by reason of Tenant's default in respect
of any of the terms, covenants or conditions of this lease, including but not
limited to, any damages or deficiency accruing before or after summary
proceedings or other re-entry by Landlord. In the event that Tenant shall fully
and faithfully comply with all of the terms, covenants and conditions of this
Lease, the Security Deposit shall be returned to Tenant without interest after
the Termination Date and after delivery of possession of the entire Premises to
Landlord.
28.02 TRANSFER OF DEPOSIT: In the event of a sale of the Real Property
or a leasing thereof, Landlord shall have the right to transfer the Security
Deposit to the vendee or lessee, as the case may be, and Landlord shall
thereupon be released by Tenant from all liability for the return of such
Security Deposit; Tenant agrees to look to the new landlord solely for the
return of the Security Deposit; and it is agreed that the provisions hereof
shall apply to every transfer or assignment made of the Security Deposit to a
new owner or lessee, Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the Security Deposit and that neither
Landlord nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance.
ARTICLE XXIX
MISCELLANEOUS
29.01 RESERVATION OF RIGHTS: Landlord reserves the following rights;
(a) During the last ninety (90) days of the Term, to redecorate,
remodel, repair, alter or otherwise prepare the Premises for reoccupancy;
(b) To maintain pass keys to the Premises; and
(c) To enter upon the Premises and exercise the foregoing rights hereby
reserved without being deemed to have caused an eviction or disturbance of
Tenant's use and possession of the Premises and without being liable in any
manner to Tenant.
29.02 MECHANICS' LIENS: Any mechanics', materialmen's or laborer's lien
filed against the Real property for work claimed to have been done for, or
materials claimed to have been furnished to, Tenant shall be bonded or otherwise
removed by Tenant at Tenant's expense within ten (10) days.
29.03 NOTICE OF FIRE AND ACCIDENTS: Tenant shall give Landlord
immediate notice in case of fire or accident on the Premises or, it involving
Tenant, its servants, agents, employees, invitees or licensees, in the Building
or on the Real Property.
29.04 DIRECTORY: Landlord shall furnish and service at the entrance of
the Building a directory, listing a reasonable and customary number of names
that Tenant may from time to time request to be listed in such directory.
29.05 FORCE MAJEURE: If by reason of an Excusable Delay, including,
without limitation, a strike, labor troubles or other cause beyond Landlord's
control, or governmental preemption in connection with a national emergency or
any rule, order or regulation of any Governmental Authority, or conditions of
supply and demand which are affected by war or other emergency, Landlord shall
be unable to fulfill its obligations under this Lease or shall be unable to
supply any service which Landlord is obligated to supply, this Lease and
Tenant's obligation to pay Basic Rent and Additional Rent hereunder shall in no
way be affected, impaired or excused.
29.06 BROKER. Tenant represents that it has not dealt with any real
estate broker in connection with this Lease, other than the Broker. Tenant
indemnities and holds Landlord harmless of and from any and all claims,
liabilities, costs or damages Landlord may incur as a result of a breach of this
representation.
29.07 CONSTRUCTION: The following rules shall be employed in
interpreting this Lease:
(a) Whenever in this Lease any words of obligation or duty are used,
such words or expressions shall have the same force and of fact as though made
in the form of covenants;
(b) Words of any gender used in this Lease shall be held to include
any other gender, and words in the singular number shall be held to include the
plural, when the sense requires;
(c) All pronouns and any variations thereof shall be deemed to refer to
the neuter, masculine, feminine, singular or plural as the identity of the
Tenant requires;
(d) No remedy or election given by any provision in this Lease shall be
deemed exclusive unless so indicated, but each shall, wherever possible, be
cumulative with all other remedies in law or equity except as otherwise
specifically provided;
(e) If, and to the extent that, any of the provisions of any Exhibits
to this Lease conflict or are otherwise inconsistent with any of the preceding
provisions of this Lease, or of the Rules and Regulations appended to this
Lease, whether or not such inconsistency is expressly noted in the Exhibits, the
provisions of the Exhibits shall prevail, and in case of inconsistency with said
Rules and Regulations, shall be deemed a waiver of such Rules and Regulations
with respect to Tenant to the extent of such inconsistency;
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(f) The parties mutually agree that the headings and captions contained in
this Lease are Inserted for convenience of reference only, and are not to be
deemed part of or to be used In construing this Lease;
(g) Each provision hereof on the Tenant's part to be performed shall be
deemed a covenant running with the land;
(h) This Lease has been executed and delivered in the State of New Jersey
and shall be construed in accordance with the laws of the State of New Jersey:
(i) Landlord has made no representations or promises with respect to the
Premises or the Real Property, except as expressly contained herein. Tenant has
inspected the Premises and agrees to take the same in an "As is" condition,
except as otherwise expressly set forth. Landlord shall have no obligation,
except as herein set forth, to do any work in and to the Premises to render them
ready for occupancy and use by Tenant.
