<PAGE> 1
FORM 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark one)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JUNE 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO ____________
Commission File Number 0-16343
OIS OPTICAL IMAGING SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-2544320
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
47050 FIVE MILE ROAD, NORTHVILLE, MICHIGAN 48167
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (810) 454-5560
Securities registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Title of Each Class Name of Exchange on which Registered
- ------------------- ------------------------------------
Common Stock, $0.01 par value NASDAQ Over-the-Counter Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates (based upon
the average bid and asked prices of such stock in the Over-the-Counter market)
on September 18, 1995 was approximately $74,502,384.
The number of shares of Registrant's Common Stock outstanding on September 18,
1995 was 96,721,635.
Portions of the Annual Report to Shareholders for the fiscal year ended June
30, 1995, are incorporated by reference into Part II of this Report. Portions
of the Proxy Statement relating to the Annual Meeting of Shareholders to be
held on November 9, 1995, are incorporated by reference into Part III of this
Report.
<PAGE> 2
PART I
ITEM 1: BUSINESS
INTRODUCTION
OIS Optical Imaging Systems, Inc. ("OIS" or the "Company") is a Delaware
corporation that was first organized in 1984 and develops, manufactures and
sells active matrix liquid crystal displays ("AMLCDs"). The Company's
principal market for AMLCDs is commercial and military avionics. The Company
is planning to attempt to enter the medical display and imaging market. OIS
also derives some revenue from the manufacture and sale of image sensors
("sensors") and from licensing and royalty agreements.
The Company recently completed construction of its new facility in
Northville Township, Michigan. The Company has begun the process of
pre-production manufacturing at its Northville facility during the first
quarter of fiscal 1996. The Company expects to complete the transfer of
production from its Troy, Michigan facility to the Northville facility during
fiscal 1996. When the transition to the Northville facility is complete, the
Company will close its Troy facility.
Guardian Industries Corp. ("Guardian"), a privately held Michigan-based
worldwide manufacturing company, owns approximately 53.6% of the outstanding
common stock of OIS (as well as 18,750 shares of non-voting, non-convertible,
preferred stock), and William Davidson, the President and Chief Executive
Officer of Guardian, owns an additional 27.7% of the outstanding common stock
of OIS. See Certain Relationships and Related Transactions and Security
Ownership of Certain Beneficial Owners and Management.
DESCRIPTION OF THE BUSINESS
Active Matrix Liquid Crystal Displays. OIS is focusing its efforts on
developing, manufacturing and selling AMLCDs. AMLCDs are one kind of display
or viewing screen capable of displaying images such as text, graphics or video.
AMLCDs incorporate the use of microelectronics and amorphous materials
technology to construct transparent thin film electronic switching devices,
such as diodes or transistors, on a specially prepared plate of glass known as
the active plate. The electronic components are made of semiconductor
materials and are similar to those that are constructed on silicon wafers in
the manufacture of integrated circuits. A second plate of glass, known as the
passive plate, has a filter applied to its surface. The filter has a black
background with a microscopic translucent opening for each pixel (picture
element) in the display. In a color display, the openings must be alternately
colored in the primary colors (red, green and blue) to form pixel groups that
will allow the formation of the entire spectrum of colors. A transparent
electrode is applied below the filter to complete the circuit with the
electronics on the active plate. A liquid crystal material is placed between
the active and passive plates. Liquid crystal material, simply put, can be
induced to block light or let light pass depending on whether a voltage is
applied. Each switch on the active plate, together with the liquid crystal
material directly above it, forms one pixel in the display. The two plates are
then sealed together, and polarizing layers are laminated to the outside
surfaces of the glass, creating what is known as a glass cell. To complete the
AMLCD, a light source (called a "backlight") is placed behind the glass cell
and electronic controllers (called "drivers") are connected to the active plate
to control the individual switches and generate images. While some customers
purchase only the glass cell, a complete AMLCD module includes a backlight,
drivers and additional electronic components needed to control the display.
A number of fields of expertise are necessary for the development and
production of AMLCDs. These include liquid crystal technology,
microelectronics, optics, filters and manufacturing processes for constructing
microelectronics and filters on glass.
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Until recently, OIS has been the only active manufacturer of AMLCDs in the
United States. One other U.S. company claims to have begun production of small
AMLCDs, and at least two other U.S. based companies have announced that they
intend to produce AMLCDs. Other manufacturers are located in Canada, Europe
and Japan. See Competition. The principal current submarket for the Company's
displays is the military and commercial avionics market, in which displays are
incorporated into instruments used in civilian and military aircraft and other
military display applications. In this submarket, the Company's customers are
typically avionics integrators who purchase displays to be integrated into a
panel of navigation instruments, either for a new aircraft or for retrofitting
into an existing aircraft. These avionics integrators generally then resell
the instrument system to a prime contractor or end user. In some cases, the
Company sells directly to the prime contractors or end users.
Currently, the primary AMLCD configuration that OIS manufactures, markets
and sells is a display cell which consists of a glass cell with drivers
attached. However, the Company intends to increase its efforts to manufacture,
market and sell complete display modules, which consist of a glass cell
(including drivers) plus a backlight and related electronics, all
self-contained and enclosed within a housing.
In the past, the Company obtained most of its business, and in fiscal 1994
obtained 88% of its revenue, from development agreements. However, the Company
has made a strategic decision to pursue the sale of standard products and
minimize development work.
Development agreements typically involve adapting OIS's standard products
to meet certain form, fit and optical requirements for a specific application.
Development agreements, notwithstanding their name, typically do not involve
the development of new technology of general application. Under a development
agreement, the Company delivers a specified number of prototype displays.
Development agreements may provide the customer with options to enter into
production contracts for specified numbers of displays after the prototype
displays have been delivered and accepted. The ultimate determination of the
customer to award a production contract depends on the prototype display
meeting the requirements of the development agreement among other things.
The Company's policy is to develop new technologies of general application
using its own funds and to attempt to retain ownership of related intellectual
property rights. OIS has expended $372,242, $688,094 and $1,306,843 in Company
sponsored research and development for fiscal years 1993, 1994 and 1995,
respectively.
Production contracts or orders for the sale of displays call for the
Company to sell larger quantities of displays that are generally intended for
use in a product supplied by OIS's customer to either the commercial or
military markets. For example, OIS currently has a production contract to
deliver standard displays to Allied Signal for use in flight instruments in
commercial aircraft. The Company expects to secure the majority of its
business from orders for the sale of standard displays and not from development
agreements. In some cases, the Company will make minor modifications to its
displays at a customer's request, and will charge the customer for the
engineering work involved.
The Company currently produces displays in its Troy, Michigan facility
which was originally designed primarily for research and development, not
production. In addition, the Troy facility has limited capacity. The Company
has experienced significant production difficulties resulting from the design
limitations and age of the Troy facility as well as difficulties in applying
its manufacturing processes as production volumes increase. Despite these
difficulties, the Company has manufactured displays in limited numbers at the
Troy facility and has gained significant manufacturing experience. The Company
has used this experience in the design and start up of the new Northville
facility. See Management's Discussion and Analysis.
Image Sensors. In addition to displays, the Company manufactures image
sensors. Image sensors detect an image on a surface and convert it into
electronic impulses. Image sensors are used, for example,
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in telecopiers ("fax" machines), electronic copyboards and page scanners. At
present, the only customer for the Company's sensors is Quartet Manufacturing
Co., which incorporates sensors into electronic copyboards. The Company does
not believe that the loss of this customer would have a material adverse effect
on the Company. Although the Company has focused primarily on its display
business, the Company is planning to attempt to expand its sensor business for
medical imaging applications and may consider sensor sales for other
applications.
Licensing. In addition to the revenue obtained from development
agreements and the sale of products, the Company has obtained revenue from
licensing its sensor technology to others. The Company will continue to
license its sensor technology where it appears appropriate. The Company has no
plans to seek revenue from licensing its core display technology which it views
as central to its business. See Intellectual Property Rights.
COMPETITION
OIS views the market for AMLCDs as consisting of at least two distinct
submarkets. The first submarket, and by far the largest, is the market for
AMLCDs in consumer electronics products. This market is highly competitive
with at least six competitors worldwide. All of these firms have more
financial resources than the Company and most are affiliated with major
corporations that have extensive experience in the electronics industry. OIS
is not active in this market at this time. The second submarket consists of
high end applications for AMLCDs in military, commercial avionics, space and
other demanding environments. This is the market that OIS has identified as
its near-term target market. OIS displays are engineered and manufactured to
meet the optical and environmental requirements of these demanding
applications. OIS believes that demand for its products for other applications
will develop over the next several years, including applications for medical
imaging. As discussed below, OIS is planning to attempt to sell products for
medical imaging applications.
In the high end submarket in which OIS competes, the most significant
source of competition comes from currently existing, non-AMLCD technologies
such as electromechanical displays and the cathode ray tube displays (CRTs).
AMLCDs have a number of performance advantages over CRTs and electromechanical
displays, including less thickness, lower weight, higher contrast, sunlight
readability and longer mean time between failures. OIS management believes
that customers recognize that the AMLCD is a superior technology. The Company
currently competes with non-AMLCD technologies primarily on the basis of
performance. However, OIS's ultimate success in displacing CRTs and
electromechanical displays will depend on, among other things, the Company's
ability to compete on the basis of price by reducing the per unit cost of its
AMLCDs.
OIS experiences competition for sales of AMLCDs primarily from two
sources. The first is Litton of Canada which markets AMLCDs both to Litton
Systems, a sister company which is in the business of supplying whole avionic
flight information systems, and to other avionics systems integrators.
The other source of competition is indirect competition from Japanese
manufacturers of consumer grade AMLCDs. Although OIS management believes that
consumer grade AMLCDs generally do not meet current military or avionics
requirements, a number of avionics integrators are purchasing consumer grade
AMLCDs and adapting them to avionics or military use. These adapted products
are a growing source of competition for the Company. Although the adapted
products generally have weaker performance in one or more respects than OIS's
products, these adapted products appear to be lower in price. The Company is
carefully monitoring developments in adapted products.
One American company, Kopin Corp., has announced that it is manufacturing
small AMLCDs for head-mounted projection displays in which an image is
projected through an AMLCD onto a screen. Two other U.S. based companies have
announced plans to manufacture AMLCDs: ImageQuest, a start-up company backed
by Hyundai of South Korea, and Planar, a manufacturer of high end CRTs and flat
panel
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electroluminescent displays, which is allied with Xerox. The Company does not
know what kinds of products Planar intends to manufacture and is not aware of
any successful production of AMLCDs by either ImageQuest or Planar. While
Hyundai and Xerox each have at their disposal substantial resources that could
be devoted to the development and manufacture of AMLCDs, the Company does not
know the actual level of financial commitment which Hyundai or Xerox have to
these companies. The potential competitive impact of these companies is not
yet clear.
A number of technologies other than the Company's AMLCD technology can be
used to manufacture flat panel displays, and a number of companies around the
world are working on such technologies. Examples of technologies that are not
currently competing with AMLCDs for avionics applications because they either
are not sunlight readable or do not produce color images include
electroluminescent, plasma and light emitting diode technologies. Other
potentially competing technologies include AMLCD poly-silicon (in contrast to
the Company's use of amorphous silicon), ferroelectric and field emission
technologies. While future displacement of the Company's AMLCD technology is
always a possibility, management believes that none of these potentially
competing technologies have reached the current state of development of the
Company's AMLCD technology. Management's long term goal for the Company is to
develop the ability to adopt new technologies if management determines that
such technologies are desirable, but there is no assurance that the Company
will achieve that goal.
OIS does not expect the current large scale producers of consumer grade
AMLCDs to enter the Company's high end submarket directly since volumes
required of higher performance displays generally mean relatively small
production runs that may not be economical for large scale producers. OIS
expects to compete on the basis of its ability to meet the performance
requirements of its submarket, its identification as a United States
manufacturer, and, eventually, price. The Company believes that, over time, it
will need to reduce production costs and prices in order to compete
effectively.
The Company hopes to expand production capacity and expand the Company's
activities beyond its target submarket. See Business Developments - New
Manufacturing Facility. However, it will not be possible for the Company to
compete successfully in consumer markets such as computer displays and
televisions, or in many commercial instrumentation markets, unless it can
significantly reduce its per unit production costs. Management does not
anticipate that the Northville facility will enable the Company to successfully
enter consumer markets because throughput at the Northville facility will be
too small to generate the necessary economies of scale. Management does hope
to be able to enter consumer markets in the future. See Business Developments
- -- Consumer Electronics Applications.
BUSINESS DEVELOPMENTS
Products and Manufacturing. Before 1993 the Company's manufacturing
experience was limited to fabrication of prototype AMLCDs developed in
connection with internal research and development and customer development
agreements. Manufacturing was done on a project or job order basis. The
Company did not engage in continuous production of standard products. In
fiscal 1993 the Company began work on its first two production contracts. The
Company has gained important experience in continuous production and improved
its manufacturing capabilities within the limitations of its Troy facility.
However, the Company has experienced continuing manufacturing problems at the
Troy facility which have contributed to the Company's ongoing losses. While
the Company expects that many of these problems will be ameliorated in the
Northville facility, it does not yet have enough experience in the Northville
facility to evaluate the success of manufacturing operations there.
The Company has continued its program of building "standard" or "catalog"
displays and making them available to customers on an off-the-shelf basis.
The Company currently offers four standard products: a 4" square high
resolution display (which is available in three configurations, color, high
reliability color and monochrome), a 6" x 8" color display, a 5" x 5" color
display and a 2.3" square color display. The Company has discontinued its 3.4"
x 2.8" display on account of insufficient market interest.
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In fiscal 1995, the Company has restructured its organization to separate
engineering and technical development from manufacturing operations and then to
separate product engineering from research and development. As a result of
this restructuring, the Company now has three principal technical employees who
report directly to President and Chief Executive Officer Rex Tapp: a General
Manager of Manufacturing, a Director of Product Development and a Vice
President of Research and Development. This restructuring is designed to
strengthen the Company's technological, development and manufacturing
capabilities.
In fiscal 1995, the Company derived approximately 69% of its operating
revenues from development agreements, approximately 27% from sales of displays
(including both production agreements and off-the-shelf sales) and
approximately 4% from image sensors. See Management's Discussion & Analysis --
Results of Operations.
Presently, the largest ultimate customer for the Company's displays is the
United States government, principally the Department of Defense, which is
purchasing displays indirectly through a number of prime contractors and
avionics integrators. In the fiscal year ended June 30, 1995, approximately
83% of the Company's revenue was derived from U.S. government contracts. When
the ultimate customer is an agency of the United States government, the laws
and regulations relating to government contracts apply. Even when the Company
develops a display for an integrator who is supplying to the government, the
contract is a "government contract" in the sense that the Company is required
by the contract to satisfy the military specifications and the laws and
regulations relating to government contracts and is responsible directly to the
government for certain matters relating to the contract. The Company's policy
is to sell displays for use by the government as "catalog products" which
permits application of somewhat simpler government regulations.
Government contracts are subject to delays and risk of cancellation.
Also, government contractors generally are subject to various kinds of audits
and investigations by government agencies. These audits and investigations
involve review of a contractor's performance on its contracts, as well as its
pricing practices, the costs it incurs and its compliance with all applicable
laws, regulations and standards. The Company is, and in the future expects to
be, audited by the government on a regular basis.
The Company has five customers that each individually accounted for more
than 10% of its total revenues in the fiscal year ended June 30, 1995: Kaiser
Electronics; Honeywell Satellite Systems; Smith Industries; Allied Signal; and
McDonnell Douglas. Two development agreements with Kaiser Electronics, both
of which are government contracts, accounted for approximately $3,201,851, or
38% of revenue.
Marketing and Development of the Market. During fiscal 1995, the Company
continued to expand its marketing department and marketing efforts. The
marketing department is currently working primarily in the commercial and
military avionics submarket. The Company is increasing its efforts to
obtain sales for industrial and medical instrumentation applications.
During fiscal 1995, the Company continued to experience requests for
proposals and marketing activity which resulted in additional production
orders. Management expects that the Company's targeted submarket will expand
substantially in the next five to seven years, but there is significant
uncertainty as to how much expansion will occur in the next one to three years.
Fiscal 1995 Results. During fiscal 1995, the Company experienced lower
revenue and increased losses caused in substantial part by a reduction in
engineering and development revenue, high manufacturing costs and delayed
shipments related to the problems experienced in its manufacturing operations.
See Management's Discussion & Analysis -- Results of Operations -- Costs of
Sales.
New Manufacturing Facility. The Company has built a new mid-volume
manufacturing facility in Northville Township, Michigan. This facility is
intended to serve the commercial and military avionics
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submarket and to manufacture for high-end commercial instrumentation and
medical imaging applications, not the consumer electronics submarket. See
Competition. The new facility is intended to be "state-of-the-art" and
incorporates flexible manufacturing technology that is intended to facilitate
the relatively small production runs that characterize the Company's current
submarket.
The Company began the first phase of the lengthy process startup
procedures in June 1995. Processing of the first glass substrates was begun in
August 1995 and has proceeded continuously since then. When the process is
producing displays that meet OIS's specifications, the Company will ship the
first saleable displays to be fully manufactured in Northville. The precise
length of time that will be required for the startup is uncertain, in part
because the Northville facility is the first AMLCD manufacturing startup in the
United States. However, the Company estimates that it will ship the first
displays from the Northville facility in the second quarter of fiscal 1996.
Production will be transferred from the Troy facility to the Northville
facility one product at a time until all of the Company's products can be
manufactured in Northville. Once the new Northville facility is fully
operational, the Company intends to cease operations in the Troy facility and
move the equipment now being used at the Troy facility to the Northville
facility for use in research and development.
The Northville facility was built under an agreement with the Advanced
Research Projects Agency of the U.S. Department of Defense ("ARPA"), under
which ARPA provides $48 million toward the development of AMLCD manufacturing
technology and construction of the facility.
Under the OIS-ARPA Agreement, the federal government provides funds to OIS
upon the attainment of specified planning and construction milestones. OIS
used the government funds to purchase process equipment for the facility and
the government will own that equipment. OIS will be entitled to use the
government-owned equipment through August 1998 without payment to the
government. In 1998, OIS will have the option to purchase any or all of the
government-owned equipment at its then fair market value. Through August 30,
1995, OIS had invoiced and the government had paid $42.68 million of the $48
million anticipated under the Agreement.
Future Operations. Management believes that the Company's ability to
operate profitably once the Northville facility starts operation and for the
short to medium term thereafter will depend on a number of factors, including
the following:
1. The rate at which demand for high performance AMLCDs increases.
2. The successful operation of the Northville facility. Management
believes that the Northville facility will reflect the state-of-the-art in
display manufacturing facilities, but no AMLCD manufacturing facility has ever
been built in the United States (the Company's Troy facility is a research and
development facility that has been adapted to manufacturing) and there is no
assurance the Company will be able to manufacture displays at competitive cost
in the Northville facility.
3. Whether competitive flat panel displays are ultimately manufactured
using competing technologies, and whether the Company is able to adapt to
technological change. See Competition. Management intends to endeavor to keep
abreast of technological developments. The technology applicable to flat panel
displays is continuously evolving. Management has identified as a long range
goal the development of a capability to change over in whole or in part from
AMLCD technology to a new technology as it evolves if management determines
that such a changeover would be advantageous.
Medical Imaging Applications. In addition to supplying image sensors for
electronic copyboards, the Company has established a goal of expanding its
sensor business into industrial, agricultural and medical imaging applications.
The Company believes that digital image sensors employing AMLCD technology can
successfully compete with existing imaging technologies in a variety of
commercial applications such as industrial non-destructive testing, produce,
livestock and poultry inspection and radiological (x-ray)
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diagnosis by reducing archiving costs and access time through the elimination
of film-based files.
Consumer Electronics Applications. The Company has established a goal of
entering the market for flat panel displays in consumer electronics products.
If the Company is to enter this market, it will need to build a large scale
high volume manufacturing facility. Management is engaging in some preliminary
discussions with potential customers for such a facility. The Company is
preparing a preliminary design and cost estimate. The Company has no firm
plans or timetable for entering the consumer electronics market.
FINANCING DEVELOPMENTS
On November 29, 1994, Guardian formally exercised its option to purchase
common stock of the Company, and the Company applied the $10.5 million
previously borrowed from Guardian under a line of credit to the $10.5 million
purchase price under the option. In accordance with an agreement with
Guardian, the Company ceased accruing interest on the Guardian line of credit
and contributed the $10.5 million to equity effective June 30, 1994. Upon
formal exercise of the option, the Company issued 41,828,768 shares of Common
Stock to Guardian. The Company also issued 23,962,502 shares of Common Stock
to William Davidson, the President and owner of Guardian, in consideration of
rights relating to certain securities of the Company held by Mr. Davidson. As
a result of the exercise of the option, the Company now has approximately
96,721,635 shares of Common Stock outstanding.
The Board of Directors of OIS has authorized the issuance of 25,000 shares
of a Series A Cumulative Preferred Stock, par value $0.01 (the "Preferred
Stock"). The Preferred Stock is not convertible into common stock or any other
security and is non-voting (except in limited circumstances relating to the
rights of the Preferred Stock). The Preferred Stock bears a cumulative
dividend at an annual rate of 8% for five years from the date of issuance and
at an increasing floating rate (subject to a cap of 16.5%) thereafter. The
purchaser of Preferred Stock cannot cause its redemption, and OIS can redeem
Preferred Stock only upon a vote of the directors of OIS that are independent
of the owner or owners of the Preferred Stock being redeemed.
During fiscal 1995, Guardian purchased 12,500 shares of Preferred Stock
for an aggregate purchase price of $12,500,000. The investment by Guardian was
approved by the disinterested members of OIS's Board of Directors.
The Company continues to utilize commercial financing from Bank of America
NTSA and NBD Bank N.A. in the form of a term loan and a credit facility, both
maturing in December, 1999. The financing agreements were amended in fiscal
1995 to increase available credit from $40 million to $52.5 million. The
financing agreements include a number of covenants, including a prohibition on
granting security interests, limitations on capital expenditures and
dispositions of assets and financial covenants. Additionally, under the terms
of the financing agreements, OIS is restricted from incurring additional debt
(as defined) and paying cash dividends through September 30, 1996.
Furthermore, OIS must meet certain financial covenants as defined in the
financing agreements. OIS is compliance with these requirements as of
September 26, 1995. The financing is unsecured and provides for interest rates
to be determined at the times of borrowing equal to NBD Bank N.A.'s prime rate
or LIBOR plus a margin of between 0.5% and .875% or at elected fixed rates with
interest periods ranging from 30 days to 180 days. The term loans are payable
in quarterly principal installments of $750,000 commencing September 30, 1996
through September 30, 1997, $1,250,000 commencing September 30, 1997 through
December 31, 1997, $2,500,000 commencing March 31, 1998 through June 30, 1998,
$2,750,000 commencing September 30, 1998 through December 31, 1998, $3,375,000
commencing March 31, 1999 through June 30, 1999, $3,875,000 commencing
September 30, 1999 and $5,875,000 commencing December 31, 1999. The Company
also pays a commitment fee of .375% of the unused portion of the credit
facility. The revolving credit facility matures in December 1999. As of June
30, 1995, $12.5 million of the credit facility remained unused.
The Company expects to require and to pursue additional equity, and
possibly debt, financing in fiscal 1996, but has not determined the amount or
nature of the prospective financing. See Management's Discussion & Analysis --
Capital Resources.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Business Data. The following table shows the amount and percentage of the
Company's revenues contributed by, the operating profit attributable to, and
the assets associated with the development and sales of displays and sales of
sensors for each of the three fiscal years ending June 30, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
FY 95 FY 94 FY 93
-------------------------- -------------------------- --------------------------
AMOUNT % AMOUNT % AMOUNT %
-------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
SALE OF DISPLAYS $ 2,290,242 27% $ 1,256,655 11% $ 1,137,446 16%
DEVELOPMENT OF
DISPLAYS 5,799,519 69% 10,322,328 88% 5,941,953 83%
SALE OF SENSORS $ 333,280 4% $ 121,406 1% $ 82,636 1%
------------ ------------ -----------
TOTAL REVENUES $ 8,423,041 100% $11,700,389 100% $ 7,162,035 100%
OPERATING PROFIT:
SALE OF DISPLAYS $ (7,282,803) -86% $(2,139,937) -18% $(4,102,651) -57%
DEVELOPMENT OF
DISPLAYS (6,629,552) -79% (2,764,300) -24% (536,258) -8%
SALE OF SENSORS $ (1,018,924) -12% $ (822,590) -7% $ (217,176) -3%
------------ ------------ -----------
TOTAL OPERATING PROFITS
(LOSS) $(14,931,279) -177% $(5,726,827) 49% $(4,856,085) -68%
ASSETS:(1)
FIXED ASSETS (NBV) $ 45,734,945 543% $22,017,665 188% $ 3,753,278 52%
INVENTORY $ 3,360,062 40% $ 2,083,601 18% $ 1,069,471 15%
</TABLE>
(1) For each year, all fixed assets and 98% of the inventory relate to the
development and sale of displays, and 2% of the inventory relates to sale
of sensors.
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The following table shows the domestic and foreign revenues
attributable to the industry segments for each of the three fiscal years
ending June 30, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
FY 95 FY 94 FY 93
--------------------- --------------------- ---------------------
AMOUNT % AMOUNT % AMOUNT %
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
REVENUE:
DEVELOPMENT & SALE OF
DISPLAYS
DOMESTIC $7,830,225 93% $10,883,165 93% $5,622,732 79%
FOREIGN 259,536 3% 695,818 6% 1,456,667 20%
SALE OF SENSORS
DOMESTIC 333,280 4% 121,406 1% 82,636 1%
FOREIGN ---------- ----------- ----------
TOTAL REVENUES $8,423,041 100% $11,700,389 100% $7,162,035 100%
---------- ----------- ----------
TOTAL:
DOMESTIC $8,163,505 97% $11,004,571 94% $5,705,368 80%
FOREIGN 259,536 3% 695,818 6% 1,456,667 20%
---------- ----------- ----------
$8,423,041 100% $11,700,389 100% $7,162,035 100%
</TABLE>
Backlog at June 30, 1995, was approximately $19.8 million, as compared
to $23.5 million at June 30, 1994. It is expected that approximately $11
million of the backlog will be filled in fiscal 1996 if there are no
cancellations or delays in existing programs . In fiscal 1995, the Company
experienced delays that resulted in the amount of backlog that was actually
filled in the fiscal year being approximately $3 million less than had been
anticipated.
Raw materials and components necessary for production of displays and
sensors are generally available from several sources. The Company does not
foresee an unavailability of materials or components that would have a material
adverse effect on its overall business, or any of its business segments, in the
near term.
The Company's business is not seasonal.
The Company employed 231 persons at June 30, 1995.
INTELLECTUAL PROPERTY RIGHTS
The Company is working to improve its current displays and to develop
enhancements and improvements to the technologies that are involved in
producing AMLCDs. The basic methodology for the manufacture of AMLCDs using
the thin film transistor technology currently employed by the Company is in the
public domain. However, few companies have successfully developed AMLCDs for
sale. Management believes that a key part of the Company's ability to produce
displays for sale where others have failed lies in the proprietary know-how and
other trade secrets developed by the Company over the years.
-9-
<PAGE> 11
The Company has policies and procedures in place to attempt to protect its
trade secrets.
The Company endeavors to develop new technologies of general
application with its own funds and to retain ownership of related intellectual
property rights.
Where management has considered it appropriate, the Company has sought
patent protection for its inventions in the United States and in other
countries. The Company owns over 30 patents, most of which were granted less
than ten years ago, and has a number of patent applications pending or in
preparation. Management believes that a number of these patents represent or
have the potential to represent significant developments, generally in the form
of enhancements or improvements to existing technologies, which may be
important for the Company and its competitive position. The level of patent
activity (and related expense) has increased in fiscal 1995 and is expected to
continue to increase.
The Company began a review of its own intellectual property rights and
the intellectual property rights of others in the display field in fiscal 1995.