29.08 NO RECORDATION: Tenant shall not record this Lease or a memorandum
thereof.
ARTICLE XXX
TRANSFER OF LANDLORD'S INTEREST
If the Landlord hereinbefore named in this Lease, or a successor Landlord
as hereinafter defined, transfers title to the Premises, Building or Real
Property, or leases same to another, and in connection therewith assigns this
Lease to such transferee or lessee, then from and after the date of such
assignment, the transferee or lessee shall be the successor Landlord, all of the
obligations of the Landlord shall devolve upon its successor, and the Landlord
or successor Landlord making the transfer or lease and assignment shall be
entirely freed and relieved of all of the obligations of the Landlord herein
thereafter accruing.
ARTICLE XXXI
INSERTS
Listed below are particulars of this Lease referred to in other Sections
hereof:
AS PER LETTER OF INTENT DATED 6/28/93
31.01 BASIC RENT: $/ YEAR 1 $34,164.00 per annum; $2,847.00 per month
YEAR 2 $39,858.00 per annum; $3,321.00 per month
YEAR 3 $45,552.00 per annum; $3,796.00 per month
31.02 BROKER: JOHN D. LAZARUS INC.
31.03 BUILDING: RARITAN PLAZA II, EDISON, N.J.
31.04 ESTIMATED COMMENCEMENT DATE: AUGUST 1, 1993
31.05 RENTABLE AREA OF THE BUILDING: 80,240 SQ. FT.
31.06 RENTABLE AREA OF THE PROMISES: 2,847 SQ. FT.
31.07 SECURITY DEPOSIT: ONE MONTH'S RENT
31.08 TENANT'S PROPORTIONATE SHARE: 3.55%
31.09 NUMBER OF CONSECUTIVE MONTHS IN TERM: 37
31.10 ADDITIONAL USES: NONE
31.11 BASE TAX YEAR: 1993
31.12 BASE OPERATING YEAR: 1993
31.13 SPECIAL HVAC OVERTIME CHARGE PER HOUR: $18.00
31.14 ESTIMATED MONTHLY ELECTRICAL CHARGE: $296.56
31.15 INSURANCE: $ for personal injury (including death) per person;
$ for personal injury (including death) per occurrence; and $ for
property damage.
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ARTICLE XXXII
SUCCESSORS & ATTACHMENTS
The Exhibits and other Attachments to this Lease are hereinafter
enumerated; and the terms and conditions of this Lease and Attachments shall
inure to and be binding upon the parties hereto and their respective heirs or
successors and assigns.
ENUMERATION OF ATTACHMENTS
Rules and Regulations
EXHIBIT A: Work Letter
EXHIBIT B: Site Plan
EXHIBIT C: Floor Plan Indicating Premises
EXHIBIT D: Building Cleaning Specifications
ADDITIONAL ITEMS AS CONTAINED ON THE ANNEXED LETTER OF INTENT BETWEEN
THE PARTIES SHALL BE INCORPORATED HEREIN BY REFERENCE.
IN WITNESS WHEREOF, the parties hereto have executed this Lease on the day
and year first above written.
/s/ George R. Laufenberg
------------------------------------------
NJ CARPENTERS PENSION FUND
LANDLORD
BY: GEORGE R. LAUFENBERG
ADMINISTRATIVE MANAGER
/s/ Warren Zimmerman
------------------------------------------
OPTICAL SYSTEMS INC.
TENANT
BY: WARREN ZIMMERMAN
PRESIDENT
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<PAGE> 15
RULES AND REGULATIONS
1. Tenant shall not obstruct or permit its agents, clerks or servants to
obstruct, in any way, the sidewalks, entry passages, corridors, halls, stairways
or elevators of the Building, or use the same in any other way than as a means
of passage to and from the offices of Tenant; bring in, store, test or use any
materials in the Building which could cause a fire or an explosion or produce
any fumes or vapor; make or permit any improper noises in the Building; smoke in
the elevators; throw substances of any kind out of the window or doors or down
the passage of the Building, or in the halls or passageways; sit on or place
anything upon the window sills; or clean the windows.
2. Waterclosets and urinals shall not be used for any purpose other than
those for which they were constructed; and no sweepings, rubbish, ashes,
newspaper or any other substances of any kind shall be thrown into them. Waste
and excessive or unusual use of electricity or water is prohibited.
3. The windows, doors, partitions and lights that reflect or admit light
into the halls or other places of the Building shall not be obstructed. NO
SIGNS, ADVERTISEMENTS OR NOTICES SHALL BE INSCRIBED, PAINTED, AFFIXED OR
DISPLAYED IN, ON, UPON OR BEHIND ANY WINDOWS, except as may be required by law
or agreed upon by the parties; and no sign, advertisement or notice shall be
inscribed, painted or affixed on any doors, partitions or other part of the
inside of the Building, without the prior written consent of Landlord. If such
consent be given by Landlord, any such sign, advertisement, or notice shall be
inscribed, painted or affixed by Landlord, or a company approved by Landlord,
but the cost of the same shall be charged to and be paid by Tenant, and Tenant
agrees to pay the same promptly, on demand.
4. No contract of any kind with any supplier of towels, water, ice, toilet
articles, waxing, rug shampooing, venetian blind washing, furniture polishing,
lamp servicing, cleaning of electrical fixtures, removal of waste paper, rubbish
or garbage, or other like service shall be entered into by Tenant, nor shall any
vending machine of any kind be installed in the Building, without the prior
written consent of Landlord.
5. When electric wiring of any kind is introduced, it must be connected as
directed by Landlord, and no stringing or cutting of wires will be allowed,
except with the prior written consent of Landlord, and shall be done only by
contractors approved by Landlord. The number and location of telephones,
telegraph instruments, electric appliances, call boxes, etc., shall be approved
by Landlord. No tenant shall lay linoleum or other similar floor covering so
that the same shall be in direct contact with the floor of the Premises; and if
linoleum or other similar floor covering is desired to be used, an interlining
of builder's deadening felt shall be first affixed to the floor by a paste or
other material, the use of cement or other similar adhesive material being
expressly prohibited.
6. Landlord shall have the right to prescribe the weight, size and position
of all sales and other bulky or heavy equipment and all freight brought into the
Building by any tenant; and also the times of moving the same in and out of the
Building; and all such moving must be done under the supervision of Landlord.
Landlord will not be responsible for loss of or damage to any such equipment or
freight from any cause; but all damage done to the Building by moving or
maintaining any such equipment or freight shall be repaired at the expense of
Tenant. All sales shall stand on a base of such size as shall be designated by
the Landlord. The Landlord reserves the right to inspect all freight to be
brought into the Building and to exclude from the Building all freight which
violates any of these Rules and Regulations or the Lease of which these Rules
and Regulations are a part.
7. No machinery of an kind or articles of unusual weight or size will be
allowed in the Building, without the prior written consent of Landlord, Business
machines and mechanical equipment shall be placed and maintained by Tenant, at
Tenant's expense, in settings sufficient, in Landlord's judgement, to absorb and
prevent vibration, noise and annoyance.
8. No additional lock or locks shall be placed by Tenant on any door in the
Building, without prior written consent of Landlord. Two keys will be furnished
Tenant by Landlord; two additional keys will be supplied to Tenant by Landlord,
upon request, without charge; any additional keys requested by Tenant shall be
paid for by Tenant. Tenant, its agents and employees, shall not have any
duplicate key made and shall not change any locks. All keys to doors and
washrooms shall be returned to Landlord at the termination of the tenancy, and,
in the event of loss of any keys furnished, Tenant shall pay Landlord the cost
thereof.