That review is not yet complete, but the Company expects to complete it in
fiscal 1996. Hundreds of patents relating to AMLCDs have been granted. The
Company will review whether it may be necessary or advantageous to obtain
licenses for technology owned or claimed by others, or to seek to protect its
intellectual property rights.
Disputes involving intellectual property, particularly patents, can be
extremely expensive to litigate and the results are often difficult to predict.
Furthermore, the Company's resources are limited relative to many other
participants in the display industry. The Company will endeavor to manage the
risks and potential benefits related to intellectual property protection to
avoid litigation where possible, consistent with the need to preserve the
Company's right to conduct its business and to protect the Company's own
intellectual property position.
Management believes that it is common in the display and semiconductor
industries for firms to enter into cross-licensing agreements in order to
mitigate the risk of intellectual property litigation. After reviewing the
results of the planned intellectual property review, management will consider
whether attempting to obtain cross-licensing agreements in certain fields may
be advantageous to the Company. There is no assurance that the Company will be
able to enter into cross-licensing agreements on favorable terms.
In 1984, Energy Conversion Devices, Inc. ("ECD"), which was then the
parent corporation of OIS, granted to OIS a worldwide exclusive license
(including the right to grant sublicenses) to make, use, and sell products
using any or all of ECD's technology (including patent rights), present or
future, in displays and sensors. In addition, OIS granted ECD a nonexclusive
cross-license to technology developed by OIS, present or future, for
applications outside the fields of displays and sensors. In April 1992, ECD
assigned a substantial number of the patents covered by this license to OIS
outright, and ECD and OIS entered into a new agreement (the "1992 ECD
Agreement") under which ECD granted to OIS a worldwide exclusive license to all
of its remaining technology that existed on the date of the 1992 ECD Agreement.
The license granted by ECD will become royalty bearing at such time as OIS
posts a cumulative 20% after-tax annual return on invested capital. The
royalty rates are, subject to certain limitations, 0.5% of net sales of OIS and
its sublicenses of licensed products and 7.5% of up-front license payments
received by OIS from sublicenses.
OIS has also developed its own proprietary technology in the display
and sensor fields. The Company is not actively developing its sensor
technology at this time, but continues active development of its display
technology. As stated above, the Company has derived some revenues form
licensing its sensor technology.
ENVIRONMENTAL ISSUES
The Company believes that it is presently in substantial compliance
with all existing applicable
-10-
<PAGE> 12
environmental laws and does not anticipate that such compliance will have a
material effect on future capital expenditures, earnings, or competitive
position. The Company expects to be in substantial compliance with all
existing applicable environmental laws at the new facility and believes that it
has taken the necessary capital expenditures into account in budgeting for the
Northville Township facility.
ITEM 2: PROPERTIES
The principal executive offices of the Company are located at the
Company's new 108,000 square foot pilot demonstration, research, production and
office facility in Northville Township, Michigan. Until the Company reaches
full production at its new facility, production will continue at two fully
utilized, leased buildings in Troy, Michigan which provide approximately 30,000
square feet of production space. SEE ITEM 1: BUSINESS DEVELOPMENTS -- NEW
MANUFACTURING FACILITY.
ITEM 3: LEGAL PROCEEDINGS
The Company is not subject to any material pending legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to stockholders during the fourth quarter of
the fiscal year.
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The information set forth under the caption "PRICE RANGE OF COMMON
STOCK" appearing in the Annual Report to Shareholders for the fiscal year ended
June 30, 1995, is incorporated by reference into this Report.
ITEM 6: SELECTED FINANCIAL DATA
The information set forth under the caption "SELECTED FINANCIAL DATA"
appearing in the Annual Report to Shareholders for the fiscal year ended June
30, 1995, is incorporated by reference into this Report.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information set forth under the caption "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION" appearing in the
Annual Report to Shareholders for the fiscal year ended June 30, 1995, is
incorporated by reference into this Report.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following Financial Statements of the Company and Report of
Independent Public Accountants set forth in the Annual Report to Shareholders
for the fiscal year ended June 30, 1995, are incorporated by reference into
this Report:
Report of Independent Public Accountants
Balance Sheets - June 30, 1995 and 1994
Statements of Operations - years ended June 30, 1995, 1994 and 1993
-11-
<PAGE> 13
Statements of Stockholders' Equity - years ended June 30, 1995,
1994 and 1993
Statements of Cash Flows - years ended June 30, 1995, 1994 and 1993
Notes to Financial Statements
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF OIS
The information set forth under the caption "ELECTION OF DIRECTORS"
appearing in the Proxy Statement for the fiscal year ended June 30, 1995, is
incorporated by reference into this Report.
ITEM 11: EXECUTIVE COMPENSATION
The information set forth under the caption "EXECUTIVE COMPENSATION"
appearing in the Proxy Statement for the fiscal year ended June 30, 1995, is
incorporated by reference into this Report.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" appearing in the Proxy Statement
for the fiscal year ended June 30, 1995, is incorporated by reference into this
Report.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS" appearing in the Proxy Statement for the fiscal year
ended June 30, 1995, is incorporated by reference into this Report.
PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. List of Financial Statements
The following financial statements of the Company are set forth in of
the Annual Report to Shareholders for the fiscal year ended June 30,
1995, and are incorporated by reference into this Report by Item 8
hereof:
Report of Independent Public Accountants
-12-
<PAGE> 14
Balance Sheets - June 30, 1995 and 1994
Statements of Operations - years ended June 30, 1995, 1994 and 1993
Statements of Stockholders' Equity - years ended June 30, 1995,
1994 and 1993
Statements of Cash Flows - years ended June 30, 1995, 1994 and 1993
Notes to Financial Statements
-13-
<PAGE> 15
2. List of Financial Statement Schedules PAGE
----
The following financial statement schedules of the Company are
included in this Report:
Schedule VIII - Valuation and Qualifying Accounts -
June 30, 1995, 1994 and 1993 . . . . . . . . . . . . . . . 18
Schedules, other than those referred to above, are omitted as not
applicable or not required, or the required information is shown in
the financial statements or notes thereto.
3. List of Exhibits
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3(i) Restated Certificate of Incorporation as currently in effect.
3(ii) Bylaws as currently in effect. (Filed as Exhibit to OIS's
Annual Report on Form 10-K for the fiscal year ended June 30,
1992, and incorporated herein by reference.)
10.1 Lease dated June 10, 1980, as extended on August 12, 1983, and
December 10, 1985, between ECD and Ivan J. and Irene I.
Stretten, relating to premises located at 1896 Barrett Street,
Troy, Michigan. (Filed as Exhibit to OIS's Annual Report on
Form 10-K for the fiscal year ended June 30, 1987, and
incorporated herein by reference.)
10.2 Lease Agreement dated March 10, 1986, between ECD and Ivan and
Irene Stretten regarding 1896 Barrett Street, Troy, Michigan.
(Filed as Exhibit to Amendment No. 4 to OIS's Registration
Statement on Form S-1 and incorporated herein by reference.)
10.3 Assignment of Lease dated October 3, 1986, relating to
premises located at 1896 Barrett Street, Troy, Michigan.
(Filed as Exhibit to Amendment No. 6 to OIS's Registration
Statement on Form S-1 and incorporated herein by reference.)
10.4 Amendment to Lease Agreement dated March 10, 1986, between OIS
and Irene Stretten dated May 30, 1989. (Filed as Exhibit to
OIS's Annual Report on Form 10-K for the fiscal year ended
June 30, 1989, and incorporated herein by reference.)
10.5 Amendment to Lease Agreement dated March 10, 1986, between OIS
and Irene Stretten dated August 3, 1991. (Filed as Exhibit to
OIS's Annual Report on Form 10-K for the fiscal year ended
June 30, 1991, and incorporated herein by reference.)
10.6 Building Lease Letter Agreement between Irene I. Stretten and
OIS dated September 22, 1994. (Filed as Exhibit to OIS's
Annual Report on Form 10-K for the fiscal year ended June 30,
1994, and incorporated herein by reference.)
10.7 Agreement between OIS, ECD and Quartet Manufacturing Company
dated December 31, 1988, with attachments. (Filed as Exhibit
to OIS's Annual Report on Form 10-K for the fiscal year ended
June 30, 1989, and incorporated herein by reference.)
-14-
<PAGE> 16
10.8 Master Lease Agreement with Appendices between OIS and GE
Capital dated August 26, 1991. (Filed as Exhibit to OIS's
Annual Report on Form 10-K for the fiscal year ended June 30,
1991, and incorporated herein by reference.)
10.9 Sensor License Agreement between ECD and OIS dated April 14,
1992. (Filed as Exhibit to OIS's Annual Report on Form 10-K
for the fiscal year ended June 30, 1992, and incorporated
herein by reference.)
10.10 OIS 1984 Amended and Restated Stock Option Plan. (Filed as
Exhibit to OIS's Annual Report on Form 10-K for the fiscal
year ended June 30, 1992, and incorporated herein by
reference.)
10.11 OIS 1988 Amended and Restated Stock Option and Incentive Plan.
(Filed as Exhibit to OIS's Annual Report on Form 10-K for the
fiscal year ended June 30, 1992, and incorporated herein by
reference.)
10.12 OIS 1994 Significant Employee Stock Incentive Plan.
10.13 Amended and Restated Agreement between ECD and OIS dated April
14, 1992. (Filed as Exhibit to OIS's Annual Report on Form
10-K for the fiscal year ended June 30, 1992, and
incorporated herein by reference.)
10.14 Amended and Restated Services Agreement between OIS and
Guardian dated June 30, 1995.
10.15 Engineering Services Agreement between OIS and Guardian dated
April 15, 1993. (Filed as Exhibit to OIS's Annual Report on
Form 10-K for the fiscal year ended June 30, 1993, and
incorporated herein by reference.)
10.16 Loan Agreement and Master Demand Note between OIS and NBD
Bank, N.A., dated March 19, 1993. (Filed as Exhibit to OIS's
Annual Report on Form 10-K for the fiscal year ended June 30,
1993, and incorporated herein by reference.)
10.17 Credit Agreement between OIS, Bank of America National Trust
and Savings Associations and NBD Bank, N.A., as Banks, NBD
Bank, N.A., as Administrative Agent, and BA Securities, Inc.,
as Arranger, dated December 14, 1993. (Filed as Exhibit to
OIS's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1994, and incorporated herein by reference.)
10.18 Amendment No. 2 and Waiver to Credit Agreement between OIS,
Bank of America National Trust and Savings Associations and
NBD Bank, N.A., as Banks, NBD Bank, N.A., as Administrative
Agent, and BA Securities, Inc., as Arranger, dated February
28, 1995.
10.19 Line of Credit Agreement and Line of Credit Note between OIS
and Guardian dated August 26, 1993. (Filed as Exhibit to
OIS's Annual Report on Form 10-K for the fiscal year ended
June 30, 1993, and incorporated herein by reference.)
10.20 Conversion/Recapitalization Agreement among OIS, Davidson, and
Guardian dated May 14, 1993. (Filed as Exhibit to OIS's
Annual Report on Form 10-K for the fiscal year ended June 30,
1993, and incorporated herein by reference.)
10.21 Agreement among OIS, Davidson, and Guardian dated February 15,
1993, regarding no antidilution protection on employee stock.
(Filed as Exhibit to OIS's Annual Report on
-15-
<PAGE> 17
Form 10-K for the fiscal year ended June 30, 1993, and
incorporated herein by reference.)
10.22 Agreement between OIS and The County of Wayne dated May 12,
1993, regarding purchase of property. (Filed as Exhibit to
OIS's Annual Report on Form 10-K for the fiscal year ended
June 30, 1993, and incorporated herein by reference.)
10.23 Agreement between OIS and The Charter Township of Northville
dated July 15, 1993, regarding building permits. (Filed as
Exhibit to OIS's Annual Report on Form 10-K for the fiscal
year ended June 30, 1993, and incorporated herein by
reference.)
10.24 Agreement between OIS and The Advanced Research Projects
Agency dated August 26, 1993. (Filed as Exhibit to OIS's
Annual Report on Form 10-K for the fiscal year ended June 30,
1993, and incorporated herein by reference.)
10.25 Purchase Order issued to Lepco, Inc., dated June 28, 1993, for
clean room. (Filed as Exhibit to OIS's Annual Report on Form
10-K for the fiscal year ended June 30, 1993, and incorporated
herein by reference.)
10.26 Consultant Agreement between OIS and Peter Joel C. Young dated
as of September 1, 1995.
10.27 Sensor Requirements Agreement between OIS and Quartet
Manufacturing Company dated as of January 1, 1994. (Filed as
Exhibit to OIS's Annual Report on Form 10-K for the fiscal
year ended June 30, 1994, and incorporated herein by
reference.)
10.28 Agreement between OIS and Steag MicroTech, Inc., dated May 4,
1994, regarding purchase of equipment. (Filed as Exhibit to
OIS's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994, and incorporated herein by reference.)
10.29 Agreement between OIS and MRS Technology, Inc., dated March 3,
1994, regarding purchase of equipment. (Filed as Exhibit to
OIS's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994, and incorporated herein by reference.)
10.30 Purchase Order issued to The Lathrop Company dated June 15,
1993, for site development and building shell. (Filed as
Exhibit to OIS's Annual Report on Form 10-K for the fiscal
year ended June 30, 1994, and incorporated herein by
reference.)
13 Form of Annual Report to Shareholders of the Company for the
fiscal year ended June 30, 1995. Except for those portions of
such Annual Report to Shareholders expressly incorporated by
reference into this Report, such Annual Report to Shareholders
is furnished solely for the information of the Securities and
Exchange Commission and shall not be deemed a "filed"
document.
23 Consent of Arthur Andersen LLP dated September 26, 1995.
27 Financial Data Schedule. (EDGAR version only.)
(b) Reports on Form 8-K
Report on Form 8-K dated May 11, 1995, reporting the purchase of 6,250
shares of Series A Cumulative Preferred Stock by Guardian Industries
Corp. for an aggregate purchase price of $6,250,000.
-16-
<PAGE> 18
Report of Independent Public Accountants
To OIS Optical Imaging Systems, Inc.
We have audited, in accordance with generally accepted auditing standards, the
financial statements included in OIS Optical Imaging Systems, Inc.'s annual
report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated August 24, 1995. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The
schedules listed in the accompanying index are the responsibility of the
Company's management and are presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. These schedules have been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Detroit, Michigan
September 26, 1995
-18-
<PAGE> 19
OIS OPTICAL IMAGING SYSTEMS, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
JUNE 30, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- --------
BALANCE AT ADDITIONS ADDITIONS
BEGINNING CHARGED TO CHARGED TO BALANCE AT END
DESCRIPTION OF PERIOD COSTS AND EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
- ----------- --------- ------------------ -------------- ---------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1995:
ALLOWANCE FOR DOUBT $ 60,000.00 $ 60,000.00
ACCOUNTS
YEAR ENDED JUNE 30, 1994:
ALLOWANCE FOR DOUBT $ 0 $ 60,000.00 $ 60,000.00
ACCOUNTS
YEAR ENDED JUNE 30, 1993:
ALLOWANCE FOR DOUBT $ 250,000.00 $ 250,000(a) $ 0
ACCOUNTS
</TABLE>
(a) Recovery of accounts receivable previously reserved for.
-19-
<PAGE> 20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
OIS OPTICAL IMAGING SYSTEMS, INC.
By: /s/ Rex Tapp
------------------------------
Rex Tapp, President
Dated: September 26, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<S> <C> <C>
/s/ Charles C. Wilson Executive Vice President, September 12, 1995
- --------------------- Chief Financial Officer &
Charles C. Wilson Director
(Principal Financial &
Accounting Officer)
/s/ Rex Tapp President & September 12, 1995
- -------------------------------- Director
Rex Tapp
/s/ Ralph J. Gerson Chairman & Director September 12, 1995
- --------------------------------
Ralph J. Gerson
/s/ Jeffrey A. Knight Director September 12, 1995
- --------------------------------
Jeffrey A. Knight
/s/ C. K. Prahalad Director September 12, 1995
- --------------------------------
C. K. Prahalad
/s/ Robert M. Teeter Director September 12, 1995
- --------------------------------
Robert M. Teeter
/s/ Mark S. Wrighton Director September 12, 1995
- --------------------------------
Mark S. Wrighton
/s/ Peter Joel C. Young Director September 12, 1995
- --------------------------------
Peter Joel C. Young
</TABLE>
-20-
<PAGE> 21
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
3(i) Restated Certificate of Incorporation as currently in effect.
10.12 OIS 1994 Significant Employee Stock Incentive Plan.
10.14 Amended and Restated Services Agreement between OIS and Guardian dated
June 30, 1995.
10.18 Amendment No. 2 and Waiver to Credit Agreement between OIS, Bank of
America National Trust and Savings Associations and NBD Bank, N.A., as
Banks, NBD Bank, N.A., as Administrative Agent, and BA Securities,
Inc., as Arranger, dated February 28, 1995.
10.26 Consultant Agreement between OIS and Peter Joel C. Young dated as of
September 1, 1995.
13 Form of Annual Report to Shareholders of the Company for the fiscal
year ended June 30, 1995. Except for those portions of such Annual
Report to Shareholders expressly incorporated by reference into this
Report, such Annual Report to Shareholders is furnished solely for the
information of the Securities and Exchange Commission and shall not be
deemed a "filed" document.
23 Consent of Arthur Andersen LLP dated September 26, 1995.
27 Financial Data Schedule. (EDGAR version only)
-22-
<PAGE> 1
EXHIBIT 3(i)
OIS OPTICAL IMAGING SYSTEMS, INC.
RESOLUTION AUTHORIZING
THE SERIES A CUMULATIVE PREFERRED STOCK
RESOLVED, that in accordance with the provisions of the Company's
Restated Certificate of Incorporation, as amended, (the "Certificate of
Incorporation") a series of cumulative preferred stock, $0.01 par value
("Series A Preferred"), be and hereby is created and authorized for issuance,
and that the designations and amounts thereof and the preferences,
qualifications, privileges, limitations, options, and other rights (the "Rights
and Preferences") of the Series A Preferred are as set forth in this resolution
(this "Designation Resolution"):
I. Series A Preferred
SECTION 1. Designation and Amount. The Company has authority to issue
25,000 shares of Series A Preferred, which number may be increased or decreased
at any time and from time to time by resolution of the Board of Directors (the
"Board"), except that no decrease will reduce the number of authorized shares
of Series A Preferred to a number less than the number of shares of Series A
Preferred then outstanding.
SECTION 2. Dividends and Distributions.
2.1 Accrual of Dividends. The holders of shares of
Series A Preferred will be entitled to receive, when, as, and if declared by
the Board, out of legally available funds, dividends payable in cash as
hereinafter provided, which dividends will be paid prior and in preference to
any payment of any dividend to the holders of the common stock of the Company
and to all other classes or series of capital stock of the Company that are
hereafter designated to be subordinated to the Series A Preferred. Dividends
on each share of Series A Preferred will begin to accrue from the
<PAGE> 2
Original Date Of Issuance (as defined in Section 9.1) of any such share and
will accumulate and be payable in cash (and not in kind) on the last day of
June and December in each year, computed on the Original Issuance Price (as
defined in Section 9.2), at the following rates:
(a) during each of the first five years from the Original
Date Of Issuance of any such share and through the
last day of June or December (as the case may be), at
an annual rate of 8%; and
(b) thereafter during each of years six through eight
following the Original Date Of Issuance at one of the
following rates, as selected by a majority of the
disinterested members of the Company's Board of
Directors (the "Independent Directors") (and in the
absence of a selection by the Independent Directors,
the rate computed as provided in paragraph (i) will
apply):
(i) a rate per annum equal to the sum of: (A)
LIBOR, as quoted on the Reuters Data Service
on the first day of January or July, as the
case may be; and (B) 125 basis points, which
rate will be recalculated as of the first day
of each January and July for the following
six-month period; or
(ii) a rate per annum equal to the sum of (A) the
three-year Treasury Bill yield, as quoted on
the Reuters Data Service on the first day of
the three-year period, and (B) 200 basis
points; and
(c) thereafter the "Independent Directors" may select one
of the following rates (in the absence of a selection
by the Independent Directors, the rate computed as
provided in paragraph (i) will apply):
(i) a rate per annum equal to the sum of: (A)
LIBOR, as quoted on the Reuters Data Service
on the first day of January or July, as the
case may be; and (B) 350 basis points, which rate will be recalculated as of
the first day of each January and July for the following six-month period; or
(ii) a rate per annum equal to the sum of (A) the
three-year Treasury Bill yield, as quoted on
the Reuters Data Service on the first day of
the applicable three-year period, and (B) 400
basis points, which rate will be recalculated
as of the first day of each three-year
period; and
- 2 -
<PAGE> 3
(d) thereafter beginning with year twelve after the
Original Date Of Issuance and on each successive
three-year anniversary the rate then in effect will
increase by an additional 150 basis points.
(e) Notwithstanding anything herein to the contrary, the
interest rate shall not at anytime exceed 16.5% per
annum.
During each of the first five years from the Original Date of Issuance of any
share, no interest or sum of money in lieu of interest will be payable in
respect of any dividend payment or payments that may be in arrears, and accrued
and unpaid dividends will not compound. Thereafter, interest on accrued and
unpaid dividends will accrue and will be compounded semi-annually at the annual
dividend rate then in effect.
2.2 Payment of Dividends. Dividends on shares of Series
A Preferred will be paid on dates established by the Board of Directors (each
such date, a "Dividend Payment Date"). Dividends accruing on shares of Series
A Preferred for any period of less than a full year will be computed on the
basis of a 365 day year. Dividends paid on shares of Series A Preferred in an
amount less than the total amount of the dividends accumulated on such shares
will be allocated in such manner so that holders of Series A Preferred share
ratably in the dividends so paid.
2.3 Record Date. The Board of Directors may fix a record
date for the determination of holders of shares of Series A Preferred entitled
to receive payment of a dividend or distribution declared thereon, which record
date will be no more than 60 days prior to the date fixed for the payment.
SECTION 3. No Conversion or Redemption Rights.
3.1 No Conversion Right. The holders of the shares of
Series A Preferred will not have any right to convert any such shares into
shares of any other class or series of capital stock of
- 3 -
<PAGE> 4
the Company, or into rights, options or warrants to subscribe for or purchase
shares of any other class or series of capital stock of the Company.
3.2 No Redemption Right. The holders of Series A
Preferred will not have any right to require the Company to redeem any or all
of their shares. The Company will not redeem any shares of Series A Preferred
without the affirmative vote of a majority of the Independent Directors.
SECTION 4. Certain Restrictions.
4.1 Dividends and Distributions. At any time while any
shares of Series A Preferred are outstanding and any dividends accrued thereon
remain unpaid after any Liquidation (as defined in Section 6 below), the
Company will not:
(a) declare or pay dividends or make any other
distributions on any shares of stock ranking junior to the Series A Preferred
as to dividends; or
(b) declare or pay dividends or make any other
distributions on any shares of stock ranking on a parity with the Series A
Preferred as to dividends, except dividends or other distributions paid on the
Series A Preferred and all such parity stock in such proportions so that the
amount of dividends or other distributions declared in respect of each such
series or class of stock bear the same ratio to each other as the ratio that
the accumulated but unpaid dividends in respect of each such series or class of
stock bear to each other.
4.2 Redemption and Purchase. At any time while any
shares of Series A Preferred remain outstanding, the Company will not:
- 4 -
<PAGE> 5
(a) redeem, purchase or otherwise acquire for
consideration (including pursuant to sinking fund requirements) shares of any
stock ranking junior to the Series A Preferred as to dividends and as to
liquidating distributions, except that the Company may at any time redeem,
purchase or otherwise acquire shares of any such junior stock by the conversion
of such shares into, or the exchange of such shares for, shares of any stock of
the Company ranking junior to the Series A Preferred as to dividends and as to
liquidating distributions;
(b) redeem pursuant to a sinking fund or otherwise
shares of any stock of the Company ranking on a parity with the Series A
Preferred as to dividends and as to liquidating distributions, except (a) by
means of a redemption pursuant to which all outstanding shares of Series A
Preferred and all stock of the Company ranking on a parity with the Series A
Preferred as to dividends and as to liquidating distributions are redeemed or
pursuant to which a pro rata redemption is made from all holders of the Series
A Preferred and all stock of the Company ranking on a parity with the Series A
Preferred as to dividends and as to liquidating distributions, the amount
allocable to each class or series of such stock being determined on the basis
of the aggregate liquidation preference of the outstanding shares of each such
class or series being redeemed, or (b) by conversion of such parity stock into,
or exchange of such parity stock for, stock of the Company ranking junior to
the Series A Preferred as to dividends and as to liquidating distributions; or
(c) purchase or otherwise acquire for any
consideration any stock of the Company ranking on a parity with the
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<PAGE> 6
Series A Preferred as to dividends and as to liquidating distributions, except
(a) pursuant to an acquisition made in accordance with the terms of one or more
offers to purchase all of the outstanding shares of Series A Preferred and all
stock of the Company ranking on a parity with the Series A Preferred as to
dividends and as to liquidating distributions (which offers will describe such
proposed acquisition of all such parity stock), each of which offers will have
been accepted by the holders of at least 50% of the shares of each series or
class of stock receiving such offer outstanding at the commencement of the
first of such purchase offers, or (b) by conversion of such parity stock into,
or exchange of such parity stock for, stock of the Company ranking junior to
the Series A Preferred as to dividends and as to liquidating distributions.
SECTION 5. Reacquired Shares. Any shares of Series A Preferred
redeemed, purchased, or otherwise acquired by the Company in any manner
whatsoever will have the status of authorized but unissued shares of Series A
Preferred.
SECTION 6. Liquidation, Dissolution or Winding Up.
6.1 Liquidation Procedure. Upon any voluntary or
involuntary liquidation, dissolution, or winding up of the Company (a
"Liquidation"), the holders of the Series A Preferred then outstanding will be
entitled to be paid out of the assets of the Company available for distribution
to its shareholders an amount equal to the Original Issuance Price for each
outstanding share of Series A Preferred, plus any accrued but unpaid dividends
(the "Redemption Price"). No distribution will be made:
(a) to the holders of shares of stock ranking
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<PAGE> 7
junior to the Series A Preferred upon a Liquidation unless, prior thereto, each
holder of shares of Series A Preferred has received a distribution in the
amount of the Redemption Price of such holder's shares of Series A Preferred;
or
(b) to the holders of shares of stock ranking on
a parity with the Series A Preferred upon a Liquidation, except distributions
made ratably on the Series A Preferred and all other such parity stock in
proportion to the total amounts to which the holders of all such shares are
entitled upon a Liquidation.
6.2 Shortfall in Payment on Liquidation. If the amount
available for distribution on Liquidation to holders of shares of Series A
Preferred is less than the aggregate Redemption Price of such shares, the
amount so available for distribution will be allocated among such holders in
such manner so that holders of Series A Preferred share ratably in the
distributions upon Liquidation so paid according to the respective aggregate
Redemption Price of shares of Series A Preferred held by such holders at the
time of such distribution.
6.3 No Other Rights. After payment in full of the
Redemption Price of the Series A Preferred, the Series A Preferred will not be
entitled to receive any additional cash, property, or other assets of the
Company upon the Liquidation of the Company. If the Company pays a liquidation
payment amounting in the aggregate to less than the Redemption Price of the
Series A Preferred, the Company in its discretion may require the surrender of
certificates evidencing the shares of Series A Preferred and issue a
replacement certificate or certificates, or it may require the certificates
evidencing the shares in respect of which such
- 7 -
<PAGE> 8
payments are to be made to be presented to the Company, or its agent, for
notation thereon of amounts of the Redemption Price paid for such shares. If a
certificate for Series A Preferred on which payment of one or more partial
Liquidation payments has been made is presented for exchange or transfer, the
certificate issued upon such exchange or transfer will bear an appropriate
notation as to the aggregate amount of the Redemption Price that had been paid.
SECTION 7. Event of Default. An "Event of Default" will occur if the
Company fails to pay (a) the Redemption Price on any shares of the Series A
Preferred within thirty (30) days after such Redemption Price will be due or
(b) a dividend payment within thirty (30) days after the Dividend Payment Date.