9. Tenant shall not employ any person or persons other than Landlord's
janitors for the purpose of cleaning the Premises, without prior written consent
of Landlord. Landlord shall not be responsible to Tenant for any loss of
property from the Premises however occuring, or for any damage done to the
effects of Tenant by such janitors or any of its employees, or by any other
person or any other cause. The janitor's service furnished by Landlord does not
Include the beating or cleaning of carpets or rugs.
10. No bicycles, vehicles or animals of any kind shall be brought into or
kept in or about the Premises.
11. The requirements of Tenant will be attended to only upon application at
the office of the Building. Employees of Landlord shall not perform any work for
Tenant or do anything outside of their regular duties, unless under special
instructions from the office of Landlord.
12. The Premises shall not be used for lodging or sleeping purposes, and
cooking therein is prohibited.
13. Tenant shall not conduct, or permit any other person to conduct, any
auction upon the Premises; manufacture or store goods, wares or merchandise upon
the Premises, without the prior written approval of Landlord, except the storage
of ususal supplies and inventory to be used by Tenant in the conduct of its
business; permit the Premises to be used for gambling; make any unusual noises
in the Building; permit to be played any musical instrument in the Premises;
permit to be played any radio, television, recorded or wired music in such a
loud manner as to disturb or annoy other tenants, or permit any unusual odors to
be produced upon the Premises. Tenant shall not occupy or permit any portion of
the Premises leased to him to be occupied as an office for a public stenographer
or typist, or for the possession, storage, manufacture, or sale of intoxicating
beverages, narcotics, tobacco in any form, or as a barber or manicure shop.
14. After 6 P.M. until 8:00 A.M. on weekdays, after 1:00 P.M. on Saturdays
and at all hours on Sundays and legal holidays, the Building is closed. Landlord
reserves the right to exclude from the Building during such periods all persons
who do not present a pass to the Building signed by Tenant. Each tenant shall be
responsible for all persons for whom he issues such pass and shall be liable to
Landlord for all acts of such persons.
15. No awnings or other projections shall be attached to the outside walls
of the Building. No curtains, blinds, shades or screens shall be attached to or
hung in, or used in connection with, any window or door of the Premises, without
the prior written consent of Landlord. Such curtains, blinds and shades must be
of a quality, type, design, and color, and attached in a manner approved by
Landlord.
16. Canvassing, soliciting and peddling in the building are prohibited, and
Tenant shall cooperate to prevent the same.
17, There shall not be used in the Premises or in the Building, either by
Tenant or by others in the delivery or receipt of merchandise, any hand trucks
except those equipped with rubber tires and side guards, and no hand trucks will
be allowed in passenger elevators.
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<PAGE> 16
18. Each tenant, before closing and leaving the Premises, shall ensure
that all windows are closed and all entrance doors locked.
19. Landlord shall have the right to prohibit any advertising by Tenant
which in Landlord's opinion tends to impair the reputation of the Building or
its desirability as a building for offices, and upon written notice from
Landlord, Tenant shall refrain from or discontinue such advertising.
20. Landlord hereby reserves to itself any and all rights not granted to
Tenant hereunder, including, but not limited to, the following rights which are
reserved to Landlord for its purposes in operating the Building:
(a) the exclusive right to the use of the name of the Building for all
purposes, except that Tenant may use the name as its business address
and for no other purpose;
(b) the right to change the name or address of the Building, without
incurring any liability to Tenant for so doing;
(c) the right to install and maintain a sign or signs on the exterior of
the Building;
(d) the exclusive right to use or dispose of the use of the roof of the
Building;
(e) the right to limit the space on the directory of the Building to be
allotted to Tenant;
(f) the right to grant to anyone the right to conduct any particular
business or undertaking in the Building.
21. Tenant shall list all articles to be taken from the building (other
than those taken out in the usual course of business of Tenant) on Tenant's
letterhead, or a blank which will be furnished by Landlord. Such list shall be
presented at the office of the Building for approval before such articles are
taken from the Building or accepted by any elevator operator.
22. The Tenant, its employees, agents, representatives, invitees and
business visitors shall comply promptly and courteously with the directions of
any building security personnel hired by Landlord.