SECTION 8. Voting Rights. The holders of shares of Series A Preferred
will have only the voting rights expressly provided in this Section 8 and the
rights expressly required by applicable law.
8.1 Rights of Series A Preferred. The affirmative vote
of the holders of 75% of the outstanding shares of Series A Preferred will be
required for the Company to (a) amend or repeal any provisions of the
Certificate of Incorporation or of this Designation Resolution, if the
amendment or repeal would materially adversely affect the Rights and
Preferences of the Series A Preferred, or (b) amend the Certificate of
Incorporation or adopt a designation resolution to create or increase the
amount of any class or series of capital stock that would rank senior to or on
parity with the Series A Preferred as to dividend and/or liquidation rights.
8.2 Voting Rights Upon Default in Payment of Dividends.
Without in any way limiting the rights and remedies of holders of
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<PAGE> 9
shares of Series A Preferred at law, in equity, or pursuant to contractual
arrangement with the Company, upon an Event of Default the affirmative vote of
the holders of a majority of outstanding shares of Series A Preferred will be
required for the Company to sell or lease all or substantially all of the
Company's properties or assets.
SECTION 9. Definitions.
9.1 "Original Date Of Issuance" of any share of Series A
Preferred means the date on which: (a) a subscription agreement for that share
has been received by the Company and (b) the consideration for that share has
been fully paid by the initial purchaser.
9.2 "Original Issuance Price" means, with respect to
Series A Preferred, One Thousand Dollars ($1,000.00) per share.
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<PAGE> 10
CERTIFICATE OF AMENDMENT OF
RESTATED CERTIFICATE OF INCORPORATION
OF OIS OPTICAL IMAGING SYSTEMS, INC.
OIS Optical Imaging Systems, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the corporation
held on September 20, 1994, resolutions were duly adopted setting forth a
proposed amendment of the Restated Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and directing that the
amendment be considered at the next annual meeting of stockholders. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, that Article FOURTH of the Restated Certificate of Incorporation
of OIS Optical Imaging Systems, Inc., as amended, be amended to replace the
first paragraph of Article FOURTH only, to read as follows:
FOURTH: The corporation is authorized to issue two classes of
shares designated respectively "Common Stock, $0.01 par value
per share" and "Preferred Stock, $0.01 par value per share".
The authorized number of shares of Common Stock is One Hundred
Twenty-Five Million (125,000,000) and the authorized number of
shares of Preferred Stock is Fifteen Million (15,000,000).
SECOND: That at a meeting of the Board of Directors of the corporation
held on September 23, 1993, resolutions were duly adopted setting forth a
proposed amendment of the Restated Certificate of Incorporation of said
corporation, declaring said amendment to be advisable and directing that the
amendment be considered at the next annual meeting of stockholders. The
resolution setting forth the proposed amendment, except as modified by the
above resolution, is as follows:
RESOLVED, that Article FOURTH of the Restated Certificate of Incorporation
of OIS Optical Imaging Systems, Inc., as amended, be amended to replace, in
Article FOURTH, the statement of rights associated with the Preferred Stock to
read as follows:
A statement of the designations, preferences, and relative, participating,
optional or other special rights and qualifications, or restrictions thereof of
the shares of each class is as follows:
(1) The Preferred Stock:
Shares of the Preferred Stock may be issued from time to time in one
or more series as may from time to time be determined by the Board of
Directors. The Board of Directors is hereby expressly granted
authority to fix by resolution or resolutions adopted prior to the
issuance of any series of
<PAGE> 11
Preferred Stock, the powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations and
restrictions thereof, if any, of shares of that series of Preferred Stock,
including, but not without limiting the generality of the foregoing, the
following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of that series;
(c) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) Whether that series shall have conversion privileges,
and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(e) Whether the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemptions, including the date
or dates upon or after which they shall be redeemable, and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking funds;
(g) The rights of the shares of that series in the event
of voluntary or involuntary liquidation, dissolution or winding up of the
corporation, and the relative rights or priority, if any, of payment of
shares of that series; and
(h) Any other relative rights, preferences and limitations of
that series.
THIRD: That thereafter the annual meeting of the stockholders of said
corporation was duly held on November 9, 1993, as to the Second certification
above and on November 10, 1994, as to the First certification, at which
meetings the necessary number of shares as required by statute were voted in
favor of the amendments.
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
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<PAGE> 12
FIFTH: That the capital of said corporation shall not be reduced under
or by reason of said amendments.
IN WITNESS WHEREOF, the corporation has caused this certificate to be
signed by Rex Tapp, its President, and David B. Jaffe, its Secretary, this 10th
day of November, 1994.
By: /s/ Rex Tapp
-----------------
President
ATTEST: /s/ David B. Jaffe
------------------
Secretary
- 3 -
<PAGE> 13
AMENDMENT TO
OIS OPTICAL IMAGING SYSTEMS, INC.'S
RESTATED CERTIFICATE OF INCORPORATION
Article Fourth shall read in full as follows:
"FOURTH: The corporation is authorized to issue two classes of shares
designated respectively "Common Stock, $0.01 par value per share" and
"Preferred Stock, $2.00 par value per share". The authorized number
of shares of Common Stock is Ninety-Five Million (95,000,000), and the
authorized number of shares of Preferred Stock is Three Million
(3,000,000).
<PAGE> 14
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
Ovonic Imaging Systems, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of Ovonic Imaging Systems,
Inc. resolutions were duly adopted setting forth proposed amendments of the
Restated Certificate of Incorporation of said corporation, declaring said
amendments to be advisable and calling a meeting of the stockholders of said
corporation for consideration thereof. The resolution setting forth the
proposed amendments is as follows:
RESOLVED, Article FIRST and Article FOURTH of the Restated Certificate
of Incorporation of Ovonic Imaging Systems, Inc. shall be deleted in
their entirety and replaced with the following:
"FIRST: The name of the corporation is OIS Optical Imaging
Systems, Inc."
"FOURTH: The corporation is authorized to issue two classes of
shares designated respectively "Common Stock, $0.01 par value per
share" and "Preferred Stock, $2.00 par value per share". The
authorized number of shares of Common Stock is Forty Million
(40,000,000) and the authorized number of shares of Preferred
Stock is Three Million (3,000,000).
A statement of all of the relative designations, powers, rights,
preferences, restrictions and limitations of the shares of each
class is as follows:
(1) The Preferred Stock:
The Preferred Stock may be issued from time to time in one
or more series. The Board of Directors is authorized to fix the
number of shares of any series of Preferred Stock and to determine
the designation of any such series. The Board of Directors is
authorized to determine or alter the rights, preferences,
privileges and restriction granted to or imposed upon any wholly
unissued series of Preferred Stock and, within the limits and
restrictions granted to or imposed upon any wholly unissued series
of Preferred Stock and, within the limits and restriction stated
in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares of such
series then outstanding) the number of shares of any such series
subsequent to the issue of shares of that series.
<PAGE> 15
At the time of such issuance, a certificate shall be filed as
required by Section 151(g) of the General Corporation Law of the
State of Delaware or its successor provisions. The Board of
Directors of the corporation is hereby expressly granted authority
to fix by duly adopted resolution or resolutions the designations
and the relative powers and preferences, the relative,
participating, optional, voting, conversion or other special
rights, the terms and conditions of any redemptions and the
relative qualifications, limitations or restrictions as may be
authorized or permitted by the laws of the State of Delaware in
respect of each such series of Preferred Stock. Notwithstanding
the above, all Preferred Stock which may be issued shall have one
(1) vote or less per share to vote along with the holders of the
corporation's Common Stock, as a single class, on all matters
brought before such holders of the corporation's Common Stock,
including election of the Board of Directors, except as a separate
class or series vote may be required under Delaware law.
(2) The Common Stock:
(A) Dividends - Subject to any and all prior rights of
the holders of any outstanding shares of the Preferred
Stock of OIS, of any and all series, the Board of
Directors may declare and pay ratable dividends or make
other distributions in cash, its bonds or its property,
including shares or bonds of other corporations, on the
outstanding shares of its Common Stock, payable to the
full extent permitted under the laws of the State of
Delaware.
(B) Liquidating Distributions - In the event of any
distribution of all of the assets of OIS, upon a
liquidation, dissolution or winding up of OIS, voluntary
or involuntary, after payment of the full preferential
amounts to which the holders of the Preferred Stock shall
be entitled, the holders of the Common Stock shall be
ratably entitled to receive all of the remaining assets
of OIS in proportion to the number of shares held by them
respectively.
(C) Voting - Each holder of the Common Stock shall be
entitled to one vote for each share of Common Stock held
by him of record on the stock transfer books of OIS."
SECOND: That thereafter, pursuant to resolution of its Board of Directors, at
an annual meeting of the stockholders of said corporation which was duly called
and held, upon notice in accordance with Section 222 of the General Corporation
Law of the
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<PAGE> 16
State of Delaware at which meeting the necessary number of shares as required
by statute were voted in favor of the amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendments.
IN WITNESS WHEREOF, said Ovonic Imaging Systems, Inc. has caused this
certificate to be signed by Zvi Yaniv, its President, and Joseph Ben-Gal, its
Secretary, this 12th day of July, 1990.
By: /s/ Zvi Yaniv
-------------------
Zvi Yaniv, President
Attest: /s/ Joseph Ben-Gal
-------------------------
Joseph Ben-Gal, Secretary
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<PAGE> 17
OIS OPTICAL IMAGING SYSTEMS, INC.
CERTIFICATE OF DESIGNATIONS, POWERS, PREFERENCES
AND RELATIVE RIGHTS, QUALIFICATIONS,
LIMITATIONS AND RESTRICTIONS OF THE
SERIES A 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF OIS OPTICAL IMAGING SYSTEMS, INC.
Pursuant to Section 151(g) of the
Delaware General Corporation Law
The undersigned, Zvi Yaniv and Joseph Ben-Gal, President and
Secretary, respectively, of OIS OPTICAL IMAGING SYSTEMS, INC., a Delaware
corporation (the "Corporation"), DO HEREBY CERTIFY that pursuant to a unanimous
written consent signed by all of the Corporation's directors dated July 12,
1990, the following resolution was duly adopted:
RESOLVED, that, pursuant to authority conferred upon the Board of
Directors of the Corporation - pursuant to the Certificate of
Incorporation and bylaws of the Corporation, a Series A 10% Cumulative
Convertible Preferred Stock, par value $2.00 per share, of the
Corporation is hereby created, to consist of 2,000,000 shares of
preferred stock which the Corporation hereby has authority to issue,
and that the designations, powers, preferences and relative
participating, optional and other special rights and relative
qualifications, limitations or restrictions of the shares of such
series hereby are fixed as follows:
1. Designations. 2,000,000 authorized shares of Preferred Stock,
par value $2.00 per share, shall be issued in and as a series to be designated
the "Series A 10% Cumulative Convertible Preferred Stock" (the "Series A
Preferred Stock").
2. Each share of the Series A Preferred Stock shall have the same
relative rights and preferences as, and shall be identical in all respects
with, all other shares of the Series A Preferred Stock. The Series A Preferred
Stock shall be equal in eight and shall rank pari passu with any other series
of preferred stock now or hereafter issued by the Corporation if approved in
accordance with Section 5(a).
3. Dividends. The holders of shares of the Series A Preferred
Stock shall be entitled to receive, when and as declared by the Board of
Directors of the Corporation and out of the assets of the Corporation legally
available therefor, cumulative cash dividends from the date of issuance of such
shares payable semi-annually at the annual rate of $0.20 per share through
1998, and commencing in 1999 at the annual rate of $0.40 per share on the last
day of April and October in each year, commencing on the April 30 or October 31
immediately following the date of issuance of such
<PAGE> 18
shares. At the option of the holder thereof, each dividend on the shares of
Series A Preferred Stock owned by such holder shall be paid not in cash but
rather in the form of additional shares of Series A Preferred Stock valued at
$2.00 per share. If any fractional interest in a share of Series A Preferred
Stock would be deliverable to a holder of Series A Preferred Stock who elects
to receive any dividend in additional shares of Series A Preferred Stock, the
Corporation shall deliver a full share thereof in lieu of such fractional
share, at no cost to such holder. In computing the amount of dividends accrued
in respect of a fraction of a semi-annual period, such amount shall be pro rated
on the basis of the actual number of days elapsed and a 360-day year. Any
dividends on the Series A Preferred Stock which are not paid within 30 days
after the date upon which payment thereof is due shall bear interest at the
rate of 10% per annum from such date until paid. Dividends on the Series A
Preferred Stock shall be payable before any dividends or distributions shall be
paid upon, or declared and set apart for, the Common Stock or any capital stock
junior to the Series A Preferred Stock and before any repurchase, redemption,
retirement or other acquisition for valuable consideration of any shares of
Common Stock or of any capital stock junior to the Series A Preferred Stock
(other than upon conversion thereof into Common Stock) shall be effected, so
that if in any semi-annual dividend period all dividends at the rate filed
above accrued from the date of issuance of any shares of the Series A Preferred
Stock shall not have been paid, or declared and set apart for payment, the
deficiency shall be fully paid or set apart for payment, together with interest
thereon as provided above, before any dividends or distributions shall be paid
upon, or set apart for, or any repurchase, redemption, retirement or other
acquisition for valuable consideration is effected of, the Common Stock or of
any capital stock junior to the Series A Preferred Stock (other than upon
conversion thereof into Common Stock).
4. Preference on Liquidation. The Series A Preferred Stock shall
be preferred with respect to both earnings and assets of the Corporation. In
the event of the voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, the holders of shares of the Series A Preferred
Stock shall be entitled, before any payment or distribution of the assets of
the Corporation shall be made or set apart to the holders of Common Stock or
any capital stock junior to the Series A Preferred Stock, to receive from the
net assets of the Corporation available for distribution to shareholders cash
in the amount of $2.00 per share, together with any accrued and unpaid
dividends and any other amounts which may be payable with respect to such
shares pursuant to Sections 3 and 6 hereof to the date of final distribution to
the holders of the Series A Preferred Stock. The holders of shares of the
Series A Preferred Stock shall be entitled to no further participation in any
assets of the Corporation. Inasmuch as the holders of any other shares of the
Corporation's preferred stock shall have the same preferences on liquidation as
shall the holders of shares of the Series A Preferred Stock, if, upon any
liquidation, dissolution or winding-up of the Corporation, the assets of the
Corporation distributable among the holders of the shares of the Corporation's
preferred stock having the same
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<PAGE> 19
preferences on liquidation shall be insufficient to permit the payment in full
to such holders of the aforementioned preferential amounts, then the entire
assets of the Corporation or the proceeds thereof shall be distributed ratably
among the holders of all of the outstanding shares of the Corporation's
preferred stock having the same preferences on liquidation in proportion to the
full preferential amounts to which they are respectively entitled. Neither the
consolidation or merger of the Corporation with or into any other corporation,
nor the merger or consolidation of any other corporation into or with the
Corporation nor the sale, lease, exchange or conveyance of less than
substantially all of the assets of the Corporation, shall be deemed to be a
dissolution, liquidation or winding-up of the Corporation for the purposes of
this Section 4.
5. Voting. Except as may otherwise be required by law or the
provisions of this Section 5, the holders of shares of the Series A Preferred
Stock shall be entitled to vote as a single class with the Common Stock for the
election of directors and upon any matter such Series A Preferred Stock shall
have one vote per share; provided, however, that so long as any shares of the
Series A Preferred Stock shall be outstanding and unless the consent or vote of
a greater number of shares shall then be required by law, the consent or
approval of the holders of at least a majority of the total number of shares of
the Series A Preferred Stock at the time outstanding, voting as a separate
class, given in person or by proxy at a meeting at which the holders of shares
of the Series A Preferred Stock shall be entitled to vote separately as a
class, shall be necessary for effecting or validating each of the following:
(a) the authorization, or any increase in the authorized
amount, of any class or series of capital stock of the Corporation (i)
ranking pari passu with the Series A Preferred Stock (referred to
herein as "Pari Passu Stock"), or (ii) having any preference or
priority as to dividends or upon liquidation (referred to herein as
"Senior Stock") over the Series A Preferred Stock or (iii)
exchangeable for, convertible into or evidencing the right to purchase
any shares of the Series A Preferred Stock or any class or series of
Senior Stock or Pari Passu Stock;
(b) the reclassification of any shares of capital stock
into shares of Senior Stock, Pari Passu Stock, Series A Preferred
Stock or into shares of capital stock of the Corporation convertible
into the Series A Preferred Stock or any class or series of Senior
Stock or Pari Passu Stock; or
(c) the amendment, alteration or repeal of any provision
of the Certificate of Incorporation of the Corporation or any
certificate amendatory thereof or supplemental thereto, so as to alter
or change any of the preferences, rights or powers of the Series A
Preferred Stock; or so as to increase the number of authorized
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<PAGE> 20
shares of Preferred Stock.
6. Redemption.
(a) Voluntary Redemption. Commencing April 13, 1999, the
Corporation shall have the right, but not the obligation, to redeem all or any
portion of the shares of the Series A Preferred Stock then outstanding at a
price of $2.00 per share plus all accrued and unpaid dividends (and interest,
if any) on such shares through and including the date (a "Redemption Date")
selected by the Corporation for such redemption in accordance with this
Section 6(a).
The Corporation shall notify the holders of shares of the
Series A Preferred Stock that are to be redeemed of any such redemption by
mailing, by prepaid certified or registered mail, a written notice of
redemption not less than 30 nor more than 60 days prior to any Redemption Date
at their respective addresses appearing on the stock transfer books of the
Corporation. Any such holder shall be entitled to receive payment upon such
redemption only upon surrender to the Corporation, at the address set forth in
its notice of redemption, of the certificates representing such holder's shares
of the Series A Preferred Stock called for redemption by the Corporation. The
holders of shares of the Series A Preferred Stock shall have the right to
convert such shares, in accordance with the provisions of Section 7 hereof, at
any time up to the close of business on the Redemption Date. In the event of
any redemption pursuant to this Section 6(a) of less than all of the shares of
Series A preferred Stock then outstanding, the Corporation shall have the sole
and exclusive discretion to determine the shares to be redeemed.
(b) Failure to Effect Redemption. In the event that the
Corporation fails on any Redemption Date to make redemption in full of
all shares of the Series A Preferred Stock called for redemption on that date,
interest shall accrue and be payable on the unpaid redemption amount at the
rate of 20% per annum from such Redemption Date until paid, and dividends (and
interest thereon, if any) shall continue to be payable on the Series A
Preferred Stock as provided in Section 3 hereof.
(c) Effect of Redemption. On and after any Redemption Date
(unless the Corporation defaults in the payment or provision for payment (as
set forth herein in this Section 6) in respect of such redemption), the
holders of shares of the Series A Preferred Stock called for redemption shall
cease to be stockholders of the Corporation with respect to such shares and
shall have no interest in the Corporation by virtue thereof and shall have no
voting or other rights with respect thereto except the right to receive payment
of all amounts payable upon such redemption as provided in this Section 6, and
such shares shall be deemed to have been redeemed and to be no longer
outstanding. In the event that any certificates representing any shares
of the Series A Preferred Stock called for redemption have not on or prior to
any Redemption Date been surrendered to the Corporation for cancellation in
exchange for payment of the redemption price, the Corporation may set aside,
with such escrow agent as shall be designated by it, sufficient funds to
provide for the redemption
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<PAGE> 21
payment with respect to such shares to be made upon surrender or such
certificates. No shares of the Series A Preferred Stock so redeemed shall be
reissued or otherwise disposed of, and no shares of the Series A Preferred
Stock shall be issued in lieu thereof, and the Corporation shall cause all
shares redeemed to be retired and canceled in the manner provided by law.
(d) No Sinking Fund. The Series A Preferred Stock shall not
be entitled to the benefit of any sinking fund to be applied to the redemption
thereof.
7. Conversion.
(a) Conversion and Conversion Price. Subject to the terms
and conditions of this Section 7, each of the holders of shares of Series A
Preferred Stock shall have the option, at any time and from time to time,
to convert each of such shares (but not any fractional portion of a share)
into shares of Common Stock at a rate of one share of Common Stock for each
$2.00 of par value of the shares so converted or, in case an adjustment of
such conversion rate has taken place pursuant to the further provisions of this
Section 7, then at the conversion rate as last adjusted and in effect at the
date the certificates for such shares of the Series A Preferred Stock are
surrendered for conversion (such dollar amount of par value or such dollar
amount of par value as last adjusted, as the case may be, required to obtain
one share of Common Stock upon conversion pursuant to this Section 7 being
referred to herein as the "Conversion Price"). In order to exercise such
conversion privilege, any such holder shall surrender to the Corporation at its
principal offices (i) the certificates for the shares of the Series A Preferred
Stock to be converted and (ii) a notice (a "Conversion Notice") that such
holder elects to convert such shares in accordance with the provisions of this
Section 7(a). Unless the shares of Common Stock issuable upon conversion of
the Series A Preferred Stock are then covered under an effective registration
statement under the Securities Act of 1933, such holder shall also deliver to
the Corporation an investment letter in form reasonably satisfactory to the
Corporation to ensure compliance with the provisions of the Securities Act of
1933 and applicable state securities laws. In the event that such holder
elects to convert only a portion of the number of full shares of the Series A
Preferred Stock covered by a certificate or certificates surrendered for
conversion, the Corporation shall issue and deliver to such holder, a
certificate or certificates for the number of full shares of the Series A
Preferred Stock not converted.
(b) Issuance of Certificates; Time Conversion
Effected. Promptly after the receipt of a Conversion Notice and surrender of
certificates as aforesaid, the Corporation shall issue and deliver to such
holder, registered in such name or names as such holder may direct, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of the shares of Series A Preferred Stock
surrendered therefor. To the extent permitted by law, such conversion shall be
deemed to have been effected and the Conversion Price shall be determined, as
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<PAGE> 22
of the close of business on the date on which the Conversion Notice shall have
been received by the Corporation and such shares of Series A Preferred Stock
shall have been surrendered as aforesaid, and at such time the rights of such
holder as to such shares of Series A Preferred Stock surrendered shall cease
and the person in whose name any certificate or certificates for shares of
Common Stock shall then be issuable upon such conversion shall be deemed to
have become the holder of record of the shares of Common Stock represented
hereby. If the last day for the conversion of the Series A Preferred Stock at
the place of surrender shall not be a business day, then the last day for such
conversion at such place shall be the next succeeding business day.
(c) Fractional Shares; Accrued Interest; Partial Conversion.
No fractional shares of Common Stock shall be issued upon conversion of any
of the Series A Preferred Stock and no payment or adjustment shall be made
upon any such conversion on account of any cash dividends on the Common Stock
issued upon such conversion. At the time of each conversion of any shares of
Series A Preferred Stock, the Corporation shall pay in cash all accrued and
unpaid dividends (and interest thereon, if any) on the shares surrendered for
conversion to the date upon which the conversion is deemed to take place as
provided in Section 7(b) hereof. If any fractional interest in a share of
Common Stock would, except for the provisions of the first sentence of
this Section 7(c), be deliverable upon the conversion of the Series A Preferred
Stock, the Corporation shall deliver a full share thereof in lieu of such
fractional share, at no cost to the holder thereof.
(d) Adjustment of Conversion Price Upon the Occurrence of
Certain Events. The Conversion Price shall be subject to adjustment as
follows:
(1) Stock Dividends, Splits, Combinations and
Reclassifications. In case the Corporation shall, after July 12, 1990, (i) pay
a stock dividend or make a distribution in shares of its capital stock (whether
shares of its Common Stock or of capital stock of any other class), (ii)
subdivide its outstanding shares of Common Stock, (iii) combine its outstanding
shares of Common Stock into a smaller number of shares or (iv) issue by
reclassification of its shares of Common Stock any shares of capital stock of
the Corporation, the Conversion Price in effect immediately prior to such
action shall be adjusted so that the holder of any share of Series A Preferred
Stock thereafter surrendered for conversion shall be entitled to receive the
number of shares of capital stock of the Corporation which he would have owned
immediately following such action had such share of Series A Preferred Stock
been converted immediately prior thereto, and such Conversion Price shall
thereafter be subject to further adjustments under this Section 7(d). An
adjustment made pursuant to this subsection (1) shall become effective
retroactively immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification.
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<PAGE> 23
(2) Distributions on Common Stock. In case the
Corporation shall, after July 12, 1990, fix a record date for the making of a
distribution to all holders of its Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Corporation is the continuing corporation) of (i) assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus or dividends payable in Common Stock of the Corporation), (ii)
evidences of indebtedness or other securities (except for the Common Stock of
the Corporation) of the Corporation or of any corporation other than the
Corporation, or (iii) subscription rights, options or warrants to purchase any
of the foregoing assets or securities (excluding those referred to in Section
7(d)(4)(C) hereof), whether or not such rights, options or warrants are
immediately exercisable (hereinafter collectively referred to as "Distributions
on Common Stock"), the Corporation shall issue to the holders of outstanding
shares of Series A Preferred Stock, the Distribution on Common Stock to which
they would have been entitled if they had converted the shares of Series A
Preferred Stock held by them into Common Stock of the Corporation immediately
prior to the record date for the purpose of determining stockholders entitled
to receive such Distribution on Common Stock.
(3) Adjustment of Conversion Price. Subject to
the exceptions referred to in Section 7(d)(5) hereof, in case the Corporation
shall at any time or from time to time after April 13, 1989 issue any
additional shares of its Common Stock ("Additional Common Stock") for a
consideration per share either (I) less than the then current Market Price per
share of Common Stock of the Corporation (determined as provided in Section
7(d)(7) hereof) immediately prior to the issuance of such Additional Common
Stock unless such consideration per share is greater than one hundred fifty
percent (150%) of the then current Conversion Price immediately prior to the
issuance of such Additional Common Stock (II) less than the then current
Conversion Price immediately prior to the issuance of such Additional Common
Stock, or (III) without consideration, then (in the case of either clause (I),
(II) or (III)), and thereafter successively upon each such issuance, the then
current Conversion Price shall forthwith be reduced to a price equal to the
lesser of:
(i) the price determined by multiplying such current Conversion
Price by a fraction, of which
(a) the numerator shall be (i) the number of shares of
Common Stock of the Corporation outstanding when the then current
Conversion Price became effective plus (ii) the number of shares of
Common Stock of the Corporation which the aggregate amount of
consideration, if any, received by the Corporation upon all issues of
its Common Stock since the then current Conversion Price became
effective (including the consideration, if any, received for such
Additional Common Stock) would purchase at the
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<PAGE> 24
greater of (A) the then current Market Price per share of Common Stock
of the Corporation or (B) the then current Conversion Price per Share,
and
(b) the denominator shall be (i) the number of shares of
Common Stock of the Corporation outstanding when the then current
Conversion Price became effective plus (ii) the number of shares of
Common Stock of the Corporation issued since the then current
Conversion Price became effective (including the number of shares of
such Additional Common Stock);
or
(ii) the price determined by dividing (1) the aggregate amount of
consideration, if any, received by the Corporation upon all issues of
its Common Stock since the then current Conversion Price became
effective (including the consideration, if any, received for such
Additional Common Stock) by (2) the number of shares of Common Stock
of the Corporation issued since the then current Conversion Price
became effective (including the number of shares of such Additional
Common Stock); provided, however, that such adjustment shall be made
only if the Conversion Price determined from the above adjustment
shall be less than the Conversion Price in effect immediately prior to
the issuance of such Additional Common Stock. The Corporation may,
but shall not be required to, make any adjustment of the current
Conversion Price if the amount of such adjustment shall be less than
$.01, but any adjustment that would otherwise be required then to be
made which is not so made shall be carried forward and shall be made
at the time of and together with the next subsequent adjustment which,
together with any adjustments so carried forward, shall amount to not
less than $.01.