<PAGE> 17
BUILDING CLEANING SPECIFICATIONS
A. GENERAL (FIVE NIGHTS PER WEEK)
1. All ceramic, tile and other unwaxed flooring to be swept nightly and
washed as necessary.
2. All composition tile to be swept. In sweeping, all furniture to be moved
when necessary to reach inaccessible areas.
3. All carpeting, rugs and upholstered furniture to be vacuumed.
4. All furniture, fixtures, pictures, ledges, chair rails and other furniture
and window sills to be hand-dusted and cleaned . All window sills to be
washed when necessary.
5. All ash trays to be emptied and damp-wiped clean.
6. All waste receptacles to be emptied and refuse removed to a designated
area of the building.
7. Interiors of all waste disposal cans and baskets will be kept clean by
inserting a plastic liner in each. Wash disposal units and replace liners
upon request.
8. All water coolers to be washed.
9. All door louvres and other ventilating louvres within reach to be
hand-dusted.
10. All telephones to be hand-dusted.
11. All bright work to be wiped clean and polished.
12. All fingerprints and smudges to be removed from painted verticle surfaces
whenever and wherever practicable.
13. All stairways to be swept and dusted nightly and mopped or scrubbed
weekly.
14. The elevators to be swept, dusted, washed nightly and waxed as necessary.
B. LAVATORIES (Five Nights Per Week)
1. All lavatory rooms to be swept and washed nightly with Phenolic or
Quaternary disinfectant and power machine scrubbed monthly.
2. All mirrors, shelves, bright work and enameled surfaces in lavatories to
be washed and polished.
3. All basins, bowls and urinals to be scour-washed with a Phenolic or
Quaternary disinfectant.
4. All toilet seats to be scour-washed and disinfected.
5. All partitions, tile walls, dispensers and receptacles to be hand-dusted
and washed when necessary.
6. Landlord to furnish paper towels, toilet tissue, hand soap and sanitary
napkins. Units should be checked and replenished daily.
7. All paper towel receptacles to be emptied.
8. All sanitary napkin disposal receptacles to be emptied.
9. All wall tile and stall surfaces to be washed and polished as often as
necessary.
C. HIGH DUSTING
1. All pictures, frames, charts, graphs and similar wall hangings not reached
in daily cleaning to be dusted at least twice per month.
2. All verticle surfaces such as walls, partitions, doors, bucks and other
surfaces not reached in daily cleaning to be dusted at least twice per
month.
3. All pipes, ventilating and air conditioning louvres, ducts, high mouldings
and other high areas not reached in daily cleaning to be dusted at least
once per month.
D. LOBBY
1. Floors of entrance lobby to be swept and washed as necessary.
2. Lobby wall surfaces to be hand-dusted as often as necessary.
EXHIBIT D
<PAGE> 1
EXHIBIT 10.11
ADDENDUM NO. 2 TO LEASE
BY AND BETWEEN
N. J. CARPENTERS PENSION FUND, as the Landlord and
OPTICAL SYSTEMS, INC., as the Tenant;
WHEREAS, the Carpenters Pension Funds and Optical System, Inc. have agreed to
revise the terms of the Lease between them,
NOW THEREFORE it is agreed:
1. That Optical's rentable Area (per Section 31.06 of the Lease) is
being increased to include an additional 477 square feet, which is
located on the first floor of the building (per Section 31.03). This
space is not contiguous of Optical's current space. Optical's total
square footage will increase from 5,642 square feet to 6,119 square
feet.
2. The Basic Rent (per Section 31.01) shall be increased as follows:
April 20, 1998 through January 19, 2000, the rent shall
increase to $97,904 per year, or $8,158.66 per month.
3. Tenant's Proportionate Share (per Section 31.08) shall be increased
from 7.03% to 7.64%.
4. The Commencement of this change (per section 31.04) shall be
effective April 20, 1998.
5. The parties agree to ratify and confirm all of the other terms and
conditions of the August 1, 1993 Lease by and between them which
shall remain in full force and effect.
IN WITNESS WHEREOF, this Addendum No. 2 is signed and agreed to on
this 15th day of April, 1998.
NEW JERSEY CARPENTERS OPTICAL SYSTEMS, INC.
PENSION FUND
/s/ Warren Zimmerman
- ----------------------------- -----------------------
By: George R. Laufenberg By: Warren Zimmerman
WITNESS: WITNESS:
/s/ JUDY PACCIONE
- ----------------------------- -----------------------
<PAGE> 1
EXHIBIT 10.12
RESIDENTIAL LEASE
This Lease is made this 28th day of February, 1998, by and between Warren
R. Zimmerman ("Landlord"), Optical Systems, Inc. ("Tenant"). As used in the
Lease, the singular includes the plural and the masculine includes the feminine
at all times.
1. Premises to be Leased. Landlord agrees to lease to Tenant the
premises known as and located at the following address:
471 NW 68th Avenue
Plantation, Florida 33317
The premises are rented unfurnished.
2. Term of Lease. This Lease shall begin at 12:01 a.m. on March 15, 1998
and end at 12:01 a.m. on March 14, 2004. During the term of the Lease, Tenant
shall pay six hundred dollars ($600.00) per month as rent to the Landlord. Rent
shall be due on the fifteen day of each month through the term of this Lease.
Landlord acknowledges receipt of $36,000 in full payment of rent obligation.
3. Security Deposit. Landlord acknowledges the receipt of a security
deposit in the amount of one thousand, five hundred dollars ($1,500.00). The
entire security deposit, or any balance of the security deposit remaining after
lawful deductions, shall be returned to Tenant upon the termination of this
Lease, provided that Tenant has provided Landlord with a proper forwarding
address. The provisions for accounting, reporting and application of this
security deposit shall be in full accordance with the laws of the State of
Florida.
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4. Automatic Renewal. This Lease shall be extended for additional
consecutive periods of annually, on the same terms as provided for in this
Lease, unless either party gives no less than 30 days written notice of the
intent to terminate.
5. Subletting. Tenant promises not to assign or transfer this Lease or
any interest in this Lease, or sublet the premises or any part of the
premises without the prior written consent of the Landlord.
6. Liens and Encumbrances. Tenant promises not to allow any liens or
encumbrances to attach to the premises.
7. Occupancy. Tenant shall be entitled to use the premises for
residential purposes only. The premises shall be occupied by the following
persons and no others: Optical Systems, Inc. Only the following pets shall be
kept on the premises: one dog.
8. Maintenance. Tenant shall maintain the premises in a safe and
sanitary condition; dispose of all garbage, rubbish and waste in a clean, safe
and legal manner, the storage of garbage on the premises being strictly
prohibited; keep all plumbing fixtures in the premises clean, sanitary and in
good working order; use and operate all electrical fixtures and plumbing
fixtures properly; comply with all obligations imposed upon Tenants by
applicable provisions of housing, building and health codes; refrain, and
forbid any other person from destroying, defacing, damaging or removing any
part of the premises.
Tenant shall not make any alterations to the premises or change any locks
on the premises without the prior written consent of Landlord. Tenant
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shall not do anything on the premises that will increase or make voidable
Landlord's insurance on the premises.
9. Utilities. Tenant shall be responsible for all deposits and payments
for the following utilities; all utilities.
10. Landlord Duties. Landlord shall comply with the requirements of all
building, housing and health codes as they apply to Landlord. Landlord shall
pay all real estate taxes and assessments as due, but reserves the right to
contest any such tax assessment.
11. Premises As Is. Tenant acknowledges that he has inspected the
premises prior to signing this Lease and accepts the premises in its present
condition, except as noted on the attached list incorporated in this Lease by
reference.
12. Liabilities. Tenant agrees to assume all liability and hold Landlord
harmless from any and all injuries to persons or damage to property caused by
Tenant or any other person on the premises with Tenant's permission. Tenant
agrees to pay any costs and attorney fees incurred by Landlord in defending any
lawsuit or other action brought in regard to such injuries or damage.
All personal property in the premises is at Tenant's risk only and
Landlord shall not be liable for any damages to it, nor is the Landlord
responsible for insuring Tenant's personal property.
13. Destruction of Premises. In the event more than half of the premises
is destroyed by fire or other loss, Landlord and Tenant agree that this Lease
shall become void at the option of either Landlord or Tenant.