(4) Issuance of Common Stock or Other Securities. For purposes of
any adjustment as provided in Section 7(d)(3) hereof, the following
provisions shall also be applicable:
(A) In case of the issuance of Additional Common
Stock for cash, the consideration received by the Corporation
therefor shall be deemed to be the net cash proceeds received
by the Corporation for such Additional Common Stock after
deducting any commissions or other expenses paid or incurred
by the Corporation for any underwriting of, or otherwise in
connection with the issuance of, such Additional Common
Stock.
(B) In case of the issuance (otherwise than upon
conversion of obligations or shares of stock of the
Corporation) of Additional Common Stock for a consideration
other than cash, or a consideration
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<PAGE> 25
a part of which shall be other than cash, the amount of the
consideration other than cash so received or to be received
by the Corporation shall be deemed to be the value of such
consideration at the time of its receipt by the Corporation
as determined in good faith by the Board of Directors of the
Corporation, except that where the non-cash consideration
consists of the cancellation, surrender or exchange of
outstanding obligations of the Corporation (or where such
obligations are otherwise converted into shares of Common
Stock of the Corporation), the value of the non-cash
consideration shall be deemed to be the amount, including
principal and any accrued interest, as of the time of the
Corporation's receipt, of the obligations cancelled,
surrendered, satisfied, exchanged or converted. If the
Corporation receives consideration, part or all of which
consists of publicly traded securities (i.e., in lieu of
cash), the value of such non-cash consideration shall be the
aggregate market value of such securities (based on the
latest reported trades) as of the close of the day
immediately preceding the date of their receipt by the
Corporation.
(C) In case of the issuance (other than by way of
a Distribution on Common Stock pursuant to Section 7(d)(2)
hereof), whether by distribution or sale to holders of its
Common Stock or to others, by the Corporation of (i) any
security (other than shares of Series A Preferred Stock) that
is convertible into Common Stock of the Corporation or (ii)
any rights, options or warrants to purchase Common Stock of
the Corporation (except as stated in Section 7(d)(5) hereof),
if inclusion thereof would result in a Conversion Price Lower
than if excluded, the Corporation shall be deemed to have
issued, for the consideration described below, the number of
shares of Common Stock into which such convertible security
may be converted when first convertible, or the number of
shares of Common Stock deliverable upon the exercise of such
rights, options or warrants when first exercisable, as the
case may be (and such shares shall be deemed to be Additional
Common Stock for purposes of Section 7(d)(3) hereof);
provided, that if such number of shares is thereafter
increased in accordance with the terms of such convertible
security, rights, options or warrants, as a result of the
antidilution provisions of such convertible security, rights,
options or warrants or otherwise, the Corporation shall be
deemed to have issued at the time of such increase and at no
consideration, the additional shares of Common Stock into
which such convertible securities may be converted as a
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<PAGE> 26
result of such increase or the additional shares of Common
Stock for which such rights, options or warrants may be
exercised as a result of such increase, as the case may be.
The consideration to be deemed to be received by the
Corporation at the time of the issuance of such convertible
securities or such rights, options or warrants shall be the
consideration so received determined as provided in Section
7(d)(4)(A) and (B) hereof after deducting any commissions or
other expenses paid or incurred by the Corporation for any
underwriting of, or otherwise in connection with, the
issuance of such convertible securities or rights, options or
warrants, plus (x) any consideration or adjustment payment to
be received by the Corporation in connection with such
conversion, or (y) the aggregate price at which shares of
Common Stock are to be delivered upon the exercise of such
rights, options or warrants when first exercisable or, if no
price is specified and such shares are to be delivered at an
option price related to the market value of the subject
Common Stock, an aggregate option price bearing the same
relation to the market value of the subject Common Stock at
the time such rights, options or warrants were granted;
provided, that as to such rights, options or warrants further
adjustment as shall be necessary on the basis of the actual
option price at the time of exercise shall be made at such
time if the actual option price is less than the aforesaid
assumed option price. No further adjustment of the
Conversion Price shall be as a result of the actual issuance
of shares of Common Stock of the Corporation referred to in
this paragraph (C). On the expiration or termination of such
rights, options or warrants, or rights to convert, the
Conversion Price hereunder shall be readjusted (up or down as
the case may be) to such Conversion Price as would have been
obtained had the adjustments made upon the issuance of such
rights, options, warrants or convertible securities been made
upon the basis of the delivery of only the number of shares
of Common Stock actually delivered upon the exercise of such
rights, options or warrants or upon the conversion of any
such securities.
(D) In case any event shall occur as to which the
provisions of paragraphs (A), (B) or (C) of this Section
7(d)(4) are not strictly applicable but the failure to make
any adjustment would not fairly protect the conversion rights
represented by Series A Preferred Stock in accordance with
the essential intent and principles of such subsections,
then, in each such case, the Corporation shall, if requested
by the holders of a
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<PAGE> 27
majority of the shares of Series A Preferred Stock then outstanding,
appoint a firm of independent public accountants of recognized
national standing selected by the Board of Directors of the
Corporation (who may be the regular auditors of the Corporation),
which shall give their good faith opinion upon the adjustment, if any,
on a basis consistent with the essential intent and principles
established in paragraphs (A), (B) or (C) of this Section 7(d)(4),
necessary to preserve, without dilution, the conversion rights
represented by Series A Preferred Stock. Such opinion upon such
adjustment, if any, as may be necessary shall be final and binding on
the parties hereto and all subsequent holders of Series A Preferred
Stock. Upon receipt of such opinion, the Corporation will promptly
mail copies thereof to the holders of Series A Preferred Stock and
shall make the adjustments described therein.
(E) The number of shares of Common Stock of the
Corporation as at the time outstanding shall exclude all shares of
Common Stock then owned or held by or for the account of the
Corporation but shall include the aggregate number of shares of Common
Stock of the Corporation at the time deliverable in respect of the
convertible securities, rights, options and warrants referred to in
Section 7(d)(4)(C) hereof; provided, that, to the extent that such
rights, options, warrants or conversion privileges are not exercised,
such shares of Common Stock shall be deemed to be outstanding only
until the expiration dates of the rights, options or conversion
privileges or the prior cancellation thereof.
(5) Issuances Which Require No Adjustment. No adjustment of the
Conversion Price shall be made as a result of or in connection with:
(A) the issuance of shares of Common Stock of the Corporation
upon conversion of Series A Preferred Stock;
(B) the issuance of shares of Common stock of the Corporation
upon exercise of the Dealer Manager/Underwriter's Warrant issued to
Piper Jaffrey & Hopwood Incorporated on December 24, 1986;
(C) the issuance after April 13, 1989 of up to an
aggregate of the excess, if any, of ten percent (10%) of the number of
shares of Common Stock of the Corporation from time to time
outstanding over the number of shares of the
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<PAGE> 28
Corporation's Common Stock then issuable pursuant to the options which
are referred to in Section 7(d)(5)(D) hereof in additional shares of,
and or rights, options or warrants to purchase such aggregate number
of additional shares of, the Corporation's Common Stock;
(D) the issuance of the Corporation's Common Stock pursuant to
options which were granted under the Corporation's 1984 and 1988
Stock Option Plans and which were outstanding on December 31, 1988; and
(E) the issuance of the Corporation's Common Stock
pursuant to a merger transaction in which a "fairness opinion" (i)
confirms the fairness from a financial point of view of the stock
issuance and merger from the standpoint of the Corporation, the
holders of the Corporation's Common Stock and the holders of Series A
Preferred Stock, (ii) is given by an investment banking firm
reasonably satisfactory to holders of a majority of the shares of
Series A Preferred Stock then outstanding and (iii) is addressed and
delivered to the Corporation and the holders of the then outstanding
shares of Series A Preferred Stock.
To the extent the issuance (or deemed issuance) of Common Stock shall not
result in any adjustment of the Conversion Price pursuant to the provisions of
this Section 7(d)(5), then such Common Stock shall not be taken into account
for purposes of determining the prices under clauses (i) or (ii) of Section
7(d)(3) hereof.
(6) Certificate and Notice of Adjustment. Whenever the Conversion
Price is adjusted as provided in this Section 7(d), the Corporation will
promptly provide a certificate of its chief financial officer, and, if
requested by the holders of a majority of the shares of Series A Preferred
Stock then outstanding, will promptly obtain a certificate of a firm of
independent public accountants of recognized national standing selected by the
Board of Directors of the Corporation (who may be the regular auditors of the
Corporation), setting forth the Conversion Price as so adjusted and a brief
statement of facts accounting for such adjustment, and will mail a brief
summary thereof to the holders of Series A Preferred Stock.
(7) Computing Market Price. For the purpose of any computation
under this Section 7(d), the current "Market Price" per share of Common Stock
of the Corporation on any date shall be deemed to be the average of the Market
Prices for the 10 consecutive trading dates commencing 12 trading days before
such date.
(8) Further Reductions of Conversion Price Upon Failure
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<PAGE> 29
to Obtain Certain Eligible Bookings and Net Proceeds from Sales
of Common Stock. Notwithstanding the foregoing provisions of this
Section 7(d), in case the Corporation, during the 12-month period
commencing on April 13, 1989 (the "First Year"), shall fail to have
obtained Eligible Bookings (as hereinafter defined) of at least
$4,000,000 and shall fail to have obtained during the First Year at
least $8,000,000 from a combination of Eligible Bookings and net
proceeds actually received of at least $2.00 per share from sales of
its Common Stock, the Conversion Price for the conversion of Series A
Preferred Stock shall be reduced during the six-month period
immediately following the First Year (and thereafter as well in case
the Corporation, during the 18-month period commencing on April 13,
1989 (the "First Eighteen Months"), shall fail to have obtained
Eligible Bookings of at least $4,000,000 but less than $8,000,000 and
shall fail to have obtained during the First Eighteen Months at least
$6,000,000 but less than $16,000,000 from a combination of Eligible
Bookings and net proceeds actually received of at least $2.00 per share
from sales of its Common Stock to a price equal to the current
Conversion Price which would have then been in effect pursuant to the
foregoing provisions of this Section 7(d) had the Conversion Price for
Series A Preferred Stock initially been $1.50 rather than $2.00.
(9) Further Adjustments in Conversion Price. In case the
Conversion Price for the conversion of Series A Preferred Stock during
the six-month period immediately following the First Year shall have
been reduced pursuant to the provisions of Section 7(d)(8) hereof, in
case the Corporation, during the First Eighteen Months, shall fail to
have obtained Eligible Bookings of at least $4,000,000 and shall fail
to have obtained during the First Eighteen Months at least $8,000,000
from a combination of Eligible Bookings and net proceeds actually
received of at least $2.00 per share from sales of its Common Stock
the Conversion Price for the conversion of Series A Preferred Stock
shall be further decreased after the end of the First Eighteen Months
to the current Conversion Price which would have then been in effect
pursuant to the foregoing provisions of this Section 7(d) had the
Conversion Price for Series A Preferred Stock initially been $1.00
rather than $2.00. In case the Conversion Price for the conversion of
Series A Preferred Stock during the six-month period immediately
following the First Year shall have been reduced pursuant to the
provisions of Section 7(d)(8) hereof, in case the Corporation, during
the First Eighteen Months, shall have obtained Eligible Bookings of at
least $8,000,000 and shall have obtained during the Eighteen Month
Period at least $16,000,000 from a combination of Eligible Bookings
and net proceeds actually received of at least $2.00 per share from
sales of its Common Stock, the Conversion Price for the conversion of
Series A Preferred Stock shall be increased after the end of the First
Eighteen Months to the current Conversion Price that would have been
in effect if no reduction in Conversion Price had been effected
pursuant to Section 7(d)(8) hereof.
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<PAGE> 30
(10) Definition of "Eligible Bookings." As used in this
Section 7(d), "Eligible Bookings" means with respect to any period the
revenues payable to the Corporation pursuant to the terms of binding
written business agreements entered into during such period to the
extent that (i) such revenues are payable with respect to development
stage work in lineal in advance periodic payments due within 24 months
of the dates such business agreements are entered into by the
Corporation or (ii) such revenues are payable with respect to
prototype delivery after development stage work has been completed to
the joint satisfaction of the Corporation and the other party to the
business agreements, provided that such revenues attributable to
prototype delivery are due within 36 months of the dates such business
agreements are entered into by the Corporation.
(e) Reorganization, Reclassification, Consolidation,
Merger or Sale. If any capital reorganization or reclassification of capital
stock of the Corporation, or any consolidation or merger of the Corporation
with or into another corporation or any consolidation or merger of another
corporation with or into the Corporation, or the sale of all or substantially
all of its assets to another corporation, shall be effected in such a way that
holders of Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, lawful
and adequate provision shall be made whereby any holder of shares of Series A
Preferred Stock shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock of the Corporation immediately theretofore receivable upon the
conversion of shares of Series A Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for a number of outstanding shares of such Common Stock equal to the number of
shares of such stock immediately theretofore so receivable had such
reorganization, reclassification, consolidation, merger or sale not taken
place, and in any such case appropriate provision shall be made with respect to
the rights and interests of such holder to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price) shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
of such conversion rights (including an immediate adjustment, by reason of such
consolidation or merger, of the Conversion Price to the value of the Common
Stock reflected by the terms of such consolidation or merger if the value so
reflected is less than the Conversion Price in effect immediately prior to such
consolidation or merger). The Corporation shall not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the Corporation purchasing such assets shall assume
by written instrument executed and mailed or delivered to each holder of Series
A Preferred Stock the obligation to
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<PAGE> 31
deliver thereto such shares of stock, securities or assets as, in accordance
with the foregoing provisions, holders of Series A Preferred Stock may be
entitled to receive. If a purchase, tender or exchange offer is made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock of the Corporation, the Corporation shall not effect any consolidation,
merger or sale with the person having made such purchase, tender or exchange
offer or with any affiliate of such person, unless prior to the consummation of
such consolidation, merger or sale each holder of Series A Preferred Stock
shall have been given a reasonable opportunity to then elect to receive on
conversion thereof either the stock, securities or assets then issuable with
respect to the Common Stock or the stock, securities, assets, or the
equivalent, issued to previous holders of the Common Stock in accordance with
such purchase, tender or exchange offer.
(f) Notices. In case at any time:
(i) the Corporation shall declare any cash
dividend upon its Common Stock;
(ii) the Corporation shall declare any dividend
upon its Common Stock payable in stock or
make any special dividend or other
distribution other than regular cash
dividends to holders of its Common Stock;
(iii) the Corporation shall offer for subscription
pro rata to the holders of its Common Stock
any additional shares of stock of any class
or other rights;
(iv) there shall be any capital reorganization, or
reclassification or the capital stock of the
Corporation, or consolidation or merger of the
Corporation with or into, or sale of all or
substantially all of its assets to, another
corporation or consolidation or merger of
another corporation with or into the
Corporation; or
(v) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the
Corporation;
then, in any one or more of such cases, the Corporation shall give to each
holder of Series A Preferred Stock (A) at least 20 days' prior written notice
of the date on which a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, and (B) in the case of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up, at least 20 days' prior written notice of the date when the same
shall take place. Such notice in accordance with the foregoing clause (A)
shall also
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<PAGE> 32
specify, in the case of any such dividend, distribution or subscription rights,
the record date on which the holders of Common Stock shall be entitled thereto,
and such notice in accordance with the foregoing clause (B) shall also specify
the date on which the holders of Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding-up, as the case may be.
(g) Stock to be Reserved.
(i) The Corporation shall at all times reserve
and keep available, free from preemptive
rights out of its authorized but unissued
Common Stock or its issued Common Stock held
in treasury, or both, solely for the purpose
of issue upon conversion of Series A
Preferred Stock as herein provided, such
number of shares of Common Stock as shall
then be issuable upon the conversion thereof.
If at any time the number of authorized but
unissued shares of Common Stock shall not be
sufficient to effect the conversion of all
shares of Series A Preferred Stock then
outstanding, the Corporation shall take such
corporate action as may in the opinion of its
counsel be necessary to increase its
authorized but unissued Common Stock to such
number of shares as shall be sufficient for
that purpose. The Corporation covenants and
agrees that all shares of Common Stock which
shall be so issuable shall, upon issuance, be
duly authorized and validly issued, fully
paid and nonassessable and free from all
preemptive rights of stockholders and all
liens and charges. The Corporation shall not
take any action which results in any
adjustment of the Conversion Price if the
total number of shares of Common Stock
issuable after such action upon conversion of
all outstanding shares of Series A Preferred
Stock would exceed the total number of shares
of Common Stock then authorized by the
Corporation's Certificate of Incorporation.
The Corporation shall take all such action as
may be necessary to assure that all such
shares of Common Stock may be so issued
without violation of any applicable law or
regulation, any requirements of any exchange
upon which the Common Stock of the
Corporation may be listed, the Certificate of
Incorporation or bylaws of the Corporation,
or any agreement, instrument or order to
which the Corporation or any of its
subsidiaries is then subject.
(ii) The Corporation will at all times reserve and
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<PAGE> 33
keep available for issuance of the authorized
shares of Series A Preferred Stock created by
this Certificate of Designations, Powers,
Preferences and Relative Rights,
Qualifications, Limitations and Restrictions
of the Series A 10% Cumulative Convertible
Preferred Stock of OIS Optical Imaging
Systems, Inc., or any necessary amendment
thereto to comply with this paragraph, a
sufficient number of authorized and unissued
shares of Series A Preferred Stock which may
be deliverable to holders of Series A
Preferred Stock who may elect to receive any
dividend in additional shares of Series A
Preferred Stock in lieu of cash.
(h) Issue Tax. The issuance of certificates for shares
of Common Stock upon conversion of shares of Series A Preferred Stock and the
issuance of certificates for shares of Series A Preferred Stock upon the
conversion of only a portion of the number of shares of Series A Preferred
Stock covered by a certificate therefor and upon the issuance of Series A
Preferred Stock as dividends in lieu of cash as provided herein, shall be made
without charge to any holder thereof for any issuance tax in respect thereto,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of such holder.
(i) Listing. If any shares of Common Stock required to
be reserved for purposes of the conversion of Series A Preferred Stock
hereunder require listing on any securities exchange, before such shares may be
issued upon conversion, the Corporation shall, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
listed on such securities exchange.
8. Certificates. So long as any shares of Series A
Preferred Stock are outstanding, there shall be set forth on the face or back
of each Series A stock certificate issued by the Corporation a statement that
the Corporation shall furnish without charge to each shareholder who so
requests, the powers, preferences and rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
or such rights.
IN WITNESS WHEREOF, the Corporation has caused this
Certificate to be signed and its corporate seal hereunto affixed by Zvi Yaniv,
its President, and to be attested by Joseph Ben-Gal, its Secretary, on this
12th day of July, 1990.
/s/ Zvi Yaniv
--------------------
ATTEST: Zvi Yaniv, President
/s/ Joseph Ben-Gal
- -------------------------
Joseph Ben-Gal, Secretary
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<PAGE> 34
RESTATED CERTIFICATE OF INCORPORATION
OF
OVONIC IMAGING SYSTEMS, INC.
Pursuant to Section 242 and Section 245
of the Delaware General Corporation Law
The undersigned, being the Chairman of the Board of Directors and
the Secretary of Ovonic Imaging Systems, Inc., a corporation existing under the
laws of the State of Delaware, do hereby certify as follows:
FIRST: The corporation was originally incorporated as Ovonic
Display Systems, Inc. Pursuant to a Certificate of Amendment filed by the
Secretary of State, Dover, Delaware, on the 22nd day of May, 1986, the name of
the corporation is presently Ovonic Imaging Systems, Inc.
SECOND: That the Certificate of Incorporation of the corporation
was filed in the office of the Secretary of State of Delaware on the 31st day
of May, 1984.
THIRD: That the amendment and the restatement of the Certificate of
Incorporation have been duly adopted by the sole stockholder of the corporation
in accordance with the provisions of Section 245 of the General Corporation Law
of the State of Delaware by unanimous consent of the holder of all outstanding
stock entitled to vote thereon.
FOURTH: That the text of the Certificate of Incorporation of Ovonic
Imaging Systems, Inc., as amended, is hereby restated as further amended by
this Certificate, to read in full, as follows:
<PAGE> 35
RESTATED CERTIFICATE OF INCORPORATION
OF
OVONIC IMAGING SYSTEMS, INC.
Pursuant to Section 242 and Section 245
of the Delaware General Corporation Law
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the corporation is OVONIC IMAGING SYSTEMS, INC.
SECOND: Its registered office is to be located at 229 South State
Street, in the City of Dover, in the County of Kent, in the State of Delaware.
The name of its registered agent at that address is the United States
Corporation Company.
THIRD: The purpose of the corporation is to engage in any lawful
act or activity for which corporation may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the corporation
shall have authority to issue is Twenty Million (20,000,000) shares of Common
Stock, each with par value of $0.01.
FIFTH: Notwithstanding any other provision of this Certificate or
the Bylaws of the corporation to the contrary (and notwithstanding the fact
that a lesser percentage may be generally specified by law, in this Certificate
or in the Bylaws of the corporation), the affirmative vote of the holders of at
least 80% of the voting power of all shares of the corporation entitled to
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<PAGE> 36
vote shall be required to authorize the dissolution of the corporation.
SIXTH: Notwithstanding any other provision of this Certificate or
the Bylaws of the corporation to the contrary, no action required to be taken
at any annual or special meeting of the stockholders of the corporation, nor
any action which may be taken at any annual or special meeting of such
stockholders, may be taken by written consent, without a meeting with such
prior notice as may be required by law, in this Certificate or the Bylaws of
the corporation.
SEVENTH: For the management of the business and for the conduct of
the affairs of the corporation, and in further definition, limitation and
regulation of the powers of the corporation and of its directors and
stockholders, the following additional provisions are set forth and made a part
of this Certificate:
(a) In furtherance and not in limitation of the powers
conferred by the laws of the State of Delaware, the board of directors
of the corporation is expressly authorized and empowered to make,
alter, amend and repeal the Bylaws of the corporation, except as
otherwise provided or permitted under the General Corporation Law of
the State of Delaware; provided, however, that until October 1, 1991
the board of directors shall not alter, amend or repeal Article XII of
such Bylaws except as provided therein.
(b) Whenever a compromise or arrangement is proposed
between the corporation and its creditors or any class of them and/or
between the corporation and its stockholders or any class of them, any
court of equitable jurisdiction within the State of Delaware may, on
the application in a summary way of the corporation or of any creditor
or stockholder thereof or on the application of any receiver or
receivers appointed for the corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of
trustees in
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<PAGE> 37
dissolution or of any receiver or receivers appointed for the
corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the
corporation, as the case may be, to be summoned in such manner as the
said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of the corporation, as
the case may be, agree to any compromise or arrangement and to any
reorganization of the corporation, as consequence of such compromise
or arrangement and the said reorganization shall, if sanctioned by the
court to which the said application has been made, be binding on all
the creditors or class of creditors, and/or on all the stockholders or
class of stockholders, of the corporation, as the case may be, and
also on the corporation.
EIGHTH: Subject to the provisions of Article NINTH of this
Certificate, any of the provisions of this Certificate may from time to time be
amended, altered or repealed, and other provisions authorized by the laws of
the State of Delaware at the time in force may be added or inserted in the
manner and at the time prescribed by said laws, and all rights at any time
conferred upon the stockholders of the corporation by this Certificate are
granted subject to the provisions of this Article EIGHTH.
NINTH: Notwithstanding any other provisions of this
Certificate or the Bylaws of the corporation to the contrary (and
notwithstanding the fact that a lesser percentage may be generally specified by
law, in this Certificate or in the Bylaws of the corporation), the affirmative
vote of the holders of at least 80% of the voting power of all shares entitled
to vote shall be required to alter, amend or repeal, or to adopt any provisions
of this Certificate inconsistent with, Articles FIFTH and SIXTH, Subsection (a)
of Article SEVENTH, or this Article NINTH.
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<PAGE> 38
TENTH: The corporation shall, to the full extent permitted by
Section 145 of the Delaware General Corporation Law, as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto.
ELEVENTH: No director of the corporation shall be personally
liable to the corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, as the same exists or hereafter may be amended, or (iv) for
any transaction from which the director derived an improper personal benefit.
Any repeal or modification of this paragraph by the stockholders of the
corporation shall be prospective only, and shall not adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such repeal or modification. Nothing herein shall limit or
otherwise affect the obligation or right of the corporation to indemnify its
directors pursuant to the provisions of this Certificate, the Bylaws of the
corporation or as may be permitted by the Delaware General Corporation Law.
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<PAGE> 39
IN WITNESS WHEREOF, the undersigned have executed the
foregoing Restated Certificate of Incorporation on the 18th day of December,
1984.
/s/ Stanford R. Ovshinsky
-------------------------
Stanford R. Ovshinsky,
Chairman of the Board of
Directors
ATTEST:
/s/ Lawrence G. Norris
- -----------------------
Lawrence G. Norris,
Secretary
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<PAGE> 1
EXHIBIT 10.12
OIS OPTICAL IMAGING SYSTEMS, INC.
1994
SIGNIFICANT EMPLOYEE STOCK INCENTIVE PLAN
Section 1. Purposes.
The purposes of this Plan are (a) to recognize and compensate
significant Employees of the Company and its Subsidiaries who contribute to the
development and success of the Company and its Subsidiaries; (b) to maintain
the competitive position of the Company by attracting and retaining significant
Employees; (c) to provide incentive compensation to significant Employees based
upon the Company's performance, as measured by the appreciation in Common
Stock; and (d) to provide stock ownership opportunities to Nonemployee
Directors. This Plan is intended to comply with the requirements for employee
benefit plans under Rule 16b-3, as amended, promulgated under Section 16 of the
Exchange Act. The Options issued pursuant to this Plan are intended to
constitute either Incentive Stock Options or non-qualified stock options, as
determined by the Committee at the time of the Award.
Section 2. Definitions.
2.1 "Award" means a grant of an Option or Options or a
Restricted Stock Award to an Eligible Person pursuant to the provisions of this
Plan. Each separate grant of an Option or Options or Restricted Stock Award to
an Eligible Person is treated as a separate Award.
2.2 "Board" means the Board of Directors of the Company, as
constituted from time to time.
2.3 "Change of Control" means the happening of an event, which
is deemed to have occurred upon the earliest to occur of the following events:
(a) the date the stockholders of the Company (or the Board, if stockholder
action is not required) approve a plan or other arrangement pursuant to which
the Company will be dissolved or liquidated, or (b) the date the stockholders
of the Company (or the Board, if stockholder action is not required) approve a
definitive agreement to sell or otherwise dispose of all or substantially all
of the assets of the Company, or (c) the date the stockholders of the Company
(or the Board, if stockholder action is not required) and the stockholders of
the other constituent
<PAGE> 2
corporations (or their respective boards of directors, if and to the extent
that stockholder action is not required) have approved a definitive agreement
to merge or consolidate the Company with or into another corporation, other
than, in either case, a merger or consolidation of the Company in which the
Company is the surviving entity, and in which shares of the Company's voting
capital stock outstanding immediately before such merger or consolidation are
exchanged or converted into shares which represent more than 50% of the
Company's voting capital stock after such consolidation merger, as such
holders' ownership of voting capital stock of the Company immediately before
the merger or consolidation, or (d) the date any entity, person or group
(within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange
Act), other than (A) the Company, or (B) any Subsidiary, or (C) any of the
holders of the capital stock of the Company, as determined on the date that
this Plan is adopted by the Board, or (D) any employee benefit plan (or related
trust) sponsored or maintained by the Company or any Subsidiary or (E) any
Affiliate (as such term is defined in Rule 405 promulgated under the Securities
Act) of any of the foregoing, shall have acquired beneficial ownership of, or
shall have acquired voting control over more than 50% of the outstanding shares
of the Company's voting capital stock (on a fully diluted basis), unless the
transaction pursuant to which such person, entity or group acquired such
beneficial ownership or control resulted from the original issuance by the
Company of shares of its voting capital stock and was approved by at least a
majority of directors who shall have been members of the Board for at least
twelve (12) months, or (e) the first day after the date of this Plan when
directors are elected such that there shall have been a change in the
composition of the Board such that a majority of the Board shall have been
members of the Board for less than twelve (12) months unless the nomination for
election of each new director who was not a director at the beginning of such
twelve (12) month period was approved by a vote of at least sixty percent (60%)
of the directors then still in office who were directors at the beginning of
such period, or (f) the date upon which the Board determines (in its sole
discretion) that based on then current available information, the events
described in clause (d) are reasonably likely to occur.
2.4 "Code" means the Internal Revenue Code of 1986, as amended.
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<PAGE> 3
2.5 "Committee" means the Committee appointed by the Board in
accordance with Section 4.1 of this Plan.
2.6 "Company" means OIS Optical Imaging Systems, Inc., a
Delaware corporation.
2.7 "Common Stock" means common stock of the Company, $.01 par
value per share.
2.8 "Disinterested Person" has the meaning set forth in Rule
16(b)-3, as amended, promulgated under Section 16 of the Exchange Act.
2.9 "Eligible Person" means any Employee who is determined by
the Committee to be a significant Employee and, in the case of a non-qualified
stock option or a Restricted Stock Award only, includes a Nonemployee Director.
2.10 "Employee" means any person, including officers and
directors, who is employed by the Company, a Parent, a Subsidiary or successor.
The payment of directors' fees by the Company, a Parent, a Subsidiary or
successor, as the case may be, is not sufficient to constitute employment.
Additionally, solely for the purpose of determining those persons eligible to
receive a non-qualified stock option Award and not for the purpose of affecting
the status of the relationship between such persons and the Company, the term
"Employee" includes independent contractors of and consultants to the Company.
2.11 "Exchange Act" means The Securities Exchange Act of 1934, as
amended.
2.12 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
2.13 "Fair Market Value" means the fair market value of a share
of Common Stock, as determined pursuant to Section 9.
2.14 "Incentive Stock Option" means an Option that is an
incentive stock option within the meaning of Section 422 of the Code.
2.15 "Nonemployee Director" means a member of the Board who is
not an employee of the Company or a Subsidiary.
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<PAGE> 4
2.16 "Option" means an Incentive Stock Option or a non-qualified
stock option to purchase Shares that is awarded pursuant to this Plan.
2.17 "Option Agreement" means a written agreement in such form as
the Committee may from time to time approve evidencing the terms of an Option,
which agreement may contain such provisions as the Committee in its discretion
deems advisable and which are not inconsistent with the provisions of this
Plan, including, without limitation, restrictions upon or conditions precedent
to the exercise of the Option.
2.18 "Optionee" means an Eligible Person who receives an Award.
2.19 "Parent" means a "parent corporation" whether now or
hereafter existing, as defined in Sections 424(e) and (g) of the Code.
2.20 "Plan" means this OIS Optical Imaging Systems, Inc. 1994
Significant Employee Stock Incentive Plan, as amended from time to time.
2.21 "Pool" means the pool of shares of Common Stock subject to
this Plan, as set forth in Section 6.
2.22 "Restricted Stock Award" means the grant of a right to
receive, at a time or times fixed by the Committee, and subject to the
limitations and restrictions as this Plan and the Committee impose, either the
number of Shares specified by the Committee or cash equal to the Fair Market
Value of those Shares, or some combination of both, all as the Committee
determines in its sole discretion at any time or times before the satisfaction
of the Restricted Stock Award.
2.23 "Securities Act" means The Securities Act of 1933, as
amended.
2.24 "Shares" means shares of Common Stock contained in the Pool,
as adjusted in accordance with Section 10.
2.25 "Subsidiary" means a subsidiary corporation, whether now or
hereafter existing, as defined in Sections 424(f) and (g) of the Code.
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<PAGE> 5
Section 3. Participation.
Participants in this Plan shall be selected by the Committee from the
Eligible Persons. The Committee may make Awards at any time and from time to
time to Eligible Persons. Any Award may include or exclude any Eligible
Person, as the Committee determines in its sole discretion.
Section 4. Administration.
4.1 Procedure. This Plan will be administered, and all awards
will be made, by a Committee appointed by the Board, unless the Committee is
dissolved as provided below. The Committee will consist of not less than two
persons, each of whom will be a Disinterested Person. Members of the Committee
will serve for such period of time as the Board determines. From time to time
the Board may increase the size of, reduce the size of (but not below two
persons unless the Committee is to be dissolved), appoint additional members
to, remove members (with or without cause) from, appoint new members in
substitution, fill vacancies however caused, or remove all members of and
dissolve the Committee and thereafter directly administer this Plan, in which
case the Board shall have the powers set forth in Section 4.2 below. Committee
members, by serving on the Committee, waive their right to receive any Award
under this Plan.
4.2 Powers of the Committee. Subject to the provisions of this
Plan, the Committee has the authority, in its discretion: (a) to award Options;
(b) to determine the Fair Market Value; (c) to determine the exercise price of
the Options to be awarded in accordance with Sections 7 and 8 of this Plan; (d)
to determine the Eligible Persons to whom, and the time or times at which,
Awards will be made, and the number of Shares to be subject to each Award; (e)
to prescribe, amend and rescind rules relating to this Plan; (f) to determine
the terms of each Award and each Option Agreement (which need not be identical
with the terms of other Option Agreements or Awards) and, with the consent of
the Optionee, to amend an outstanding Award; (g) to accelerate the vesting or
exercise date of any Option; (h) to interpret this Plan or any agreement
entered into with respect to an Award or the exercise of Options; (i) to
authorize any person to execute on behalf of the Company any instrument
required to effectuate an Award or to take such other actions as may be
necessary or appropriate with respect to the Company's rights pursuant to
Options or agreements relating
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<PAGE> 6
to or exercise of the Award; and (j) to make such other determinations and
establish such other procedures as it deems necessary or advisable for the
administration of this Plan.
4.3 Effect of Decisions. All decisions and interpretations of
the Committee (or the Board if the Committee has been dissolved) shall be final
and binding with respect to all Awards, Options, and Eligible Persons.
4.4 Limitation of Liability. Except as provided in Section 27,
no member of the Committee (or the Board if the Committee has been dissolved)
shall be liable for any good faith determination, act, or failure to act in
connection with this Plan or any Award.
Section 5. Eligibility.
Only Eligible Persons may receive an Award.
Section 6. Stock Subject to this Plan.
Subject to the provisions of Section 10 of this Plan, the maximum
aggregate number of Shares that may be awarded and sold under this Plan is Two
Million (2,000,000) Shares (collectively, the "Pool"). If the right to receive
Shares being held pursuant to a Restricted Stock Award lapses, or if an Option
expires or becomes unexercisable for any reason without having been exercised
in full, the held or unpurchased Shares will, unless this Plan has been
terminated, return to the Pool and become available for future Award under this
Plan.
Section 7. Terms and Conditions of Options.
7.1 Each Option awarded pursuant to this Plan shall be evidenced
by an Option Agreement. Each Option Agreement shall incorporate by reference
the provisions of this Plan and shall include the following provisions:
7.1.1 Number of Shares. The number of Shares subject to
the Option.
7.1.2 Option Price. The price per Share payable on the
exercise of any Option, which shall be no less than the Fair Market Value on
the date such Option is awarded, without regard to any restriction other than a
restriction that will never lapse. If
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<PAGE> 7
an Incentive Stock Option is awarded to any Employee who, at the time of the
Award owns stock possessing more than 10% of the total combined voting power of
all classes of the Company's stock, the price per Share payable upon exercise
of such Option shall be no less than 110 percent (110%) of the Fair Market
Value of the stock on the date such Option is awarded.
7.1.3 Form of Option. A statement whether the Option
awarded is an Incentive Stock Option or a non-qualified stock Option; provided,
however, no Option awarded to any Optionee shall be treated as an Incentive
Stock Option to the extent such Option would cause the aggregate Fair Market
Value of all Shares with respect to which Incentive Stock Options are
exercisable by such Optionee for the first time during any calendar year
(determined as of the date of award of each such Option) to exceed $100,000.
For purposes of determining whether an Incentive Stock Option would cause such
aggregate Fair Market Value to exceed the $100,000 limitation, such Incentive
Stock Options shall be taken into account in the order awarded (for purposes of
this subsection, Incentive Stock Options include all incentive stock options
under all plans of the Company that are incentive stock option plans within the
meaning of Section 422 of the Code).
7.1.4 Vesting of Options. Options awarded shall vest and
become exercisable in whole or in part in accordance with a vesting schedule
established by the Committee and stated in the Option Agreement.
7.2 Consideration.
7.2.1 The consideration to be paid for the Shares to be
issued upon the exercise of an Option, including the method of payment, shall
be determined by the Committee and may consist entirely of or any combination
of (a) cash, (b) check, (c) shares of Common Stock having a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised, or (d) a properly executed exercise
notice and irrevocable instructions to a broker to promptly deliver to the
Company cash equal to the exercise price.
7.2.2 An Optionee who is subject to Section 16(b) of the
Exchange Act may use the payment method described in subparagraph (d) above
only if (i) the Option being exercised was granted at least six months prior to
the date of exercise, and (ii)
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<PAGE> 8
the Fair Market Value on the date of exercise exceeds the exercise price to be
paid.
7.2.3 If Common Stock that is owned by the Optionee is
used to pay the exercise price, the Common Stock must have been owned by the
Optionee for at least six months before the date of exercise, and the Optionee
will be required to make representations and warranties satisfactory to the
Company, including without limitation, representations and warranties that the
Optionee has good and marketable title to such shares of Common Stock, free and
clear of any and all liens, encumbrances, and restrictions, and has full power
to deliver such shares of Common Stock without obtaining the consent or
approval of any person or governmental authority other than those who have
already given consent or approval in a manner satisfactory to the Company. The
value of the shares of Common Stock used to effect the purchase shall be the
Fair Market Value on the date of exercise.
7.3 Exercise of Options.
7.3.1 Any Option awarded shall be exercisable at such
times and under the conditions determined by the Committee within the terms of
this Plan.
7.3.2 An Option may be exercised from time to time as to
all or any portion of the Shares then exercisable under the Option. An Option
may not be exercised solely for a fraction of a Share.
7.3.3 An Option shall be deemed to be exercised when a
written exercise notice has been given to the Company at its principal
executive office in accordance with the terms of the Option Agreement by the
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company,
accompanied by any other agreements required by the terms of this Plan or the
Option Agreement. No adjustment shall be made for a dividend or other right
for which the record date is before the date the Option is exercised, except as
provided in Section 10 of this Plan.
7.3.4 As soon as practicable after proper exercise of an
Option (taking into account compliance with applicable law and listing
requirements), the Company shall deliver to the Optionee at the principal
executive office of the Company, or the home address
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<PAGE> 9
of the Optionee as shown on the Company's records, or such other place as shall
be mutually agreed upon between the Company and the Optionee, a certificate or
certificates representing the Shares for which the Option has been exercised.
7.3.5 Options may be exercised in any order elected by the
Optionee whether the Optionee holds any unexercised Options under this Plan or
any other plan of the Company.
7.4 Term of Options. No Option shall be (a) awarded after ten
(10) years from the date on which this Plan is adopted by the Board, or (b)
exercisable more than ten (10) years from the date of an Award; provided,
however, if an Incentive Stock Option is awarded to any Optionee who at the
time of the Award owns stock possessing more than 10% of the total combined
voting power for all classes of the Company's stock, then the foregoing clause
(b) shall be deemed modified, with respect to any such Optionee only, by
substituting "five (5) years" for the term "ten (10) years".
7.5 Termination of Awards.
7.5.1 Except as otherwise provided in Sections 7.5.2 and
7.6, upon the termination of the Optionee's employment or, in the case of an
Optionee who is not an Employee, such Optionee's other relationship with the
Company, in each case, for any reason, all outstanding Options shall terminate
and no longer be exercisable as of the date of termination of employment or
such other relationship.
7.5.2 The Committee is authorized to establish a period of
time, to commence upon the termination of the Optionee's employment or other
relationship with the Company, during which the Optionee (or a permitted
transferee) may exercise Options that were vested as of the date of termination
of the Optionee's employment or other relationship with the Company; provided,
however, in the case of Incentive Stock Options, such period of time shall not
exceed three (3) months from such termination date unless such Option is
automatically converted into a non-qualified stock option under the Code. The
Committee is authorized (a) to determine the period of time contemplated by the
immediately preceding sentence either in connection with the Award (and the
execution of the Option Agreement), or, if not determined at such time, at the
time of the termination of the Optionee's employment or other relationship with
the Company, and (b) to provide, at the same time
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<PAGE> 10
as the period of time contemplated by the immediately preceding sentence is
determined, whether Incentive Stock Options will be converted into
non-qualified stock options if the period of time determined by the Committee
pursuant to clause (a) exceeds three (3) months.
7.6 Forfeiture. If the Optionee's employment or other
relationship with the Company is terminated because the Optionee (i) has
engaged in any type of disloyalty to the Company, including without limitation,
fraud, embezzlement, theft, or dishonesty in the course of his or her
employment or engagement, or (ii) has been convicted of a felony or other crime
involving a breach of trust or fiduciary duty owed to the Company, or (iii) has
disclosed trade secrets or confidential information of the Company or (iv) has
breached any agreement with the Company in respect of confidentiality,
non-disclosure, non-competition or otherwise, or if after termination the
Optionee engages in any of the conduct described above, all unexercised Options
shall terminate upon the earlier of the date of termination of employment or
engagement or the date of such a finding.
Section 8. Restricted Stock Awards
8.1 The Committee may grant Restricted Stock Awards to Eligible
Persons from time to time.
8.2 The terms and conditions of any Restricted Stock Award,
including restrictions on transfer or on the ability of the recipient to make
elections with respect to the taxation of the Restricted Stock Award without
the consent of the Committee, shall be determined by the Committee. Except as
provided in Sections 7.5, 7.6, and 15, no such restrictions shall lapse earlier
than three months after (six months in the case of any Affiliate (as such term
is defined in Rule 405 promulgated under the Securities Act)), or later than
the tenth anniversary of, the date of the Restricted Stock Award.
8.3 The Committee may establish terms and conditions under which
the recipient of a Restricted Stock Award is entitled to receive a credit
equivalent to any dividend payable with respect to the number of Shares which,
as of the record date for such dividend, had been stated in the Award but not
satisfied by delivery to him of cash or Shares. Any such dividend equivalents
shall be paid to the recipient of the Restricted Stock Award at
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<PAGE> 11
such time or times during the period when the Shares are being held by the
Company pursuant to the terms of the Restricted Stock Award, or at the time the
Shares to which the dividend equivalents apply or cash in lieu thereof are
delivered to the recipient, as the Committee shall determine. Any arrangement
for the payment of dividend equivalents shall be terminated if, under the terms
and conditions established by the Committee, the right to receive Shares being
held pursuant to the terms of the Restricted Stock Award or cash payable in
lieu thereof shall lapse.
Section 9. Determination of Fair Market Value of Common Stock.
9.1 If shares of Common Stock are listed on a national or
regional securities exchange or traded through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") System, the Fair Market
Value on any particular date will be the closing price for a share of Common
Stock on the exchange or on NASDAQ, as reported in The Wall Street Journal (or
such other source deemed reliable by the Committee), for the immediately
preceding trading day.
9.2 Except as provided in Section 9.1, the Fair Market Value
shall be determined by the Committee in its sole discretion.
Section 10. Adjustments.
10.1 Subject to required action by the stockholders, if any, the
number of Shares as to which Options may be awarded and the number of Shares
subject to outstanding Options and the option prices thereof shall be adjusted
proportionately for any increase or decrease in the number of outstanding
shares of Common Stock of the Company resulting from stock splits, reverse
stock splits, stock dividends, reclassifications, recapitalizations, or other
similar events.
10.2 No fractional Shares shall be issuable on account of any
action taken pursuant to Section 10.1, and the aggregate number of Shares into
which Shares then covered by the Option shall be changed as a result of such
action shall be reduced to a number of whole Shares.
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Section 11. No Rights as Stockholder.
An Optionee shall not have rights as a stockholder of the Company and
shall not have the right to vote nor receive dividends with respect to any
Shares subject to an Option until such Option has been exercised and paid for
in the manner described herein.
Section 12. Date of Award.
The date of an Award is the date specified by the Committee when it
makes its determination on the Award or if none is specified, then the date of
the Committee's determination. Notice of the determination shall be given to
the recipient of the Award within a reasonable time after the date of such
Award.
Section 13. Modification, Extension and Renewal of Option.
Subject to the terms and conditions of this Plan, the Committee may
modify, extend, or renew an Option, or accept the surrender of an Option (to
the extent not theretofore exercised), except that (a) no modification of an
Option which adversely affects the Optionee shall be made without the consent
of the Optionee, and (b) no Incentive Stock Option may be modified, extended,
or renewed if such action would cause it to cease to be an "incentive stock
option" within the meaning of Section 422 of the Code.
Section 14. Transferability.
No Option is assignable or transferable otherwise than by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Code or Title I of ERISA. During the
lifetime of the Optionee, his Options are exercisable only by him, or, upon his
legal incapacity, by his legal guardian or representative.
Section 15. Power of Board in Case of Change of Control.
Except as set forth in Section 27, in the event of a Change of
Control, the Board shall have the right to accelerate the vesting of all
unmatured Options. In addition, in the event of a Change of Control of the
Company by reason of a merger, consolidation, or tax free reorganization or
sale of all or substantially all of the assets of the Company (other than in
the ordinary course of
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<PAGE> 13
business), the Board shall have the right to terminate this Plan and to (a)
exchange all Options for options to purchase common stock in the successor
corporation or (b) distribute to each Optionee cash or other property in an
amount equal to and in the same form as the Optionee would have received from
the successor corporation if the Optionee had owned the Shares subject to the
Option or Restricted Stock Award at the time of the Change of Control. The
form of payment or distribution to the Optionee pursuant to this Section shall
be determined by the Board.
Section 16. Amendment of this Plan.
Insofar as permitted by law and this Plan, the Board may from time to
time suspend, terminate, or discontinue this Plan or revise or amend it in any
respect whatsoever with respect to any Shares at the time not subject to an
Award; provided, however, without approval of the stockholders, no such
revision or amendment may change the Pool, change the designation of the class
of Eligible Persons, or decrease the price at which Options may be awarded.
The Board is authorized to adopt any amendment to this Plan deemed by
the Board to be necessary or advisable to assure that the Incentive Stock
Options or the non-qualified stock Options available under this Plan continue
to be treated as such under all applicable laws.
Section 17. Application of Funds.
The proceeds received by the Company from the sale of Shares pursuant
to the exercise of Options shall be used for general corporate purposes.
Section 18. Approval of Stockholders.
This Plan is effective on the date that it is adopted by the Board
and approved by the holders of a majority of the Company's outstanding voting
stock.
Section 19. Conditions Upon Issuance of Shares.
An Award is conditioned upon the Company obtaining any required
permit or order from appropriate governmental agencies, authorizing the Company
to issue such Award and Shares issuable upon the exercise thereof.
-13-
<PAGE> 14
Shares shall not be issued pursuant to an Award unless the exercise
of any Option and the issuance and delivery of the Shares pursuant thereto
complies with all relevant provisions of law, including, without limitation,
the Securities Act, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares
may then be listed, and shall be further subject to the approval of counsel for
the Company with respect to such compliance.
As a condition to the exercise of an Option, the Committee may
require the person exercising such Option to execute an agreement with, or may
require the person exercising such Option to make any representation or
warranty to, the Company as may be, in the judgment of counsel to the Company,
required under applicable law or regulation, including but not limited to a
representation and warranty that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation and
warranty is appropriate under any of the provisions of law.
Section 20. Reservation of Shares.
The Company, during the term of this Plan, will at all times reserve
and keep available a sufficient number of Shares to satisfy the requirements of
this Plan.
The Company, during the term of this Plan, will use its best efforts
to obtain from appropriate regulatory agencies any requisite authorization in
order to issue and sell such number of Shares as is sufficient to satisfy the
requirements of this Plan. The inability of the Company to obtain from any
such regulatory agency having jurisdiction the requisite authorization(s)
deemed by the Company's counsel to be necessary for the lawful issuance and
sale of any Shares, or the inability of the Company to confirm to its
satisfaction that any issuance and sale of any Shares will meet applicable
legal requirements, will relieve the Company of any liability in respect to the
failure to issue or sell such Shares as to which such requisite authority is
not obtained.
Section 21. Taxes, Fees, Expenses and Withholding of Taxes.
-14-
<PAGE> 15
21.1 The Company shall pay all original issue and transfer taxes
(but not income taxes, if any) with respect to the award of Options or the
issue and transfer of Shares pursuant to the exercise of an Option, and all
other fees and expenses necessarily incurred by the Company in connection
therewith, and will from time to time use its best efforts to comply with all
laws and regulations which, in the opinion of counsel for the Company, shall be
applicable.
21.2 An Award and the issuance of Shares pursuant to the exercise
thereof is conditioned upon the Company's reservation of the right to withhold
in accordance with any applicable law, from any compensation or other amounts
payable to the Optionee, any taxes required to be withheld under federal, state
or local law as a result of the Award or exercise of such Option or the sale of
the Shares issued upon exercise thereof. To the extent that compensation or
other amounts, if any, payable to the Optionee is insufficient to pay any taxes
required to be so withheld, the Company may, in its sole discretion, require
the Optionee (or such other person entitled to exercise the Option), as a
condition of the exercise, to pay in cash to the Company an amount sufficient
to cover such tax liability or otherwise to make adequate provision for the
Company's satisfaction of its withholding obligations under federal, state, and
local law.
Section 22. Notices.
Any notice to be given to the Company pursuant to the provisions of
this Plan shall be addressed to the Company in care of its Secretary (or such
other person as the Company may designate from time to time) at its principal
executive office, and any notice to be given to an Optionee shall be addressed
to him or her at the address given beneath his or her signature on his or her
Option Agreement, or at such other address as such Optionee or his or her
permitted transferee (upon the transfer of the Shares) may designate in writing
to the Company. Any notice to be given pursuant to this Plan may be made by
registered or certified mail, hand delivery, or overnight carrier, and is
deemed effective upon receipt. Each Optionee and each permitted transferee
holding Shares purchased upon exercise of an Option shall provide notice to the
Secretary of the Company of his or her direct mailing address.
Section 23. No Enlargement of Employee Rights.
-15-
<PAGE> 16
This Plan is purely voluntary on the part of the Company, and the
continuance of this Plan shall not be deemed to constitute a contract between
the Company and any Employee, or to be consideration for or a condition of the
employment or service of any Employee. Nothing contained in this Plan shall be
deemed to give any Employee the right to be retained by the Company, a Parent,
a Subsidiary or a successor corporation, or to interfere with the right of the
Company or any such corporation to discharge any Employee at any time. No
Employee shall have any right to or interest in Options before the award
thereof; and upon such Award, he or she shall have only such rights and
interests as are expressly provided in this Plan, subject, however, to all
applicable provisions of the Company's Certificate of Incorporation, as amended
from time to time.
Section 24. Availability of Plan.
The Secretary of the Company shall show a copy of this Plan to any
Eligible Person making reasonable inquiry.
Section 25. Invalid Provisions.
If any provision of this Plan is found to be invalid or otherwise
unenforceable under any applicable law, such invalidity or unenforceability
shall not be construed as rendering any other provisions as invalid or
unenforceable, and all other provisions of this Plan shall be given full force
and effect without regard to the invalid or unenforceable provision.
Section 26. Applicable Law.
This Plan shall be governed by and construed in accordance with the
laws of the State of Delaware.
Section 27. Board Action.
All actions of the Board or Committee, as the case may be, taken
under or in connection with this Plan and any agreements or other writings
entered into or delivered pursuant to the terms of this Plan, shall be subject
to and limited by all votes or other actions of the stockholders of the Company
or other persons required pursuant to (i) the Company's Certificate of
Incorporation (as amended or restated from time to time) and (ii) the Company's
Bylaws (as amended or restated from time to time).
-16-
<PAGE> 17
ADOPTION AND APPROVAL OF PLAN
Date Plan adopted by Board: September 20, 1994
Date Plan approved by Stockholders: November 10, 1994
-17-
<PAGE> 1
EXHIBIT 10.14
AMENDED AND RESTATED SERVICES AGREEMENT
THIS AMENDED AND RESTATED SERVICES AGREEMENT ("AGREEMENT") is made as
of June 30, 1995, by and between OIS Optical Imaging Systems, Inc., a Delaware
corporation ("OIS"), and Guardian Industries Corp., a Delaware corporation
("Guardian").
RECITALS:
A. OIS is engaged principally in the business of developing,
manufacturing and selling active matrix liquid crystal displays.
B. OIS requires certain management, accounting, administrative,
financial and legal services to assist in the development of its business and
to permit OIS to operate in a cost-effective and efficient manner. Guardian,
through its business operations, is able to offer such services.
C. OIS has requested that Guardian provide OIS with services on the
terms and conditions of this Agreement and Guardian has agreed to do so.
D. This Agreement has been reviewed by the "Independent Directors" of
OIS (i.e., those not employed or designated by Guardian), who have had a
opportunity satisfactory to them to review this Agreement, consult with
counsel, suggest changes and ask questions of the management of OIS and
representatives of Guardian. After such review as they have deemed necessary,
the Independent Directors have unanimously determined that this Agreement is in
the best interests of OIS and have approved and authorized execution of this
Agreement on behalf of OIS.
E. This Agreement was originally entered into as of April 13, 1992. On
July 21, 1992, the Independent Directors of OIS approved an amendment to
Section 2.1 of this Agreement. OIS and Guardian have determined that Rex Tapp
should, effective July 1, 1995, cease to be an employee of Guardian and become
an employee of OIS. On June 6, 1995, the Independent Directors reviewed and
approved additional amendments to extend the Term of the Agreement, to change
the addresses for notices in Section 8.1, and to delete Sections 1.1 and 2.1,
which provide for Guardian to provide Mr. Tapp's services and for OIS to pay
Guardian for those services. This Amended and Restated Agreement reflects
these changes and is, in all other respects, the same as the original
agreement.
THEREFORE, the parties agree as follows:
1. Services.
During the Term (as defined in paragraph 3 below), to assist OIS in the
efficient and cost effective operation of its business, OIS hereby retains
Guardian to provide, and Guardian hereby agrees to provide, to OIS the
following executive, management, financial, administrative, travel and legal
services, in accordance with the terms and conditions set forth in this
Agreement:
<PAGE> 2
1.1 Executive Services. [deleted]
1.2 Management Services. Guardian will make available to OIS members
of its senior management for consultation and advice as OIS requests from time
to time, to the extent consistent with such managers' responsibilities at
Guardian. Guardian will permit those members of OIS's Board of Directors who
are employees of Guardian to devote such time as they deem necessary to the
discharge of their duties as directors of OIS. Guardian will request that the
persons it designates as directors of OIS waive any directors' fees that OIS
may pay.
1.3 Financial and Administrative Services. Guardian will make
available to OIS members of its finance, tax, accounting, treasury, purchasing,
risk management, international development, research and planning, information
services and facilities management staffs for consultation and specific
projects from time to time upon the request of OIS and to the extent consistent
with their duties for Guardian. Guardian will use reasonable efforts to enable
OIS to benefit from relationships and volume purchasing arrangements that
Guardian has established with vendors, to the extent permitted under those
relationships with vendors.
1.4 Travel Services. Guardian will permit OIS to participate in
Guardian's travel program to the extent permitted by Guardian's agreement with
its travel vendor from time to time on a basis that gives OIS the benefit of
any cash rebates or reimbursement generated by OIS's travel volume. Guardian
will not be required to compensate OIS for any in kind compensation or
promotions generated by OIS's participation in the Guardian travel program.
1.5 Legal Services. Guardian will cause its corporate legal
department to provide such legal services and representation as OIS may
reasonably request from time to time or to assist OIS in retaining and
supervising outside law firms to provide such services to OIS.
1.6 Reasonable Level of Services. The quantity of services to be
provided by Guardian will bear a reasonable relation to the size and internal
commitments of Guardian's staff and the fees being paid by OIS pursuant to this
Agreement. Guardian will not be obligated to provide services for extraordinary
transactions or that are beyond the reasonable capacity of Guardian's staff.