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14. Default. If Tenant makes any default on this Lease, it shall be
lawful for Landlord and his representatives and agents to re-enter and
repossess the premises, or evict Tenant in the manner prescribed by law. Waiver
of any default by the Landlord shall not be construed as a waiver of any
subsequent default.
15. Access. Tenant shall allow Landlord access to the premises for
purposes of repair and inspection. Landlord shall exercise this right of access
in a reasonable manner. Landlord shall give Tenant reasonable notice before
exercising this right of access, except in case of emergency.
16. Notice. All notices required by this Lease shall be provided in
writing, mailed to the parties as follows:
IF TO LANDLORD: Fieldcrest Avenue
Edison, New Jersey
IF TO TENANT: Fieldcrest Avenue
Edison, New Jersey
17. Parties Bound. This Lease and the promises and agreements it contains
shall be binding on the respective heirs, successors, representatives, agents
and assigns of the parties.
18. Complete Agreement. This Lease is the complete and final agreement of
Landlord and Tenant in regard to the premises described in the Lease. This
Lease supersedes any oral or written agreements regarding these premises.
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WARNING: THIS LEASE IS A BINDING LEGAL AGREEMENT. YOU SHOULD NOT SIGN IT
UNLESS YOU UNDERSTAND IT COMPLETELY. CONSULT WITH AN ATTORNEY FOR ASSISTANCE.
Dated this 14th day of March, 1998.
LANDLORD:
/s/ WARREN R. ZIMMERMAN
- -----------------------------
Warren R. Zimmerman
3/14/98
- -----------------------------
Date
TENANTS:
Optical Systems, Inc.
- ------------------------------------
/s/ Judy Paccione
- ------------------------------------
Judy Paccione, Administration Mgr.
3/14/98
- ------------------------------------
Date
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EXHIBIT 17.1
July 16, 1998
Shareholders and Board of Directors
Optical Systems, Inc.
Raritan Plaza II, Raritan Center
Fieldcrest Avenue
Edison, New Jersey 08818
RE: OPTICAL SYSTEMS, INC.
RESIGNATION
Dear Sir/Madam:
This letter hereby serves as my notification to the shareholders and directors
of Optical Systems, Inc. of my resignation, effective immediately, from my
position as Treasurer and Director of Optical Systems, Inc.
Very truly yours,
/s/ WILLIAM H. LUCKMAN
WILLIAM H. LUCKMAN
<PAGE> 1
EXHIBIT 23.1
[MAURIELLO, FRANKLIN & LoBRACE LETTERHEAD]
April 12, 1999
We consent to the inclusion of our Independent Auditors' Report in
Optical System Inc.'s annual filing of Form 10-KSB for the year ended
September 30, 1998 with the Securities and Exchange Commission.
/s/ MAURIELLO, FRANKLIN & LoBRACE PC
--------------------------------------
MAURIELLO, FRANKLIN & LoBRACE, P.C.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AUDITED
FINANCIAL STATEMENTS FOR YEARS ENDED SEPTEMBER 30, 1998 AND 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1997
<PERIOD-END> SEP-30-1998 SEP-30-1997
<CASH> 81,765 85,927
<SECURITIES> 0 0
<RECEIVABLES> 339,083 32,020
<ALLOWANCES> 3,000 1,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 489,692 116,009
<PP&E> 405,135 305,530
<DEPRECIATION> 222,401 143,257
<TOTAL-ASSETS> 697,026 278,282
<CURRENT-LIABILITIES> 683,313 364,735
<BONDS> 57,997 37,114
0 0
101 81
<COMMON> 517 437
<OTHER-SE> (44,902) (124,085)
<TOTAL-LIABILITY-AND-EQUITY> 697,026 278,282
<SALES> 2,410,966 886,735
<TOTAL-REVENUES> 2,410,966 886,735
<CGS> 1,139,589 253,885
<TOTAL-COSTS> 2,920,816 1,169,099
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 2,000 1,000
<INTEREST-EXPENSE> 15,842 64,795
<INCOME-PRETAX> (512,150) (342,014)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (512,150) (342,014)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (512,150) (342,014)
<EPS-PRIMARY> (.11) (.09)
<EPS-DILUTED> 0 0
</TABLE>