2. Service Fees. In consideration of the services provided by
Guardian pursuant to' this Agreement, OIS will pay to Guardian the following
amounts:
2.1 Executive Services. [deleted]
2.2 Management, Financial and Administrative Services. In
consideration of the management, financial and administrative services to be
provided under this Agreement and of the first eight hours spent in each month
by the staff of Guardian's corporate legal department,
- 2 -
<PAGE> 3
OIS will pay to Guardian the sum of $50,000 per calendar year, payable
semi-annually in arrears on or before each April 13 and October 13, with the
first payment on October 13, 1992.
2.3 Legal Services. OIS will pay Guardian for the services of the
staff of Guardian's corporate legal department on matters undertaken at the
request of OIS at the rate of $100 per hour of attorney time actually spent on
OIS matters, except for the first eight hours spent in each month. Guardian
will submit invoices to OIS quarterly, and OIS will pay each invoice within 20
days. Each invoice for legal services will show the number of hours worked by
each professional and a summary of the matters on which each professional
worked during the period.
2.4 Out-of-Pocket Costs. OIS will reimburse Guardian for all
out-of-pocket costs incurred by Guardian in connection with performing services
at the request of OIS, including without limitation courier and similar
charges, travel expenses and amounts paid to unaffiliated vendors and providers
of services. Guardian will submit invoices to OIS quarterly, except that, if
Guardian's disbursements exceed $5,000 at any one time, then Guardian may
submit invoices to OIS more often than monthly. OIS will pay each invoice
within 20 days. Guardian and OIS will, for each meeting of the Board of
Directors of OIS, provide the Independent Directors of OIS with a report on
out-of-pocket costs incurred under this Agreement since the preceding meeting
in reasonable detail.
2.5 Employees.
(a) Except as provided in Section 2.5(b) and (c) below, all
persons assigned by Guardian to provide services to OIS hereunder shall remain
employees of Guardian for all purposes and shall not be employees of OIS for
any purpose, notwithstanding the use of such employees to assist in the
operation of OIS's business and notwithstanding that some or all of such
employees may provide such services at OIS's facilities on a full or part time
basis. The employees shall remain under Guardian's supervision and control and
shall be chosen by Guardian. Guardian shall have the right to make any and all
decisions with respect to such employees relating to labor relation policies
and practices affecting the employees and with respect to the day-to-day
operations of Guardian's business. Nothing in this Agreement is intended to
limit OIS's right to control the overall scope, direction and nature of its own
business.
(b) Nothing in this Agreement is intended to limit or modify the
fiduciary duties of any officer or director of OIS to OIS.
(c) Whenever attorneys from Guardian's corporate legal department
perform legal services for OIS, OIS will be the client of such attorneys and
will control the activities of such attorneys as provided in applicable rules
of professional conduct for attorneys.
3. Term. The Term of this Agreement begins on the date hereof and will
remain in effect for two years hereafter unless it is terminated earlier as
provided below. The Term is extended through June 30, 1997.
- 3 -
<PAGE> 4
4. Termination.
4.1 Termination Without Prior Notice. Either party may immediately
terminate the Term of this Agreement by written notice to the other party (a)
in the event of the other party's voluntary bankruptcy or insolvency, (b) in
the event that the other party shall make an assignment for the benefit of
creditors, or (c) in the event that a petition shall have been filed against
the other party under a bankruptcy law, a corporate reorganization law or any
other law for relief of debtors (or other law similar in purpose or effect),
which petition has remained in effect for 60 days.
4.2 Termination with Notice. Either party may terminate the Term of
this Agreement at any time upon sixty (60) days' written notice to the other
party. OIS shall terminate this Agreement upon a majority vote of its
Independent Directors.
4.3 Effect of Termination. Upon termination of the Term of this
Agreement, all duties and obligations of either party to the other under
Sections 1 and 2 shall immediately terminate, including, without limitation,
the obligations of Guardian to provide services hereunder. The remaining
provisions of this Agreement, will survive the termination of the Term, and any
amounts due to Guardian under this Agreement for services performed prior to
the date of termination which have not been paid as of such date will remain
the obligations of OIS, which will pay all such amounts immediately upon
termination. The fees provided for in Sections 2.1 and 2.2 above will be
computed pro rata in proportion to the number of days elapsed in the then
current semi-annual payment period.
5. Proprietary and Confidential Information. Each party acknowledges
that the other and its employees may have, in connection with this Agreement,
access to secret, confidential and proprietary business information concerning
the other party, such as business and trade secrets, customer lists, names of
resources, business plans, financial marketing data, drawings and apparatus
(the "Business Information"). Neither party, nor any of its subsidiaries,
affiliates, directors, shareholders and officers, shall use, publish or
disclose any Business Information of the other party of which it may become
informed, and shall cooperate in all reasonable respects in assisting such
other party to prevent the unauthorized publication or disclosure of Business
Information to the extent such cooperation does not result in unreimbursed cost
or expense to it. Each party agrees that it will transmit or disclose Business
Information only to those employees, representatives and agents who are
informed of its confidential nature and agree to keep it confidential. Each
party will cause those of its employees who have access to confidential
information of the other party to sign any reasonable confidentiality agreement
prepared by the disclosing party.
6. Limitation of Liability. Neither party shall be liable for any
indirect, special or consequential damages in connection with, or arising out
of, this Agreement or the services provided under this Agreement.
- 4 -
<PAGE> 5
7. Standard of Care. In providing services hereunder, Guardian and OIS
shall each have a duty to act and to cause their respective employees to act in
a reasonable and prudent manner. Neither Guardian nor its subsidiaries, nor
any officer, director, employee or agent of Guardian or its subsidiaries, nor
OIS or its subsidiaries, nor any officer, director, employee or agent of OIS or
its subsidiaries, shall be liable for any loss incurred in connection with the
matters to which this Agreement relates, except a loss resulting from willful
misfeasance or bad faith.
8. General.
8.1 Notices. All notices, requests, demands and other communications
which are required or permitted to be given under this Agreement will be in
writing and will be deemed to have been duly given if (i) delivered in person,
or (ii) mailed, first class certified, registered or express mail, return
receipt requested and postage prepaid, or (iii) sent by recognized overnight
courier, with proof of delivery requested and charges prepaid, to:
If to OIS: OIS Optical Imaging Systems, Inc.
47050 Five Mile Road
Northville, Michigan 48167
Attention: Charles Wilson
If to Guardian: Guardian Industries Corp.
2300 Harmon Road
Auburn Hills, Michigan 48326
Attention: Jeffrey A. Knight
or to such other address as a party may specify by written notice to the other
parties.
8.2 Compliance by Personnel. Each of Guardian and OIS agrees that it
shall take appropriate action by instruction of or agreement with its personnel
to ensure that all personnel connected with provisions of services under this
Agreement shall be bound by and comply with all of the terms and conditions of
this Agreement, including, but not limited to, the terms and conditions of
Section 5.
8.3 Entire Agreement. This Agreement constitutes the entire agreement
of the parties, and supersedes all prior agreements and understandings, oral
and written, between the parties with respect to the subject matter of this
Agreement.
8.4 Amendment. This Agreement may not be amended or modified except
by a instrument in writing executed by both of the parties.
8.5 Headings. The headings contained in this Agreement are for ease
of reference only, and will not affect the meaning or interpretation of this
Agreement.
- 5 -
<PAGE> 6
8.6 Governing Law. This Agreement will be governed by and construed
in accordance with the internal laws of the State of Michigan.
8.7 Severability. The parties desire and intend that all of the
provisions of this Agreement be enforceable to the fullest extent permitted by
law. If any provision of this Agreement or the application thereof to any
person or circumstances is, to any extent, construed to be illegal, invalid or
unenforceable, in whole or in part, then such provision will be construed in a
manner to permit its enforceability under applicable law to the fullest extent
permitted by law. In any case, the remaining terms of this Agreement or the
application thereof to any person or circumstance other than those which have
been held illegal, invalid or unenforceable will remain in full force and
effect.
8.8 Assignability and Binding Effect. This Agreement is not
assignable or delegable by any party without the prior written consent of each
other party. No assignment of any rights under this Agreement will relieve the
assigning party of primary liability for its obligations under this Agreement,
and as between the parties, the assigning party will continue to be liable for
all of its obligations under this Agreement as though no assignment had been
made. This Agreement, and the rights and obligations under it, will be binding
on and will inure to the benefit of each party's successors and permitted
assigns.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective authorized officers on the date first above
written.
OIS OPTICAL IMAGING SYSTEMS, INC.
By: \s\ Rex Tapp
-------------------------------
Its: President
GUARDIAN INDUSTRIES CORP.
By: \s\ Jeffrey A. Knight
-------------------------------
Its: Group Vice President - Finance and
Chief Financial Officer
- 6 -
<PAGE> 1
EXHIBIT 10.18
AMENDMENT NO. 2
AND
WAIVER TO CREDIT AGREEMENT
This Amendment No. 2 and Waiver to Credit Agreement (this "Amendment
and Waiver") is entered into as of February 28, 1995 among OIS OPTICAL IMAGING
SYSTEMS, INC. (the "Company"), the banks named on the signature pages hereof
(the "Banks") and NBD BANK, as agent (the "Administrative Agent").
WHEREAS, the Company, the Banks, BA Securities, Inc., as Arranger and
the Administrative Agent are parties to that certain Credit Agreement dated as
of December 14, 1993 (as amended by Amendment No. 1 thereto dated as of March
31, 1994, the "Credit Agreement"); and
WHEREAS, the Company has requested the Banks to increase their
Revolving Commitment Amounts under the Credit Agreement from $20,000,000 to
$32,500,000, to amend or delete certain financial covenants and other terms
contained in the Credit Agreement and to waive compliance with the Leverage
Ratio covenant and the Change of Control covenant set forth in the Credit
Agreement and the Banks are willing to so increase their Revolving Commitment
Amounts amend or delete such financial covenants or other terms and waive such
compliance, all on the terms and subject to the conditions set forth herein;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINED TERMS
Unless otherwise defined in this Amendment and Waiver, defined terms
used herein shall have the meaning assigned to such terms in the Credit
Agreement.
ARTICLE II
AMENDMENTS TO CREDIT AGREEMENT
<PAGE> 2
(1) The following new definitions are hereby added to Section 1.01
of the Credit Agreement in the appropriate alphabetical order:
(a) "'Active Revolving Commitment' means, with respect to
any Bank, its obligation to make Loans to the Company pursuant to
Section 2.01(b) in an amount not to exceed at any one time outstanding
such Banks' pro rata share of $20,000,000 as such amount may be
increased by the allocation of part or all of such Bank's Reserve
Revolving Commitment Amount pursuant to Section 2.01(c) from time to
time as provided herein (collectively, with respect to all the Banks,
the "Active Revolving Commitments"),
(b) 'Available Revolving Commitment Amount' with respect
to any Bank, means (a) prior to the Revolving Commitment Adjustment
Date, an amount equal to the Revolving Commitment Amount of such Bank
and (b) after the Revolving Commitment Adjustment Date, an amount
equal to (i) the Revolving Commitment Amount of such Bank less (ii)
the Reserve Revolving Commitment Amount of such Bank.
(c) 'Reserve Revolving Commitment Amount' means with
respect to any Bank, the amount of additional Revolving Loans which
such Bank has a commitment to provide after the Revolving Commitment
Adjustment Date upon satisfaction of the conditions precedent set
forth in Section 4.03.
(d) 'Revolving Commitment Adjustment Date' means the date
notified by the Administrative Agent to the Banks.
(e) 'Revolving Commitment Reduction Date' has the meaning
specified in Section 2.08(b)."
(2) The definition of the term "Aggregate Revolving Commitment
Amount" contained in Section 1.01 of the Credit Agreement is hereby amended to
read as follows:
"' Aggregate Revolving Commitment Amount' means the
combined Revolving Commitment Amounts of the Banks
(a) initially in the amount of $20,000,000 and (b)
after the Revolving Commitment Adjustment Date in
the amount of $32,500,000."
2
<PAGE> 3
(3) Section 2.01(b) of the Credit Agreement is hereby amended in
its entirety as follows:
"(b) The Revolving Credit. Each Bank severally
agrees, on the terms and subject to the conditions hereinafter
set forth, to make Loans to the Company (each such Loan, a
"Revolving Loan") from time to time on any Business Day during
the period from the Closing Date to the Final Maturity Date,
in an aggregate amount not to exceed at any time outstanding
such Bank's Available Revolving Commitment Amount (such amount
as the same may be reduced pursuant to Section 2.05 or as the
result of one or more assignments pursuant to Section 10.07,
such Bank's "Revolving Commitment Amount"), provided, however,
that, after giving effect to any Borrowing of Revolving Loans,
the aggregate principal amount of all outstanding Revolving
Loans shall not exceed the Aggregate Revolving Commitment
Amount, and further provided that, after giving effect to any
Borrowing of Revolving Loans, the aggregate principal amount
of all outstanding Revolving Loans shall not exceed the Active
Revolving Commitments of all the Banks at such time. Within
the limits of each Bank's Revolving Commitment Amount, and
subject to the other terms and conditions hereof, the Company
may borrow under this Section 2.01(b), prepay pursuant to
Section 2.06 and reborrow pursuant to this Section 2.01(b)."
(4) A new Section 2.01(c) is hereby added to the Credit Agreement
reading as follows:
"(c) Reserve Revolving Commitments. Each Bank
further agrees that upon notice by the Administrative Agent
that a Revolving Commitment Adjustment Date has occurred, and
satisfaction of the conditions precedent set forth in Section
4.03, the Company may increase the Banks' Active Revolving
Commitments by an amount up to the amount of the Banks'
Aggregate Revolving Commitment Amount then in effect; provided
that, (i) upon such increase in the Banks' Active Revolving
Commitments becoming effective the Banks' Reserve Revolving
Commitments shall be reduced by an equivalent amount; and (ii)
each such increase and reduction shall be effected
3
<PAGE> 4
pro rata with respect to the Banks' Revolving Commitments in
accordance with their respective Commitment Percentages."
(5) The heading of Section 2.07 of the Credit Agreement is hereby
amended to read as follows:
"2.07 Mandatory Prepayment of Term Loans; Mandatory
Reductions of Term Commitment Amounts".
(6) A new paragraph (b) is hereby added to Section 2.08 of the
Credit Agreement reading as follows and present paragraph (b) of Section 2.08
of the Credit Agreement is hereby relettered as paragraph (c):
"(b) Scheduled Reduction of Revolving Commitment
Amounts and Repayment of Revolving Loans.
(i) The Aggregate Revolving Commitment
Amount (to the extent not previously reduced pursuant
to Section 2.05) will be reduced on the last day of
each calendar quarter set forth below (each a
"Revolving Commitment Reduction Date") to the amount
set forth below:
<TABLE>
<CAPTION>
Reduced Aggregate
Revolving Commitment Revolving Commitment
Reduction Date Amount
-------------------- --------------------
<S> <C>
March 31, 1998 31,250,000
June 30, 1998 30,000,000
September 30, 1998 28,750,000
December 31, 1998 27,500,000
March 31, 1999 25,625,000
June 30, 1999 23,750,000
September 30, 1999 21,875,000
December 31, 1999 - 0 -
</TABLE>
4
<PAGE> 5
(ii) If on any Revolving Commitment Reduction Date
(after giving effect to the reduction of the Aggregate
Revolving Commitment Amount occurring on such date) the
aggregate amount of Revolving Loans then outstanding exceeds
the Aggregate Revolving Commitment Amount as so reduced, the
Company shall promptly repay an aggregate amount of Revolving
Loans equal to such excess.
(iii) Any repayment pursuant to this paragraph (b)
shall be applied first to any Base Rate Loans outstanding and
then to Eurodollar Loans with the shortest Interest Periods
remaining. The Company shall pay, together with each
repayment under this paragraph (b), accrued interest on the
amount prepaid and any amounts required pursuant to Section
3.04."
(7) A new Section 4.03 is hereby added to the Credit Agreement
reading as follows:
"4.03 Activation of Reserve Revolving Commitments.
The obligation of each Bank to allocate all or any portion of
its Reserve Revolving Commitment to its Active Revolving
Commitment upon notice by the Agent of a Revolving Commitment
Activation Date is subject to the satisfaction of the
following conditions precedent on the relevant Revolving
Commitment Activation Date:
(a) a written request by the Company to
increase the Active Revolving Commitments by means of
allocation of all or part of the Reserve Revolving
Commitments;
(b) receipt by the Agent of evidence
that the Company has received a cash equity
contribution or cash as a result of the issuance of
subordinated debt in the amount of the Reserve
Revolving Commitments requested to be allocated to
the Active Revolving Commitments."
5
<PAGE> 6
(8) Section 7.10 of the Credit Agreement is hereby
amended by:
(a) deleting the word "and" appearing at the end of
paragraph (a) thereof;
(b) inserting a new paragraph (b) thereof, after
present paragraph (a) thereof, reading as follows:
"(b) After September 30, 1996 and provided
that no Default has occurred or will result
therefrom, declare and make dividend payments on
preferred stock that has been issued to and held by
Guardian in exchange for additional equity
contributions made to the Company; and"
(c) renumbering current paragraph (b) as paragraph
(c).
(9) Section 7.12 of the Credit Agreement is hereby amended to read
as follows:
"7.12 Minimum Tangible Capital Funds. The Company
shall not at any time permit Tangible Capital Funds to be less
than $5,000,000."
(10) Sections 7.13 and 7.14 of the Credit Agreement are hereby
deleted and current Sections 7.15, 7.16 and 7.17, renumbered as Sections 7.13,
7.14 and 7.15, respectively."
(a) renumbered Section 7.13 of the Credit Agreement is
hereby amended to read as follows:
"7.13 Cash Flow Ratio. The Company shall not at any
time during an Measurement Period ending during any period set
forth below permit its ratio of (a) Cash Flow to (b) (i)
Interest Expenses plus (ii) operating lease rent payments plus
(iii) the current portion of long-term debt, plus (iv)
dividends paid on preferred stock during the most recently
completed fiscal quarter to be less than the ratio set forth
below opposite such period:
6
<PAGE> 7
<TABLE>
<CAPTION>
Measurement Period Ending Ratio
- ------------------------- -----
<S> <C>
September 30, 1996 through June 29, 1997 1.0 to 1.0
June 30, 1997 and thereafter 1.25 to 1.0
</TABLE>
For purposes of this Section 7.13, the current portion of
long-term debt shall include at the end of each Measurement Period set
forth below, the amount set forth opposite such Measurement Period:
<TABLE>
<CAPTION>
Measurement Period Current Portion of
Ending Long Term Debt
- ------------------- -----------------
<S> <C>
September 30, 1996 an amount equal to the Term Loans
scheduled to be repaid on the Principal
Payment date falling on such date
December 31, 1996 an amount equal to the Term Loans
scheduled to be repaid on the Principal
Payment Date falling on such date and
the next succeeding Principal Date
March 31, 1997 an amount equal to the Term Loans
scheduled to be repaid on the Principal
Payment Date falling on such date and on
the two next succeeding Principal
Payment Dates
</TABLE>
7
<PAGE> 8
<TABLE>
<S> <C>
June 30, 1997 an amount equal to the Term Loans and
and thereafter any Revolving Loans scheduled to be
repaid on the Principal Payment Date
falling on such date and on the three
next succeeding Principal Payment Dates"
</TABLE>
(11) Clause (ii) of paragraph (k) of Section 8.01 of the Credit
Agreement is hereby amended to read as follows:
"(ii) Guardian shall sell or otherwise transfer any
equity in the Company owned by it to any Person other than (A)
Mr. William Davidson, (B) any entity controlled by Mr.
William Davidson and (C) not more than 5% of the voting stock
of the Company, to any charitable institution or foundation."
ARTICLE III
WAIVER OF COMPLIANCE WITH COVENANTS
(1) Waiver of Compliance with Leverage Ratio Covenant.
The Banks hereby agree to waive for the period commencing on
October 1, 1994 and ending on (and including) February 28, 1995
compliance by the Company with the provisions of Section 7.13 of the
Credit Agreement related to the maximum Leverage Ratio and further
waive any Default or Event of Default which would otherwise result
from the Company's failure to comply with such covenant.
(2) Waiver of Compliance with Minimum Tangible Capital Funds.
The Banks agree to waiver compliance for the period commencing
on October 1, 1994 and ending on (and including) February 28,
1995 compliance by the Company
8
<PAGE> 9
with the provisions of Section 7.12 of the Credit Agreement
related to the minimum Tangible Capital Funds and further
waive any Default or Event of Default which would otherwise
result from the Company's failure to comply with such
covenant.
(3) Waiver of Event of Default Related to Change of Control.
The Banks hereby agree to waive permanently any Event of
Default which may have occurred as a result of the donation by
Guardian of equity in the Company to various charitable institutions
and foundations provided the number of shares of stock so donated did
not exceed 830,000 shares.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants that:
(1) (a) the execution and delivery of this Amendment and Waiver have
been duly authorized by all necessary corporate action; and (b) do not
violate any Requirement of Law nor conflict with or result in the
breach of any Contractual Obligation binding on the Company; and
(b) after giving effect to this Amendment and Waiver, the
representations and warranties of the Company contained in Article V
of the Credit Agreement (except for representations and warranties
relating to a particular point in time) and in each other Loan
Document are true and correct in all material respects as if made on
and as of the date of this Amendment and Waiver and no Potential Event
of Default or Event of Default has occurred and is continuing.
ARTICLE V
EFFECTIVENESS.
(1) This Amendment and Waiver shall become effective as of the
date first above written when the Administrative Agent has received the
following:
9
<PAGE> 10
(a) counterparts hereof executed by the Company, all the
Banks and the Agent and signed by Guardian as a consenting party; and
(b) copies of the resolutions of the Board of Directors of the
Company authorizing the execution and delivery of this Amendment and
Waiver and the performance of the transactions contemplated hereby,
certified by the Secretary or an Assistant Secretary of the Company.
(2) Upon the effectiveness of this Amendment and Waiver (a) each
reference in the Credit Agreement to "this Agreement", "hereunder", hereof",
"herein", or words of like import shall mean and be a reference to the Credit
Agreement as amended hereby and (b) each reference in each other Loan Document
to the Credit Agreement shall mean and be a reference to the Credit Agreement
as amended hereby.
(3) Except as specifically amended above, the Credit Agreement
shall remain in full force and effect.
(4) The execution, delivery, and effectiveness of this Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power, or remedy of any Lender or the Agent under the Credit Agreement
or any of the other Loan Documents, nor constitute a waiver of any provision of
any of the Loan Documents.
ARTICLE VI
MISCELLANEOUS
(1) This Amendment and Waiver may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when executed and delivered shall be deemed to be an original and all of
which taken together shall constitute but one and the same instrument.
(2) THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
10
<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective duly authorized officers as of
the date first above written.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: \s\ Thomas J. Somers
---------------------------
Title: Vice President
------------------------
NBD BANK
By: \s\ Thomas A. Lakocy
---------------------------
Title: Vice President
------------------------
CONSENTED TO:
GUARDIAN INDUSTRIES CORP.,
as a Consenting Party
By: \s\ R. Mark Manion
-------------------------------------
Title: Assistant Treasurer
----------------------------------
ACKNOWLEDGED AND AGREED TO:
OIS OPTICAL IMAGING SYSTEMS, INC.
By: \s\ Charles C. Wilson
-------------------------------------
Title: Exec. Vice President & CFO
----------------------------------
ACKNOWLEDGED:
NBD BANK,
as Administrative Agent
By: \s\ Thomas A. Lakocy
-------------------------------------
Title: Vice President
----------------------------------
11
<PAGE> 1
EXHIBIT 10.26
CONSULTANT AGREEMENT
THIS CONSULTANT AGREEMENT is made and entered into as of the 1st day
of September, 1995, by and between Peter Joel C. Young ("Consultant") and OIS
Optical Imaging Systems ("OIS").
WHEREAS, OIS desires to obtain and Consultant desires to furnish
consulting services ("Services") in connection with OIS's business.
IT IS THEREFORE AGREED AS FOLLOWS:
1. Description of Services. Consultant shall provide
advice and otherwise perform services to OIS with respect to OIS's governmental
affairs, business development and certain special projects. Consultant shall
provide these services at the request of Rex Tapp, Ralph J. Gerson or other
persons specifically designated by them.
2. Term. The term of this Agreement shall be twelve
(12) months, effective on September 1, 1995, subject to renewal on a
month-to-month basis, upon agreement of the Parties.
3. Compensation. OIS shall pay Consultant a fee of Two
Thousand ($2,000.00) Dollars per month for the term (being September 1, 1995
through August 31, 1996, to be paid on the first day of each month beginning
September 1, 1995. Consultant shall waive any directors' fees that would
otherwise be payable to him in the event he shall serve as a director of OIS.
4. Expenses. OIS shall reimburse Consultant for all
travel and other expenses reasonably incurred in connection with performance of
services provided for herein. Consultant must obtain prior approval of OIS for
all expenses that exceed One Thousand ($1,000) Dollars for any given month.
5. Independent Contractor. The services provided for
herein shall be performed personally by Peter J.C. Young. Consultant shall be
considered an independent contractor and not an employee or agent of OIS.
Consultant shall have no right or authority, either express or implied, to
assume or create on behalf of OIS any obligation or responsibility, unless and
to the extent OIS grants such authority in writing.
6. Exclusivity. During the term of this Agreement and
for a period of three (3) years after termination of this Agreement, Consultant
shall not, directly or indirectly, become employed by or perform any Services
or any similar consulting work for a business which competes or, to
Consultant's knowledge, plans to compete with OIS.
7. Trade Secrets and Proprietary Information.
A. Consultant agrees not to disclose to third
persons during the course of, or
<PAGE> 2
after termination of, this Agreement any secret, proprietary or confidential
information, including information concerning the financial performance,
strategic plans, marketing, operations, customers, products or personnel of OIS
or any subsidiary, affiliate or parent of OIS.
B. Neither party shall disclose to third persons
the terms of this Consultant Agreement, except with the consent of the other
party.
8. Compliance with Laws. OIS and Consultant agree that
Consultant shall conduct himself according to the highest ethical standards and
shall comply with all applicable laws, including but not limited to the Foreign
Corrupt Practices Act, in the performance of services under this Agreement.
9. Termination. Either party may terminate this
Agreement upon thirty (30) days written notice to the other party.
10. Additional Provisions.
A. Any modifications of the terms of this
Agreement shall not be binding unless accomplished by a formal written
supplement to this Agreement signed by Consultant and OIS.
B. Neither party may assign or transfer this
Agreement or any interest therein without the written consent of the other
party.
C. This Agreement supersedes any prior
agreements on the same subject matter.
D. This Agreement shall be governed by the Laws
of the State of Michigan.
IN WITNESS WHEREOF, the parties hereto duly acknowledge this Agreement
as of the date first written above.
OIS OPTICAL IMAGING SYSTEMS CONSULTANT
By: \s\ Rex Tapp \s\ Peter Joel C. Young
------------------------------- ----------------------------
Rex Tapp Peter Joel C. Young
Its: President
<PAGE> 1
EXHIBIT 13
COMMON STOCK
PRICE RANGE OF COMMON STOCK
Shares of OIS Common Stock are traded in the National Association of Securities
Dealers Automated Quotation System (NASDAQ) over-the-counter market under the
symbol OVON. The following table sets forth the reported high and low bid
quotations of OIS Common Stock for the fiscal periods indicated:
<TABLE>
<CAPTION>
PRICES
-----------------------------------
PERIOD LOW HIGH
- -------------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $2.938 $ 3.00
Second Quarter 2.5625 4.25
Third Quarter 3.1875 3.875
Fourth Quarter 3.125 5.625
<CAPTION>
YEAR ENDED JUNE 30, 1995
- -------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $5.625 $9.125
Second Quarter 6.00 7.125
Third Quarter 5.00 6.625
Fourth Quarter 4.375 6.0625
<CAPTION>
YEAR ENDED JUNE 30, 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
First Quarter $4.125 $5.625
through September 18
</TABLE>
The above-listed quotations may include inter-dealer prices that may not
necessarily represent actual transactions. No dividend or distribution on OIS
Common Stock has been paid and none is presently being considered.
The approximate number of stockholders of record on September 18, 1995, was
1,595.
4
<PAGE> 2
SELECTED FINANCIAL DATA
SELECTED FINANCIAL DATA
Set forth below is certain financial information taken from the audited
financial statements.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES $ 8,423,041 $11,700,389 $ 7,162,035 $ 5,481,869 $ 4,314,121
- ----------------------------------------------------------------------------------------------------------------------------------
Cost of Sales 17,810,224 13,078,919 9,262,815 4,894,526 4,819,259
- ----------------------------------------------------------------------------------------------------------------------------------
Internal Research 1,306,843 688,094 372,242 517,348 1,185,081
and Development
- ----------------------------------------------------------------------------------------------------------------------------------
Selling, General, 3,935,699 3,789,061 2,834,330 6,167,353 6,811,134
Administrative
and Other
- ----------------------------------------------------------------------------------------------------------------------------------
Net Loss Before -- -- -- (6,097,358) --
Extraordinary Item
- ----------------------------------------------------------------------------------------------------------------------------------
Net Loss $(14,629,725) $(5,855,685) $(5,307,352) $(5,696,240) $(8,501,353)
- ----------------------------------------------------------------------------------------------------------------------------------
Net Available to Common $(14,840,684) $(5,855,685) $(5,507,552) $(5,696,240) $(8,501,555)
Shareholders
- ----------------------------------------------------------------------------------------------------------------------------------
Net Loss per Share Before -- -- -- $(.28) --
Extraordinary Item
- ----------------------------------------------------------------------------------------------------------------------------------
Net Loss per Share $(.21) $(.19) $(.20) $(.26) $(.57)
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
AT YEAR END
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $ 57,263,779 $38,146,868 $ 7,088,883 $ 10,288,994 $ 5,865,797
- ----------------------------------------------------------------------------------------------------------------------------------
Long-Term Debt $ 40,125,454 $12,000,000 $ 77,355 $ 544,819 $ 3,003
- ----------------------------------------------------------------------------------------------------------------------------------
Convertible Securities -- -- $ 7,221,412 $ 6,999,980 --
- ----------------------------------------------------------------------------------------------------------------------------------
Cost in Excess of -- -- -- -- $ 111,000
Anticipated Billings
- ----------------------------------------------------------------------------------------------------------------------------------
Working Capital $ 5,211,233 $ 2,616,215 $(1,173,195) $ 2,018,700 $ (666,523)
- ----------------------------------------------------------------------------------------------------------------------------------
Stockholders' Equity $ 7,820,724 $ 9,633,880 $ 3,501,018 $ 1,013,024 $ (4,337,626)
(Deficit)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 3
FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To OIS Optical Imaging Systems, Inc.:
We have audited the accompanying balance sheets of OIS Optical Imaging Systems,
Inc. (a Delaware corporation) as of June 30, 1995 and 1994, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years ended June 30, 1995. 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 OIS Optical Imaging Systems,
Inc. as of June 30, 1995 and 1994, and the results of its operations and its
cash flows for each of the three years ended June 30, 1995 in conformity with
generally accepted accounting principles.
As explained in Note H to the financial statements, effective July 1, 1993,
the Company changed its method of accounting for income taxes.
/s/ Arthur Andersen LLP
Detroit, Michigan
August 25, 1995
6
<PAGE> 4
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS JUNE 30 1995 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ 495,854 $ 967,403
Cash-Restricted 334,227 3,479,666
Accounts Receivable 2,097,024 3,139,179
(Net of Reserve for Doubtful
Accounts of $60,000 at June 30, 1995 and
at June 30, 1994)
Receivable from U.S. Government 2,584,117 6,050,000
Inventory 3,360,062 2,083,601
Prepaid Expenses 299,605 336,751
Insurance Receivable 2,277,385 --
Other Current Assets 80,560 72,603
- ------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 11,528,834 16,129,203
PROPERTY AND EQUIPMENT
Land 3,000,000 3,000,000
Leasehold Improvements 1,037,010 1,037,010
Machinery and Other Equipment 9,105,373 6,912,605
Capitalized Leases - Equipment 365,000 1,330,664
Construction in Process 39,339,490 16,823,445
- ------------------------------------------------------------------------------------------------------------------
TOTAL PROPERTY AND EQUIPMENT 52,846,873 29,103,724
- ------------------------------------------------------------------------------------------------------------------
Less Accumulated Depreciation (7,111,928) (7,086,059)
and Amortization
- ------------------------------------------------------------------------------------------------------------------
NET TOTAL PROPERTY AND EQUIPMENT 45,734,945 22,017,665
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $57,263,779 $ 38,146,868
==================================================================================================================
</TABLE>
See notes to financial statements.
7
<PAGE> 5
BALANCE SHEETS
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY JUNE 30 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CURRENT LIABILITIES
Current Installments on Capital Lease Obligation $ 121,633 $ 40,584
Accounts Payable 4,178,305 2,247,212
Government Equipment Deposit -- 9,529,666
Accrued Liabilities 1,690,709 960,748
Deferred Revenue 326,954 734,778
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 6,317,601 13,512,988
LONG-TERM DEBT 40,000,000 12,000,000
LOCAL GOVERNMENT SUBSIDY 3,000,000 3,000,000
CAPITAL LEASE OBLIGATION 125,454 --
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 49,443,055 28,512,988
STOCKHOLDERS' EQUITY
Preferred Stock, Par Value $0.01 per Share: 125 --
Series A, 8% Cumulative,
Non-Convertible and Non-Voting
Authorized -- 25,000 Shares
Issued and Outstanding -- 12,500 Shares
at June 30, 1995 and 0 Shares at June 30, 1994
Common Stock, Par Value $0.01 per Share: 967,129 308,010
Authorized -- 125,000,000 Shares
Issued and Outstanding -- 96,712,931 Shares
at June 30, 1995 and 30,800,955 Shares at
June 30, 1994
Additional Paid-In Capital 81,325,112 58,403,797
Guardian Equity -- 10,500,000
Accumulated Deficit (74,138,390) (59,297,707)
Deferred Compensation (333,252) (280,220)
- -----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 7,820,724 9,633,880
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 57,263,779 $ 38,146,868
=================================================================================================================
</TABLE>
See notes to financial statements.
8
<PAGE> 6
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES
Display Revenue $ 2,290,242 $ 1,256,655 $ 1,137,446
Engineering Revenue 5,799,519 10,322,328 5,941,953
Sensor Revenue 333,280 121,406 82,636
- -----------------------------------------------------------------------------------------------------------
TOTAL REVENUES 8,423,041 11,700,389 7,162,035
Cost of Sales 17,810,224 13,078,919 9,262,815
- -----------------------------------------------------------------------------------------------------------
GROSS MARGIN (9,387,183) (1,378,530) (2,100,780)
OPERATING EXPENSES
Internal Research and Development 1,306,843 688,094 372,242
Selling, General and Administrative 4,237,253 3,660,203 2,383,063
- -----------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 5,544,096 4,348,297 2,755,305
OPERATING LOSS (14,931,279) (5,726,827) (4,856,085)
OTHER INCOME AND (EXPENSE)
Other (Substantially All Interest) 189,428 (167,171) (599,513)
Licensing and Royalties 112,126 239,713 148,246
Loss on Sale of Long-Term Investment
in Joint Venture -- (201,400) --
- -----------------------------------------------------------------------------------------------------------
NET LOSS $(14,629,725) $(5,855,685) $(5,307,352)
- -----------------------------------------------------------------------------------------------------------
Preferred Stock Dividends 210,959 -- --
- -----------------------------------------------------------------------------------------------------------
NET LOSS AVAILABLE TO $(14,840,684) $(5,855,685) $(5,307,352)
COMMON SHAREHOLDERS
===========================================================================================================
NET LOSS PER COMMON SHARE $(.21) $(.19) $(.20)
===========================================================================================================
</TABLE>
See notes to financial statements.
9
<PAGE> 7
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1995, 1994 and 1993
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
-------------------- -------------------------------------------
NUMBER OF NUMBER OF ADDITIONAL
SHARES AMOUNT SHARES AMOUNT PAID-IN CAPITAL
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1992 - 0 - $ - 0 - 26,146,519 $ 261,465 $48,886,229
Conversion of Convertible Subordinated Securities to -- -- 1,000,000 10,000 1,990,000
Common Stock (November 11, 1992)
Common Stock Granted as Deferred Compensation -- -- 160,800 1,608 139,092
(March 17, 1993)
Conversion of Convertible Subordinated Securities to -- -- 2,804,901 28,049 5,757,060
Common Stock (May 14, 1993)
Termination of Deferred Compensation (Fiscal 1993) -- -- (350) (3) (303)
Amortize Deferred Compensation (Fiscal 1993) -- -- -- -- --
Net Loss for Year Ended June 30, 1993 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1993 - 0 - - 0 - 30,111,870 301,119 56,772,078
Common Shares Sold (Fiscal 1994) -- -- 597,860 5,979 1,339,206
Common Stock Granted as Deferred Compensation -- -- 97,725 977 298,135
(August 20, 1993, December 15, 1993
and December 22, 1993)
Termination of Deferred Compensation (Fiscal 1994) -- -- (6,500) (65) (5,622)
Amortize Deferred Compensation (Fiscal 1994) -- -- -- -- --
Conversion of Guardian Note to -- -- -- -- --
Equity (June 30, 1994)
Net Loss for Year Ended June 30, 1994 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 - 0 - - 0 - 30,800,955 308,010 58,403,797
Common Shares Sold (Fiscal 1995) -- -- 87,016 869 292,676
Common Stock Granted as Deferred Compensation -- -- 49,920 499 323,981
(January 13, 1995)
Termination of Deferred Compensation (Fiscal 1995) -- -- (16,230) (162) (37,304)
Amortize Deferred Compensation (Fiscal 1995) -- -- -- -- --
Conversion of Guardian Equity to -- -- 65,791,270 657,913 9,842,087
Common Stock (November 26, 1995)
Preferred Stock Sold (Fiscal 1995) 12,500 125 -- -- 12,499,875
Dividends Declared (Fiscal 1995) -- -- -- -- --
Net Loss for Year Ended June 30, 1995 -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 12,500 $ 125 96,712,931 $ 967,129 $81,325,112
===========================================================================================================================
</TABLE>
See notes to financial statements.
10
<TABLE>
<CAPTION>
----------------------------------------------------------------
GUARDIAN ACCUMULATED DEFERRED STOCKHOLDERS' PER
EQUITY DEFICIT COMPENSATION EQUITY SHARE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1992 $ - 0 - $48,134,670 $ - 0 - $ 1,013,024 --
Conversion of Convertible Subordinated Securities to -- -- -- 2,000,000 2.00
Common Stock (November 11, 1992)
Common Stock Granted as Deferred Compensation -- -- (140,700) -- .875
(March 17, 1993)
Conversion of Convertible Subordinated Securities to -- -- -- 5,785,109 2.06
Common Stock (May 14, 1993)
Termination of Deferred Compensation (Fiscal 1993) -- -- -- (306) .875
Amortize Deferred Compensation (Fiscal 1993) -- -- 10,543 10,543 --
Net Loss for Year Ended June 30, 1993 -- (5,307,352) -- (5,307,352) --
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1993 - 0 - (53,442,022) (130,157) 3,501,018 --
Common Shares Sold (Fiscal 1994) -- -- -- 1,345,185 2.250
Common Stock Granted as Deferred Compensation -- -- (299,112) -- 3.06
(August 20, 1993, December 15, 1993
and December 22, 1993)
Termination of Deferred Compensation (Fiscal 1994) -- -- 5,687 -- .875
Amortize Deferred Compensation (Fiscal 1994) -- -- 143,362 143,362 --
Conversion of Guardian Note to 10,500,000 -- -- 10,500,000 --
Equity (June 30, 1994)
Net Loss for Year Ended June 30, 1994 -- (5,855,685) -- (5,855,685) --
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1994 10,500,000 (59,297,707) (280,220) 9,633,880 --
Common Shares Sold (Fiscal 1995) -- -- -- 293,545 3.373
Common Stock Granted as Deferred Compensation -- -- (324,480) -- 6.500
(January 13, 1995)
Termination of Deferred Compensation (Fiscal 1995) -- -- 30,730 (6,736) 2.308
Amortize Deferred Compensation (Fiscal 1995) -- -- 240,718 240,718 --
Conversion of Guardian Equity to (10,500,000) -- -- -- .16
Common Stock (November 26, 1995)
Preferred Stock Sold (Fiscal 1995) -- -- -- 12,500,000 1,000.
Dividends Declared (Fiscal 1995) -- (210,958) -- (210,958) 16.88
Net Loss for Year Ended June 30, 1995 -- (14,629,725) -- (14,629,725) --
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 $ - 0 - $(74,138,390) $(333,252) $ 7,820,724 --
===========================================================================================================================
</TABLE>
11
<PAGE> 8
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $14,629,725) $ (5,855,685) $ (5,307,352)
ADJUSTMENTS TO RECONCILE NET LOSS TO NET
CASH USED IN OPERATING ACTIVITIES
Depreciation and Amortization 1,356,533 1,296,667 1,095,397
Loss on Sale of Long-Term Investment
in Joint Venture -- 201,400 --
Collection of Bad Debts -- -- 250,000
Deferred Compensation Expense 233,982 143,362 10,237
IMPACT ON CASH FLOWS FROM CHANGES IN ASSETS
AND LIABILITIES
Accounts Receivable 1,042,155 (2,065,447) 715,240
Prepaid Expenses and Other Assets (2,248,196) (244,952) 249,742
Inventory (1,276,461) (1,014,130) (123,775)
Accounts Payable and Accrued Liabilities (3,613,687) 5,593,812 885,181
Deferred Revenue (407,824) 85,548 348,685
- --------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (19,543,223) (1,859,425) (1,876,645)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Sale of Long-Term Investment -- 797,600 --
in Joint Venture
Capital Expenditures (24,708,813) (16,561,054) (1,218,671)
- --------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (24,708,813) (15,763,454) (1,218,671)
CASH FLOWS FROM FINANCING ACTIVITIES
Principal Payments on Long-Term Debt (158,497) (504,237) (436,862)
Proceeds from Issuance of Debt and Securities 28,000,000 10,700,000 1,300,000
Net Proceeds from Issuance of Common Stock 293,545 1,345,185 --
Net Proceeds from Issuance of Preferred Stock 12,500,000 -- --
Proceeds from Issuance of Guardian Note -- 10,500,000 --
- --------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY 40,635,048 22,040,948 863,138
FINANCING ACTIVITIES
INCREASE (DECREASE) IN (3,616,988) 4,418,069 (2,232,178)
CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 4,447,069 29,000 2,261,178
- --------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 830,081 $ 4,447,069 $ 29,000
==================================================================================================
</TABLE>
See notes to financial statements.
12
<PAGE> 9
<TABLE>
<CAPTION>
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
FOR THE YEARS ENDED JUNE 30 1995 1994 1993
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capitalization of Equipment Pursuant to $ 365,000 $ -- $ --
Capital Lease Obligation
- -------------------------------------------------------------------------------------------
Accrual of Preferred Stock Dividends 210,959 -- --
- -------------------------------------------------------------------------------------------
Conversion of Guardian Equity to 10,500,000 -- --
Common Stock
- -------------------------------------------------------------------------------------------
Common Stock Issued in Exchange for 287,014 293,425 140,394
Deferred Compensation, Net of Terminations
- -------------------------------------------------------------------------------------------
Conversion of Convertible Subordinated -- 7,785,109 376,783
Securities to Common Stock
- -------------------------------------------------------------------------------------------
Conversion of Accrued Interest to -- 563,697 494,236
Convertible Subordinated Securities
- -------------------------------------------------------------------------------------------
Conversion of Guardian Securities to Equity -- 10,500,000 --
- -------------------------------------------------------------------------------------------
Accrual of Future Plant Equipment -- 6,050,000 --
- -------------------------------------------------------------------------------------------
Contribution of Land Under -- 3,000,000 --
Local Government Subsidy
- -------------------------------------------------------------------------------------------
Conversion of Dividends Payable to
Preferred Stock -- -- 143,993
- -------------------------------------------------------------------------------------------
</TABLE>
See statements of cash flows.
13
<PAGE> 10
NOTES TO FINANCIAL STATEMENTS
NOTE A - ORGANIZATION
OIS Optical Imaging Systems, Inc. (OIS) formerly Ovonic Imaging Systems, Inc.,
a Delaware corporation, was organized as Ovonic Display Systems, Inc. on May
31, 1984 and commenced operations as a separate company on July 1, 1984, to
complete the development of and thereafter to manufacture and market flat panel
displays and electronic image processing products, employing amorphous and
related materials and information technology. OIS is currently providing these
products and services mainly to avionic and military customers.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING AND REPORTING POLICIES
CASH AND CASH EQUIVALENTS
Cash equivalents consist of investments in short-term, highly-liquid securities
having a maturity of three months or less when acquired. Cash equivalents of
$830,081 and $4,447,069 are included in cash and cash equivalents in the
accompanying Balance Sheets for the years ended June 30, 1995 and 1994,
respectively. These are stated at cost which approximates market.
Restricted cash consists of funds received under the Advanced Research Projects
Agency (ARPA) agreement (see Note L).
Cash paid for interest, net of amounts capitalized, for the fiscal years ended
June 30, 1995, 1994 and 1993 was $10,808, $74,254 and $229,469, respectively.
PROPERTY AND EQUIPMENT
All properties are recorded at cost and are depreciated on the straight-line
method over the estimated useful lives of the individual assets. The estimated
lives of the principal classes of assets are as follows:
<TABLE>
<CAPTION>
YEARS
- -----------------------------------------
<S> <C>
Building 30
Leasehold Improvements 10
Machinery and Other Equipment 3 to 10
- -----------------------------------------
</TABLE>
Machinery and other equipment acquired for a particular research and
development project and which have no alternative future use (in other research
and development projects or otherwise) are charged to the expense of the
specific project to which they were dedicated. Machinery and other equipment
which have alternative future uses are capitalized at cost.
Expenditures for maintenance and repairs are charged to operating expenses.
Expenditures for improvements or major renewals are capitalized and are
depreciated over their estimated useful lives.
Capitalized lease equipment is depreciated over the term of the lease.
Accumulated depreciation on the capitalized lease equipment was $121,647 and
$1,261,544 as of June 30, 1995 and 1994, respectively.
Certain equipment installed at the new manufacturing facility is owned by the
government and is not recorded in the accompanying Balance Sheet (see Note L).
<PAGE> 11
INVENTORY
Inventory is stated at the lower of cost, determined on a first-in first-out
basis, or market, and represents raw material used in display development and
displays in process. The components of inventory as of June 30, are as follows:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------
<S> <C> <C>
Raw Materials $2,029,162 $ 853,962
Displays in Process 1,330,900 1,229,639
- -----------------------------------------------------------
TOTAL $3,360,062 $2,083,601
===========================================================
</TABLE>
INSURANCE RECEIVABLE
This amount represents costs incurred by the company to repair and clean up
damage caused by a fire at the new manufacturing facility and will be
reimbursed by an Insurance Company. (See Note L).
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operating expenses as incurred.
PATENTS
Patent expenditures are charged directly to expense, and are included in
Selling, General and Administrative Expenses.
CUSTOMER AGREEMENTS
Certain long-term customer engineering agreements are accounted for on a
percentage of completion basis. Amounts billed but not yet earned and/or
amounts received as advance payments net of revenues recognized in advance of
billings are recorded as deferred revenue. Projected losses on customer
agreements are recorded as cost in excess of anticipated billings at the time
such losses become apparent. Revenue on the Company's production contracts is
recognized when displays are shipped to the customer.
In fiscal 1995 and 1994, the Company derived approximately 40% and 62% of
revenue respectively from Kaiser Electronics. During fiscal 1993 the Company
derived approximately 22% of revenue from Honeywell Satellite Systems.
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been reclassified
to conform with the current financial presentation.
15
<PAGE> 12
NOTES TO FINANCIAL STATEMENTS
NOTE C - CAPITAL STOCK
Holders of OIS Common Stock are entitled to one vote per share.
The holders of OIS Common Stock are entitled to dividends when and if declared
by the Board of Directors of OIS out of any funds legally available therefore.
OIS has not declared or paid any dividends on Common Stock. The Company is
restricted by its credit agreement from declaring or paying cash dividends (see
Note J).
During fiscal 1995, the Company issued 12,500 shares of Preferred Stock to its
affiliate Guardian Industries Corp. Dividends declared on Preferred Stock were
$210,959 for fiscal year 1995. No Preferred Stock was outstanding during fiscal
1994 or 1993. The Company is restricted from paying dividends on its Preferred
Stock by its credit agreement. Certain of these restrictions lapse on September
30, 1996 (see Note J).
The Preferred Stock bears a dividend rate of 8% for the first five years.
During each of years six through eight, the members of the Board of Directors
independent of Guardian Industries Corp. (the Independent Directors) will
select one of the following annual rates: 1) LIBOR plus 125 basis points, or 2)
the three year Treasury Bill yield plus 200 basis points. During years nine
through eleven, the Independent Directors will select one of the following
annual rates: 1) LIBOR plus 125 basis points, or 2) the three year Treasury
Bill yield plus 400 basis points. Thereafter, beginning with year twelve and
on each successive three year anniversary, the rate then in effect will
increase 150 basis points. At no time will the rate exceed 16.5% annually.
NOTE D - STOCK OPTION PLANS
OIS has in effect two stock incentive plans, the 1994 Significant Employee
Stock Incentive Plan (the 1994 Plan) and the Amended and Restated 1988 Stock
Option and Incentive Plan (the 1988 Plan). The plans are administered by the
Stock Option Committee of the Board of Directors of OIS (the Committee). These
plans authorize the award of restricted stock or stock options covering
3,000,000 shares of OIS Common Stock to employees, consultants and such other
persons as the Committee may determine. In fiscal 1995, 1994 and 1993, most
awards have been awards of restricted stock. Currently, the Committee is making
awards under the 1994 Plan only.
16
<PAGE> 13
Awards of restricted stock are non-transferable and subject to forfeiture
during the restriction period established by the Committee. The awards of
restricted stock during fiscal 1995, 1994 and 1993 are summarized in the
following table:
<TABLE>
<CAPTION>
NUMBER OF PER SHARE AGGREGATE RESTRICTION
FISCAL YEAR SHARES GRANTED PRICE VALUE LAPSE DATE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 19,920 $6.50 $324,480 October 13, 1997
1994 97,725 $1.68-3.50 $299,112 October 13, 1995
1993 160,800 $0.875 $140,700 October 13, 1996
</TABLE>
The Company has awarded 108,000 stock options under the 1994 Plan, all in
fiscal 1995. These options become exercisable in two stages, six months after
the date of grant with respect to 50% of the shares and eighteen months after
the date of grant with respect to the remaining 50% of the shares. These
options expire ten years after the date of grant.
There are currently outstanding 233,104 stock options that were granted under
the 1988 Plan before fiscal 1992. These options generally become exerciseable
in five stages, beginning one year after the date of grant with respect to 20%
of the shares and continuing with an additional 20% of the shares becoming
exerciseable annually thereafter. These options generally expire six years
after the date of grant.
The stock options granted by the Company are non-transferable and are subject
to forfeiture if not exercised within a time specified by the Committee (but
not more than three months) after the termination of employment with, or
provision of services to, the Company, unless the termination was a result of
death, disability or retirement, in which case the option may be exercised
until six months after the termination.
A summary of the transactions during the three years ended June 30 with respect
to OIS's stock option plans follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE
OPTION OPTION OPTION
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C>
Outstanding at the 313,419 $2.26 976,859 $2.25 1,061,788 $2.25
Beginning of Fiscal Year
Granted 108,000 5.13 79,200 2.25 10,000 .94
Cancelled 9,350 2.25 143,580 2.25 94,929 2.25
Exercised 70,965 2.25 599,060 2.38 -0- N/A
- --------------------------------------------------------------------------------------------------
Outstanding June 30 341,104 $3.15 313,419 $2.26 976,859 $2.25
==================================================================================================
Exercisable June 30 143,731 $2.21 131,974 $2.27 613,658 $2.28
==================================================================================================
Available for Grant June 30 2,868,860 N/A 1,015,925 N/A 951,545 N/A
==================================================================================================
</TABLE>
17
<PAGE> 14
NOTES TO FINANCIAL STATEMENTS
NOTE E - RELATED PARTY TRANSACTIONS
Guardian Industries Corp. (Guardian), the Company's affiliate, purchased 12,500
shares of the Company's Series A Preferred Stock in fiscal 1995 for aggregate
consideration of $12,500,000.
Effective November 26, 1994, Guardian exercised its option to purchase
additional shares of OIS Common Stock. In that transaction, OIS issued to
Guardian 41,828,768 shares of Common Stock and issued to William Davidson, who
is the president and owner of Guardian, 23,962,502 shares of Common Stock
pursuant to rights derived from convertible subordinated securities (see Note
J).
In April 1992, OIS and Guardian entered into a Services Agreement, which was
amended in July 1992. Under that agreement, Guardian provided the services of
Rex Tapp, who was then an employee of Guardian, as President of OIS, for
$130,000 per year; provides certain administrative, accounting, technical,
travel arrangement, management and tax services for $50,000 per year, and
provides legal services at an hourly rate of $100. In July 1995, Mr. Tapp
ceased to be an employee of Guardian and became an employee of OIS with the
result that his services to OIS are no longer subject to the Services
Agreement. During fiscal years 1995, 1994 and 1993, OIS incurred expenses of
approximately $190,000, $267,000 and $205,000, respectively, for these
services. During 1995 and 1994, OIS also purchased approximately $17,000 and
$80,000, respectively, worth of architectural glass from Guardian for
installation at the new manufacturing facility. In May 1993, OIS and Guardian
entered into an Engineering Services Agreement in which employees at Guardian
are providing engineering services in connection with construction of the new
facility. The aggregate amount paid by OIS will not exceed $250,000 without
approval of the Independent Directors of OIS. The Company incurred
approximately $118,000 and $78,000, for the years ended June 30, 1995 and 1994,
respectively, for these engineering services (see Note L).
During 1993, IRITECH, S.p.A. converted its $2,000,000 subordinated note into
1,000,000 shares of Common Stock.
NOTE F - LONG-TERM INVESTMENT IN
JOINT VENTURE
In December 1993, OIS incurred a $201,400 loss when it sold its investment in
Common Stock of UNIPAC Optoelectronics, Inc., (UNIPAC) a corporation organized
under the laws of the Republic of China in Taiwan, for $797,600. These shares
represented 10% ownership of UNIPAC.
NOTE G - NET LOSS PER SHARE
Net loss per share is based on the weighted average number of shares of OIS
Common Stock outstanding during the year. The number of shares used in the
computation for the years ended June 30, 1995, 1994 and 1993 were 69,241,640,
30,502,644 and 27,187,041, respectively.
18
<PAGE> 15
Under the terms of the two Stock Purchase Agreements, the Guardian Option (see
Note J) and William Davidson's right pursuant to a May 14, 1993 agreement (see
Note J), the Company issued 65,791,720 shares of Common Stock on November 26,
1994. Pursuant to a fiscal 1994 agreement, the shares of Common Stock were paid
for, but not issued, prior to June 30, 1994; this payment was represented by
the Guardian equity in the accompanying Balance Sheet. If these shares of
Common Stock had been issued and outstanding as of June 30, 1994, net loss per
share would have been $.15 for the year ended June 30, 1995, based upon
96,654,669 weighted average shares.
NOTE H - FEDERAL TAXES ON INCOME
Effective July 1, 1993, the Company prospectively adopted the provisions of
Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes. This statement requires a change in the method of accounting for income
taxes from the deferral method to an asset and liability approach. The effect
of the adoption of this standard was not material to the financial statements.
The differences between the United States Federal statutory income tax benefit
and the consolidated income tax benefit for the years ended June 30 are
summarized as follows:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Federal Statutory Benefit $(4,974,000) $(1,991,000)
Net Increase in Valuation 4,971,000 1,989,000
Reserve Due to Losses
Without Tax Benefit
Other 3,000 2,000
- ---------------------------------------------------------------
Actual Income Tax Provision $ - 0 - $ - 0 -
===============================================================
</TABLE>
Deferred income taxes represent temporary differences in the recognition of
certain items for income tax and financial reporting purposes. The components
of net deferred income taxes are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 1995 JUNE 30, 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED INCOME TAX LIABILITY
Depreciation and Amortization $ 163,000 $ 190,000
- --------------------------------------------------------------------------------------
163,000 190,000
DEFERRED INCOME TAX ASSETS
Research and Development $ (692,000) $ (855,000)
Other Tax Credits (150,000) (150,000)
Net Operating Loss Credits (22,891,000) (17,901,000)
Deferred Revenue (111,000) (86,000)
Other (212,000) (120,000)
- -------------------------------------------------------------------------------------
(24,056,000) (19,112,000)
Valuation Allowance 23,893,000 18,922,000
- -------------------------------------------------------------------------------------
(163,000) (190,000)
- -------------------------------------------------------------------------------------
NET DEFERRED INCOME TAXES $ - 0 - $ - 0 -
=====================================================================================
</TABLE>
19
<PAGE> 16
NOTES TO FINANCIAL STATEMENTS
Any tax loss carryforwards and other tax attributes will be subject to
limitations provided by Internal Revenue Code Sec. 382, which may substantially
reduce the amounts available for utilization as a result of changes in control.
There was a change of ownership on December 12, 1990 for purposes of Internal
Revenue Code Sec. 382.
At June 30, 1995, remaining net operating loss and tax credit carryforwards
expire as follows:
<TABLE>
<CAPTION>
RESEARCH AND
NET OPERATING INVESTMENT CHARITABLE DEVELOPMENT
LOSS TAX CREDIT CONTRIBUTION CREDIT
CARRYFORWARD CARRYFORWARD CARRYFORWARD CARRYFORWARD
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999 $ 3,965,000 -- -- --
2000 6,560,000 $35,100 -- $316,000
2001 3,255,000 21,450 -- 69,000
2002 3,242,000 -- -- --
2003 7,391,000 -- -- --
2004 3,352,000 -- -- --
2005 633,000 -- -- --
2006 6,009,000 -- $1,300 --
2007 6,476,000 -- -- --
2008 5,213,000 -- 1,000 --
2009 5,886,000 -- 2,030 --
2010 15,344,000 -- -- --
- --------------------------------------------------------------------------------------
$67,326,000 $56,550 $4,330 $385,000
======================================================================================
</TABLE>
20
<PAGE> 17
NOTE I - LEASE AGREEMENTS
In the year ended June 30, 1995, OIS entered into a three year
non-collateralized lease agreement covering certain machinery and equipment.
The lease requires monthly payments of $10,633 through 1997.
OIS's Troy facilities are leased under a lease expiring in March 1996 at a
monthly rate of $15,460. This lease contains a six month renewal option. All
OIS leases are with unrelated parties.
Obligations under capital leases and non-cancellable operating leases expiring
in each of the five years subsequent to June 30, 1995 are as follows:
<TABLE>
<CAPTION>
CAPITAL LEASE OPERATING
OBLIGATIONS LEASES
<S> <C> <C>
- ------------------------------------------------------
1996 $127,593 $180,586
1997 127,577 29,235
1998 -- 8,738
- ------------------------------------------------------
TOTAL $255,170 $218,559
LESS INTEREST $ 8,083 ========
INCLUDED ABOVE
- ---------------------------------------
PRESENT VALUE OF $247,087
MINIMUM PAYMENTS
- ---------------------------------------
LESS CURRENT 121,633
PORTION
- ---------------------------------------
LONG-TERM $125,454
PORTION
=======================================
</TABLE>
Operating lease expense for the fiscal years ended June 30, 1995, 1994 and 1993
was $251,632, 237,483, and $195,603, respectively.
NOTE J - FINANCING TRANSACTIONS On November 26, 1991, Guardian paid OIS
$10,500,000 for 7,000,000 shares of OIS's Common Stock, which then represented
approximately 28 percent of all issued and outstanding shares. OIS also granted
and issued to Guardian a three year option (the Guardian Option) to purchase
additional shares of the Common Stock for a price of $10,500,000. Effective
November 26, 1994, Guardian formally exercised its option to purchase
additional shares of OIS Common Stock. In that transaction, OIS issued to
Guardian 41,828,768 shares of Common Stock. The option shares issued to
Guardian, together with the shares issued to Guardian in November 1991, amount
to approximately 51 percent of the issued and outstanding shares of the Common
Stock (see Note E).
On December 14, 1993, the Company entered into a credit agreement (the
Agreement), which was amended March 13, 1995, with a consortium of banks. Under
the terms of the Agreement, the Company obtained a credit facility that
provides $26.25 million in term loans and a $26.25 million revolving credit
facility. Under the terms of the
21
<PAGE> 18
NOTES TO FINANCIAL STATEMENTS
Agreement,the term loans and borrowings under the revolving credit facility bear
interest, payable quarterly, at LIBOR plus .875%, or at elected fixed rates
with interest periods ranging from 30 days to 180 days. The term loans are
payable in quarterly principal installments of $750,000, commencing September
30, 1996 through September 30, 1997, $1,250,000 commencing September 30, 1997
through December 31, 1997, $2,500,000 commencing March 31, 1998 through June
30, 1998, $2,750,000 on September 30, 1998 through December 31, 1998,
$3,375,000 on March 31, 1999 through June 30, 1999, $3,875,000 on September 30,
1999 and $13,375,000 on December 31, 1999. The Company also pays a commitment
fee of .375% of the unused portion of the credit facility. The revolving credit
facility matures in December 1999. As of June 30, 1995, $12.5 million of the
credit facility remained unused.
Under the terms of the Agreement, OIS is restricted from incurring additional
debt (as defined) and paying cash dividends (as defined). Furthermore, OIS
must maintain a level of minimum tangible capital funds and leverage ratio as
defined in the Agreement and complete construction of the new manufacturing
facility by June 30, 1995 (see Note L). OIS is compliance with the above as of
June 30, 1995.
During fiscal 1993, the Company signed a credit agreement with NBD Bank, N.A.
under which the Company had access to a $3 million working capital line of
credit. Borrowings under the line of credit were secured by the Company's
assets. The line of credit expired December 31, 1993 and was retired in full.
On May 14, 1993, the Company, William Davidson and Guardian entered into a
transaction to increase the stockholders' equity of the Company. In this
transaction, William Davidson converted $5,785,109 of 10% convertible
subordinated securities into 2,804,901 shares of Common Stock and the right to
receive additional Common Stock upon Guardian's exercise of the option
described above. Concurrent with the exercise of the Guardian Option, William
Davidson received 23,962,502 shares of Common Stock pursuant to this right.
22
<PAGE> 19
NOTE K - EMPLOYEE BENEFIT PLAN
The Company has a 401(k) plan for substantially all employees. Employer
contributions are 50% of the employee's contribution, up to a maximum of 5% of
the employee's wages. Employer contributions to this plan were approximately
$135,000, $91,000 and $57,000 for the years ended June 30, 1995, 1994 and
1993, respectively.
NOTE L - NEW MANUFACTURING FACILITY
During fiscal 1994, the Company started construction on a new manufacturing
facility in Northville, Michigan. In connection with the construction, the
Company purchased land valued at approximately $3 million from Wayne County for
$10. The Company must use the land to construct the above mentioned
manufacturing facility and must meet certain employment criteria. If the above
criteria are not met, the Company must pay up to approximately $1 million to
Wayne County. The facility is expected to cost $97 million, a substantial
portion of which was completed at year end. Pursuant to this construction, the
Company has capitalized approximately $2.38 million and $325,000 of interest
incurred during construction during the years ended June 30, 1995 and 1994,
respectively. The capitalized interest is included in construction in process
in the accompanying Balance Sheets.
During fiscal 1994, the Company negotiated an agreement under the ARPA AMLCD
Manufacturing Technology Program. Under the terms of the agreement, the Company
will receive $48 million (the Proceeds) over two years. The Company must use
the proceeds to purchase equipment for installation in the new manufacturing
facility. The equipment purchased remains the property of the United States
Government and is not reflected in the accompanying Balance Sheets. The
Company is entitled to use this equipment without charge until August 1998. At
that time, the Company has the option to purchase the Government-Owned
equipment at its then fair market value. Cash received prior to payment for the
equipment is reflected in Cash-Restricted in the accompanying Balance Sheets.
Amounts billed to ARPA, but not received, are reflected as Receivable from U.S.
Government in the accompanying Balance Sheets. Cash received on deposit is
relieved as equipment is purchased. As of June 30, 1995 approximately $42.7
million of the $48 million has been billed all of which has been received. As
of June 30, 1995, the Company has spent approximately $2 million for equipment
that has not been billed to ARPA and is included in Receivable from U.S.
Government in the accompanying Balance Sheet.
23
<PAGE> 20
MANAGEMENT'S DISCUSSION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS SUMMARY The operating results for fiscal 1995 reflect
decreased total revenues and increased costs and increased losses. Total
revenues decreased in fiscal 1995 as a result of limited growth in the sale of
displays and as a result of the Company's strategic decision to limit
customer-funded development and engineering activity in favor of the sale of
standard displays. Growth of display sales was constrained by delivery delays
caused by capacity limitations at the Company's Troy facility as well as
certain manufacturing problems which are discussed below under Cost of Sales.
These problems, together with the increased personnel and maintenance costs
associated with the start-up of the Company's new production facility in
Northville, resulted in significantly higher costs and losses in fiscal 1995.
In fiscal 1996, the Company is simultaneously attempting to resolve its
manufacturing problems while transferring manufacturing operations from the
Troy facility to the new Northville facility and to increase its level of
product orders so that sales and revenues will increase as the Company's
production capability increases. Management does not expect improved financial
results in fiscal 1996, but does expect the results of the Company's efforts in
fiscal 1996 to determine whether the Company's cost of sales can improve in the
following fiscal years.
The Company began processing glass plates at the Northville facility in August
1995, and the first pre-production glass cells are scheduled for completion in
early October 1995.
24
<PAGE> 21
YEAR ENDED JUNE 30, 1995
COMPARED TO YEAR ENDED JUNE 30, 1994
REVENUE
Total revenue decreased in fiscal 1995 mainly because the Company's level of
customer-funded engineering and development activity was reduced dramatically
and because of production delays. Although revenue from the sale of displays
increased, this increase did not offset the larger decrease in revenue from
customer-funded engineering and development activities. Total revenue for
fiscal 1995 of $8,423,041 was 28% lower than total revenue for the preceding
fiscal year of $11,700,389. Revenue from the sale of displays for fiscal 1995
of approximately $2,290,000 was 82% higher than revenue from the sale of
displays for the preceding fiscal year of approximately $1,257,000.
Revenue from customer-funded engineering and development activities for fiscal
1995 of $5,799,519 was 44% lower than revenue from such activities for the
preceding fiscal year of $10,322,328. Work on the Company's most significant
engineering and development programs, which have been performed for Kaiser
Electronics in connection with the Air Force F-22 and F-18 programs, continued
to wind down in fiscal 1995 as scheduled. The Company does not expect
additional engineering and development projects of the magnitude of these
programs because it has made a strategic decision to reduce customer-funded
engineering activity in order to focus on the sale of standard displays.
Capacity limitations of the Troy facility and manufacturing process problems
constrained the production and sale of displays by the Company and limited
sales revenue for fiscal 1995. In any event, the overall level of demand for
displays in the Company's principal submarket (commercial and military
avionics) would not have led to sales revenue sufficient to offset the entire
decrease in engineering and development revenue. The manufacturing problems
discussed below under Cost of Sales and other manufacturing problems discussed
in the Company's quarterly reports on Form 10-Q for the second and third
quarters of fiscal 1995 affected sales revenue by causing delays in the
production of displays that had been ordered by customers. Approximately $2.4
million of displays that were expected to be delivered in fiscal 1995 were not
delivered. The Company has negotiated revised delivery schedules with a number
of customers. Management expects a substantial portion of the delayed
shipments to be delivered during fiscal 1996.
25
<PAGE> 22
MANAGEMENT'S DISCUSSION
Management expects that the Company's production capability will increase
significantly once the transfer of production from the Troy facility to the
Northville facility is complete, assuming that the Northville facility operates
successfully. This should occur sometime in the second half of fiscal 1996.
Until management gains confidence in the start-up schedule for, and the
performance of, the Northville facility, the Company will carefully consider
and limit, if necessary, additional orders for delivery in fiscal 1996. If
it is necessary to limit such orders, revenue growth will be constrained.
Management is working closely with customers and will review the status of the
Northville facility on a continuous basis. While management expects the level
of demand for the Company's displays to increase in fiscal 1996, it continues
to be uncertain as to the rate at which activity in the commercial and military
avionics submarket will increase. The rate of increase depends on how quickly
AMLCDs are deployed into new products and applications, and is uncertain. The
Company is attempting to increase its sales in the military and avionics
submarket and to work with potential customers on other applications for
displays in fiscal 1996. If these efforts are successful, the Company's
revenues could increase materially in fiscal 1997 and thereafter. However, it
is not yet clear whether the Company's sales and marketing efforts and the
start-up of the Northville facility will be successful.
COST OF SALES
The cost of sales for fiscal 1995 of $17,810,224 was 36% higher than for the
preceding fiscal year of $13,078,919. However, the cost of sales as a
percentage of revenue increased to 211% in fiscal 1995 from 112% in fiscal
1994. Much of the increase in the cost of sales resulted from the manufacturing
problems first referred to in the Summary. As the Company worked to increase
production of displays at the Troy facility to meet increased orders for
displays, the Troy facility was pressed to and beyond its manufacturing
capacity. The Company identified and solved a number of manufacturing problems
at the Troy facility in fiscal 1995. As it did so, limitations in the Company's
manufacturing processes became evident. These process problems became
particularly evident in the closing weeks of fiscal 1995 as production
continued to increase. The majority of these problems relate to the fact that
the Company's design and manufacturing tolerances were too narrow for efficient
manufacturing as production volumes increased. Additionally, some of the
problems relate to the final assembly process, among other things. These
problems, particularly when combined with the limitations of the Troy facility,
contributed significantly to increased manufacturing costs in fiscal 1995. In
response to these problems, the Company has restructured the management of
product design and manufacturing and has implemented design rules more suitable
to higher volume fabrication. Additionally, where
26
<PAGE> 23
appropriate, the Company has renegotiated specifications with customers. The
changed specifications do not affect the overall performance of the displays
from the point of view of the user, but do allow for a more efficient
manufacturing process. If all of the Company's efforts are successful, the
Company will manufacture displays more efficiently and the cost of sales as a
percentage of revenue should decrease. In addition, the success of these
efforts will affect the rate at which the Company's production capability
increases and the Company's ability to schedule new delivery commitments in
fiscal 1996. Although management is optimistic and progress has been made, it
is not yet clear whether these efforts will be fully successful.
A number of other factors also contributed to the increased cost of sales.
Cost of sales was adversely affected by increases in production and quality
control personnel who were hired and trained by the Company to operate in the
new Northville facility and to accommodate future increases in production
activity. Maintenance costs also increased significantly as the Company
continued to operate and maintain aging facilities and equipment at the Troy
facility. The Company believes that increases in employee headcount are
complete and does not expect substantial increases in related costs in fiscal
1996.
As indicated in the Summary, the Company has begun processing glass and
assembling displays at the Northville facility and expects to transfer the
production of substantially all of its products to Northville by the third
quarter of fiscal 1996. If the start-up of the Northville facility and the
transfer of production proceed as expected, if the Company effectively
resolves its manufacturing process problems, if no new significant
manufacturing process and production problems emerge, and if the Northville
facility functions effectively, then the Company should experience reductions
in cost of sales as a percentage of sales beginning in the second half of
fiscal 1996. If the Company does not meet its goals in one or more of these
areas, then reductions in cost of sales will be delayed or will not occur (see
Liquidity and Capital Resources).
The Company experienced a fire in the cleanrooms at the Northville facility in
March 1995. Although damage to the facility was minimal, an extensive and
expensive operation to clean up the cleanrooms and to clean and repair
equipment was required. The cost of the clean-up was covered by insurance,
except for a $25,000 deductible.
27
<PAGE> 24
MANAGEMENT'S DISCUSSION
Although the Company was able to maintain its original schedule for start-up of
the Northville facility, if there had been no fire, the Northville facility
would have been started ahead of schedule. The construction of the Northville
facility is currently within 2% of budget on an aggregate basis, although
specific items have been more or less than budgeted.
OTHER COSTS
The Company's internal research and development costs of $1,306,843 in fiscal
1995 were 90% higher than the internal research and development costs of
$688,094 incurred during fiscal 1994. The Company committed additional
resources to increasing its standard product line, improving current products
and the Company's technological position and protecting the Company's
intellectual property rights. Management expects these costs to increase, but
at a slower rate, in the next fiscal year.
The Company's Selling, General and Administrative costs of $4,237,253 in fiscal
1995 were 16% higher than the Selling, General and Administrative costs of
$3,660,203 incurred during fiscal 1994. The increase is due to the Company
expanding its marketing and administrative organization to manage the current
and anticipated increases in market and general business activity. Furthermore,
legal fees relating to the administration and performance of government
contracts increased.
Interest expense decreased approximately $357,000 due to significantly lower
debt balances during the current fiscal year. The current level of debt was
used to finance construction of the Northville facility and is being
capitalized as part of the cost of that facility. This decrease was accentuated
by additional interest income earned during the year due to higher average cash
balances. Interest, depreciation and amortization expenses are expected to
increase significantly in fiscal 1996 as the Company incurs additional debt to
finance ongoing operations and commences production operations at the
Northville facility.
28
<PAGE> 25
YEAR ENDED JUNE 30, 1994 COMPARED TO
YEAR ENDED JUNE 30, 1993
Total revenue for fiscal year 1994 of $11,700,389 was 63% higher than total
revenue for the preceding fiscal year of $7,162,035. This increase was due
mainly to the overall increase in customer contracts for display engineering.
Revenues from the sale of displays for fiscal 1994 of approximately $1,257,000
was 11% higher than revenues from the sale of displays for the preceding fiscal
year of $1,137,446 and resulted from a minor increase in the sale of displays.
Engineering revenue for fiscal year 1994 of $10,322,328 was 74% higher than
engineering revenue for the preceding fiscal year of $5,941,953. This increase
was attributable mainly to engineering work performed for Kaiser Electronics in
connection with the Air Force F-22 and F-18 programs. Sensor revenue for fiscal
year 1994 of $121,406 was 47% higher than sensor revenue for the preceding
fiscal year of $82,636. This increase was attributable to an interruption of
production during fiscal year 1993.
Display revenue increased during fiscal 1994, but the rate of increase was
adversely affected by delays under two of the Company's three production
agreements. One customer requested a delay in some deliveries so that displays
with an aggregate price of approximately $1 million that had been expected to
be delivered in fiscal 1994, will instead be delivered during fiscal 1995
through fiscal 1997. Shipments under another customer's production agreement
were reduced by the Company to limit the Company's credit exposure to that
customer. Approximately $1.4 million of displays that had been expected to be
delivered in fiscal 1994 were not delivered.
The Company obtained one new production contract during fiscal 1994. Under this
contract, the Company is manufacturing advanced 6.7" x 6.7" displays for NASA's
space shuttle orbiters at a total value of $3.6 million.
Cost of sales for fiscal 1994 of $13,078,919 were 41% higher than cost of sales
for the preceding fiscal year of $9,262,815. However, the cost of sales as a
percentage of revenue decreased to 112% in fiscal 1994 from 129% in fiscal
1993. These fluctuations resulted from a combination of factors:
29
<PAGE> 26
MANAGEMENT'S DISCUSSION
Cost of sales was adversely affected by increases in production and quality
control personnel, who were hired to enable the Company to train them to
operate in the new facility and to accommodate future increases in activity.
Cost of sales were positively affected principally by two factors. First, the
Company generated a higher percentage of its revenues from engineering
agreements, 88% in fiscal 1994 versus 83% in fiscal 1993. Development revenue
historically has generated a higher gross profit margin than display revenue.
Second, the Company achieved lower costs per display delivered under its
production agreements. Total direct material and labor were 42% of revenues
during fiscal 1994 and were 56% of revenues during fiscal 1993, while indirect
production costs were approximately 59% of revenues in both fiscal 1994 and
1993.
The Company's internal research and development costs of $688,094 in fiscal
1994 were 85% higher than the internal research and development costs of
$372,242 incurred during fiscal 1993. The Company committed additional
resources to increasing its standard product line, improving current products,
improving the Company's technological position and protecting the Company's
intellectual property rights.
The Company's Selling, General and Administrative costs of $3,660,203 in fiscal
1994 were 54% higher than the Selling, General and Administrative costs of
$2,383,063 incurred during fiscal 1993. The increase is due to the Company
expanding its marketing and administrative organization. Bad debt expense
increased substantially due to a $250,000 reversal of a bad debt during fiscal
1993 and $60,000 reserved during the current year for potential uncollectible
accounts receivable. Furthermore, fees paid to government patent offices to
register and maintain patents increased from approximately $116,000 to $302,000
as the Company continued its efforts to protect its intellectual property.
Other less significant increases are attributable to bank fees in connection
with the
30
<PAGE> 27
Company's revolving credit facility relating to construction of the new
manufacturing facility and increases in shareholder relations expenses
resulting from a substantial increase in the number of shareholders and related
requests for information.
Interest expense decreased approximately $432,000 due to significantly lower
debt balances. The current level of debt is being used to finance construction
of the new manufacturing facility and is being capitalized as part of the cost
of the facility. Contributing to the decrease was interest income earned during
the year due to higher average cash balances.
During fiscal 1994, the Company incurred a $201,400 loss when it sold 3,000,000
shares of Common Stock of UNIPAC Optoelectronics, Inc. for $797,600 in cash.
The stock represented 10% ownership of UNIPAC, a Taiwan corporation. Management
determined that capital resources were better applied to OIS's core business.
LIQUIDITY AND CAPITAL RESOURCES
LIQUIDITY
The Company's cash and cash equivalents at June 30, 1995 was $830,081
of which $334,227 consisted of funds provided by the Advanced Research Projects
Agency (ARPA) under the Company's agreement with ARPA relating to the
Northville facility. The Company, as required under its agreement with ARPA,
uses ARPA funds solely for the purchase of manufacturing equipment for the
Northville facility, and not for continuing operations. The Company is
attempting to manage its cash to minimize borrowings under its $52.5 million
commercial credit facility.
OPERATING ACTIVITIES
During fiscal 1995, the Company incurred a net loss of $14,629,725. Accounts
receivable decreased approximately $1 million due to decreased revenues, and
raw material inventory increased by approximately $1.2 million due to increased
manufacturing activity combined with the start-up of the new plant. The
Company has also expended approximately $2.3 million for repair and clean-up
resulting from the fire at the Northville facility, which was reimbursed to the
Company during fiscal 1996. Equipment procured in connection with the ARPA
agreement is expected to be reimbursed during the same period.
31
<PAGE> 28
MANAGEMENT'S DISCUSSION
INVESTING ACTIVITIES
During fiscal 1995, the Company spent a total of $54.2 million on the
Northville facility. This amount consisted of $20.7 million for construction of
the plant, $31.8 million for production equipment and $1.7 million for start-up
costs. Of these amounts, $30.5 million was reimbursed by the Government for
equipment purchased in connection with the ARPA agreement. During fiscal 1996,
the Company expects to spend a total of $12 million for completion of the
Northville facility. Of this amount, $2.7 million is expected to be reimbursed
by ARPA.
FINANCING ACTIVITIES
During fiscal 1995, the Company received $12.5 million from the sale of
Preferred Stock to Guardian Industries Corp. and borrowed $28 million under its
$52.5 million credit facility with NBD Bank N.A. and Bank of America NT&SA. As
of June 30, 1995, the Company's aggregate borrowings under its commercial
credit facility were $40 million. As of September 20, 1995, the Company's
aggregate borrowings under its commercial credit facility were $47.5 million,
and the Company had received an additional $6.25 million from the sale of
Preferred Stock to Guardian (See Capital Resources).
The Company's liquidity is decreasing, and management anticipates a need for
additional cash during fiscal 1996. The Company is scheduled to begin repaying
its commercial credit facility in 1996 at the rate initially of $750,000 per
quarter (See Capital Resources).
In order for the Company to eliminate losses from operations, it must increase
revenues and reduce its manufacturing costs. Although management is intent on
these objectives, there can be no assurance that the Company will improve its
cash flow from operating activities.
CAPITAL RESOURCES
In November 1994, Guardian Industries exercised its option under the 1991 Stock
Purchase Agreement among Guardian, the Company, William Manning and Manning &
Napier Advisors, Inc. Accordingly, Guardian converted $10.5 million of
contributed equity into 41,828,728 shares of Common Stock issued to Guardian
and 23,962,542 shares of Common Stock issued to William Davidson in respect of
convertible subordinated securities of the Company, which were originally
issued to William Manning and were subsequently purchased by William Davidson.
32
<PAGE> 29
The Company has financed the cost of its new manufacturing facility and
provided working capital for continuing operations through the current period.
The cost of the manufacturing facility, including capital required for the
pre-production period and other start-up costs, is currently anticipated to be
approximately $102.3 million, which is slightly higher than the $101.5 million
originally budgeted. The Company funded this project with $48 million to be
received under the ARPA agreement, approximately $6 million received from the
November 1994 stock purchase agreement with Guardian, approximately $7.5
million in contributions of land and equipment and the remaining amount from
$40 million in bank borrowings.
Due to the level of current and anticipated losses, management expects
additional capital resources will be needed to support the Company's
operations. The Company and Guardian Industries have agreed that Guardian will
purchase $12.5 million in Preferred Stock on the same terms as the Preferred
Stock purchased in fiscal 1995.
One half of this amount was purchased on September 20, 1995, and the balance of
the transaction is expected to be completed by December 31, 1995. Management
expects that this $12.5 million will be sufficient for the Company's needs
through at least the end of fiscal 1996. The Company anticipates that it will
need additional funding thereafter. At this time, Guardian has not indicated
any intention to discontinue funding the Company. If Guardian were to
discontinue funding the Company, or offer funding to the Company on terms that
were not satisfactory to the Company's disinterested directors, then the
Company would have to seek alternative sources of funding. There is no
assurance that such alternative sources of funding would be available. In
such case, the Company would be unable to meet its obligations and would be
materially adversely affected.
33
<PAGE> 1
EXHIBIT 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation by
reference of our reports on the June 30, 1995 financial statements and
schedules of OIS Optical Imaging Systems, Inc. dated August 24, 1995 included
in or incorporated by reference in this Form 10-K, into the Company's
previously filed Form S-8 registration statements, File Nos. 0-16343 and
33-58562.
/s/ Arthur Andersen LLP
Detroit, Michigan
September 26, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENT OF OPERATIONS FOR THE YEAR ENDED JUNE 30, 1995 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-1-1994
<PERIOD-END> JUN-30-1995
<CASH> 830,081
<SECURITIES> 0
<RECEIVABLES> 2,157,024
<ALLOWANCES> 60,000
<INVENTORY> 3,360,062
<CURRENT-ASSETS> 11,528,834
<PP&E> 52,846,873
<DEPRECIATION> 7,111,928
<TOTAL-ASSETS> 57,263,779
<CURRENT-LIABILITIES> 6,317,601
<BONDS> 0
<COMMON> 967,129
0
125
<OTHER-SE> 6,853,470
<TOTAL-LIABILITY-AND-EQUITY> 57,263,779
<SALES> 8,423,041
<TOTAL-REVENUES> 8,423,041
<CGS> 17,810,224
<TOTAL-COSTS> 23,354,320
<OTHER-EXPENSES> (301,554)
<LOSS-PROVISION> 60,000
<INTEREST-EXPENSE> 10,808
<INCOME-PRETAX> (14,629,725)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,629,725)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,629,725)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
